##### 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 1934    
|          
|           |  | For the fiscal year ended April 3, 2005                                                     
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to          .                                  

Commission file number: 0-50387





RedEnvelope, Inc.


(Exact name of Registrant as Specified in Its Charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 33-0844285                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)
|149 New Montgomery Street, San Francisco,
    California 94105    
|(Address of Principal Executive Offices and Zip Code)             

(415) 371-9100


(Registrants Telephone Number, Including Area Code)





Securities registered pursuant to Section 12(b) of the
Act:




Securities registered pursuant to Section 12(g) of the
Act:







þ o


o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












---










RedEnvelope, Inc.


TABLE OF CONTENTS TO FORM 10-K


For Fiscal Year Ended April 3, 2005


|              |  |                                                                                                                      |    |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                      |    | Page |   
|              |  |                                                                                                                      |    |      |   
|PART I       
|Item 1.       |  | Business                                                                                                             |    |      | 2  | 
|Item 2.       |  | Properties                                                                                                           |    |      | 9  | 
|Item 3.       |  | Legal Proceedings                                                                                                    |    |      | 9  | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 9  | 
|             
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 10 | 
|Item 6.       |  | Selected Financial Data                                                                                              |    |      | 11 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 12 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |      | 35 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 37 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |      | 55 | 
|Item 9A.      |  | Controls and Procedures                                                                                              |    |      | 55 | 
|Item 9B.      |  | Other Information                                                                                                    |    |      | 55 | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 56 | 
|Item 11.      |  | Executive Compensation                                                                                               |    |      | 56 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management                                                   |    |      | 56 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 56 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                               |    |      | 56 | 
|             
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 57 | 
|Signatures    |  |                                                                                                                      | 59 |     
|EXHIBIT 10.11
|EXHIBIT 10.46
|EXHIBIT 10.47
|EXHIBIT 10.48
|EXHIBIT 10.50
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



1



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PART I







|        |         
|------- | --------
|Item 1. | Business

This Annual Report on Form 10-K and the documents
incorporated herein by reference contain forward-looking
statements based on expectations, estimates and projections as
of the date of this filing. Actual results may differ materially
from those expressed in forward-looking statements. See
Item 7 of Part II  Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Forward-Looking Statements.


Overview






www.redenvelope.com






| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Improve marketing efficiency  by focusing on
    cost-effective customer acquisition, the retention of existing
    customers, and increasing conversion of potential customers
|
| |  | Continue product innovation  by continuing to
    refresh our product offering each season                                                                                     
|
| |  | Seek to increase our scale to maximize cost
    efficiencies  by striving to increase revenues
    while managing fixed costs and improving fulfillment processes              



2



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Merchandising and Sourcing












3



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Marketing








Fulfillment and Distribution






4



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Customer Service








Competition






| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | other online retailers, such as Amazon.com, Gifts.com,
    Shopping.com and eBay                                                                                                                  
|
| |  | major department stores, such as Macys,
    Bloomingdales, Neiman Marcus and their online
    storefronts                                                                                       
|
| |  | physical and online stores and catalog retailers that sell
    popular gift items such as Pottery Barn, Brookstone, The Sharper
    Image, Tiffanys, Harry & David, J Crew, and
    1-800-Flowers
|
| |  | Internet portals and online service providers and other
    comparison shopping sites, such as AOL and Yahoo!                                                                                     



5



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Intellectual Property and Proprietary Rights






Information Technology and Systems








6



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Seasonality




Employees




7



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| |                                     
| | ------------------------------------
| | Executive Officers of the Registrant



|                         |  |     |    |  |             |                                                
|------------------------ |  | --- | -- |  | ----------- | -----------------------------------------------
|Name                     |  | Age |    |  | Position(s)
|                         |  |     |    |  |            
|Alison L. May            |  |     | 55 |  |             | Chief Executive Officer, President and Director
|Polly E. Boe             |  |     | 50 |  |             | Chief Financial Officer and Secretary          
|Edward M. Schmults       |  |     | 42 |  |             | Chief Operating Officer                        
|Kristine N. Dang         |  |     | 38 |  |             | Executive Vice President, Merchandising        
|Gary M. Korotzer         |  |     | 42 |  |             | Vice President of Marketing                    
|Christopher E. Nordquist |  |     | 39 |  |             | General Counsel                                

Alison L. May


Polly E. Boe


Edward M. Schmults


Kristine N. Dang


Gary M. Korotzer


8



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Christopher E. Nordquist







|        |           
|------- | ----------
|Item 2. | Properties










|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings










|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



9



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PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|            |  |      |       |  |     |   |       | 
|----------- |  | ---- | ----- |  | --- | - | ----- | 
|Fiscal 2004 |  | High |       |  | Low |  
|            |  |      |       |  |     |  
|1st Quarter |  |      | N/A   |  |     |   | N/A   | 
|2nd Quarter |  | $    | 14.55 |  |     | $ | 14.35 | 
|3rd Quarter |  | $    | 16.85 |  |     | $ | 11.30 | 
|4th Quarter |  | $    | 16.70 |  |     | $ | 8.07  | 

|            |  |      |       |  |     |   |      | 
|----------- |  | ---- | ----- |  | --- | - | ---- | 
|Fiscal 2005 |  | High |       |  | Low |  
|            |  |      |       |  |     |  
|1st Quarter |  | $    | 10.80 |  |     | $ | 8.17 | 
|2nd Quarter |  | $    | 8.92  |  |     | $ | 6.83 | 
|3rd Quarter |  | $    | 13.70 |  |     | $ | 8.30 | 
|4th Quarter |  | $    | 17.05 |  |     | $ | 7.40 | 





Stockholders




Dividend Policy




10



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The table below shows selected financial data for our last
five fiscal years. Our fiscal year is based on a 52 or
53 week year and ends on the Sunday closest to the last day
in March. The following selected financial data should be read
in conjunction with the financial statements and the notes
thereto on Item 8 of Part II, Financial
Statements and Supplementary Data, and the information
contained in Item 7 of Part II,
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Historical results
are not necessarily indicative of future results.


|                                              |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |         |        |  |   |         |        | 
|--------------------------------------------- | -------------------------- | ------------------------------------- | ------- | ------ | --------- | - | ------ | --------- |  | - | --------- | ------ |  | -------- | ------- | ------ |  | - | ------- | ------ | 
|                                              |                            | Year Ended                            |        
|                                              |                            |                                       |        
|                                              |                            | April 3,                              |         |        | March 28, |   |        | March 30, |  |   | March 31, |        |  | April 1, |        
|                                              |                            | 2005                                  |         |        | 2004      |   |        | 2003      |  |   | 2002      |        |  | 2001     |        
|                                              |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |        
|                                              |                            | (In thousands, except per share data) |        
|Statements of Operations Data:                |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |         |        |  |   |         |       
|Net revenues                                  |                            | $                                     | 101,418 |        |           | $ | 79,308 |           |  | $ | 70,059    |        |  | $        | 55,778  |        |  | $ | 32,565  |       
|Cost of sales                                 |                            |                                       | 48,725  |        |           |   | 39,594 |           |  |   | 36,577    |        |  |          | 31,446  |        |  |   | 19,800  |       
|                                              |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |        
|Gross profit                                  |                            |                                       | 52,693  |        |           |   | 39,714 |           |  |   | 33,482    |        |  |          | 24,332  |        |  |   | 12,765  |       
|Operating expenses:                           |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |         |        |  |   |         |       
|                                              | Fulfillment                |                                       |         | 15,309 |           |   |        | 12,206    |  |   |           | 10,769 |  |          |         | 9,030  |  |   |         | 6,160  | 
|                                              | Marketing                  |                                       |         | 24,468 |           |   |        | 16,680    |  |   |           | 15,280 |  |          |         | 13,411 |  |   |         | 21,613 | 
|                                              | General and administrative |                                       |         | 18,142 |           |   |        | 15,677    |  |   |           | 14,598 |  |          |         | 15,423 |  |   |         | 11,741 | 
|                                              |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |        
|Total operating expenses                      |                            |                                       | 57,919  |        |           |   | 44,563 |           |  |   | 40,647    |        |  |          | 37,864  |        |  |   | 39,514  |       
|                                              |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |        
|Loss from operations                          |                            |                                       | (5,226  | )      |           |   | (4,849 | )         |  |   | (7,165    | )      |  |          | (13,532 | )      |  |   | (26,749 | )     
|Interest income                               |                            |                                       | 352     |        |           |   | 170    |           |  |   | 160       |        |  |          | 459     |        |  |   | 1,424   |       
|Interest expense                              |                            |                                       | (279    | )      |           |   | (449   | )         |  |   | (706      | )      |  |          | (1,036  | )      |  |   | (1,124  | )     
|                                              |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |        
|Net loss                                      |                            | $                                     | (5,153  | )      |           | $ | (5,128 | )         |  | $ | (7,711    | )      |  | $        | (14,109 | )      |  | $ | (26,449 | )     
|                                              |                            |                                       |         |        |           |   |        |           |  |   |           |        |  |          |        
|Net loss per common share  basic and diluted |                            | $                                     | (0.59   | )      |           | $ | (1.16  | )         |  | $ | (24.48    | )      |  | $        | (53.04  | )      |  | $ | (126.55 | )     
|Weighted average shares  basic and diluted   |                            |                                       | 8,749   |        |           |   | 4,422  |           |  |   | 315       |        |  |          | 266     |        |  |   | 209     |       

|                                                   |  |                |        |  |           |   |        |           |  |   |           |   |  |          |         |   |  |   |         |  
|-------------------------------------------------- |  | -------------- | ------ |  | --------- | - | ------ | --------- |  | - | --------- | - |  | -------- | ------- | - |  | - | ------- | -
|                                                   |  | As of          |       
|                                                   |  |                |       
|                                                   |  | April 3,       |        |  | March 28, |   |        | March 30, |  |   | March 31, |   |  | April 1, |        
|                                                   |  | 2005           |        |  | 2004      |   |        | 2003      |  |   | 2002      |   |  | 2001     |        
|                                                   |  |                |        |  |           |   |        |           |  |   |           |   |  |          |        
|                                                   |  | (In thousands) |       
|Balance Sheet Data:                                |  |                |        |  |           |   |        |           |  |   |           |   |  |          |         |   |  |   |         |  
|Cash and equivalents                               |  | $              | 4,807  |  |           | $ | 2,653  |           |  | $ | 4,997     |   |  | $        | 4,910   |   |  | $ | 11,248  |  
|Working capital                                    |  |                | 23,038 |  |           |   | 27,638 |           |  |   | 7,179     |   |  |          | 483     |   |  |   | 19,087  |  
|Total assets                                       |  |                | 46,268 |  |           |   | 45,176 |           |  |   | 22,126    |   |  |          | 18,482  |   |  |   | 32,951  |  
|Capital lease obligations                          |  |                | 869    |  |           |   | 1,412  |           |  |   | 1,775     |   |  |          | 477     |   |  |   | 661     |  
|Total indebtedness                                 |  |                |       |  |           |   |       |           |  |   | 1,123     |   |  |          | 6,000   |   |  |   | 6,797   |  
|Mandatorily redeemable convertible preferred stock |  |                |       |  |           |   |       |           |  |   | 82,556    |   |  |          | 68,410  |   |  |   | 68,162  |  
|Stockholders equity (deficit)                     |  | $              | 30,034 |  |           | $ | 33,917 |           |  | $ | (71,451   | ) |  | $        | (64,191 | ) |  | $ | (51,439 | )

11



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Forward-Looking Statements


This report, together with the documents incorporated herein
by reference, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act
of 1934, as amended. Such statements are based upon current
expectations and involve risks and uncertainties. Any statements
contained in this report that are not purely statements of
historical fact may be deemed to be forward-looking statements.
Such forward-looking statements may include but are not limited
to statements regarding our future operations and enhancements,
product offerings, business, financial condition, results of
operations and prospects. Additionally, statements concerning
possible changes in applicable rules or legislation are
forward-looking statements. Words such as expects,
anticipates, intends, plans,
believes, seeks, estimate,
may, should, could and
similar expressions or variations of such words are intended to
identify forward-looking statements, but are not the exclusive
means of identifying forward-looking statements in this report.
All forward-looking statements in this report are based upon
information available to us as of the date hereof, and we assume
no obligation to revise or update any such forward-looking
statements in order to reflect any event or circumstance that
may arise after the date of this report. Actual results and the
timing of certain events could differ materially from our
current expectations. Factors that could cause or contribute to
such differences include, but are not limited to, those set
forth below in this report under Factors That May Affect
Future Results, and elsewhere in this report, and those
contained from time to time in our other filings with the SEC.
We caution investors that our business and financial performance
are subject to substantial risks and uncertainties.


Overview


www.redenvelope.com










12



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Critical Accounting Policies




Revenue recognition.


13



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Shipping and Handling Costs.


Inventory.


Accounting for income taxes.


Catalog Amortization.


Valuation of long-lived assets.


Stock based compensation.




14



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Results of Operations




|                              |  |                                 |       |    |           |  |       |           |  |  |       |   
|----------------------------- |  | ------------------------------- | ----- | -- | --------- |  | ----- | --------- |  |  | ----- | --
|                              |  | Year Ended                      |      
|                              |  |                                 |      
|                              |  | April 3,                        |       |    | March 28, |  |       | March 30, | 
|                              |  | 2005                            |       |    | 2004      |  |       | 2003      | 
|                              |  |                                 |       |    |           |  |       |           | 
|                              |  | (As percentage of net revenues) |      
|Statements of Operation Data: |  |                                 |       |    |           |  |       |           |  |  |       |   
|Net revenues                  |  |                                 | 100.0 | %  |           |  | 100.0 | %         |  |  | 100.0 | % 
|Cost of sales                 |  |                                 | 48.0  |    |           |  | 49.9  |           |  |  | 52.2  |   
|                              |  |                                 |       |    |           |  |       |           | 
|Gross profit                  |  |                                 | 52.0  |    |           |  | 50.1  |           |  |  | 47.8  |   
|Operating expenses:           |  |                                 |       |    |           |  |       |           |  |  |       |   
|Fulfillment                   |  |                                 | 15.1  |    |           |  | 15.4  |           |  |  | 15.4  |   
|Marketing                     |  |                                 | 24.1  |    |           |  | 21.0  |           |  |  | 21.8  |   
|General and administrative    |  |                                 | 17.9  |    |           |  | 19.8  |           |  |  | 20.8  |   
|                              |  |                                 |       |    |           |  |       |           | 
|Total operating expenses      |  |                                 | 57.1  |    |           |  | 56.2  |           |  |  | 58.0  |   
|                              |  |                                 |       |    |           |  |       |           | 
|Loss from operations          |  |                                 | (5.1  | )  |           |  | (6.1  | )         |  |  | (10.2 | ) 
|Interest income               |  |                                 | 0.3   |    |           |  | 0.2   |           |  |  | 0.2   |   
|Interest expense              |  |                                 | (0.3  | )  |           |  | (0.6  | )         |  |  | (1.0  | ) 
|                              |  |                                 |       |    |           |  |       |           | 
|Net (loss)                    |  |                                 | (5.1  | )% |           |  | (6.5  | )%        |  |  | (11.0 | )%
|                              |  |                                 |       |    |           |  |       |           | 



| |                                                                
| | ---------------------------------------------------------------
| | Comparison of Years Ended April 3, 2005 with
    March 28, 2004

Net Revenues








15



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Cost of Sales










Operating Expenses


Fulfillment.




Marketing.




16



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General and Administrative.




Other Income and Expenses


Interest Income.


Interest Expense.


Income Taxes.




| |                                                                 
| | ----------------------------------------------------------------
| | Comparison of Years Ended March 28, 2004 with
    March 30, 2003

Revenues




17



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Cost of Sales




Operating Expenses


Fulfillment.


Marketing.


General and Administrative.


18



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Other Income and Expenses


Interest Income.


Interest Expense.


Liquidity and Capital Resources




Cash Flows From Operating Activities


Cash Flows From Investing Activities


Cash Flows From Financing Activities


Revolving Credit Facility


19



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Contractual Obligations




|                     |  |                        |        |           |        |   |        |           |  |   |           |  |  |               |     |  |  |   |   | 
|-------------------- |  | ---------------------- | ------ | --------- | ------ | - | ------ | --------- |  | - | --------- |  |  | ------------- | --- |  |  | - | - | 
|                     |  | Payments Due by Period
|                     |  |                       
|                     |  |                        |        | Less Than |        |   |       
|                     |  | Total                  |        |           | 1 Year |   |        | 1-3 Years |  |   | 4-5 Years |  |  | After 5 Years
|                     |  |                        |        |           |        |   |        |           |  |   |           |  |  |              
|                     |  | (In thousands)        
|Capital leases       |  | $                      | 938    |           |        | $ | 632    |           |  | $ | 287       |  |  | $             | 19  |  |  | $ |  | 
|Operating leases     |  |                        | 4,752  |           |        |   | 1,563  |           |  |   | 2,680     |  |  |               | 509 |  |  |   |  | 
|Purchase obligations |  |                        | 9,712  |           |        |   | 9,498  |           |  |   | 214       |  |  |               |    |  |  |   |  | 
|                     |  |                        |        |           |        |   |        |           |  |   |           |  |  |               |    
|Total                |  | $                      | 15,402 |           |        | $ | 11,693 |           |  | $ | 3,181     |  |  | $             | 528 |  |  | $ |  | 
|                     |  |                        |        |           |        |   |        |           |  |   |           |  |  |               |    

Capital Leases


Operating Leases


Purchase Obligations


Other Contractual Arrangements


Revolving Credit Facility


20



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Recently Issued Accounting Standards








Factors That May Affect Future Results


You should consider carefully the risks and uncertainties
relating to our business including those described below,
together with all of the other information included or
incorporated by reference in this Annual Report on
Form 10-K. Additional risks and uncertainties not currently
known to us or that we currently do not deem material could also
become important factors that could harm our business. The
trading price of our common stock could decline due to any of
these risks and uncertainties, and you could lose all or part of
your investment.




| |                                                                              
| | -----------------------------------------------------------------------------
| | Our limited operating history makes evaluation of our
    business difficult.



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| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a history of significant losses. If we do not
    achieve or sustain profitability, our financial condition and
    stock price could suffer.





| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we experience seasonal fluctuations in our net
    sales, our quarterly results will fluctuate and our annual
    performance will depend largely on results from one
    quarter.





| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Our operating results are volatile and difficult to
    predict and may adversely affect our stock price.





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Our computer and communications hardware and software
    systems are vulnerable to damage and interruption, which could
    harm our business.



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| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to offer a broad selection of innovative
    merchandise that consumers find attractive, our revenues could
    decline or fail to reach anticipated levels and our stock price
    could be harmed.





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Failure to successfully manage or expand our fulfillment
    and distribution operation would have a material adverse effect
    on us.





| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | If we do not manage our inventory levels successfully, our
    operating results may be adversely affected.



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| |                                            
| | -------------------------------------------
| | We may have difficulty in product sourcing.









| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Our operating results could suffer if we fail to offer or
    sell sufficient quantities of proprietary products.



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| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Our facilities and systems are vulnerable to natural
    disasters or other catastrophic events.





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | We have grown quickly and if we fail to manage our growth,
    our business will suffer.





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | We experience intense competition in the rapidly changing
    retail gift market.



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| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | other online retailers, such as Amazon.com, Gifts.com,
    Shopping.com and eBay                                                                                                                  
|
| |  | major department stores, such as Macys,
    Bloomingdales, Neiman Marcus and their online
    storefronts                                                                                       
|
| |  | physical and online stores and catalog retailers that sell
    popular gift items such as Pottery Barn, Brookstone, The Sharper
    Image, Tiffanys, Harry & David, J Crew, and
    1-800-Flowers
|
| |  | Internet portals and online service providers and other
    comparison shopping sites, such as AOL and Yahoo!                                                                                     







| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not successfully expand our website and order
    processing systems or respond to rapid technological changes, we
    could lose customers and our net revenues could decline.





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| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Delivery of our merchandise could be delayed or disrupted
    by factors beyond our control, and we could lose customers as a
    result.





| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on seasonal and temporary employees during periods
    of peak activity and any failure by such employees to adequately
    perform their jobs could adversely affect our operations.





| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Increased merchandise returns and a failure to accurately
    predict merchandise returns could harm our business.





| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to successfully manage the costs of our
    catalog operations or our catalogs fail to produce sales at
    satisfactory levels it could adversely affect our
    business.





| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | effective management of costs associated with the production and
    distribution of our catalog
|
| |  | achievement of adequate response rates to our mailings                                          
|
| |  | displaying a mix of merchandise in our catalog that is
    attractive to our customers          
|
| |  | production of aesthetically appealing catalogs                                                  
|
| |  | timely delivery of catalog mailings to our customers                                            

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| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on the success of our advertising and
    marketing efforts which are costly and may not achieve desired
    results.





| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | If we are unable to provide satisfactory customer service,
    we could lose customers.





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| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | The loss of our senior management or other key personnel
    could harm our current and future operations and
    prospects.





| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the protection of our trademarks and proprietary rights
    is inadequate, our brand and reputation could be impaired and we
    could lose customers.







| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Intellectual property claims against us could be costly
    and could impair our business.



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| |                                         
| | ----------------------------------------
| | We face the risk of inventory shrinkage.





| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Poor economic conditions may constrain discretionary
    consumer spending on retail products such as ours.





| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may need additional financing and may not be able to
    raise additional financing on favorable terms or at all, which
    could increase our costs, limit our ability to grow and dilute
    the ownership interests of existing stockholders.





| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | If we default on any secured loan, all or a portion of our
    assets could be subject to forfeiture.



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| |                                                                                       
| | --------------------------------------------------------------------------------------
| | We may face product liability claims that are costly and
    create adverse publicity.





| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may incur significant costs or experience delays in
    product availability due to regulations applicable to the sale
    of food products and live plants, which may hurt our
    business.





| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to comply with the laws regulating the sale of
    tobacco products it may have a negative impact on our reputation
    and make us vulnerable to liability claims.





| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our charter documents, Delaware law and third-party
    contractual restrictions may make an acquisition of us more
    difficult, even if an acquisition would be beneficial to our
    stockholders.





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| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Our success is tied in large part to the continued use of
    the Internet by a large number of consumers.





| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | actual or perceived lack of privacy protection                                               
|
| |  | actual or perceived lack of security of credit card information                              
|
| |  | possible disruptions or other damage to the Internet or
    telecommunications infrastructure
|
| |  | increased governmental regulation and taxation                                               
|
| |  | decreased use of personal computers                                                          





| |                                                                  
| | -----------------------------------------------------------------
| | Customers may be unwilling to purchase goods on the
    Internet.





| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | The security risks of online commerce, including credit
    card fraud, may discourage customers from purchasing goods from
    us.







| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If one or more states successfully assert that we should
    collect sales or other taxes on the sale of merchandise
    purchased from our website, our business could be harmed.



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| |                                                                      
| | ---------------------------------------------------------------------
| | Existing or future government regulation could harm our
    business.





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| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Laws or regulations relating to privacy and data
    protection may adversely affect the growth of our Internet
    business or our marketing efforts.



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| |                                                                             
| | ----------------------------------------------------------------------------
| | We may be subject to liability for the Internet content
    that we publish.





| |                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our directors, executive officers and significant
    stockholders hold a substantial portion of our stock, which may
    lead to conflicts with other stockholders over corporate
    transactions and other corporate matters.








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

Interest Rate Risk




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|                          |  |                |        | 
|------------------------- |  | -------------- | ------ | 
|                          |  | (In thousands) |       
|                          |  |                |       
|Cash and cash equivalents |  | $              | 4,807  | 
|Short-term investments    |  |                | 14,356 | 
|                          |  |                |       
|Total                     |  | $              | 19,163 | 
|                          |  |                |       



Foreign Currency Risk


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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

|                                                            |  |      |    | 
|----------------------------------------------------------- |  | ---- | -- | 
|                                                            |  | Page |   
|                                                            |  |      |   
|Report of Independent Registered Public
    Accounting Firm |  |      | 38 | 
|Balance Sheets                                              |  |      | 39 | 
|Statements of Operations                                    |  |      | 40 | 
|Statements of Stockholders Equity
    (Deficit)            |  |      | 41 | 
|Statements of Cash Flows                                    |  |      | 42 | 
|Notes to Financial Statements                               |  |      | 43 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                          
| | -------------------------
| | /s/ DELOITTE & TOUCHE LLP





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RedEnvelope, Inc.





BALANCE SHEETS


|                                     |                                                                                                                                                                                   |                                            |       |         |           |  |       |         |        | 
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------- | --------- |  | ----- | ------- | ------ | 
|                                     |                                                                                                                                                                                   | April 3,                                   |       |         | March 28, | 
|                                     |                                                                                                                                                                                   | 2005                                       |       |         | 2004      | 
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|                                     |                                                                                                                                                                                   | (In thousands, except                      |      
|                                     |                                                                                                                                                                                   | share data)                                |      
|ASSETS                              
|Current assets:                      |                                                                                                                                                                                   |                                            |       |         |           |  |       |        
|                                     | Cash and cash equivalents                                                                                                                                                         |                                            | $     | 4,807   |           |  | $     | 2,653   |       
|                                     | Short-term investments                                                                                                                                                            |                                            |       | 14,356  |           |  |       | 22,727  |       
|                                     | Accounts receivable, net                                                                                                                                                          |                                            |       | 992     |           |  |       | 1,055   |       
|                                     | Inventory                                                                                                                                                                         |                                            |       | 14,048  |           |  |       | 9,609   |       
|                                     | Prepaid catalog costs and other current assets                                                                                                                                    |                                            |       | 3,905   |           |  |       | 2,037   |       
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|                                     |                                                                                                                                                                                   | Total current assets                       |       |         | 38,108    |  |       |         | 38,081 | 
|Property and equipment, net          |                                                                                                                                                                                   |                                            | 7,587 |         |           |  | 4,746 |        
|Long-term investments                |                                                                                                                                                                                   |                                            |      |         |           |  | 1,844 |        
|Other assets                         |                                                                                                                                                                                   |                                            | 573   |         |           |  | 505   |        
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|                                     |                                                                                                                                                                                   | Total assets                               |       | $       | 46,268    |  |       | $       | 45,176 | 
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                                   |                                            |       |         |           |  |       |        
|                                     | Accounts payable                                                                                                                                                                  |                                            | $     | 10,044  |           |  | $     | 5,539   |       
|                                     | Accrued expenses and other current liabilities                                                                                                                                    |                                            |       | 3,454   |           |  |       | 2,706   |       
|                                     | Accrued compensation                                                                                                                                                              |                                            |       | 993     |           |  |       | 1,602   |       
|                                     | Capital lease obligations, current                                                                                                                                                |                                            |       | 579     |           |  |       | 596     |       
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|                                     |                                                                                                                                                                                   | Total current liabilities                  |       |         | 15,070    |  |       |         | 10,443 | 
|                                     | Capital lease obligations, long-term                                                                                                                                              |                                            |       | 290     |           |  |       | 816     |       
|                                     | Deferred rent                                                                                                                                                                     |                                            |       | 874     |           |  |       |         |       
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|                                     |                                                                                                                                                                                   | Total liabilities                          |       | $       | 16,234    |  |       |         | 11,259 | 
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|Commitments and contingencies        |                                                                                                                                                                                   |                                            |       |         |           |  |       |        
|Stockholders equity:                |                                                                                                                                                                                   |                                            |       |         |           |  |       |        
|                                     | Common stock, $0.01 par value; 100 million shares
    authorized; 8.9 million and 8.5 million issued and
    outstanding as of April 3, 2005 and March 28, 2004,
    respectively |                                            |       | 90      |           |  |       | 86      |       
|                                     | Additional paid-in capital                                                                                                                                                        |                                            |       | 113,831 |           |  |       | 112,728 |       
|                                     | Deferred compensation                                                                                                                                                             |                                            |       | (43     | )         |  |       | (197    | )     
|                                     | Notes receivable from stockholders                                                                                                                                                |                                            |       | (44     | )         |  |       | (44     | )     
|                                     | Accumulated deficit                                                                                                                                                               |                                            |       | (83,805 | )         |  |       | (78,652 | )     
|                                     | Accumulated other comprehensive income (loss)                                                                                                                                     |                                            |       | 5       |           |  |       | (4      | )     
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|                                     |                                                                                                                                                                                   | Total stockholders equity                 |       |         | 30,034    |  |       |         | 33,917 | 
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 
|                                     |                                                                                                                                                                                   | Total liabilities and stockholders equity |       | $       | 46,268    |  |       | $       | 45,176 | 
|                                     |                                                                                                                                                                                   |                                            |       |         |           | 



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RedEnvelope, Inc.





STATEMENTS OF OPERATIONS


|                                                        |                            |                                       |         |        |           |   |        |           |        |   |        |        |        | 
|------------------------------------------------------- | -------------------------- | ------------------------------------- | ------- | ------ | --------- | - | ------ | --------- | ------ | - | ------ | ------ | ------ | 
|                                                        |                            | Fiscal Year Ended                     |        
|                                                        |                            |                                       |        
|                                                        |                            | April 3,                              |         |        | March 28, |   |        | March 30, |       
|                                                        |                            | 2005                                  |         |        | 2004      |   |        | 2003      |       
|                                                        |                            |                                       |         |        |           |   |        |           |       
|                                                        |                            | (In thousands, except per share data) |        
|Net revenues                                            |                            | $                                     | 101,418 |        |           | $ | 79,308 |           |        | $ | 70,059 |       
|Cost of sales                                           |                            |                                       | 48,725  |        |           |   | 39,594 |           |        |   | 36,577 |       
|                                                        |                            |                                       |         |        |           |   |        |           |       
|                                                        | Gross profit               |                                       |         | 52,693 |           |   |        | 39,714    |        |   |        | 33,482 |       
|                                                        |                            |                                       |         |        |           |   |        |           |       
|Operating expenses:                                     |                            |                                       |         |        |           |   |        |           |        |   |        |       
|                                                        | Fulfillment                |                                       |         | 15,309 |           |   |        | 12,206    |        |   |        | 10,769 |       
|                                                        | Marketing                  |                                       |         | 24,468 |           |   |        | 16,680    |        |   |        | 15,280 |       
|                                                        | General and administrative |                                       |         | 18,142 |           |   |        | 15,677    |        |   |        | 14,598 |       
|                                                        |                            |                                       |         |        |           |   |        |           |       
|                                                        |                            | Total operating expenses              |         |        | 57,919    |   |        |           | 44,563 |   |        |        | 40,647 | 
|                                                        |                            |                                       |         |        |           |   |        |           |       
|Loss from operations                                    |                            |                                       | (5,226  | )      |           |   | (4,849 | )         |        |   | (7,165 | )     
|Interest income                                         |                            |                                       | 352     |        |           |   | 170    |           |        |   | 160    |       
|Interest expense                                        |                            |                                       | (279    | )      |           |   | (449   | )         |        |   | (706   | )     
|                                                        |                            |                                       |         |        |           |   |        |           |       
|Net loss                                                |                            | $                                     | (5,153  | )      |           | $ | (5,128 | )         |        | $ | (7,711 | )     
|                                                        |                            |                                       |         |        |           |   |        |           |       
|Net loss per share  basic and diluted                  |                            | $                                     | (0.59   | )      |           | $ | (1.16  | )         |        | $ | (24.48 | )     
|                                                        |                            |                                       |         |        |           |   |        |           |       
|Weighted average shares outstanding  basic and diluted |                            |                                       | 8,749   |        |           |   | 4,422  |           |        |   | 315    |       



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Redenvelope, Inc.





STATEMENTS OF STOCKHOLDERS EQUITY/(DEFICIT)


|                                                                                               |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      |  |   |    |   |  |   |         |   |  |   |        |  
|---------------------------------------------------------------------------------------------- |  | -------------- | ---- | - | ------------ |  | ---- | ---------- |  |  | -------- | - | ---------- | ------- | -- |  | ------------ | ----- | ------- | ------------- | ------------- | - | ------- | - |  | ------------- | --- | - | --------- | - | ------- | ---- |  | - | -- | - |  | - | ------- | - |  | - | ------ | -
|                                                                                               |  | Series A       |      |   |              |  |      |            |  |  | Notes    |   |            |         |    |  |              |       |         |              
|                                                                                               |  | Preferred      |      |   | Common Stock |  |      | Additional |  |  |          |   | Receivable |         |    |  |              | Other |         |               | Stockholders |   |         |  
|                                                                                               |  |                |      |   |              |  |      | Paid-In    |  |  | Deferred |   |            | from    |    |  | Accumulated  |       |         | Comprehensive |               |   | Equity/ |   |  | Comprehensive |    
|                                                                                               |  | Shares         |      |   | Amount       |  |      | Shares     |  |  | Amount   |   |            | Capital |    |  | Compensation |       |         | Stockholder   |               |   | Deficit |   |  | Loss          |     |   | (Deficit) |   |         | Loss | 
|                                                                                               |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      | 
|                                                                                               |  | (In thousands) |     
|Balance at March 31, 2002                                                                      |  |                | 627  |   |              |  | 953  |            |  |  | 329      |   |            |         | 4  |  |              |       | 1,360   |               |               |   | (627    | ) |  |               | (68 | ) |           |   | (65,813 | )    |  |   |   |   |  |   | (64,191 | ) |  |   |       |  
|Exercise of common stock options                                                               |  |                |     |   |              |  |     |            |  |  | 13       |   |            |         |   |  |              |       | 70      |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 70      |   |  |   |       |  
|Exercise of common stock warrants                                                              |  |                |     |   |              |  |     |            |  |  | 15       |   |            |         |   |  |              |       | 10      |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 10      |   |  |   |       |  
|Repurchase of common stock                                                                     |  |                |     |   |              |  |     |            |  |  | (20      | ) |            |         |   |  |              |       | (12     | )             |               |   |        |   |  |               | 12  |   |           |   |        |      |  |   |   |   |  |   |        |   |  |   |       |  
|Repayment of note receivable                                                                   |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |        |               |               |   |        |   |  |               | 12  |   |           |   |        |      |  |   |   |   |  |   | 12      |   |  |   |       |  
|Stock compensation charge                                                                      |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       | 19      |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 19      |   |  |   |       |  
|Amortization of deferred stock compensation                                                    |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |        |               |               |   | 340     |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 340     |   |  |   |       |  
|Reversal of deferred compensation                                                              |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       | (125    | )             |               |   | 125     |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   |        |   |  |   |       |  
|Net loss                                                                                       |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |        |               |               |   |        |   |  |               |    |   |           |   | (7,711  | )    |  |   |    |   |  |   | (7,711  | ) |  |   | (7,711 | )
|                                                                                               |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      | 
|Comprehensive loss                                                                             |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      |  |   |    |   |  |   |         |   |  |   | (7,711 | )
|                                                                                               |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      | 
|Balance at March 30, 2003                                                                      |  |                | 627  |   |              |  | 953  |            |  |  | 337      |   |            |         | 4  |  |              |       | 1,322   |               |               |   | (162    | ) |  |               | (44 | ) |           |   | (73,524 | )    |  |   |   |   |  |   | (71,451 | ) |  |   |       |  
|Exercise of common stock options                                                               |  |                |     |   |              |  |     |            |  |  | 51       |   |            |         |   |  |              |       | 239     |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 239     |   |  |   |       |  
|Issuance of common stock in connection with initial public
    offering, net of issuance costs |  |                |     |   |              |  |     |            |  |  | 2,200    |   |            |         | 22 |  |              |       | 27,419  |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 27,441  |   |  |   |       |  
|Conversion of preferred stock to common stock in connection with
    initial public offering   |  |                | (627 | ) |              |  | (953 | )          |  |  | 5,956    |   |            |         | 60 |  |              |       | 83,444  |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 82,551  |   |  |   |       |  
|Stock compensation charge                                                                      |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       | 9       |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 9       |   |  |   |       |  
|Recognition of deferred stock compensation                                                     |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       | 693     |               |               |   | (693    | ) |  |               |    |   |           |   |        |      |  |   |   |   |  |   |        |   |  |   |       |  
|Amortization of deferred stock compensation                                                    |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |         |               |               |   | 260     |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 260     |   |  |   |       |  
|Reversal of deferred compensation                                                              |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       | (398    | )             |               |   | 398     |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   |        |   |  |   |       |  
|Unrealized (loss) on available for sale investments                                            |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |        |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   | (4 | ) |  |   | (4      | ) |  |   | (4     | )
|Net loss                                                                                       |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |        |               |               |   |        |   |  |               |    |   |           |   | (5,128  | )    |  |   |   |   |  |   | (5,128  | ) |  |   | (5,128 | )
|                                                                                               |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      | 
|Comprehensive loss                                                                             |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      |  |   |    |   |  |   |         |   |  | $ | (5,132 | )
|Balance at March 28, 2004                                                                      |  |                |     |   |              |  |     |            |  |  | 8,544    |   |            |         | 86 |  |              |       | 112,728 |               |               |   | (197    | ) |  |               | (44 | ) |           |   | (78,652 | )    |  |   | (4 | ) |  |   | 33,917  |   |  |   |       |  
|Exercise of common stock options                                                               |  |                |     |   |              |  |     |            |  |  | 302      |   |            |         | 4  |  |              |       | 1,123   |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 1,127   |   |  |   |       |  
|Exercise of common stock warrants                                                              |  |                |     |   |              |  |     |            |  |  | 22       |   |            |         |   |  |              |       |         |               |               |   |        |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   |        |   |  |   |       |  
|ESPP Distribution                                                                              |  |                |      |   |              |  |      |            |  |  | 15       |   |            |         |    |  |              |       | 110     |               |               |   |         |   |  |               |     |   |           |   |         |      |  |   |    |   |  |   | 110     |   |  |   |        |  
|Unrealized gain/(loss)                                                                         |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |         |               |               |   |        |   |  |               |     |   |           |   |        |      |  |   | 9  |   |  |   | 9       |   |  |   | 9      |  
|Issuance of warrants w/ loan                                                                   |  |                |      |   |              |  |      |            |  |  | 11       |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      |  |   |    |   |  |   |         |   |  |   |        |  
|Amortization of deferred stock compensation                                                    |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |        |               |               |   | 24      |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   | 24      |   |  |   |       |  
|Reversal of deferred compensation                                                              |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       | (130    | )             |               |   | 130     |   |  |               |    |   |           |   |        |      |  |   |   |   |  |   |        |   |  |   |       |  
|Net loss                                                                                       |  |                |     |   |              |  |     |            |  |  |         |   |            |         |   |  |              |       |        |               |               |   |        |   |  |               |    |   |           |   | (5,153  | )    |  |   |    |   |  |   | (5,153  | ) |  |   | (5,153 | )
|                                                                                               |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      | 
|Comprehensive loss                                                                             |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      |  |   |    |   |  |   |         |   |  |   | (5,144 | )
|                                                                                               |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      | 
|Balance at April 3, 2005                                                                       |  |                |     |   |              |  |     |            |  |  | 8,894    |   |            | $       | 90 |  |              | $     | 113,831 |               |               | $ | (43     | ) |  | $             | (44 | ) |           | $ | (83,805 | )    |  | $ | 5  |   |  | $ | 30,034  |   |  |   |        |  
|                                                                                               |  |                |      |   |              |  |      |            |  |  |          |   |            |         |    |  |              |       |         |               |               |   |         |   |  |               |     |   |           |   |         |      | 



41



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RedEnvelope, Inc.





STATEMENTS OF CASH FLOWS


|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |         |        |       |        |        |        |  
|------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------------- | ------- | --------- | ------ | ------ | --------- | ------- | ------ | ----- | ------ | ------ | ------ | -
|                                                                                |                                                                        | Fiscal Year Ended                                     |                                          
|                                                                                |                                                                        |                                                       |                                          
|                                                                                |                                                                        | April 3,                                              |                                           |         | March 28, |        |        | March 30, |        
|                                                                                |                                                                        | 2005                                                  |                                           |         | 2004      |        |        | 2003      |        
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|                                                                                |                                                                        | (In thousands)                                        |                                          
|Cash Flows From Operating Activities:                                           |                                                                        |                                                       |                                           |         |           |        |        |           |         |        |       |       
|                                                                                | Net loss                                                               |                                                       | $                                         | (5,153  | )         |        | $      | (5,128    | )       |        | $     | (7,711 | )     
|Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                                        |                                                       |                                           |         |           |        |        |           |         |        |       |       
|                                                                                | Depreciation and amortization                                          |                                                       |                                           | 2,820   |           |        |        | 2,523     |         |        |       | 2,543  |       
|                                                                                | Amortization of deferred stock compensation                            |                                                       |                                           | 24      |           |        |        | 260       |         |        |       | 359    |       
|                                                                                | Loss on disposal of property and equipment                             |                                                       |                                           | 61      |           |        |        |           |         |        |       |        |       
|                                                                                | Other non-cash charges                                                 |                                                       |                                           | 312     |           |        |        | 191       |         |        |       | 64     |       
|                                                                                | Issuance of stock for services                                         |                                                       |                                           |        |           |        |        | 9         |         |        |       | 400    |       
|                                                                                | Changes in operating assets and liabilities:                           |                                                       |                                           |         |           |        |        |           |         |        |       |        |       
|                                                                                |                                                                        | Accounts receivable                                   |                                           |         | 63        |        |        |           | (769    | )      |       |        | 215    |       
|                                                                                |                                                                        | Inventory                                             |                                           |         | (4,439    | )      |        |           | 107     |        |       |        | (2,715 | )     
|                                                                                |                                                                        | Other assets                                          |                                           |         | (2,073    | )      |        |           | (327    | )      |       |        | (347   | )     
|                                                                                |                                                                        | Accounts payable                                      |                                           |         | 4,505     |        |        |           | 251     |        |       |        | 455    |       
|                                                                                |                                                                        | Accrued expenses and other current liabilities        |                                           |         | 142       |        |        |           | 2,142   |        |       |        | (118   | )     
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|                                                                                |                                                                        |                                                       | Net cash used in operating activities     |         |           | (3,738 | )      |           |         | (741   | )     |        |        | (6,855 | )
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|Cash Flows From Investing Activities:                                           |                                                                        |                                                       |                                           |         |           |        |        |           |         |        |       |       
|                                                                                | Proceeds from sales of investments                                     |                                                       |                                           | 37,459  |           |        |        | 1,000     |         |        |       |       |       
|                                                                                | Purchases of investments                                               |                                                       |                                           | (27,244 | )         |        |        | (25,571   | )       |        |       |       |       
|                                                                                | Purchases of property and equipment                                    |                                                       |                                           | (4,957  | )         |        |        | (2,441    | )       |        |       | (1,532 | )     
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|                                                                                |                                                                        | Net cash (used in) provided by investing activities   |                                           |         | 5,258     |        |        |           | (27,012 | )      |       |        | (1,532 | )     
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|Cash Flows From Financing Activities:                                           |                                                                        |                                                       |                                           |         |           |        |        |           |         |        |       |       
|                                                                                | Proceeds from exercise of common stock options                         |                                                       |                                           | 1,233   |           |        |        | 239       |         |        |       | 80     |       
|                                                                                | Net proceeds from issuance of Series F convertible
    preferred stock |                                                       |                                           |        |           |        |        |          |         |        |       | 13,585 |       
|                                                                                | Principal payments on capital lease obligations                        |                                                       |                                           | (599    | )         |        |        | (733      | )       |        |       | (423   | )     
|                                                                                | Repayment of loan                                                      |                                                       |                                           |        |           |        |        | (1,123    | )       |        |       | (4,780 | )     
|                                                                                | Payment of loan costs and other                                        |                                                       |                                           |        |           |        |        | (415      | )       |        |       | 12     |       
|                                                                                | Payment of IPO costs                                                   |                                                       |                                           |        |           |        |        | (1,511    | )       |        |       |       |       
|                                                                                | IPO proceeds                                                           |                                                       |                                           |        |           |        |        | 28,952    |         |        |       |       |       
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|                                                                                |                                                                        |                                                       | Net cash provided by financing activities |         |           | 634    |        |           |         | 25,409 |       |        |        | 8,474  |  
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|Net increase/(decrease) in cash and cash equivalents                            |                                                                        |                                                       | 2,154                                     |         |           |        | (2,344 | )         |         |        | 87    |       
|Cash and cash equivalents at beginning of period                                |                                                                        |                                                       | 2,653                                     |         |           |        | 4,997  |           |         |        | 4,910 |       
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|Cash and cash equivalents at end of period                                      |                                                                        | $                                                     | 4,807                                     |         |           | $      | 2,653  |           |         | $      | 4,997 |       
|                                                                                |                                                                        |                                                       |                                           |         |           |        |        |           |        
|Supplemental Cash Flow Information:                                             |                                                                        |                                                       |                                           |         |           |        |        |           |         |        |       |       
|                                                                                |                                                                        | Cash paid for interest                                |                                           | $       | 142       |        |        | $         | 240     |        |       | $      | 639    |       
|                                                                                |                                                                        | Cash paid for income taxes                            |                                           |         | 1         |        |        |           | 1       |        |       |        | 1      |       
|Supplemental Non cash Investing and Financing Activities:                       |                                                                        |                                                       |                                           |         |           |        |        |           |         |        |       |       
|                                                                                |                                                                        | Property improvements paid by landlord                |                                           |         | 700       |        |        |           |        |        |       |        |       |       
|                                                                                |                                                                        | Warrants issued in conjunction with debt agreement    |                                           |         |          |        |        |           |        |        |       |        | 161    |       
|                                                                                |                                                                        | Equipment acquired through capital lease transactions |                                           |         | 57        |        |        |           | 393     |        |       |        | 1,721  |       
|                                                                                |                                                                        | Conversion of preferred stock to common stock         |                                           | $       |          |        |        | $         | 83,504  |        |       | $      |       |       



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RedEnvelope, Inc.





NOTES TO FINANCIAL STATEMENTS




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies

Description of Business


Fiscal Year


Use of Estimates


Cash Equivalents


|                       |                                 |                |        |         |             |   |        |        | 
|---------------------- | ------------------------------- | -------------- | ------ | ------- | ----------- | - | ------ | ------ | 
|                       |                                 | March 28, 2004 |       
|                       |                                 |                |       
|                       |                                 | Cash and Cash  |        |         | Short-term  |  
|                       |                                 | Equivalents    |        |         | Investments |  
|                       |                                 |                |        |         |             |  
|                       |                                 | (In thousands) |       
|As previously reported |                                 | $              | 18,409 |         |             | $ | 6,971  |       
|                       | Municipal auctions (short-term) |                |        | (15,756 | )           |   |        | 15,756 | 
|                       |                                 |                |        |         |             |  
|As adjusted            |                                 | $              | 2,653  |         |             | $ | 22,727 |       
|                       |                                 |                |        |         |             |  



Short-term Investments


Concentration of Credit Risk


43



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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)




Allowance for Doubtful Accounts


Inventory


Prepaid Catalog Costs


Property and Equipment


Capitalized Software and Website Development
Costs Accounting for Costs of Computer
Software Developed or Obtained for Internal Use Accounting for Website Development Costs.


Long-Lived Assets


Revenue Recognition






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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)


Provision for Sales Returns and Allowances




|                                                       |  |                |     |               |               |   |       |             |  |   |            |   |  |   |     | 
|------------------------------------------------------ |  | -------------- | --- | ------------- | ------------- | - | ----- | ----------- |  | - | ---------- | - |  | - | --- | 
|                                                       |  |                |     | Provision for |               |   |       |             | 
|                                                       |  | Balance at     |     |               | Sales Returns |   |       | Actual      |  |   | Balance at |  
|                                                       |  | Beginning of   |     |               | and           |   |       | Returns and |  |   | End of     |  
|                                                       |  | Period         |     |               | Allowances    |   |       | Allowances  |  |   | Period     |  
|                                                       |  |                |     |               |               |   |       |             |  |   |            |  
|                                                       |  | (In thousands) |    
|Year Ended April 3, 2005 Sales Returns and Allowances  |  | $              | 181 |               |               | $ | 4,862 |             |  | $ | (4,542     | ) |  | $ | 501 | 
|Year Ended March 28, 2004 Sales Returns and Allowances |  | $              | 140 |               |               | $ | 4,767 |             |  | $ | (4,726     | ) |  | $ | 181 | 
|Year Ended March 30, 2003 Sales Returns and Allowances |  | $              | 49  |               |               | $ | 4,435 |             |  | $ | (4,345     | ) |  | $ | 140 | 

Advertising Expense


Income Taxes


Stock-Based Compensation Accounting for Stock Issued to Employees Accounting
for Stock-Based Compensation


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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                                        |                    |                       |        |        |      |   |        |        |   |   |        |        |  
|----------------------------------------------------------------------- | ------------------ | --------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                        |                    | Fiscal Year Ended     |       
|                                                                        |                    |                       |       
|                                                                        |                    | 2005                  |        |        | 2004 |   |        | 2003   |  
|                                                                        |                    |                       |        |        |      |   |        |        |  
|                                                                        |                    | (In thousands, except |       
|                                                                        |                    | per share data)       |       
|Net loss  as reported                                                  |                    | $                     | (5,153 | )      |      | $ | (5,128 | )      |   | $ | (7,711 | )     
|Stock-based employee compensation included in reported net loss         |                    |                       | 24     |        |      |   | 260    |        |   |   | 359    |       
|Stock-based compensation expense determined under fair value
    method |                    |                       | (1,125 | )      |      |   | (716   | )      |   |   | (538   | )     
|                                                                        |                    |                       |        |        |      |   |        |        |  
|                                                                        | Pro forma net loss |                       | $      | (6,254 | )    |   | $      | (5,584 | ) |   | $      | (7,890 | )
|                                                                        |                    |                       |        |        |      |   |        |        |  
|Basic and diluted earnings per share                                    |                    |                       |        |        |      |   |        |        |   |   |        |       
|                                                                        | As reported        |                       | $      | (0.59  | )    |   | $      | (1.16  | ) |   | $      | (24.48 | )
|                                                                        | Pro forma          |                       | $      | (0.71  | )    |   | $      | (1.26  | ) |   | $      | (25.05 | )

Loss Per Share




Comprehensive Loss


New Accounting Pronouncements






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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|   |                        
|-- | -----------------------
|2. | Initial Public Offering









|   |            
|-- | -----------
|3. | Investments







|                                     |  |   |        | 
|------------------------------------ |  | - | ------ | 
|Municipal auctions (short-term)      |  | $ | 11,361 | 
|Government securities (short-term)   |  |   | 1,257  | 
|Corporate bonds (short-term)         |  |   | 1,738  | 
|                                     |  |   |       
|Total available-for-sale investments |  | $ | 14,356 | 
|                                     |  |   |       



47



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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|4. | Property and Equipment



|                                                      |       |                |         |        |           |   |        |        | 
|----------------------------------------------------- | ----- | -------------- | ------- | ------ | --------- | - | ------ | ------ | 
|                                                      |       | April 3,       |         |        | March 28, |  
|                                                      |       | 2005           |         |        | 2004      |  
|                                                      |       |                |         |        |           |  
|                                                      |       | (In thousands) |        
|Machinery and computer equipment (3 years)            |       | $              | 7,966   |        |           | $ | 5,262  |       
|Software (3 years)                                    |       |                | 5,909   |        |           |   | 4,688  |       
|Fulfillment equipment under capital lease (3-7 years) |       |                | 1,917   |        |           |   | 1,917  |       
|Furniture and fixtures (5 years)                      |       |                | 460     |        |           |   | 388    |       
|Leasehold improvements (3-5 years)                    |       |                | 1,593   |        |           |   | 528    |       
|                                                      |       |                |         |        |           |  
|                                                      | Total |                |         | 17,845 |           |   |        | 12,783 | 
|Less: accumulated depreciation and amortization       |       |                | (10,258 | )      |           |   | (8,037 | )     
|                                                      |       |                |         |        |           |  
|                                                      | Total |                | $       | 7,587  |           |   | $      | 4,746  | 
|                                                      |       |                |         |        |           |  





|   |             
|-- | ------------
|5. | Income Taxes



|                       |  |      |       |    |      |  |       |      |  |  |       |   
|---------------------- |  | ---- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | --
|                       |  | 2005 |       |    | 2004 |  |       | 2003 | 
|                       |  |      |       |    |      |  |       |      | 
|Federal statutory rate |  |      | (34.0 | )% |      |  | (34.0 | )%   |  |  | (34.0 | )%
|State taxes and other  |  |      | (4.8  | )  |      |  | (6.0  | )    |  |  | (6.0  | ) 
|Valuation allowance    |  |      | 38.8  |    |      |  | 40.0  |      |  |  | 40.0  |   
|                       |  |      |       |    |      |  |       |      | 
|                       |  |      | 0.0   | %  |      |  | 0.0   | %    |  |  | 0.0   | % 
|                       |  |      |       |    |      |  |       |      | 



|                          |                                  |                |         |        |           |   |         |        |        | 
|------------------------- | -------------------------------- | -------------- | ------- | ------ | --------- | - | ------- | ------ | ------ | 
|                          |                                  | April 3,       |         |        | March 28, |  
|                          |                                  | 2005           |         |        | 2004      |  
|                          |                                  |                |         |        |           |  
|                          |                                  | (In thousands) |        
|Deferred tax assets:      |                                  |                |         |        |           |   |         |       
|                          | Net operating loss carryforwards |                | $       | 27,588 |           |   | $       | 25,723 |       
|                          | Allowance and accruals           |                |         | 2,033  |           |   |         | 2,281  |       
|                          |                                  |                |         |        |           |  
|                          |                                  | Total          |         |        | 29,621    |   |         |        | 28,004 | 
|Less: valuation allowance |                                  |                | (29,621 | )      |           |   | (28,004 | )     
|                          |                                  |                |         |        |           |  
|Net deferred tax assets   |                                  | $              |        |        |           | $ |        |       
|                          |                                  |                |         |        |           |  



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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)








|   |                       
|-- | ----------------------
|6. | Borrowing Arrangements









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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)










|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies

Leases


|                                                   |  |                |      |   |           |   |       | 
|-------------------------------------------------- |  | -------------- | ---- | - | --------- | - | ----- | 
|                                                   |  | Capital        |      |   | Operating |  
|                                                   |  | Leases         |      |   | Leases    |  
|                                                   |  |                |      |   |           |  
|                                                   |  | (In thousands) |     
|Fiscal 2006                                        |  | $              | 632  |   |           | $ | 1,563 | 
|Fiscal 2007                                        |  |                | 269  |   |           |   | 1,069 | 
|Fiscal 2008                                        |  |                | 18   |   |           |   | 802   | 
|Fiscal 2009                                        |  |                | 16   |   |           |   | 809   | 
|Fiscal 2010                                        |  |                | 3    |   |           |   | 509   | 
|                                                   |  |                |      |   |           |  
|Total minimum lease payments                       |  |                | 938  |   |           | $ | 4,752 | 
|                                                   |  |                |      |   |           |  
|Less: Amount representing interest                 |  |                | (69  | ) |           |   |       | 
|                                                   |  |                |      |   |           |  
|Present value of capital lease obligations         |  |                | 869  |   |           |   |       | 
|Less: Current portion of capital lease obligations |  |                | (579 | ) |           |   |       | 
|                                                   |  |                |      |   |           |  
|Long-term portion of capital lease obligations     |  | $              | 290  |   |           |   |       | 
|                                                   |  |                |      |   |           |  

Legal Proceedings


50



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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                                                                                    
|-- | -----------------------------------------------------------------------------------
|8. | Mandatorily Redeemable Convertible Preferred Stock and
    Series A Preferred Stock



Preferred Stock Warrants






|   |             
|-- | ------------
|9. | Common Stock



|                                    |       |                |       |       | 
|----------------------------------- | ----- | -------------- | ----- | ----- | 
|                                    |       | April 3, 2005  |      
|                                    |       |                |      
|                                    |       | (In thousands) |      
|Exercise of common stock warrants   |       |                | 1     |      
|Options available for future grants |       |                | 561   |      
|Options outstanding                 |       |                | 1,388 |      
|                                    |       |                |      
|                                    | Total |                |       | 1,950 | 
|                                    |       |                |      

Common Stock Warrants




|    |              
|--- | -------------
|10. | Benefit Plans



| |                       
| | ----------------------
| | 1999 Stock Option Plan



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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)












| |                            
| | ---------------------------
| | Directors Stock Option Plan



52



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RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                            |  |                                          |       |   |             |                  |       |                |  |   |      | 
|------------------------------------------- |  | ---------------------------------------- | ----- | - | ----------- | ---------------- | ----- | -------------- |  | - | ---- | 
|                                            |  |                                          |       |   |             | Weighted Average |      
|                                            |  | Shares Available                         |       |   | Options     |                  |       | Exercise Price | 
|                                            |  | for Grant                                |       |   | Outstanding |                  |       | Per Share      | 
|                                            |  |                                          |       |   |             |                  |       |                | 
|                                            |  | (In thousands, except per share amounts) |      
|Balance at March 31, 2002                   |  |                                          | 35    |   |             |                  | 424   |                |  | $ | 5.74 | 
|Additional shares authorized                |  |                                          | 639   |   |             |                  |      |                |  |   |     | 
|Granted (weighted average fair value $0.23) |  |                                          | (572  | ) |             |                  | 572   |                |  |   | 1.64 | 
|Cancelled                                   |  |                                          | 189   |   |             |                  | (189  | )              |  |   | 4.33 | 
|Exercised                                   |  |                                          |      |   |             |                  | (13   | )              |  |   | 5.39 | 
|                                            |  |                                          |       |   |             |                  |       |                | 
|Balance at March 30, 2003                   |  |                                          | 291   |   |             |                  | 794   |                |  | $ | 3.16 | 
|Additional shares authorized                |  |                                          | 1,217 |   |             |                  |      |                |  |   |     | 
|Granted (weighted average fair value $5.02) |  |                                          | (681  | ) |             |                  | 681   |                |  |   | 8.50 | 
|Cancelled                                   |  |                                          | 235   |   |             |                  | (235  | )              |  |   | 3.47 | 
|Exercised                                   |  |                                          |      |   |             |                  | (51   | )              |  |   | 4.27 | 
|                                            |  |                                          |       |   |             |                  |       |                | 
|Balance at March 28, 2004                   |  |                                          | 1,062 |   |             |                  | 1,189 |                |  | $ | 6.09 | 
|Granted (weighted average fair value $4.28) |  |                                          | (683  | ) |             |                  | 683   |                |  |   | 8.96 | 
|Cancelled                                   |  |                                          | 182   |   |             |                  | (182  | )              |  |   | 9.25 | 
|Exercised                                   |  |                                          |      |   |             |                  | (302  | )              |  |   | 3.79 | 
|                                            |  |                                          |       |   |             |                  |       |                | 
|Balance at April 3, 2005                    |  |                                          | 561   |   |             |                  | 1,388 |                |  | $ | 7.47 | 
|                                            |  |                                          |       |   |             |                  |       |                | 
|Exercisable, March 30, 2003                 |  |                                          | 340   |   |             |                  |       |                |  | $ | 4.45 | 
|Exercisable, March 28, 2004                 |  |                                          | 552   |   |             |                  |       |                |  | $ | 3.53 | 
|Exercisable, April 3, 2005                  |  |                                          | 496   |   |             |                  |       |                |  | $ | 5.00 | 



|               |  |                                     |         |                  |                       |  |                  |                |  |   |             |                  |  |                |     |  |  |   |       | 
|-------------- |  | ----------------------------------- | ------- | ---------------- | --------------------- |  | ---------------- | -------------- |  | - | ----------- | ---------------- |  | -------------- | --- |  |  | - | ----- | 
|               |  | Options Outstanding                 |         |                  | Options Exercisable   | 
|               |  |                                     |         |                  |                       | 
|               |  |                                     |         | Weighted Average |                       |  | Weighted Average |                |  |   |             | Weighted Average | 
|               |  | Number                              |         |                  | Remaining Contractual |  |                  | Exercise Price |  |   | Number      |                  |  | Exercise Price |    
|Exercise Price |  | Outstanding                         |         |                  | Life (Years)          |  |                  | Per Share      |  |   | Outstanding |                  |  | Per Share      |    
|               |  |                                     |         |                  |                       |  |                  |                |  |   |             |                  |  |                |    
|               |  | (In 000s except per share amounts) |        
|$ 0.59 - $ 4   |  |                                     | .10 390 |                  |                       |  | 6.5              |                |  | $ | 1.70        |                  |  |                | 272 |  |  | $ | 1.69  | 
|$ 4.11 - $11.  |  |                                     | 26 656  |                  |                       |  | 7.4              |                |  |   | 8.03        |                  |  |                | 149 |  |  |   | 6.97  | 
|$11.27 - $12.1 |  |                                     | 9 167   |                  |                       |  | 7.0              |                |  |   | 11.96       |                  |  |                | 34  |  |  |   | 12.17 | 
|$12.20 - $16.8 |  |                                     | 5 175   |                  |                       |  | 8.7              |                |  |   | 13.93       |                  |  |                | 41  |  |  |   | 13.80 | 
|               |  |                                     |         |                  |                       |  |                  |                |  |   |             |                  |  |                |    
|               |  |                                     | 1,388   |                  |                       |  | 7.3              |                |  | $ | 7.47        |                  |  |                | 496 |  |  | $ | 5.00  | 
|               |  |                                     |         |                  |                       |  |                  |                |  |   |             |                  |  |                |    



|                        |  |            |       |  |      |  |       |      |  |  |       | 
|----------------------- |  | ---------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                        |  | Year Ended |      
|                        |  |            |      
|                        |  | 2005       |       |  | 2004 |  |       | 2003 | 
|                        |  |            |       |  |      |  |       |      | 
|Expected dividend rate  |  |            | 0.0%  |  |      |  | 0.0%  |      |  |  | 0.0%  | 
|Expected volatility     |  |            | 68.2% |  |      |  | 60.0% |      |  |  | 60.0% | 
|Risk-free interest rate |  |            | 3.6%  |  |      |  | 3.3%  |      |  |  | 2.3%  | 
|Expected lives (yrs.)   |  |            | 4.0   |  |      |  | 4.0   |      |  |  | 4.0   | 

53



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##### Table of Contents



RedEnvelope, Inc.


NOTES TO FINANCIAL STATEMENTS  (Continued)


Employee Stock Purchase Plan
(ESPP)


401(k) Savings Plan




|    |                           
|--- | --------------------------
|11. | Related Party Transactions





|    |                                            
|--- | -------------------------------------------
|12. | Quarterly Financial Information (Unaudited)



|                                |  |                                          |        |   |               |   |        |              |  |   |          |  |  |       |        |   |  |   |         |  
|------------------------------- |  | ---------------------------------------- | ------ | - | ------------- | - | ------ | ------------ |  | - | -------- |  |  | ----- | ------ | - |  | - | ------- | -
|                                |  | Fiscal 2005 Quarter Ended                |        |   |              
|                                |  |                                          |        |   |              
|                                |  | June 27,                                 |        |   | September 28, |   |        | December 28, |  |   | April 3, |  |  | 2005  |       
|                                |  | 2004                                     |        |   | 2004          |   |        | 2004         |  |   | 2005(1)  |  |  | Total |       
|                                |  |                                          |        |   |               |   |        |              |  |   |          |  |  |       |       
|                                |  | (In thousands, except per share amounts) |       
|Net revenues                    |  | $                                        | 21,131 |   |               | $ | 10,574 |              |  | $ | 47,514   |  |  | $     | 22,199 |   |  | $ | 101,418 |  
|Gross profit                    |  |                                          | 11,232 |   |               |   | 5,131  |              |  |   | 25,807   |  |  |       | 10,523 |   |  |   | 52,693  |  
|Operating income (loss)         |  |                                          | (948   | ) |               |   | (3,904 | )            |  |   | 2,775    |  |  |       | (3,149 | ) |  |   | (5,226  | )
|Net income (loss)               |  |                                          | (952   | ) |               |   | (3,887 | )            |  |   | 2,768    |  |  |       | (3,082 | ) |  |   | (5,153  | )
|Basic income (loss) per share   |  | $                                        | (0.11  | ) |               | $ | (0.44  | )            |  | $ | 0.32     |  |  | $     | (0.35  | ) |  | $ | (0.59   | )
|Diluted income (loss) per share |  | $                                        | (0.11  | ) |               | $ | (0.44  | )            |  | $ | 0.30     |  |  | $     | (0.35  | ) |  | $ | (0.59   | )

|                                |  |                                          |        |   |               |   |        |              |  |   |           |  |  |       |        |   |  |   |        |  
|------------------------------- |  | ---------------------------------------- | ------ | - | ------------- | - | ------ | ------------ |  | - | --------- |  |  | ----- | ------ | - |  | - | ------ | -
|                                |  | Fiscal 2004 Quarter Ended                |        |   |              
|                                |  |                                          |        |   |              
|                                |  | June 29,                                 |        |   | September 28, |   |        | December 28, |  |   | March 28, |  |  | 2004  |       
|                                |  | 2003                                     |        |   | 2003          |   |        | 2003         |  |   | 2004      |  |  | Total |       
|                                |  |                                          |        |   |               |   |        |              |  |   |           |  |  |       |       
|                                |  | (In thousands, except per share amounts) |       
|Net revenues                    |  | $                                        | 17,721 |   |               | $ | 8,329  |              |  | $ | 35,922    |  |  | $     | 17,336 |   |  | $ | 79,308 |  
|Gross profit                    |  |                                          | 8,671  |   |               |   | 4,032  |              |  |   | 17,773    |  |  |       | 9,238  |   |  |   | 39,714 |  
|Operating income (loss)         |  |                                          | (1,058 | ) |               |   | (2,730 | )            |  |   | 1,215     |  |  |       | (2,276 | ) |  |   | (4,849 | )
|Net income (loss)               |  |                                          | (1,217 | ) |               |   | (2,826 | )            |  |   | 1,176     |  |  |       | (2,261 | ) |  |   | (5,128 | )
|Basic income (loss) per share   |  | $                                        | (3.52  | ) |               | $ | (6.56  | )            |  | $ | 0.14      |  |  | $     | (0.27  | ) |  | $ | (1.16  | )
|Diluted income (loss) per share |  | $                                        | (3.52  | ) |               | $ | (6.56  | )            |  | $ | 0.13      |  |  | $     | (0.27  | ) |  | $ | (1.16  | )






|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The fourth quarter of 2005 includes an adjustment of $650,000
    relating to prior periods, which decreased cost of goods sold,
    increased gross profit and decreased net loss. The out-of-period
    adjustment includes $321,000 associated with prior fiscal
    quarters in 2005 and $329,000 associated with prior years. The
    effect of the adjustment to any prior period would not be
    material.

54



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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and Procedures


Changes in Internal Control Over Financial
Reporting







|         |                  
|-------- | -----------------
|Item 9B. | Other Information







55



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##### Table of Contents










PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



56



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##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules









| |                                                        
| | -------------------------------------------------------
| | Report of Independent Registered Public Accounting Firm
|
| | Balance Sheets                                         
|
| | Statements of Operations                               
|
| | Statements of Stockholders Equity (Deficit)           
|
| | Statements of Cash Flows                               
|
| | Notes to Financial Statements                          







|       |    |             |  |                                                                                                                                                                                                    
|------ | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 3  | .1          |  | Amended and Restated Certificate of Incorporation of the
    Registrant currently in effect.(1)                                                                                                    
|       | 3  | .2          |  | Amended and Restated Certificate of Incorporation of the
    Registrant(1)                                                                                                                         
|       | 3  | .4          |  | Form of Amended and Restated Bylaws of the Registrant to be in
    effect after the closing of the offering made pursuant to this
    Registration Statement.(1)                                   
|       | 4  | .1          |  | Specimen stock certificate for the Registrants common
    stock.(1)                                                                                                                               
|       | 4  | .2          |  | Amended and Restated Investors Rights Agreement dated
    April 17, 2002 between the Registrant and certain
    investors.(1)                                                                     
|       | 4  | .3          |  | Omnibus Amendment to Investors Rights Agreement, Right of
    First Refusal and Co-Sale Agreement and Voting Agreement dated
    May 29, 2003 between the Registrant and certain
    investors.(1)
|       | 4  | .9          |  | Warrant Agreement dated February 10, 2000 issued to
    Comdisco, Inc.(1)                                                                                                                          
|       | 10 | .1          |  | Form of Indemnification Agreement between the Registrant and
    each of its officers and directors.(1)                                                                                            
|       | 10 | .10         |  | Lease dated March 28, 2000 between RedEnvelope and Four
    Amigos.(1)                                                                                                                             
|       | 10 | .11         |  | First Amendment to Lease Agreement between The Four Amigos, a
    California Limited Partnership, and RedEnvelope, Inc., dated as
    of January 1, 2004.                                          
|       | 10 | .12         |  | Offer Letter to Alison May dated March 12, 2002.(1)                                                                                                                                                
|       | 10 | .13         |  | Indemnification Agreement between RedEnvelope and Alison May
    dated April 8, 2002.(1)                                                                                                           
|       | 10 | .20         |  | 1999 Stock Plan, as amended on April 11, 2003, and form
    agreements thereunder.(1)                                                                                                              
|       | 10 | .21         |  | 2003 Directors Stock Option Plan and form agreements
    thereunder.(1)                                                                                                                           
|       | 10 | .22         |  | 2003 Employee Stock Purchase Plan and form agreements
    thereunder.(1)                                                                                                                           
|       | 10 | .32*        |  | Revolving Credit and Security Agreement dated June 13, 2003
    between the Registrant and CapitalSource Finance, LLC.(1)                                                                          
|       | 10 | .33*        |  | Internet Data Center Services Agreement dated October 23,
    1998 between the Registrant and Exodus Communications, Inc.(1)                                                                       
|       | 10 | .34         |  | Offer Letter to Edward Schmults dated April 22, 2004.(2)                                                                                                                                           
|       | 10 | .35         |  | Waivers under and Amendment dated April 29, 2004 of the
    Revolving Credit and Security Agreement dated as of
    June 13, 2003 between RedEnvelope, Inc. and CapitalSource
    Finance LLC.(2)  
|       | 10 | .36         |  | Amendment No. 2 dated June 21, 2004 to the Revolving
    Credit and Security Agreement dated as of June 13, 2003
    between RedEnvelope, Inc. and CapitalSource Finance LLC.(2)                   

57



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##### Table of Contents



|       |    |             |  |                                                                                                                                                                                                                                                                                   
|------ | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 10 | .37*        |  | Software License, Services, Support and Enhancements Agreement
    dated December 29, 2003 between RedEnvelope, Inc. and
    Manhattan Associates, Inc.(2)                                                                                                                        
|       | 10 | .38*        |  | Sales Agreement dated April 30, 2004 between RedEnvelope,
    Inc. and Vargo Material Handling, Inc.(2)                                                                                                                                                                           
|       | 10 | .39         |  | Lease Agreement between Creekside III LLC and RedEnvelope,
    Inc. effective as of April 1, 2004 (incorporated by
    reference to Exhibit 99.1 to the Companys Current
    Report on Form 8-K filed November 22, 2004).                                                        
|       | 10 | .40         |  | Lease Agreement dated July 22, 2004 between 149 New
    Montgomery, LLC and RedEnvelope, Inc. (incorporated by reference
    to the identically numbered exhibit to the Companys
    Quarterly Report on Form 10-Q for the period ended June 27,
    2004).                      
|       | 10 | .42         |  | Employment Agreement dated August 20, 2004 between Eric C.
    Wong and RedEnvelope, Inc. (incorporated by reference to the
    identically numbered exhibit to the Companys Quarterly
    Report on Form 10-Q for the period ended September 26,
    2004).                     
|       | 10 | .43         |  | Employment Agreement dated August 20, 2004 between Kristine
    Dang and RedEnvelope, Inc. (incorporated by reference to the
    identically numbered exhibit to the Companys Quarterly
    Report on Form 10-Q for the period ended September 26,
    2004).                    
|       | 10 | .44         |  | Employment Agreement dated December 22, 2004 between Gary
    Korotzer and RedEnvelope, Inc. (incorporated by reference to the
    identically numbered exhibit to the Companys Quarterly
    Report on Form 10-Q for the period ended December 26, 2004).                       
|       | 10 | .45         |  | Employment offer letter dated March 28, 2005 between
    RedEnvelope, Inc. and Polly Boe (incorporated by reference to
    the identically numbered exhibit to the Companys Current
    Report on Form 8-K filed January 28, 2005).                                              
|       | 10 | .46         |  | Separation Agreement dated May 2, 2005 between RedEnvelope,
    Inc. and Eric C. Wong.                                                                                                                                                                                            
|       | 10 | .47         |  | Separation Agreement dated June 1, 2005 between
    RedEnvelope, Inc. and John Roberts.                                                                                                                                                                                           
|       | 10 | .48         |  | Consulting Agreement dated June 2, 2005 between
    RedEnvelope, Inc. and John Roberts.                                                                                                                                                                                           
|       | 10 | .50**       |  | License Agreement between Harrison 160, LLC and RedEnvelope,
    Inc., dated as of May 31, 2005.                                                                                                                                                                                  
|       | 10 | .51         |  | Second Amendment to Lease Agreement between The Four Amigos, a
    California Limited Partnership, and RedEnvelope, Inc., dated as
    of January 25, 2005 (incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on Form
    8-K filed January 28, 2005).
|       | 10 | .52         |  | Agreement between Scott Galloway and RedEnvelope, Inc. dated
    July 13, 2005 (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K filed on July 15, 2005).                                                                            
|       | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                         
|       | 24 | .1          |  | Power of Attorney (See Page 59).                                                                                                                                                                                                                                                  
|       | 31 | .1          |  | Alison Mays Certification pursuant to 13a-14(a) as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        
|       | 31 | .2          |  | Polly Boes Certification pursuant to 13a-14(a) as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                         
|       | 32 | .1          |  | Alison Mays Certification pursuant to 18 U.S.C. 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                              
|       | 32 | .2          |  | Polly Boes Certification pursuant to 18 U.S.C. 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                               






|    |                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to identically numbered exhibits to
    the Registrants previously filed Registration Statement on
    Form S-1, which became effective on September 24, 2003.
|   
|(2) | Incorporated by reference to identically numbered exhibits to
    the Registrants Annual Report on Form 10-K for the
    period ended March 28, 2004.                                   



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| | * | Confidential treatment granted with respect to certain portions
    of this Exhibit.



|   |                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Material has been omitted pursuant to a request for confidential
    treatment. Omitted portions have been filed separately with the
    Securities and Exchange Commission.

58



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##### Table of Contents






SIGNATURES






| |                        
| | -----------------------
| | REDENVELOPE, INC.      
|
| | By: /s/ Polly Boe      
| |                        
| | Polly Boe              
| | Chief Financial Officer







|                                             |  |                                                                                       |  |               |  | 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ------------- |  | 
|Signature                                    |  | Title                                                                                 |  | Date         
|                                             |  |                                                                                       |  |              
|                                            
|/s/ Michael MoritzMichael
    Moritz         |  | Chairman of the Board                                                                 |  | July 19, 2005
|                                            
|/s/ Alison L. MayAlison
    L. May           |  | Director, President and
    Chief Executive Officer
    (Principal Executive Officer) |  | July 19, 2005
|                                            
|/s/ Polly BoePolly
    Boe                   |  | Chief Financial Officer
    (Principal Financial and
    Accounting Officer)          |  | July 19, 2005
|                                            
|/s/ Michael E. DunnMichael
    E. Dunn       |  | Director                                                                              |  | July 19, 2005
|                                            
|/s/ Karen EdwardsKaren
    Edwards           |  | Director                                                                              |  | July 19, 2005
|                                            
|/s/ Joseph C. GandolfoJoseph
    C. Gandolfo |  | Director                                                                              |  | July 19, 2005

59



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##### Table of Contents



|                                           |  |          |  |               |  | 
|------------------------------------------ |  | -------- |  | ------------- |  | 
|Signature                                  |  | Title    |  | Date         
|                                           |  |          |  |              
|                                          
|/s/ Charles HeilbronnCharles
    Heilbronn |  | Director |  | July 19, 2005
|                                          
|/s/ Daniel R. LyleDaniel
    R. Lyle       |  | Director |  | July 19, 2005

60



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##### Table of Contents



EXHIBIT INDEX


|       |    |             |  |                                                                                                                                                                                                                                                               
|------ | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 3  | .1          |  | Amended and Restated Certificate of Incorporation of the
    Registrant currently in effect.(1)                                                                                                                                                               
|       | 3  | .2          |  | Amended and Restated Certificate of Incorporation of the
    Registrant(1)                                                                                                                                                                                    
|       | 3  | .4          |  | Form of Amended and Restated Bylaws of the Registrant to be in
    effect after the closing of the offering made pursuant to this
    Registration Statement.(1)                                                                                              
|       | 4  | .1          |  | Specimen stock certificate for the Registrants common
    stock.(1)                                                                                                                                                                                          
|       | 4  | .2          |  | Amended and Restated Investors Rights Agreement dated
    April 17, 2002 between the Registrant and certain
    investors.(1)                                                                                                                                
|       | 4  | .3          |  | Omnibus Amendment to Investors Rights Agreement, Right of
    First Refusal and Co-Sale Agreement and Voting Agreement dated
    May 29, 2003 between the Registrant and certain
    investors.(1)                                                           
|       | 4  | .9          |  | Warrant Agreement dated February 10, 2000 issued to
    Comdisco, Inc.(1)                                                                                                                                                                                     
|       | 10 | .1          |  | Form of Indemnification Agreement between the Registrant and
    each of its officers and directors.(1)                                                                                                                                                       
|       | 10 | .10         |  | Lease dated March 28, 2000 between RedEnvelope and Four
    Amigos.(1)                                                                                                                                                                                        
|       | 10 | .11         |  | First Amendment to Lease Agreement between The Four Amigos, a
    California Limited Partnership, and RedEnvelope, Inc., dated as
    of January 1, 2004.                                                                                                     
|       | 10 | .12         |  | Offer Letter to Alison May dated March 12, 2002.(1)                                                                                                                                                                                                           
|       | 10 | .13         |  | Indemnification Agreement between RedEnvelope and Alison May
    dated April 8, 2002.(1)                                                                                                                                                                      
|       | 10 | .20         |  | 1999 Stock Plan, as amended on April 11, 2003, and form
    agreements thereunder.(1)                                                                                                                                                                         
|       | 10 | .21         |  | 2003 Directors Stock Option Plan and form agreements
    thereunder.(1)                                                                                                                                                                                      
|       | 10 | .22         |  | 2003 Employee Stock Purchase Plan and form agreements
    thereunder.(1)                                                                                                                                                                                      
|       | 10 | .32*        |  | Revolving Credit and Security Agreement dated June 13, 2003
    between the Registrant and CapitalSource Finance, LLC.(1)                                                                                                                                     
|       | 10 | .33*        |  | Internet Data Center Services Agreement dated October 23,
    1998 between the Registrant and Exodus Communications, Inc.(1)                                                                                                                                  
|       | 10 | .34         |  | Offer Letter to Edward Schmults dated April 22, 2004.(2)                                                                                                                                                                                                      
|       | 10 | .35         |  | Waivers under and Amendment dated April 29, 2004 of the
    Revolving Credit and Security Agreement dated as of
    June 13, 2003 between RedEnvelope, Inc. and CapitalSource
    Finance LLC.(2)                                                             
|       | 10 | .36         |  | Amendment No. 2 dated June 21, 2004 to the Revolving
    Credit and Security Agreement dated as of June 13, 2003
    between RedEnvelope, Inc. and CapitalSource Finance LLC.(2)                                                                              
|       | 10 | .37*        |  | Software License, Services, Support and Enhancements Agreement
    dated December 29, 2003 between RedEnvelope, Inc. and
    Manhattan Associates, Inc.(2)                                                                                                    
|       | 10 | .38*        |  | Sales Agreement dated April 30, 2004 between RedEnvelope,
    Inc. and Vargo Material Handling, Inc.(2)                                                                                                                                                       
|       | 10 | .39         |  | Lease Agreement between Creekside III LLC and RedEnvelope,
    Inc. effective as of April 1, 2004 (incorporated by
    reference to Exhibit 99.1 to the Companys Current
    Report on Form 8-K filed November 22, 2004).                                    
|       | 10 | .40         |  | Lease Agreement dated July 22, 2004 between 149 New
    Montgomery, LLC and RedEnvelope, Inc. (incorporated by reference
    to the identically numbered exhibit to the Companys
    Quarterly Report on Form 10-Q for the period ended June 27,
    2004).  
|       | 10 | .42         |  | Employment Agreement dated August 20, 2004 between Eric C.
    Wong and RedEnvelope, Inc. (incorporated by reference to the
    identically numbered exhibit to the Companys Quarterly
    Report on Form 10-Q for the period ended September 26,
    2004). 
|       | 10 | .43         |  | Employment Agreement dated August 20, 2004 between Kristine
    Dang and RedEnvelope, Inc. (incorporated by reference to the
    identically numbered exhibit to the Companys Quarterly
    Report on Form 10-Q for the period ended September 26,
    2004).
|       | 10 | .44         |  | Employment Agreement dated December 22, 2004 between Gary
    Korotzer and RedEnvelope, Inc. (incorporated by reference to the
    identically numbered exhibit to the Companys Quarterly
    Report on Form 10-Q for the period ended December 26, 2004).   



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##### Table of Contents



|       |    |             |  |                                                                                                                                                                                                                                                                                   
|------ | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 10 | .45         |  | Employment offer letter dated March 28, 2005 between
    RedEnvelope, Inc. and Polly Boe (incorporated by reference to
    the identically numbered exhibit to the Companys Current
    Report on Form 8-K filed January 28, 2005).                                              
|       | 10 | .46         |  | Separation Agreement dated May 17, 2005 between
    RedEnvelope, Inc. and Eric C. Wong.                                                                                                                                                                                           
|       | 10 | .47         |  | Separation Agreement dated May 20, 2005 between
    RedEnvelope, Inc. and John Roberts.                                                                                                                                                                                           
|       | 10 | .48         |  | Consulting Agreement dated June 2, 2005 between
    RedEnvelope, Inc. and John Roberts                                                                                                                                                                                            
|       | 10 | .50**       |  | License Agreement between Harrison 160, LLC and RedEnvelope,
    Inc., dated as of May 31, 2005.                                                                                                                                                                                  
|       | 10 | .51         |  | Second Amendment to Lease Agreement between The Four Amigos, a
    California Limited Partnership, and RedEnvelope, Inc., dated as
    of January 25, 2005 (incorporated by reference to
    Exhibit 99.1 to the Companys Current Report on Form
    8-K filed January 28, 2005).
|       | 10 | .52         |  | Agreement between Scott Galloway and RedEnvelope, Inc. dated
    July 13, 2005 (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K filed on July 15, 2005).                                                                            
|       | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                         
|       | 24 | .1          |  | Power of Attorney (See Page 59).                                                                                                                                                                                                                                                  
|       | 31 | .1          |  | Alison Mays Certification pursuant to 13a-14(a) as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                        
|       | 31 | .2          |  | Polly Boes Certification pursuant to 13a-14(a) as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                         
|       | 32 | .1          |  | Alison Mays Certification pursuant to 18 U.S.C. 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                              
|       | 32 | .2          |  | Polly Boes Certification pursuant to 18 U.S.C. 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                               






|    |                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to identically numbered exhibits to
    the Registrants previously filed Registration Statement on
    Form S-1, which became effective on September 24, 2003.
|   
|(2) | Incorporated by reference to identically numbered exhibits to
    the Registrants Annual Report on Form 10-K for the
    period ended March 28, 2004.                                   



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| | * | Confidential treatment granted with respect to certain portions
    of this Exhibit.



|   |                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Material has been omitted pursuant to a request for confidential
    treatment. Omitted portions have been filed separately with the
    Securities and Exchange Commission.