SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

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

                   For the Fiscal Year Ended January 31, 2002

                                       or

(   )   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 33-12755

                            SHARPER IMAGE CORPORATION
             (Exact name of registrant as specified in its charter)

          Delaware                                                94-2493558
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                650 Davis Street, San Francisco, California 94111
               (Address of principal executive offices) (Zip Code)

               Registrant's telephone number including area code:
                                 (415) 445-6000

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

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

                          Common Stock, par value $.01
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                  Yes X No ___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. X

  The aggregate market value of the voting stock held by non-affiliates of the
                Registrant as of April 15, 2002 was $152,085,694

    The number of shares of Common Stock, with $.01 par value, outstanding on
                      April 15, 2002 was 12,145,553 shares.

Documents incorporated by reference:

Portions of Registrant's Annual Report to Stockholders for the fiscal year ended
January  31, 2002 are  incorporated  by  reference  into Parts II and IV of this
Report.  Portions of  Registrant's  Proxy  Statement  for the Annual  Meeting of
Stockholders to be held June 3, 2002 are incorporated by reference into Part III
of this report.

<PAGE>

                                     PART 1

      This Annual Report on Form 10-K and the documents  incorporated  herein by
reference  of Sharper  Image  Corporation  (referred to as the  "Company,"  "The
Sharper  Image," "it," "we," "our,"  "ours," and "us")  contain  forward-looking
statements  within the  meaning of federal  securities  laws that have been made
pursuant to the provisions of the Private  Securities  Litigation  Reform Act of
1995.  Such  forward-looking  statements  are  based  on  current  expectations,
estimates and projections about the Company's industry, management's beliefs and
certain   assumptions   made  by  the  Company's   management.   Words  such  as
"anticipates,"  "expects," "intends," "plans," "believes," "seeks," "estimates,"
or  variations of such words and similar  expressions,  are intended to identify
such forward-looking  statements.  These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict.  Therefore,  actual results may differ materially from
those expressed or forecasted in any such forward-looking statements. Such risks
and uncertainties include those set forth herein under "Factors Affecting Future
Operating  Results"  on  pages  17  through  26 as well as  those  noted  in the
documents incorporated herein by reference.  Unless required by law, the Company
undertakes  no  obligation to update  publicly any  forward-looking  statements,
whether as a result of new  information,  future events or  otherwise.  However,
readers  should  carefully  review the  statements set forth in other reports or
documents the Company files from time to time with the  Securities  and Exchange
Commission,  particularly  the  Quarterly  Reports on Form 10-Q and any  Current
Reports on Form 8-K.

Item 1. Business

Overview

      The Sharper  Image is a leading  specialty  retailer of  innovative,  high
quality  products that are useful and entertaining and are designed to make life
easier and more enjoyable. The Company offers a unique assortment of products in
the electronics, recreation and fitness, personal care, house ware, travel, toy,
gift and other categories. The Company's merchandising philosophy focuses on the
introduction of new and creative Sharper Image Design  proprietary  products and
Sharper  Image  private label  products.  In addition,  the Company is a leading
source  of  branded  products,  a  portion  of which  the  Company  offers on an
exclusive  basis.  The  Company's  products are marketed and sold through  three
primary sales channels: The Sharper Image stores, The Sharper Image catalog, and
the Internet,  primarily through its sharperimage.com Web site. The Company also
has  business-to-business  operations  consisting  of  Sharper  Image  Corporate
Rewards & Incentives  and wholesale  operations.  The Company  believes that its
unique  merchandising  and creative  marketing  strategies have made The Sharper
Image one of the most widely recognized retail brand names in the United States.

      The  Company's   merchandising   strategy  emphasizes  products  that  are
innovative  and  new-to-market.   In  recent  years,  the  Company  has  focused
significant  resources on the  development  and  marketing of its Sharper  Image
Design proprietary products and its Sharper Image private label products,  which
are  exclusive to The Sharper  Image.  Sharper  Image  Design and private  label
products  typically  generate higher gross margins than other  products,  lessen
direct price  comparisons  and, the Company  believes,  strengthens  The Sharper
Image brand, as well as broadens its customer  reach.  The Company has increased
the percentage of its sales attributable


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to Sharper Image Design  proprietary  and private label  products to 70% for the
year ended  January 31, 2002 (fiscal  2001) from 64% for the year ended  January
31, 2001 (fiscal 2000).

      The Company was founded in 1977 by Richard  Thalheimer,  who  continues as
Chairman and Chief Executive Officer. The Sharper Image mailed its first catalog
in 1981,  began the  expansion  into store  operations  in 1984,  and  commenced
Internet  online retail  operations in 1994.  The Company  markets and sells its
merchandise  through the following  three primary  sales  channels:  The Sharper
Image  stores,  Catalog,  which  includes  revenue  from  all  direct  marketing
activities and television infomercials,  and the Internet, primarily through its
sharperimage.com Web site. The Company believes that this multi-channel approach
provides it with significant  marketing,  sales and operational  synergies,  and
provides its customers with enhanced shopping  flexibility and superior customer
service.

      The Company's  store  operations  generated the highest  proportion of its
sales,  representing  approximately  59% of total  revenues  in fiscal  2001 and
fiscal  2000.  At the end of fiscal 2001,  the Company  operated 109 The Sharper
Image stores in 31 states and the District of Columbia  and  licensees  operated
three stores  internationally  and two airport stores in the United States.  The
Sharper Image stores present an interactive and entertaining selling environment
that emphasizes the features and functionality of its innovative, fun and useful
products and allows the customer to interact and  experience  the product  while
shopping.  The Company's  average  store sales per square foot are  consistently
above industry  averages,  and during fiscal 2001 the Company  generated average
sales of $578 per square  foot,  a  decrease  of 24% as  compared  with $763 per
square  foot  for  fiscal  2000   (fiscal   2000  sales  per  square  foot  were
exceptionally  high due to the razor scooter sales  phenomenon  experienced that
same year.) Sales per square foot for fiscal 1999 were $546. During fiscal 2001,
the  Company  opened 12 new The Sharper  Image  format  stores,  and two new The
Sharper Image Design format stores, and closed two The Sharper Image stores. The
Company  plans to continue its real estate  strategy of annual store unit growth
of 10-15%.  Lease terms for  several of the  existing  The  Sharper  Image store
locations  will  be  maturing  during  fiscal  2002  and  these  leases  may  be
re-negotiated or terminated.

The Company also offers its products  through direct marketing  activities.  The
Sharper  Image  catalog,  an award  winning,  full-color  monthly  catalog  uses
dramatic visuals and creative product descriptions  designed and produced by its
in-house  staff of writers and  production  artists.  The Sharper Image catalog,
generally  features  between  180 and 250  products  in  each  monthly  catalog,
increasing  to over 340  products  during the Holiday  shopping  season and also
currently  serves as the  primary  advertising  vehicle  for its  stores and its
Internet retail operations at sharperimage.com.  During fiscal 2001, the Company
mailed  approximately  70 million The Sharper Image  catalogs to over 10 million
individuals.  The Company  also has a  television  advertising  program  through
infomercials on a number of its most popular products.  Approximately 23% of the
Company's  total  revenues  were  generated  by  direct  marketing   operations,
including  revenue  generated  directly  from the  catalog,  print  advertising,
single-product  mailers and  television  infomercials  in fiscal 2001 and 21% in
fiscal 2000.

      The  Sharper  Image  products  are also  marketed  through  the  Company's
Internet  retail  operations,  primarily  through  its own Web  site,  which the
Company has maintained at sharperimage.com since 1995. The Sharper Image was one
of the early entrants into Internet  retailing,  and has  participated in online
shopping since 1994. The Company's Internet operations  generated  approximately
13% of total  revenues in fiscal 2001 and 14% in fiscal 2000. In addition to its
Web site,  the  Company  has offered its  products  through  Internet  marketing
partnerships with


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America  Online,  Catalog City,  Linkshare,  Yahoo!  Shopping,  and others.  The
Company  believes that online  retailing over the Internet  presents The Sharper
Image with a significant  opportunity for the marketing and sale of its products
and will enable it to expand and  diversify  its  existing  customer  base.  The
Company  believes  that  its  Sharper  Image  Design  proprietary  products  are
particularly  well  positioned  to be marketed and sold over the  Internet.  The
Company plans to continue to allocate the  resources to its Internet  operations
by establishing appropriate additional strategic relationships with other online
retail  partners  and  continuing  to enhance  the  technical  capabilities  and
presentation  of products on its Web site.  The Company also operates an auction
site where  consumers can bid to win products at less than retail  prices.  This
allows the  Company  the  ability to broaden  its  customer  base and manage its
closeout,  repackaged and refurbished  inventory.  The Company  currently offers
international  Web  sites  where  online  shoppers  are able to get  convenient,
efficient  local  delivery of Sharper  Image  Design  products,  which have been
specifically adapted for use throughout Europe.

      The  Company  is known  for its  varied  product  mix and a  merchandising
philosophy focusing on innovative, well-designed, high-quality products that are
developed by The Sharper Image,  exclusive to The Sharper  Image,  or in limited
distribution.  In product lines where the Company  competes  directly with other
retailers, it generally chooses to sell the best version of the product with the
most advanced features.  The Company is frequently sought after by manufacturers
and inventors,  to launch  technologically  advanced products with features that
are unique and innovative.

      During  fiscal 2001,  the Company  continued the expansion of its in-house
Sharper Image Design product development  function. As a result of the increased
resources devoted to Sharper Image Design proprietary and private label products
during  fiscal 2001,  the creation and  introduction  of a number of new Sharper
Image  Design  products,  as  well  as  the  continuing  cumulative  sales  from
proprietary and private label products introduced in prior years, the percentage
of sales  attributable  to Sharper  Image Design  proprietary  and private label
products  was 70% in fiscal  2001 and 64% in fiscal  2000.  The  growth in gross
margin  percentage rate by 2.9 percentage points in fiscal 2001 from fiscal 2000
was  primarily  due to the fact that The Sharper  Image Design  proprietary  and
private label products generally carry higher margins than branded products. The
Company  plans to  continue  to  devote  resources  to its  proprietary  product
development efforts and its private label merchandising philosophy.

      The Company's  business is highly  seasonal,  with sales peaks in June for
Father's Day and graduation gift giving,  and the Holiday shopping  season.  See
"Seasonality".

      In addition to its primary  businesses,  The Sharper  Image  leverages its
name and  reputation  through its  Corporate  Incentives  and  Rewards  program,
wholesale  sales of Sharper Image brand  products,  which include  Sharper Image
Design proprietary and private-label  products,  and a product licensing program
with select  businesses.  Wholesale  sales are made primarily to fine department
stores and to select international retailers.

Store Operations

      The Sharper  Image  stores are  located  nationwide  in densely  populated
downtown  financial  districts and business centers,  upscale shopping malls and
drive-up suburban locations. The Company's store operations generate the highest
proportion of its sales,  representing  approximately  59% of total revenues for
fiscal 2001 and fiscal 2000. The Sharper Image stores


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<PAGE>

present an interactive and entertaining  selling environment that emphasizes the
features and functionality of its products and allows the customer to experience
the product while  shopping.  The Company has four retail  formats,  The Sharper
Image stores; The Sharper Image Design stores;  Outlet stores and airport shops.
These formats are discussed below and in "Licensed Operations."

      Each  store  is  generally   staffed  with   approximately  six  to  eight
associates, including a manager, an assistant manager, a senior sales associate,
sales associates, and other support staff. A number of the Company's high volume
stores are staffed with 11 to 15 associates.  The Company's  store managers have
an  average  tenure of over seven  years.  The  Company's  store  personnel  are
compensated primarily through commissions.  In order to maintain a high customer
service level, the Company's sales associates undergo  considerable  training on
its many new and often technically oriented products.

      The Sharper Image stores are designed by the Company's visual design staff
at the Company's headquarters in San Francisco, California to standardize, where
possible,  layout so as to simplify  their  operations.  The stores are operated
according  to  standardized  procedures  for  high  level of  customer  service,
merchandise display and pricing,  product demonstration,  inventory maintenance,
personnel  training,  administration  and security.  The Company's  original The
Sharper Image stores  typically have 2,200 to 3,000 square feet of selling space
and  approximately  1,300 to 2,200  square  feet of storage  and  administrative
space.   The  typical   cost  of   leasehold   improvements,   before   landlord
contributions,  but  including  fixtures,  equipment and  pre-opening  expenses,
averages $450,000 to $550,000 per store. Initial inventory for a new The Sharper
Image  store has  generally  cost  approximately  $200,000.  Outlet  stores  are
approximately  half the cost of the  original  The  Sharper  Image  stores.  The
Company also operates a second retail format of The Sharper Image Design stores,
which are approximately  half the size of the original stores. The Sharper Image
Design store typically  consist of between 1,200 to 2,000 of selling square feet
and feature higher margin proprietary products, in addition to other top selling
merchandise.  At the end of fiscal  2001,  the Company had 96 The Sharper  Image
stores, 11 Sharper Image Design stores, and two outlet locations.

      In 1997 the  Company  decided  to  update  the look and  appeal of its new
retail stores and select existing stores. The new format presents an open, fresh
and inviting environment that the Company believes appeals to both men and women
and  highlights  the  Company's  proprietary  products  and  attractive  product
packaging. The average cost of converting an existing store to the new format is
similar to that of building a new store, which ranges from $450,000 to $550,000,
subject to leasehold allowances. Utilizing the new format, the Company opened 14
new stores and  remodeled,  expanded or relocated 10 stores  during fiscal 2001.
The Company opened nine new stores,  including two flagship stores and remodeled
six stores in fiscal  2000.  The  Company  intends to  continue  to  selectively
remodel  stores  utilizing  the new store  format  typically  at the time of the
store's lease renewal.

The Sharper Image Catalog

      The Sharper  Image  catalog is a  full-color  catalog that is mailed to an
average of approximately  4.9 million  individuals each month. The Sharper Image
direct marketing  operations,  including  revenues  generated  directly from the
catalog, single-product mailers, print ads and television infomercial, generated
approximately  23% of its total  revenues in fiscal 2001 and 21% in fiscal 2000.
The Company's catalog has been recognized for creative excellence by


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<PAGE>

leading  catalog  industry  trade  groups.  The catalog is currently the primary
advertising  vehicle for its retail stores and its Internet retailing  business.
During fiscal 2001, the Company mailed  approximately  70 million of The Sharper
Image catalogs to over 10 million  individuals.  Circulation and number of pages
of The Sharper Image catalog is under  continual  review to balance the costs of
mailing  the  catalogs  with  the  revenues  generated.  The  mailings  increase
significantly  for Father's Day and the Holiday  shopping  season to reflect the
seasonal nature of the business.

      The Sharper Image catalog design uses dramatic visuals and problem-solving
and benefit-oriented product descriptions.  The catalog design features the most
important products  prominently.  The number of items featured each month ranges
between  180 and 250  products  during  the first  three  quarters  of the year,
increasing to more than 340 products  during the Holiday  shopping season in the
fourth  quarter.  The  Sharper  Image  catalog is designed  and  produced by the
Company's  in-house  staff of writers and production  artists.  This enables the
Company to maintain  quality control and shorten the lead-time needed to produce
the catalog.  The monthly production and distribution  schedule permits frequent
changes in the product selection.  During fiscal 2001, The Sharper Image catalog
contained  between 52 and 84 pages for  non-peak  months and  between 52 and 124
pages for the peak seasons of Father's Day and the Holiday shopping season.

      The  Company  has  developed a  proprietary  customer  database of over 12
million  names,  which the Company uses  regularly and rents  periodically  to a
highly select group of companies.  The Company  collects  customer names through
its  catalog  and  online  Web  site  order  processing  as well  as  electronic
point-of-sale  registers in its retail stores.  The names and  associated  sales
information  are merged  daily into its customer  master file.  This daily merge
process  provides a constant  source of current  information  to help assess the
effectiveness  of the  catalog  as a form of retail  advertising,  identify  new
customers that can be added to its in-house  mailing list without using customer
lists  obtained  from other  catalogers,  and  identify its top  purchasers.  To
further enhance the  effectiveness of its catalog mailings to individuals in the
customer  database,  the  in-house  staff  utilizes  the  Company's  statistical
evaluation and selection  techniques to determine  which  customer  segments are
likely  to  contribute  the  greatest  revenue  per  mailing.  The  Company  has
established  a data  bank of top  purchasers  who  receive  preferred  services,
including invitations for special sales events and enhanced customer service.

      During  fiscal  2001,  the Company  expanded  its  television  infomercial
presence by  highlighting  several  popular  Sharper  Image  Design  proprietary
products on cable and  national  broadcast  stations.  Approximately  28% of net
catalog sales were generated from television infomercial direct sales for fiscal
2001. The Company  believes that this type of direct  marketing will broaden the
existing  customer  base and will also  increase  customer  traffic and sales in
retail store locations.

Internet Operations

      The  Sharper  Image was an early  entrant  into  Internet  retailing.  The
Company has  participated  in online shopping since 1994, and has maintained its
own Web  site at  sharperimage.com  since  1995.  Revenues  from  the  Company's
Internet operations decreased to $49.8 million in fiscal 2001 from $60.2 million
in fiscal 2000 due  primarily to the Company's  planned  decrease in its auction
sales. Revenues from the Company's Internet operations,  excluding auction sales
decreased to $40.8 million in fiscal 2001 from $41.8 million in fiscal 2000. The
Company's online retail operations  benefit from its brand name,  customer base,
Sharper Image


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catalogs and unique product  offerings,  as well as its  multimedia  approach to
advertising.  The Company  believes that the Sharper Image catalog in particular
is a significant factor in generating online sales. In addition,  the Company is
able to leverage its catalog  operational  infrastructure  for  fulfillment  and
customer  service  experience,  providing it with a significant  advantage  over
Internet retailers who have not developed such capabilities. Shoppers on the Web
site have the convenience of exchanging or returning  products purchased through
the  Internet at its retail  locations.  The Company  sends out  periodic  email
campaigns to its list of online shoppers. These emails include sneak previews of
newly released products and special  promotions that are intended to drive sales
in all selling channels.

      The Company's  goal is to make  sharperimage.com  a Web site that provides
its online customers with an interactive experience similar to its Sharper Image
stores.  The Company continues to update its Web site by incorporating  advanced
technologies to improve its product presentations and make its site increasingly
customer friendly,  while retaining its entertainment value. During fiscal 2000,
the Company launched an enhanced and redesigned Web site that  incorporated much
of the look and feel of the new store design.  The  redesigned Web site included
new  features  such  as  dynamic  browsing,  inventory  status,  order  tracking
capabilities,  easy  registration  and Flash  technology.  For fiscal 2001,  the
Company  focused on utilizing  these  improved  features to enhance the ease and
speed of shopping and ordering.  The Company's Web site now offers catalog quick
order and each product page lists related  accessories with  click-to-add  check
boxes.

      The Company  also has an  established  online  auction  site which  allows
customers to bid on and acquire a broad range of new,  returned,  repackaged and
refurbished  Sharper Image  products for less than regular  retail  price.  Most
products  purchased  on the  auction  site  have the same  warranty  and  return
benefits that accompany full price products.  The Company  believes that bidders
have an enhanced level of confidence in its operations since,  unlike many other
online auction sites,  the Company is an established  retailer with an inventory
of well-known  products under warranty with  established  return  policies.  The
auction  site not only offers  consumers  the  enjoyment  of bidding and winning
products at less than retail prices,  it also allows the Company the opportunity
to effectively  manage its closeout  products,  while  maintaining  gross margin
goals.

      The Company is pursuing  additional  steps to achieve  continued growth of
its  Internet  operations.   These  steps  include  technological  improvements,
dramatic visual presentations, development of international Web sites in Europe,
including  the United  Kingdom and Germany,  and seeking to establish  strategic
Internet marketing partnerships.  The Company has established relationships with
America Online, Catalog City, Linkshare,  Yahoo! Shopping, and others.  Although
the Company's  international  online revenues are not expected to be significant
during fiscal 2002, we believe there will be good growth opportunities in future
years.

Other Operations

      In addition to its store,  catalog and  Internet  operations,  the Company
also  has  a  business-to-business   operation,  which  includes  the  corporate
incentive program, Sharper Image Rewards, wholesaling and licensing. The Company
also derives revenues from its customer list rental program.

      Under the  Sharper  Image  Rewards  program,  the  Company  sells to major
corporations and not-for-profit entities,  product, rewards cards, incentive and
merchandise certificates to client


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companies who in turn  distribute  them under their  programs to increase  their
sales,  or to  motivate  and  reward  their  high  achiever  employees  and best
customers.  The Sharper Image stores,  Internet site and catalog are the primary
means of offering and  conveniently  delivering the  incentives  and gifts.  The
Company's  certificates are redeemable for Sharper Image merchandise through its
retail  stores,  by mail,  on the  Internet  or over the  telephone  through the
catalog  telemarketing  group.  The Company offers a custom online  points-based
incentive  catalog  called  Sharper Image  E-Awards,  which  highlights  popular
Sharper Image products.  Points are assigned to each product and will be offered
on a Web site developed specifically for the client company's incentive program.
It is intended that the client company will buy the points and  distribute  them
under  their  incentive  program.  The points  are  directly  redeemable  on the
E-Awards   site.  The  editors  and  readers  of  Incentive   magazine   honored
sharperimage.com as one of the incentive  industry's best Web sites. The Company
records  revenues and expenses for its Sharper Image Rewards program through its
stores, catalog and Internet operations.

      The  Company's  Business  Development  department  is  the  primary  group
responsible  for  wholesale   marketing  to  other  retailers,   including  fine
department  stores in the United States as well as retailers in other countries.
This group's sales were $10.9 million in fiscal 2001 as compared to $9.4 million
in fiscal 2000. Plans for this group include selectively increasing its presence
in the  international  marketplace  in 2002,  and increase the number of Sharper
Image brand products offered to these customers.

      The Company has an exclusive licensing agreement with a company located in
Switzerland.  Under the  international  license  agreement in  Switzerland,  the
licensee is granted the right to use the trademarked  name, "The Sharper Image,"
in  Switzerland  in connection  with The Sharper Image retail stores and catalog
operations. The Company has agreed to assist the licensee by producing a foreign
language  edition of The Sharper Image  catalog,  with economies of scale but at
the expense of the licensee who then prints and distributes  locally.  There are
currently three Sharper Image retail stores operated by the foreign  licensee in
Switzerland.  The  Company  receives  royalties  on sales by the  licensee.  The
licensee will purchase products from the Company or directly from manufacturers,
maintain their own supply of inventory,  and establish their own product prices.
The Company also has a licensing agreement with a domestic company, which allows
the  licensee  to  utilize  The  Sharper  Image  trademark  and  trade  dress in
designated airport locations,  the design of which is subject to the approval of
the Company.  There are two locations -- one at  Dallas-Fort  Worth and a second
location at Detroit Metropolitan. The Company receives royalties on sales by the
licensee.  The licensee will purchase products from the Company or directly from
manufacturers,  maintain their own supply of inventory,  and establish their own
product prices.

      In addition,  the Company rents its customer list to a highly select group
of companies  for a fee or in exchange for their  customer  lists.  The value of
customer list exchanges is not included in the Company's revenues.

      The  Company  continues  to pursue  opportunities  in  foreign  countries,
primarily   through   wholesale   and  internet   channels.   For  fiscal  2001,
international   sales  accounted  for  approximately  1.1%  of  total  revenues.
Licensing arrangements are selectively revisited.


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<PAGE>

Merchandising, Product Sourcing, Product Development

Merchandising

      The Company's  merchandise mix emphasizes innovative products that are new
to market,  unique  products which are  proprietary,  private label or available
exclusively  through The Sharper  Image,  or branded  products not  available in
broad  distribution.  The Company  chooses each product  separately  because its
sales are driven by individual products, and its marketing efforts focus on each
item's unique attributes, features and benefits. This approach distinguishes the
Company from other  retailers  who are more  category or product  classification
oriented.  The Company  adjusts its merchandise mix to reflect market trends and
customer buying habits.  New products are selected or developed and brought into
the Company's merchandise mix based on criteria such as anticipated  popularity,
gross margin, uniqueness, value, competitive alternatives,  exclusivity, quality
and vendor  performance.  As a result of such shifting emphasis among individual
items and  depending  on the  customers  demand and the level of  marketing  and
advertising programs, the mix of sales by category changes from time to time and
the sales volume of individual  or related  products can be  significant  to any
particular reporting period's total sales.

      The  effect,  from  year to  year,  can be to  increase  or  decrease  the
merchandise  gross margin rates since some  categories  of  merchandise  sustain
traditionally higher margins and some traditionally  sustain lower margin rates.
The  Company's  goal is to increase  sales of Sharper  Image Design  proprietary
products and exclusive private label products, as these products generally carry
higher margins than branded  products.  The popularity of these  proprietary and
private label products  contributed to the 2.9 percentage  point increase in the
gross margin rate for fiscal  2001.  The  introduction  of new  proprietary  and
private label products at gross margins that are  anticipated to be in excess of
the average currently being realized should, we believe,  have a positive impact
on the  Company's  gross margin rate for fiscal 2002,  although we cannot assure
you of this result.

      The Company's  current  merchandise  strategy is to offer an assortment of
products  with emphasis on Sharper  Image Design  proprietary  and private label
products.  The Company intends to continue to focus on offering  products in the
$20 to $500 price range to appeal to a wide  customer  base.  The  Company  also
intends to continue to increase its proprietary  product offerings.  While these
proprietary and private-labeled  products offer important sales and gross margin
growth  opportunities  for all the revenue  generating  areas of the Company and
strengthen  the Sharper  Image brand,  there are certain risks  associated  with
these internally developed products, such as possible manufacturing constraints,
delays in bringing  these  products to market and cost  increases.  Products may
also be subject to other  regulation  or  limitations.  See  "Factors  Affecting
Future Operating Results."

      Sharper Image Design proprietary  products are produced for the Company on
a contract basis,  primarily by  manufacturers in Asia. The Company provides all
product specifications to the contract  manufacturers.  Development lead-time is
generally in the range of 12 to 18 months, however certain product introductions
may require a shorter or longer lead-time.

      The Company  generates  information  frequently on merchandise  orders and
inventory,  which is reviewed by the Company's buyers, its senior  merchandising
staff and top management. The Company averages new offerings of approximately 50
to 100  products  during the two peak  selling  seasons.  The Company  carefully
considers which products will not be offered in future


                                                                               8
<PAGE>

months based upon numerous factors, including revenues generated, gross margins,
the  cost  of  catalog  and  store  space  devoted  to  each  product,   product
availability and quality.

Product Sourcing

      The  process  of  finding  new  products  involves  the  Company's  buyers
reviewing voluminous product literature,  traveling  extensively  throughout the
United States and Asia to attend trade shows and  exhibitions,  and meeting with
manufacturers.  The Company enjoys  relationships with many major  manufacturers
who use The Sharper Image  regularly to introduce  their newest  products in the
United States. See "Factors Affecting Future Operating Results."

      The Company  purchases  merchandise  from  numerous  foreign and  domestic
manufacturers  and  importers.  The Company had a single  supplier that provided
approximately  16% of the net  merchandise  purchases  in  fiscal  2001.  Of the
products  offered by the  Company  in recent  catalogs,  approximately  88% were
manufactured  in Asia  (primarily  China),  approximately  8% were  manufactured
within the United States,  approximately  2% were  manufactured  in Europe,  and
approximately 2% were manufactured in other countries. The Company expects these
percentages  to vary as new products  are  introduced.  See  "Factors  Affecting
Future Operating Results."

Product Development

      In  addition  to finding  new  product  ideas from  outside  sources,  the
Company's  product  development  group  conceives,  designs and produces Sharper
Image Design proprietary products. The product development group meets regularly
with the  merchandising  and  sales  staff to  review  new  proprietary  product
opportunities,  product  quality,  and customer  feedback.  From these  creative
sessions  product  ideas  are  put  into  design,  development  and  production.
Successful  product  introductions  during the past three years  include,  among
others:  the Ionic Breeze Quadra  Silent Air  Purifier;  the Ionic Breeze Quadra
Silent Air Purifier with Germicidal Protection;  Roboscout; Robocub; Now You Can
Find It; Two CD Shower Companion;  Ionic Breeze Personal Air Purifier;  Personal
Cooling  System;  Ionic Breeze Car Air Purifier;  Turbo Groomer 2.0;  Ionic Hair
Wand II; Ionic Bath Pet Brush;  Shower Companion Plus; Ionic  Conditioning Quiet
Hair Dryer; Talking Travel Companion;  Sound Soother 20; CD Power Tower 200; Hot
and Cold  Snack Box;  and CD Soother  Alarm  Clock with 20 Soother  Sounds.  The
Company believes that the Sharper Image Design group will continue to design and
develop a variety  of  unique  proprietary  products  that will  enhance  sales,
maintain or increase margins and continue to strengthen The Sharper Image brand.

      In  addition,  the Company  emphasizes  and works with  vendors to develop
private label  products  focusing on unique and  innovative  features that would
distinguish it from competitors. Successful private label introductions include,
among  others,  several  uniquely  styled  stereo  systems,  as well as  various
personal care and home-related products. The Company believes that the appeal of
these  proprietary  and private  label  products  also serves as a key factor in
broadening its customer base and enhancing and  strengthening  its brand appeal.
The Company's goal is to continue to increase  sales of these  products  through
the  introduction  of, and popularity of existing  proprietary and private label
products.  However,  there  is no  assurance  that the  Company  will be able to
continue  the  growth of gross  margin and sales  related  to these  proprietary
products. See "Factors Affecting Future Operating Results."


                                                                               9
<PAGE>

Customer Service

      The Company is  committed  to  providing  its  customers  with  courteous,
knowledgeable  and prompt service.  The Company's  customer  service and catalog
sales groups at the corporate  headquarters  and in Little Rock provide personal
attention  to  customers  who call toll free or send emails to request a catalog
subscription, place an order, or inquire about a product. The Company's customer
service group is also responsible for resolving  customer  problems promptly and
to the customer's complete  satisfaction.  The Company also contracts with third
party call  centers for  additional  sales and customer  service  representative
coverage.  These  third party call  centers  are subject to the same  high-level
expectations of customer service as the Company's internal staff.

      The Company seeks to hire and retain  qualified sales and customer service
representatives  in  its  mail-order  (direct  marketing),  Internet  and  store
operations  and to train them  thoroughly.  Each new store manager  undergoes an
intense  program  during  which the  manager is  trained  in all  aspects of the
Company's  business.  Sales  personnel are trained during the first two weeks of
employment,  or  during  the  weeks  before  a  new  store  opens,  and  updated
periodically with on-going sales training sessions. Training for sales personnel
focuses primarily on acquiring a working knowledge of the Company's products and
on developing selling skills and an understanding of the Company's high customer
service  standards.  Each sales  associate is trained to adhere to the Company's
philosophy of "taking ownership" of every customer service issue that may arise.
The Company has also developed  ongoing programs  conducted at each store and by
district  that are  designed  to keep  each  salesperson  up to date on each new
product offered.

Order Fulfillment and Distribution

      The Company owns a fulfillment  and  distribution  facility in Arkansas of
approximately  110,000 square feet. The Company leases additional facility space
in Arkansas and California for overflow mail order and store fulfillment  needs,
and storage. The Company's merchandise generally is delivered to the catalog and
Internet  customers and to The Sharper Image stores  directly from the Company's
distribution facilities. Specified products are shipped directly from the vendor
to the customer or to the stores. The shipment of products directly from vendors
to the  stores and  customers  reduces  the level of  inventory  required  to be
carried at the distribution center, freight costs, and the lead-time required to
receive the products.  Each catalog order is received via remote terminal at the
distribution  facility  after the  order has been  approved  for  shipment.  The
Company's  goal is to ship the majority of direct  response and Internet  orders
within 24 - 48 hours after the order is received. Store customers generally take
their purchases with them. The Company is currently evaluating the configuration
of its main  distribution  center in  Arkansas  to  provide  for more  efficient
processing.

      Sales and inventory  information about store, direct response and Internet
operations is provided on an ongoing basis to the Company's  merchandising staff
and to top  management  for  review.  The  Company's  stores are  equipped  with
electronic point-of-sale registers that communicate daily with the main computer
system at corporate  headquarters,  transmitting  sales,  inventory and customer
data as well as  receiving  data from the  Company's  headquarters.  The  sales,
inventory,  and customer  data enable sales and  corporate  personnel to monitor
sales  by  item  on a daily  basis,  provide  the  information  utilized  by the
automatic  replenishment system (ARS) and merchandising  personnel for inventory
allocations,   provide   management  with  current   inventory  and  merchandise
information,  and  enable  the  Company's  in-house  mailing  list to be updated
regularly with customer names and activity.


                                                                              10
<PAGE>

      The Company  has  developed  a  proprietary  ARS which is used to maximize
sales  with  minimal  inventory  investment.  Under  this  ARS,  information  on
merchandise inventory and sales by each store location is generated and reviewed
daily.  Sales  information  by product and location is  systematically  compared
daily to each product's "model stock" to determine store shipment quantities and
frequency.  The ARS computes any  adjustments  to the model stock level based on
factors  such as sales  history by location  in relation to total the  Company's
sales of each product. Under this system, the model stock is continually revised
based on this  analysis.  Recommended  adjustments  to model  stock  levels  and
recommended  shipment  amounts are  reviewed  daily by a group of Company  store
distributors  and  merchandising  managers who are  responsible  for  allocating
inventory to stores.

Advertising

      While the catalog  remained  the  Company's  primary  advertising  vehicle
during  fiscal  2001,  the Company  also  broadened  its  customer  base through
increased   multimedia   advertising,    including   television    infomercials,
single-product mailers, newspapers,  magazines, radio, email marketing programs,
online  advertising  and  marketing  programs,  and  business-to-business  trade
publications.

      The Company increased its spending on television media infomercials, which
highlighted  selected  Sharper Image Design  proprietary  products.  The Company
believes it will be able to achieve its goal of near  breakeven  results on this
type of advertising due to the broad appeal of the products in conjunction  with
the higher gross margin that Sharper Image Design proprietary products generally
carry although there is no assurance that these goals will be met.

      These  increased  advertising  initiatives  were  utilized  to realize the
Company's  goal of acquiring  new  customers,  which the Company  believes  will
produce  additional sales in the stores,  catalog,  and Internet  channels,  and
business-to-business  sales in the  current  and  future  periods.  The  Company
intends to continue the strategy of growing its customer base through aggressive
multimedia  programs  in fiscal  2002 with the  objective  of  achieving  a near
breakeven  return  on  investment.   The  Company  continually  reevaluates  its
advertising   strategies  to  maximize  the  effectiveness  of  its  advertising
programs.

Information Technology

      The Company  maintains an  integrated  management  information  system for
merchandising,  point-of sale,  order  fulfillment,  distribution  and financial
reporting.  The Company believes its system increases  productivity by providing
extensive merchandise information and inventory control. The Company continually
evaluates  and enhances  its  computer  systems and  information  technology  in
connection  with  providing  additional  and improved  management  and financial
information.  In fiscal 2001, the Company added an additional AS400 mainframe at
its distribution center in Little Rock, Arkansas. The Company plans to have this
eventually  act as a  redundant  system for the AS400  located in the  corporate
headquarters. In fiscal 2002, technology development and enhancement initiatives
for  the  Company's  Internet  Web  sites  will  continue  to be part of the key
objectives of its Information Technology Team.

      During fiscal 2000,  the Company  launched an enhanced and  redesigned Web
site that  incorporated  much of the look and feel of the new store design.  The
redesigned Web site included


                                                                              11
<PAGE>

new  features  such  as  dynamic  browsing,  inventory  status,  order  tracking
capabilities,  easy  registration  and Flash  technology.  For fiscal 2001,  the
Company  focused on utilizing  these  improved  features to enhance the ease and
speed of shopping and ordering.  The Web site now offers catalog quick order and
each product page lists related accessories with click-to-add check boxes.

Competition

      The Company  operates  in a highly  competitive  environment.  The Company
principally  competes with a diverse mix of department  stores,  sporting  goods
stores,  discount  stores,  specialty  retailers  and other catalog and Internet
retailers that offer products similar to or the same as some of those offered by
the Company. Many of the Company's competitors are larger companies with greater
financial  resources,  a wider  selection of merchandise  and greater  inventory
availability.  Although the Company  attempts to market  products not  generally
available  elsewhere and has emphasized  exclusive products in its merchandising
strategy,  some of the Company's  products or similar products can also be found
in other retail  stores or through other  catalogs or through the Internet.  The
Company offers competitive pricing where other retailers market certain products
identical to the Company's  products at lower prices.  In addition,  a number of
other  companies  have  attempted  to  imitate  the  presentation  and method of
operation of the Company's  catalog and stores,  and the  Company's  proprietary
designed  products.  The Company  competes  principally  on the basis of product
exclusivity,  selection,  brand recognition,  quality and price of its products,
merchandise  presentation  in the  catalog,  stores,  and on the  Internet,  its
customer  list,  and the  quality  of its  customer  service.  The  Company  has
committed  additional  resources to its internal  product  development  group to
create  and  produce  proprietary  products,  and to its  merchandising  team to
support a program to increase private label products exclusively  available from
the Company.  The Company  believes  that these  proprietary  and private  label
products provide a competitive advantage for it in its merchandising offering.

Trademark Licenses

      The Company  believes  its  registered  service mark and  trademark,  "The
Sharper  Image," and the brand name  recognition  that it has developed,  are of
significant  value.  The  Company  actively  protects  its brand  name and other
intellectual  property  rights to ensure  that the  quality of its brand and the
value of its proprietary  rights are maintained.  The Company currently licenses
the  use  of  its  trademarked  name  in  connection  with  the  production  and
circulation  of a foreign  language  edition  of The  Sharper  Image  catalog in
Switzerland  and with The Sharper Image stores in Switzerland  in  consideration
for royalties and other fees. In addition to this  international  licensee,  the
Company has also entered into a license for the right to operate  Sharper  Image
stores in  domestic  two  non-duty-free  airport  locations  as well as  various
product  license  agreements,  which grant the right to licensees to manufacture
and sell products bearing the Company's trademark.

Seasonality

      The Company's business is highly seasonal,  reflecting the general pattern
associated  with the  retail  industry  of peak  sales and  earnings  during the
Holiday  shopping  season.  The  secondary  peak period for the Company is June,
reflecting gift buying for Father's Day and graduations.  A substantial  portion
of the Company's total revenues,  and all or most of the Company's net earnings,
occur in its fourth  fiscal  quarter  ending  January 31. The Company  generally
experiences


                                                                              12
<PAGE>

lower  revenues  during  the other  quarters  and,  as is  typical in the retail
industry,  has incurred and may continue to incur losses in these quarters.  The
results of these interim quarters may not be  representative  of the results for
the full fiscal year. In addition,  similar to many retailers, the Company makes
merchandising and inventory  decisions for the Holiday season well in advance of
the Holiday  selling season.  Accordingly,  unfavorable  economic  conditions or
deviations  from projected  demand for products  during the fourth quarter could
have a material adverse effect on the Company's financial position or results of
operations  for the entire fiscal year.  During fiscal years 2001 and 2000,  the
Company's  total revenues for the fourth quarter  accounted for more than 40% of
total revenues.

Legal Proceedings

      The  Company is party to various  legal  proceedings  arising  from normal
business  activities.  Management  believes that the resolution of these matters
will not have a material adverse effect on the Company's  financial  position or
results of operations.

Employees

      As  of  January  31,  2002,  the  Company  employed   approximately  1,800
associates, of which approximately 56% were full-time. The Company considers its
employee relations to be good.


                                                                              13
<PAGE>

Executive Officers of the Registrant

      Set  forth  below  is a list of the  executive  officers  of the  Company,
together with brief biographical descriptions.

Name                                Position                                 Age
----                                --------                                 ---
Richard Thalheimer          Founder,                                         54
                              Chairman of the Board, and
                              Chief Executive Officer

Tracy Wan                   President and Chief Operating                    42
                              Officer

Greg Alexander              Senior Vice President, Information
                              Technology                                     40

Anthony Farrell             Senior Vice President, Creative Services         52

Jeffrey Forgan              Senior Vice President, Chief Financial Officer   44

Joe Williams                Senior Vice President, Loss Prevention           52

      Richard  Thalheimer  is the  founder of the  Company and has served as the
Chief  Executive  Officer  and as a Director  of the  Company  since 1978 and as
Chairman of the Board of Directors since 1985. Mr. Thalheimer also served as the
Company's President from 1977 through July 1993.

      Tracy Wan has been our President and Chief  Operating  Officer since April
1999. Ms. Wan served as Executive Vice President,  Chief Financial  Officer from
August 1998 through April 1999;  Senior Vice President,  Chief Financial Officer
from  February  1995 through  August 1998; as Vice  President,  Chief  Financial
Officer from September 1994 through February 1995; as Vice President, Controller
from  November 1991 through  September  1994;  and as Controller  from July 1989
through November 1991.

      Greg Alexander has been our Senior Vice President,  Information Technology
since March 1999. Mr. Alexander served as Vice President, Information Technology
from February 1995 through  March 1999 and as Director,  Information  Technology
from July 1991 through February 1995.

      Anthony  Farrell has been our Senior Vice  President,  Creative  Services,
since July 1998.  Mr.  Farrell was a consultant  to The Sharper Image from April
1998 through July 1998. Mr. Farrell was a senior vice  president,  merchandising
with SelfCare Catalog from March 1991 through December 1997.

      Jeffrey  Forgan has been our Senior  Vice  President  and Chief  Financial
Officer since April 1999.  Prior to that,  Mr. Forgan served as Vice  President,
Corporate Finance with Foundation Health Systems from 1995 to 1998, and was with
Deloitte & Touche  LLP from 1980 to 1995,  serving  as an audit  partner  during
1995. Mr. Forgan is a certified public accountant.


                                                                              14
<PAGE>

      Joe Williams has been our Senior Vice President,  Loss  Prevention,  since
March 1999. Mr. Williams served as Vice President,  Loss Prevention,  from March
1993 through March 1999 and served as Director,  Loss Prevention from April 1989
through March 1993.

Factors Affecting Future Operating Results

The following  factors,  in addition to the other information  contained in this
report,  should be  considered  carefully  in  evaluating  the  Company  and our
prospects.  This report  (including  without  limitation  the following  Factors
Affecting Future Operating Results) contains forward-looking  statements (within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities  Exchange  Act of  1934)  regarding  the  Company  and our  business,
financial  condition,  results  of  operations  and  prospects.  Words  such  as
"expects,"  "anticipates,"  "intends," "plans," "believes," "seeks," "estimates"
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.  Additionally,  statements concerning
future  matters  such as the  development  of new  products,  store  expansions,
possible changes in economic  conditions and other statements  regarding matters
that are not historical are forward-looking statements.

Although  forward-looking  statements  in this  report  reflect  the good  faith
judgment  of our  management,  such  statements  can only be based on facts  and
factors we currently know about.  Consequently,  forward-looking  statements are
inherently subject to risks and  uncertainties,  and actual results and outcomes
may  differ   materially  from  the  results  and  outcomes   discussed  in  the
forward-looking  statements.  Factors  that could  cause or  contribute  to such
differences  in results and  outcomes  include,  but are not  limited to,  those
discussed  below and in  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of  Operations"  as well as those  discussed  elsewhere in
this  report.   Readers  are  urged  not  to  place  undue   reliance  on  these
forward-looking  statements,  which speak only as of the date of this report. We
undertake no  obligation to revise or update any  forward-looking  statements in
order to reflect any event or circumstance  that may arise after the date of the
report.

If we fail to offer merchandise that our customers find attractive, our business
and operating results will be harmed

      In order to meet our strategic  goals, we must  successfully  offer to our
customers new, innovative and high quality products.  Our product offerings must
be affordable, useful to the customer, well made, distinctive in design, and not
widely available from other retailers.  We cannot predict with certainty that we
will successfully offer products that meet these requirements in the future.

      If other retailers,  especially  department stores or discount  retailers,
offer the same products or products  similar to those we sell or if our products
become less popular with our  customers,  our sales may decline or we may decide
to offer our products at lower prices. If customers buy fewer of our products or
if we have to reduce our prices, our revenues and earnings will decline.

      In  addition,  we must be able to deliver our  merchandise  in  sufficient
quantities to meet the demands of our customers and deliver this  merchandise to
customers in a timely manner. We must be able to maintain  sufficient  inventory
levels,  particularly  during peak selling seasons.  Our future results would be
adversely affected if we are not successful in achieving these goals.


                                                                              15
<PAGE>

      Our success  depends on our ability to anticipate  and respond to changing
product trends and consumer demands in a timely manner. Our products must appeal
to a broad range of consumers whose preferences we cannot predict with certainty
and may change between sales seasons.  If we misjudge  either the market for our
products  or our  customers'  purchasing  habits,  our  sales may  decline,  our
inventories  may  increase or we may be  required to sell our  products at lower
prices. This would have a negative effect on our business.

If our sales decrease, our stock price maybe adversely affected

      During fiscal 2000, we experienced a substantial  increase in the level of
sales  over  fiscal  1999  due in  large  part to the  popularity  of the  Razor
Rollerboard Scooter,  which we introduced in 1999. The Razor Rollerboard Scooter
was one of the more popular products in the history of the Company, representing
approximately  17% of total revenues for fiscal 2000,  the sales  generated from
this product for fiscal 2001 and 1999 were not significant.

      During  fiscal  2001,  we did  not  maintain  the  level  of  total  sales
experienced  in fiscal  2000,  although we have been able to increase  the gross
margin rate from the levels  achieved  during fiscal 2000,  and we experienced a
substantial  increase in sales of one of our Sharper  Image  Design  proprietary
products,  the Ionic Breeze Quadra  Silent Air  Purifier.  Sales of this product
accounted for approximately 16% of our total revenues for fiscal 2001,  compared
to  approximately  7% and 4% for fiscal 2000 and 1999,  respectively.  We cannot
assure you that the sales from this product will continue at this level.

      Our  future  growth  will  be  substantially  dependent  on the  continued
increase in growth of  existing  core and new  products,  while at the same time
maintaining  or increasing  our current gross margin  rates.  We cannot  predict
whether we will be able to increase the growth of existing core and new products
or successfully introduce new products,  increase our revenue level, or maintain
or  increase  our gross  margin  rate in future  periods.  Failure  to do so may
continue to adversely affect our stock price.

Poor economic conditions may hurt our business

Certain  economic  conditions that affect the level of consumer  spending on our
products include the following:

o     general business conditions;
o     stock market volatility;
o     consumer confidence in future economic conditions;
o     natural catastrophes;
o     acts of terrorism;
o     threats of war
o     interest rates; and
o     taxation.

Our  business  has been and could  continue  to be  negatively  affected  by the
current  recession  and poor  economic  conditions  and any  related  decline in
consumer  demand  for  discretionary  items  such  as  our  products.   We  face
uncertainty in the degree to which the continuing poor performance in the retail
industry and the current economic slowdown will negatively affect demand for our
products from our


                                                                              16
<PAGE>

existing  and  potential  customers.  If the economic  conditions  in the United
States and  globally do not  improve,  or if we  experience  a worsening  in the
global economic slowdown, we may continue to experience material adverse impacts
on our business,  operating results and financial condition.  We may not be able
to accurately  anticipate  the  magnitude of these  effects on future  quarterly
results.

Our success depends in part on our ability to design, develop, obtain and timely
deliver our proprietary products

      We are increasingly  dependent on the success of the proprietary  products
that we design and develop for our customers. Some of these or related products,
which  are  affected  by  customers'  demands  and the  level of  marketing  and
advertising  efforts,  can  produce  sales  volume  that  is  significant  to  a
particular  reporting  period's  total sales volume.  We must design and develop
products that meet the demands of our customers and  manufacture  these products
cost-effectively.  We rely solely on a select  group of contract  manufacturers,
most of who are located in Asia (primarily  China), to produce these products in
sufficient  quantities to meet  customer  demand and to obtain and deliver these
products to our customers in a timely manner.  These arrangements are subject to
the risks of  relying  on  products  manufactured  outside  the  United  States,
including political unrest and trade restrictions,  currency fluctuations,  work
stoppages,   economic   uncertainties   including   inflation   and   government
regulations,  and other  uncertainties.  If we are unable to successfully design
and  develop or to obtain  and timely  deliver  sufficient  quantities  of these
products, our operating results may be adversely affected.

      The  Company  had  a  single  supplier   located  in  Asia  that  provided
approximately 16% of the net merchandise  purchases in fiscal 2001 and is likely
to  provide a higher  percentage  in fiscal  2002.  If we were  unable to obtain
products  from this  supplier on a timely  basis or on  commercially  reasonable
terms, our operating  results may be adversely  affected.  Also, the arrangement
with this supplier is subject to the risks of products  manufactured outside the
United  States,  including  political  unrest and trade  restrictions,  currency
fluctuations,   work  stoppages,   economic  uncertainties  including  inflation
government regulations, and other uncertainties.

We depend on our vendors'  ability to timely  deliver  sufficient  quantities of
products

      Our  performance  depends  on our  ability to  purchase  our  products  in
sufficient  quantities at competitive prices and on our vendors' ability to make
and deliver high quality products in a  cost-effective,  timely manner.  Some of
our smaller vendors have limited resources,  limited  production  capacities and
limited operating  histories.  We have no long-term  purchase contracts or other
contracts that provide continued  supply,  pricing or access to new products and
any vendor or distributor could discontinue selling to us at any time. We cannot
assure you that we will be able to acquire the products we desire in  sufficient
quantities or on terms that are acceptable to us in the future. In addition,  we
cannot  assure you that our vendors will make and deliver high quality  products
in  a  cost-effective,   timely  manner.  We  may  also  be  unable  to  develop
relationships  with new vendors.  All products we purchase  from vendors in Asia
must be shipped to our  distribution  centers by freight  carriers and we cannot
assure  you  that  we will be able to  obtain  sufficient  freight  capacity  at
favorable rates. Our inability to acquire suitable products in a cost-effective,
timely manner or the loss of one or more key vendors or freight  carriers  could
have a negative effect on our business.

      Because we purchase  merchandise  from  foreign  entities  and use foreign
manufacturers  on a contract  basis for Sharper Image Design  products and other
private label products, we are subject to


                                                                              17
<PAGE>

risks  resulting  from  fluctuations  in  the  economic  conditions  in  foreign
countries.  The majority of our vendors and manufacturers are located in various
countries in Asia, and as a result, our business may be particularly impacted by
changes in the  political,  social,  legal,  and  economic  conditions  in these
countries.  Additionally,  weather and  product  transportation  problems  could
affect our ability to maintain  adequate  inventory  levels and adversely affect
our future results.

Our quarterly  operating  results are subject to  significant  fluctuations  and
seasonality

      Our business is seasonal, reflecting the general pattern of peak sales and
earnings for the retail industry during the Holiday shopping season.  Typically,
a substantial portion of our total revenues and all, or most of our net earnings
occur during our fourth  quarter  ending on January 31. During our 2001 and 2000
fiscal  years,  our total  revenues  for the fourth  quarter  ending  January 31
accounted  for more than 40% of total  revenues  for the full  fiscal  year.  We
cannot  predict with  certainty  whether the fourth quarter of 2002 will account
for such a large percentage of our total revenues.  In anticipation of increased
sales  activity  during  the fourth  quarter,  we incur  significant  additional
expenses, including significantly higher inventory costs and the costs of hiring
a  substantial  number of temporary  employees to  supplement  our regular store
staff. If for any reason our sales were to be substantially below those normally
expected  during  the fourth  quarter,  our annual  operating  results  would be
adversely affected.  Due to this seasonality,  our operating results for any one
period may not be indicative of our operating results for the full fiscal year.

      Typically our operating  results during the other quarters of the year are
generally lower and we have  historically  experienced  losses in these periods.
Our quarterly results of operations may fluctuate significantly as a result of a
variety of  factors,  including,  among  other  things,  the timing of new store
openings,  net sales  contributed  by new  stores,  increases  or  decreases  in
comparable store sales, changes in our merchandise mix and net catalog sales.

      In addition,  similar to other retailers,  we typically make merchandising
and purchasing  decisions well in advance of the Holiday shopping  season.  As a
result,  poor economic  conditions or differences from projected customer demand
for our products  during the fourth  quarter could result in lower  revenues and
earnings.

Our  vital  computer  and  communications  hardware  and  software  systems  are
vulnerable to damage and interruption which could harm our business

      Our success, in particular our ability to successfully receive and fulfill
Internet orders and provide high-quality customer service,  largely depends upon
the efficient  and  uninterrupted  operation of our computer and  communications
hardware and software  systems.  We use internally  managed  systems for our Web
site and some aspects of transaction processing,  including customer information
and order verifications.  Our systems and operations are vulnerable to damage or
interruption from earthquake, fire, flood and other natural disasters, terrorist
attacks, power loss, computer systems failures,  Internet and telecommunications
or  data  network  failure,  operator  negligence,   improper  operation  by  or
supervision  of  employees,  physical  and  electronic  loss of data or security
breaches,  misappropriation and similar events, fluctuations and failures in the
business of Internet service providers on which we rely, and computer viruses.


                                                                              18
<PAGE>

      In addition,  we maintain our servers at the site of a third party located
in Santa Clara,  California.  We cannot control the maintenance and operation of
this site, which is also susceptible to similar disasters and problems.  We also
cannot control the business or operations of Internet service  providers,  which
are susceptible to failure as a result of industry-wide  business  fluctuations.
During  fiscal 2001 our  Internet  hosting  provider  petitioned  for  voluntary
reorganization  under Chapter 11 of the United States  bankruptcy  laws. At this
time, we have not experienced any change in service due to the bankruptcy filing
and although  have  constructed  a  contingency  plan,  we cannot assure you our
servers will continue to perform  without  interruption.  Because our strategies
depend in part on maintaining  our  reputation  for superior  levels of customer
service,  any system  failure  that causes an  interruption  in our service or a
decrease in responsiveness  could harm our relationships  with our customers and
result in reduced revenues.

We are dependent on the success of our advertising and marketing efforts

      Our  revenues  depend in part on our  ability  to  effectively  market and
advertise our products  through The Sharper Image catalog and other  advertising
vehicles. Increases in advertising, paper or postage costs may limit our ability
to advertise without reducing our profitability.  If we decrease our advertising
efforts due to increased  advertising costs,  restrictions  placed by regulatory
agencies,  or  for  any  other  reason,  our  future  operating  results  may be
materially  adversely  affected.  We are also utilizing and  constantly  testing
other  advertising  media,  such as television  infomercials,  radio, and single
product mailings,  and significantly  increased our advertising  expenditures in
fiscal 2001.  While we believe that  increased  expenditures  on these and other
media have resulted in increasing  revenues during fiscal 2001, we cannot assure
you that this trend will continue in the future.  We expect to continue to spend
on  advertising  and  marketing at increased  levels in the future,  but may not
continue  to produce a  sufficient  level of sales to cover  such  expenditures,
which would reduce our profitability.

We face risks associated with expansion of our store operations

      We plan to continue to increase the number of The Sharper  Image stores in
the future in order to grow our  revenues.  Our ability to expand will depend in
part on the following factors:

o     the availability of attractive store locations;
o     our ability to negotiate favorable lease terms;
o     our ability to identify customer demand in different geographic areas;
o     general economic conditions; and
o     the availability of sufficient funds for expansion.

      As we  continue  to expand,  continue  to become  concentrated  in limited
geographic areas. This could increase our exposure to customer demand,  weather,
competition,  distribution  problems,  and  poor  economic  conditions  in these
regions. In addition, our catalog sales, Internet sales, or existing store sales
in a specific region may decrease as a result of new store openings.

      In  order to  continue  our  expansion,  we will  need to hire  additional
management and staff for our corporate offices and employees for each new store.
We must also expand our management  information systems and distribution systems
to serve these new stores. If we are unable to hire necessary  personnel or grow
our existing  systems,  our expansion efforts may not succeed and our operations
may suffer.


                                                                              19
<PAGE>

      Some of our  expenses  will  increase  with the opening of new stores.  If
store sales are inadequate to support these new costs,  our  profitability  will
decrease.  For example,  inventory costs will increase as we increase  inventory
levels to supply additional  stores. We may not be able to manage this increased
inventory without decreasing our profitability. We may need additional financing
in excess of our current  credit  facility,  or an amendment  to such  facility.
Furthermore,  our current  credit  facility has various  loan  covenants we must
comply with in order to maintain the credit facility.  We cannot predict whether
we will be successful in obtaining  additional funds or new credit facilities on
favorable terms or at all.

We rely on our catalog operations

      Our success depends in part on the success of our catalog  operations.  We
believe  that the success of our  catalog  operations  depends on the  following
factors:

o     our ability to achieve adequate response rates to our mailings;
o     our ability to continue to offer a  merchandise  mix that is attractive to
      our mail order customers;
o     our ability to cost-effectively add new customers;
o     our ability to cost-effectively design and produce appealing catalogs; and
o     timely delivery of catalog mailings to our customers.

      Catalog  production  and  mailings  entail  substantial  paper,   postage,
merchandise  acquisition  and human resource costs,  including costs  associated
with catalog development and increased inventories. We incur nearly all of these
costs  prior to the  mailing of each  catalog.  As a result,  we are not able to
adjust the costs  being  incurred in  connection  with a  particular  mailing to
reflect  the actual  performance  of the  catalog.  If we were to  experience  a
significant  shortfall in  anticipated  revenue from a particular  mailing,  and
thereby not recover the costs  associated with that mailing,  our future results
would be adversely affected. In addition, response rates to our mailings and, as
a result,  revenues  generated  by each  mailing are affected by factors such as
consumer  preferences,  economic  conditions,  the  timing  and  mix of  catalog
mailings,  the timely delivery by the postal system of our catalog  mailings and
changes in our  merchandise  mix,  several  or all of which may be  outside  our
control.  Further, we have historically experienced fluctuations in the response
rates to our  catalog  mailings.  If we are  unable  to  accurately  target  the
appropriate  segment  of the  consumer  catalog  market or to  achieve  adequate
response  rates,  we could  experience  lower  sales,  significant  markdowns or
write-offs  of inventory and lower  margins,  which would  adversely  affect our
future results.  During the third quarter of fiscal 2001, we experienced  delays
and non-delivery of several catalog mailings due to the post office closures and
mail interruptions that occurred after the September 11, 2001 terrorist attacks.

Our catalog costs are unpredictable

      Historically,  a  significant  portion of our revenues has been  generated
from purchases made by customers driven by The Sharper Image catalog.  Increases
in  the  costs  of  producing  and  distributing  the  catalog  may  reduce  the
profitability  of our catalog,  store and Internet sales.  Specifically,  we may
experience  increases in postage,  paper or shipping costs due to factors beyond
our control. As a result, our future results may be adversely  affected.  We are
anticipating an increase in postal rates for fiscal 2002.


                                                                              20
<PAGE>

The  terrorist  attacks that took place in the United  States on  September  11,
2001, and the mail service  interruption and post office closures that commenced
in September 2001 are  unprecedented  events that have created many economic and
political uncertainties, some of which may harm our business and prospects

      The  terrorist  attacks that took place in the United  States on September
11, 2001 have adversely  impacted many  businesses,  including ours, in multiple
ways. The national and global responses to these terrorist  attacks and the mail
service  interruption  and post office  closures,  many of which are still being
formulated,  may  materially  adversely  affect us in ways we cannot  predict at
present.  Some of the possible  material  adverse  impacts to our business  from
these events include, but are not limited to:

o     reduced activity in the retail industry;
o     fears of or the occurrence of future terrorist attacks;
o     possible delays in delivery of and failures to deliver our catalogs;
o     increased postage expense for delivery of our catalogs; and
o     increased insurance expenses.

We face certain risks relating to customer service

      Our ability to provide customer service depends, to a large degree, on the
efficient  and  uninterrupted  operation of our call  centers,  our  contracting
services with third party call centers and our  sharperimage.com  Web site.  Any
material  disruption or slowdown in our order processing  systems resulting from
labor  disputes,  telephone  or  Internet  down  times,  electrical  and service
outages,  mechanical  problems,  human error or  accidents,  fire,  earthquakes,
natural disasters,  or other events could cause delays in our ability to receive
orders by telephone or over the Internet and  distribute  orders,  and may cause
orders to be lost or to be shipped or delivered late. As a result, customers may
be unable to place  orders,  cancel orders or refuse to receive goods on account
of late shipments, which would result in a reduction of net sales and could mean
increased administrative and shipping costs. We cannot assure you that telephone
call  volumes will not exceed our present  telephone  system  capacity.  If this
occurs,  we could  experience  telephone  answer  delays  and  delays in placing
orders.  Because our strategies depend in part on maintaining our reputation for
superior  levels of customer  service,  any  impairment of our customer  service
reputation could have an adverse effect on our business.

We face risks associated with our distribution and fulfillment operations

      We conduct the  majority  of our  distribution  operations  and all of our
catalog and  Internet  order  processing  fulfillment  functions  from our owned
facility in Little Rock,  Arkansas,  a leased facility in Little Rock,  Arkansas
and a leased facility in Ontario,  California.  We also use contract fulfillment
and warehouse facilities for additional seasonal requirements. Any disruption in
the  operations  at any  distribution  center,  particularly  during the Holiday
shopping season, could have a negative effect on our business.

      In addition,  we rely upon third party carriers for our product shipments,
including  shipments to and from all of our stores.  As a result, we are subject
to certain risks,  including employee strikes and inclement weather,  associated
with such carriers'  ability to provide  delivery  services to meet our shipping
needs. We are also dependent on temporary employees to adequately


                                                                              21
<PAGE>

staff our distribution  facility,  particularly  during busy periods such as the
Holiday shopping  season.  We cannot assure you that we will continue to receive
adequate  assistance from our temporary  employees,  or that we will continue to
have access to sufficient sources of temporary employees.

Results for our comparable store sales may fluctuate

      Our  comparable  store  sales  are  affected  by  a  variety  of  factors,
including, among others:

o     customer demand in different geographic regions;
o     our ability to efficiently source and distribute products;
o     changes in our product mix;
o     effects of competition; and
o     general economic conditions.

      Our comparable  store sales have fluctuated  significantly in the past and
we believe that such  fluctuations may continue.  Our historic  comparable store
net sales changes were as follows:

                                                    Percentage
                  Fiscal Year                   Increase (Decrease)
                  -----------                   -------------------
                     1998                                5.3
                     1999                               12.3
                     2000                               29.0
                     2001                              (16.0)

      These historic  results are not necessarily  indicative of future results,
and we cannot  assure  you that our  comparable  store  sales  results  will not
continue to decrease in the future.  Any reduction in or failure to increase our
comparable store sales results could impact our future operating performance and
cause the price of the common stock to fluctuate.

We experience intense competition in the rapidly changing retail markets

      We operate in a highly  competitive  environment.  We principally  compete
with a variety of department  stores,  sporting goods stores,  discount  stores,
specialty  retailers and other  catalogs that offer  products  similar to or the
same as our products. We may increasingly compete with major Internet retailers.
Many of our competitors are larger companies with greater financial resources, a
wider  selection  of  merchandise  and  greater  inventory  availability.  If we
experience  increased  competition,  our business and operating results could be
adversely affected.

      The United  States  retail  industry  (the  specialty  retail  industry in
particular)  and  e-commerce  sector are  dynamic  in nature and have  undergone
significant  changes over the past several years.  Our ability to anticipate and
successfully  respond to  continuing  challenges  is critical  to our  long-term
growth and we cannot assure you we will anticipate and  successfully  respond to
changes in the retail industry.


                                                                              22
<PAGE>

We may be subject to  regulations  regarding  state sales and use tax on catalog
and Internet sales and other Internet regulation

      Our  business  may be affected by the  adoption  of  regulations  or rules
governing the sale of our products, with regard to state sales and use taxes and
the  regulation of the Internet.  Because we have broad store  presence,  we are
currently required to collect taxes for the majority of our catalog and Internet
transactions.  However,  any unfavorable  change in the state sales and use tax,
which  affects  our catalog  and  Internet  sales,  could  adversely  affect our
business  and results of  operations.  In  addition,  the Internet at present is
largely unregulated and we are unable to predict whether significant regulations
or taxes will be imposed on Internet  commerce in the near future. We are unable
to predict how such  regulations  could  affect the further  development  of our
Internet business.

Excessive merchandise returns could harm our business

      As  part  of our  customer  service  commitment,  we  maintain  a  liberal
merchandise return policy, which allows customers to return most merchandise. We
make  allowances  for  returns  of  store,  catalog  and  Internet  sales in our
financial statements based on historical return rates. We cannot assure you that
actual merchandise returns will not exceed our allowances. In addition,  because
our allowances are based on historical  return rates,  we cannot assure you that
the  introduction of new  merchandise in our stores or catalogs,  the opening of
new stores, the introduction of new catalogs, increased sales over the Internet,
changes in the merchandise mix or other factors will not cause actual returns to
exceed return allowances.  Any significant  increase in merchandise returns that
exceed our allowances could adversely affect our future results.

We may be subject  to risks  associated  with our  products,  including  product
liability or patent and trademark infringement claims

      Our current and future products may contain  defects,  which could subject
us to product liability claims and product recalls. Although we maintain limited
product  liability  insurance,  if any  successful  product  liability  claim or
product  recall  is not  covered  by or  exceeds  our  insurance  coverage,  our
business,  results  of  operation  and  financial  condition  would  be  harmed.
Additionally,  third parties may assert claims against us alleging infringement,
misappropriation  or other violations of patent,  trademark or other proprietary
rights, whether or not such claims have merit. Such claims can be time consuming
and  expensive  to defend and could  require us to cease  using and  selling the
allegedly  infringing  products,  which may have a  significant  impact on total
company sales volume, and to incur significant litigation costs and expenses.

We depend on our key personnel

      Our success  depends to a  significant  extent upon the  abilities  of our
senior management,  particularly Richard Thalheimer,  our founder,  Chairman and
Chief Executive  Officer.  The loss of the services of any of the members of our
senior  management or of certain  other key  employees  could have a significant
adverse  effect on our  business.  We  maintain  key man life  insurance  on Mr.
Thalheimer  in the amount of $15 million.  In  addition,  our  performance  will
depend   upon  our  ability  to  attract   and  retain   qualified   management,
merchandising and sales personnel. There can be no assurance that Mr. Thalheimer
and the other members of our existing management team will be able to manage our
company  or our growth or that we will be able to  attract  and hire  additional
qualified personnel as needed in the future.


                                                                              23
<PAGE>

We are controlled by a single shareholder

      As of April 30, 2002, Richard Thalheimer  beneficially owned approximately
39% of all of the  outstanding  shares of the common stock of the Company.  As a
result,  Mr.  Thalheimer will continue to exert  substantial  influence over the
election of directors and over our corporate actions.

Our common stock price is volatile

      Our  common  stock is  quoted on the  NASDAQ  National  Market,  which has
experienced  and is likely to  experience  in the future  significant  price and
volume  fluctuations,  which could  reduce the market  price of our common stock
without  regard to our  operating  performance.  Additionally,  as our  Internet
business grows, we may become  increasingly  subject to stock price fluctuations
associated  with  companies  operating in the Internet  sector.  We believe that
among other factors,  any of the following  factors could cause the price of the
common stock to fluctuate substantially:

o     quarterly fluctuations in our comparable store sales;
o     announcements by other accessory and gift item retailers;
o     the trading volume of our common stock in the public market;
o     general economic conditions;
o     financial market conditions;
o     acts of terrorism; and
o     threats of war.

Our charter  documents,  our stockholders  rights agreement and Delaware law may
make a takeover more difficult

      We are a  Delaware  corporation.  The  Delaware  General  Corporation  Law
contains  certain  provisions  that may make a change in control of our  company
more difficult or prevent the removal of incumbent directors.  In addition,  our
Certificate of Incorporation  and Bylaws and our  stockholders  rights agreement
contain  provisions  that  have the same  effect.  These  provisions  may have a
negative  impact on the price of our common stock,  may  discourage  third-party
bidders  from  making a bid for our company or may reduce any  premiums  paid to
stockholders for their common stock.


                                                                              24
<PAGE>

Item 2. Properties

      The Company occupies  approximately 58,000 square feet of office space for
its corporate  headquarters  in San  Francisco,  CA. The Company  signed a lease
extension in February 2000,  extending the expiration  date to January 2006. The
Company also leases  approximately 5,600 square feet for its product development
offices in Northern California.

      As of January 31, 2002 the Company  operated 109 The Sharper  Image stores
under  leases  covering  a total of  approximately  269,000  square  feet of net
selling space.

      The Company owns and operates a 110,000 square foot distribution  facility
located in Little Rock,  Arkansas.  Distribution  and  warehouse  functions  are
conducted  through  this  facility,  a 60,000  square  foot  leased  facility in
Ontario,  California,  a 104,000  square  foot leased  facility in Little  Rock,
Arkansas,  and other  seasonally  occupied  space rented by the Company in close
proximity thereto.

Item 3. Legal Proceedings

      The  Company is party to various  legal  proceedings  arising  from normal
business  activities.  Management  believes that the resolution of these matters
will not have a material adverse effect on the Company's  financial  position or
results of operations.

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

      None.

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

      The  information  set  forth  under  "Note D --  Revolving  Loan and Notes
Payable" in the Notes to Financial Statements on page 27 and the information set
forth under the caption "Common Stock Market Prices and Dividend  Policy" on the
inside  back  cover of the  Sharper  Image  Corporation  2001  Annual  Report to
Stockholders  is  incorporated  herein by reference.  As of April 15, 2002 there
were 404 holders of record and the closing price of the  Company's  Common Stock
was $19.70 per share as reported by the NASDAQ Stock Market.

      No cash dividends were declared or paid in fiscal 2000 or fiscal 2001.

Item 6. Selected Financial Data

The information set forth under the caption "Financial Highlights" on the inside
front cover of the Sharper Image  Corporation 2001 Annual Report to Stockholders
is incorporated herein by reference.


                                                                              25
<PAGE>

Item 7.  Management's  Discussion  and  Analysis  of Results of  Operations  and
Financial Condition

      The information set forth under the caption  "Management's  Discussion and
Analysis of Results of Operations and Financial  Condition" on pages 12 to 20 of
the Sharper Image Corporation 2001 Annual Report to Stockholders is incorporated
herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      The information set forth under the caption  "Quantitative and Qualitative
Disclosure About Market Risk" on pages 19 to 20 of the Sharper Image Corporation
2001 Annual Report to Stockholders is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

      The financial  statements and  independent  auditors'  report set forth on
pages 21 through  the inside back cover of the Sharper  Image  Corporation  2001
Annual Report to Stockholders are incorporated herein by reference.

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

      None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

      Information  with respect to the directors of the Company is  incorporated
herein by  reference to the  Company's  2002 Proxy  Statement  to  Stockholders.
Information  with  respect  to  the  executive  officers  of the  Registrant  is
contained in Part I of this Annual Report on Form 10-K.

Item 11. Executive Compensation

      Information with respect to executive  compensation is incorporated herein
by reference to the Company's 2002 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      Information  with respect to security  ownership of beneficial  owners and
management  is  incorporated  herein by  reference to the  Company's  2002 Proxy
Statement.

Item 13. Certain Relationships and Related Transactions

      None.


                                                                              26
<PAGE>

Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K

1. List of Financial Statements.

The  following  Financial  Statements  and Notes  thereto  set forth on pages 21
through  the inside  back cover of the  Sharper  Image  Corporation  2001 Annual
Report to  Stockholders  are  incorporated  by reference as Exhibit 13.1 to this
Report on Form 10-K:

      Independent Auditors' Report

      Statements of Operations  for the years ended January 31, 2002,  2001, and
      2000

      Balance sheets at January 31, 2002 and 2001,

      Statements of  Stockholders'  Equity for the years ended January 31, 2002,
      2001, and 2000

      Statements of Cash Flows for the years ended January 31, 2002,  2001,  and
      2000

      Notes to Financial Statements.

2. List of Financial Statement Schedule.

The following are filed as part of this Report:

      Independent Auditors' Report on Schedule.

      Schedule II - Valuation and Qualifying Accounts

3. List of Exhibits.

      Incorporated  herein by reference  is a list of the Exhibits  contained in
the Exhibit Index, which begins on page 34 of this report.

      (b)   Reports on Form 8-K.

      No  reports  on Form  8-K were  filed  with the  Securities  and  Exchange
Commission during the last quarter of the period covered by this Report.


                                                                              27
<PAGE>

                                   SIGNATURES

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

SHARPER IMAGE CORPORATION              SHARPER IMAGE CORPORATION


By:/s/ Richard J. Thalheimer           By: /s/ Jeffrey P. Forgan
  ---------------------------------       --------------------------------
  Richard J. Thalheimer                   Jeffrey P. Forgan
  Chief Executive                         Senior Vice President, Chief Financial
  Officer, Chairman                       Officer, Corporate Secretary
  (Principal Executive Officer)           (Principal Financial &
                                           Accounting Officer)

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below  constitutes and appoints  Richard  Thalheimer and Jeffrey P. Forgan,  and
each of them,  as such person's  true and lawful  attorneys-in-fact  and agents,
with full power of substitution and resubstitution,  for such person and in such
person's name, place, and stead, in any and all capacities,  to sign any and all
amendments to this report, and to file the same, with all exhibits thereto,  and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission,  granting unto said  attorneys-in-fact and agents, and each of them,
full  power  and  authority  to do and  perform  each and  every  act and  thing
requisite  and  necessary to be done in  connection  therewith,  as fully to all
intents and  purposes as he might or could do in person,  hereby  ratifying  and
confirming all that said  attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes,  may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the Registrant and in the
capacities and on the dates indicated.

Signature                         Title                                Date
---------                         -----                                ----

/s/ Richard J. Thalheimer         Chief Executive                 April 30, 2002
----------------------------       Officer, Chairman
Richard J. Thalheimer              (Principal Executive Officer)


/s/ Jeffrey P. Forgan             Senior Vice President,          April 30, 2002
----------------------------       Chief Financial Officer,
Jeffrey P. Forgan                  Corporate Secretary
                                   (Principal Financial and
                                   Accounting Officer)

/s/ Alan Thalheimer               Director                        April 30, 2002
----------------------------
Alan Thalheimer

/s/ Gerald Napier                 Director                        April 30, 2002
----------------------------
Gerald Napier

/s/ Morton David                  Director                        April 30, 2002
----------------------------
Morton David

/s/ George James                  Director                        April 30, 2002
----------------------------
George James


                                                                              28
<PAGE>

                            SHARPER IMAGE CORPORATION

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                     --------------------------------------

                                     ($000)

<TABLE>
<CAPTION>
            COLUMN                  COLUMN         COLUMN      COLUMN          COLUMN
              A                        B             C            D              E
---------------------------------------------------------------------------------------
                                   Balance at    Additions                    Balance
                                   Beginning     Charged to                  at End of
DESCRIPTION                        of Period    Costs & Exp.  Deductions      Period
---------------------------------------------------------------------------------------
<S>                                 <C>           <C>           <C>           <C>
INVENTORY

YEAR ENDED JANUARY 31, 2002:
Inventory Obsolescence              $2,594        $3,882        $1,484        $4,992

YEAR ENDED JANUARY 31, 2001:
Inventory Obsolescence              $3,154        $1,573        $2,133        $2,594

YEAR ENDED JANUARY 31, 2000:
Inventory Obsolescence              $1,938        $2,079        $  863        $3,154

OTHER

YEAR ENDED JANUARY 31, 2002:
Other                               $  730        $  682        $  330        $1,082

YEAR ENDED JANUARY 31, 2001:
Other                               $  834        $  449        $  553        $  730

YEAR ENDED JANUARY 31, 2000:
Other                               $  804        $  265        $  235        $  834
</TABLE>


                                                                              29
<PAGE>

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

Board of Directors and Stockholders of
  Sharper Image Corporation

We have audited the  financial  statements of Sharper  Image  Corporation  as of
January 31,  2002 and 2001 and for each of the three  years in the period  ended
January 31, 2002, and have issued our report thereon dated March 25, 2002;  such
financial  statements  and report are  included  in your 2001  Annual  Report to
Stockholders and are incorporated herein by reference.  Our audits also included
the financial  statement schedule of Sharper Image  Corporation,  listed in Item
14. This financial  statement  schedule is the  responsibility  of the Company's
management.  Our responsibility is to express an opinion based on our audits. In
our opinion,  such financial statement schedule,  when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.


/s/ Deloitte & Touche LLP

San Francisco, California
March 25, 2002


                                                                              30
<PAGE>

                                  EXHIBIT INDEX

      3.1   Certificate of Incorporation.  (Incorporated by reference to Exhibit
            3.1  to  Registration   Statement  on  Form  S-1  (Registration  No.
            33-12755).)

      3.2   Bylaws.  (Incorporated  by reference to Exhibit 3.2 to  Registration
            Statement on Form S-1 (Registration No. 33-12755).)

      3.3   Form of Certificate of Designation of Series A Junior  participating
            Preferred  Stock.  (Incorporated  by  reference  to Exhibit  3.01 to
            Amendment No. 2 to the Registration Statement on Form S-2.)

      4.1   Form of Rights  Certificate.  (Incorporated  by reference to Exhibit
            4.01 to Amendment No. 2 to the Registration Statement on Form S-2.)

      4.2   Form of  Rights  Agreement  dated  June 7,  1999.  (Incorporated  by
            reference  to Exhibit 4.02 to  Amendment  No. 2 to the  Registration
            Statement on Form S-2.)

      10.1  Amended and Restated Stock Option Plan (as amended through September
            25, 1998).  (Incorporated by reference to Registration  Statement on
            Form S-8 filed on January 19, 1996  (Registration  No.  33-3327) and
            Exhibit to  Definitive  Proxy  Statement on Schedule 14A filed April
            29, 1999.)

      10.2  1994  Non-Employee  Director Stock Option Plan dated October 7, 1994
            (as amended through September 25, 1998).  (Incorporated by reference
            to  Registration  Statement  on Form S-8 filed on January  19,  1996
            (Registration No. 33-3327) and Exhibit to Definitive Proxy Statement
            on Schedule 14A filed April 29, 1999.)

      10.3  Cash or Deferred Profit Sharing Plan, as amended.  (Incorporated  by
            reference  to Exhibit  10.2 to  Registration  Statement  on Form S-1
            (Registration No. 33-12755).)

      10.4  Cash or Deferred Profit Sharing Plan Amendment No. 3.  (Incorporated
            by  reference  to Exhibit  10.15 to Form 10-K for fiscal  year ended
            January 31, 1988.)

      10.5  Cash or Deferred Profit Sharing Plan Amendment No. 4.  (Incorporated
            by  reference  to Exhibit  10.16 to Form 10-K for fiscal  year ended
            January 31, 1988.)

      10.6  Form of Stock  Purchase  Agreement  dated July 26, 1985  relating to
            shares of Common  Stock  purchased  pursuant to exercise of employee
            stock  options.  (Incorporated  by  reference  to  Exhibit  10.3  to
            Registration Statement on Form S-1 (Registration No. 33-12755).)

      10.7  Form of Stock Purchase Agreement dated December 13, 1985 relating to
            shares of Common  Stock  purchase  pursuant  to exercise of employee
            stock  options.  (Incorporated  by  reference  to  Exhibit  10.4  to
            Registration Statement on Form S-1 (Registration No. 33-12755).)


                                                                              31
<PAGE>

      10.8  Form of Stock Purchase Agreement dated November 10, 1986 relating to
            shares of Common  Stock  purchased  pursuant to exercise of employee
            stock  options.  (Incorporated  by  reference  to  Exhibit  10.5  to
            Registration Statement on Form S-1 (Registration No. 33-12755).)

      10.9  Form  of  Director  Indemnification   Agreement.   (Incorporated  by
            reference  to Exhibit  10.42 to  Registration  Statement on Form S-1
            (Registration No. 33-12755).)

      10.10 Financing Agreement dated September 21, 1994 between the Company and
            CIT Group/Business Credit Inc. (Incorporated by reference to Exhibit
            10.12 to Form 10-Q for the quarter ended October 31, 1994.)

      10.11 The Sharper Image 401(K) Savings Plan. (Incorporated by reference to
            Exhibit 10.21 to  Registration  Statement of Form S-8  (Registration
            No. 33-80504) dated June 21, 1994.)

      10.12 Chief Executive  Officer  Compensation  Plan dated February 3, 1995.
            (Incorporated by reference to Exhibit 10.24 to the Form 10-K for the
            fiscal year ended January 31, 1995.)

      10.13 Split-Dollar  Agreement  between the Company and Mr. R.  Thalheimer,
            its Chief Executive Officer dated October 13, 1995,  effective as of
            May 17, 1995.  (Incorporated  by reference to Exhibit  10.17 to Form
            10-K for the fiscal year ended January 31, 1996.)

      10.14 Assignments  of Life  Insurance  Policy as  Collateral,  both  dated
            October 13, 1995, effective May 17, 1995. (Incorporated by reference
            to Exhibit  10.18 to Form 10-K for the fiscal year ended January 31,
            1996.)

      10.15 Amendment to the Financing  Agreement dated May 15, 1996 between the
            Company  and The CIT  Group/Business  Credit Inc.  (Incorporated  by
            reference  to Exhibit  10.19 to the Form 10-Q for the quarter  ended
            April 30, 1996.)

      10.16 CAPEX Term Loan  Promissory  note dated October 15, 1996 between the
            Company  and The CIT  Group/Business  Credit Inc.  (Incorporated  by
            reference  to Exhibit  10.21 to the Form 10-Q for the quarter  ended
            October 31, 1996.)

      10.17 Amendment to the Financing Agreement dated February 13, 1997 between
            the Company and The CIT Group/Business Credit Inc.  (Incorporated by
            reference  to Exhibit  10.21 to Form 10-K for the fiscal  year ended
            January 31, 1997.)

      10.18 Amendment to the  Financing  Agreement  dated March 24, 1997 between
            the Company and The CIT Group/Business Credit Inc.  (Incorporated by
            reference  to Exhibit  10.23 to Form 10-K for the fiscal  year ended
            January 31, 1997.)

      10.19 Amendment to the Financing Agreement dated April 6, 1998 between the
            Company  and The CIT  Group/Business  Credit Inc.  (Incorporated  by
            reference  to Exhibit  10.25 to Form 10-K for the fiscal  year ended
            January 31, 1998.)


                                                                              32
<PAGE>

      10.20 Amendment to the  Financing  Agreement  dated March 23, 2000 between
            the Company and The CIT Group/Business Credit Inc.  (Incorporated by
            reference  to Exhibit  10.22 to Form 10-K for the fiscal  year ended
            January 31, 2000.)

      10.21 Amendment to the Corporate Headquarters Office Lease Agreement dated
            February 9, 2000 between the Company and its  landlord,  CarrAmerica
            Realty  Corporation.  (Incorporated by reference to Exhibit 10.23 to
            Form 10-K for the fiscal year ended January 31, 2000.)

      10.22 Amendment to the Financing Agreement dated July 18, 2000 between the
            Company and The CIT  Group/Business  Credit,  Inc.  (Incorporated by
            reference  to  Exhibit  10.23  to Form  10-Q for the  quarter  ended
            October 31, 2000.)

      10.23 Amendment  to the  Financing  Agreement  dated  September  29,  2000
            between  the  Company  and  The  CIT  Group/Business   Credit,  Inc.
            (Incorporated  by  reference  to Exhibit  10.24 to Form 10-Q for the
            quarter ended October 31, 2000.)

      10.24 Executive Bonus Plan.  (Incorporated  by reference to the Definitive
            Proxy Statement on Schedule 14A filed May 4, 2001.)

      10.25 Amendment  to the  Split-Dollar  Agreement  between  the Company and
            Richard Thalheimer, its Chief Executive Officer dated July 12, 2001,
            effective  as of March  28,  2001.  (Incorporated  by  reference  to
            Exhibit 10.24 to Form 10-Q for the quarter ended October 31, 2001.)

      13.1  2001 Annual Report to Stockholders.

      23.1  Independent Auditor's Consent.


                                                                              33