The accompanying unaudited condensed consolidated financial statements for each period include the condensed consolidated balance sheets, statements of income and cash flows of Bliss World LLC and subsidiaries. All significant intercompany items and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to the SEC's rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the unaudited condensed consolidated financial statements reflect all material adjustments (which include normal recurring adjustments) necessary to present fairly our unaudited financial position, results of operations and cash flows. The unaudited results of operations for the three and nine months ended September 30, 2009 and cash flows for the nine months ended September 30, 2009 are not necessarily indicative of the results of operations or cash flows that may be expected for the remainder of 2009. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2008. The December 31, 2008 Consolidated Balance Sheet included herein was extracted from the December 31, 2008 audited Consolidated Balance Sheet.

[2] Use of estimates:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that

[2] Use of estimates (continued):

affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include allowance for doubtful accounts, inventory reserve, and gift card breakage rate. Actual results could differ from those estimates in amounts that may be material to the financial statements.

Accounts receivables are stated net of the allowance for doubtful accounts and customer deductions (chargeback from wholesale customers) of $0.6 million and $0.6 million as of September 30, 2009 and December 31, 2008, respectively. Management estimates the allowance for doubtful accounts based on historical trends in collections. The allowance for deductions from wholesale customers is based upon authorized deductions as well as an estimate for deductions that have been incurred but not yet requested. Balances are written off when the Company believes it is unlikely that the collection of the receivable will be made. The Company does not require collateral from its customers.

Inventories are valued at the lower of cost or market based upon standard costs. Standard costs include raw material, components, labor, shrinkage and freight costs. Standard costs are reviewed and adjusted with any resulting variance recorded in cost of goods and services in the condensed consolidated statements of income. The Company records valuation adjustments to its inventories if the cost of specific inventory items on hand exceeds the amount it expects to realize from the sale or disposal of the inventory. As of September 30, 2009 and December 31, 2008, the Company had a reserve of $0.9 million and $1.6 million, respectively related to potential inventory writedowns and obsolescence. These estimates are based on management's judgment of historical trends. The current inventory reserve estimate is based on 1% of the cost of all active SKUs and 50% for all items with the risk of obsolescence (expiring in less than 1 year).

Property, plant and equipment are stated at cost and are depreciated over the estimated useful lives by the straight-line method. The cost of improvements that extend the life of property and equipment are capitalized. These capitalized costs may include structural improvements, equipment and fixtures. Costs for normal repairs and maintenance are expensed as incurred. Depreciation or amortization is provided over the estimated useful economic lives of 3 to 10 years for furniture, fixtures and equipment; 3 to 7 years for information technology software and equipment and the lesser of the lease term or the economic useful life for leasehold improvements. Capitalized interest is recorded based upon the monthly average construction in process balance for spa locations multiplied by the average interest rate in effect during the month.

The Company has recorded goodwill and various intangible assets related to its acquisition by Starwood in January 2004. The Company does not amortize goodwill and intangible assets with infinite lives. Intangible assets with finite lives are amortized on a straight-line basis over their respective useful lives. The Company reviews all goodwill and intangible assets for impairment by comparisons to fair value at year end or upon the occurrence of a triggering event. The result of that review as of December 31, 2008 resulted in no impairment to the fair value on the consolidated balance sheet.

Revenue from merchandise sales are recognized upon transfer of ownership, including passage of title and transfer of the risk of loss related to those goods, and when collectability is reasonably assured. Revenue is generally recognized for wholesale customers at the time the product is shipped. Revenue is reported on a net sales basis, which is computed by deducting from gross sales the amount of actual product returns received and discounts with retailers and an amount established for anticipated product returns and destruction at the retailers. The Company's practice is to accept product returns from retailers only if properly requested, authorized and approved.

Revenue is recognized for catalog, Internet and merchandise sales when the product is received by the customers. Management estimates, based on its third-party logistics provider's calculation of average time of delivery, that it takes approximately three days for the merchandise mailed directly to consumers to reach the customer. Transfer of ownership occurs at that time and sales are recognized.

The Company's shipping and handling revenue of $0.9 million and $1.7 million for the nine months ended September 30, 2009 and 2008, respectively are included in product revenue. Shipping and handling costs of $0.9 million and $1.5 million for the nine months ended September 30, 2009 and 2008, respectively, are included in cost of products. The Company recognizes sales within its spa locations upon customer receipt of merchandise or when the services are performed.

The Company sells skincare, bath and body products to department stores, specialty retailers and boutiques around the world. During the nine months ended September 30, 2009 and 2008, the Company had $9.1 million and $10.7 million, respectively, of revenue in from one customer. That customer made up 26% and 22% of the Company's total net revenue million for the nine months ended September 30, 2009 and 2008, respectively.

Catalog advertising costs, which consist primarily of catalog production and mailing costs, are expensed at the time of mailing.

The Company recognizes rent expense from operating leases with scheduled rent increases or periods of free rent on a straight-line basis over the applicable lease term, commencing upon the facility possession date. Differences between the recognized rental expense and amounts payable under the leases are recorded as deferred lease credits and amortized over the lease term.

All income taxes associated with the operations of Bliss World LLC and subsidiaries flow through to Starwood. Bliss World LLC is a single-member LLC. The Company provides for income taxes for its subsidiaries, Bliss World Card Company, an Arizona based company, and Bliss World Ltd. (UK), a U.K. based company. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted.

Balance sheet accounts are translated at the exchange rates in effect at each period end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The Company has a foreign subsidiary in the United Kingdom whose functional currency is the British pound sterling. Gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature are reported currently in costs and expenses. Gains and losses from foreign currency transactions are reported currently in costs and expenses. Gains and losses from foreign exchange rate changes and foreign currency transactions were reflected in the accompanying condensed consolidated financial statements.

In December 2007, the FASB issued ASC Topic 805 "Business Combinations".  ASC Topic 805 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. ASC Topic 805 also provides guidance for recognizing and measuring the goodwill acquired in the business combination, requires that acquisition costs be expensed and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC Topic 805 is effective for the Company beginning July 1, 2009. ASC Topic 805 will have an impact on the Company's accounting for future business combinations, once adopted, but the effect is dependent upon acquisitions that are made in the future.

In June 2009, the FASB provided guidance in determining whether an enterprise has a controlling financial interest in a variable interest entity. This determination identifies the primary beneficiary of a variable interest entity as the enterprise that has both the power to direct the activities of a variable interest entity that most significantly impacts the entity's economic performance, and the obligation to absorb losses or the right to receive benefits of the entity that could potentially be significant to the variable interest entity. This pronouncement also requires ongoing reassessments of whether an enterprise is the primary beneficiary and eliminates the quantitative approach previously required for determining the primary beneficiary. New provisions of this pronouncement are effective for the Company on July 1, 2010. The Company is currently evaluating the impact of adopting this pronouncement.

In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for the Company beginning July 1, 2010, with earlier adoption permitted.  Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance.  Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance.  Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method.  The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition.  The Company is presently assessing the impact, if any, of this new guidance on our financial statements.