10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2008

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number 0-16611

GSI COMMERCE, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	04-2958132
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

935 FIRST AVENUE, KING OF PRUSSIA, PA	19406
(Address of principal executive offices)	(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

There were 47,340,640 shares of the registrant’s Common Stock outstanding as of the close of business on May 2, 2008.

GSI COMMERCE, INC.

FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 29, 2008

INDEX

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of December 29, 2007 and March 29, 2008		3
Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2007 and March 29, 2008		4
Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2007 and March 29, 2008		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
Item 4. Controls and Procedures		28
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3. Defaults Upon Senior Securities		29
Item 4. Submission of Matters to a Vote of Security Holders		29
Item 5. Other Information		29
Item 6. Exhibits		29
SIGNATURES		30
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

Our fiscal year ends on the Saturday nearest to the last day of December. Accordingly, references to fiscal 2003, fiscal 2004, fiscal 2005, fiscal 2006, fiscal 2007 and fiscal 2008 refer to the years ended January 3, 2004, January 1, 2005, December 31, 2005, December 30, 2006, December 29, 2007 and the year ending January 3, 2009.

Although we refer to the retailers, branded manufacturers, entertainment companies and professional sports organizations for which we develop and operate e-commerce businesses as our “partners,” we do not act as an agent or legal representative for any of our partners. We do not have the power or authority to legally bind any of our partners. Similarly, our partners do not have the power or authority to legally bind us. In addition, we do not have the types of liabilities for our partners that a general partner of a partnership would have.

2

PART I

ITEM 1: FINANCIAL STATEMENTS

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

	December 29,			March 29,
	2007			2008
ASSETS
Current assets:
Cash and cash equivalents	$	231,511		$	42,750
Accounts receivable, net of allowance of $1,833 and $1,795		64,285			53,484
Inventory		47,293			46,054
Deferred tax assets		14,114			14,114
Prepaid expenses and other current assets		12,459			11,959
Total current assets		369,662			168,361
Property and equipment, net		156,774			167,012
Goodwill		82,757			221,425
Intangible assets, net of accumulated amortization of $4,972 and $6,857		16,476			14,456
Equity investments		6,202			6,508
Long-term deferred tax assets		45,234			54,879
Other assets, net of accumulated amortization of $14,545 and $15,302		16,535			15,017
Total assets	$	693,640		$	647,658
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	85,667		$	49,385
Accrued expenses		98,179			75,095
Deferred revenue		17,588			22,109
Current portion of long-term debt		2,406			2,823
Total current liabilities		203,840			149,412
Convertible notes		207,500			207,500
Long-term debt		27,245			41,966
Deferred revenue and other long-term liabilities		5,634			5,350
Total liabilities		444,219			404,228
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; 0 shares issued and outstanding as of December 29, 2007 and March 29, 2008		—			—
Common stock, $0.01 par value, 90,000,000 shares authorized; 46,847,919 and 47,328,556 shares issued as of December 29, 2007 and March 29, 2008 respectively; 46,847,716 and 47,328,353 shares outstanding as of December 29, 2007 and March 29, 2008, respectively		468			473
Additional paid in capital		366,400			369,923
Accumulated other comprehensive loss		(156	)		(110	)
Accumulated deficit		(117,291	)		(126,856	)
Total stockholders’ equity		249,421			243,430
Total liabilities and stockholders’ equity	$	693,640		$	647,658

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

3

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

	Three Months Ended
	March 31,			March 29,
	2007			2008
Revenues:
Net revenues from product sales	$	108,750		$	123,120
Service fee revenues		37,533			72,423
Net revenues		146,283			195,543
Costs and expenses:
Cost of revenues from product sales		76,802			85,417
Sales and marketing, inclusive of $557 and $1,134 of stock-based compensation		44,174			75,986
Product development, inclusive of $288 and $426 of stock-based compensation		13,738			22,436
General and administrative, inclusive of $752 and $2,061 of stock-based compensation		9,411			15,724
Depreciation and amortization		6,924			13,809
Total costs and expenses		151,049			213,372
Loss from operations		(4,766	)		(17,829	)
Other (income) expense:
Interest expense		842			2,177
Interest income		(1,944	)		(1,039	)
Other expense, net		15			145
Total other (income) expense		(1,087	)		1,283
Net loss before income taxes		(3,679	)		(19,112	)
Benefit for income taxes		(1,334	)		(9,547	)
Net loss	$	(2,345	)	$	(9,565	)
Basic and diluted loss per share	$	(0.05	)	$	(0.20	)
Weighted average shares outstanding — basic and diluted		45,999			46,924

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

4

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Three Months Ended
	March 31,			March 29,
	2007			2008
Cash Flows from Operating Activities:
Net loss	$	(2,345	)	$	(9,565	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		6,522			11,910
Amortization		402			1,899
Stock-based compensation		1,597			3,621
Loss on disposal of equipment		46			—
Deferred income taxes		(1,402	)		(9,547	)
Changes in operating assets and liabilities:
Accounts receivable, net		12,393			18,750
Inventory		4,855			1,239
Prepaid expenses and other current assets		815			1,121
Other assets, net		303			1,777
Accounts payable and accrued expenses		(68,826	)		(65,295	)
Deferred revenue		1,567			3,640
Net cash used in operating activities		(44,073	)		(40,450	)
Cash Flows from Investing Activities:
Payments for acquisitions of businesses, net of cash acquired		—			(145,001	)
Cash paid for property and equipment, including internal use software		(9,556	)		(17,482	)
Purchases of marketable securities		(56,279	)		—
Sales of marketable securities		60,950			—
Net cash used in investing activities		(4,885	)		(162,483	)
Cash Flows from Financing Activities:
Borrowings on revolving credit loan		—			15,000
Debt issuance costs paid		—			(454	)
Repayments of capital lease obligations		(123	)		(468	)
Repayments of mortgage note		(47	)		(68	)
Proceeds from exercise of common stock options		3,402			158
Net cash provided by financing activities		3,232			14,168
Effect of exchange rate changes on cash and cash equivalents		15			4
Net decrease in cash and cash equivalents		(45,711	)		(188,761	)
Cash and cash equivalents, beginning of period		71,382			231,511
Cash and cash equivalents, end of period	$	25,671		$	42,750
Supplemental Cash Flow Information
Cash paid during the period for interest	$	295		$	782
Cash paid during the period for income taxes		564			357
Noncash Investing and Financing Activities:
Accrual for purchases of property and equipment		1,077			3,401
Equipment financed under capital lease		7,964			—

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

5

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

NOTE 1—BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

The accompanying financial information is unaudited; however, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the financial position, results of operations and cash flows for the periods reported have been included. The results of operations for the periods reported are not necessarily indicative of those that may be expected for a full year.

The financial statements presented include the accounts of the Company and all wholly-owned subsidiaries. All inter-company balances and transactions among consolidated entities have been eliminated.

This quarterly report should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007, filed with the Securities and Exchange Commission (“SEC”) on March 13, 2008.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 and assumptions.

Reclassifications: As a result of the Accretive Commerce, Inc. acquisition disclosed in Note 6, Acquisitions, amortization of $402 has been reclassified from depreciation to a separate line item for amortization on the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 to conform to the current presentation.

Other Assets, Net: Other assets, net consists primarily of the debt issuance costs related to the June 2005 and July 2007 subordinated convertible debt offerings, deferred partner revenue share charges and prepaid revenue share payments.

The debt issuance costs related to the June 2005 and July 2007 offerings of $207,500 aggregate subordinated convertible notes had a cost of $7,672 and a net book value of $5,660 as of March 29, 2008, and a cost of $7,631 and a net book value of $5,933 as of December 29, 2007. The issuance costs are being amortized using the straight-line method which approximates the effective interest method and the weighted average amortization period is 5.4 years. Total amortization related to the issuance costs, which is reflected as a portion of interest expense, was $314 for three-month period ended March 29, 2008 and $130 for the three-month period ended March 31, 2007.

Deferred partner revenue share charges, resulting from one partner’s exercise of a right to receive 1,600 shares of the Company’s common stock in lieu of future cash partner revenue share payments, were $3,084 as of March 29, 2008 and $3,337 as of December 29, 2007. As a result of certain revenue thresholds being achieved in the third quarter of fiscal 2006, the remaining partner revenue share charges related to the exercise of common stock are being amortized on a straight-line basis over the remaining term of the contract. Stock-based compensation expense related to the amortization of deferred partner revenue share charges was $253 for both the three-month period ended March 29, 2008 and the three-month period ended March 31, 2007, and is reflected within sales and marketing expense in the Condensed Consolidated Statements of Operations.

The total prepaid revenue share payments included in other assets were $1,667 as of March 29, 2008 and $1,771 as of December 29, 2007 and are being amortized on a straight-line basis over the remaining term of the contract within sales and marketing expense in the Condensed Consolidated Statements of Operations.

6

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Sales and Marketing: Sales and marketing expenses include fulfillment costs, customer care costs, credit card fees, partner revenue share charges, net advertising and promotional expenses incurred by the Company in operating its partners’ e-commerce businesses, and payroll related to the buying, business management and marketing functions of its company. Partner revenue share charges are payments made to the Company’s partners in exchange for the use of their brand names, logos, the promotion of its partners’ URLs, Web stores and toll-free telephone numbers in partners’ marketing and communications materials, the implementation of programs to provide incentives to customers to shop through the e-commerce businesses that the Company operates for its partners and other programs and services provided to the customers of the e-commerce businesses that the Company operates for its partners, net of amounts reimbursed to the Company by its partners. Partner revenue share charges were $9,406 for the three-month period ended March 29, 2008, and $6,130 for the three-month period ended March 31, 2007.

Shipping and Handling Costs: The Company defines shipping and handling costs as only those costs incurred for a third-party shipper to transport products to the customer and these costs are included in cost of revenues from product sales to the extent of shipping revenue. In some instances, shipping and handling costs exceed shipping charges to the customer and are subsidized by the Company. Additionally, the Company selectively offers promotional free shipping whereby it ships merchandise to customers free of all shipping and handling charges. The cost of promotional free shipping and subsidized shipping and handling was $2,262 for the three-month period ended March 29, 2008, and $1,465 for the three-month period ended March 31, 2007 and is included in sales and marketing expenses in the Condensed Consolidated Statements of Operations.

Fulfillment Costs: The Company defines fulfillment costs as personnel, occupancy and other costs associated with its fulfillment centers, personnel and other costs associated with its logistical support and vendor operations departments and third-party warehouse and fulfillment services costs. Fulfillment costs were $23,940 for the three-month period ended March 29, 2008, and $11,171 for the three-month period ended March 31, 2007, and are included in sales and marketing expenses in the Condensed Consolidated Statements of Operations.

Advertising: The Company expenses the cost of advertising, which includes online marketing fees, media, agency and production expenses, in accordance with the American Institute of Certified Public Accountant’s Accounting Standards Executive Committee’s Statement of Position 93-7, “Reporting on Advertising Costs” (“SOP 93-7”). Advertising production costs are expensed the first time the advertisement runs. Online marketing fees and media (television, radio and print) placement costs are expensed in the month the advertising appears. Agency fees are expensed as incurred. Advertising and promotional expenses are net of amounts reimbursed to the Company by its partners. Advertising costs were $4,368 for the three-month period ended March 29, 2008, and $3,843 for the three-month period ended March 31, 2007, and are included in sales and marketing expenses in the Condensed Consolidated Statements of Operations.

Catalog Costs: Direct response advertising consists primarily of creative design, paper, printing, postage and mailing costs, which are capitalized and amortized over the expected future revenue stream, which is generally a period not exceeding six months. The Company accounts for catalog costs in accordance with SOP 93-7, which requires that the amortization of capitalized advertising costs be based upon the ratio of actual revenues to the total of actual and estimated future revenues on an individual catalog basis. Deferred catalog costs included in prepaid expenses and other current assets were $89 as of March 29, 2008 and $604 as of December 29, 2007. Catalog costs were $1,059 for the three-month period ended March 29, 2008, and $832 for the three-month period ended March 31, 2007, and are reflected in sales and marketing expenses in the Condensed Consolidated Statements of Operations.

Income Taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) 109, “Accounting for Income Taxes” (“SFAS 109”). In accordance with SFAS 109, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities and expected benefits of utilizing net operating loss carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled, is reflected in the condensed consolidated financial statements in the period of enactment. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. At March 29, 2008 and December 29, 2007, the Company’s deferred tax assets, net of deferred tax liabilities and valuation allowances, were $68,993 and $59,348, respectively.

7

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

The Company does not provide for U.S. taxes on its undistributed earnings of foreign subsidiaries since it intends to invest such undistributed earnings indefinitely outside of the U.S. If such amounts were repatriated, the amount of U.S. income taxes would be immaterial.

New Accounting Pronouncements: In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157” which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis, at least annually, until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and the Company adopted SFAS 157 for financial assets and liabilities on the first day of its fiscal 2008, with no material impact to its condensed consolidated financial statements. The Company is currently evaluating the impact with respect to its non-financial assets and liabilities. For additional information regarding the Company’s adoption of SFAS 157, see Note 3, Fair Value of Financial Instruments.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company opted not to electively adopt the provisions of SFAS 159 for its condensed consolidated financial statements.

In December 2007, the FASB issued SFAS 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for an acquirer in a business combination on recognizing and measuring the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the entity acquired in its financial statements. In addition, SFAS 141(R) provides guidance on the recognition and measurement of goodwill acquired in the business combination or a gain from a bargain purchase as well as what information to disclose to enable users of the financial statements to evaluate the nature and financial impact of the business combination. SFAS 141(R) also requires recognition of assets and liabilities of noncontrolling interests acquired, fair value measurement of consideration and contingent consideration, expense recognition for transaction costs and certain integration costs, recognition of the fair value of contingencies, and adjustments to income tax expense for changes in an acquirer’s existing valuation allowances or uncertain tax positions that result from the business combination. SFAS 141(R) is effective for fiscal years beginning on or after December 15, 2008 and shall be applied prospectively. The Company is currently evaluating the impact, if any, the adoption of this statement will have on its financial condition, results of operations or cash flows.

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes principles and requirements of treatment for the portion of equity in a subsidiary that is not attributable directly or indirectly to a parent. This is commonly known as a minority interest. The objective of SFAS 160 is to improve relevance, comparability, and transparency concerning ownership interests in subsidiaries held by parties other than the parent by providing disclosures that clearly identify between interests of the parent and interest of the noncontrolling owners and the related impacts on the consolidated statement of income and the consolidated statement of financial position. SFAS 160 also provides guidance on disclosures related to changes in the parent’s ownership interest and deconsolidation of a subsidiary. The provisions of SFAS 160 apply prospectively with presentation and disclosure requirements applied retrospectively to all periods presented. The Standard is effective for annual reporting periods beginning after December 15, 2008. The Company is currently evaluating the impact, if any, the adoption of this statement will have on the Company’s financial condition or results of operations.

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires companies with derivative instruments to disclose how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” and how derivative instruments and related hedged items affect a company’s financial statements. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact, if any, that SFAS 161 will have on its condensed consolidated financial statements.

8

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Proposed Accounting Pronouncement: In August 2007, the FASB issued Proposed FASB Staff Position (“FSP”) APB 14-a, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-a”). FSP APB 14-a would require the issuer of convertible debt instruments with cash settlement features to separately account for the liability and equity components of the instrument. The Company’s $207,500 of subordinated convertible notes would be subject to the provisions of this proposal because under the notes the Company has the ability to elect cash settlement upon conversion for the principle portion of the notes. The debt would be recognized at the present value of the Company’s cash flows discounted using its nonconvertible debt borrowing rate. The equity component would be recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. The proposed FSP would also require an accretion of the resultant debt discount over the expected life of the debt. The proposed transition guidance requires retrospective application to all periods presented and does not grandfather existing instruments. In March 2008, the FASB re-considered the guidance in the FSP and it is anticipated that the final FSP will be issued in the second calendar quarter of 2008 and is expected to be effective for fiscal years beginning after December 15, 2008. The Company believes that if the FSP is issued as proposed, it would result in a material decrease to the Company’s liabilities and a material increase to the Company’s stockholders’ equity on the Consolidated Balance Sheets. It would also result in a material decrease to net income as a result of a material non-cash increase to interest expense to accrete the value of the debt from its fair value to its principle amount over the term of the subordinated convertible notes in the Condensed Consolidated Statements of Operations. These changes would not impact the Company’s cash flows from operating activities, investing activities or financing activities.

NOTE 3—FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted SFAS 157 in the first quarter of 2008 for financial assets and liabilities. This standard defines fair value as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor.

Assets and liabilities measured at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by SFAS 157 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 — Inputs are unobservable and reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis are as follows (in thousands):

	Fair Value Measurements on March 29, 2008
	Quoted Prices in
	Active Markets for		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)
Cash surrender value of life insurance policies(1)	$	—	$	848	$	—

⁽¹⁾ Amounts relate to the Company’s deferred compensation plan and are included in other assets, net on the Company’s Condensed Consolidated Balance Sheet.

9

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

NOTE 4—PROPERTY AND EQUIPMENT

The major classes of property and equipment, at cost, as of March 29, 2008 and December 29, 2007 are as follows:

	December 29,			March 29,
	2007			2008
Computer hardware and software	$	148,091		$	159,572
Building and building improvements		44,213			44,644
Furniture, warehouse and office equipment, and other		38,916			40,075
Land		7,889			7,889
Leasehold improvements		4,200			4,442
Capitalized lease		17,403			17,985
Construction in progress		1,528			9,692
		262,240			284,299
Less: Accumulated depreciation		(105,466	)		(117,287	)
Property and equipment, net	$	156,774		$	167,012

The Company’s net book value in capital leases, which consist of warehouse equipment and computer hardware, was $15,983 as of March 29, 2008 and $16,095 as of December 29, 2007. Amortization of capital leases is included within depreciation and amortization expenses on the Condensed Consolidated Statements of Operations. Interest expense recorded on capital leases was $276 for the three months ended March 29, 2008 and $79 for the three months ended March 31, 2007.

NOTE 5—GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the carrying amount of goodwill for each of the Company’s segments:

			Interactive
	E-Commerce		Marketing
	Services		Services		Consolidated
December 29, 2007	$	82,757	$	—	$	82,757
Purchase price adjustments		1,127		—		1,127
e-Dialog acquisition		—		137,541		137,541
March 29, 2008	$	83,884	$	137,541	$	221,425

10

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

The Company’s intangible assets consisted of:

							Weighted-
	December 29,			March 29,			Average
	2007			2008			Life
Gross carrying value of intangible assets subject to amortization:
Customer contracts	$	17,282		$	17,147			1.9
Non-compete agreements		3,838			3,838			3.0
Other		328			328			1.5
		21,448			21,313			2.1
Accumulated amortization:
Customer contracts		(4,570	)		(6,135	)
Non-compete agreements		(320	)		(640	)
Other		(82	)		(82	)
		(4,972	)		(6,857	)
Net carrying value:
Customer contracts		12,712			11,012
Non-compete agreements		3,518			3,198
Other		246			246
	$	16,476		$	14,456

Amortization expense was $1,885 for the three months ended March 29, 2008 and $391 for the three months ended March 31, 2007. Estimated future amortization expense related to other intangible assets as of March 29, 2008 is as follows:

Fiscal 2008	$	4,952
Fiscal 2009		4,174
Fiscal 2010		3,123
Fiscal 2011		1,578
Fiscal 2012		383
	$	14,210

NOTE 6—ACQUISITIONS

The Company accounts for acquisitions using the purchase method of accounting in accordance with SFAS 141, “Business Combinations” (“SFAS 141”). Under the purchase method, assets acquired and liabilities assumed from acquisitions are recorded at their fair values as of the acquisition date. Any excess of the purchase price over the fair values of the net assets acquired are recorded as goodwill.

11

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

e-Dialog, Inc.

On February 13, 2008, the Company completed the acquisition of e-Dialog, Inc. (“e-Dialog”) pursuant to the terms of an Agreement and Plan of Merger dated January 23, 2008 (“Agreement”). e-Dialog is a provider of advanced e-mail marketing services and solutions to more than 100 companies in the U.S. and Europe. The Company believes the acquisition will expand the breadth and depth of its interactive marketing services capabilities, its reach into existing and new vertical markets, and its growing European presence. The Company also believes that e-Dialog will benefit from the Company’s large scale and market-leading position in e-commerce and multichannel services. As consideration for the acquisition of e-Dialog, the Company paid $147,673 in cash, of which $17,500 will be held in escrow for a period of 15 months. In addition, the Company will be obligated to make an additional cash payment of $750 in fiscal 2009 if e-Dialog achieves minimum net revenue targets in fiscal 2008. In connection with the acquisition, the Company issued 568 restricted stock units and restricted stock awards with an aggregate value of approximately $9,300 to employees of e-Dialog based on the market price of the Company’s stock on the grant date. Recipients are required to remain employed for specified periods of time subsequent to the acquisition in order to vest in the stock units. The $9,300 will be recognized as stock-based compensation cost, net of estimated forfeitures, over the required service period. The acquisition was financed by the Company in part from its proceeds from the issuance of its 2.5% subordinated convertible notes due 2027, and in part from its working capital.

In accordance with SFAS 141, the total preliminary purchase price is $149,364, including estimated acquisition-related transaction costs of approximately $1,691. Acquisition-related transaction costs include advisory, legal and other external costs directly related to the merger. e-Dialog’s results of operations are included in the Company’s Condensed Consolidated Statement of Operations beginning on February 13, 2008. The process of assigning a fair value to the various tangible and intangible assets acquired, including goodwill, has only just commenced. The Company’s estimates and assumptions used for the preliminary allocation of the purchase price are subject to change. The excess purchase price over the book value of the net assets acquired has been recorded to goodwill. Final adjustments are expected to result in a materially different allocation of the purchase price, which will affect the value assigned to the tangible and/or intangible assets and amount of depreciation and amortization expense recorded in the Company’s Condensed Consolidated Statements of Operations.

The following table summarizes the preliminary estimated fair values of the e-Dialog assets acquired and liabilities assumed, including cash acquired, as of the acquisition date:

Total current assets	$	13,731
Property, plant and equipment		4,050
Goodwill		137,541
Total assets acquired		155,322
Total current liabilities		(5,883	)
Total non-current liabilities		(75	)
Total liabilities assumed		(5,958	)
Net assets acquired	$	149,364

Pro Forma Financial Information

The financial information in the table below summarizes the combined results of operations of the Company and e-Dialog on a pro forma basis, as though the companies had been combined as of the beginning of each of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had actually taken place at the beginning of each of the periods presented and is not intended to be a projection of future results or trends. The pro forma financial information for all periods presented includes pro forma adjustments, net of any applicable tax for a reduction to interest income on the Company’s cash and cash equivalents used to fund the acquisition. Final adjustments to the purchase accounting discussed above could result in a material charge to the pro forma results.

12

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

	Three Months Ended
	March 31,			March 29,
	2007			2008
Net revenues	$	154,103		$	200,514
Net loss	$	(2,694	)	$	(9,607	)
Basic and diluted loss per share:	$	(0.06	)	$	(0.20	)

Zendor.com Ltd.

On December 14, 2007, the Company completed the acquisition of Zendor.com Ltd. (“Zendor”) pursuant to the terms of an Agreement and Plan of Merger dated November 30, 2007 (“Zendor Agreement”). Zendor is a United Kingdom-based provider of fulfillment, customer care and e-commerce solutions. The Company believes the acquisition establishes it as an end-to-end e-commerce solution provider capable of delivering integrated, multichannel e-commerce solutions to both the U.K. and global retailers and brands. As consideration for the acquisition of Zendor, the Company paid approximately $10,097 in cash, including estimated acquisition-related transaction costs of approximately $1,400. Acquisition-related transaction costs include advisory, legal and other external costs directly related to the merger. Included in the acquisition cost is $833 paid to Zendor in the first quarter of fiscal 2008 representing the excess value of Zendor’s net assets on the acquisition date over a targeted threshold, as defined in the Zendor Agreement. Zendor’s results of operations are included in the Company’s results of operations beginning on the acquisition date of December 14, 2007. The acquisition was funded by the Company from its working capital.

In accordance with SFAS 141, the preliminary allocation of the purchase price over the estimated fair value of the tangible and identifiable intangible assets acquired resulted in $4,005 recorded as goodwill. Pro forma disclosures related to this acquisition are not included as the acquisition is not material. The preliminary allocation of the purchase price was based upon a preliminary valuation and the Company’s estimates and assumptions are subject to change. The areas of the purchase price that are not yet finalized relate primarily to intangible assets, goodwill and deferred income tax assets, as the Company’s valuation of Zendor’s net assets is not complete. Final adjustments could result in a materially different allocation of the purchase price, which will affect the value assigned to tangible and/or intangible assets acquired from Zendor. The following table summarizes the preliminary estimated fair values of the Zendor assets acquired and liabilities assumed, including cash acquired, as of the acquisition date:

Total current assets	$	9,830
Property, plant and equipment		3,089
Goodwill		4,005
Total assets acquired		16,924
Total liabilities assumed		(6,827	)
Net assets acquired	$	10,097

Accretive Commerce, Inc.

On September 10, 2007, the Company completed the acquisition of Accretive Commerce, Inc. (“Accretive”) pursuant to the terms of an Agreement and Plan of Merger dated August 16, 2007 (“Accretive Agreement”). Accretive is an e-commerce solutions provider that offers e-commerce technology, customer care and fulfillment solutions as well as related services. Accretive’s partners are primarily in the merchandise categories of apparel, home, health and beauty, and specialty foods. The Company believes the acquisition of Accretive strengthens its position in the e-commerce industry and enhances stockholder value by expanding its infrastructure and expanding its partner base. As consideration for the acquisition of Accretive, the Company paid $97,500 in cash, of which $11,300 will be held in escrow for a period of 18 months to secure the indemnification obligations under the Accretive Agreement. The acquisition was financed by the Company from its working capital.

13

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

In accordance with SFAS 141, the total preliminary purchase price is $98,600, including estimated acquisition-related transaction costs of approximately $1,100. Acquisition-related transaction costs include advisory, legal and other external costs directly related to the merger. Accretive’s results of operations are included in the Company’s Condensed Consolidated Statement of Operations beginning on the acquisition date of September 10, 2007. The preliminary allocation of the purchase price was based upon a preliminary valuation and the Company’s estimates and assumptions are subject to change. The areas of the purchase price allocation that are not yet finalized relate primarily to pre-acquisition contingencies. Final adjustments could result in a materially different allocation of the purchase price, which will affect the value assigned to tangible and/or intangible assets acquired from Accretive. The following table summarizes the preliminary estimated fair values of the Accretive assets acquired and liabilities assumed, including cash acquired, as of the acquisition date:

Total current assets	$	17,034
Property, plant and equipment		9,165
Identifiable intangible assets:
Customer contracts		15,008
Employee non-compete agreements		3,838
Goodwill		62,092
Other assets		8,424
Total assets acquired		115,561
Total current liabilities		(15,124	)
Total non-current liabilities		(1,837	)
Total liabilities assumed		(16,961	)
Net assets acquired	$	98,600

The majority of the Company’s total intangible assets are derived from the Accretive acquisition. See Note 5, Goodwill and Other Intangible Assets, for the weighted average amortization period of intangible assets.

In connection with the acquisition, the Company recorded exit cost liabilities of $6,100, which includes $3,100 of severance payments and related benefits for employees of Accretive terminated or notified of their pending termination and $3,000 of lease payments for certain facilities that have been exited or will be exited prior to the expiration of their leases. These amounts are included in the table above. These liabilities are subject to further adjustment based on finalization of these exit activities. Any adjustment to the exit liabilities within a one year period from the acquisition date will be recorded in purchase accounting and will impact the net assets acquired. The following table is a summary of activity related to accrued acquisition costs:

	December 29,							Other			March 29,
	2007		Additions		Payments			Adjustments			2008
Severance payments	$	2,667	$	—	$	(306	)	$	—		$	2,361
Lease payments		2,824		49		(74	)		(2,263	)		536
	$	5,491	$	49	$	(380	)	$	(2,263	)	$	2,897

14

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

NOTE 7—LONG-TERM DEBT AND CREDIT FACILITY

The following table summarizes the Company’s long-term debt as of:

	December 29,			March 29,
	2007			2008
Convertible notes	$	207,500		$	207,500
Notes payable		12,858			12,791
Capital lease obligations		16,793			16,998
Credit facilities		—			15,000
		237,151			252,289
Less: Current portion of notes payable		(193	)		(175	)
Less: Current portion of capital lease obligations		(2,213	)		(2,648	)
	$	234,745		$	249,466

3% Convertible Notes due 2025

In fiscal 2005, the Company completed a public offering of $57,500 aggregate principal amount of 3% subordinated convertible notes due June 1, 2025. The notes bear interest at 3%, payable semi-annually on June 1 and December 1.

Holders may convert the notes into shares of the Company’s common stock at a conversion rate of 56.1545 shares per $1,000 principal amount of notes (representing a conversion price of approximately $17.81 per share), subject to adjustment, on or prior to the close of business on the business day immediately preceding May 1, 2010. Holders may convert only if (i) the trading price of the notes for a defined period is less than 103% of the product of the closing sale price of the Company common stock and the conversion rate or (ii) the Company elects to make certain distributions of assets or securities to all holders of common stock. Upon conversion, the Company will have the right to deliver, in lieu of shares of the Company’s common stock, cash or a combination of cash and shares of the Company’s common stock, which is at the Company’s election. At any time prior to the maturity date, the Company may irrevocably elect to satisfy the Company’s conversion obligation with respect to the principal amount of the notes to be converted with a combination of cash and shares of the Company’s common stock, which is at the Company’s election. If holders elect to convert their notes in connection with a fundamental change (any transaction or event, as defined in the Indenture, whereby more than 50% of the Company’s common stock is exchanged, converted and/or acquired) that occurs on or prior to June 1, 2010, the Company is required to deliver shares of the Company’s common stock, cash or a combination of cash and shares of the Company’s common stock, which is at the Company’s election, inclusive of a make whole adjustment that could result in up to 11.23 additional shares issued per $1,000 principal amount of notes. This make-whole adjustment is based on the sale price of the Company’s common stock.

At any time on or after June 6, 2010, the Company may redeem any of the notes for cash at a redemption price of 100% of their principal amount, plus accrued and unpaid interest, if any, up to but excluding the redemption date. Holders may require the Company to repurchase the notes at a repurchase price equal to 100% of their principal amount plus accrued and unpaid interest, if any, on June 1 of 2010, 2015 and 2020, or at any time prior to maturity upon the occurrence of a designated event.

2.5% Convertible Notes due 2027

In July 2007, the Company completed a private placement of $150,000 of aggregate principal amount of 2.5% subordinated convertible notes due June 1, 2027, raising net proceeds of approximately $145,000, after deducting initial purchaser’s discount and issuance costs. The notes bear interest at 2.5%, payable semi-annually on June 1 and December 1.

15

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Holders may convert the notes into shares of the Company’s common stock at a conversion rate of 33.3333 shares per $1,000 principal amount of notes (representing a conversion price of approximately $30.00 per share), subject to adjustment, at any time prior to the close of business on the scheduled trading day immediately preceding March 1, 2014 and at any time on or after June 8, 2014 and prior to the close of business on the scheduled trading day immediately preceding March 1, 2027. Holders may convert, in whole or in part, into shares of the Company’s common stock (or cash or a combination of the Company’s common stock and cash, if the Company so elects) if (i) after any five consecutive trading day period in which the trading price of the notes was less than 98% of the product of the closing sale price of the Company’s common stock and the applicable conversion rate, (ii) after the calendar quarter ending September 30, 2007, if the closing sale price of the Company’s common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect for the notes on the last trading day of the immediately preceding calendar quarter, (iii) upon the occurrence of specified corporate events or (iv) if the Company calls the notes for redemption.

Upon conversion, the Company will have the right to deliver, in lieu of shares of the Company’s common stock, cash or a combination of cash and shares of the Company’s common stock. At any time on or prior to the 25^th scheduled trading day prior to the maturity date, the Company may irrevocably elect to satisfy its conversion obligation by delivering cash for the principal amount of the notes and, if applicable, shares of the Company’s common stock for any amount in excess thereof. If holders elect to convert their notes in connection with certain make whole fundamental changes (as defined in the Indenture governing the Company’s 2.5% notes) that occur on or prior to June 1, 2014, the Company will increase the applicable conversion rate for the notes such that the holders will be entitled to receive up to 7.71 additional shares of common stock per $1,000 principal amount of notes (or cash, or a combination of cash and shares of common stock, if the Company so elects) upon conversion. This make-whole adjustment is based on the sale price of the Company’s common stock. No adjustment to the conversion rate will be made if the stock price is less than $24.36 per share or if the stock price exceeds $100.00 per share.

At any time on or after June 8, 2014, the Company may redeem any of the notes for cash at a redemption price of 100% of their principal amount, plus accrued and unpaid interest, if any, up to but excluding, the redemption date. If a fundamental change occurs prior to the maturity of the notes, the holders may require the Company to repurchase all or part of their notes at a repurchase price of 100% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, the holders may require the Company to repurchase all or part of their notes for cash on June 1 of 2014, 2017 and 2022, respectively, at a repurchase price equal to 100% of their principal amount, plus any accrued or unpaid interest, if any, to, but excluding, the date of repurchase.

Note Payable

In fiscal 2004, a wholly-owned subsidiary of the Company entered into an agreement to purchase a new corporate headquarters in King of Prussia, Pennsylvania, together with an option to purchase an additional parcel of land. The purchase price for the building was $17,000. In connection with the purchase of the corporate headquarters, a wholly-owned subsidiary of the Company entered into a $13,000 mortgage note collateralized by a first lien on substantially all of the assets of that subsidiary. The mortgage note has a term of ten years and six months, and bears interest at 6.32% per annum. The Company, in accordance with the terms of the mortgage note, provided a letter of credit in the amount of $3,000 as additional security and in fiscal 2005 completed initial capital improvements to the building reducing the letter of credit to $1,000 in accordance with the terms of the mortgage note. In connection with the credit facility, described more fully below, the Company is required to pledge $1,000 of its cash equivalents as collateral for the letter of credit. This collateral is classified as restricted cash and included in other assets, net on the balance sheet as of December 29, 2007 and December 30, 2006. The letter of credit may be reduced further to $500 if the Company has positive income for fiscal years 2007 and 2008, respectively.

16

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Capital Lease Obligations

Certain of the Company’s warehouse equipment and computer hardware have been acquired under capital leases. The capital leases have maturity dates ranging from April 2008 to August 2014 and bear interest at rates ranging from 3.23% to 16.00% per annum. Capital lease obligations were as follows:

	March 29,
	2008
Gross capital lease obligations	$	20,521
Less: imputed interest		(3,523	)
Total present value of future minimum lease payments		16,998
Less: current portion		(2,648	)
Long-term portion	$	14,350

Credit Facilities

In fiscal 2006, the Company entered into a $5,000 one-year unsecured revolving credit facility with a bank. The credit facility provided for the issuance of up to $5,000 of letters of credit, which was included in the $5,000 available under the credit facility. In January 2008, this credit facility was replaced with a $2,000 credit facility with the same bank. The $2,000 credit facility is available only for the issuance of letters of credit. The Company had $1,267 of outstanding letters of credit under the credit facility as of March 29, 2008 and $179 of outstanding letters of credit under the credit facility as of December 29, 2007.

In January 2008, the Company entered into a $75,000 secured revolving credit facility that matures in January 2013 with a syndicate of banks. The $75,000 credit facility provides for the issuance of up to $20,000 of letters of credit, which is included in the $75,000 available under the credit facility. The credit facility is collateralized by substantially all of the Company’s assets. The Company may elect to have amounts outstanding under the credit facilities bear interest at either a LIBOR rate plus an applicable margin of 0.75% to 1.50%, the prime rate plus an applicable margin of 0.75% to 1.50%, or at the Federal Funds Open Rate plus 0.5%. The applicable margin is determined by the leverage ratio of funded debt to EBITDA, as defined in the credit facility. The credit facilities contain certain financial and negative covenants, which the Company was in compliance with as of March 29, 2008. The Company had $15,000 of outstanding borrowings under the credit facility as of March 29, 2008.

NOTE 8—COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is involved in various litigation incidental to its business, including alleged contractual claims, claims relating to infringement of intellectual property rights of third parties and claims relating to the manner in which goods are sold through its e-commerce platform. The Company does not believe, based on current knowledge, that any of these claims are likely to have a material adverse effect on its business, financial position or results of operations. However, the Company may incur substantial expenses and devote substantial time to defend third-party claims whether or not such claims are meritorious. In the event of a determination adverse to the Company, the Company may incur substantial monetary liability and may be required to implement expensive changes in its business practices or enter into costly royalty or licensing agreements. Such a determination adverse to the Company could have a material adverse effect on the Company’s business, financial position or results of operations. Expenditures for legal costs are expensed as incurred.

17

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Operating and Capital Commitments

The following summarizes the Company’s principal operating and capital commitments as of March 29, 2008:

	Payments due by fiscal year
	2008		2009		2010		2011		2012		Thereafter		Total
Operating lease obligations(1)	$	11,113	$	12,319	$	10,022	$	7,460	$	6,922	$	18,512	$	66,348
Purchase obligations(1)		73,126		5,953		5,953		992		—		—		86,024
Advertising and media agreements(1)		194		17		—		—		—		—		211
Partner revenue share payments(1)		13,522		26,630		27,190		27,683		20,818		62,557		178,400
Debt interest(1)		7,013		6,774		5,755		5,024		5,012		15,897		45,475
Debt obligations		127		399		57,696		209		220		176,640		235,291
Capital lease obligations, including interest(2)		2,661		3,443		3,304		3,231		3,231		4,651		20,521
Total	$	107,756	$	55,535	$	109,920	$	44,599	$	36,203	$	278,257	$	632,270

(1)	Not required to be recorded in the Condensed Consolidated Balance Sheet as of March 29, 2008 in accordance with accounting principles generally accepted in the United States of America.
(2)	Capital lease obligations, excluding interest, are recorded in the Condensed Consolidated Balance Sheets.

Approximately $1,103 of unrecognized tax benefits have been recorded as liabilities as of March 29, 2008, in accordance with FASB’s Interpretation (“FIN”) 48, “Accounting for Uncertainty in Income Taxes, and interpretation of FASB Statement 109” (“FIN 48”), and the Company is uncertain as to if or when such amounts may be settled; as a result, these obligations are not included in the table above.

NOTE 9—SHARE-BASED AWARDS

The Company currently maintains the 2005 Equity Incentive Plan (“the Plan”) which provides for the grant of equity to certain employees, directors and other persons. As of March 29, 2008, 858 shares of common stock were available for future grants under the Plan. On April 18, 2008 the Company’s Board of Directors approved, subject to stockholder approval at the Company’s 2008 Annual Meeting, a 2,250 share increase in the number of shares of common stock available for future grants under the Plan. The equity awards granted under the Plan generally vest at various times over periods ranging up to five years and have terms of up to ten years after the date of grant, unless the optionee’s service to the Company is interrupted or terminated. Stock appreciation rights (“SARs”) may be granted under the Plan either alone or in tandem with stock options. No SARs have been granted to date under the plan.

18

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Stock Options and Warrants

The following table summarizes the stock option activity for the three-month period ended March 29, 2008:

						Weighted
				Weighted		Average
	Number of			Average		Remaining		Aggregate
	Shares			Exercise		Contractual		Intrinsic
	(in thousands)			Price		Life (in years)		Value
Outstanding at December 29, 2007		4,163		$	9.94
Granted		—			—
Exercised		(18	)	$	8.59
Forfeited/Cancelled		(3	)	$	9.35
Outstanding at March 29, 2008		4,142		$	9.95		4.47	$	16,029
Vested and expected to vest at March 29, 2008		4,133		$	9.95		4.46	$	16,004
Exercisable at March 29, 2008		4,090		$	9.94		4.44	$	15,884

The total intrinsic value of options exercised during the three months ended March 29, 2008 was $104 determined as of the date of exercise. Cash proceeds from options exercised during the three months ended March 29, 2008 was $158. The total stock-based compensation cost recognized for stock options for the three-month period ended March 29, 2008 was $57 and for the three-month period ended March 31, 2007 was $209.

No warrant activity took place for the three-month period ended March 29, 2008.

Restricted Stock Units

The Company also has issued restricted stock units to certain employees. The grant-date fair value of restricted stock units is based on the market price of the stock, and compensation cost is amortized to expense on a straight-line basis over the vesting period during which employees perform services.

The following summarizes the restricted stock unit activity for the three-month period ended March 29, 2008:

				Weighted
	Number of			Average
	Shares			Grant Date
	(in thousands)			Fair Value
Nonvested shares at December 29, 2007		1,870		$	23.40
Granted		2,153		$	14.10
Vested		(475	)	$	12.59
Forfeited/Cancelled		(63	)	$	19.44
Nonvested shares at March 29, 2008		3,485		$	23.63

The total intrinsic value of restricted stock units vested during the three months ended March 29, 2008 was $5,976 determined based on the grant date fair value. The total stock-based compensation cost recognized for restricted stock units for the three months ended March 29, 2008 was $3,039 and for the three-month period ended March 31, 2007 was $1,123.

19

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

Restricted Stock Awards

The Company also has issued restricted stock awards to certain employees. The grant-date fair value of restricted stock awards is based on the market price of the stock, and compensation cost is amortized to expense on a straight-line basis over the vesting period during which employees perform services.

During the three months ended March 29, 2008, the Company granted 301 restricted stock awards. The weighted average fair value of the restricted stock awards granted during the three-month period ended March 29, 2008 was $16.47. No restricted stock awards vested during the three months ended March 29, 2008. The total stock-based compensation cost recognized for restricted stock awards for three-month period ended March 29, 2008 was $272 and for the three-month period ended March 31, 2007 was $12.

NOTE 10—INCOME TAXES

Until fiscal 2006, in the opinion of management, the Company was not certain of the realization of its deferred tax assets. Thus, a valuation allowance had been provided against federal and state deferred tax assets. In fiscal 2006, the Company evaluated the need for a full valuation allowance and concluded that a portion of the valuation allowance should be reduced. The Company determined that it is more likely than not that it will realize the benefit of a portion of these deferred tax assets. This was based primarily on the Company’s earnings history over the prior three years as well as expected future taxable income.

The Company’s tax provision for the three months ended March 29, 2008 was determined using an estimate of its annual effective tax rate which is 55.3% for fiscal 2008 plus any discrete items that effect taxes that occur during the quarter. The effective tax rate is higher than the 35% federal statutory tax rate primarily due to state income taxes and the differences between pre-tax income and loss at subsidiaries and consolidated pre-tax book loss. FIN 18, “Accounting for Income Taxes in Interim Periods,” provides that if in a separate jurisdiction, the Company anticipates an ordinary loss for the year in which a tax benefit cannot be recognized in accordance with SFAS 109, the Company should exclude the ordinary loss in that jurisdiction and the related tax benefit from the computation of the estimated annual effective tax rate. Approximately, $6,000 in losses from international operations yielded no tax benefit and were removed from the calculation of the annual effective tax rate.

The total amount of liabilities, interest and penalties related to uncertain tax positions and recognized in the balance sheet as of March 29, 2008 was $1,120. During the first quarter of 2008, the Company recorded an $89 increase in liabilities, including interest and penalties for uncertain tax positions that were recorded as income tax expense.

NOTE 11—LOSS PER SHARE

Basic net loss per share for all periods has been computed in accordance with SFAS 128, “Earnings per Share.” Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the fiscal year.

The amounts used in calculating loss per share data are as follows:

	Three Months Ended
	March 31,			March 29,
	2007			2008
Net loss for basic and diluted earnings per share	$	(2,345	)	$	(9,565	)
Weighted average shares outstanding — basic and diluted		45,999			46,924
Net loss per common share — basic and diluted	$	(0.05	)	$	(0.20	)

20

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

The following is a summary of the securities outstanding during the respective periods that have been excluded from the calculations because the effect on net loss per share would have been anti-dilutive:

	Three Months Ended
	March 31,		March 29,
	2007		2008
Stock units and awards		1,724		3,791
Stock options and warrants		4,922		4,372
Convertible notes		3,229		8,229
		9,875		16,392

The potential number of common shares and dilution from the Company’s Series A Junior Participating Preferred Stock from its Stockholders Right Plan cannot be determined because these shares are not exercisable unless certain future contingent events occur.

NOTE 12—COMPREHENSIVE LOSS

	Three Months Ended
	March 31,			March 29,
	2007			2008
Net loss	$	(2,345	)	$	(9,565	)
Other comprehensive income:
Net unrealized gain on available-for-sale securities, net of tax		67			—
Cumulative translation adjustment, net of tax		2			46
Other comprehensive income		69			46
Comprehensive loss	$	(2,276	)	$	(9,519	)

NOTE 13—MAJOR SUPPLIERS/ECONOMIC DEPENDENCY

The Company purchased inventory from two suppliers amounting to $9,540 or 17.1% and $8,525 or 15.3% of total inventory purchased during the three-month period ended March 29, 2008.

The Company purchased inventory from one supplier amounting to $14,273 or 25.4% of total inventory purchased during the three-month period ended March 31, 2007.

No customer accounted for more than 10% of net revenues for any period presented.

NOTE 14—SEGMENT INFORMATION

As of the end of fiscal 2007, the Company had one reportable segment: e-commerce services. Due to the acquisition of e-Dialog in February 2008, the Company evaluated the impact on segment reporting and determined that its business now consists of two reportable segments: e-commerce services and interactive marketing services. The revised segment reporting is reflected for all periods presented, and prior period information is presented in a manner that is consistent with the revised segment reporting.

For e-commerce services, the Company delivers customized solutions to its partners through an integrated platform which is comprised of three components: technology, fulfillment and customer care. The Company offers each of the platform’s components on a modular basis, or as part of an integrated, end-to-end solution. For interactive marketing services, the Company offers a full suite of online marketing, advertising, e-mail and design services.

21

GSI COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)

The Company manages its segments based on an internal management reporting process that provides segment revenue and segment operating income before depreciation, amortization and stock-based compensation expense for determining financial decisions and allocating resources. The Company believes that segment operating income before depreciation, amortization and stock-based compensation expense is an appropriate measure of evaluating the operational performance of the Company’s segments. The Company uses this financial measure for financial and operational decision making and as a means to evaluate segment performance. It is also used for planning, forecasting and analyzing future periods. However, this measure should be considered in addition to, not as a substitute for, or superior to, income from operations or other measures of financial performance prepared in accordance with GAAP.

The Company manages its working capital on a consolidated basis and does not allocate long-lived assets to segments. In addition, segment assets are not reported to, or used by, the Company and therefore, pursuant to SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” total segment assets have not been disclosed.

The following table’s present summarized information by segment:

	Three-Months Ended March 31, 2007
	E-Commerce		Interactive		Intersegment
	Services		Marketing Services		Eliminations			Consolidated
Net revenues	$	144,497	$	4,815	$	(3,029	)	$	146,283
Operating expenses before depreciation, amortization and stock-based compensation expense		140,846		4,711		(3,029	)		142,528
Operating income before depreciation, amortization and stock-based compensation expense		3,651		104		—			3,755
Depreciation and amortization									6,924
Stock-based compensation expense									1,597
Loss from operations									(4,766	)
Interest expense									842
Interest income									(1,944	)
Other expense, net									15
Loss before income taxes								$	(3,679	)

	Three-Months Ended March 29, 2008
	E-Commerce			Interactive		Intersegment
	Services			Marketing Services		Eliminations			Consolidated
Net revenues	$	187,599		$	12,085	$	(4,141	)	$	195,543
Operating expenses before depreciation, amortization and stock-based compensation expense		188,891			11,192		(4,141	)		195,942
Operating income (loss) before depreciation, amortization and stock-based compensation expense		(1,292	)		893		—			(399	)
Depreciation and amortization										13,809
Stock-based compensation expense										3,621
Loss from operations										(17,829	)
Interest expense										2,177
Interest income										(1,039	)
Other expense, net										145
Loss before income taxes									$	(19,112	)

Included in the Intersegment Eliminations column are transactions that our segments enter with one another. The most common types of these transactions are the following:

• our E-Commerce Services segment generates revenues by selling information technology services to our Interactive Marketing Services segment

• our Interactive Marketing Services segment generates revenue by selling online marketing, advertising, email and design services to our E-Commerce Services segment

22

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

All statements made in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements, as defined under federal securities law. The words “look forward to,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “could,” “guidance,” “potential,” “opportunity,” “continue,” “project,” “forecast,” “confident,” “prospects,” “schedule,” “designed,” “future” “discussions,” “if” and similar expressions typically are used to identify forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about our business. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Factors which may affect our business, financial condition and operating results include the effects of changes in the economy, consumer spending, the financial markets and the industries in which we and our partners operate, changes affecting the Internet and e-commerce, our ability to develop and maintain relationships with strategic partners and suppliers and the timing of our establishment, extension or termination of our relationships with strategic partners, our ability to timely and successfully develop, maintain and protect our technology, confidential and proprietary information, and product and service offerings and execute operationally, our ability to attract and retain qualified personnel, our ability to successfully integrate our acquisitions of other businesses, and the performance of acquired businesses. More information about potential factors that could affect us are described in Part I, Item 1A under the heading “Risk Factors” in our Form 10-K for the fiscal year ended December 29, 2007, filed with the SEC on March 13, 2008. We expressly disclaim any intent or obligation to update these forward-looking statements.

Executive Overview

Our Business:

• We are a leading provider of services for e-commerce, multichannel retailing and interactive marketing to large business-to-consumer enterprises, which we call partners. Beginning in the first quarter of fiscal 2008, we operate in two reportable business segments: e-commerce services and interactive marketing services. For e-commerce services, we deliver customized solutions to partners through an integrated e-commerce platform, which is comprised of three components: technology, fulfillment and customer care. We offer each of the platform’s components on a modular basis, or as part of an integrated, end-to-end solution. For interactive marketing services, we offer a full suite of online interactive marketing, advertising, e-mail and design services.

• We derive our revenues from sales of products by us through our partners’ e-commerce businesses, service fees earned by us in connection with the development and operation of our partners’ e-commerce businesses, and service fees earned by us through our provision of interactive marketing services.

• We generate the majority of our cash from operating activities in our fourth fiscal quarter due to the seasonality of our business. In our first fiscal quarter, we typically use cash from operating activities to satisfy accounts payable and accrued expenses incurred in the fourth fiscal quarter of our prior fiscal year. We typically have not generated significant cash from operating activities in our second and third fiscal quarters.

Significant Events:

• In January 2008, we entered into a $75 million revolving secured bank line of credit. The five-year, revolving secured line of credit is available to us for working capital and general corporate purposes, including possible acquisitions, and contains certain financial and negative covenants with which we must comply. As of March 29, 2008, $15.0 million was outstanding under the line of credit.

• In February 2008, we acquired e-Dialog, Inc., a Lexington, Mass.-based market-leading provider of advanced e-mail marketing services and solutions to more than 100 companies in the U.S. and Europe for $149.4 million, including estimated acquisition costs. We expect the acquisition to expand the breadth and depth of our interactive marketing services capabilities, our reach into existing and new vertical markets, and our growing European presence.

23

Outlook:

• While we expect the opportunity for partnered e-commerce to continue to grow, we also anticipate continuing intense competition. We compete with in-house solutions and a variety of third-party vendors that provide one of more components of an e-commerce solution. To satisfy our existing partners and to continue to attract new partners, we offer a complete integrated solution designed to increase efficiencies and improve integration. This includes a high level of direct-to-consumer expertise and infrastructure. Through our solution, we help our partners grow their e-commerce businesses and use their e-commerce businesses as a channel to complement and enhance their offline businesses. Our solution is provided to partners on a platform that includes shared technology, logistics and customer care, supporting infrastructure and interactive marketing services. To differentiate our solution in the marketplace, we continually add new services and functions to our platform. As part of our continuing efforts to add value to our platform, we evaluate opportunities to acquire complementary or new businesses or assets.

• Our objective is to grow our business by expanding the e-commerce businesses of our existing partners, by adding new partners, by expanding internationally, by generating incremental revenue from interactive marketing and other services, and selectively through acquisitions.

Results of Operations

Three-month period ended March 31, 2007 and March 29, 2008 (amounts in tables in millions):

Net Revenues

We derive virtually all of our revenues from sales of products by us through our partners’ e-commerce businesses, service fees earned by us in connection with the development and operation of our partners’ e-commerce businesses, and through service fees earned by us through our provision of interactive marketing services.

Net Revenues from Product Sales. Net revenues from product sales are derived from the sale of products by us through our partners’ e-commerce Web stores. Net revenues from product sales are net of allowances for returns and discounts and include outbound shipping charges and other product-related services such as gift wrapping and monogramming. We recognize revenue from product sales and shipping when products are shipped and title and significant risks of ownership passes to the customer.

Service Fee Revenues. E-commerce service fee revenues are generated based on a partner’s use of one or more of our e-commerce platform components or elements of those components, which include technology, fulfillment and customer care. E-commerce service fee revenues are also generated from professional and technology services. Interactive marketing services service fee revenues are generated from our provision of online marketing, advertising, email and design services. Service fee revenues can be fixed or variable and can be based on the activity performed or the value of merchandise sold.

											First Qtr Fiscal 2008
											vs.
											First Qtr Fiscal 2007
	First Qtr Fiscal 2007					First Qtr Fiscal 2008					Change			Change
Net Revenues by Type:
Net revenues from product sales	$	108.8		74	%	$	123.1		63	%	$	14.3			13	%
Service fee revenues		37.5		26	%		72.4		37	%		34.9			93	%
Total net revenues	$	146.3		100	%	$	195.5		100	%	$	49.2			34	%
Net Revenues by Segment:
E-Commerce services:
Net revenues from product sales	$	110.5		76	%	$	125.2		64	%	$	14.7			13	%
Service fee revenues		34.0		23	%		62.3		32	%		28.3			83	%
Interactive marketing services:
Service fee revenues		4.8		3	%		12.1		6	%		7.3			152	%
Intersegment Eliminations		(3.0	)	(2	%)		(4.1	)	(2	%)		(1.1	)		37	%
Total net revenues	$	146.3		100	%	$	195.5		100	%	$	49.2			34	%

24

E-Commerce Services Segment Revenues

Net revenues from product sales increased $14.7 million in the first quarter of fiscal 2008. This increase is primarily due to growth from our professional sports league partners that operated for both periods and new professional sports league partners that launched after the first quarter of fiscal 2007, and an increase in shipping revenue, partially offset by a decrease in sales from our electronics category. The increase was due to $10.1 million from partners that launched after the first quarter of fiscal 2007 and the addition of Accretive Commerce in the third quarter of fiscal 2007 and Zendor in the fourth quarter of fiscal 2007, and a $4.0 million increase for partners that operated for the entirety of both periods. Included in net revenues from product sales was shipping revenue for all partners for which we provide fulfillment services of $24.8 million for the first quarter of fiscal 2008 and $15.9 million for the first quarter of fiscal 2007.

Service fee revenues increased $28.3 million in the first quarter of fiscal 2008. This increase was primarily due to the addition of Accretive Commerce and Zendor, as well as growth from partners that operated for the entirety of both periods. We had a $20.5 million increase for partners that launched after the first quarter of fiscal 2007 and from partners of Accretive Commerce and Zendor, a $6.6 million increase for partners that operated for the entirety of both periods, and a $0.5 million increase for partners that began operations during the first quarter of fiscal 2007.

Interactive Marketing Services Segment Revenues

Service fee revenues increased $7.3 million due primarily to the acquisition of e-Dialog in February 2008, and from growth in our online marketing, design and digital photo studio practices.

Costs and Expenses

Costs and expenses consist of costs of revenues from product sales, sales and marketing expenses, product development expenses, general and administrative expenses and depreciation and amortization expenses.

Costs of Revenues from Product Sales. Costs of revenues from product sales consist primarily of direct costs associated with the sale and shipment of products. All costs of revenues from product sales are incurred by our e-commerce services segment.

Sales and Marketing Expenses. Sales and marketing expenses primarily include personnel costs and related expenses, fulfillment costs, customer care costs, credit card fees, net partner revenue share charges, net advertising and promotional expenses, and occupancy costs.

Product Development Expenses. Product development expenses consist primarily of expenses associated with planning, maintaining and operating our proprietary platforms and related systems and payroll and related expenses for engineering, production, creative and management information systems.

General and Administrative Expense. General and administrative expenses consist primarily of payroll and related expenses for executive, finance, human resources, legal, sales and administrative personnel, as well as bad debt expense and occupancy costs for our headquarters and other offices.

Depreciation and Amortization Expenses. Depreciation and amortization expenses relate primarily to the depreciation or amortization of the capitalized costs for our purchased and internally-developed technology, including a portion of the cost related to the employees that developed such technology, hardware and software, furniture and equipment at our corporate headquarters, our fulfillment centers and our customer contact centers, the depreciation of the facilities owned by us, and the amortization of acquisition-related intangible assets.

											First Qtr Fiscal 2008
											vs.
	First Qtr Fiscal 2007					First Qtr Fiscal 2008					First Qtr Fiscal 2007
			% of					% of
			Net					Net
	$		Revenues			$		Revenues			$ Change		% Change
Cost of revenues from product sales	$	76.8		52.5	%	$	85.4		43.7	%	$	8.6		11.2	%
Sales and marketing expenses		44.2		30.2	%		76.0		38.9	%		31.8		71.9	%
Product development expenses		13.7		9.4	%		22.4		11.4	%		8.7		63.5	%
General and administrative expenses		9.4		6.4	%		15.7		8.0	%		6.3		67.0	%
Depreciation and amortization expenses		6.9		4.7	%		13.8		7.1	%		6.9		100.0	%
Total costs and expenses	$	151.0		103.2	%	$	213.3		109.1	%	$	62.3		41.3	%

25

Cost of Revenues from Product Sales:

	First Qtr			First Qtr
	Fiscal 2007			Fiscal 2008
Cost of revenues from product sales	$	76.8		$	85.4
As a percentage of net revenues from product sales		70.6	%		69.4	%

The decrease in cost of net revenues as a percentage of net revenues from 52.5% to 43.7% was primarily due to the larger percentage increase in service fees over the percentage increase in product sales, as service fees have no associated cost of revenue.

The decrease in cost of net revenues from product sales as a percentage of net revenues from product sales from 70.6% to 69.4% was primarily due to an increase in product sales in our sporting goods category. Product sales in our sporting goods category carry a lower percentage of cost of revenues than product sales in our non-sporting goods categories. Product sales in our sporting goods category increased to 74.6% of total net revenues from product sales in the first quarter of fiscal 2008 from 70.6% for the first quarter of fiscal 2007.

Sales and Marketing Expenses. Sales and marketing expense increased $31.8 million. As a percentage of net revenues, sales and marketing expenses increased from 30.2% to 38.9%. The increases in absolute dollars and as a percentage of net revenues were primarily due to the addition of Accretive’s facilities which were acquired in the third quarter of fiscal 2007, as well as the start-up, occupancy and payroll expenses related to our Richwood, Kentucky fulfillment center which commenced operations in the second quarter of fiscal 2007. The $31.8 million increase was primarily due to a $16.3 million increase in payroll and related costs mostly in our customer care and fulfillment operations, a $5.4 million increase in office expenses and occupancy costs, a $3.3 million increase in partner revenue share expenses, a $1.8 million increase in credit card fees, a $1.4 million increase in packaging and warehouse supplies and a $3.6 million increase in other costs which include non-income taxes, marketing expenses and communication costs. We continue to expect that sales and marketing expenses will increase in absolute dollars during fiscal 2008 compared to fiscal 2007, as we plan to continue to grow by adding new partners and by expanding our domestic and international e-commerce businesses, as well as by expanding our interactive marketing services segment.

Product Development Expenses. Product development expense increased $8.7 million. As a percentage of net revenues, product development expenses increased from 9.4% to 11.5%. The increases in absolute dollars and as a percentage of net revenues were primarily due to payroll expenses incurred for partner launches that occurred during fiscal 2008, expected future partner launches and increased expenses to enhance the technology features and functionality on our platform. In the first quarter of fiscal 2008 we launched six partner Web stores. We have an additional ten partner Web stores planned for launch through the remainder of fiscal 2008. This is compared to launching two partner Web stores in the first quarter of fiscal 2007 and twelve partner Web stores for the entirety of fiscal 2007. The $8.7 million increase was primarily due to a $4.9 million increase in personnel and related costs, a $1.7 million increase in professional fees, a $1.4 million increase in office expenses and occupancy costs and a $0.7 million increase in other product development costs. We continue to expect that product development expenses will increase in absolute dollars in fiscal 2008 compared to fiscal 2007, as we plan to continue to launch additional partner Web stores and to invest in our platform as we enhance and expand our capabilities to grow our partners’ e-commerce businesses.

General and Administrative Expenses. General and administrative expense increased $6.3 million. As a percentage of net revenues, general and administrative expenses increased from 6.4% to 8.0%. The increases in absolute dollars and as a percentage of net revenues were primarily due to the addition of new partners and the expansion of the e-commerce business of our existing partners as well as the expansion of our interactive marketing services segment. The $6.3 million increase was primarily due to a $4.2 million increase in personnel and related costs incurred to support the growth of our business, a $1.1 million increase in professional fees and a $1.0 million increase in other general and administrative costs which includes office expenses and occupancy costs. We continue to expect that general and administrative expenses will increase in absolute dollars in fiscal 2008 compared to fiscal 2007, as we plan to continue to invest in our platform as we enhance and expand our capabilities for the purpose of growing our partners’ e-commerce businesses as well as expand our international operations and interactive marketing services segment.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased $6.9 million in the first quarter of fiscal 2008. Of this increase, $5.4 million was primarily due to depreciation of fixed assets and $1.5 million was for intangible asset amortization primarily in connection with the Accretive acquisition.

26

Income Taxes

We recorded a benefit of $9.5 million in the first quarter of fiscal 2008. Our tax provision for interim periods was determined using an estimate of our annual effective tax rate which is 55.3% for fiscal 2008 plus any discrete items that effect taxes that occur during the quarter.

As of December 29, 2007, the Company had available federal net operating loss carryforwards of approximately $444.1 million which expire in the years 2009 through 2027. As of December 29, 2007, the Company had available state net operating loss carryforwards of approximately $204.6 million which expire in the years 2010 through 2027 and an immaterial amount of foreign net reporting losses that either begin expiring in 2021 or have no expiration date. A portion of these net operating loss carryforwards are offset by a valuation allowance. Management will continue to monitor all available evidence related to our ability to utilize our remaining deferred tax assets. Should management determine that it is more likely than not that these operating loss carryforwards will be utilized, we will reverse a portion of the remaining valuation allowance.

Liquidity and Capital Resources

	As of
	December 29,			March 29,
	2007			2008
	(in millions)
Cash and cash equivalents	$	231.5		$	42.8
Percentage of total assets		56.8	%		6.7	%

As of March 29, 2008, we had cash and cash equivalents totaling $42.8 million, compared to $231.5 million of cash and cash equivalents as of December 29, 2007. During the fiscal quarter ended March 29, 2008, we invested $144.0 million in our acquisition of e-Dialog and an additional $1.0 million in our acquisition of Zendor, and $17.5 million in capital expenditures. The cash used for these investments was funded by our working capital as well as the cash proceeds from our subordinated convertible note and equity financings. As of March 29, 2008, we had $15.0 million outstanding under our secured revolving bank credit facility.

We have experienced and expect to continue to experience seasonal fluctuations in our cash flows. We generate the majority of cash from our operating activities in our fourth fiscal quarter due to the seasonality of our business. In our first fiscal quarter, we typically use cash generated from operating activities in the fourth quarter of the prior fiscal year to satisfy accounts payable and accrued expenses incurred in the fourth fiscal quarter of our prior fiscal year. During our second and third fiscal quarters, we generally fund our operating expenses and capital expenditures from either cash generated from operating activities, cash on hand, or financing activities.

In order to fund our anticipated operating expenses and growth, our revenue must continue to increase significantly. We expect to continue to generate positive cash flow from operations in fiscal 2008. In addition to cash generated from operations, we may need to make additional borrowings on our secured revolving bank credit facility or raise additional funds through public or private debt or equity financings to finance our current operations and planned capital expenditure requirements as well as potential acquisitions through the end of fiscal 2008. Our secured revolving bank credit facility contains negative covenants including prohibitions on our ability to incur additional indebtedness. Our business could be seriously harmed if we are unable to raise capital or borrow under our secured revolving bank credit facility, we raise less capital or borrow less than we desire, cash flows are insufficient to fund our expenses, or we are unable to lower operating expenses. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders would be reduced to the extent they did not participate in that financing. Furthermore, these equity securities might have rights, preferences or privileges senior to our common stock. There is no assurance that we could raise financing on favorable terms or at all.

Cash Flow Changes

Cash provided by operating activities is driven by our net income, adjusted for non-cash items and changes in operating assets and liabilities. Non-cash adjustments include depreciation, amortization, stock-based compensation expense, tax benefits from stock-based awards and deferred income taxes. In the first quarter of fiscal 2008 and 2007, we generated a net loss and negative cash flow from operations.

27

We invest cash to support our growing infrastructure needs and expand our operations and as consideration for acquisitions and strategic investments. Cash used in investing activities is primarily attributable to capital expenditures and acquisitions. Our capital expenditures totaled $17.5 million and $9.6 million in the first quarter of fiscal 2008 and fiscal 2007, respectively. Our capital expenditures have been primarily used for purchases and internal development of information technology assets to support our operations infrastructure, our increased number of employees and our international growth. We invested $144.0 million for the acquisition of e-Dialog in the first quarter of fiscal 2008 and an additional $1.0 million for the acquisition of Zendor.

Cash provided by financing activities is primarily driven by proceeds from our equity and debt offerings as well as proceeds from employee stock option exercises. In the first quarter of fiscal 2008, we borrowed $15.0 million from our secured revolving bank credit facility. Our cash proceeds from employee option exercises were $0.2 million and $3.4 million in the first quarter of fiscal 2008 and fiscal 2007, respectively.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates under different conditions. For a full description of our critical accounting policies, see Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report on Form 10-K for the fiscal year ended December 29, 2007, filed with the SEC on March 13, 2008.

Recent Accounting Pronouncements

See Item 1 of Part I, “Financial Statements — Note 2, Summary of Significant Accounting Policies” for recent accounting pronouncements that could have an effect on us.

Seasonality

We have experienced and expect to continue to experience seasonal fluctuations in our revenues. These seasonal patterns will cause quarterly fluctuations in our operating results. In particular, our fourth fiscal quarter has accounted for and is expected to continue to account for a disproportionate percentage of our total annual revenues. We believe that results of operations for a quarterly period may not be indicative of the results for any other quarter or for the full year.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no significant changes in market risks for the fiscal quarter ended March 29, 2008. See the information set forth in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007 filed with the Securities and Exchange Commissions (“SEC”) on March 13, 2008.

ITEM 4: CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures. Our management, with the participation of our chief executive officer and our chief financial officer, conducted an evaluation, as of March 29, 2008, of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e).

Based on this evaluation, our chief executive officer and our chief financial officer have concluded that, as of March 29, 2008, our disclosure controls and procedures, as defined in Rule 13a-15(e), were effective at the reasonable assurance level, to ensure that (i) information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. We monitor and evaluate on an ongoing basis our internal control over financial reporting in order to improve its overall effectiveness. In the course of these evaluations, we modify and refine our internal processes and controls as conditions warrant. As required by Rule 13a-15(d), our management, including our chief executive officer and our chief financial officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the fiscal quarter ended March 29, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter ended March 29, 2008.

28

PART II — OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS.

See Item 1 of Part I, “Financial Statements — Note 8, Commitments and Contingencies.”

ITEM 1A: RISK FACTORS.

There have been no material changes with regard to the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007 filed with the Securities and Exchange Commissions on March 13, 2008.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3: DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS WHO ARE NOT ALSO DIRECTORS.

None

ITEM 5: OTHER INFORMATION.

None

ITEM 6: EXHIBITS.

2.1	Agreement and Plan of Merger, dated as of January 23, 2008, by and among GSI Commerce, Inc., Dolphin Acquisition Corporation, E-Dialog, Inc. and OneLiberty Ventures 2000, L.P. (as Stockholders’ Representative) (filed with the Company’s current Report on Form 8-K filed on January 29, 2008 and incorporated herein by reference)†
2.2	Voting and Support Agreement, dated as of January 23, 2008, by and among GSI Commerce, Inc. and each of the individuals and entities listed on a signature page thereto (filed with the Company’s current Report on Form 8-K filed on January 29, 2008 and incorporated herein by reference)
10.1	Credit Agreement, dated as of January 11, 2008, by and among GSI Commerce Solutions, Inc., the Guarantors named therein, the Lenders named therein, PNC Bank, National Association, as administrative agent, and Bank of America, N.A., as syndication agent (filed with the Company’s current Report on Form 8-K filed on January 17, 2008 and incorporated herein by reference)
10.2	Offer Letter, dated March 26, 2007, between GSI Commerce, Inc. and Scott Hardy
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

† Confidential treatment has been requested for certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf on the date indicated by the undersigned thereunto duly authorized.

Date: May 8, 2008

GSI COMMERCE, INC.
By:	/s/ MICHAEL G. RUBIN
	Michael G. Rubin
	Chairman, President and Chief Executive Officer
By:	/s/ MICHAEL R. CONN
	Michael R. Conn
	Executive Vice President, Finance and Chief Financial Officer (principal financial officer & principal accounting officer)

30

EXHIBIT INDEX

Exibit
No.		Description
	2.1	Agreement and Plan of Merger, dated as of January 23, 2008, by and among GSI Commerce, Inc., Dolphin Acquisition Corporation, E-Dialog, Inc. and OneLiberty Ventures 2000, L.P. (as Stockholders’ Representative) (filed with the Company’s current Report on Form 8-K filed on January 29, 2008 and incorporated herein by reference)†
	2.2	Voting and Support Agreement, dated as of January 23, 2008, by and among GSI Commerce, Inc. and each of the individuals and entities listed on a signature page thereto (filed with the Company’s current Report on Form 8-K filed on January 29, 2008 and incorporated herein by reference)
	10.1	Credit Agreement, dated as of January 11, 2008, by and among GSI Commerce Solutions, Inc., the Guarantors named therein, the Lenders named therein, PNC Bank, National Association, as administrative agent, and Bank of America, N.A., as syndication agent (filed with the Company’s current Report on Form 8-K filed on January 17, 2008 and incorporated herein by reference)
	10.2	Offer Letter, dated March 26, 2007, between GSI Commerce, Inc. and Scott Hardy
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

† Confidential treatment has been requested for certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

31

EX-10.2

Exhibit 10.2

March 26, 2007
VIA Overnight Mail
Scott Hardy
5002 Trailridgeway
Atlanta, GA 30338

Dear Scott:

I am pleased to officially offer you the opportunity to join us at GSI Commerce. I truly believe that you will be a great addition to our team.

Subject to compliance with the terms and conditions of this letter and approval of the Board of Directors of GSI Commerce, Inc., and subject to fully satisfying all final background and reference checks, we are pleased to offer you employment in the position Executive Vice President, Business Management at GSI Commerce Solutions, Inc. (the “Company”). In your capacity as EVP, Business Management, you will be responsible for the functions outlined in the position description given to you and discussed with you and will have such other responsibilities and duties consistent with your position as may from time to time be prescribed by the Company’s Chief Executive Officer or Board of Directors. You will devote your working time, energy, skill and best efforts to the performance of your duties for the Company in a manner which will further the business and interests of the Company. Your principal place of employment will be at the Company’s offices in King of Prussia, PA. The terms of your employment are:

• Your annual base salary will be $400,000.00. Your base salary, less payroll deductions and required withholdings, will be payable in accordance with the Company’s normal payroll practices. Your base salary will be reviewed annually after December 31, 2007 during the Company’s annual performance review process. Merit increases will be based upon your performance review rating. You will be eligible for a review and increase (not pro-rated) in January, 2008.

• Subject to approval of the Board of Directors of GSI Commerce, Inc., you will be granted under the GSI Commerce, Inc. 2005 Equity Incentive Plan or such other plan as may then be in effect (the “Equity Plan”) a Restricted Stock Unit award to receive shares of GSI Commerce, Inc. This award will have an aggregate value of $1,250,000.00 based on the fair market value of a share of such Common Stock on the later of the date the Board approves the grant or the date you begin employment with the Company. This award will vest as to 20% of the total number of shares on each of the first, second, third, fourth and fifth annual anniversary of the date the grant. The Company will deliver the shares to you as they vest, and you will not be required to pay any consideration for the vested shares other than the services you rendered to the Company. You will be eligible for an annual grant (not pro-rated) in March, 2008.

March 26, 2007 

Page 2 

• You will be eligible to participate in the annual bonus plan available to senior management level employees at the Company. Under the plan recently approved by the Board of Directors, you will have the opportunity to receive an incentive bonus of 50% of your base pay provided you and the Company achieve certain performance objectives. We are guaranteeing you will receive a full bonus for 2007 paid in March of 2008. The Company retains the right to modify, replace or terminate any bonus plan or program from time to time, although this will not apply to your 2007 bonus guarantee. All interpretations and determinations with respect to bonuses, including calculation of the amount of any bonus and determination that a bonus has been earned, will be made by the Company and the Company’s determination will be final and binding.

• You will be eligible to participate in all employee benefit plans or programs of the Company now existing or established hereafter and offered generally to other senior management team members of the Company, subject to the terms and provisions of such plans including applicable waiting periods. Details about these benefits will be made available for your review. The Company retains the right to modify, replace or terminate any or all of its employee benefits plans or programs (including the Equity Plan) from time to time.

• It is our objective to move you and your family to the King of Prussia, PA area as quickly and seamlessly as possible. Toward that goal, the Company will pay or reimburse you for the actual and reasonable expenses for the following items relating to your relocation from Atlanta, GA to King of Prussia, as outlined herein. We will reimburse you for the physical move of you and your household goods including packing and unpacking your household goods and personal effects; moving two automobiles; temporary living and temporary storage in the King of Prussia area for 90 days; and two house hunting trips which consists of round-trip airfare for two people, hotel accommodations for up to four nights, car rental for five days and meals (up to $50 per day per person). We will pay you an amount equal to 2% of the purchase price of your new home to cover some of the costs associated with that purchase. We will pay this to you within 7 days of closing. We will also provide you with home sale protection to cover the unlikely event that you suffer a financial loss on the sale of your home related to any significant investments made to renovate your home in the past two years, up to a maximum of $100,000. We will provide you with a relocation allowance of up to $50,000 less taxes. Finally, in the event that you are carrying two mortgages simultaneously, we will cover the interest cost of the lower of the two mortgages for up to four (4) months. You will be required to submit such invoices and documentation as may be reasonably required by the Company for all reimbursements.

• If you resign your employment with the Company or the Company terminates your employment with “cause” (as defined below) during the first two (2) years of your employment, you will repay the Company a pro-rata portion of all amounts incurred or reimbursed by the Company in connection with such relocation as follows: 100% will be reimbursed by you if such a departure occurs in the first year of your employment and the reimbursement owed will decline by 1/12 for each month in the second year.

March 26, 2007 

Page 3 

• The term “cause” means that (i) gross negligence or willful misconduct in the performance of your duties for the Company; (ii) breach or violation, in a material respect, of any agreement between the Company and you, the Company’s Code of Business Conduct or any of the Company’s policy statements, including those regarding conflicts-of-interest, insider trading, confidentiality or harassment; (iii) commission of a material act of dishonesty or breach of trust; (iv) acting in a manner that is inimical or injurious, in a material respect, to the business or interests of the Company; or (v) conviction of a felony.

• Within 30 days from your start date, the Company will pay you a one-time signing bonus of $100,000, less taxes. Like the relocation assistance, should you resign your employment with the Company or should the Company terminate your employment for cause during your first two years of employment, you will repay to the Company a pro-rata portion of this sign-on bonus under the same terms outlined above.

• You may terminate your employment with the Company at any time and for any reason whatsoever. Likewise, the Company may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except in writing signed by an officer of the Company.

• If the Company terminates your employment without “cause”, the Company will continue to pay your base salary in accordance with the terms of this letter as follows: if such a termination occurs in 2007, we will provide 24 months of base-pay; if it occurs in 2008, we will pay you 18 months of base-pay; and if it occurs in 2009, we will provide you with 12 months of base-pay. These payments will be made only if you are terminated without cause and provided you execute the Company’s standard separation and release agreement. Any severance to which you become entitled under this paragraph will be payable in accordance with the Company’s normal payroll practices and will be subject to payroll deductions and required withholdings.

You represent to the Company that there are no restrictions, agreements or understandings whatsoever to which you are a party or by which you are bound which would prevent or make unlawful your execution of this letter or your employment hereunder and that your execution of this letter and your employment hereunder do not constitute a breach of any agreement or understanding to which you are a party or to which you are bound. You also represent that you will not bring with you to the Company or use during your employment with the Company any confidential or proprietary information of any prior employer or other third party with respect to which you are under a confidentiality obligation. To the extent required by law, this offer is subject to satisfactory proof of your right to work in the United States

As an employee of the Company, you will be expected to abide by the Company’s rules and regulations, acknowledge in writing that you have read and will comply with the Company’s Code of Business Conduct and the Company’s Employee Handbook. As a condition of your employment, you will be required to sign and comply with the Company’s form of Employee Agreement (a copy of which is attached), which includes a prohibition on the unauthorized use or disclosure of the Company’s confidential or proprietary information, a prohibition against engaging in competitive activities or soliciting employees of the Company during, and for one year after the end of, your employment with the Company, and provisions acknowledging the Company’s ownership in, and assigning to the Company all rights to, any inventions developed by you during your employment with the Company.

March 26, 2007 

Page 4 

The employment terms set forth in the above bullets in this letter supersede any prior written or oral agreements or promises and any contemporaneous or subsequent oral agreements or promises made to you by anyone on behalf of the Company with respect to such employment terms.

Please indicate your acceptance of this offer by signing and dating this letter where indicated below, and returning a copy to me on or before March 30, 2007. If you accept this offer, and subject to satisfaction of the conditions set forth in this letter, we expect that you will begin your employment with the Company no later April 30, 2007.*

Once again, I am thrilled you are joining us. I believe you are really going to enjoy working here, and I know you will add tremendous value. Feel free to call me with any questions.

Sincerely,

/s/ Michael G. Rubin

Michael Rubin
Chairman and CEO

AGREED TO AND ACCEPTED:

/s/ J. Scott Hardy Scott Hardy

3/28/07 Date

4/30 subject to separation agreement w/BE

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934

I, Michael G. Rubin, certify that:

1. I have reviewed this report on Form 10-Q of GSI Commerce, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 8, 2008

By:	/s/ Michael G. Rubin
	Michael G. Rubin
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934

I, Michael R. Conn, certify that:

1. I have reviewed this report on Form 10-Q of GSI Commerce, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 8, 2008

By:	/s/ Michael R. Conn
	Michael R. Conn
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), each of the undersigned officers of GSI Commerce, Inc. (the “Company”), does hereby certify with respect to the Quarterly Report on Form 10-Q for the period ended March 29, 2008 (the “Report”) that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By:	/s/ Michael G. Rubin
	Michael G. Rubin
	Chief Executive Officer

May 8, 2008

By:	/s/ Michael R. Conn
	Michael R. Conn
	Chief Financial Officer

May 8, 2008

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.