##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
    FORM 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    January 3, 2009oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $.01 per share

NASDAQ Global Select MarketPreferred Stock Purchase Rights

NASDAQ Global Select Market   Securities registered pursuant to Section 12(g) of the
    Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer  o

Accelerated
    filer  þ

Non-accelerated
    filer  o

Smaller reporting
    company  o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
  (1)
      DOCUMENTS INCORPORATED BY REFERENCE
    Form 10-K,
    (1)
    
    This amount equals the number of
    outstanding shares of the registrants common stock reduced
    by the number of shares that may be deemed held by the
    registrants executive officers, directors and stockholders
    owning in excess of 10% of the registrants common stock,
    multiplied by the last reported sale price for the
    registrants common stock on June 28, 2008 the last
    trading day prior to the last day of registrants fiscal
    second quarter. This information is provided solely for record
    keeping purposes of the Securities and Exchange Commission and
    shall not be construed as an admission that any executive
    officer, director or 10% stockholder of the registrant is an
    affiliate of the registrant or is the beneficial owner of any
    such shares. Any such inference is hereby disclaimed.




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##### 





GSI
    COMMERCE, INC.
    ANNUAL REPORT ON
    FORM 10-K
    FOR FISCAL YEAR ENDED JANUARY 3, 2009
  TABLE OF
    CONTENTS
   
 PagePART IItem 1.


Business


1Item 1A.


Risk Factors


8Item 1B.


Unresolved Staff Comments


28Item 2.


Properties


29Item 3.


Legal Proceedings


29Item 4.


Submission of Matters to a Vote of Security
    Holders


29Item 4.1.


Executive Officers of the Registrant


30PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


31Item 6.


Selected Financial Data


33Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


34Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


49Item 8.


Financial Statements and Supplementary Data


50Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


50Item 9A.


Controls and Procedures


50Item 9B.


Other Information


53PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


53Item 11.


Executive Compensation


53Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


53Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


54Item 14.


Principal Accounting Fees and Services


54PART IVItem 15.


Exhibits and Financial Statement Schedule


55Signatures


60EX-10.19EX-10.20EX-10.21EX-10.32EX-10.33EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1




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PART I  ITEM 1:
    BUSINESS  Overview
  e-commerce e-commerce e-commerce e-commerce e-mail ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ®
  e-commerce e-commerce e-commerce
  e-commerce e-commerce,
  Segment Information Exhibits and
    Financial Statement Schedule Form 10-K.
  e-Commerce
    Services
  e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce
  e-commerce e-commerce
  e-commerce e-commerce e-commerce
 1




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e-commerce
  e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce
  Technology
    Services
  e-Commerce
    Engine. e-commerce e-Commerce e-Commerce e-Commerce
  Web Store Management Tools.
  
    create and edit product categories;
    create, preview and schedule marketing content on their homepage
    and shopping pages;
    create and edit product display characteristics including
    placement of product and branding images and descriptive product
    copy as well as product and category sequencing;
    present special merchandising features such as featured
    products, related products, product collections, promotional
    advertisements and special offers;
    create, customize and manage promotional campaigns;
    establish up-sell and cross-sell relationships, manage pre-sell
    and backordering of yet-to-be-released or out-of-stock items and
    optimize search term mapping to enable consumers to more easily
    locate products on the site; and
    activate and deactivate products based on inventory,
    availability, sell-through velocity and other criteria. 2




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Web Infrastructure and Managed Hosting.
  Order Management and Processing.
  Reporting and Analytics.
  Fulfillment
    and Drop Shipping Services
           3




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Customer
    Care Services
  e-mail
  Interactive
    Marketing Services
  sm e-mail e-mail e-Dialog, (e-Dialog),
  Digital
    Marketing Agency Services  gsi
    interactivesm
  e-commerce e-commerce E-commerce e-commerce
  User Experience and Design Services.
  Studio Services.
 4




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Interactive Marketing Services. e-mail set-up,
  e-Mail
    Marketing Services 
    e-Dialog,
    Inc.
  e-Dialog e-mail e-mail
  e-Dialogs tm e-mail e-Dialog e-Dialog e-mail e-mail e-mail e-mail e-Dialog e-mail e-mail e-mail e-Dialogs e-Dialog
  Growth
    Strategy
  e-commerce e-commerce
  Grow
    Our Existing Clients Businesses
  e-commerce e-commerce e-commerce
 5




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e-mail
  Expand
    Our Client Base
  e-commerce e-commerce e-commerce
  Expand
    Internationally
  e-commerce e-commerce
  Grow
    Revenue from Interactive Marketing and Other Value-Added
    Services
  e-mail e-commerce
  Selectively
    Pursue Acquisitions
  e-commerce U.S.-based e-commerce e-commerce e-commerce e-Dialog, e-mail
  Competition
  e-commerce e-commerce e-commerce e-commerce e-commerce e-mail Harte-Hanks
 6




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e-commerce
  
    offering the choice of a complete integrated solution or a
    component-based solution, both of which are designed to increase
    efficiencies and improve integration;
    promoting the clients brand and business  not
    our own;
    providing scale and operating leverage with an enterprise focus;
    establishing our commitment to invest in and grow our
    platform; and
    aligning our financial interests with those of our clients.    
    offering digital marketing solutions that are tightly integrated
    with the GSI
    e-commerce
    platform, which provide a more strategic, cohesive and optimized
    approach to growing
    e-commerce
    businesses; and
    providing a services approach to
    e-mail
    marketing that utilizes a proprietary relevance technology to
    promote stronger customer engagements that are designed to
    increase revenues, profitability and ROI.  Intellectual
    Property
  e-commerce e-mail
  e-commerce e-commerce
    Employees
  e-commerce e-commerce
  Investor
    Information
  1-800-SEC-0330.
 7




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(http://www.sec.gov)
  Form 10-K, Form 10-Q, Form 8-K Form 10-K
  (610) 491-7000.
  ITEM 1A:
    RISK
    FACTORS  Risk
    Factors
  Any investment in our securities involves a high degree of
    risk. You should carefully consider the following information
    about these risks, together with the other information contained
    in this Annual Report on
    Form 10-K.
    If any of the following risks occur, our business financial
    position and operating results could be materially harmed. In
    these circumstances, the market price of our securities could
    decline, and you may lose all or part of the money you paid to
    buy our securities.
  Form 10-K, e-commerce,
  Risks
    Related to Our Business
  Our
    future success cannot be predicted based upon our limited
    operating history.
   8




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Our
    failure to manage growth and diversification of our business
    could harm us.
    We
    have an accumulated deficit and may incur additional
    losses.
      
    launch new clients;
    expand internationally;
    enhance our fulfillment capabilities and increase fulfillment
    capacity;
    develop new technologies and features to improve our
    clients
    e-commerce
    businesses;
    enhance our customer care center capabilities to better serve
    customers needs and increase customer care capacity;
    expand our marketing services business;
    increase our general and administrative functions to support our
    growing operations;
    continue our business development, sales and marketing
    activities; and
    make strategic or opportunistic acquisitions of complementary or
    new businesses or assets or internally develop new business
    initiatives.    Our
    success is tied to the success of, and continued relationships
    with, the clients for which we operate
    e-commerce
    businesses.
  e-commerce e-commerce and/or
 9




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The
    uncertainty regarding the general economy may reduce our
    revenues.
  and/or
  We
    rely on access to the credit and capital markets to finance a
    portion of our working capital requirements and support our
    liquidity needs. Access to these markets may be adversely
    affected by factors beyond our control, including turmoil in the
    financial services industry, volatility in securities trading
    markets and general economic downturns.
    Our
    substantial indebtedness could adversely affect our financial
    condition.
      
    increase our vulnerability to general adverse economic and
    industry conditions;
    limit our ability to obtain additional financing;
    require the dedication of a substantial portion of our cash flow
    from operations to the payment of interest and principal on our
    indebtedness, thereby reducing the availability of such cash
    flow to fund our growth strategy, working capital, capital
    expenditures and other general corporate purposes;
    limit our flexibility in planning for, or reacting to, changes
    in our business and the industry;
    place us at a competitive disadvantage relative to competitors
    with less debt; and 10




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
    make it difficult or impossible for us to pay the principal
    amount of the subordinated convertible notes at maturity,
    thereby causing an event of default under the subordinated
    convertible notes.    The
    terms of our secured revolving credit facility impose financial
    and operating restrictions.
    
    incur additional indebtedness or pre-pay existing indebtedness;
    pay dividends or make other distributions in respect of our
    equity securities;
    sell assets, including the capital stock of us and our
    subsidiaries;
    enter into certain transactions with our affiliates;
    transfer any capital stock of any subsidiary or permit any
    subsidiary to issue capital stock;
    create liens;
    make certain loans or investments; and
    effect a consolidation or merger or transfer of all or
    substantially all of our assets.    We may
    in the future need additional debt or equity financing to
    continue our growth. Such additional financing may not be
    available on satisfactory terms or it may not be available when
    needed, or at all.
  e-commerce
  If we
    fail to manage our exposure to global financial and securities
    market risk successfully, our operating results and financial
    statements could be materially impacted.
   11




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Seasonal
    fluctuations in sales cause wide fluctuations in our quarterly
    results.
  e-commerce
    e-commerce e-commerce e-commerce e-commerce
  Consumers
    are constantly changing their buying preferences. If we and our
    clients fail to anticipate these changes and adjust inventory
    accordingly, we could experience lower sales, higher inventory
    markdowns and lower margins for the inventory that we
    own.
  e-commerce e-commerce
  High
    merchandise returns or shrinkage rates could adversely affect
    our business, financial condition and results of
    operations.
    Our
    growth depends, in part, on our ability to add and launch new
    clients on a timely basis and on favorable terms and to extend
    the length of existing client agreements on favorable
    terms.
   12




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We
    enter into contracts with our clients. In fiscal 2008, we
    derived 38.0% of our revenue from five clients
    e-commerce
    businesses. If we do not maintain good working relationships
    with our clients, or perform as required under these agreements,
    it could adversely affect our business.
  e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce
  We and
    our clients must develop and maintain relationships with key
    manufacturers to obtain a sufficient assortment and quantity of
    quality merchandise on acceptable commercial terms. If we or our
    clients are unable to do so, it could adversely affect our
    business, results of operations and financial
    condition.
  e-commerce e-commerce e-commerce
  We
    rely on our ability to enter into marketing and promotional
    agreements with online services, search engines, comparison
    shopping sites, affiliate marketers and other web sites to drive
    traffic to the
    e-commerce
    businesses we operate. If we are unable to enter into or
    properly develop these marketing and
 13




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promotional agreements, our ability to generate revenue
    could be adversely affected. In addition, new technologies could
    block our ads and manipulate web search results, which could
    harm our business.
  e-commerce e-commerce e-commerce
  In addition, we contact customers through
    e-mail. e-mail e-mails.
  If we
    experience problems in our fulfillment operations, our business
    could be adversely affected.
      e-commerce
  A
    disruption in our operations could materially and adversely
    affect our business, results of operations and financial
    condition.
      
    fire, flood, hurricane, tornado, earthquake or other natural
    disasters;
    power losses and interruptions;
    Internet, telecommunications or data network failures;
    physical and electronic break-ins or security breaches;
    computer viruses; 14




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
    acts of terrorism; and
    other similar events.  e-commerce e-commerce e-commerce
    e-commerce e-commerce
  If we
    do not respond to rapid technological changes, our services and
    proprietary technology and systems may become
    obsolete.
  e-commerce e-commerce e-commerce
  e-commerce e-commerce e-commerce e-commerce e-commerce
  Our
    success is tied to the continued growth in the use of the
    Internet and the adequacy of the Internet
    infrastructure.
    
    actual or perceived lack of security of information or privacy
    protection;
    lack of access and ease of use;
    congestion of traffic on the Internet;
    inconsistent quality of service and lack of availability of
    cost-effective, high-speed service;
    possible disruptions, computer viruses or other damage to
    Internet servers or to users computers;
    governmental regulation;
    uncertainty regarding intellectual property ownership; 15




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
    lack of access to high-speed communications equipment; and
    increases in the cost of accessing the Internet.    Consumers
    may be unwilling to use the Internet to purchase
    goods.
    e-commerce e-commerce e-commerce
  We
    and/or our clients may be unable to protect our and their
    proprietary technology and intellectual property
    rights.
  e-commerce e-mail
  We may
    be subject to intellectual property claims or competition or
    trade practices claims that could be costly and could disrupt
    our business.
  e-commerce
 16




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e-commerce
  We may
    not be able to compete successfully against current and future
    competitors, which could harm our margins and our
    business.
  e-commerce and/or e-commerce e-commerce e-commerce e-commerce
  e-commerce
  e-commerce e-commerce
  We may
    be subject to product liability claims that could be costly and
    time-consuming.
  e-commerce
 17




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We may
    be liable if third parties misappropriate our customers
    personal information. Additionally, we are limited in our
    ability to use and disclose customer information.
    Changes
    to credit card association fees, rules, or practices could harm
    our business.
  and/or
  Credit
    card fraud could adversely affect our business.
    If one
    or more states successfully assert that we should collect or
    should have collected sales or other taxes on the sale of our
    merchandise, our business could be harmed.
  e-commerce. e-commerce
  We may
    have exposure to greater than anticipated tax
    liabilities.
   18




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We
    rely on insurance to mitigate some risks and, to the extent the
    cost of insurance increases, or we are unable or choose not to
    maintain sufficient insurance to mitigate the risks facing our
    business, or our insurers are unable to meet their obligations,
    our operating results may be diminished.
    Variability
    in self-insurance liability estimates could significantly impact
    our financial results.
    
    historical claims experience;
    medical inflation;
    legislative changes to benefit levels;
    jury verdicts; and
    claim settlement patterns.    Existing
    or future laws or regulations could harm our business or
    marketing efforts.
  e-commerce e-commerce,
   19




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Our
    e-Dialog
    e-mail
    marketing solutions business is dependent on the market for
    e-mail
    marketing solutions and there may be changes in the market that
    may harm our business.
  e-Dialog e-mail e-mail e-mail
  e-mail e-mail
  
    growth in the number of
    e-mails sent
    or received on a daily or regular basis;
    the ability of filters to effectively screen for unwanted
    e-mails;
    the ability of smart phones or similar communications to
    adequately display
    e-mail;
    continued security concerns regarding Internet usage in general
    from viruses, worms or similar problems affecting Internet and
    e-mail
    utilization; and
    increased governmental regulation or restrictive policies
    adopted by Internet service providers, or ISPs, that
    make it more difficult or costly to utilize
    e-mail for
    marketing communications.  e-mail e-mail e-mail
  e-mail e-mail e-mail
  Existing
    federal, state and international laws regulating
    e-mail
    marketing practices impose certain obligations on the senders of
    commercial
    e-mails and
    could expose us to liability for violations, decrease the
    effectiveness of our
    e-mail
    marketing solutions, and expose us to financial, criminal and
    other penalties for non-compliance, which could increase our
    operating costs.
  e-mail e-mail e-mails e-mail e-mail e-mail e-mail e-mail
 20




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e-mail e-mail e-mail e-mail, e-mail,
  
    payment of statutory, actual or other damages;
    criminal penalties;
    actions by state attorneys general;
    actions by private citizens or class actions; and
    penalties imposed by regulatory authorities of the
    U.S. government, state governments and foreign governments.    Private
    spam blacklists may interfere with our ability to communicate
    with our
    e-commerce
    customers and the ability of the clients of
    e-Dialog to
    effectively deploy our
    e-mail
    marketing products or services which could harm our
    business.
  e-commerce e-mail e-mail e-Dialog e-mail e-mail e-mail e-mails e-commerce e-mail
  ISPs can also block
    e-mails from
    reaching their users. e-mails. e-mails, e-mails e-mail
  From
    time to time, we may acquire or invest in other companies. There
    are risks associated with potential acquisitions and investments
    and we may not achieve the expected benefits of future
    acquisitions and investments.
   21




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We
    plan to continue to expand our business internationally which
    may cause our business to become increasingly susceptible to
    numerous international business risks and challenges. We have
    limited experience in international operations.
  e-commerce e-commerce e-Dialog,
    
    the need to develop new supplier and manufacturer relationships,
    particularly because major manufacturers may require that our
    international operations deal with local distributors;
    compliance with international legal and regulatory requirements
    and tariffs;
    managing fluctuations in currency exchange rates;
    difficulties in staffing and managing foreign operations;
    greater difficulty in accounts receivable collection;
    potential adverse tax consequences;
    uncertain political and economic climates;
    potentially higher incidence of fraud;
    price controls or other restrictions on foreign
    currency; and
    difficulties in obtaining export and import licenses and
    compliance with applicable export controls. 22




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and/or
  e-commerce
    Our
    success is dependent upon our executive officers and other key
    personnel.
    We may
    be unable to hire and retain skilled personnel which could limit
    our growth.
    There
    are limitations on the liabilities of our directors and
    executive officers. Under certain circumstances, we are
    obligated to indemnify our directors and executive officers
    against liability and expenses incurred by them in their service
    to us.
   23




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If we
    fail to maintain an effective system of internal controls, we
    may not be able to accurately report our financial results or
    prevent fraud. As a result, current and potential stockholders
    and clients could lose confidence in our financial reporting,
    which could harm our business, the trading price of our common
    stock and our ability to retain our current clients and obtain
    new clients.
    Risks
    Related to Our Common Stock
  We may
    enter into future acquisitions and take certain actions in
    connection with such acquisitions that could affect the price of
    our common stock.
    
    use a significant portion of our available cash;
    issue equity securities, which would dilute current
    stockholders percentage ownership;
    incur substantial debt;
    incur or assume contingent liabilities, known or unknown;
    incur amortization expenses related to intangibles; and
    incur large, immediate accounting write-offs.    Our
    operating results have fluctuated and may continue to fluctuate
    significantly, which may cause the market price of our common
    stock to be volatile.
      
    our ability to obtain new clients or to retain existing clients
    in our
    e-commerce
    and marketing services businesses;
    the performance of one or more of our clients
    e-commerce
    businesses;
    our and our clients ability to obtain new customers at a
    reasonable cost or encourage repeat purchases;
    the number of visitors to the
    e-commerce
    businesses operated by us or our ability to convert these
    visitors into customers;
    our and our clients ability to offer an appealing mix of
    products or to sell products that we purchase; 24




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
    our ability to achieve effective results for our marketing
    services clients;
    our ability to adequately develop, maintain and upgrade our
    clients
    e-commerce
    businesses or the technology and systems we use to process
    customers orders and payments;
    the timing and costs of upgrades and developments of our systems
    and infrastructure;
    the ability of our competitors to offer new or superior
    e-commerce
    businesses, services or products or new or superior marketing
    services;
    price competition that results in lower profit margins or losses;
    the seasonality of our business, especially the importance of
    our fiscal fourth quarter to our business;
    our inability to obtain or develop specific products or brands
    or unwillingness of vendors to sell their products to us;
    unanticipated fluctuations in the amount of consumer spending on
    various products that we sell, which tend to be discretionary
    spending items;
    the cost of advertising and the amount of free shipping and
    other promotions we offer;
    increases in the amount and timing of operating costs and
    capital expenditures relating to expansion of our operations;
    our inability to manage our shipping costs on a profitable basis
    or unexpected increases in shipping costs or delivery times,
    particularly during the holiday season;
    inflation of prices of fuel and gasoline and other raw materials
    that impact our costs;
    technical difficulties, system security breaches, system
    downtime or Internet slowdowns;
    our inability to manage inventory levels or control inventory
    shrinkage;
    our inability to manage fulfillment operations or provide
    adequate levels of customer care or our inability to forecast
    the proper staffing levels in fulfillment and customer care;
    an increase in the level of our product returns or our inability
    to effectively process returns;
    government regulations related to the Internet or
    e-commerce
    which could increase the costs associated with operating our
    businesses, including requiring the collection of sales tax on
    all purchases through the
    e-commerce
    businesses we operate; and
    unfavorable economic conditions in general or specific to the
    Internet or
    e-commerce,
    which could reduce demand for the products sold through our
    clients
    e-commerce
    businesses.  Future
    sales of our common stock in the public market or the issuance
    of securities senior to our common stock could adversely affect
    the trading price of our common stock and our ability to raise
    funds in new securities offerings.
     25




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We
    have never paid dividends on our common stock and do not
    anticipate paying dividends in the foreseeable
    future.
    We are
    controlled by certain principal stockholders.
    It may
    be difficult for a third-party to acquire us and this could
    depress our stock price.
    and/or
     26




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The
    price of our common stock may fluctuate
    significantly.
      
    our performance and prospects;
    the performance and prospects of our clients;
    the depth and liquidity of the market for our common stock;
    the vesting of our equity awards resulting in the sale of large
    amounts of our common stock during concentrated trading windows;
    investor perception of us and the industry in which we operate;
    changes in earnings estimates or buy/sell recommendations by
    analysts;
    general financial and other market conditions; and
    general economic conditions.    Holders
    of our common stock will be subordinated to our secured
    revolving credit facility, convertible notes and other
    indebtedness.
    Conversion
    of our subordinated convertible notes would dilute the ownership
    interest of existing stockholders.
   27




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Future
    changes in financial accounting standards or practices or
    existing taxation rules or practices may cause adverse
    unexpected revenue and/or expense fluctuations and affect our
    reported results of operations.
    14-1, 14-1), 14-1 14-1
  ITEM 1B:
    UNRESOLVED
    STAFF COMMENTS.   28




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ITEM 2:
    PROPERTIES.    SquareUse

Footage


Locations

SegmentPrincipal Office


104,000


King of Prussia, PAOffices


160,851


King of Prussia, PA;
    Roanoke, VA;
    Barcelona, Spain;
    Los Angeles, CA;
    San Jose, CA;
    Pacoima, CA; and
    Chadderton, United Kingdom


e-Commerce servicesOffices


101,134


King of Prussia, PA;
    Lexington, MA;
    London, England;
    New York, NY; and
    Bellevue, WA


Interactive Marketing ServicesFulfillment Centers


2,456,436


Richwood, KY;
    Martinsville, VA; Louisville,KY;
    Shepherdsville, KY;
    Pacoima, CA; and
    Chadderton, United Kingdom


e-Commerce servicesCall Centers


260,336


Melbourne, FL;
    Eau Claire, WI;
    Martinsville, VA;
    Brusnwick, GA;
    Pacoima, CA; and
    Chadderton, United Kingdom


e-Commerce services       ITEM 3:
    LEGAL
    PROCEEDINGS.  e-commerce
    ITEM 4:
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS.   29




---



##### Table of Contents



ITEM 4.1:
    EXECUTIVE
    OFFICERS OF THE REGISTRANT.    Name

Age(1)

TitleMichael G. Rubin


36



Chairman, President and Chief Executive OfficerMichael R. Conn


38



Executive Vice President, Finance and Chief Financial OfficerStephen J. Gold


49



Executive Vice President and Chief Information OfficerJ. Scott Hardy


47



Executive Vice President, Business ManagementArthur H. Miller


55



Executive Vice President and General CounselDamon Mintzer


43



Executive Vice President, Sales     (1)
    
    As of March 1, 2009    Michael G. Rubin
  Michael R. Conn
  Stephen J. Gold
  J. Scott Hardy
  Arthur H. Miller
  Damon Mintzer e-commerce
 30




---



##### Table of Contents



PART II  ITEM 5:
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES.    Common StockPriceHigh


LowFiscal 2007First Quarter

$
23.25


$
16.09Second Quarter

$
24.75


$
19.85Third Quarter

$
27.38


$
19.65Fourth Quarter

$
29.27


$
19.06Fiscal 2008First Quarter

$
19.75


$
9.54Second Quarter

$
16.63


$
10.91Third Quarter

$
18.24


$
11.15Fourth Quarter

$
15.81


$
5.69        31




---



##### Table of Contents



STOCK
    PERFORMANCE GRAPH
    
  Total
    Return Analysis
  1/3/2004



1/1/2005



12/31/2005



12/30/2006



12/29/2007



1/3/2009GSI Commerce, Inc.


$
100.00



$
186.18



$
158.01



$
196.34



$
204.61



$
112.98Morgan Stanley Internet Index


$
100.00



$
110.08



$
112.88



$
126.51



$
138.13



$
80.47Nasdaq Composite


$
100.00



$
110.55



$
111.64



$
127.19



$
168.66



$
86.86     EQUITY
    COMPENSATION PLAN INFORMATION
  Form 10-K.
 32




---



##### Table of Contents



ITEM 6:
    SELECTED
    FINANCIAL DATA.  Form 10-K. Form 10-K.
  Fiscal Year EndedJanuary 1,


December 31,


December 30,


December 29,


January 3,2005


2005


2006


2007


2009Revenues:Net revenues from product sales

$
274,988


$
355,374


$
461,183


$
512,194


$
577,073Service fee revenues


60,116



85,018



148,370



237,763



389,853Net revenues


335,104



440,392



609,553



749,957



966,926Total costs and expenses(1)


335,505



437,514



599,906



745,015



975,938Income (loss) from operations


(401
)


2,878



9,647



4,942



(9,012
)Total other (income) expense


(64
)


(142
)


(58
)


1,990



11,281Income (loss) before income taxes


(337
)


3,020



9,705



2,952



(20,293
)Provision (benefit) for income taxes(2)






321



(43,728
)


(87
)


(3,370
)Net income (loss) before cumulative effect of change in
    accounting principle


(337
)


2,699



53,433



3,039



(16,923
)Cumulative effect of change in accounting principle










268







Net income (loss)

$
(337
)

$
2,699


$
53,701


$
3,039


$
(16,923
)Basic earnings (loss) per share:Prior to cumulative effect of change in accounting principle

$
(0.01
)

$
0.06


$
1.18


$
0.07


$
(0.36
)Net income (loss) per share

$
(0.01
)

$
0.06


$
1.19


$
0.07


$
(0.36
)Diluted earnings (loss) per share:Prior to cumulative effect of change in accounting principle

$
(0.01
)

$
0.06


$
1.09


$
0.06


$
(0.36
)Net income (loss) per share(3)

$
(0.01
)

$
0.06


$
1.10


$
0.06


$
(0.36
)BALANCE SHEET DATA:Total assets

$
231,823


$
332,646


$
463,557


$
693,640


$
734,896Total long-tem liabilities(4)


13,564



70,594



74,257



240,379



246,947Working capital(5)


30,106



109,804



125,172



165,822



40,938Stockholders equity


118,053



153,173



227,707



249,421



247,818     (1)
    
    Beginning in fiscal 2006, we adopted the provisions of Statement
    of Financial Accounting Standards 123(R), Share-Based
    Payment, for recognizing stock-based compensation. We
    recognized $18.2 million in fiscal 2008, $8.4 million
    in fiscal 2007, $7.6 million in fiscal 2006,
    $3.8 million in fiscal 2005 and $3.6 million in fiscal
    2004. 33




---



##### Table of Contents



(2)
    
    Included in fiscal 2006 was a $44.4 million non-cash income
    tax benefit. For additional information, see Note 11,
    Income Taxes, to our consolidated financial statements
    included in Item 15, Exhibits and Financial Statement
    Schedule, of this Annual Report on
    Form 10-K.(3)
    
    For additional information on the diluted earnings (loss) per
    share calculation, see Note 12, Earnings Per Share,
    to our consolidated financial statements included in
    Item 15, Exhibits and Financial Statement Schedule,
    of this Annual Report on
    Form 10-K.(4)
    
    In fiscal 2007, we completed a subordinated convertible notes
    offering of $150.0 million. For additional information, see
    Note 7, Long-Term Debt and Credit Facility, to our
    consolidated financial statements included in Item 15,
    Exhibits, Financial Statement Schedules, of this Annual
    Report on
    Form 10-K.(5)
    
    In fiscal 2008, we acquired
    e-Dialog,
    Inc. for $150.1 million, including acquisition costs.
    Note 6, Acquisitions, to our consolidated financial
    statements included in Item 15, Exhibits and Financial
    Statement Schedule, of this Annual Report on
    Form 10-K.  ITEM 7:
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS.  All
    statements made in this Annual Report on
    Form 10-K,
    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 clients operate, changes affecting the Internet
    and
    e-commerce,
    our ability to develop and maintain relationships with strategic
    clients and suppliers and the timing of our establishment,
    extension or termination of our relationships with strategic
    clients, 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. In addition, the current global economic
    environment amplifies many of these risks. More information
    about potential factors that could affect us is described in
    Item 1A of Part I, Risk Factors. We
    expressly disclaim any intent or obligation to update these
    forward-looking statements.
  Executive
    Overview
    
    Net revenues grew $216.9 million, or 29%, over fiscal 2007.
    Net income decreased from $3.0 million in fiscal 2007 to a
    loss of $16.9 million in fiscal 2008.
    In January 2008, we entered into a secured bank line of credit
    with an initial borrowing availability of $75 million. In
    May 2008, we increased the line of credit by $15 million,
    expanding our total borrowing availability to $90 million.
    The five-year, 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 January 3, 2009,
    there were no outstanding borrowings under the line of credit
    and we were in compliance with all covenants.
    In February 2008, we acquired
    e-Dialog, a
    provider of advanced
    e-mail
    marketing services and solutions to more than 100 companies
    in the U.S. and Europe, for $150.1 million, including
    acquisition costs. We believe that the acquisition will expand
    the breadth and depth of our interactive marketing services
    capabilities, our reach into existing and new vertical markets,
    and our growing European presence. 34




---



##### Table of Contents




    In January 2009, we terminated the agreement we entered into in
    October 2008 to acquire Innotrac Corporation, an
    e-commerce
    fulfillment and customer care services provider. The parties
    mutually agreed to terminate the agreement based on current
    prevailing market valuations. Neither party has any financial
    obligation to the other party as a result of the termination.    
    We expect a modest decrease in net revenues due primarily to the
    liquidation of the business of a client that was one of our top
    ten contributors of service fee revenues for fiscal 2008 and
    fiscal 2007, and the transition during fiscal 2009 of one owned
    inventory client to a non-owned inventory deal structure. We
    believe that the client transition will result in a decrease in
    net revenues from product sales partially offset by an increase
    in service fee revenues in fiscal 2009 and it will have no
    material effect on earnings. We also expect this transition will
    decrease our cost of revenues from product sales and our
    marketing expenses in fiscal 2009. In addition, we believe, due
    to the current economic environment, same store
    e-commerce
    revenues in fiscal  2009 will grow at a more moderate rate than
    in fiscal 2008 and that capital expenditures will modestly
    decrease in fiscal 2009. We believe we will have a net loss in
    fiscal 2009.  Results
    of Operations
  Comparison
    of Fiscal 2008 and 2007 (amounts in tables in
    millions):
  Net
    Revenues
  e-commerce e-commerce
  Fiscal 2008vs.Fiscal 2007Fiscal 2007


Fiscal 2008


$ Change


% ChangeNet Revenues by Type:Net revenues from product sales

$
512.2



68.3
%

$
577.1



59.7
%

$
64.9



12.7
%Service fee revenues


237.8



31.7
%


389.8



40.3
%


152.0



63.9
%Total net revenues

$
750.0



100.0
%

$
966.9



100.0
%

$
216.9



28.9
%Net Revenues by Segment:E-Commerce
    services

$
737.9



98.4
%

$
900.0



93.1
%

$
162.1



22.0
%Interactive marketing services


26.9



3.6
%


84.5



8.7
%


57.6



214.1
%Intersegment eliminations


(14.8
)


(2.0
)%


(17.6
)


(1.8
)%


(2.8
)


18.9
%Total net revenues

$
750.0



100.0
%

$
966.9



100.0
%

$
216.9



28.9
%   Net
    Revenues by Type
  Net Revenues from Product Sales. e-commerce
   35




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##### Table of Contents



Service Fee Revenues. e-commerce E-commerce e-commerce
  e-Dialog, e-Dialog
    Net
    Revenues by Segment
  E-Commerce
    Services Segment Revenues. e-commerce
  e-commerce
  Net Revenues by Type  Net Revenues
    from Product Sales
  Interactive Marketing Services Segment
    Revenues. e-Dialog
  Costs and
    Expenses
   36




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##### Table of Contents



Fiscal 2008vs.Fiscal 2007


Fiscal 2008


Fiscal 2007% of





% ofNet





Net


$


%$


Revenues


$


Revenues


Change


ChangeCost of revenues from product sales

$
356.5



47.5
%

$
405.3



41.9
%

$
48.8



13.7
%Marketing


64.6



8.6
%


70.3



7.3
%


5.7



8.8
%Account management and operations


177.3



23.6
%


259.9



26.9
%


82.6



46.6
%Product development


65.9



8.8
%


104.0



10.7
%


38.1



57.8
%General and administrative


43.4



5.8
%


68.3



7.1
%


24.9



57.4
%Depreciation and amortization


37.3



5.0
%


68.1



7.0
%


30.8



82.6
%Total costs and expenses

$
745.0



99.3
%

$
975.9



100.9
%

$
230.9



31.0
%   Cost of Revenues from Product Sales. e-commerce
  Fiscal 2007


Fiscal 2008Cost of revenues from product sales

$
356.5


$
405.3As a percentage of net revenues from product sales


69.6
%


70.2
%       Marketing. e-commerce
  Fiscal 2007


Fiscal 2008Marketing

$
64.6


$
70.3As a percentage of net revenues from product sales


12.6
%


12.2
%      37




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##### Table of Contents



Account Management and Operations.
  e-Dialog, start-up, e-commerce
  Product Development. e-commerce e-mail
  e-Dialog, e-commerce e-commerce
  General and Administrative.
  e-Dialog, e-commerce
 38




---



##### Table of Contents



e-commerce
  Depreciation and Amortization.
  e-Dialog e-Dialog
    Comparison
    of Fiscal 2007 and 2006 (amounts in tables in
    millions):
  Net
    Revenues
  Fiscal 2007vs.Fiscal 2006$


%Fiscal 2006


Fiscal 2007


Change


ChangeNet Revenues by Type:Net revenues from product sales

$
461.2



75.7
%

$
512.2



68.3
%

$
51.0



11.1
%Service fee revenues


148.4



24.3
%


237.8



31.7
%


89.4



60.2
%Total net revenues

$
609.6



100.0
%

$
750.0



100.0
%

$
140.4



23.0
%Net Revenues by Segment:E-Commerce
    services

$
600.8



98.6
%

$
737.9



98.4
%

$
137.1



22.8
%Interactive marketing services


18.9



3.1
%


26.9



3.6
%


8.0



42.3
%Intersegment eliminations


(10.1
)


(1.7
)%


(14.8
)


(2.0
)%


(4.7
)


46.5
%Total net revenues

$
609.6



100.0
%

$
750.0



100
%

$
140.4



23.0
%   Net
    Revenues by Type
  Net Revenues from Product Sales.
  Service Fee Revenues. e-commerce
 39




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##### Table of Contents



Net
    Revenues by Segment
  E-Commerce
    Services Segment Revenues.
  e-commerce e-commerce E-commerce Net Revenues by Type  Net Revenues from
    Product Sales
  Interactive Marketing Services Segment
    Revenues.
  Costs and
    Expenses
  Fiscal 2007vs.Fiscal 2006


Fiscal 2007


Fiscal 2006%of





%ofNet





Net


$


%$


Revenues


$


Revenues


Change


ChangeCost of revenues from product sales

$
331.2



54.3
%

$
356.5



47.5
%

$
25.3



7.6
%Marketing


48.6



8.0
%


64.6



8.6
%


16.0



32.9
%Account management and operations


117.3



19.2
%


177.3



23.6
%


60.0



51.2
%Product development


45.4



7.5
%


65.9



8.8
%


20.5



45.2
%General and administrative


36.1



5.9
%


43.4



5.8
%


7.3



20.2
%Depreciation and amortization


21.3



3.5
%


37.3



5.0
%


16.0



75.1
%Total costs and expenses

$
599.9



98.4
%

$
745.0



99.3
%

$
145.1



24.2
%   Cost of Revenues from Product Sales:
  Fiscal 2006


Fiscal 2007Cost of revenues from product sales

$
331.2


$
356.5As a percentage of net revenues from product sales


71.8
%


69.6
%      40




---



##### Table of Contents



Marketing:
  Fiscal 2006


Fiscal 2007Marketing

$
48.6


$
64.6As a percentage of net revenues from product sales


10.5
%


12.6
%       Account management and operations. start-up,
  Product Development. e-commerce
  General and Administrative.
  Depreciation and Amortization.
  Other
    (Income) Expense
    41




---



##### Table of Contents



Fiscal 2008vs.Fiscal 2007


Fiscal 2008


Fiscal 2007% of





% ofNet





Net


$


%$


Revenues


$


Revenues


Change


ChangeInterest expense

$
6.0



0.8
%

$
9.8



1.0
%

$
3.8



63.3
%Interest income


(9.3
)


(1.2
%)


(1.8
)


(0.2
%)


7.5



(80.6
%)Other expense


0.2



0.0
%


1.6



0.2
%


1.4



700.0
%Loss on sale of marketable securities


5.0



0.7
%






0.0
%


(5.0
)


(100.0
%)Impairment of equity investments






0.0
%


1.7



0.2
%


1.7



100.0
%Total other expenses

$
1.9



0.3
%

$
11.3



1.2
%

$
9.4



494.7
%       Income
    Taxes
      
    A $2,085 (or 10.3%) reduction in the tax benefit primarily
    resulting from the imposition of a valuation allowance on
    foreign losses; and


    a $561 (or 2.8%) reduction in the tax benefit resulting from
    rate differences between U.S. and
    non-U.S. jurisdictions.    
    A $294 (or 10.0%) increase in tax benefit resulting from the
    reversal of valuation allowance.    
    A $41,492 (or 427.5%) increase in tax benefit resulting from the
    reversal of valuation allowance; and
    a $4,513 (or 46.5%) increase in tax benefit resulting from the
    increase in federal tax rate from 34% to 35% in recording
    deferred tax items.  Seasonality
  e-commerce
 42




---



##### Table of Contents



Quarterly Results (Unaudited) Exhibits and Financial Statement Schedule Form 10-K.
  Liquidity
    and Capital Resources
  Fiscal Year EndedDecember 30,


December 29,


January 3,2006


2007


2009(In millions)Cash and cash equivalents

$
71.4


$
231.5


$
130.3Marketable securities


113.1







Total cash, cash equivalents, and marketable securities

$
184.5


$
231.5


$
130.3Percentage of total assets


39.8
%


33.4
%


17.7
%   Sources
    of Cash
        and/or
     43




---



##### Table of Contents



Uses
    of Cash
      e-Dialog
  Outlook
  Risk Factors
  and/or
    Contractual
    Obligations
    Payments due by fiscal yearLess thanContractual Obligation(1)(2)

Total


1 Year


1-3 Years


4-5 Years


ThereafterOperating lease obligations

$
65,309


$
14,881


$
24,672


$
12,737


$
13,019Purchase obligations(3)


93,934



86,989



6,945







Client revenue share payments


159,919



21,643



54,901



29,525



53,850Debt interest


36,916



6,813



9,750



8,979



11,374Debt obligations


220,163



399



57,904



457



161,403Capital lease obligations


29,047



6,159



11,902



9,239



1,747Total contractual obligations

$
605,288


$
136,884


$
166,074


$
60,937


$
241,393  44




---



##### Table of Contents



(1)
    
    For additional information, see Note 7, Long-Term Debt
    and Credit Facility, and Note 8, Commitments and
    Contingencies, of the Notes to Consolidated Financial
    Statements, included in Item 15, Exhibits and Financial
    Statement Schedule, of this Annual Report on
    Form 10-K.(2)
    
    Approximately $1.7 million of unrecognized tax benefits
    have been recorded as liabilities in accordance with Financial
    Accounting Standards Boards Interpretation
    (FIN) 48, Accounting for Uncertainty in Income
    Taxes, an interpretation of FASB Statement 109
    (FIN 48), and we are uncertain as to if or when
    such amounts may be settled; as a result, these obligations are
    not included in the table above.(3)
    
    Purchase obligations are defined as agreements to purchase goods
    or services that are enforceable and legally binding and that
    specify all significant terms, including fixed or minimum
    quantities to be purchased, fixed, minimum or variable pricing
    provisions and the approximate timing of the transactions. These
    obligations relate primarily to commitments to purchase
    inventory, which generally are cancelable without penalty if
    canceled prior to shipment.  Off
    Balance Sheet Arrangements
    Critical
    Accounting Estimates
    Summary of Significant Accounting Policies Exhibits and Financial Statement Schedule Form 10-K.
  Revenue
    Recognition
       45




---



##### Table of Contents



Allowance
    for Accounts Receivable
      Accounting
    for Inventory
    Accounting
    for Internal Use Software
  98-1,
 46




---



##### Table of Contents



and/or
  Goodwill
    and Other Intangible Assets
    and/or
  and/or
   47




---



##### Table of Contents



Income
    Taxes and Deferred Taxes
    and/or
    2009-2015

$
20.3 million2016-2021


386.3 million2022-2028


219.8 million$
626.4 million        48




---



##### Table of Contents



ITEM 7A:
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.        EstimatedFair ValueFiscal Year








at the End of2008


2009


2010


2011


Thereafter


Total


Fiscal 2008Money market mutual funds

$
97,849


$



$



$



$



$
97,849


$
97,849Weighted average interest rate


1.37
%


















1.37
%Cash equivalents

$
97,849


$



$



$



$



$
97,849


$
97,849      49




---



##### Table of Contents



ITEM 8:
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA.  Form 10-K Form 10-K.
  ITEM 9:
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE.    ITEM 9A:
    CONTROLS
    AND PROCEDURES.  Evaluation of disclosure controls and
    procedures. Rule 13a-15(e).
  Rule 13a-15(e),
  Changes in internal control over financial
    reporting. Rule 13a-15(d),
  Managements annual report on internal control over
    financial reporting. Rule 13a-15(f).
  Internal Control  Integrated
    Framework e-Dialog, e-Dialog
 50




---



##### Table of Contents



Internal
    Control  Integrated Framework
   51




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework e-Dialog, e-Dialog,
        Internal Control  Integrated Framework
      
 52




---



##### Table of Contents



ITEM 9B:
    OTHER
    INFORMATION.   PART III  ITEM 10:
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.    Form 10-K.
  Form 8-K
  ITEM 11:
    EXECUTIVE
    COMPENSATION.    ITEM 12:
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS.   53




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##### Table of Contents



Equity
    Compensation Plan Information as of the End of Fiscal
    2008
    Number of SecuritiesNumber of Securities





Remaining Available forto be Issued


Weighted-Average


Future Issuance Underupon Exercise of


Exercise Price of


Equity Compensation PlansOutstanding Options,


Outstanding Options,


(Excluding SecuritiesWarrants and Rights


Warrants and Rights


Listed in Column (a))Plan Category

(a)


(b)


(c)Equity compensation plans approved by stockholders(1)


7,822,035


$
9.90



2,841,284Equity compensation plans not approved by stockholders(2)


215,100


$
2.72



Total


8,037,135


$
9.54



2,841,284     (1)
    
    These plans are the 1996 Equity Incentive Plan and the 2005
    Equity Incentive Plan (the Plans). The 2005 Equity
    Incentive Plan provides for the grant of incentive stock
    options, nonstatutory stock options, stock appreciation rights,
    stock purchase awards, stock bonus awards, stock unit awards,
    and other forms of equity compensation. We have issued stock
    options, restricted stock units and restricted stock awards
    under these Plans. These stock options generally expire
    10 years from the date of grant. The stock options,
    restricted stock units and restricted stock awards generally
    vest over four years, although some restricted stock units and
    restricted stock awards vest in less than four years. Upon the
    occurrence of a change in control, certain awards will
    immediately become exercisable in full. The weighted average
    exercise price in the table above does not take these restricted
    stock units and restricted stock awards into account. No future
    awards will be granted pursuant to the 1996 Equity Incentive
    Plan.(2)
    
    Included are warrants to purchase our Common Stock to
    consultants, advisors, clients and investors. The Board of
    Directors approved these grants in 1999 through 2001, although
    some of these warrant grants relate to earlier periods. These
    warrants generally expire no less than five years and no more
    than 15 years from the date of grant. The exercise prices
    for these warrants range from $2.50 to $7.63.  ITEM 13:
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE.   ITEM 14:PRINCIPAL
    ACCOUNTING FEES AND SERVICES.   54




---



##### 



PART IV  ITEM 15:
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULE  (a)
    1.
    CONSOLIDATED FINANCIAL STATEMENTS   
 PageReport of Independent Registered Public
    Accounting Firm


F-1Consolidated Balance Sheets as of
    December 29, 2007 and January 3, 2009


F-2Consolidated Statements of Operations for the
    Fiscal Years Ended December 30, 2006, December 29,
    2007 and January 3, 2009


F-3Consolidated Statements of Stockholders
    Equity for the Fiscal Years Ended December 30, 2006,
    December 29, 2007 and January 3, 2009


F-4Consolidated Statements of Cash Flows for the
    Fiscal Years Ended December 30, 2006, December 29,
    2007 and January 3, 2009


F-5Notes to Consolidated Financial Statements


F-6    2.
    FINANCIAL
    STATEMENT SCHEDULE  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  Balance at


Charged toBeginning


Costs and





Balance atof Year


Expenses


Deductions*


End of Year(In thousands)Allowance for Doubtful Accounts:Fiscal Year 2006

$
727


$
2,456


$
(2,105
)

$
1,078Fiscal Year 2007

$
1,078


$
3,341


$
(2,586
)

$
1,833Fiscal Year 2008

$
1,833


$
5,475


$
(4,561
)

$
2,747     *
    
    Deductions include write-offs  Balance at


Charged


ChargedBeginning


(Credited) to


(Credited) to


Balance atof Year


Expense


Goodwill


End of Year(In thousands)Valuation Allowance for Deferred Tax Assets:Fiscal Year 2006

$
162,576


$
(47,195
)

$



$
115,381Fiscal Year 2007

$
115,381


$
(1,846
)

$
7,882


$
121,417Fiscal Year 2008

$
121,417


$
2,463


$
(389
)

$
123,491    55




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##### Table of Contents



3.
    EXHIBITS  ExhibitNumber

Description2
.1

Agreement and Plan of Merger dated as of August 16, 2007 among
    GSI Commerce, Inc., Blue Route, Inc., Accretive Commerce, Inc.
    and certain of the principal stakeholders of Accretive Commerce,
    Inc. (filed with GSI Commerce, Inc.s Current Report on
    Form 8-K filed on August 17, 2007 and incorporated herein by
    reference)2
.2

Agreement and Plan of Merger, dated as of January 23, 2008, by
    and among GSI Commerce, Inc., Dolphin Acquisition Corporation,
    E-Dialog, Inc. and One Liberty Ventures 2000, L.P. (as
    Stockholders Representative) (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K filed on January 29, 2008
    and incorporated herein by reference)3
.1

Amended and Restated Certificate of Incorporation of Global
    Sports, Inc. (filed as Appendix B to GSI Commerce, Inc.s
    Definitive Proxy Statement on Schedule 14A filed on April 27,
    2001 and incorporated herein by reference)3
.2

Certificate of Amendment to Amended and Restated Certificate of
    Incorporation of Global Sports, Inc. (filed with GSI Commerce,
    Inc.s Quarterly Report on Form 10-Q for the quarter ended
    June 29, 2002 and incorporated herein by reference)3
.3

Amended and Restated Bylaws GSI Commerce, Inc. (filed with GSI
    Commerce, Inc.s Current Report on Form 8-K filed on
    November 12, 2008 and incorporated herein by reference)3
.4

Certificate of Designations, Preferences and Rights of Series A
    Junior Participating Preferred Stock (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K filed on April 3, 2006
    and incorporated herein by reference)4
.1

Form of Investor Warrant (filed with GSI Commerce, Inc.s
    Quarterly Report on Form 10-Q for the quarter ended September
    29, 2001 and incorporated herein by reference)4
.2

Form of Partner Warrant (filed with GSI Commerce, Inc.s
    Quarterly Report on Form 10-Q for the quarter ended September
    29, 2001 and incorporated herein by reference)4
.3

Specimen Common Stock Certificate (filed with GSI Commerce,
    Inc.s Quarterly Report on Form 10-Q for the Quarter ended
    June 29, 2002 and incorporated herein by reference)4
.4

Registration Rights Agreement, dated July 31, 1995, by and
    between Global Sports, Inc. and MR Acquisitions, Inc. (filed
    with GSI Commerce, Inc.s Current Report on Form 8-K filed
    on July 31, 1995 and incorporated herein by reference)4
.5

Second Amended and Restated Registration Rights Agreement, dated
    as of September 13, 2000, by and between Global Sports, Inc.,
    Interactive Technology Holdings, LLC, SOFTBANK Capital Advisors
    Fund LP and TMCT Ventures, L.P. (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K filed on September 13,
    2000 and incorporated herein by reference)4
.6

Second Amendment to Second Amended and Restated Registration
    Rights Agreement, dated as of July 20, 2001, among Global
    Sports, Inc., SOFTBANK Capital Partners LP, SOFTBANK Capital
    Advisors Fund LP, Rustic Canyon Ventures, LP (f/k/a TMCT
    Ventures, LP) and Interactive Technology Holdings, LLC (filed
    with GSI Commerce, Inc.s Current Report on Form 8-K filed
    on August 27, 2001 and incorporated herein by reference)4
.7

Third Amendment to Second Amended and Restated Registration
    Rights Agreement, dated as of July 25, 2003, among Global
    Sports, Inc. (n/k/a GSI Commerce, Inc.), SOFTBANK Capital
    Partners LP, SOFTBANK Capital Advisors Fund LP, Rustic Canyon
    Ventures, LP (f/k/a TMCT Ventures, LP) and Interactive
    Technology Holdings, Inc. (filed with GSI Commerce, Inc.s
    Current Report on Form 8-K on July 29, 2003 and incorporated
    herein by reference)4
.8

Fourth Amendment to Second Amended and Restated Registration
    Rights Agreement, dated as of June 26, 2004, among Global
    Sports, Inc. (n/k/a GSI Commerce, Inc.), SOFTBANK Capital
    Partners LP, SOFTBANK Capital Advisors Fund LP, Rustic Canyon
    Ventures, LP (f/k/a TMCT Ventures, LP) and Interactive
    Technology Holdings, Inc. (filed with GSI Commerce, Inc.s
    Annual Report Form 10-K filed on March 17, 2005 and incorporated
    herein by reference)4
.9

Rights Agreement, dated as of April 3, 2006, between GSI
    Commerce, Inc. and American Stock Transfer & Trust Company,
    as Rights Agent, including all exhibits thereto (filed with GSI
    Commerce, Inc.s Current Report on Form 8-K filed on April
    3, 2006 and incorporated herein by reference) 56




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##### Table of Contents



ExhibitNumber

Description4
.10

Indenture dated as of June 1, 2005 by and between GSI Commerce,
    Inc. and JPMorgan Chase Bank, N.A. (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K dated June 1, 2005 and
    incorporated herein by reference)4
.11

Form of 3% Convertible Note due 2025 (filed as Exhibit A to
    Exhibit 4.1 of GSI Commerce, Inc.s Current Report on Form
    8-K dated June 1, 2005 and incorporated herein by reference)4
.12

Form of 2.50% Convertible Senior Note due 2027 (filed with
    GSI Commerce, Inc.s Current Report on Form 8-K dated July
    5, 2007 and incorporated herein by reference)4
.13

Indenture dated as of July 2, 2007 between the Company and The
    Bank of New York, as trustee (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K dated July 5, 2007 and
    incorporated herein by reference)4
.14

Registration Rights Agreement dated as of July 2, 2007 between
    the Company and the initial purchaser named therein (filed with
    GSI Commerce, Inc.s Current Report on Form 8-K dated July
    5, 2007 and incorporated herein by reference)10
.1+

GSI Commerce, Inc.s 1996 Equity Incentive Plan, amended
    and restated as of March 5, 2008 (filed with GSI Commerce,
    Inc.s Annual Report on Form 10-K for the fiscal year ended
    December 29, 2007 and incorporated herein by reference)10
.2+

GSI Commerce, Inc.s 2005 Equity Incentive Plan as amended
    (filed as Appendix A to GSI Commerce, Inc.s Definitive
    Proxy Statement on Schedule 14A filed with the Securities
    Exchange Commission on April 25, 2008 and incorporated herein by
    reference)10
.3+

Leadership Team Deferral Plan, as amended and restated effective
    March 5, 2008 (filed with GSI Commerce, Inc.s Annual
    Report on Form 10-K for the fiscal year ended December 29, 2007
    and incorporated herein by reference)10
.4+

Employment Agreement, dated August 23, 2006, by and between GSI
    Commerce, Inc. and Michael G. Rubin (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K filed on August 29, 2006
    and incorporated herein by reference)10
.5+

Michael Rubin Form of PRSU Agreement (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K filed on August 29, 2006
    and incorporated herein by reference)10
.6

Stock Purchase Agreement dated June 10, 1999, by and between
    Global Sports, Inc., a Delaware corporation, and SOFTBANK
    America Inc., a Delaware corporation (filed with GSI Commerce,
    Inc.s Form 8-K on June 21, 1999 and incorporated herein by
    reference)10
.7

Stock and Warrant Purchase Agreement, dated as of September 13,
    2000, by and between Global Sports, Inc. and Interactive
    Technology Holdings, LLC (filed with GSI Commerce, Inc.s
    Form 8-K on September 20, 2000 and incorporated herein by
    reference)10
.8+

Stock Purchase Agreement, dated as of July 20, 2001, by and
    among Global Sports, Inc., Michael G. Rubin and Interactive
    Technology Holdings, LLC (filed with GSI Commerce, Inc.s
    Current Report on Form 8-K filed on August 27, 2001 and
    incorporated herein by reference)10
.9

Amendment to Stock and Warrant Purchase Agreement, dated as of
    April 27, 2000, by and among Global Sports, Inc. (n/k/a GSI
    Commerce, Inc.), and TMCT Ventures, L.P. (n/k/a Rustic Canyon
    Ventures, LP, dated as of June 26, 2004 (filed with GSI
    Commerce, Inc.s Annual Report on Form 10-K filed on March
    17, 2005 and incorporated herein by reference)10
.10

Letter Agreement, dated as of July 20, 2001, among Global
    Sports, Inc., Interactive Technology Holdings, LLC, SOFTBANK
    Capital Partners LP and SOFTBANK Capital Advisors Fund LP (filed
    with GSI Commerce, Inc.s Current Report on Form 8-K filed
    on August 27, 2001 and incorporated herein by reference)10
.11

Stock and Warrant Exchange Agreement, dated as of July 25, 2003,
    by and between GSI Commerce, Inc. and Interactive Technology
    Holdings, LLC (filed with GSI Commerce, Inc.s Current
    Report on Form 8-K on July 29, 2003 and incorporated herein by
    reference)10
.12

Promissory Note from 935 HQ Associates, LLC to CIBC Inc. dated
    June 9, 2004 (filed with GSI Commerce, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended July 3, 2004 and
    incorporated herein by reference) 57




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##### Table of Contents



ExhibitNumber

Description10
.13

Mortgage, Assignment of Leases and Rents and Security Agreement
    from 935 HQ Associates, LLC in favor of CIBC Inc. dated as of
    June 9, 2004 (filed with GSI Commerce, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended July 3, 2004 and
    incorporated herein by reference)10
.14+

Offer Letter, dated January 31, 2005, between GSI Commerce, Inc.
    and Stephen J. Gold (filed with GSI Commerce, Inc.s
    Current Report on Form 8-K on February 2, 2005 and incorporated
    herein by reference)10
.15+

Form of Change in Control Agreement (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K filed on August 7, 2006
    and incorporated herein by reference)10
.16+

Form of Deferred Stock Award Under the 1996 Equity Incentive
    Plan (filed with GSI Commerce, Inc.s Current Report on
    Form 8-K filed on March 11, 2005 and incorporated herein by
    reference)10
.17+

Form of Restricted Stock Award Grant Notice (Basic) Under the
    GSI Commerce, Inc. 2005 Equity Incentive Plan (filed with GSI
    Commerce, Inc.s Annual Report on Form 10-K filed on March
    15, 2006 and incorporated herein by reference)10
.18+

Form of Restricted Stock Award Grant Notice (Alternate) Under
    the GSI Commerce, Inc. 2005 Equity Incentive Plan (filed with
    GSI Commerce, Inc.s Annual Report on Form 10-K filed on
    March 15, 2006 and incorporated herein by reference)10
.19+

Form of Restricted Stock Unit Grant Notice (Basic) Under the GSI
    Commerce, Inc. 2005 Equity Incentive Plan10
.20+

Form of Restricted Stock Unit Grant Notice Issued to Directors
    Under the 2005 Equity Incentive Plan (Annual Award)10
.21+

Form of Restricted Stock Unit Grant Notice Issued to Directors
    Under the 2005 Equity Incentive Plan (Initial Election Award)10
.22+

Stock Option Grant Notice (Basic) Under the 2005 Equity
    Incentive Plan (filed with GSI Commerce, Inc.s Annual
    Report on Form 10-K filed on March 15, 2006 and incorporated
    herein by reference)10
.23+

Stock Option Grant Notice (Alternate) Under the 2005 Equity
    Incentive Plan (filed with GSI Commerce, Inc.s Annual
    Report on Form 10-K filed on March 15, 2006 and incorporated
    herein by reference)10
.24+

Stock Option Grant Notice Issued to Directors Under the 2005
    Equity Incentive Plan (filed with GSI Commerce, Inc.s
    Annual Report on Form 10-K filed on March 15, 2006 and
    incorporated herein by reference)10
.25

Stock Purchase Agreement, dated as of April 27, 2000, between
    SOFTBANK Capital Partners LP, a Delaware limited partnership and
    SOFTBANK Capital Advisors Fund LP, a Delaware limited
    partnership and Global Sports, Inc., a Delaware corporation.
    (filed as Exhibit I of Amendment No. 1 to the Statement on
    Schedule 13D filed by SOFTBANK Capital Partners LP, a Delaware
    limited partnership, SOFTBANK Capital Partners LLC, a Delaware
    limited liability company, SOFTBANK Capital Partners Investment
    Inc., a Delaware corporation, Ronald D. Fisher, Charles R. Lax,
    SOFTBANK Holdings Inc., a Delaware corporation, SOFTBANK Corp.,
    a Japanese corporation and Masayoshi Son on May 1, 2000 with
    respect GSI Commerce, Inc. and incorporated herein by reference).10
.26

Stock and Warrant Purchase Agreement, dated as of April 27, 2000
    between Global Sports, Inc. and TMCT Ventures, L.P. (filed with
    GSI Commerce, Inc.s Annual Report on Form 10-K filed on
    March 17, 2005 and incorporated herein by reference)10
.27

Agreement dated December 20, 2005 between Interactive Commerce
    Partners LLC and GSI Commerce, Inc. (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K filed on March 9, 2006
    and incorporated herein by reference)10
.28

Purchase Agreement dated June 27, 2007 between Goldman, Sachs
    & Co. and GSI Commerce, Inc. (filed with GSI Commerce,
    Inc.s Current Report on Form 8-K dated July 5, 2007 and
    incorporated herein by reference)10
.29

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 GSI Commerce, Inc.s Current Report on
    Form 8-K filed on January 17, 2008 and incorporated herein by
    reference) 58




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##### Table of Contents



ExhibitNumber

Description10
.30+

Offer Letter, dated March 26, 2007, between GSI Commerce, Inc.
    and Scott Hardy. (filed with GSI Commerce, Inc.s Quarterly
    Report on Form 10-Q for the quarter ended March 29, 2008 and
    incorporated herein by reference)10
.31+

GSI Commerce, Inc. Leadership Team Incentive Plan (filed as from
    Appendix B to GSI Commerce, Inc.s Definitive Proxy
    Statement on Schedule 14A filed with the Securities Exchange
    Commission on April 25, 2008 and incorporated herein by
    reference)10
.32+

Michael Rubin Form of Restricted Stock Unit Agreement10
.33+

Amendment 2008-1 to the Employment Agreement between GSI
    Commerce, Inc. and Michael G. Rubin, dated as of December 30,
    200812
.1

Statement Regarding Computation of Ratios of Earnings to Fixed
    Charges21
.1

List of Subsidiaries23
.1

Consent of Deloitte & Touche LLP24
.1

Power of Attorney, incorporated by reference to the signature
    page of this Annual Report on Form 10-K31
.1

Certification of Chief Executive Officer pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 193431
.2

Certification of Chief Financial Officer pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 193432
.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     +
    
    Management contract or compensatory plan or arrangement
    
    Confidential treatment has been requested for certain portions
    of this exhibit. Omitted portions have been filed separately
    with the Securities and Exchange Commission. 59




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##### Table of Contents



SIGNATURES        By:
    /s/  MICHAEL
    G. RUBIN     POWER OF
    ATTORNEY AND SIGNATURES
  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
    signature appears below constitutes and appoints Michael G.
    Rubin and Michael R. Conn, and each or any one of them, his true
    and lawful attorney-in-fact and agent, with full power of
    substitution and resubstitution, for him and in his name, place
    and stead, in any and all capacities, to sign any and all
    amendments to this
    Form 10-K,
    and to file the same, with all exhibits thereto, and other
    documents in connection therewith, with the Securities and
    Exchange Commission, granting unto said attorneys-in-fact and
    agents, and each of them, full power and authority to do and
    perform each and every act and thing requisite and necessary to
    be done in connection therewith, as fully to all intents and
    purposes as he might or could do in person, hereby ratifying and
    confirming all that said attorneys-in-fact and agents, or any of
    them, or their or his substitutes or substitute, may lawfully do
    or cause to be done by virtue hereof.
  Pursuant to the requirements of the Securities Exchange Act
    of 1934, this Report has been signed below by the following
    persons on behalf of the registrant and in the capacities and on
    the dates indicated.
  Signature

Title(s)

Date/s/  Michael
    G. RubinMichael
    G. Rubin

Chairman, President and Chief Executive Officer (principal
    executive officer)

March 16, 2009/s/  Michael
    R. ConnMichael
    R. Conn

Executive Vice President, Finance and Chief Financial Officer
    (principal financial officer and principal accounting officer)

March 16, 2009/s/  M.
    Jeffrey BranmanM.
    Jeffrey Branman

Director

March 16, 2009/s/  Michael
    DonahueMichael
    Donahue

Director

March 16, 2009/s/  Ronald
    D. FisherRonald
    D. Fisher

Director

March 16, 2009/s/  John
    A. HunterJohn
    A. Hunter

Director

March 16, 2009 60




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##### Table of Contents



Signature

Title(s)

Date/s/  Mark
    S. MenellMark
    S. Menell

Director

March 16, 2009/s/  Jeffrey
    F. RayportJeffrey
    F. Rayport

Director

March 16, 2009/s/  Lawrence
    S. SmithLawrence
    S. Smith

Director

March 16, 2009/s/  Andrea
    M. WeissAndrea
    M. Weiss

Director

March 16, 2009  61




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            Internal Control  Integrated Framework
      F-1




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS  December 29,


January 3,2007


2009(In thousands,except share data)ASSETSCurrent assets:Cash and cash equivalents

$
231,511


$
130,315Accounts receivable, net of allowance of $1,833 and $2,747


64,285



78,544Inventory


47,293



42,856Deferred tax assets


14,114



18,125Prepaid expenses and other current assets


12,459



11,229Total current assets


369,662



281,069Property and equipment, net


156,774



164,833Goodwill


82,757



194,996Intangible assets, net of accumulated amortization of $4,972 and
    $18,340


16,476



46,663Long-term deferred tax assets


45,234



28,862Other assets, net of accumulated amortization of $14,545 and
    $17,484


22,737



18,473Total assets

$
693,640


$
734,896LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
85,667


$
98,100Accrued expenses


98,179



116,747Deferred revenue


17,588



20,397Current portion of long-term debt


2,406



4,887Total current liabilities


203,840



240,131Convertible notes


207,500



207,500Long-term debt


27,245



32,609Deferred revenue and other long-term liabilities


5,634



6,838Total liabilities


444,219



487,078Commitments 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 January 3, 2009






Common stock, $0.01 par value, 90,000,000 shares
    authorized; 46,847,919 and 47,630,824 shares issued as of
    December 29, 2007 and January 3, 2009 respectively;
    46,847,716 and 47,630,621 shares outstanding as of
    December 29, 2007 and January 3, 2009, respectively


468



476Additional paid in capital


366,400



383,883Accumulated other comprehensive loss


(156
)


(2,327
)Accumulated deficit


(117,291
)


(134,214
)Total stockholders equity


249,421



247,818Total liabilities and stockholders equity

$
693,640


$
734,896    F-2




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  Fiscal Year EndedDecember 30,


December 29,


January 3,2006


2007


2009(In thousands, except per share data)Revenues:Net revenues from product sales

$
461,183


$
512,194


$
577,073Service fee revenues


148,370



237,763



389,853Net revenues


609,553



749,957



966,926Costs and expenses:Cost of revenues from product sales


331,253



356,541



405,254Marketing


48,659



64,573



70,282Account management and operations, inclusive of $3,654 $3,101
    and $7,109 of stock-based compensation


117,260



177,333



259,929Product development, inclusive of $936, $1,615 and $3,898 of
    stock-based compensation


45,375



65,898



103,988General and administrative, inclusive of $2,988, $3,703 and
    $7,148 of stock-based compensation


36,062



43,333



68,332Depreciation and amortization


21,297



37,337



68,153Total costs and expenses


599,906



745,015



975,938Income (loss) from operations


9,647



4,942



(9,012
)Other (income) expense:Interest expense


3,107



6,016



9,826Interest income


(6,075
)


(9,270
)


(1,772
)Other expense


37



237



1,562Loss on sale of marketable securities


2,873



5,007



Impairment of equity investments










1,665Total other (income) expense


(58
)


1,990



11,281Income (loss) before income taxes


9,705



2,952



(20,293
)Benefit for income taxes


(43,728
)


(87
)


(3,370
)Net income (loss) before cumulative effect of change in
    accounting principle


53,433



3,039



(16,923
)Cumulative effect of change in accounting principle


268







Net income (loss)

$
53,701


$
3,039


$
(16,923
)Basic earnings (loss) per share:Prior to cumulative effect of change in accounting principle

$
1.18


$
0.07


$
(0.36
)Cumulative effect of change in accounting principle


0.01







Earnings (loss) per share- basic

$
1.19


$
0.07


$
(0.36
)Diluted earnings (loss) per share:Prior to cumulative effect of change in accounting principle

$
1.09


$
0.06


$
(0.36
)Cumulative effect of change in accounting principle


0.01







Earnings (loss) per share- diluted

$
1.10


$
0.06


$
(0.36
)Weighted average shares outstanding  basic


45,174



46,433



47,347Weighted average shares outstanding  diluted


50,624



48,739



47,347    F-3




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY  AccumulatedAdditional








OtherCommon Stock


Paid in


Accumulated


Comprehensive


ComprehensiveShares


Dollars


Capital


Deficit


(Loss) Income


Loss


Total(In thousands)Consolidated balance at December 31, 2005


44,469


$
445


$
329,103


$
(174,031
)





$
(2,344
)

$
153,173Net income














53,701



53,701







53,701Net unrealized gain on available- for-sale securities, net of tax


















388



388



388Unrealized loss on investment in Odimo recorded at fair value,
    net of tax (See Note 3)


















(860
)


(860
)


(860
)Add: Reclassification adjustment for losses realized in net
    income


















2,730



2,730



2,730Cumulative translation adjustment, net of tax


















(11
)


(11
)


(11
)Comprehensive income

















$
55,948Stock-based compensation expense










4,951















4,951Common stock issued to finance acquisition


83



1



1,299















1,300Issuance of common stock and warrants upon exercise of options


1,246



12



10,154















10,166Issuance of stock awards upon vesting


81







(242
)














(242
)Tax benefit in connection with exercise of stock options and
    awards










2,679















2,679Cumulative effect of change in accounting principle










(268
)














(268
)Consolidated balance at December 30, 2006


45,879


$
458


$
347,676


$
(120,330
)





$
(97
)

$
227,707Net income














3,039



3,039







3,039Net unrealized gain on available- for-sale securities, net of tax


















11



11



11Add: Reclassification adjustment for losses realized in net
    income


















80



80



80Cumulative translation adjustment, net of tax


















(150
)


(150
)


(150
)Comprehensive income

















$
2,980Stock-based compensation expense










7,405















7,405Issuance of common stock and warrants upon exercise of options


805



8



8,072















8,080Issuance of stock awards upon vesting


164



2



(2
)














Share-based awards retained for taxes










(1,288
)














(1,288
)Tax benefit in connection with exercise of stock options and
    awards










4,537















4,537Consolidated balance at December 29, 2007


46,848


$
468


$
366,400


$
(117,291
)





$
(156
)

$
249,421Net loss














(16,923
)


(16,923
)






(16,923
)Cumulative translation adjustment, net of tax


















(2,171
)


(2,171
)


(2,171
)Comprehensive loss

















$
(19,094
)Stock-based compensation expense










17,247















17,247Issuance of common stock and warrants upon exercise of options


128



1



1,384















1,385Issuance of stock awards upon vesting


655



7



(7
)














Share-based awards retained for taxes










(222
)














(222
)Tax deficit in connection with exercise of stock options and
    awards










(919
)














(919
)Consolidated balance at January 3, 2009


47,631


$
476


$
383,883


$
(134,214
)





$
(2,327
)

$
247,818    F-4




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Fiscal Year EndedDecember 30,


December 29,


January 3,2006


2007


2009(In thousands)Cash Flows from Operating Activities:Net income (loss)

$
53,701


$
3,039


$
(16,923
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation


20,821



32,763



54,557Amortization


476



4,574



13,596Stock-based compensation


7,578



8,419



18,155Foreign currency transaction losses










1,571Loss on sale of marketable securities


2,873



5,007



Impairment of equity investments










1,665Loss (gain) on disposal of equipment


329



34



(354
)Deferred income taxes


(44,404
)


(505
)


(3,507
)Cumulative effect of change in accounting principle


(268
)






Changes in operating assets and liabilities:Accounts receivable, net


(14,280
)


(7,005
)


(8,130
)Inventory


(12,204
)


(471
)


4,437Prepaid expenses and other current assets


(3,272
)


(2,265
)


2,142Other assets, net


(2,256
)


1,106



2,171Accounts payable and accrued expenses and other


48,377



7,633



23,513Deferred revenue


8,606



5,805



3,076Net cash provided by operating activities


66,077



58,134



95,969Cash Flows from Investing Activities:Payments for acquisitions of businesses, net of cash acquired


(5,849
)


(100,574
)


(145,001
)Cash paid for property and equipment, including internal use
    software


(42,621
)


(54,196
)


(57,180
)Proceeds from government grant related to corporate headquarters


3,000







Proceeds from disposition of assets










1,500Funding of restricted cash escrow funds


(1,052
)






Other deferred cost


95







Cash paid for equity investments


(2,435
)


(3,083
)


Purchases of marketable securities


(226,968
)


(263,688
)


Sales of marketable securities


222,685



371,264



Net cash used in investing activities


(53,145
)


(50,277
)


(200,681
)Cash Flows from Financing Activities:Proceeds from convertible notes






150,000



Borrowings on revolving credit loan










70,000Repayments on revolving credit loan










(70,000
)Proceeds from capital lease financing










7,901Proceeds from long-term borrowing


343







Debt issuance costs paid






(5,042
)


(561
)Repayments of capital lease obligations


(469
)


(935
)


(3,032
)Repayments of mortgage note


(170
)


(182
)


(195
)Excess tax benefit in connection with exercise of stock options
    and awards


145



359



14Proceeds from exercise of common stock options and warrants


10,166



8,080



1,385Net cash provided by financing activities


10,015



152,280



5,512Effect of exchange rate changes on cash and cash equivalents


74



(8
)


(1,996
)Net increase (decrease) in cash and cash equivalents


23,021



160,129



(101,196
)Cash and cash equivalents, beginning of period


48,361



71,382



231,511Cash and cash equivalents, end of period

$
71,382


$
231,511


$
130,315Supplemental Cash Flow InformationCash paid during the period for interest

$
3,182


$
5,622


$
9,798Cash paid during the period for income taxes






564



699Noncash Investing and Financing Activities:Accrual for purchases of property and equipment


1,619



2,943



3,712Equipment financed under capital lease






15,562



2,497Common stock issued to finance acquisition


1,300







    F-5




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in thousands, except per share data)
  NOTE 1 
    DESCRIPTION
    OF BUSINESS  e-commerce e-commerce e-commerce e-commerce e-mail
  NOTE 2 
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES    Fiscal Year:
  Basis of Consolidation:
  Use of Estimates:
  Fair Values: Fair Value of Financial Instruments
  Reclassifications: e-commerce
     F-6




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Cash and Cash Equivalents:
  Inventory:
        Property and Equipment: 98-1, (SOP 98-1)
  
    Three years for office equipment;
    Three to four years for computer hardware and software including
    internal use software;
    Seven years for furniture and fulfillment center equipment;
    The lesser of fifteen years or lease term for leasehold
    improvements;
    Fifteen years for building improvements; and
    Thirty years for buildings.    Goodwill and Other Intangible Assets:
   F-7




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
        Goodwill and Other Intangible Assets
  Long-Lived Assets:
  Other Assets, Net:
  14-1, 14-1), New Accounting Pronouncements 14-1.
  FAS 115-1/124-1:
 F-8




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
        Accrued Expenses:
    Revenue Recognition:
  99-19, (EITF 99-19),
  EITF 00-21, (EITF 00-21),
  Net Revenues from Product Sales: e-commerce
 F-9




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  e-commerce EITF 01-09, (EITF 01-09), EITF 01-09 EITF 01-09
  Service Fee Revenues: e-commerce EITF 99-19,
          Cost of Revenues from Product Sales:
 F-10




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  EITF 99-19.
  Vendor Allowances: EITF 02-16,
  Marketing: e-commerce
  e-commerce e-commerce
  SOP 93-7, (SOP 93-7).
    SOP 93-7,
  Account Management and Operations:
 F-11




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Product Development: e-commerce SOP 98-1, Property and Equipment
  General and Administrative:
  Foreign Currency Translation and
    Transactions:
  Stock-Based Compensation:
   F-12




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Stock Awards
  Income Taxes:
        New Accounting Pronouncements: 157-2, Fair Value of Financial Instruments
   F-13




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
        14-1, 14-1 14-1 14-1
 F-14




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    EITF 03-6-1, EITF 03-6-1). EITF 03-6-1 FSP EITF 03-6-1 EITF 03-6-1
  07-5, (EITF 07-5). EITF 07-5 EITF 07-5
  NOTE 3 
    FAIR
    VALUE OF FINANCIAL INSTRUMENTS           F-15




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
     Fair Value Measurements on January 3, 2009Quoted Prices in


Significant


SignificantActive Markets for


Other Observable


UnobservableIdentical Assets


Inputs


InputsRecurring Fair Value Measures

(Level 1)


(Level 2)


(Level 3)AssetsCash and cash equivalents(1)Money market mutual funds

$
97,849


$



$
Other assetsCash surrender value of life insurance policies






991



$
97,849


$
991


$
     (1)
    
    Cash and cash equivalents total $130,315 as of January 3,
    2009, and are comprised of $97,849 of money market mutual funds
    and $32,466 of bank deposits.  Fair Value Measurements on January 3, 2009Quoted Prices in


Significant


SignificantActive Markets for


Other Observable


UnobservableIdentical Assets


Inputs


InputsNonrecurring Fair Value Measures

(Level 1)


(Level 2)


(Level 3)AssetsOther assetsEquity investments

$



$



$
1,418$



$



$
1,418    F-16




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  NOTE 4 
    PROPERTY
    AND EQUIPMENT    December 29,


January 3,2007


2009Computer hardware and software

$
148,091


$
190,957Building and building improvements


44,213



44,721Furniture, warehouse and office equipment, and other


38,916



40,423Land


7,889



7,889Leasehold improvements


4,200



4,592Capitalized leases


17,403



28,141Construction in progress


1,528



1,497262,240



318,220Less: Accumulated depreciation


(105,466
)


(153,387
)Property and equipment, net

$
156,774


$
164,833     NOTE 5 
    GOODWILL
    AND OTHER INTANGIBLE ASSETS    InteractiveE-Commerce


MarketingServices


Services


ConsolidatedDecember 29, 2007

$
82,757


$



$
82,757Purchase price adjustments


(283
)






(283
)e-Dialog
    acquisition (see Note 6)






112,238



112,238Foreign currency translation


284







284January 3, 2009

$
82,758


$
112,238


$
194,996  F-17




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Weighted-December 29,


January 3,


Average2007


2009


LifeGross carrying value of intangible assets subject to
    amortization:Customer contracts

$
17,282


$
38,773



2.5Non-compete agreements


3,838



3,838



3.0Purchased technology






4,493



4.0Trade name


82



470



1.1Foreign currency translation






(691
)21,202



46,883



2.5Accumulated amortization:Customer contracts


(4,570
)


(15,302
)Non-compete agreements


(320
)


(1,599
)Purchased technology






(1,152
)Trade name


(82
)


(470
)Foreign currency translation






183(4,972
)


(18,340
)Net carrying value:Customer contracts


12,712



23,471Non-compete agreements


3,518



2,239Purchased technology






3,341Trade name






Foreign currency translation






(508
)Total intangible assets subject to amortization, net


16,230



28,543Indefinite life intangible assets:Trade name


246



18,120Total intangible assets

$
16,476


$
46,663     Fiscal 2009

$
9,712Fiscal 2010


7,892Fiscal 2011


5,641Fiscal 2012


2,538Fiscal 2013


1,786Thereafter


1,482$
29,051   NOTE 6 
    ACQUISITIONS   F-18




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    e-Dialog,
    Inc.
  e-Dialog, (e-Dialog) e-Dialog e-mail e-Dialog e-commerce e-Dialog, e-Dialog
  e-Dialogs
  e-Dialog
  Total current assets

$
17,067Property, plant and equipment


4,530Goodwill


112,238Identifiable intangible assets:Customer contracts


19,470Internal-developed software


4,493Trade name


17,874Total assets acquired


175,672Total current liabilities


(6,564
)Long-term deferred tax liabilities


(19,042
)Total liabilities assumed


(25,606
)Net assets acquired

$
150,066   Unaudited
    Pro Forma Financial Information
  e-Dialog
 F-19




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Fiscal Year EndedDecember 29,


January 3,2007


2009Net revenues

$
787,531


$
971,897Net income (loss)

$
2,940


$
(17,337
)Basic and diluted income (loss) per share:

$
0.06


$
(0.37
)   Zendor.com
    Ltd.
  e-commerce e-commerce e-commerce
  Total current assets

$
9,830Property, plant and equipment


3,281Goodwill


1,878Identifiable intangible assets:Customer contracts


2,155Trade name


388Total assets acquired


17,532Total liabilities assumed


(7,612
)Net assets acquired

$
9,920   Accretive
    Commerce, Inc.
  e-commerce e-commerce e-commerce
 F-20




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
      Total current assets

$
16,802Property, plant and equipment


9,197Identifiable intangible assets:Customer contracts


15,008Employee non-compete agreements


3,838Goodwill


61,916Other assets


8,638Total assets acquired


115,399Total current liabilities


(14,962
)Total non-current liabilities


(1,837
)Total liabilities assumed


(16,799
)Net assets acquired

$
98,600     December 29,








Other


January 3,2007


Additions


Payments


Adjustments


2009Severance payments

$
2,667


$
45


$
(2,206
)

$
(415
)

$
91Lease payments


2,824



96



(425
)


(2,212
)


283$
5,491


$
141


$
(2,631
)

$
(2,627
)

$
374  F-21




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  NOTE 7 
    LONG-TERM
    DEBT AND CREDIT FACILITY    December 29,


January 3,2007


2009Convertible notes

$
207,500


$
207,500Notes payable


12,858



12,663Capital lease obligations


16,793



24,833237,151



244,996Less: Current portion of notes payable


(193
)


(184
)Less: Current portion of capital lease obligations


(2,213
)


(4,703
)$
234,745


$
240,109   3%
    Convertible Notes due 2025
    and/or
     F-22




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  2.5% Convertible
    Notes due 2027
           F-23




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Note
    Payable
    Capital
    Lease Obligations
    January 3,2009Gross capital lease obligations

$
29,047Less: imputed interest


(4,214
)Total present value of future minimum lease payments


24,833Less: current portion


(4,703
)Long-term portion

$
20,130   Credit
    Facilities
   F-24




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  NOTE 8 
    COMMITMENTS
    AND CONTINGENCIES  Legal
    Proceedings
      Operating
    and Capital Commitments
    Payments due by fiscal year2009


2010


2011


2012


2013


Thereafter


TotalOperating lease obligations(1)

$
14,881


$
13,987


$
10,685


$
7,358


$
5,379


$
13,019


$
65,309Purchase obligations(1)


86,989



5,953



992















93,934Client revenue share payments(1)


21,643



27,218



27,683



20,818



8,707



53,850



159,919Debt interest(1)


6,813



5,241



4,509



4,498



4,481



11,374



36,916Debt obligations


399



195



57,709



220



237



161,403



220,163Capital lease obligations, including interest(2)


6,159



5,977



5,925



5,631



3,608



1,747



29,047Total

$
136,884


$
58,571


$
107,503


$
38,525


$
22,412


$
241,393


$
605,288     (1)
    
    Not required to be recorded in the Consolidated Balance Sheet as
    of January 3, 2009 in accordance with accounting principles
    generally accepted in the United States of America.(2)
    
    Capital lease obligations, excluding interest, are recorded in
    the Consolidated Balance Sheets.    e-Dialog
 F-25




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  NOTE 9 
    STOCKHOLDERS
    EQUITY  Preferred
    Stock:
    Common
    Stock:
    Stockholders
    Right Plan:
    NOTE 10 
    STOCK
    AWARDS   F-26




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Stock
    Options and Warrants
    WeightedWeighted


AverageNumber of


Average


Remaining


AggregateShares


Exercise


Contractual


Intrinsic(In thousands)


Price


Life (In Years)


ValueOutstanding at December 29, 2007


4,163


$
9.94Granted






Exercised


(121
)

$
11.01Forfeited/Cancelled


(13
)

$
12.87Outstanding at January 3, 2009


4,029


$
9.90



3.70


$
9,136Vested and expected to vest at January 3, 2009


4,029


$
9.90



3.70


$
9,136Exercisable at January 3, 2009


4,029


$
9.90



3.70


$
9,136       WeightedWeighted


AverageNumber of


Average


Remaining


AggregateShares


Exercise


Contractual


Intrinsic(In thousands)


Price


Life (In Years)


ValueOutstanding at December 29, 2007


230


$
3.01Granted





$
Exercised


(8
)

$
7.63Forfeited/Cancelled


(7
)

$
6.96Outstanding at January 3, 2009


215


$
2.72



2.23


$
1,735Vested and expected to vest at January 3, 2009


215


$
2.72



2.23


$
1,735Exercisable at January 3, 2009


15


$
5.70



2.01


$
77    F-27




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Restricted
    Stock Units
      WeightedNumber of


AverageShares


Grant Date(In thousands)


Fair ValueNonvested shares at December 29, 2007


1,870


$
23.40Granted


2,641


$
14.03Vested


(755
)

$
12.39Forfeited/Cancelled


(265
)

$
18.47Nonvested shares at January 3, 2009


3,491


$
19.07         Restricted
    Stock Awards
       F-28




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  NOTE 11 
    INCOME
    TAXES    Fiscal Year EndedDecember 30,


December 29,


January 3,2006


2007


2009Income before income taxes:Domestic

$
9,750


$
3,816


$
(10,375
)Foreign


(45
)


(864
)


(9,918
)Total

$
9,705


$
2,952


$
(20,293
)Provision for income taxes:Current:Federal

$
441


$
64


$
488State


438



682



1,765Foreign






10



Total Current

$
879


$
756


$
2,253Deferred:Federal

$
(42,035
)

$
1,032


$
(4,343
)State


(2,572
)


(1,875
)


(349
)Foreign










(931
)Total Deferred

$
(44,607
)

$
(843
)

$
(5,623
)Total:Federal

$
(41,594
)

$
1,096


$
(3,855
)State


(2,134
)


(1,193
)


1,416Foreign






10



(931
)Total

$
(43,728
)

$
(87
)

$
(3,370
)  F-29




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    December 29,


January 3,2007


2009Deferred tax assets:Net operating loss carryforwards

$
162,532


$
160,284Deferred revenue


8,073



8,810Stock-based compensation


2,987



4,738Investment impairment and losses


2,902



3,669Accrued bonus






2,758Allowance for sales returns


2,657



2,161Alternative minimum tax credits


1,011



1,674Amortization


3,323



1,401Inventory


1,346



1,264Research and development tax credits


473



1,217Provision for doubtful accounts


684



779Accrued expenses


1,295



713Restructuring


2,096



66Other


714



1,353Total deferred tax assets


190,093



190,887Valuation allowance


(121,417
)


(123,491
)Total deferred tax assets, net of valuation allowance


68,676



67,396Deferred tax liabilities:Property and equipment, net


(3,110
)


(2,891
)Amortization of intangibles


(6,218
)


(17,518
)Total deferred tax liabilities


(9,328
)


(20,409
)Net deferred tax asset

$
59,348


$
46,987       2009-2015

$
20,3262016-2021


386,2732022-2028


219,847$
626,446    F-30




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
             F-31




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
      Fiscal Year EndedDecember 30,


December 29,


January 3,2006


2007


2009Statutory federal income tax rate


35.0
%


35.0
%


35.0
%Increase (decrease) in taxes resulting from:Foreign statutory rates differing from U.S. statutory rate


0.0
%


0.0
%


(2.8
)%Valuation allowance


(427.5
)%


(10.0
)%


(10.3
)%State taxes


(14.3
)%


(26.3
)%


(4.5
)%Effect of federal rate change


(46.5
)%


0.0
%


0.0
%Other


2.7
%


(1.7
)%


(0.8
)%Effective income tax rate


(450.6
)%


(3.0
)%


16.6
%       December 29,


January 3,2007


2009Balance at the beginning of the fiscal year

$
437


$
1,014Gross increases for tax positions related to prior years


281



112Gross increases acquired in acquisitions






347Gross increases for tax positions related to current year


351



290Gross decreases for tax positions related to prior years


(28
)


(55
)Gross decreases as a result of a lapse of the statute of
    limitations


(27
)


Balance at the end of the fiscal year

$
1,014


$
1,708    F-32




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
        NOTE 12 
    EARNINGS
    (LOSS) PER SHARE      Fiscal Year EndedDecember 30,


December 29,


January 3,2006


2007


2009Net income (loss) for basic earnings per share

$
53,701


$
3,039


$
(16,923
)Effect of convertible notes


2,008







Net income (loss) as adjusted for diluted earnings per share

$
55,709


$
3,039


$
(16,923
)Weighted average shares outstanding  basic


45,174



46,433



47,347Earnings (loss) per common share  basic

$
1.19


$
0.07


$
(0.36
)Dilutive effect of stock units and awards


165



552



Dilutive effect of stock options and warrants


2,056



1,754



Dilutive effect of convertible notes


3,229







Weighted average shares outstanding  diluted


50,624



48,739



47,347Earnings (loss) per common share  diluted

$
1.10


$
0.06


$
(0.36
)  F-33




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Fiscal Year EndedDecember 30,


December 29,


January 3,2006


2007


2009Stock units and awards


17



20



3,792Stock options and warrants


689



4



4,244Convertible notes






5,715



8,229706



5,739



16,265   NOTE 13 
    MAJOR
    SUPPLIERS/ECONOMIC DEPENDENCY    e-commerce e-commerce e-commerce
  e-commerce e-commerce e-commerce
  e-commerce e-commerce e-commerce
    NOTE 14 
    SEGMENT
    INFORMATION  e-commerce e-Dialog e-commerce
  e-commerce e-mail
   F-34




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
        Fiscal Year Ended December 30, 2006E-Commerce


Interactive


IntersegmentServices


Marketing Services


Eliminations


ConsolidatedNet revenues

$
600,732


$
18,968


$
(10,147
)

$
609,553Costs and expenses before depreciation, amortization and
    stock-based compensation expense


563,963



17,215



(10,147
)


571,031Operating income before depreciation, amortization and
    stock-based compensation expense


36,769



1,753







38,522Depreciation and amortization














21,297Stock-based compensation expense














7,578Income from operations














9,647Interest expense














3,107Interest income














(6,075
)Other expense, net














37Loss on sale of marketable securities














2,873Income before income taxes













$
9,705   F-35




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Fiscal Year Ended December 29, 2007E-Commerce


Interactive


IntersegmentServices


Marketing Services


Eliminations


ConsolidatedNet revenues

$
737,832


$
26,894


$
(14,769
)

$
749,957Costs and expenses before depreciation, amortization and
    stock-based compensation expense


691,749



22,279



(14,769
)


699,259Operating income before depreciation, amortization and
    stock-based compensation expense


46,083



4,615







50,698Depreciation and amortization














37,337Stock-based compensation expense














8,419Income from operations














4,942Interest expense














6,016Interest income














(9,270
)Other expense, net














237Loss on sale of marketable securities














5,007Income before income taxes













$
2,952   Fiscal Year Ended January 3, 2009E-Commerce


Interactive


IntersegmentServices


Marketing Services


Eliminations


ConsolidatedNet revenues

$
900,040


$
84,508


$
(17,622
)

$
966,926Costs and expenses before depreciation, amortization and
    stock-based compensation expense


837,648



69,604



(17,622
)


889,630Operating income before depreciation, amortization and
    stock-based compensation expense


62,392



14,904







77,296Depreciation and amortization














68,153Stock-based compensation expense














18,155Loss from operations














(9,012
)Interest expense














9,826Interest income














(1,772
)Other expense, net














1,562Impairment of equity investments














1,665Loss before income taxes













$
(20,293
)  F-36




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Fiscal Year EndedDecember 30,


December 29,


January 3,2006


2007


2009Product groupings:General merchandise

$
401,933


$
429,324


$
456,886Freight


59,250



82,870



120,187Service fees


148,370



237,763



389,853Total net revenues

$
609,553


$
749,957


$
966,926     NOTE 15 
    RELATED
    PARTY TRANSACTIONS  e-commerce
  E-Commerce and/or and/or
     F-37




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  NOTE 16 
    QUARTERLY
    RESULTS (UNAUDITED)    For the Fiscal Year Ended December 29, 2007First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterNet revenues

$
146,283


$
131,264


$
137,285


$
335,125Gross profit(1)

$
69,481


$
65,482


$
72,027


$
186,426Net income (loss)

$
(2,345
)

$
(5,033
)

$
(6,086
)

$
16,503Income (loss) per share  basic(2)

$
(0.05
)

$
(0.11
)

$
(0.13
)

$
0.35Income (loss) per share  diluted(2)

$
(0.05
)

$
(0.11
)

$
(0.13
)

$
0.30Weighted average shares outstanding  basic


45,999



46,391



46,567



46,774Weighted average shares outstanding  diluted


45,999



46,391



46,567



57,432   For the Fiscal Year Ended January 3, 2009First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterNet revenues

$
195,543


$
193,209


$
186,794


$
391,380Gross profit(1)

$
110,126


$
114,765


$
113,705


$
223,076Net income (loss)

$
(9,565
)

$
(18,960
)

$
(12,839
)

$
24,441Income (loss) per share  basic(2)

$
(0.20
)

$
(0.40
)

$
(0.27
)

$
0.51Income (loss) per share  diluted(2)

$
(0.20
)

$
(0.40
)

$
(0.27
)

$
0.45Weighted average shares outstanding  basic


46,924



47,364



47,488



47,595Weighted average shares outstanding  diluted


46,924



47,364



47,488



56,729     (1)
    
    Gross profit equals net revenues less cost of revenues from
    product sales.(2)
    
    The sum of the quarterly per share amounts may not equal per
    share amounts reported for year-to-date periods. This is due to
    changes in the number of weighted average shares outstanding and
    the effects of rounding for each period.  NOTE 17 
    SUBSEQUENT
    EVENTS  e-commerce
   F-38