THE

                                     SHARPER

                                    IMAGE(R)


                               Annual Report 2001



                                     [PHOTO]





<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Dollars are in thousands except net earnings per share and statistics

                                                                          Fiscal Year Ended January 31,
                                                -----------------------------------------------------------------------------------
                                                     2002              2001             2000              1999            1998
Operating Results                                (Fiscal 2001)    (Fiscal 2000)     (Fiscal 1999)     (Fiscal 1998)   (Fiscal 1997)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>               <C>               <C>             <C>
Revenues                                        $    396,199       $    421,136      $    304,097      $    251,369    $    222,648
Earnings before income taxes                           2,160             29,082            15,541             7,670             988
Net earnings                                    $      1,296       $     17,449      $      9,325      $      4,602             593
Net earnings per share
   Basic                                        $        .11(1)    $       1.45(1)   $       0.89(1)   $       0.54    $       0.07
   Diluted                                      $        .10(1)    $       1.33(1)   $       0.82(1)   $       0.51    $       0.07

Balance Sheet Data
-----------------------------------------------------------------------------------------------------------------------------------
Working capital                                 $     53,422       $     59,309      $     54,644      $     16,003    $     11,633
Total assets                                         162,338            178,836           142,119            82,045          78,662
Long-term notes payable                                2,033              2,206             2,366             2,513           3,299
Stockholders equity                             $     94,743       $     93,562      $     77,123      $     36,649    $     29,156
Current ratio                                           1.89               1.76              1.93              1.40            1.27

Statistics
-----------------------------------------------------------------------------------------------------------------------------------
Number of stores at year end                             109                 97                89                87              85
Comparable store sales increase (decrease)             (16.0%)             29.0%             12.3%              5.3%            1.1%
Annualized net sales per square foot            $        578       $        763      $        546      $        484    $        465
Number of catalogs mailed(2)                      70,135,000         62,252,000        47,581,000        41,338,000      38,261,000
Average revenue per transaction:
   Stores                                       $        118       $        117      $        106      $        102    $        104
   Catalog                                      $        174       $        164      $        145      $        141    $        160
   Internet                                     $        127(3)    $        108(3)   $         97(3)   $        140    $        111
Return on average equity
stockholders                                             1.4%              20.4%             16.4%             14.0%            2.1%
Book value per share                            $       7.96       $       7.77      $       7.33      $       4.30    $       3.51
Weighted average number of shares outstanding
   Basic                                          11,904,562         12,036,569        10,516,358         8,532,588       8,303,425
   Diluted                                        12,568,380         13,074,395        11,358,004         9,072,832       8,537,032
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1    The earnings  per share  reflect the effect of the  additional  3.0 million
     shares issued from the July 1999 secondary offering.

2    Based upon  Sharper  Image  catalog - excludes   other  specialty  and test
     mailing catalogs.

3    Includes  results from  auction site opened in the quarter  ended April 30,
     1999.

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CORPORATE PROFILE
--------------------------------------------------------------------------------

[PHOTO]

     Sharper Image  Corporation is a  multi-channel  specialty  retailer that is
renowned as a leading  source of innovative  new products.  The Sharper Image is
one  of  the  industry's  strongest  brands  -- a  name  that  conveys  fun  and
entertainment,  design and creativity,  uniqueness and technological innovation.
Sharper  Image  Design   proprietary   products  --  created  by  the  Company's
development  group -- and  private-label  merchandise  account for a significant
proportion of sales. The Company operates 113 Sharper Image stores and generates
direct sales  through The Sharper Image  catalog,  mailers,  print  advertising,
television infomercials, and online at www.sharperimage.com,  its e-commerce Web
site.  Business-to-business  wholesale  operations  and corporate  incentive and
rewards programs contribute additional revenues.

     The Sharper Image was founded in 1977 and celebrates  its 25th  anniversary
in 2002.

TIME LINE
--------------------------------------------------------------------------------
1977                                    1978
--------------------------------------------------------------------------------
The  Sharper  Image is founded          The       Sharper        Image
by Richard  Thalheimer  with a          merchandising  strategy  is in
magazine   ad  for  the  first          place  --  to  seek  out  new,
waterproof,    shock-resistant [PHOTO]  interesting,   technologically  [PHOTO]
chronograph    designed    for          advanced  and novel  products,
runners. Its success generated          and to be the  first  to offer
the working  capital to launch          them.  Richard  Thalheimer,  a
a     thriving      mail-order          30-year-old      professional,
business.                               represents  the profile of his
                                        target customer.
<PAGE>

--------------------------------------------------------------------------------
TO OUR SHAREHOLDERS
--------------------------------------------------------------------------------

     The year 2001 marked The Sharper Image's 25th year in business.  It was one
of our most difficult  years and yet one of the most  gratifying and successful.
We faced three great challenges in 2001:

     Razor Scooters.  Comparisons to last year's sales were extremely  difficult
because of the phenomenal success of Razor Scooters in 2000. The strength of our
core business was hidden by the prior year's extraordinary sales gains.

     Recession.  Consumer  spending  was  slow  throughout  the  year and it was
difficult to increase sales.

     September  11.  Those  terrible  events  affected  all of us and tested our
resolve to stay focused and move forward.


RESULTS
--------------------------------------------------------------------------------
     The year  2001 was  acknowledged  to be among the most  difficult  ever for
retailers,  with one of the  sharpest  economic  downturns in recent  memory.  I
believe  our solid  results --  highlighted  by our  fourth-quarter's  excellent
merchandising,  operational  and financial  performance  -- reflect the enduring
strength of The Sharper Image and affirms the soundness of our strategy.

     In 2001,  revenues  were $396.2  million -- just six percent less than last
year's record $421.1 million,  which was 38 percent greater than the prior year.
Net  earnings of $1.3  million,  or $0.10 per diluted  share,  reflected  strong
fourth-quarter  earnings of $11.6 million,  or $0.92 per diluted share; in 2000,
our net annual earnings were $17.4 million, or $1.33 per diluted share.

     Store total sales of $232.1 million were down seven percent from last year;
comparable  sales  declined 16 percent -- a good result against the prior year's
29 percent gain.

     Direct sales from catalogs and TV infomercials grew to $90.4 million,  four
percent greater than last year's $86.8 million.

     Internet  sales of $49.8  million  were 17 percent  lower than last  year's
$60.2  million,  which had increased  111 percent over the prior year.  With our
auction site's sales excluded, our Web site's sales declined just three percent.

     Our gross margin rate climbed to a record 52.1 percent,  up 2.9  percentage
points  over last year.  This  great  result -- in a highly  promotional  retail
environment -- is mainly due to the success of our  high-margin  proprietary and
private-label products.


STRATEGY
--------------------------------------------------------------------------------

     I  founded  The  Sharper  Image 25 years  ago on  three  principles:  offer
innovative  products that can be found nowhere else;  market those products with
exciting,  imaginative  presentations;  and deliver great service that is better
than what customers  expect.

     Our long-term strategy builds on those principles and is equally simple and
straightforward:

     Multiple  Channels-- Make it easy and convenient for customers to buy. Sell
by Web, phone,  fax, mail and in stores in diverse  locations -- city or suburb;
street  or mall.  Support  multiple  selling  channels  with  multimedia  direct
advertising -- catalogs, mailers, print, radio, emails and TV infomercials.

     Proprietary   Products  --  Sell  a  diverse   selection  of  high-quality,
innovative  products that are unavailable  elsewhere.  Create  distinctive items
with broad appeal. Enjoy control over product packaging,  pricing and marketing.
Achieve  higher gross  margins.  Reinforce the brand's  strength with  exclusive
products.

     Brand  Name -- Build on The  Sharper  Image  name,  one of the most  widely
recognized and  positively  perceived  brands in retailing.  Exploit the brand's
highly  valued  attributes  of good  design,  fun,  innovation,  excitement  and
imaginative use of new technologies.

     Our goal is to grow the value of our  Company  to match the  stature of our
brand name.  I believe we are well on our way to  achieving  that as The Sharper
Image begins its second 25 years of business.  Thank you for your confidence and
support.

                           Respectfully,


        [PHOTO]            /s/ Richard Thalheimer

                           Richard Thalheimer
                           Founder, Chairman and
                           Chief Executive Officer


--------------------------------------------------------------------------------
1979                                    1980
--------------------------------------------------------------------------------
The   first    Sharper   Image          The 1980  catalog  showcases a
catalog  is a slim 24 pages of          large  and  eclectic   product
30  items   representing  "the          selection  with an  innovative
exceptional  and innovative in [PHOTO]  graphic style - bold, exciting [PHOTO]
elec- tronics,"  including the          and   enduring.   Honored   by
first cordless phone. We offer          Catalog Age magazine as one of
toll-free 24-hour ordering and          "The 10 BEST Catalog  Concepts
generous return privileges.             Ever."

<PAGE>

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CATALOG AND DIRECT MARKETING
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[PHOTO]

Millions of single-
product mailers were
circulated in 2001.


     We began as  direct  marketers  in 1977,  with a single  magazine  ad for a
runner's  watch.  Two years later,  we mailed our first catalog.  Today,  direct
marketing remains a vital part of our multichannel  business. In 2001, we mailed
more than 70 million  catalogs -- eight  million more than last year; 22 million
more than two years ago.  Honored by Catalog Age magazine as one of "The 10 BEST
Catalog  Concepts  Ever," our monthly  catalog is also our  primary  advertising
medium  for our Web  site  and  stores.  Additionally,  we  mailed  millions  of
solo-product  brochures,  and our  direct-response  television  ad for the Ionic
Breeze(R)  Silent Air Purifier was America's number one most frequently shown TV
infomercial  in  2001.  Magazine  and  newspaper   advertising  rounds  out  our
multimedia direct marketing efforts.

     We believe  direct  marketing is retailing  at its most  persuasive  and it
answers modern  retailing's key question -- How to sell something that cannot be
touched to a person you cannot see? Direct marketing demands a distinctive brand
identity. The Sharper Image's direct marketing strategy has an "item" focus that
makes each single product  important and relevant to the consumer's  needs.  Our
direct marketing  materials  feature  outstanding  graphics,  bold  photography,
exciting presentations,  compelling copy and clear communication of benefits and
value -- all of it created by our in-house team of graphic designers, production
artists, photographers and writers.

     Direct marketing  demands  superior  customer service in all its aspects --
accurate  information,  fast delivery,  rapid  response to inquiries,  no-hassle
exchanges,  prompt refunds,  in-stock  merchandise,  quick  checkout,  risk-free
trial, and reassuring warranties. In sum, successful direct marketing requires a
great  shopping   experience  with  an  eye  on  building   long-term   customer
relationships.  We have a large and  growing  database  of loyal  Sharper  Image
customers  and we are  strongly  focused  on  building  sales  from  this  vital
strategic asset.

     Our  mailed-catalog  economics are  improving,  and with higher margins and
savings in printing and paper costs, we expect to help offset potentially higher
postage  costs.  Our plans are to  continue  our growth in all direct  marketing
media.


(2)
--------------------------------------------------------------------------------
1981                                    1982
--------------------------------------------------------------------------------
The first  Sharper Image store          We are the  first  catalog  to
opens   in   San    Francisco.          offer  club-quality   Nautilus
Catalog advertising created an [PHOTO]  fitness equipment for the home  [PHOTO]
enthusiastic base of customers          -   again   leading   a  major
who  also  liked  to  shop  in          product trend.
stores.
<PAGE>

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

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

                                    [PHOTO]





The  Sharper  Image  catalog's
sensational   photography  and
bold graphics distinguishes us
from all our competitors.


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1983                                    1984
--------------------------------------------------------------------------------
Sensational   64-page  catalog          We are  widely  recognized  as
highlights     hundreds     of          the first specialty catalog to
fantastic   products   and  an [PHOTO]  make it "cool" for  tech-savvy  [PHOTO]
exceptional toll-free customer          young  professionals to buy by
service phone line.                     mail.

<PAGE>
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STORES
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     We opened our first store in 1981,  when we were a  four-year-old  company.
Six years later - in 1987,  when we went public - The Sharper Image had become a
multichannel  retailer with 45 stores accounting for more than two-thirds of our
sales. In 2001, 109 stores accounted for 61 percent of sales.

     Last year, we opened 14 stores; in 2000, we opened nine -- a two-year total
of 23.  This  accelerated  pace  takes  strategic  advantage  of  the  increased
popularity of our proprietary and private-label  products, the broadening of our
customer  base,  the increased  number of highly  desirable  locations,  and our
improved store economics.

     In  evaluating  new-store  investments,  we are  prudent  in our  selection
criteria but  aggressive in our desire for rapid payback.  Currently,  these new
stores, together, are on track to reap a 100 percent return on investment within
their first 24 months.

     We have often been told by  landlords  that in surveys of  shoppers  asking
which  new  stores  they want to see in their  mall,  The  Sharper  Image is the
shoppers'  top  choice.  Our  stores  are fun and  exciting  places to  discover
innovative  products that often can be found nowhere else.  Our  merchandise  is
more broadly  appealing than ever, with a wide selection of unique and popularly
priced items for men, women and children of all ages.

     We have a variety of store locations in both new and established markets --
big and small; urban and suburban;  downtown and tourist;  major mall,  shopping
center and street-front.  We believe we have an excellent opportunity to meet or
exceed our goal of 10 to 15 percent new store unit growth in the next year.


                                                  The  Sharper  Image  store  in
                        [PHOTO]                   Bellevue    Square,    outside
                                                  Seattle, Washington, opened in
                                                  November 2001.

(4)
--------------------------------------------------------------------------------
1985                                    1986
--------------------------------------------------------------------------------

We change from a quarterly  to          Our     product     assortment
a monthly catalog, which gives          broadens    its   appeal   and
us     flexibility    to    do [PHOTO]  includes new ergonomic toys to  [PHOTO]
innovative  marketing  such as          improve the health and fitness
our first movie tie-in.                 of young children.

<PAGE>





--------------------------------------------------------------------------------
1987                                    1988
--------------------------------------------------------------------------------
The  Sharper  Image  makes its          A full  page  in  our  catalog
initial  public  offering as a          introduces  a  pocket  PC with
multichannel  retailer with 45 [PHOTO]  "32K  memory  (more  than  the  [PHOTO]
stores contributing two-thirds          original  IBM  PC!)"   Another
of sales.                               page   launches  our  fog-free
                                        mirror.
<PAGE>
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INTERNET
--------------------------------------------------------------------------------

     In Internet years,  1995 was long time ago, but it was the year we launched
our e-commerce Web site, sharperimage.com.  In our 1995 annual report, we wrote,
"The  Internet  holds great  promise and (in) the next three years,  this medium
will emerge as a widespread communications channel.

     The  Sharper  Image is  pioneering  (and that) will allow us to emerge as a
leader  when  the  market  begins  to  reach  full  acceptance."  Yes,  this was
visionary. We recognized,  long before our competitors,  the Web's extraordinary
potential.  Our strengths  matched the  opportunity,  powerful brand,  exclusive
products, excellent customer service and superior direct-marketing know-how.

     In 2001,  we  focused  on  improving  the ease and  speed of  shopping  and
ordering by streamlining  checkout so registered customers are just three clicks
from completing an order. Catalog Quick Order is now a homepage fixture. Product
pages list related  accessories  with  click-to-add  check  boxes.  We are still
pioneers in the imaginative use of Web technology. Our growing list of more than
one million online  shoppers  receives  monthly email product sneak previews and
special offers that have driven sales in all channels.  Our online Auction helps
to manage close-out and reconditioned  inventory. We launched Galleria, a portal
to  other  online  stores  where  our  customers  earn  Sharper  Image  Dollars.
Web-linked Affiliates add new-to-file online buyers with little advertising risk
to us. Finally, our pioneering European Web sites have modest sales today but --
like 1995's U.S.  Web site -- we believe they are  important  first steps toward
realizing the international opportunity for Sharper Image products.

[PHOTO]

Emails go out to our online
customers every month to
introduce our newest products.

                                                             [PHOTO]

                                                  Internet  sales  have  quickly
                                                  grown  from  just  $50,000  in
                                                  1995 to more than $49  million
                                                  in 2001,  more than 12 percent
                                                  of total revenues.

(6)
--------------------------------------------------------------------------------
1989                                    1990
--------------------------------------------------------------------------------
We  introduce  an   electronic          We open a 50,000  square  foot
word  processor  for the home.          distri-bution center in Little
"Everyone       will      have [PHOTO]  Rock to support a growing base  [PHOTO]
sophisticated           office          of 66 stores and an  expanding
electronics by 2000. Panasonic          mail-order business.
offers them today."
<PAGE>






--------------------------------------------------------------------------------
1991                                    1992
--------------------------------------------------------------------------------
Exclusive  products with broad          "The   Sharper   Image  Store"
appeal are best exemplified by          catalog has fewer pages and is
our popular Gel Insoles.  This [PHOTO]  less  expensive to mail. It is  [PHOTO]
"hard-to-resist  $20  purchase          the primary advertising medium
helps   turn   browsers   into          to  attract  shoppers  to  our
buyers."                                retail stores.

<PAGE>


                                     [PHOTO]


(8)
--------------------------------------------------------------------------------
1993                                    1994
--------------------------------------------------------------------------------
Sharper  Image Design group is          The Sharper  Image's  position
established   and  its   first          as  the   premier   store  for
product  is the Auto Drive Tie [PHOTO]  Father's    Day    gifts    is  [PHOTO]
Rack,  an  upgrade of a proven          practically   unchallenged  by
bestseller.                             any competitor.

<PAGE>
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                          SHARPER IMAGE PRIVATE LABEL
--------------------------------------------------------------------------------



                                    [PHOTO]

     Today,  most of our major  product  programs from  third-party  vendors are
private-labeled "Sharper Image," packaged in colorful boxes with our distinctive
photography,  and showcased with exciting store displays.  Working directly with
the manufacturers,  we often enhance  private-label  products with exclusive new
features and design  elements.  Private-label  products have much higher margins
than the  national  brands in our  assortment.  Private-label  products  deflect
direct price competition.  We believe our name and product know-how add value to
a wide range of  merchandise.  Private-label  items  continually  reinforce  our
status as a leading  retailer for innovative  products among shoppers as well as
gift recipients.

     In 2001,  private-label  merchandise  and Sharper Image Design  proprietary
products  accounted  for 70  percent  of sales.  The  largest,  fastest  growing
private-label  program was consumer  electronics,  including  great-looking  and
affordable  stereo  systems.  Our  product-sourcing  capabilities  permit  us to
significantly  increase the number of categories  and diversity of products that
can be labeled "Sharper Image."

     Taking advantage of our vertical  integration and exclusive  products,  our
business-to-business  sales  increased to more than $39 million,  a 20% increase
over last year. Our national and  international  wholesale  operations,  and our
corporate incentive and rewards programs,  have enhanced our market presence and
further  established  The  Sharper  Image  as a  premier  source  of  innovative
merchandise to a larger universe of consumers.


--------------------------------------------------------------------------------
1995                                    1996
--------------------------------------------------------------------------------
We  begin  selling  on  AOL in          After 15 years,  and dozens of
spring;   then,  in  June,  we          imitators,     the    November
launch  our   sharperimage.com [PHOTO]  catalog    unveils    a   new,  [PHOTO]
e-commerce  site on the  World          original  graphic  design  and
Wide Web.                               our new logo.

<PAGE>
--------------------------------------------------------------------------------
SHARPER IMAGE DESIGN
--------------------------------------------------------------------------------



                                    [PHOTO]

     Our  inaugural  annual  report for 1987  stated,  "our goal is to create an
in-house  product  design  department."  It  was a  sound  strategy  but  proved
challenging  to implement.  In 1993, we  established  Sharper Image Design,  our
product  development  group,  and by  1995 a  range  of  items  --  from a Sound
Soother(R) to a Memo Manager(R) to a Turbo-Groomer(R)-- began to have a positive
impact on sales and margin.  In 1997,  the Ionic Hair Wand(TM) was Sharper Image
Design's first proprietary product  bestseller;  and in 1998, with the launch of
the Personal  Cooling  System(TM) and the Ionic Breeze(R) Silent Air Purifier --
two number-one sellers -- proprietary  products began to fuel large increases in
sales, margin and earnings.

     For softgoods  specialty  retailers,  proprietary  merchandise  is a proven
success formula because margins are higher,  brand is reinforced and competition
is deflected.  Among  competing  hardgoods  retailers,  The Sharper Image stands
apart with its superior  competence in developing  and marketing a diverse range
of best-selling products. This is a very important strategic asset.

     The  Sharper  Image  Design  team of  engineers  is growing and our base of
contract   manufacturers   and  technical   resources  is   expanding.   We  see
opportunities for product  development in electronics,  toys, personal care, air
purification,  robotics and more.  Products that prove popular -- and we believe
our new Ionic Breeze(R) GP with UV Germicidal Protection will be a top-seller --
can have their  sales  maximized  in all  channels  with  aggressive  multimedia
marketing.


[PHOTO]

Founder and CEO Richard  Thalheimer with
the   Sharper   Image   Design   product
development team.

--------------------------------------------------------------------------------
1997                          1998                          1999
-------------------------------------------------------------------------------
The    Ionic    Hair          Ionic      Breeze(R)          The year of the Web.
Wand(TM)     --    a          Silent Air  Purifier          We do more  Internet
women's     personal          is   launched    and          sales     in     two
care  product  -- is [PHOTO]  becomes          the [PHOTO]  December  weeks than
the first number-one          company's                     in  all  the   prior
seller ever  created          top-selling item. It          year.  And we launch
by   Sharper   Image          incorporates                  an Auction site.
Design.                       exclusive,  patented
                              technology.
<PAGE>



                                     [PHOTO]


                                                  Sharper  Image   Design's  new
                                                  Ionic  Breeze  GP  Silent  Air
                                                  Purifier   with    untraviolet
                                                  germicidal  protection debuted
                                                  in March 2002.

--------------------------------------------------------------------------------
                2000                            2001
------------------------------------------------------------------------------
                Razor Scooter, which            Founder      Richard
                we   private-labeled            Thalheimer
    [PHOTO]     and   introduced  to   [PHOTO]  celebrates       the    [PHOTO]
                America, ignites one            opening    of    The
                of retailing's  most            Sharper      Image's
                extraordinary fads.             100th  store  in his
                                                hometown  of  Little
                                                Rock, Arkansas.
<PAGE>

Management's Discussion and Analysis of
Results of Operations and Financial Condition
--------------------------------------------------------------------------------
Sharper Image Corporation

Results of Operations
Percentage of Total Revenues
--------------------------------------------------------------------------------
                                       Fiscal Year Ended Jan. 31,
                                -------------------------------------------
                                     2002         2001          2000
                                (Fiscal 2001) (Fiscal 2000) (Fiscal 1999)
                                -------------------------------------------
Revenues:

 Net store sales                    58.6%         59.2%         61.9%
 Net catalog sales                  22.8          20.6          21.6
 Net Internet sales                 12.6          14.3           9.4
 Net wholesale sales                 2.8           2.2           3.4
 List rental and licensing           0.2           0.5           0.5
 Delivery                            3.0           3.2           3.2
                                 -------       -------        ------
Total Revenues                     100.0         100.0         100.0

 Costs and Expenses:
 Cost of products                   47.8          50.6          50.6
 Buying and occupancy                9.7           7.4           9.1
 Advertising                        17.3          13.0          12.5
 General, selling,
  and administrative                24.7          22.6          22.9
                                 -------       -------        ------
Operating Income                     0.5           6.4           4.9
Other Income                         0.0           0.5           0.2
                                 -------       -------        ------
Earnings Before
Income Tax                           0.5           6.9           5.1
Income Tax                           0.2           2.8           2.0
                                 -------       -------        ------
Net Earnings                         0.3%          4.1%          3.1%
                                 =======       =======        ======

Revenues

                                       Fiscal Year Ended Jan. 31,
                              ---------------------------------------------
                                   2002           2001            2000
Dollars in thousands          (Fiscal 2001)   (Fiscal 2000)   (Fiscal 1999)
                              ---------------------------------------------
Net store sales                  $232,146        $249,449        $188,416
Net catalog sales                  90,363          86,823          65,617
Net Internet sales                 49,820          60,213          28,495
Net wholesale sales                10,893           9,426          10,483
                                 --------        --------        --------
Total Net Sales                   383,222         405,911         293,011
List rental and licensing             985           1,704           1,354
Delivery                           11,992          13,521           9,732
                                 --------        --------        --------
Total Revenues                   $396,199        $421,136        $304,097
                                 ========        ========        ========


Revenues
Fiscal 2001

     Total  Company net sales for fiscal 2001  decreased  $22,689,000,  or 5.6%,
from the prior  fiscal  year.  Returns  and  allowances  were 11.9% of sales for
fiscal 2001, as compared with 9.9% for fiscal 2000.  The increase in the returns
rate is primarily due to the increased volume of Razor Rollerboard Scooters sold
in fiscal 2000,  which had a lower returns  rate.  The decrease in net sales was
primarily  attributable to decreases in net sales from stores of $17,303,000 and
Internet operations of $10,393,000 partially offset by an increase in catalog of
$3,540,000.

     The  decrease  in net sales was due  primarily  to weak  consumer  spending
during  most of fiscal  2001,  the  general  economic  slowdown,  the  events of
September 11, and the exceptional sales volume increase we experienced in fiscal
2000 related to the Razor  Rollerboard  Scooters.  The decrease was minimized by
the strong sales volume experienced during the holiday season and the 14 new and
four temporary  stores opened during fiscal  2001.Another  factor that minimized
the overall decrease in net sales was the continued  popularity of Sharper Image
Design  proprietary and private label products,  which increased from 64% of net
sales in fiscal 2000 to 70% in fiscal 2001. On a  forward-looking  basis,  there
can be no assurance the sales growth from these types of products will continue.
Popular strong proprietary product include the various ionic  technology-related
products such as the Ionic Breeze(R) QuadraSilent(TM) Air Purifier that has been
in our product line for several years, the Ionic Breeze Car Plug-In Ionizer, the
Ionic Hair Wand and the Ionic  Conditioning(TM)  QuietHair  Dryer.  The  private
label  products  that were strong  sellers  during  fiscal 2001 include  several
uniquely styled stereo systems as well as various personal care and home-related
products. Management believes that the continued development and introduction of
new and popular Sharper Image Design proprietary and private label products is a
key strategic objective and important to the Companys future success.

     Management  believes  that  the  increased  investment  in its  advertising
initiatives during fiscal 2001 was another contributing factor to minimizing the
decrease in net sales in an extremely  difficult retail environment and that net
sales in all  selling  channels  benefited  from  the  significant  increase  in
television infomercial  advertising that highlighted select Sharper Image Design
proprietary products. Management also believes that these initiatives



                                       12
<PAGE>
Management's Discussion and Analysis (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

are broadening the Company's  customer base, which is an important factor in our
current  and  future  revenue  growth,  although  we  cannot  assure  you of the
continued success of these and future advertising initiatives.

     For fiscal  2001,  net store  sales  decreased  $17,303,000,  or 6.9%,  and
comparable  store sales decreased 16.0% from the prior fiscal year. The decrease
in net store sales was primarily due to the exceptional sales volume experienced
in fiscal 2000 relating to the Razor Rollerboard Scooters and the closure of two
stores at lease maturity.  Also  contributing to the decrease in net store sales
for fiscal  2001 was a 4.2%  decrease  in total  store  transactions  and a 1.2%
decrease in average revenue per transaction as compared with the same prior year
period.  The  decrease  was  partially  offset by sales from the 14 new and four
temporary  stores opened during fiscal 2001 and the annualized sales of nine new
stores  opened  in  fiscal  2000.  Management  believes  that the  decrease  was
minimized as a result of the increased television infomercial advertising during
fiscal 2001, which management  believes  increased customer traffic and sales in
retail  store  locations.  Average net sales per square foot was $578 for fiscal
2001,  compared to $763 in fiscal 2000 and $546 in fiscal 1999.  Net store sales
and  comparable  store  sales for  fiscal  2001,  excluding  sales of  scooters,
increased 14 percent and two percent, respect

     Net catalog sales,  which includes sales  generated from catalog  mailings,
solo mailers,  print  advertising and television  infomercials,  for fiscal 2001
increased $3,540,000 or 4.1% from fiscal 2000. The net sales increase from these
direct  marketing  activities was primarily due to an increase of 13% in Sharper
Image  catalogs  circulated,  an  increase  of 8% in  pages  circulated,  and an
increase in television  infomercial  advertising  highlighting  selected Sharper
Image Design products.  Management believes the productivity of several catalogs
was negatively  affected by the  interruption in mail service and the closure of
several post office  operations  following  September 11, which  resulted in the
catalogs being delayed or not reaching their original destination.  The increase
in net catalog sales for fiscal 2001  represents an increase of 18.3% in average
revenue per transaction offset by a 13.5% decrease in transactions,  compared to
the prior year. Net catalog sales  excluding Razor Scooter sales for fiscal 2001
increased by 23% over the same period in the prior year.

     For fiscal  2001 and 2000,  27.9% and 15.4% of the net  catalog  sales were
generated  from  television  infomercial  direct sales.  The Company  intends to
continue its aggressive  multimedia  advertising  programs during fiscal 2002 to
attract new  customers,  while  achieving an  appropriate  return on advertising
investment, although there can be no assurance of the continued success of these
advertising initiatives.  The Company's goal is to achieve direct response sales
resulting  in near  break  even  results  on all  direct  marketing  advertising
initiatives.   Management  continually  reviews  its  advertising   initiatives,
including  the pages and the number of  catalogs  circulated,  in its efforts to
optimize the revenues from catalog advertising.

     The Company's fiscal 2001 Internet sales, which includes its auction sales,
decreased  $10,393,000,  or 17.3%, from fiscal 2000. The fiscal 2001 decrease in
Internet net sales was due  primarily to the targeted  decrease in auction sales
and the significant Razor scooter sales experienced in fiscal 2000. The decrease
in sales  reflected a decrease of 30.1% in transactions  partially  offset by an
18.2%  increase  in revenue  per  transaction.  We believe  these  changes  were
primarily  attributable  to  management's  decision  to raise bid  prices and to
reduce the number of products  offered  during  fiscal 2001 on its auction site,
which  resulted in  achieving  the goal of  improving  the gross margin rate and
gross margin dollars from  auctions.  Excluding  auction  sales,  Internet sales
decreased 2.6% for fiscal 2001, transactions decreased 8.8%, and average revenue
per  transaction  increased  6.8% for fiscal 2001.  Excluding  auction and Razor
Scooter  sales,  Internet  sales for fiscal 2001  increased  16.0% over the same
prior year period.

     The  Company   plans  to  continue   using  the  auction  sites  to  manage
inventories, including closeouts, repackaged and refurbished items.

     During fiscal 2001,  the Company  updated its Web site with a new home page
that  includes  enhanced  graphics,  bolder  presentation  of more  products and
catalog quick order.  The Company also has streamlined  its checkout  process to
allow the customers to complete their on-line orders more quickly.

     Net wholesale  sales for fiscal year 2001 increased  $1,467,000,  or 15.6%,
compared to fiscal 2000,  primarily due to testing of new programs during fiscal
2001.

 Fiscal 2000

     Total Company net sales for fiscal 2000 increased  $112,900,000,  or 38.5%,
from the prior fiscal year. Returns and allowances were


                                       13
<PAGE>
Management's Discussion and Analysis (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Revenues (continued)

9.9% of sales for fiscal  2000,  as  compared  with 11.0% for fiscal  1999.  The
increase in net sales was primarily  attributable to increases in net sales from
stores of $61,033,000,  from catalog of $21,206,000 and from Internet operations
of $31,718,000.

     For fiscal  2000,  net store sales  increased  $61,033,000,  or 32.4%,  and
comparable  store  sales  increased  by 29.0% from the prior  fiscal  year.  The
increase in net store sales for fiscal 2000  reflects a 19.2%  increase in total
store  transactions,  with an 11.2% increase in average revenue per transaction.
The  increase  in net store  sales and  comparable  stores  sales  reflects  the
popularity  of  Sharper  Image  Design  products  and  private  label  products,
including the significant sales of Razor Rollerboard  Scooters.  The increase in
net store sales in fiscal 2000 is also  attributable  to the opening of nine new
stores during fiscal 2000 and annualized  sales of five new stores opened during
fiscal 1999.  This was  partially  offset by one store that was closed in fiscal
2000 and the three stores that closed in 1999.

     Net catalog  sales for fiscal year 2000  increased  $21,206,000,  or 32.3%,
from fiscal  1999.  The fiscal 2000 net sales  increase  reflects an increase of
16.6% in transactions,  and a 13.5% increase in average revenue per transaction,
compared to the prior year.  Management  believes  that the  increase in Sharper
Image catalog sales is partially attributable to a 31% increase in Sharper Image
Catalog  pages  circulated in fiscal 2000 as compared to fiscal 1999, as well as
the continued  popularity of Sharper Image Design  proprietary and private label
products, including the Razor Rollerboard Scooter. Management also believes that
the increased  catalog and page circulation has positively  impacted the revenue
growth in store and Internet sales. Other  contributing  factors to the increase
in net catalog  sales in fiscal  2000 from the same  period  last year,  are the
increased  single-product  solo-mailer  campaigns  conducted in fiscal 2000, and
increased revenue generated from infomercials and print advertising in 2000.

     The  Company's  fiscal 2000  Internet  sales from  sharperimage.com,  which
includes the Sharper Image auction site, increased $31,718,000,  or 111.3%, from
fiscal 1999. The fiscal 2000 increase in Internet net sales reflects an increase
of 88.5% in transactions and a 12.1% increase in revenue per transaction.

     Net wholesale  sales for fiscal year 2000 decreased  $1,057,000,  or 10.1%,
compared to fiscal  1999,  primarily  due to the  testing of  programs  with new
customers that the Company did not repeat in 2000.

     For the purpose of determining  comparable store sales,  comparable  stores
are defined as those which were open during the entire  comparable period of the
previous  year  and  are  compared   monthly  for  purposes  of  this  analysis.
Inflationary effects are not considered significant to the growth of sales.

Cost of Products

Fiscal 2001

     Cost of products  for fiscal 2001  decreased  $23,489,000,  or 11.0%,  from
fiscal  2000.  The decrease in cost of products is due to the lower sales volume
for the total Company, and to the increased percentage of sales of Sharper Image
Design  proprietary  products and private label products,  which generally carry
higher margins.  The gross margin rate for fiscal 2001 was 52.1%,  which was 2.9
percentage  points  better than the prior year rate of 49.2%.  The Sharper Image
Design  proprietary  and private  label  products as a percentage  of net sales,
exclusive  of  wholesale,  increased to 70% in fiscal 2001 as compared to 64% in
fiscal 2000.

Fiscal 2000

     Cost of products  for fiscal 2000  increased  $59,201,000,  or 38.5%,  from
fiscal 1999.  The increase in cost of products is due to the higher sales volume
compared  to the prior  year.  The gross  margin rate for fiscal 2000 was 49.2%,
which was consistent with the comparable  prior-year  period.  The Sharper Image
Design  proprietary  and private  label  products as a percentage  of net sales,
exclusive  of  wholesale,  increased to 64% in fiscal 2000 as compared to 50% in
fiscal 1999.

     The  Company's  gross  margin  rate  fluctuates  with  the  changes  in its
merchandise mix,  primarily  Sharper Image Design  proprietary and private label
products,  which is affected by new items  available  in various  categories  or
introduced  by the Company.  The variation in  merchandise  mix from category to
category  from year to year  reflects  the  characteristic  that the  Company is
driven by  individual  products  as  opposed to  general  lines of  merchandise.
Additionally,  the auction sites and other selected promotional activities, such
as free shipping  offers,  will, in part, tend to offset the rate of increase in
our gross margin rate.

     It is impossible to predict future gross margin rates accurately,  although
the  Company's  goal is to continue to increase  sales of Sharper  Image  Design
proprietary  products  and other  exclusive  private  label  products,  as these
products generally carry higher


                                       14
<PAGE>
Management's Discussion and Analysis (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Cost of Products (continued)

margins than branded products and may be less  susceptible to price  comparisons
by customers.  The  popularity of these  proprietary  products and private label
products  contributed to the 2.9  percentage  point increase in the gross margin
rate  for  fiscal  2001.  Management  believes  that  the  introduction  of  new
proprietary  and private label products at gross margins that are anticipated to
be in excess of the  average of those  currently  being  realized  should have a
positive  impact on the  Company's  gross margin rate for 2002,  but  management
cannot assure you that  proprietary  and private label products will continue to
have gross margins in excess of the average  gross  margin.  Also, to the extent
that  the  introduction  of  popular  proprietary   products  becomes  a  higher
proportion of sales,  this could have a positive impact on the gross margin rate
for fiscal 2002 and in the future,  although we cannot  assure you such increase
in gross margin will occur.

Buying and Occupancy

Fiscal 2001

     Buying and occupancy costs for fiscal 2001 increased $7,098,000,  or 22.7%,
from fiscal 2000. The increase primarily reflects a full year of occupancy costs
for nine new stores opened in fiscal 2000, the occupancy  costs  associated with
the 14 new stores and four  temporary  stores  opened in fiscal  year 2001,  and
occupancy  cost  increases  associated  with routine lease  renewals,  partially
offset by the two stores that closed  during  fiscal  2001.  The  increase  also
reflects higher rent expense related to our corporate  headquarters office space
beginning in fiscal 2001.  Buying and  occupancy  costs as a percentage of total
revenues  increased  from  7.4% in  fiscal  2000 to 9.7%  in  fiscal  2001.  The
Company's goal is to continue to grow the number of new stores by 10-15 percent.
The  Company  met this goal in fiscal 2001 with 14 new stores and is on track to
achieve the store unit growth goal for fiscal 2002.

Fiscal 2000

     Buying and occupancy costs for fiscal 2000 increased $3,384,000,  or 12.2%,
from fiscal 1999. The increase primarily reflects a full year of occupancy costs
for five new stores opened in fiscal 1999, the occupancy  costs  associated with
the nine new stores  opened in fiscal year 2000,  and  occupany  cost  increases
associated with certain  existing  locations,  partially offset by the one store
that closed  during  fiscal  2000.  The increase is  partially  attributable  to
percentage  rent  increases  due to higher  sales  volume in many of our stores.
Buying and occupancy costs as a percentage of total revenues decreased from 9.1%
in fiscal 1999 to 7.4% in fiscal 2000.

Advertising

Fiscal 2001

     Advertising expenses for fiscal 2001 increased $13,845,000,  or 25.3%, from
fiscal 2000.  The increase in  advertising  expenses was  attributable  to a 13%
increase  in the number of Sharper  Image  catalogs  mailed,  an 8%  increase in
catalog  pages  circulated  and  a  108%  increase  in  television   infomercial
advertising. The increase also included higher postage costs for catalogs mailed
during fiscal 2001.  Additionally,  the Company  continued its other  multimedia
advertising  initiatives,  which included radio  advertising  and single product
mailers, among others.  Although,  management believes they contributed to sales
in the stores,  catalog and Internet channels,  there can be no assurance of the
continued success of these advertising  initiatives.  Advertising  expenses as a
percentage  of total  revenues  increased  from 13.0% in fiscal 2000 to 17.3% in
fiscal 2001.

     The  Company  increased  its  television  media  spending  on  infomercials
highlighting  selected  Sharper Image Design  products.  The broad appeal of our
Sharper  Image  Design  products,  in  conjunction  with the higher gross margin
rates,  allow the Company to achieve its goal of near break-even results on this
type of  advertising  expenditure.  The majority of the  spending on  television
infomercials  was for one of our more popular  Sharper Image Design  proprietary
products,  the Ionic  Breeze(R)  Quadra(TM)  Silent  Air  Purifier.  Advertising
expense, excluding television infomercial expenses, was 10.7% and 12.4% of total
net sales for fiscal 2000 and 2001, respectively.

     Management  believes  that  the  expansion  of its  multimedia  advertising
initiatives of direct marketing and radio helped contribute to the sales results
for fiscal 2001 and will  continue to be an important  factor in future  revenue
growth. As a result,  advertising costs,  which include television  infomercial,
catalog  circulation,   catalog  pages,  and  other  marketing  initiatives  are
anticipated  to be higher in  fiscal  2002.  Additionally,  the  higher  cost of
postage on various direct  marketing  mailers,  including the catalog and single
product  mailers,  is expected  to  contribute  to  advertising  cost  increases
partially offset by the anticipated savings from lower paper costs in 2002.


                                       15
<PAGE>
Management's Discussion and Analysis (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Advertising (continued)

Fiscal 2000

     Advertising expenses for fiscal 2000 increased $16,642,000,  or 43.8%, from
fiscal 1999. The increase in advertising expenses was partially  attributable to
a 31% increase in the number of Sharper Image catalogs mailed, a 34% increase in
catalog  pages  circulated  in fiscal 2000 and to the  increases  in  television
infomercial  spending.  Advertising  expenses as a percentage of total  revenues
increased from 12.5% in fiscal 1999 to 13.0% in fiscal 2000.

General, Selling and Administrative

Fiscal 2001

     General,  selling  and  administrative  expenses  (GS&A)  for  fiscal  2001
increased  $2,570,000,  or 2.7%, from fiscal 2000. The increase in GS&A expenses
for fiscal  2001 was  attributable  to  increases  in overall  selling  expenses
related to the opening of 14 new stores and four temporary  stores during fiscal
2001, and the annualized  selling  expenses related to the nine stores opened in
fiscal  2000,  partially  offset by the reduced  selling  expenses of two stores
closed at lease  maturity  during fiscal 2001.  The increase was also due to the
Company's continued development of its proprietary  products,  the technological
system enhancements made in operational areas of the Company,  the expansion and
improvement in operational infrastructure, and compensation and benefit expenses
associated with attracting and retaining key employees. Partially offsetting the
increase in GS&A expenses were cost savings  achieved during fiscal 2001.  These
cost savings benefits were achieved as a result of management's continual review
of the Company's GS&A expenses and infrastructure.

     GS&A expenses for fiscal 2001  increased as a percentage of total  revenues
to 24.7% from 22.6% in fiscal  2000.  The  increase is  reflective  of the lower
sales  volume  experienced  in fiscal 2001 due to weak  consumer  spending,  the
events of September 11 and the general economic  slowdown.  Management  believed
that  these  events  were  temporary  and  retained  the  necessary  operational
infrastructure,  which resulted in the higher percentage to net sales for fiscal
2001.

     During  fiscal  2001,  the  Company  took  over  the  distribution   center
operations  of the 60,000  square  foot  leased  facility  located  in  Ontario,
California,  which was  previously  utilized by the Company  under a third party
service agreement, and consolidated two smaller sites into a 104,000 square foot
leased facility located adjacent to our owned facility in Little Rock, Arkansas.
These  changes  resulted in GS&A  savings due to the  termination  of the higher
costs related to the third party service  agreements for fulfillment and storage
services.

Fiscal 2000

     General,  selling and  administrative  expenses  for fiscal 2000  increased
$25,740,000,  or 37.0%,  from fiscal 1999.  The increase  was  primarily  due to
increases in variable  expenses  from  increased  net sales and overall  selling
expenses  related  to the  opening  of nine  new  stores.  Also,  the  Company's
continued development of proprietary products and increasing Internet operations
have  increased  GS&A  expenses  in  expanding  and  improving  the  operational
infrastructure,  as well as attracting  and retaining  key  employees.  General,
selling and administrative  expenses as a percentage of total revenues decreased
from 22.9% in fiscal  1999 to 22.6% in fiscal 2000 due to better  leverage  from
substantially increased sales volume.

Other Income

     Other income,  net, for fiscal 2001 decreased  $1,961,000 from fiscal 2000,
primarily  due to the  decrease in interest  income  earned on lower  investment
balances,  the reduction in interest rates on invested balances and the interest
expense incurred on seasonal borrowings.

     Other income,  net, for fiscal 2000 increased  $1,469,000 from fiscal 1999,
primarily  due to the  interest  income  earned  during  fiscal 2000 from higher
investment balances generated from improved operating results.

Income Taxes

     The effective tax rate for fiscal 2001,  2000,  and 1999 was 40.0%.  Income
taxes are accounted for using an asset and liability  approach that requires the
recognition of deferred tax assets and  liabilities  for the expected future tax
consequences of events that have been recognized in our  consolidated  financial
statements or tax returns.  In estimating future tax consequences,  all expected
future events then known to management are considered, other than changes in the
tax law or rates.


                                       16
<PAGE>
Management's Discussion and Analysis (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Liquidity and Capital Resources

     The Company met its short-term liquidity needs and its capital requirements
during fiscal 2001,  with cash  generated  from  operations,  trade credit,  its
revolving credit facility and existing cash balances.  The Company believes that
the combination of its cash and cash  equivalents,  internally  generated funds,
trade credits and available  borrowings under its revolving credit facility will
be sufficient to finance its working capital and capital expenditure requirement
for at least the next twelve months.

     Net cash provided by operating  activities  totaled  $9,443,000  for fiscal
2001, a decrease of  $8,606,000  million  from fiscal 2000.  The decrease in net
cash  provided by operating  activities  is primarily due to the decrease in net
earnings,  accounts  payable,  accrued expenses and deferred  revenues.  This is
partially  offset  by a 19%  decrease  in the  Company's  merchandise  inventory
balance. The decrease in inventory reflected the Company's planned management to
lower  inventory  during  fiscal 2001,  and an increase in Sharper  Image Design
proprietary  and private  label  products,  which  generally  have lower cost of
products.

     Net cash used in investing  activities,  primarily capital expenditures for
new stores,  design and tooling costs for proprietary products and technological
upgrades to our operational  infrastructure,  totaled $20,563,000 in fiscal 2001
compared to $19,747,000  in fiscal 2000.  During fiscal 2001, the Company opened
14 new stores and four  temporary  stores.  There were also two stores closed at
their lease maturity. The Company also remodeled nine stores during fiscal 2001.

     Net cash used in  financing  activities  totaled  $482,000 in fiscal  2001,
which was the result of $988,000  used to  repurchase  the  Company's  stock and
$15,784,000  related to payments on the  Company's  mortgage  loan and revolving
credit facility,  offset by $15,625,000 of borrowings under the revolving credit
facility  and  $665,000  in  proceeds  from  the  issuance  of  common  stock in
connection  with the  Company's  stock  option  plan.  On December 6, 2000,  the
Company's board of directors authorized a common stock repurchase program. Under
the program,  which expires on January 31, 2002, management has the authority to
purchase up to 800,000  shares of Sharper  Image common  stock in public  market
transactions.  Through January 31, 2002, the Company  repurchased 206,000 shares
of common stock under this program for a total cost of approximately $2,365,000.

     The table below presents significant commercial credit facilities available
to the Company and their associated expiration dates.

($ in millions)
-------------------------------------------------------------------
       Maximum Amount of Commitment Expiration Per Period
-------------------------------------------------------------------
                                                       Total
Maximum Commercial         Less than       1-3        Amount
Commitments                 1 Year        Years      Committed
                           ----------------------------------------

Revolving Credit Facility
  --Oct. 1 - Dec. 31*        $ 0.0       $ 33.0        $33.0

Term Loans for Capital
  Expenditures                 0.0          2.0          2.0
                             -----       ------       ------
Total Commercial
  Commitment                 $ 0.0       $ 35.0       $ 35.0
                             =====       ======       ======


* This represents the maximum commitment under the revolving credit facility. It
includes  limits of $15.0  million  for  documentary  letters of credit and $5.0
million for standby letters of credit.

     The  Company  has  a  revolving   secured  credit  facility  with  The  CIT
Group/Business  Credit,  Inc.  (CIT)  (formerly Tyco Capital) with an expiration
date of September 2004. The credit  facility  allows the Company  borrowings and
letters  of credit up to a  maximum  of $33  million  for the  period  October 1
through  December  31 and up to $20 million for other times of the year based on
inventory  levels.  The credit  facility is secured by the Company's  inventory,
accounts  receivable,  general intangibles and certain other assets.  Borrowings
under this  facility  bear interest at either the prime rate plus a margin or at
LIBOR plus a margin based on the  Company's  financial  performance.  The credit
facility  contains certain financial  covenants  pertaining to interest coverage
ratio  and net  worth  and  contains  limitations  on  operating  leases,  other
borrowings,  dividend  payments  and  stock  repurchases.  The  Company  was  in
compliance with all covenants as of January 31, 2002.

     The highest  amount of direct  borrowing  under the  revolving  loan credit
facility  during fiscal 2001 was  $15,625,000,  which was repaid by December 10,
2001.  During fiscal 2000,  the Company did not borrow under the revolving  loan
credit  facility.  Letter of credit  commitments  outstanding  under the  credit
facility  at  January  31,  2002,  and  2001  were  $4,494,000  and  $1,134,000,
respectively.

     In  addition,  the credit  facility  provides  for term  loans for  capital
expenditures ("Term Loans") up to $2.0 million.  Amounts borrowed under the Term
Loans bear interest at a variable rate of


                                       17
<PAGE>
Management's Discussion and Analysis (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Liquidity and Capital Resources (continued)

either prime rate plus a margin or at LIBOR plus a margin based on the Company's
financial  performance.  Each  Term  Loan is to be  repaid  in 36 equal  monthly
principal installments. As of January 31, 2002, there were no borrowings on this
facility.

     The table below presents significant contractual obligations of the Company
at fiscal year end.

($ in millions)
----------------------------------------------------------------------------
Contractual                      Less than   1-3     4-5   After 5
Obligations                       1 Year    Years   Years   Years    Total
                                --------------------------------------------

Revolving Credit Facilty         $ 4.5        --      --      --    $  4.5
  Letters of Credit
Notes Payable                       .1     $  0.4  $  0.5  $  1.2      2.2
Operating Leases                  24.1       43.8    32.9    51.7    152.5
Other Long--Term
  Obligations                      --         --      --      --       --
                                 -----     ------  ------  ------    -----
Total Contractual
  Cash Obligations                28.7     $ 44.2  $ 33.4  $ 52.9   $159.2
                                 =====     ======  ======  ======    =====

     At January 31, 2002, notes payable included a mortgage loan  collateralized
by the Company's Little Rock distribution  center. This note bears interest at a
fixed rate of 8.40%,  provides for monthly payments of principal and interest in
the amount of $29,367,  and matures in January  2011.  At January 31, 2002,  the
balance of this note was $2.2 million.

     In fiscal 2002,  the Company plans to continue its real estate  strategy of
annual new store  unit  growth of 10-15%,  to remodel  approximately  five to 10
stores at lease  renewal,  and  continue  its capital  investment  in design and
tooling  costs for  proprietary  products.  The Company also plans to update and
refine  its Web site,  sharperimage.com,  and to  further  develop  its Web site
presence  internationally.  The Company is planning to reconfigure  its existing
distribution  centers to accommodate future growth.  Total capital  expenditures
for fiscal 2002 are  estimated at  approximately  $18 to $22 million.  We cannot
assure that any of these expenditures will lead to an increase in sales.

New Accounting Pronouncements

     SFAS  No.  133   "Accounting   for  Derivative   Instruments   and  Hedging
Activities,"  as  amended,  requires  the Company to record all  derivatives  as
either  assets  or  liabilities  on  the  balance  sheet  and to  measure  those
instruments at fair value, and is effective for all fiscal years beginning after
June 15,  2000.  The Company  implemented  SFAS 133, as amended,  on February 1,
2001. Adoption of this statement did not have a material impact on the Company's
financial position or results of operations.

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and
Other Intangible  Assets"  (effective for the Company on February 1, 2002). SFAS
No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142
specifies  that  goodwill  and  certain  intangible  assets  will no  longer  be
amortized  but  instead  will be subject to  periodic  impairment  testing.  The
adoption of the new  standards is not expected to have a material  impact on the
Company's financial position or results of operations.

     In October 2001, the Financial  Accounting  Standards Board issued SFAS No.
144  "Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets." This
statement  supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to be Disposed  Of," and the  accounting  and
reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations
--  Reporting  the  Effects  of  Disposal  of  a  Segment  of  a  Business,  and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business.  SFAS No. 144 became  effective for the
Company on February 1, 2002. Adoption of this standard is not expected to have a
material effect on the Company's financial position or results of operations.

Critical Accounting Policies and Estimates

     The  Company's  discussion  and  analysis of its  financial  condition  and
results of operations are based upon the Company's financial  statements,  which
have been prepared in accordance with accounting  principles  generally accepted
in the United States. The preparation of these financial statements requires the
Company to make  estimates  and  judgments  that affect the reported  amounts of
assets,  liabilities,   revenues  and  expenses  and  the  related  disclosures.
Estimates and assumptions include,


                                       18
<PAGE>
Management's Discussion and Analysis (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Critical Accounting Policies and Estimates (continued)

but are not limited to the  carrying  value of  inventory,  fixed  asset  lives,
deferred cost recovery period,  income taxes and  contingencies  and litigation.
The Company bases its estimates on analyses,  of which form the basis for making
judgments  about the  carrying  values of assets  and  liabilities  that are not
readily  apparent  from other  sources.  Actual  results  may differ  from these
estimates under different assumptions or conditions.

     We believe that the following  represent  our more  critical  estimates and
assumptions  used in the preparation of our financial  statements,  although not
inclusive.

     Accounts  Receivable -- The Company  records an allowance for credit losses
based on estimates of customers'  ability to pay. If the financial  condition of
our customers were to deteriorate, additional allowances may be required.

     Revenue  Recognition -- The Company recognizes revenue at the point of sale
at its retail stores and at the  commencement  of delivery to a customer for its
mail order sales,  including Internet.  The Company records estimated reductions
to revenue for customer  returns.  These  estimates  are based on the  Company's
historical trends adjusted for current market conditions. If actual return rates
differ  from  those  estimated  by the  Company,  additional  reductions  may be
required.  The Company also records estimated reductions to revenue for customer
programs and incentive  offerings  including special pricing  agreements,  price
protection,  promotions and other volume-based incentives.  If market conditions
were to decline,  the Company may take  actions to increase  customer  incentive
offerings, possibly resulting in an incremental reduction of revenue at the time
the incentive is offered.

     Store Closure  Reserves -- The Company  records  reserves for closed stores
based on future lease  commitments,  anticipated  future subleases of properties
and current  risk-free  interest  rates.  If  interest  rates or the real estate
leasing markets change, additional reserves may be required.

     Merchandise  Inventories  -- The  Company  will  write down  inventory  for
estimated obsolescence or unmarketable inventory equal to the difference between
the cost of inventory  and the  estimated  market  value based upon  assumptions
about future demand and market conditions.  If actual market conditions are less
favorable than those projected by management,  additional inventory  write-downs
may be required.

     Other  accounting  estimates  inherent in the  preparation of the Company's
financial  statements  include  estimates  associated with its evaluation of the
recoverability of deferred tax assets as well as those used in the determination
of liabilities related to litigation,  product liability, taxation and inventory
valuations.  Various assumptions and other factors underlie the determination of
these significant estimates. The process of determining significant estimates is
fact  specific and takes into account  factors  such as  historical  experience,
current  and  expected  economic  conditions,   and  product  mix.  The  Company
constantly  re-evaluates  these significant  factors and makes adjustments where
facts  and  circumstances  dictate.   Historically,   actual  results  have  not
significantly deviated from those determined using the estimate described above.

     As  discussed  in  Note I to the  consolidated  financial  statements,  the
Company is involved in litigation incidental to its business, the disposition of
which is expected to have no material effect on the Company's financial position
or results of  operations.  It is  possible,  however,  that  future  results of
operations  for any  particular  quarterly or annual  period could be materially
affected by changes in the Company's  assumptions  related to these proceedings.
The Company  accrues its best  estimates of the probable cost for the resolution
of legal  claims.  Such  estimates are  developed in  consultation  with outside
counsel  handling  these matters and are based upon a combination  of litigation
and settlement  strategies.  To the extent additional  information arises or the
Company's strategies change, it is possible that the Company's best estimates of
its probable liability in these matters may change.

Quantitative and Qualitative
Disclosure About Market Risk

     The Company is exposed to market risks,  which include  changes in interest
rates and, to a lesser  extent,  foreign  exchange  rates.  The Company does not
engage in financial transactions for trading or speculative purposes.

     The interest  payable on the Company's credit facility is based on variable
interest rates and therefore  affected by changes in market  interest  rates. If
interest  rates on existing  variable  rate debt rose 0.48% (10% from the bank's
reference  rate) as of January 31, 2002, the Company's  results from  operations
and cash flows would not be materially affected. In addition, the


                                       19
<PAGE>
Management's Discussion and Analysis (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Quantitative and Qualitative Disclosure About Market Risk (continued)

Company has fixed and variable income investments consisting of cash equivalents
and  short-term  investments,  which  are also  affected  by  changes  in market
interest rates. The Company does not use derivative financial instruments in its
investment  portfolio.  The Company enters into a significant amount of purchase
obligations  outside  of the  U.S.  which  are  settled  in  U.S.  dollars  and,
therefore,  have only minimal exposure to foreign  currency  exchange risks. The
Company does not hedge against foreign  currency risks and believes that foreign
currency exchange risk is immaterial.

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.  In past years, a substantial  portion of the Company's
total revenues, and all or most of the Company's net earnings,  have occurred in
the fourth quarter  ending January 31. The Company,  as is typical in the retail
industry,  generally  experiences  lower revenues and earnings  during the other
quarters and has incurred and may continue to incur losses in these quarters.

Uncertainties and Risk

   The foregoing  discussion and analysis should be read in conjunction with the
Company's  financial  statements  and notes  thereto  included with this report.
Certain statements contained herein, including,  without limitation,  statements
containing the words "plans," "believes," "anticipates," "estimates," "expects,"
"projections,"  and  words  of  similar  import,   constitute   "forward-looking
statements." These  forward-looking  statements are subject to certain risks and
uncertainties  that could cause actual results to differ  materially  from those
set forth in such  forward-looking  statements.  Such  risks  and  uncertainties
include, without limitation,  risks of changing market conditions in the overall
economy and the retail  industry,  consumer  demand,  the opening of new stores,
actual  advertising  expenditures  by the Company,  the success of the Company's
advertising and  merchandising  strategy,  availability  of products,  and other
factors  detailed  from time to time in the  Company's  annual and other reports
filed with the Securities and Exchange Commission.  Readers are cautioned not to
place undue reliance on these forward-looking statements. The Company undertakes
no obligations to revise these  forward-looking  statements to reflect events or
circumstances after the date hereof.


                                       20
<PAGE>
Statements of Operations
--------------------------------------------------------------------------------
Sharper Image Corporation
<TABLE>
<CAPTION>
                                                                                      Fiscal Year Ended January 31,
                                                                                -------------------------------------
                                                           2002                     2001                      2000
Dollars in thousands except per share amounts          (Fiscal 2001)            (Fiscal 2000)            (Fiscal 1999)
---------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                      <C>                      <C>
Revenues:
   Sales                                                 $  435,131               $  450,298               $  329,384
   Less: returns and allowances                              51,909                   44,387                   36,373
                                                         ----------               ----------               ----------
   Net Sales                                                383,222                  405,911                  293,011
   List rental                                                  935                    1,454                    1,129
   Licensing                                                     50                      250                      225
   Delivery                                                  11,992                   13,521                    9,732
                                                         ----------               ----------               ----------
                                                            396,199                  421,136                  304,097
                                                         ----------               ----------               ----------
Costs and Expenses:
   Cost of products                                         189,454                  212,943                  153,742
   Buying and occupancy                                      38,324                   31,226                   27,842
   Advertising                                               68,479                   54,634                   37,992
   General, selling, and administrative                      97,835                   95,265                   69,525
                                                         ----------               ----------               ----------
                                                            394,092                  394,068                  289,101
                                                         ----------               ----------               ----------
Other Income:
   Interest income                                              702                    2,613                      983
   Interest expense                                           (355)                     (330)                    (380)
   Other income (expense)--net                                (294)                     (269)                     (58)
                                                         ----------               ----------               ----------
                                                                 53                    2,014                      545
                                                         ----------               ----------               ----------
Earnings Before Income Taxes                                  2,160                   29,082                   15,541
Income Taxes                                                    864                   11,633                    6,216
                                                         ----------               ----------               ----------
Net Earnings                                             $    1,296               $   17,449               $    9,325
                                                         ==========               ==========               ==========
Net Earnings Per Share - Basic                           $     0.11               $     1.45               $     0.89
                                                         ==========               ==========               ==========
Net Earnings Per Share - Diluted                         $     0.10               $     1.33               $     0.82
                                                         ==========               ==========               ==========
Weighted Average Number of Shares - Basic                11,904,562               12,036,569               10,516,358
                                                         ==========               ==========               ==========
Weighted Average Number of Shares - Diluted              12,568,380               13,074,395               11,358,004
                                                         ==========               ==========               ==========
</TABLE>
                                        See Notes to Financial Statements.

                                       21
<PAGE>
Balance Sheets
--------------------------------------------------------------------------------
Sharper Image Corporation
<TABLE>
<CAPTION>

                                                                                                     January 31,
                                                                                       --------------------------------------
                                                                                            2002                    2001
Dollars in thousands except per share amounts                                           (Fiscal 2001)           (Fiscal 2000)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                      <C>
Assets
Current Assets:
   Cash and equivalents                                                                $    40,417              $    52,019
   Accounts receivable, net of allowance for doubtful accounts of $1,082 and $730            8,098                    9,722
   Merchandise inventories                                                                  50,151                   61,959
   Deferred catalog costs                                                                    3,844                    3,943
   Prepaid expenses and other                                                               10,648                    9,992
                                                                                       -----------              -----------
Total Current Assets                                                                       113,158                  137,635
Property and Equipment, Net                                                                 44,862                   36,474
Deferred Taxes and Other Assets                                                              4,318                    4,727
                                                                                       -----------              -----------
   Total Assets                                                                        $   162,338              $   178,836
                                                                                       ===========              ===========
Liabilities and Stockholders' Equity
Current Liabilities:
   Accounts payable                                                                    $    16,511              $    25,177
   Accrued expenses                                                                         25,262                   29,838
   Deferred revenue                                                                         16,982                   12,440
   Income taxes payable                                                                        807                   10,711
   Current portion of notes payable                                                            174                      160
                                                                                       -----------              -----------
Total Current Liabilities                                                                   59,736                   78,326
Notes Payable                                                                                2,033                    2,206
Other Liabilities                                                                            5,826                    4,742
Commitments and Contingencies                                                                   --                       --
                                                                                       -----------              -----------
Total Liabilities                                                                           67,595                   85,274
                                                                                       -----------              -----------
Stockholders' Equity:
   Preferred stock, $0.01 par value:
     Authorized, 3,000,000 shares: Issued and outstanding, none                                 --                       --
   Common stock, $0.01 par value:
     Authorized, 25,000,000 shares: Issued and outstanding,
     11,970,684and 11,961,911 shares                                                           120                      120
   Additional paid-in capital                                                               42,582                   42,697
   Retained earnings                                                                        52,041                   50,745
                                                                                       -----------              -----------
Total Stockholders' Equity                                                                  94,743                   93,562
                                                                                       -----------              -----------
   Total Liabilities and  Stockholders' Equity                                         $   162,338              $   178,836
                                                                                       ===========              ===========

                                         See Notes to Financial Statements.
</TABLE>

                                       22
<PAGE>
Statements of Cash Flows
--------------------------------------------------------------------------------
Sharper Image Corporation
<TABLE>
<CAPTION>
                                                                          Additional
                                          Common              Stock         Paid-in         Retained
Dollars in thousands                      Shares             Amount         Capital         Earnings        Total
--------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                 <C>           <C>              <C>            <C>
Balance at January 31, 1999               8,916,995           $ 89          $ 12,589         $23,971        $36,649

Issuance of common stock
   from secondary offering and
   for stock options exercised
   (including income tax benefit)         3,099,832             31            31,118                         31,149
Net earnings                                                                                   9,325          9,325
                                         ----------           ----           -------         -------        -------
Balance at January 31, 2000              12,016,827            120            43,707          33,296         77,123

Issuance of common stock
   for stock options exercised
   (including income tax benefit)            71,084              1               659                            660
Repurchase of common stock                 (126,000)            (1)           (1,669)                        (1,670)
Net earnings                                                                                  17,449         17,449
                                         ----------           ----           -------         -------        -------
Balance at January 31, 2001              11,961,911            120            42,697          50,745         93,562

Issuance of common stock for stock
   options exercised
   (including income tax benefit)           108,773              1               872                            873
Repurchase of common stock                 (100,000)            (1)             (987)                          (988)
Net earnings                                                                                   1,296          1,296
                                         ----------           ----           -------         -------        -------
Balance at January 31, 2002              11,970,684           $120           $42,582         $52,041        $94,743
                                         ==========           ====           =======         =======        =======
</TABLE>

                                              See Notes to Financial Statements.



                                       23
<PAGE>
Statements of Cash Flows
--------------------------------------------------------------------------------
Sharper Image Corporation
<TABLE>
<CAPTION>
                                                                               Fiscal Year Ended January 31,
-----------------------------------------------------------------------------------------------------------------------
                                                                          2002              2001            2000
Dollars in thousands                                                  (Fiscal 2001)     (Fiscal 2000)   (Fiscal 1999)
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>              <C>
Cash was Provided by (Used for) Operating Activities:
   Net earnings                                                        $    1,296       $   17,449       $    9,325
   Adjustments to reconcile net earnings to net cash
     provided by (used for) operating activities:
     Depreciation and amortization                                         11,644            7,922            6,480
     Deferred rent expenses and landlord allowances                           332             (185)            (187)
     Deferred income taxes                                                   (124)           1,191           (1,349)
     Loss on sale of equipment                                                395              299               --
   Change in operating assets and liabilities:
     Accounts receivable                                                    1,624           (1,840)          (1,095)
     Merchandise inventories                                               11,808          (22,307)          (7,054)
     Deferred catalog costs, prepaid expenses and other                       (24)          (4,686)          (2,061)
     Accounts payable and accrued expenses                                (13,034)          12,041           14,361
     Deferred revenue and other liabilities                                (4,474)           7,957            6,062
                                                                       ----------       ----------       ----------
Cash Provided by Operating Activities                                       9,443           17,841           24,482
                                                                       ----------       ----------       ----------
Cash was Provided by (Used for) Investing Activities:
   Property and equipment expenditures                                    (20,574)         (19,747)          (8,039)
   Proceeds from sale of equipment                                             11               --              111
                                                                       ----------       ----------       ----------
Cash Used for Investing Activities                                        (20,563)         (19,747)          (7,928)
                                                                       ----------       ----------       ----------
Cash was Provided by (Used for) Financing Activities:
   Proceeds from issuance of common stock, including warrants
        and stock options exercised                                           665              285           31,149
   Repurchase of common stock                                                (988)          (1,670)              --
   Proceeds from notes payable and revolving credit facility               15,625               --           11,955
   Principal payments on notes payable and revolving credit facility      (15,784)            (147)         (12,590)
                                                                       ----------       ----------       ----------
Cash Provided by (Used for) Financing Activities                             (482)          (1,532)          30,514
                                                                       ----------       ----------       ----------

Net Increase (Decrease) in Cash and Equivalents                           (11,602)          (3,438)          47,068
Cash and Equivalents at Beginning of Period                                52,019           55,457            8,389
                                                                       ----------       ----------       ----------
Cash and Equivalents at End of Period                                  $   40,417       $   52,019       $   55,457
                                                                       ==========       ==========       ==========
Supplemental Disclosure of Cash Paid for:
   Interest                                                            $      349       $      362       $      403
   Income Taxes                                                        $    8,991       $   10,536       $    3,839
</TABLE>

                                              See Notes to Financial Statements.


                                       24

<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
Sharper Image Corporation

Fiscal Years Ended January 31, 2002, 2001 and 2000

Note A -- Summary of
Significant Accounting Policies

     The  Company is a leading  specialty  retailer  that  introduces  and sells
quality,  innovative and entertaining products.  These products are sold through
its retail stores,  catalogs (which  includes other sources of direct  marketing
such as single product mailers, television infomercials,  radio and newspapers),
Internet and other marketing channels  throughout the United States. The Company
also has stores and catalog operations internationally through licensees.

     Accounting Estimates: The preparation of financial statements in conformity
with accounting  principles  generally  accepted in the United States of America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

     Revenue Recognition: The Company recognizes revenue at the point of sale at
its retail stores and at the  commencement of delivery to customers for its mail
order sales,  including  Internet.  The Company records estimated  reductions to
revenue for  customer  returns  based upon  historical  returns  rate.  Deferred
revenue represents merchandise certificates outstanding and unfilled cash orders
at the end of the fiscal period.  Mailing list rental revenue is recognized when
the list is fulfilled.  Delivery  revenue is recognized at the  commencement  of
delivery to customers.

     Fair Value of Financial  Instruments:  The carrying value of cash, accounts
receivable, accounts payable and notes payable approximates their estimated fair
value.

     Effects of  Inflation:  The effects of  inflation  are not  material to the
Company's financial position and results of operations.

     Merchandise  Inventories:  Merchandise  inventories  are stated at lower of
cost (first-in,  first-out method) or market. The Company provides a reserve for
estimated obsolescence or unmarketable inventory equal to the difference between
the cost of inventory  and the  estimated  market  value based upon  assumptions
about future demand and market conditions.

     Cash and Equivalents:  Cash and equivalents  represent cash and short-term,
highly liquid investments with original maturities of three months or less.

     Deferred  Catalog and  Advertising  Costs:  Direct  costs  incurred for the
production and distribution of catalogs are capitalized and amortized,  once the
catalog is mailed,  over the  expected  sales period which does not exceed three
months.  Other  advertising  costs are  expensed  as  incurred  and  amounted to
$35,297,000,  $25,374,000,  and $15,455,000,  for the fiscal years ended January
31, 2002, 2001, and 2000, respectively.

     Start-Up  Activities:  All  start-up and  preopening  costs are expensed as
incurred.

     Property  and  Equipment:  Property  and  equipment  are  stated  at  cost.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful lives of the various assets which range from three to 10 years for office
furniture  and  equipment  and  transportation  equipment,  and 40 years for the
building.  Leasehold  improvements are amortized using the straight-line  method
over the lesser of their  estimated  useful lives or the term of the  applicable
leases, which range from seven to 18 years.

     The Company  designs and  produces its own  proprietary  products for sale.
Costs  incurred  for  tooling,  dies and  package  design  are  capitalized  and
amortized  over the  estimated  life of these  products,  which is generally two
years. At January 31, 2002, and 2001, capitalized costs included in property and
equipment,  net  of  related  amortization,   were  $2,967,000  and  $3,499,000,
respectively.

     The  Company  reviews  its  long-lived   assets,   including   identifiable
intangible  assets,  whenever events or changes  indicate the carrying amount of
such  assets  may not be  recoverable.  The  Company's  policy is to review  the
recoverability  of all assets,  at a minimum,  on an annual basis.  Based on the
Company's  review at January  31,  2002,  no material  adjustments  were made to
long-lived assets.

     Income  Taxes:  Income taxes are accounted for using an asset and liability
approach that requires the  recognition  of deferred tax assets and  liabilities
for the expected future tax consequences of events then known to management that
have been recognized in the Company's  financial  statements or tax returns.  In
estimating  future tax  consequences,  all expected  future events then known to
management are considered other than changes in the tax law or rates.

     Store Closures:  The Company continually reviews the operating  performance
of  individual  stores and  records a provision  for  closing  costs at the date
management commits to closing a store. Operating costs, including  depreciation,
of stores to be closed are expensed during the period they remain in use.


                                       25
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Fiscal Years Ended January 31, 2002, 2001 and 2000

Note A--Summary of Significant Accounting Policies (continued)

     Accounts Payable: Accounts payable represents amounts owed to third parties
at the end of the period.

     Stock-Based  Compensation:  The Company accounts for stock-based  awards to
employees  using the  intrinsic  value  method  in  accordance  with  Accounting
Principles Board (APB) No. 25, Accounting for Stock Issued to Employees.

     Earnings  Per Share:  Basic  earnings per share is computed as net earnings
divided by the weighted average number of common shares  outstanding during each
year of 11,904,562  and 12,036,569  and  10,516,358,  for the fiscal years ended
January  31,  2002,  2001 and 2000,  respectively.  Diluted  earnings  per share
reflect the  potential  dilution  that could occur from common  shares  issuable
through stock options.  Weighted average number of common shares outstanding was
adjusted for 663,818 and 1,037,826 and 841,646 incremental shares assumed issued
under the treasury  stock method during the fiscal years ended January 31, 2002,
2001 and 2000, respectively.

     Options for which the exercise  price was greater  than the average  market
price of common  stock for the period were not  included in the  computation  of
diluted  earnings  per share.  The number of such options for which the exercise
price was greater than the average market price of $9.94,  $14.37 and $11.92 for
the fiscal years ended January 31, 2002,  2001 and 2000,  was 303,500 and 54,600
and 9,000 , respectively.

     Comprehensive Income: Comprehensive income consists of net earnings or loss
for the current period and other comprehensive income (income,  expenses,  gains
and losses that currently bypass the income statement and are reported  directly
as a separate  component of equity).  Comprehensive  income does not differ from
net  earnings  for the Company for the years ended  January 31,  2002,  2001 and
2000.

     New  Accounting  Pronouncements:  SFAS No. 133  "Accounting  for Derivative
Instruments and Hedging Activities," as amended,  requires the Company to record
all  derivatives  as either  assets or  liabilities  on the balance sheet and to
measure those  instruments at fair value,  and is effective for all fiscal years
beginning after June 15, 2000. The Company  implemented  SFAS 133, as amended on
February 1, 2001.  Adoption of this statement did not have a material  impact on
the Company's financial position or results of operations.

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and
Other Intangible  Assets"  (effective for the Company on February 1, 2002). SFAS
No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142
specifies  that  goodwill  and  certain  intangible  assets  will no  longer  be
amortized  but  instead  will be subject to  periodic  impairment  testing.  The
adoption of the new  standards is not expected to have a material  impact on the
Company's financial position or results of operations.

     In October 2001, the Financial  Accounting  Standards Board issued SFAS No.
144  "Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets." This
statement  supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to be Disposed  Of," and the  accounting  and
reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations
--  Reporting  the  Effects  of  Disposal  of  a  Segment  of  a  Business,  and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business.  SFAS No. 144 became  effective for the
Company on February 1, 2002. Adoption of this standard is not expected to have a
material effect on the Company's financial position or results of operations.

     Reclassification:  Certain reclassifications have been made to prior years'
financial statements in order to conform with the classifications of the January
31, 2002, financial statements.


                                       26
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Fiscal Years Ended January 31, 2002, 2001 and 2000

Note B -- Property and Equipment

   Property and equipment is summarized as follows:

                                                           January 31,
                                                  ------------------------------
                                                     2002              2001
Dollars in thousands                             (Fiscal 2001)     (Fiscal 2000)
--------------------------------------------------------------------------------
Leasehold improvements                            $   28,645       $   26,937
Furniture, fixtures and equipment                     72,155           57,538
Land                                                      53               53
Building                                               2,874            2,874
                                                  ----------       ----------
                                                     103,727           87,402
Less accumulated depreciation

   and amortization                                   58,865           50,928
                                                  ----------       ----------
                                                  $   44,862       $   36,474
                                                  ==========       ==========
Note C -- Other Assets

     The Company has an agreement  under which it will advance the premiums on a
split-dollar life insurance policy for its Founder, Chairman and Chief Executive
Officer.  The Company has an interest  in the  insurance  benefits  equal to the
amount of the premiums advanced.  The amount receivable for premiums advanced as
of January 31, 2002, and 2001 was $1,882,000 and $1,520,000, respectively.

Note D -- Revolving Loan and Notes Payable

     The  Company  has  a  revolving   secured  credit  facility  with  The  CIT
Group/Business Credit Inc. (CIT) (formerly Tyco Capital) with an expiration date
of September 2004. The credit facility allows the Company borrowings and letters
of credit to a maximum of $33 million for the period October 1 through  December
31 and up to $20 million for other times of the year based on inventory  levels.
The credit facility is secured by the Company's inventory,  accounts receivable,
general  intangibles  and certain other assets.  Borrowings  under this facility
bear  interest  at either the prime rate plus a margin or at LIBOR plus a margin
based on the  Company's  financial  performance.  The credit  facility  contains
certain financial covenants  pertaining to interest coverage ratio and net worth
and  contains  limitations  on  operating  leases,  other  borrowings,  dividend
payments and stock repurchases.

     The highest  amount of direct  borrowing  under the  revolving  loan credit
facility during fiscal 2001 was $15,625,000. During fiscal 2000, the Company did
not borrow under the revolving  loan credit  facility.  At January 31, 2002, and
2001, the Company had no amounts  outstanding on its revolving  credit facility.
Letter of credit  commitments  outstanding  under the credit facility at January
31, 2002, and 2001 were $4,494,000 and $1,134,000, respectively.

     At January 31, 2002, notes payable included a mortgage loan  collateralized
by the Company's  distribution  center. This note bears interest at a fixed rate
of 8.40%,  provides for monthly payments of principal and interest in the amount
of $29,367,  and matures in January  2011.  At January 31, 2002,  and 2001,  the
balance of this note was $2,207,000 and $2,366,000, respectively.

     Future minimum principal payments on notes payable at January 31, 2002, are
as follows:

Dollars in thousands
--------------------------------------------------------------------------------

Fiscal Year Ending January 31,
2003                                                                   $    174
2004                                                                        189
2005                                                                        205
2006                                                                        223
2007                                                                        243
Later years                                                               1,173
                                                                       --------
Total notes payable                                                    $  2,207
                                                                       ========


                                       27
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Fiscal Years Ended January 31, 2002, 2001 and 2000

Note E -- Income Taxes


                                           Fiscal Year Ended January 31,
                                       -----------------------------------------
                                           2002          2001         2000
Dollars in thousands                   (Fiscal 2001) (Fiscal 2000) (Fiscal 1999)
--------------------------------------------------------------------------------
Current:
   Federal                              $   843       $  8,914      $  6,430
   State                                    144          1,528         1,135
                                        -------       --------      --------
                                            987         10,442         7,565
Deferred:
   Federal                                 (105)         1,017        (1,147)
   State                                    (18)           174          (202)
                                        -------       --------      --------
                                           (123)         1,191        (1,349)
                                        -------       --------      --------
                                        $   864       $ 11,633      $  6,216
                                        =======       ========      ========



     The difference  between the effective income tax rate and the United States
federal income tax rate is summarized as follows:


                                            Fiscal Year Ended January 31,
                                      ------------------------------------------
                                          2002          2001          2000
                                      (Fiscal 2001) (Fiscal 2000) (Fiscal 1999)
--------------------------------------------------------------------------------
Federal tax rate                           35.0%        35.0%        34.0%
State income tax,
less federal benefit                        6.0          6.0          6.0
Other                                      (1.0)        (1.0)         --
                                           ----         ----         ----
Effective tax rate                         40.0%        40.0%        40.0%
                                           ====         ====         ====


     Deferred taxes result from  differences  in the  recognition of expense for
income  tax and  financial  reporting  purposes.  The  principal  components  of
deferred tax assets (liabilities) are as follows:

                                              January 31,
                                    -------------------------------
                                         2002             2001
Dollars in thousands                (Fiscal 2001)     (Fiscal 2000)
-------------------------------------------------------------------
Current:
   Nondeductible reserves            $   7,027         $  5,245
   Deferred catalog costs               (1,465)          (1,617)
   State taxes                          (1,612)          (1,188)
                                     ---------         --------
Current-- net                            3,950            2,440
                                     ---------         --------
Noncurrent:
   Deferred rent                         1,245            1,042
   Depreciation                          3,173            3,470
   Deductible software costs            (2,671)          (1,377)
   Other-- net                            (165)            (166)
                                     ---------         --------
Noncurrent-- net                         1,582            2,969
                                     ---------         --------
Total                                $   5,532         $  5,409
                                     =========         ========

Note F -- Leases

     The  Company  leases  retail  facilities,   offices,  and  equipment  under
operating  leases for terms  expiring at various dates  through 2016.  Under the
terms of certain of the leases,  rents are adjusted  annually for changes in the
consumer  price index and increases in property  taxes.  The  aggregate  minimum
annual  lease  payments  under  leases in effect at  January  31,  2002,  are as
follows:

Dollars in thousands
--------------------------------------------------------------
Fiscal Year Ending January 31,
2003                                                $   24,107
2004                                                    22,803
2005                                                    20,955
2006                                                    18,869
2007                                                    14,096
Later years                                             51,711
                                                    ----------
Total minimum lease commitments                     $  152,541
                                                    ==========

     Many of the Company's leases contain predetermined fixed escalations of the
minimum  rentals  during the initial  term.  For these  leases,  the Company has
recognized the related rental expense on a straight-line  basis and has recorded
the difference  between the expense  charged to income and amounts payable under
the  leases as  deferred  rent which is  included  in Other  Liabilities.  Total
minimum   rent  from   noncancelable   sublease   agreements   through  2005  is
approximately $548,960 as of February 1, 2002, which has not been netted against
the above amounts.

     Some store leases contain  renewal  options for periods  ranging up to five
years. Most leases also provide for payment of operating  expenses,  real estate
taxes and for additional rent based on a percentage of sales.

   Rental expense for all operating leases was as follows:

                                    Fiscal Year Ended January 31,
                         -------------------------------------------------------
                            2002                 2001              2000
Dollars in thousands     (Fiscal 2001)     (Fiscal 2000)       (Fiscal 1999)
--------------------------------------------------------------------------------
Minimum rentals           $22,941           $   18,124        $  16,146

Percentage rentals
and other charges           8,436                7,300            6,367
                          -------           ----------        ---------
                          $31,377           $   25,424        $  22,513
                          =======           ==========        =========


                                       28
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Fiscal Years Ended January 31, 2002, 2001 and 2000

Note G -- Stockholders' Equity

   On July 22, 1999, the Company  completed an offering of 3.0 million shares of
its common stock. The proceeds from the offering,  net of underwriters  discount
and offering expenses,  totaled $30.2 million. The Company has used the proceeds
from this offering for general corporate purposes,  including investments in the
Company's  Internet  business,  expansion of its  distribution  and  fulfillment
capacity, and working capital.

   In December 2000, the Board of Directors approved a stock repurchase program,
which  authorizes  the Company to repurchase up to 800,000 shares at a per share
price of $20.00 or below. The program expired January 31, 2002.  Through January
31, 2002, a total of 206,000 shares were repurchased under this stock repurchase
program at an average price of $11.48.

   During fiscal 2000, the Company  adopted the 2000 Stock  Incentive  Plan. The
Stock  Incentive  Plan combines the 1985 Stock Option Plan, as amended,  and the
1994  Non-Employee  Director  Stock  Option  Plan,  as  amended,  into a  single
comprehensive  equity  incentive  plan. The 2000 Stock Incentive Plan is divided
into four  separate  equity  incentive  programs  and will allow the issuance of
non-qualified   options  to  key  employees,   non-employee  Board  members  and
consultants  up to an  initial  aggregate  of  3,147,107  shares.  An  automatic
increase of shares available for issuance will occur on the first trading day of
each fiscal year,  beginning  with fiscal 2001,  by an amount equal to 3% of the
total  number of shares of common stock  outstanding  on the last trading day of
the  immediately  preceding  fiscal year.  In no event will the annual  increase
exceed 500,000 shares.

   Options  issued to key employees and  consultants  will generally vest over a
four- to  six-year  period  from the date of the grant and are priced at 100% of
the fair market value at the date of the grant.  Options issued to  non-employee
Board  members  will be  immediately  exercisable,  vest  over one year of board
service  from the date of the  grant and are  priced at 100% of the fair  market
value at the date of the grant.  Any shares purchased under the option plan will
be subject to  repurchase  by the Company at the exercise  price paid per share,
upon the optionee's cessation of Board service prior to vesting.

Additional Stock Plan Information

   As discussed in Note A, the Company  continues to account for its stock-based
awards  using  the  intrinsic  value  method  in  accordance  with  APB No.  25,
Accounting  for Stock  Issued to  Employees,  and its  related  interpretations.
Accordingly,  no  compensation  expense  has been  recognized  in the  financial
statements  for  employee  stock   arrangements.

   SFAS  No.  123,  Accounting  for  Stock-Based   Compensation,   requires  the
disclosure  of pro forma net earnings  (loss) and earnings  (loss) per share had
the Company  adopted the fair value  method as of the  beginning of fiscal 1995.
Under  SFAS No.  123,  the fair  value of  stock-based  awards to  employees  is
calculated  through the use of option  pricing  models,  even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options  without  vesting  restrictions,  which  significantly  differ  from the
Company's stock option awards.

   These  models also require  subjective  assumptions,  including  future stock
price  volatility  and  expected  time to  exercise,  which  greatly  affect the
calculated values. The Company's  calculations were made using the Black-Scholes
option pricing model with the following weighted average  assumptions:  expected
life from date of grant,  five years in fiscal  2001,  five years in fiscal 2000
and four years in fiscal 1999;  stock  volatility,  37% in fiscal  2001,  66% in
fiscal 2000 and 57% in fiscal 1999;  risk-free  interest rates,  4.09% in fiscal
2001, 6.24% in fiscal 2000 and 5.70% in fiscal 1999; and no dividends during the
expected term.

   The Company's  calculations are based on a single option valuation  approach,
and forfeitures are recognized as they occur. If the computed fair values of the
fiscal  years 1996  through  2001 awards had been  amortized to expense over the
vesting  period of the awards,  pro forma net  earnings  would have been $97,306
($0.01  earnings per share -- basic and $0.01  earnings per share -- diluted) in
fiscal 2001,  $16,261,190  ($1.35 earnings per share -- basic and $1.24 earnings
per share -- diluted) in fiscal 2000 and $8,324,490 ($0.79 earnings per share --
basic and $0.73 earnings per share -- diluted) in fiscal 1999.


                                       29
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Fiscal Years Ended January 31, 2002, 2001 and 2000

Note G -- Stockholders' Equity (continued)
The following table reflects the activity under these plans:


                                                                     Weighted
                                                     Number of        Average
                                                      Options     Exercise Price
                                                    ----------------------------
Balance at January 31, 1999                         1,145,105       $    3.76
Granted (weighted average fair value of $5.41)      1,228,100            9.28
Exercised                                             (99,832)           4.11
Cancelled                                            (167,385)           3.78
                                                    ---------
Balance at January 31, 2000                         2,105,988       $    6.96
Granted (weighted average fair value of $8.63)        128,600           13.82
Exercised                                             (71,084)           4.36
Cancelled                                             (20,617)           6.77
                                                    ---------
Balance at January 31, 2001                         2,142,887       $    7.46
Granted (weighted average fair value of $3.13)        800,350            7.96
Exercised                                             (86,655)           5.00
Cancelled                                             (82,619)           8.36
                                                    =========
Balance at January 31, 2002                         2,773,963       $    7.65
                                                    =========
Exercisable at January 31, 2000                       531,391       $    4.39
                                                    =========
Exercisable at January 31, 2001                       982,430       $    6.07
                                                    =========
Exercisable at January 31, 2002                     1,397,869       $    6.79
                                                    =========


<TABLE>
<CAPTION>

                              Options Outstanding                                             Options Exercisable
-----------------------------------------------------------------------------------    --------------------------------------
                            Number           Weighted Average           Weighted            Number               Weighted
     Range of             of Options      Remaining Contractual         Average           of Options              Average
  Exercise Prices         Outstanding          Life (years)          Exercise Price       Exercisable         Exercise Price
<S>                      <C>                      <C>                 <C>               <C>                      <C>
      $1.16-$1.99            4,835                3.0                 $  1.88               4,835                $ 1.88
       2.00- 3.99          678,574                5.9                    3.74             664,084                  3.75
       4.00- 7.99          398,664                9.5                    6.65              55,764                  5.47
       8.00- 11.99       1,599,890                8.6                    9.11             610,966                  9.28
      11.99- 21.00          92,000                9.0                   15.81              62,220                 16.35
                         ---------                                                      ---------
      $1.16-$21.00       2,773,963                8.0                 $  7.65           1,397,869                $ 6.79
                         =========                                                      =========
</TABLE>


Note H -- 401(k) Savings Plan

     The Company maintains a defined contribution, 401(k) Savings Plan, covering
all employees  who have  completed one year of service with at least 1,000 hours
and who are at least  21  years of age.  The  Company  makes  employer  matching
contributions  at its discretion.  Company  contributions  amounted to $172,000,
$196,000  and $152,000  for the fiscal  years ended  January 31, 2002,  2001 and
2000, respectively.

 Note I -- Commitments and Contingencies

     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.


                                       30
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Fiscal Years Ended January 31, 2002, 2001 and 2000

Note J -- Segment Information

     The  Company  classifies  its  business  interests  into  three  reportable
segments:  retail stores,  catalog and Internet.  The accounting policies of the
segments  are  the  same  as  those  described  in the  summary  of  significant
accounting  policies (Note A). The Company  evaluates  performance and allocates
resources based on operating contribution,  which excludes unallocated corporate
general  and  administrative  costs and  income  tax  expense  or  benefit.  The
Company's  reportable  segments are strategic business units that offer the same
products  and  utilize  common   merchandising,   distribution,   and  marketing
functions,  as well as common information systems and corporate  administration.
The Company  does not have  intersegment  sales,  but the  segments  are managed
separately because each segment has different channels for selling the products.

     Financial information for the Company's business segments is as follows:

<TABLE>
<CAPTION>
                                                       Fiscal Year  Ended January 31,
                                            -------------------------------------------------
                                               2002               2001              2000
Dollars in thousands                       (Fiscal 2001)      (Fiscal 2000)     (Fiscal 1999)
---------------------------------------------------------------------------------------------
<S>                                         <C>                <C>               <C>
Revenues
Stores                                      $  232,146         $  249,449        $  188,416
Catalog                                         90,363             86,823            65,617
Internet                                        49,820             60,213            28,495
Other                                           23,870             24,651            21,569
                                            ----------         ----------        ----------
Total Revenues                              $  396,199         $  421,136        $  304,097
                                            ==========         ==========        ==========
Operating Contributions
Stores                                      $   24,056         $   39,998        $   27,947
Catalog                                          7,661             14,865             9,134
Internet                                         8,858              7,543             3,193
Unallocated                                    (38,415)           (33,324)          (24,733)
                                            ----------         ----------        ----------
Earnings Before Income Tax                  $    2,160         $   29,082        $   15,541
                                            ==========         ==========        ==========
Depreciation and Amortization
Stores                                      $    4,782         $    3,717        $    3,534
Catalog                                             --                 --                --
Internet                                         1,845                449                14
Unallocated                                      5,017              3,756             2,932
                                            ----------         ----------        ----------
     Total Depreciation and Amortization    $   11,644         $    7,922        $    6,480
                                            ==========         ==========        ==========
Capital Asset Expenditures
Stores                                      $   12,296         $    6,333        $    3,561
Catalog                                             --                 --                --
Internet                                         2,134              3,550               425
Unallocated                                      6,144              9,864             4,053
                                            ----------         ----------        ----------
Total Capital Asset Expenditures            $   20,574         $   19,747        $    8,039
                                            ==========         ==========        ==========
Assets
Stores                                      $   27,613         $   20,745        $   13,590
Catalog                                             --                 --                --
Internet                                         4,825              4,418               448
Unallocated                                    129,900            153,673           128,081
                                            ----------         ----------        ----------
Total Assets                                $  162,338         $  178,836        $  142,119
                                            ==========         ==========        ==========
</TABLE>


                                       31
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Sharper Image Corporation

Fiscal Years Ended January 31, 2002, 2001 and 2000

Note K --  Quarterly  Financial  Information  (Unaudited)  Dollars in  thousands
except per share amounts

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                        ----------------------------------------------------------------------------
                                                         April 30,              July 31,             October 31,        January 31,
Fiscal Year Ended January 31, 2002                         2001                   2001                  2001               2002
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                   <C>                    <C>                <C>
Revenues                                                $  69,759             $  82,797              $  77,004          $ 166,639
Expenses
   Cost of products                                        33,231                39,634                 38,084             78,505
   Buying and occupancy                                     8,572                 9,089                  9,922             10,741
   Advertising                                             12,867                17,580                 12,667             25,365
   General, selling and administrative                     20,089                22,705                 22,338             32,703
Other income (expense)                                        406                    54                   (351)               (56)
Earnings (loss) before income tax expense (benefit)        (4,594)               (6,157)                (6,358)            19,269
Income tax expense (benefit)                               (1,838)               (2,463)                (2,543)             7,708
Net earnings (loss)                                     $  (2,756)            $  (3,694)             $  (3,815)         $  11,561
Net earnings (loss) per share - Basic(1)                $   (0.23)            $   (0.31)             $   (0.32)         $    0.97
                                Diluted(2)              $   (0.23)            $   (0.31)             $   (0.32)         $    0.92

<CAPTION>
                                                                                      Three Months Ended
                                                        ----------------------------------------------------------------------------
                                                         April 30,              July 31,             October 31,        January 31,
Fiscal Year Ended January 31, 2001                         2000                   2000                  2000               2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                   <C>                    <C>                <C>
Revenues                                                $  60,862             $  82,463              $ 101,084          $ 176,727
Expenses
   Cost of products                                        31,207                41,457                 52,117             88,162
   Buying and occupancy                                     6,920                 7,249                  7,778              9,279
   Advertising                                              7,342                12,556                 12,600             22,136
   General, selling and administrative                     15,881                19,617                 23,764             36,003
Other income                                                  663                   389                    350                612
Earnings before income tax expense                            175                 1,973                  5,175             21,759
Income tax expense                                             70                   789                  2,070              8,704
Net earnings                                            $     105             $   1,184              $   3,105          $  13,055
Net earnings per share - Basic(1)                       $    0.01             $    0.10              $    0.26          $    1.09
                         Diluted(2)                     $    0.01             $    0.09              $    0.23          $    1.00
</TABLE>


1  Basic  earnings per share is  calculated  for interim  periods  including the
   effect of stock options  exercised in prior interim  periods.  Basic earnings
   per share for the fiscal year is calculated using weighted shares outstanding
   based on the date stock options were exercised. Therefore, basic earnings per
   share for the  cumulative  four  quarters  may not equal  fiscal  year  basic
   earnings per share.

2  Diluted net earnings per share for the fiscal year and for quarters  with net
   earnings are computed  based on weighted  average  common shares  outstanding
   which include common stock  equivalents  (stock options).  Net loss per share
   for quarters  with net losses is computed  based  solely on weighted  average
   common shares outstanding.  Therefore,  the net earnings (loss) per share for
   each  quarter  do not sum up to the  earnings  per share for the full  fiscal
   year.


                                       32
<PAGE>
Corporate Data
--------------------------------------------------------------------------------
Sharper Image Corporation


Board of Directors
--------------------------------------------------------------------------------
Richard Thalheimer                 Morton David
Founder                            Retired Chairman, President, and
Chairman of the Board              Chief Executive Officer,
Chief Executive Officer            Franklin Electronic Publishers, Inc.

Alan Thalheimer                    George James
Retired Business Executive         Retired Senior Vice President
                                   and Chief Financial Officer,
Gerald Napier                      Levi Strauss & Co.
Retired President of
I. Magnin and Company

Officers
--------------------------------------------------------------------------------
Richard Thalheimer                     Aimee Cooper
Founder                                Vice President
Chairman of the Board                  Human Resources
Chief Executive Officer
                                       William Feroe
Tracy Wan                              Vice President
President                              Merchandise Planning
Chief Operating Officer                and Allocation

Greg Alexander                         Susan Fischer
Senior Vice President                  Vice President
Management Information Systems         Internet Division

Roger Bensinger                        Harvey Johnson
Senior Vice President                  Vice President
Business Development                   Customer Service

Tony Farrell                           Tom Krysiak
Senior Vice President                  Vice President
Creative Services                      Sharper Image Design

Jeff Forgan                            Karen Luey
Senior Vice President                  Vice President
Chief Financial Officer                Controller
Corporate Secretary
                                       Andrew Parker
Barry Jacobsen                         Vice President
Senior Vice President                  Sharper Image Design
Distribution
                                       Robert Pintane
Charles Taylor                         Vice President
Senior Vice President                  Merchandising
Sharper Image Design
                                       Lynda Rose
Craig Trabeaux                         Vice President
Senior Vice President                  Product Development
Retail Operations
                                       Joseph Tsang
Joe Williams                           Vice President
Senior Vice President                  Creative Services
Loss Prevention


Corporate Information
------------------------------------------------------------------------------
Corporate Headquarters                 SEC Form 10-K
650 Davis Street                       A copy of the Companys annual
San Francisco, CA 94111                report to the Securities and
Telephone (415) 445-6000               Exchange Commission of Form
FAX: (415) 445-1574                    10-K (exclusive of exhibits) is available
                                       without charge upon written
Transfer Agent and Registrar           request to:
Mellon Investor                                Investor Relations
Services LLC                                   The Sharper Image
85 Challenger Road                             650 Davis Street
Ridgefield Park, NJ 07660                      San Francisco, CA 94111
                                               or online at
Corporate Counsel                              www.sharperimage.com
Brobeck, Phleger & Harrison LLP
One Market                             Annual Meeting
Spear Street Tower                     The Annual Meeting of
San Francisco, CA 94105                Stockholders of Sharper Image
                                       Corporation will be held on
Independent Auditors                   Monday, June 3, 2002, at 10 a.m.
Deloitte & Touche LLP                  at World Trade Club
50 Fremont Street                      One Ferry Plaza
San Francisco, CA 94105                San Francisco, California.


Common Stock Market
Prices and Dividend Policy
--------------------------------------------------------------------------------
The common stock of Sharper Image  Corporation is traded in the Nasdaq  National
Market under the symbol SHRP.  The following  table sets forth,  for the periods
indicated, the range of high and low prices reported for the common stock.

The Company has not paid cash dividends to holders of its common stock.

                         Fiscal Year 2001   Fiscal Year 2000
                           High    Low        High    Low
First Quarter             16.88    8.00      14.37    8.69
Second Quarter            12.95    8.90      18.25   10.005
Third Quarter             10.15    6.76      21.62   14.62
Fourth Quarter            12.01    6.57      20.50   10.75


Independent Auditors' Report
--------------------------------------------------------------------------------
Board of Directors and Stockholders
Sharper Image Corporation
San Francisco, California

We have audited the accompanying  balance sheets of Sharper Image Corporation as
of  January  31,  2002 and  2001,  and the  related  statements  of  operations,
stockholders'  equity and cash flows for each of the three  fiscal  years in the
period ended January 31, 2002. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial position of Sharper Image Corporation as of January 31,
2002 and 2001,  and the results of its operations and its cash flows for each of
the three fiscal years in the period ended January 31, 2002, in conformity  with
accounting principles generally accepted in the United States of America.


/s/ Deloitte & Touche LLP               [LOGO]DELOITTE & TOUCHE

San Francisco, California
March 25, 2002
































<PAGE>


                                     [PHOTO]

                    Sharper  Image Design  created the Ionic
                    Breeze(R)    Quadra(TM)    Silent    Air
                    Purifier. It was the top-selling product
                    in 2001.





             Sharper Image Corporation
             650 Davis Street
             San Francisco, CA  94111
             www.sharperimage.com
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             (R)The  Sharper  Image is a registered  trademark of Sharper  Image
             Corporation.(TM)  Sharper  Image  Design is a trademark  of Sharper
             Image Corporation.

             Copyright(C)2002 by Sharper Image Corporation. All rights reserved.
             Traded on NASDAQ under the symbol SHRP.