SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the Fiscal Year Ended January 31, 2001

                                       or

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

               For the transition period from ________ to _______

                         Commission File Number 33-12755

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

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

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

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

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

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, par value $.01
                                (Title of Class)

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

                                  Yes _X_ No ___

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


The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of April 16, 2001 was $104,367,958

The number of shares of Common Stock, with $.01 par value,  outstanding on April
16, 2001 was 11,982,544 shares.

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Documents  incorporated by reference:  Portions of Registrant's Annual Report to
Stockholders  for the fiscal year ended  January 31,  2001 are  incorporated  by
reference into Parts II and IV of this Report.  Portions of  Registrant's  Proxy
Statement  for the Annual  Meeting of  Stockholders  to be held June 4, 2001 are
incorporated by reference into Part III of this report.


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                                     PART 1

     This Annual  Report on Form 10-K and the documents  incorporated  herein by
reference  of Sharper  Image  Corporation  (referred to as the  "Company,"  "The
Sharper Image," "it," "we," "ours," and "us") contain forward-looking statements
within the meaning of federal  securities  laws that have been made  pursuant to
the provisions of the Private  Securities  Litigation  Reform Act of 1995.  Such
forward-looking  statements  are based on current  expectations,  estimates  and
projections  about the  Company's  industry,  management's  beliefs  and certain
assumptions  made by the  Company's  management.  Words  such as  "anticipates,"
"expects,"  "intends," "plans," "believes," "seeks,"  "estimates," or variations
of  such  words  and  similar   expressions,   are  intended  to  identify  such
forward-looking  statements.  These  statements  are not  guarantees  of  future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict.  Therefore,  actual results may differ materially from
those expressed or forecasted in any such forward-looking statements. Such risks
and uncertainties include those set forth herein under "Factors Affecting Future
Operating  Results"  on  pages 16  through  25,  as well as  those  noted in the
documents incorporated herein by reference.  Unless required by law, the Company
undertakes  no  obligation to update  publicly any  forward-looking  statements,
whether as a result of new  information,  future events or  otherwise.  However,
readers  should  carefully  review the  statements set forth in other reports or
documents the Company files from time to time with the  Securities  and Exchange
Commission,  particularly  the  Quarterly  Reports on Form 10-Q and any  Current
Reports on Form 8-K.

Item 1. Business

Overview

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

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


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proprietary  and  private  label  products,   including  the  Razor  Rollerboard
scooters,  to 64% for the year ended January 31, 2001 (fiscal 2000) from 50% for
the year ended January 31, 2000 (fiscal 1999).

     The Company markets and sells its  merchandise  through three primary sales
channels, including The Sharper Image stores, The Sharper Image catalog, and the
Internet,  primarily through its sharperimage.com Web site. The Company believes
that this multi-channel approach provides it with significant  marketing,  sales
and  operational  synergies,  and provides its customers with enhanced  shopping
flexibility  and superior  customer  service.  The  Company's  store  operations
generate the highest proportion of its sales, representing  approximately 59% of
total  revenues in fiscal 2000 and 62% in fiscal  1999.  As of January 31, 2001,
the Company  operated 97 The Sharper  Image stores in 28 states and the District
of Columbia.  The Sharper Image stores present an interactive  and  entertaining
selling  environment  that emphasizes the features and  functionality of its fun
and relevant  products and allows the customer to interact and truly  experience
the product while  shopping.  The Company's  average store sales per square foot
are consistently above industry averages,  and during 2000 the Company generated
average  sales of $763 per square foot, an increase of 40% as compared with $546
per square foot for fiscal 1999.

     The Company also offers its products through its  award-winning The Sharper
Image  catalog,  a full-color  monthly  catalog that uses  dramatic  visuals and
creative  product  descriptions  designed and produced by its in-house  staff of
writers and  production  artists.  The Sharper Image  catalog,  which  generally
features  between 180 and 250 products in each monthly  catalog,  increasing  to
over 340 products during the Holiday shopping  season,  also currently serves as
the primary advertising vehicle for its stores and its Internet retail operation
at, sharperimage.com.  During fiscal 2000, the Company mailed approximately 62.3
million The Sharper Image catalogs to over 10 million individuals. Approximately
21%  of  the  Company's  total  revenues  were  generated  by  direct  marketing
operations,  including revenue generated  directly from the catalog,  print ads,
solo mailers and television in fiscal 2000 and 22% in fiscal 1999.

     Sharper  Image  products are also marketed  through the Company's  Internet
retail operations,  including its own Web site, which the Company has maintained
at sharperimage.com  since 1995. The Sharper Image was one of the early entrants
into Internet retailing, and has participated in online shopping since 1994. The
Company's  Internet  operations  grew  significantly  in fiscal 2000 by 111%, to
$60.2 million, or approximately 14% of its total revenues, from $28.5 million or
9% of total  revenues for fiscal 1999. In addition to its Web site,  the Company
has offered its products through Internet  marketing  partnerships  with America
Online,  Catalog  City,  Linkshare,  Yahoo!  Shopping,  and others.  The Company
believes that online retailing over the Internet presents The Sharper Image with
a  significant  opportunity  for the marketing and sale of its products and will
enable it to expand and  diversify  its  existing  customer  base.  The  Company
believes that its Sharper Image Design products are particularly well positioned
to be marketed  and sold over the  Internet.  The  Company  plans to continue to
expand the  resources  dedicated  to its  Internet  operations  by  establishing
additional  strategic  relationships  with  other  online  retail  partners  and
continue to enhance the technical  capabilities  and presentation of products on
its Web site. The Company also operates an auction site where  consumers can bid
to win  products  at less than retail  prices,  while  allowing  the Company the
opportunity to effectively manage its closeout products. During fiscal 2000, the
Company launched its e-commerce Web sites in Europe,  with international  online
stores that accept Euros for the European  Union,  British pounds for the United
Kingdom and Deutsche marks for Germany.  International  online  shoppers will be
able to get


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convenient,  efficient local delivery of Sharper Image Design products that have
been specifically adapted for use throughout Europe.

     The Company was founded in 1977 by Richard  Thalheimer,  who  continues  as
Chairman and Chief Executive Officer. The Sharper Image mailed its first catalog
in 1981,  began the  expansion  into store  operations  in 1984,  and  commenced
Internet  online retail  operations  in 1994.  The  Company's  store  operations
generate the highest proportion of its sales, representing  approximately 59% of
total  revenues for fiscal 2000 and 62% for fiscal 1999. As of January 31, 2001,
the  Company  operated  97 The  Sharper  Image  stores in the United  States and
licensees  operated three stores  internationally  and two airport stores in the
United States. The typical Sharper Image store ranges from  approximately  2,200
to 2,500  selling  square feet in size,  with several  larger size stores having
3,000 to 5,000  selling  square  feet.  The  Sharper  Image  stores  present  an
interactive and  entertaining  selling  environment that emphasizes the features
and  functionality  of its products and allows the customer to truly  experience
the  product  while  shopping.  The  Company  also has three  additional  retail
formats,  Sharper Image Design stores,  Outlet stores and airport  shops.  These
formats are discussed under "Store Operations" and "Licensed Operations."

     During  fiscal  2000,  the Company  opened  eight new Sharper  Image format
stores,  one new Sharper  Image Design format store and closed one Sharper Image
store.  The Company plans to open  approximately 12 new stores during the fiscal
year  ending  January  31, 2002  (fiscal  2001).  Lease terms for several of the
existing The Sharper Image store  locations will be maturing  during fiscal 2001
and these leases may be re-negotiated or terminated.

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

     During  fiscal 2000,  the Company  continued  the expansion of its in-house
Sharper Image Design product development  function. As a result of the increased
resources devoted to Sharper Image Design proprietary and private label products
during  fiscal 2000,  creating  and  introducing  a number of new Sharper  Image
Design  products,  as well as, the continuing  cumulative sales from proprietary
and private label  products  introduced in prior years,  the percentage of sales
attributable to Sharper Image Design  proprietary and private label products was
64 percent in fiscal 2000 and 50 percent in fiscal  1999.  Since  Sharper  Image
Design  proprietary   products  generally  carry  higher  margins  than  branded
products,  this  increase  was the primary  reason that the retail  gross margin
percentage  rate  improved  by 80 basis  points in fiscal  2000 over  1999.  The
Company  plans to  continue  to  devote  resources  to its  proprietary  product
development efforts and its private label merchandising philosophy.

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

     In addition to its primary businesses, The Sharper Image leverages its name
and reputation through its Corporate  Incentives and Rewards program,  wholesale
sales of Sharper  Image brand  products,  which  include  Sharper  Image  Design
proprietary products and private-


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label  products,  and a product  licensing  program  with  selected  businesses.
Wholesale  sales are made  primarily  to fine  department  stores  and to select
international retailers.

Store Operations

     The  Sharper  Image  stores are  located  nationwide  in densely  populated
downtown  financial  districts and business centers,  upscale shopping malls and
drive-up suburban locations.

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

     The Sharper Image stores are designed by the Company's  visual design staff
at the Company's  headquarters in San Francisco to standardize,  where possible,
layout so as to simplify their operations.  The stores are operated according to
standardized  procedures for customer service,  merchandise display and pricing,
product demonstration, inventory maintenance, personnel training, administration
and security.  The Company's  original Sharper Image stores typically have 2,200
to 2,500 square feet of selling  space and  approximately  1,300 to 2,200 square
feet of  storage  and  administrative  space.  The  typical  cost  of  leasehold
improvements,  before landlord contributions,  but including fixtures, equipment
and  pre-opening  expenses,  averages  $400,000 to $500,000  per store.  Initial
inventory  for a new  Sharper  Image  store  has  generally  cost  approximately
$100,000  to  $200,000.  Outlet  stores are  approximately  half the cost of the
original Sharper Image stores.  The Company also operates a second retail format
of Sharper  Image  Design  stores which are  approximately  half the size of the
original  store with between 1,000 to 1,200 of selling  square feet, and feature
higher margin proprietary products in addition to other top selling merchandise.
At the end of fiscal  2000,  the  Company  had 86 The Sharper  Image  stores,  9
Sharper Image Design stores, and 2 outlet locations.

     In 1997 the Company decided to update the look and appeal of its new retail
stores and select existing  stores.  The new format presents an open,  fresh and
inviting  environment  that  appeals  to both men and women and  highlights  the
Company's  proprietary  products and attractive product  packaging.  The average
cost of  converting  an  existing  store to the new format is similar to that of
building a new  store,  which  ranges  from  $400,000  to  $500,000,  subject to
leasehold  allowances.  During  fiscal  2000 the  Company  opened  two  flagship
locations,  with an average cost of leasehold  improvements of $1.1 million. The
Company  selectively chooses premier locations in upscale areas for its flagship
stores.  Utilizing  the new  format,  the  Company  opened  five new  stores and
converted two stores during fiscal 1999,  and opened nine new stores,  including
two flagship stores and converted six stores in fiscal 2000. The Company intends
to continue to selectively  remodel stores utilizing the new store format mainly
at the time of lease renewal.

The Sharper Image Catalog

     The Sharper  Image  catalog is a  full-color  catalog  that is mailed to an
average of approximately  4.2 million  individuals each month. The Sharper Image
direct marketing  operations,  including  revenues  generated  directly from the
catalog, solo mailers,  print ads and


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television generated  approximately 21% of its total revenues in fiscal 2000 and
22% in fiscal  1999.  The  Company's  catalog has been  recognized  for creative
excellence by the Direct Marketing Association, a leading catalog industry trade
group. The catalog is currently the primary  advertising  vehicle for its retail
stores and its Internet  retailing  business.  During  fiscal 2000,  the Company
mailed  approximately  62.2  million of The  Sharper  Image  catalogs to over 10
million  individuals.  Circulation  and  number  of pages of The  Sharper  Image
catalog is under  continual  review to balance the costs of mailing the catalogs
with the revenues  generated.  The mailings increase  significantly for Father's
Day and the  Holiday  shopping  season  reflecting  the  seasonal  nature of the
business.

     The Sharper Image catalog design uses dramatic visuals and  problem-solving
and benefit-oriented product descriptions.  The catalog design features the most
important products  prominently.  The number of items featured each month ranges
between  180 and 250  products  during  the first  three  quarters  of the year,
increasing to more than 340 products  during the Holiday  shopping season in the
fourth  quarter.  The  Sharper  Image  catalog is designed  and  produced by the
Company's  in-house  staff of writers and production  artists.  This enables the
Company to maintain  quality control and shorten the lead-time needed to produce
the catalog.  The monthly production and distribution  schedule permits frequent
changes in the product selection.  During fiscal 2000, The Sharper Image catalog
contained  from 52 to 84 pages for non-peak  months and between 52 and 124 pages
for the peak seasons of Father's Day and the Holiday shopping season.

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

Internet Operations

     The Sharper Image was an early entrant into Internet retailing. The Company
has  participated  in online shopping since 1994, and has maintained its own Web
site at  sharperimage.com  since  1995.  Revenues  from the  Company's  Internet
operations  have increased to $60.2 million in fiscal 2000 from $28.5 million in
fiscal 1999. The Company achieved these results without significant  incremental
investment in online advertising. The Company's online retail operations benefit
from its brand name,  customer  base,  Sharper Image catalogs and unique product
offerings,  as well as its  multimedia  approach  to  advertising.  The  Company
believes that the Sharper Image catalog in particular is a significant factor in
generating  online  sales.  In  addition,  the Company is able to  leverage  its
catalog   operational   infrastructure  for  fulfillment  and  customer  service
experience,  providing it with a significant  advantage over Internet  retailers
who


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have  not  developed  such  capabilities.  Shoppers  on the Web  site  have  the
convenience of exchanging or returning  products  purchased through the Internet
at its retail locations.

     The Company's goal is to make sharperimage.com a Web site that provides its
online  customers  with an interactive  experience  similar to its Sharper Image
stores. The Company is aggressively updating its site by incorporating  advanced
technologies  to  improve  its  product   presentations   and  making  its  site
increasingly  customer  friendly,  while retaining its  entertainment  value. In
fiscal 1999, the Company implemented technology which allows for: the display of
its products using  interactive 3D enriched  presentations  and sound,  one-time
registration  in a secure  environment,  express  shopping  enhancements to free
customers of redundant keying of information,  multiple ship-to  addresses,  and
virtual electronic gift  certificates.  During fiscal 2000, the Company launched
an enhanced and redesigned Web site that  incorporated much of the look and feel
of the new store design. The redesigned Web site includes new features including
dynamic  browsing,   inventory  status,   order  tracking   capabilities,   easy
registration and Flash technology.  The Company believes that these features are
valuable tools for further  increasing its brand recognition and advertising its
products,  and will prove particularly useful in reaching its goal of attracting
a broader consumer base to its Web site.

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

     The Company is pursuing additional steps to achieve continued growth of its
Internet operations.  These steps include technological  improvements,  dramatic
visual  presentations,  development of  international  Web sites in Europe,  the
United  Kingdom  and  Germany,  and  seeking  to  establish  strategic  Internet
marketing partnerships.  The Company has established  relationships with America
Online, Catalog City, Linkshare, Yahoo! Shopping, and others. Periodically,  the
Company  will  engage  in email  marketing  campaigns,  which  includes  special
offerings to Internet  customers to receive advance notice of promotions and new
product  offerings.  Although the Company's  international  online  revenues and
profitability  are not planned to be significant  during fiscal 2001, we believe
there are good growth opportunities in future years.

Other Operations

     In addition to its store, catalog and Internet operations, the Company also
has a  business-to-business  operation,  which includes the Corporate Incentives
and Rewards program, wholesale, and licensing. The Company also derives revenues
from its customer list rental program.

     In the  Corporate  Incentives  and  Rewards  programs,  the  Company  sells
product,  incentive and merchandise certificates to client companies who in turn
distribute them under their programs to increase their sales, or to motivate and
reward their high  achiever  employees  and best  customers.  The Sharper  Image
stores,  Internet  site  and  catalog  are the  primary  means of  offering  and
conveniently delivering the incentives and gifts. The Company's certificates are
redeemable for


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Sharper Image merchandise through its retail stores, by mail, on the Internet or
over the telephone through the catalog  telemarketing group. The Company is also
developing an  additional  Internet  channel for this area of its business.  The
editors and readers of Incentive magazine honored sharperimage.com as one of the
incentive  industry's best Web sites.  The Company records revenues and expenses
for its Corporate Incentives and Rewards program through its stores, catalog and
Internet operations.

     The  Company's  Business  Development   department  is  the  primary  group
responsible  for  wholesale   marketing  to  other  retailers,   including  fine
department  stores in the U.S. as well as  retailers  in other  countries.  This
group's  sales were $9.4 million in fiscal 2000 as compared to $10.5  million in
fiscal  1999.  Certain  customers  in fiscal  1999  were part of a concept  test
program  and did not  repeat  in  fiscal  2000.  Plans  for  this  group  are to
selectively increase its presence in the international  marketplace in 2001, and
increase the number of Sharper Image brand products offered to these customers.

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

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

     The Company  continues  to pursue  additional  wholesale  opportunities  in
foreign countries. Licensing arrangements are selectively revisited.

Merchandising, Product Sourcing, Product Development

Merchandising

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


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individual  items  and  depending  on the  customers  demand  and the  level  of
marketing and advertising  programs,  the mix of sales by category  changes from
time to time and the sales  volume of  individual  or  related  products  can be
significant to any particular  reporting period's total sales. The effect,  from
year to year, can be to increase or decrease the merchandise  gross margin rates
since some categories of merchandise  sustain  traditionally  higher margins and
some traditionally sustain lower margin rates. The Company's goal is to increase
sales of Sharper Image Design  proprietary  products and exclusive private label
products,  as  these  products  generally  carry  higher  margins  than  branded
products.  The  popularity  of these  proprietary  and  private  label  products
contributed  to the 80 basis point  increase in the retail gross margin rate for
fiscal  2000,  and should  continue to have a positive  impact on the  Company's
retail gross margin rate.

     The  Company's  current  merchandise  strategy is to offer an assortment of
products  with emphasis on Sharper  Image Design  proprietary  and private label
products.  The Company intends to focus on offering  products in the $40 to $350
price  range to appeal to a wide  customer  base.  The Company  also  intends to
increase  its  proprietary  product  offerings.   While  these  proprietary  and
private-labeled   products  offer   important  sales  and  gross  margin  growth
opportunities  for all the revenue  generating  areas of the Company,  there are
certain risks  associated  with these  internally  developed  products,  such as
possible manufacturing constraints,  delays in bringing these products to market
and  cost  increases.  Products  may also be  subject  to  other  regulation  or
limitations. See "Factors Affecting Future Operating Results."

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

     The Company  generates  information  frequently on  merchandise  orders and
inventory,  which is reviewed by the Company's buyers, its senior  merchandising
staff and top management. The Company averages new offerings of approximately 50
to 100  products  during the two peak  selling  seasons.  The Company  carefully
considers  which  products  will not be  offered  in future  months  based  upon
numerous  factors,  including  revenues  generated,  gross margins,  the cost of
catalog  and store  space  devoted to each  product,  product  availability  and
quality.

Product Sourcing

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

     The Company  purchases  merchandise  from  numerous  foreign  and  domestic
manufacturers and importers.  The Company had a single supplier that provided 8%
of the net merchandise  purchases in fiscal 2000. Of the products offered by the
Company  in  recent  catalogs,  approximately  89%  were  manufactured  in  Asia
(primarily China),  approximately 6% were manufactured within the United States,
approximately  3%  were  manufactured  in  Europe,  and  approximately  2%  were
manufactured in other countries.  The Company expects these  percentages to vary
as  new  products  are  introduced.  See  "Factors  Affecting  Future  Operating
Results."


                                       10

<PAGE>


Product Development

     In  addition  to finding  new  product  ideas  from  outside  sources,  the
Company's  product  development  group  conceives,  designs and produces Sharper
Image Design products.  The product  development  group meets regularly with the
merchandising  and sales  staff to review  new  product  opportunities,  product
quality,  and customer feedback.  From these creative sessions product ideas are
put into design,  development and production.  Successful product  introductions
during the past three years  include,  among  others:  the Ionic  Breeze  Quadra
Silent Air Purifier;  Power Tower 100 Motorized CD Rack;  Ionic Breeze  Personal
Air Purifier;  Personal  Cooling  System;  Ionic Breeze Car Air Purifier;  Turbo
Groomer 2.0; Ionic Hair Wand II; Q Ball;  Personal Warm-Cool System;  Ionic Bath
Pet Brush; Shower Companion Plus; Quick Draw Zappin' Weebots; Ionic Conditioning
Quiet Hair Dryer;  Insector;  Talking Travel Companion;  Executive Q-Ball; Sound
Soother 20; CD Power Tower 200; CD Soother  Alarm Clock with 20 Soother  Sounds;
and the Ionic Foot Care  Station.  The Company  believes  that the Sharper Image
Design  group will  continue to design and develop a variety of unique  products
that enhance sales and maintain or increase  margins.  In addition,  the Company
places  emphasis  and works  with  vendors  to develop  private  label  products
focusing  on unique  and  innovative  features  that would  distinguish  it from
competitors.  The  Company  believes  that the appeal of these  proprietary  and
private label  products  also serves as a key driver in broadening  its customer
base and enhancing its brand appeal.  The Company's goal is to increase sales of
these proprietary products. However, there is no assurance that the Company will
be able to  continue  the  growth of gross  margin  and sales  related  to these
proprietary products. See "Factors Affecting Future Operating Results".

Customer Service

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

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


                                       11

<PAGE>


Order Fulfillment and Distribution

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

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

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

Advertising

     While the catalog remained the Company's primary advertising vehicle during
fiscal 2000,  the Company also  broadened  its customer  base through  increased
multimedia   advertising,   including:   single  product  mailers,   newspapers,
magazines,  radio,  television  infomercials,  email marketing programs,  online
advertising and marketing programs, and business-to-business trade publications.
These increased  advertising  initiatives were utilized to realize the Company's
goal of  acquiring  new  customers,  which the  Company  believes  will  produce
additional  sales  in  the  stores,   catalog,   and  Internet   channels,   and
business-to-business  sales in the  current  and  future  periods.  The  Company
intends to continue the strategy of growing its customer base through aggressive
multimedia   programs  in  fiscal  2001  with  the  objective  of  achieving  an
appropriate  return on  investment.  The  Company  continually  reevaluates  its
advertising   strategies  to  maximize  the  effectiveness  of  its  advertising
programs.


                                       12

<PAGE>


Information Technology

     The Company  maintains  an  integrated  management  information  system for
merchandising,  point-of sale,  order  fulfillment,  distribution  and financial
reporting.  The Company believes its system increases  productivity by providing
extensive merchandise information and inventory control. The Company continually
evaluates  and enhances  its  computer  systems and  information  technology  in
connection  with  providing  additional  and improved  management  and financial
information.  In fiscal 2000 and 2001,  technology  development  and enhancement
initiatives for the Company's Internet Web sites was and will be part of the key
objectives of its Information Technology Team.

     The Company  continually  evaluates  its computer  systems and  information
technology in connection with providing  additional and improved  management and
financial information. During fiscal 2000, the Company launched its enhanced and
redesigned  Web  site  that  incorporates  much of the  look and feel of the new
Sharper  Image store  design.  The  redesigned  Web site  includes new features,
including dynamic browsing, inventory status, order tracking capabilities,  easy
registration, Flash technology and 3-D technology. The Company has developed and
implemented  international Web sites targeting Europe,  the United Kingdom,  and
Germany. The Company is currently developing an international web site that will
target the Pacific Rim.

Competition

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

Trademark Licenses

     The Company  believes  its  registered  service  mark and  trademark,  "The
Sharper  Image," and the brand name  recognition  that it has developed,  are of
significant  value.  The  Company  actively  protects  its brand  name and other
intellectual  property  rights to ensure  that the  quality of its brand and the
value of its proprietary  rights are maintained.  The Company currently licenses


                                       13

<PAGE>


the  use  of  its  trademarked  name  in  connection  with  the  production  and
circulation  of a foreign  language  edition  of The  Sharper  Image  catalog in
Switzerland  and with The Sharper Image stores in Switzerland  in  consideration
for royalties and other fees. In addition to this  international  licensee,  the
Company has also entered into a license for the right to operate  Sharper  Image
stores in domestic  non-duty-free  airport  locations as well as various product
license  agreements  which grant the right to licensees to manufacture  and sell
products bearing the Company's trademark.

Seasonality

     The Company's  business is highly seasonal,  reflecting the general pattern
associated  with the  retail  industry  of peak  sales and  earnings  during the
Holiday  shopping  season.  The  secondary  peak period for the Company is June,
reflecting gift buying for Father's Day and graduations.  A substantial  portion
of the  Company's  total  revenues and all or most of the Company's net earnings
occur in its fourth  fiscal  quarter  ending  January 31. The Company  generally
experiences  lower revenues  during the other quarters and, as is typical in the
retail  industry,  has  incurred  and may  continue  to  incur  losses  in these
quarters. The results of these interim quarters may not be representative of the
results for the full fiscal year. In addition, like many retailers,  the Company
makes  merchandising  and  inventory  decisions  for the Holiday  season well in
advance  of  the  Holiday  selling  season.  Accordingly,  unfavorable  economic
conditions or deviations  from projected  demand for products  during the fourth
quarter  could  have a  material  adverse  effect on the  Company's  results  of
operations  for the entire fiscal year.  During fiscal years 2000 and 1999,  the
Company's  total revenues for the fourth quarter  accounted for more than 40% of
total revenues.

Legal Proceedings

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

Employees

     As of January 31, 2001, the Company employed approximately 1800 associates,
approximately  55% of whom were  full-time.  The Company  considers its employee
relations to be good.


                                       14

<PAGE>


Executive Officers of the Registrant

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

Name                      Position                                           Age
----                      --------                                           ---
Richard Thalheimer        Founder,                                           53
                           Chairman of the Board, and
                           Chief Executive Officer

Tracy Wan                 President and Chief Operating                      41
                           Officer

Greg Alexander            Senior Vice President, Information
                           Technology                                        39

Anthony Farrell           Senior Vice President, Creative Services           51

Jeffrey Forgan            Senior Vice President, Chief                       43
                           Financial Officer, and Corporate Secretary

Robert Thompson           Senior Vice President, Merchandising               56

Joe Williams              Senior Vice President, Loss Prevention             51


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

     Tracy Wan has been the  Company's  President  and Chief  Operating  Officer
since April 1999. Ms. Wan served as Executive Vice  President,  Chief  Financial
Officer  from  August 1998  through  April 1999;  Senior Vice  President,  Chief
Financial  Officer from  February 1995 through  August 1998; as Vice  President,
Chief  Financial  Officer from  September  1994 through  February  1995; as Vice
President,  Controller  from  November  1991  through  September  1994;  and  as
Controller from July 1989 through  November 1991. Ms. Wan is a certified  public
accountant.

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

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


                                       15

<PAGE>


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

     Robert Thompson has been our Senior Vice President of  Merchandising  since
August 1999. Mr. Thompson served as Vice President of Merchandising from January
1998 through  August 1999.  Prior to that.  Mr.  Thompson  served as Director of
Planning and Allocation for Natural Wonders from April 1991 to January 1998.

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

Factors Affecting Future Operating Results

     The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act"),  which became law in late December 1995,  provide companies with a "safe
harbor" when making  forward-looking  statements.  This "safe harbor" encourages
companies to provide prospective  information about their companies without fear
of  litigation.  The  Company  wishes to take  advantage  of the  "safe  harbor"
provisions of the Act and is including this section in its Annual Report on Form
10-K in order to do so.  Statements  that are not  historical  facts,  including
statements about management's  expectations for fiscal year 2001 and beyond, are
forward-looking statements and involve various risks and uncertainties.  Factors
that  could  cause  the  Company's  actual  results  to differ  materially  from
management's projections, forecasts, estimates and expectations include, but are
not limited to, the following:

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

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

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

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

     Our success  depends on our ability to  anticipate  and respond to changing
product trends and consumer demands in a timely manner. Our products must appeal
to a broad range of consumers whose preferences we cannot predict with certainty
and may change between sales


                                       16

<PAGE>


seasons.  If we misjudge  either the market for our  products or our  customers'
purchasing habits, our sales may decline, our inventories may increase or we may
be  required  to sell our  products  at lower  prices.  This  would  result in a
negative effect on our business.

If we fail to grow our sales  profitably in fiscal 2001 comparable to our growth
rate in fiscal 2000, our stock price may be adversely affected

     In 1999, we introduced the Razor Rollerboard scooter at a time when similar
scooters were not widely available from other retailers.  This product has since
become one of the most  popular in the  history of our  Company.  Sales of Razor
Rollerboard scooters contributed substantially to the net sales increases during
fiscal 2000.

     Other retailers are currently  offering  versions of the Razor  Rollerboard
scooter and other scooters.  We cannot predict with certainty as to the level of
future sales of the Razor Rollerboard scooter. We also cannot predict whether we
will  introduce  another  product  that  will  be as  successful  as  the  Razor
Rollerboard scooter or our other top selling products.

     Although we experienced  significant overall growth in our store,  Internet
and  catalog  sales   channels  in  fiscal  2000,  our  future  growth  will  be
substantially  dependent on continued increases in sales of popular existing and
new core  products.  We cannot be assured  that we will be able to maintain  our
current  levels of sales or  continue  in future  periods  the rate of growth we
experienced in the fiscal 2000. Our stock price may be adversely  affected if we
do not maintain  current  levels of sales or  profitability  or achieve sales or
profit growth in line with recent  performance or with that expected by analysts
or other stock market professionals.

Our quarterly  operating  results are subject to  significant  fluctuations  and
seasonality

     Our business is highly  seasonal,  reflecting  the general  pattern of peak
sales and earnings for the retail industry during the Holiday  shopping  season.
Typically,  a substantial  portion of our total revenues and all, or most of our
net earnings  occur during our fourth quarter ending January 31. During our 2000
and 1999 fiscal years,  our total revenues for the fourth quarter ending January
31 accounted  for more than 40% of total  revenues for the full fiscal year.  In
anticipation of increased  sales activity  during the fourth  quarter,  we incur
significant additional expenses,  including significantly higher inventory costs
and the  costs  of  hiring  a  substantial  number  of  temporary  employees  to
supplement  our  regular  store  staff.  If for any  reason our sales were to be
substantially  below those  normally  expected  during the fourth  quarter,  our
annual  results  would  be  adversely  affected.  Due to this  seasonality,  our
operating  results  for any one period may not be  indicative  of our  operating
results for the full fiscal year.

     Typically our operating  results  during the other quarters of the year are
generally lower and we have  historically  experienced  losses in these periods.
While in fiscal  2000,  for the first  time in our  operating  history,  we were
profitable  in all four  quarters,  in the  future it is  possible  that we will
experience  losses  similar to those of fiscal  1999 and 1998 in the first three
quarters of the fiscal year.  Our quarterly  results of operations may fluctuate
significantly  as a result of a  variety  of  factors,  including,  among  other
things,  the timing of new store openings,  net sales contributed by new stores,
increases or decreases in comparable store sales, changes in our merchandise mix
and net catalog sales.


                                       17

<PAGE>


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

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

     We are  increasingly  dependent on the success of the proprietary  products
that we design and develop for our customers. Affected by customers' demands and
the level of  marketing  and  advertising  efforts,  certain of these or related
products can produce sales volume that is significant to a particular  reporting
period's total sales volume.  We must design and develop  products that meet the
demands of our customers and  manufacture  these products  cost-effectively.  We
rely  solely  on a select  group  of  contract  manufacturers,  most of whom are
located in Asia  (primarily  China),  to produce  these  products in  sufficient
quantities to meet customer  demand and to obtain and deliver these  products to
our customers in a timely manner. These arrangements are subject to the risks of
relying on products manufactured outside the United States,  including political
unrest and trade restrictions,  currency fluctuations,  work stoppages, economic
uncertainties  including  inflation  and  government   regulations,   and  other
uncertainties.  If we are unable to successfully design and develop or to obtain
and timely  deliver  sufficient  quantities  of these  products,  our  operating
results  may be  adversely  affected.  The Company  had a single  supplier  that
provided 8% of the net merchandise  purchases in fiscal 2000 and is likely to be
a higher percentage in fiscal 2001.

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

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

     In addition,  we maintain our servers at the site of a third party  located
in Santa Clara,  California.  We cannot control the maintenance and operation of
this site, which is also susceptible to similar disasters and problems.  Because
our strategies  depend in part on maintaining our reputation for superior levels
of customer  service,  any system  failure  that causes an  interruption  in our
service or a decrease in responsiveness  could harm our  relationships  with our
customers and result in reduced revenues.

We are  subject  to  increased  energy  and  power  costs  associated  with  our
headquarters and retail store locations based in California

     We  maintain   corporate   headquarters   and  retail  store  locations  in
California,  which have been subject to  rolling-blackouts  due to the decreased
availability  of natural  gas and  energy.  This


                                       18

<PAGE>


will have an adverse  effect on utility costs for the corporate  offices and the
retail store locations operated out of California.

We face risks associated with expansion of our store operations

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

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

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

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

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

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

     Our  revenues  depend in part on our  ability  to  effectively  market  and
advertise our products  through The Sharper Image catalog and other  advertising
vehicles. Increases in advertising, paper costs or postage may limit our ability
to advertise without reducing our profitability.  If we decrease our advertising
efforts due to increased  advertising costs,  restrictions  placed by regulatory
agencies,  or  for  any  other  reason,  our  future  operating  results  may be
materially adversely affected. We are also testing other advertising media, such
as  television   infomercials,   radio,   and  single  product   mailings,   and
significantly  increased our advertising  expenditures in fiscal 2000.  While we
believe that  increased  expenditures  on these and other media have resulted in
increasing  revenues in fiscal 2000,  we cannot  assure you that this trend will
continue in the future.  We expect to continue to spend at  increased  levels in
the future, but may not continue to produce a sufficient level of sales to cover
such expenditures, which would reduce our profitability.


                                       19


<PAGE>


We rely on our catalog operations

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

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

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

Our catalog costs are unpredictable

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

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

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


                                       20

<PAGE>


manner or the loss of one or more key vendors or freight  carriers  could have a
negative effect on our business.

     Additionally,  our  relationships  with our vendors are also subject to the
risks of relying on products  manufactured outside the United States,  including
political unrest and trade restrictions,  work stoppages, economic uncertainties
including inflation,  foreign government  regulation and currency  fluctuations.
Because the majority of our products were  manufactured in various  countries in
Asia,  primarily  China,  during  fiscal 2000 and fiscal 1999,  any  significant
disruption  in any of  these  countries  could  impair  our  ability  to  obtain
sufficient quantities of products in a timely manner.

We face certain risks relating to customer service

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

We face risks associated with our distribution and fulfillment operations

     We conduct  the  majority  of our  distribution  operations  and all of our
catalog and  Internet  order  processing  fulfillment  functions  from our owned
facility in Little Rock, Arkansas.  We added a third party operated distribution
center in  California  during  the second  quarter  of 2000 to handle  increased
processing  fulfillment  needs.  We also use contract  fulfillment and warehouse
facilities for additional  seasonal  requirements.  Any failure to integrate our
new distribution  center into our operations or any disruption in the operations
at any  distribution  center,  particularly  during the Holiday shopping season,
could have a negative effect on our business.

     In addition,  we rely upon third party carriers for our product  shipments,
including  shipments to and from all of our stores.  As a result, we are subject
to certain risks,  including employee strikes and inclement weather,  associated
with such carriers'  ability to provide  delivery  services to meet our shipping
needs.  We are also  dependent on temporary  employees to  adequately  staff our
distribution  facility,  particularly  during busy  periods  such as the Holiday
shopping season.  We cannot assure you that we will continue to receive adequate
assistance from our temporary employees, or that we will continue to have access
to sufficient sources of temporary employees.


                                       21

<PAGE>


Results for our comparable store sales may fluctuate

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

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

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

                                                   Percentage
                 Fiscal Year                        Increase
                 -----------                        --------
                    1997                               1.1
                    1998                               5.3
                    1999                              12.3
                    2000                              29.0

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

We experience intense competition in the rapidly changing retail markets

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

     The United  States  retail  industry  (the  specialty  retail  industry  in
particular)  and  e-commerce  sector are  dynamic  in nature and have  undergone
significant  changes over the past several years.  Our ability to anticipate and
successfully  respond to  continuing  challenges  is critical  to our  long-term
growth.

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

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


                                       22


<PAGE>


future.  We are unable to predict how such regulations  could affect the further
development of our Internet business.

We may have greater  exposure  internationally  due to the  expansion of our Web
site

     We have  expanded  our Web site  presence  to  include  Europe,  the United
Kingdom and the  Pacific  Rim. We must  conform to all  international  rules and
regulations for sales generated from each country.  We may be subject to changes
in local  regulations and liability  issues on product sales that occur in those
countries.  As this business  expands,  our exposure to product liability issues
grows.  We are also  dependent on our  relationship  with various  international
third  parties  that handle  product  fulfillment,  credit card  processing  and
customer service for our international orders.

Poor economic conditions may hurt our business

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

     o   general business conditions;
     o   interest rates;
     o   taxation;
     o   stock market volatility; and
     o   consumer confidence in future economic conditions.

     Our business  could be negatively  affected by a recession or poor economic
conditions and any related  decline in consumer demand for  discretionary  items
such as our products.  Because we purchase merchandise from foreign entities and
use foreign  manufacturers on a contract basis for Sharper Image Design products
and other  private  label  products,  we are  subject  to risks  resulting  from
fluctuations in the economic  conditions in foreign  countries.  The majority of
our vendors and manufacturers are located in various countries in Asia, and as a
result,  our business may be particularly  impacted by changes in the political,
social, legal, and economic conditions in these countries. Additionally, weather
and  product  transportation  problems  could  affect our  ability  to  maintain
adequate inventory levels and adversely affect our future results.

Excessive merchandise returns could harm our business

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

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


                                       23

<PAGE>


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

We depend on our key personnel

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

We are controlled by a single shareholder

     As of January 31, 2001, Richard Thalheimer beneficially owned approximately
40% of all of the  outstanding  shares of the common stock of our company.  As a
result,  Mr.  Thalheimer will continue to exert  substantial  influence over the
election of directors and over our corporate actions.

Our common stock price is volatile

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

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

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

     We  are a  Delaware  corporation.  The  Delaware  General  Corporation  Law
contains  certain  provisions  that may make a change in control of our  company
more difficult or prevent the removal of incumbent directors.  In addition,  our
Certificate of Incorporation  and Bylaws and our recently


                                       24

<PAGE>


adopted  stockholders  rights  agreement  contain  provisions that have the same
effect.  These  provisions may have a negative impact on the price of our common
stock, may discourage  third-party  bidders from making a bid for our company or
may reduce any premiums paid to stockholders for their common stock.

Item 2.  Properties

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

     As of January  31, 2001 the Company  operated 97 The Sharper  Image  stores
under  leases  covering  a total of  approximately  232,000  square  feet of net
selling space.

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

Item 3.  Legal Proceedings

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

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

          None.

                                     PART II

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

     The  information  set  forth  under  "Note D --  Revolving  Loan and  Notes
Payable" in the Notes to Financial Statements on page 25 and the information set
forth under the caption "Common Stock Market Prices and Dividend Policy" on page
31 of the Sharper  Image  Corporation  2000  Annual  Report to  Stockholders  is
incorporated herein by reference. As of April 16, 2001 there were 391 holders of
record and the closing price of the  Company's  Common Stock was $8.71 per share
as reported by the Nasdaq Stock Market.

     No cash dividends were declared or paid in fiscal 1999 or fiscal 2000.

Item 6.  Selected Financial Data

     The information set forth under the caption "Financial  Highlights" on page
3 of the  Sharper  Image  Corporation  2000  Annual  Report to  Stockholders  is
incorporated herein by reference.


                                       25

<PAGE>


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

     The  information set forth under the caption  "Management's  Discussion and
Analysis of Results of Operations and Financial  Condition" on pages 14 to 19 of
the Sharper Image Corporation 2000 Annual Report to Stockholders is incorporated
herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The information set forth under the caption  "Quantitative  and Qualitative
Disclosure  About Market Risk" on page 19 of the Sharper Image  Corporation 2000
Annual Report to Stockholders is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data

     The financial  statements  and  independent  auditors'  report set forth on
pages 20 through 31 of the  Sharper  Image  Corporation  2000  Annual  Report to
Stockholders are incorporated herein by reference.

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

          None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

     Information  with respect to the  directors of the Company is  incorporated
herein by  reference to the  Company's  2001 Proxy  Statement  to  Stockholders.
Information  with  respect  to  the  executive  officers  of the  Registrant  is
contained in Part I of this Annual Report on Form 10-K.

Item 11.  Executive Compensation

     Information with respect to executive  compensation is incorporated  herein
by reference to the Company's 2001 Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Information  with respect to security  ownership of  beneficial  owners and
management  is  incorporated  herein by  reference to the  Company's  2001 Proxy
Statement.

Item 13.  Certain Relationships and Related Transactions

          None.

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


                                       26

<PAGE>


(a)1.     List of Financial Statements.

The  following  Financial  Statements  and Notes  thereto  set forth on pages 20
through 30 of the Sharper Image  Corporation  2000 Annual Report to Stockholders
are incorporated by reference as Exhibit 13.1 to this Report on Form 10-K:

Independent Auditors' Report

Statements of Operations for the years ended January 31, 2001, 2000, and 1999,

Balance sheets at January 31, 2001 and 2000,

Statements of  Stockholders'  Equity for the years ended January 31, 2001, 2000,
and 1999

Statements of Cash Flows for the years ended January 31, 2001, 2000, and 1999.

Notes to Financial Statements.

(a)2.     List of Financial Statement Schedule.

The following are filed as part of this Report:

 Independent Auditors' Report on Schedule.

 Schedule II - Valuation and Qualifying Accounts

(a)3.     List of Exhibits.

     Incorporated herein by reference is a list of the Exhibits contained in the
Exhibit Index which begins on page 32 of this report.

(b)       Reports on Form 8-K.

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


                                       27

<PAGE>



                                   SIGNATURES

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

SHARPER IMAGE CORPORATION                    SHARPER IMAGE CORPORATION

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

                                POWER OF ATTORNEY

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

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

Signature                           Title                                    Date
---------                           -----                                    ----
<S>                                 <C>                                  <C>
/s/ Richard J. Thalheimer           Chief Executive                      May 1, 2001
---------------------------         Officer, Chairman
Richard J. Thalheimer               (Principal Executive Officer)

/s/ Jeffrey P. Forgan               Senior Vice President,               May 1, 2001
---------------------------         Chief Financial Officer,
Jeffrey P. Forgan                   Corporate Secretary
                                    (Principal Financial and
                                    Accounting Officer)

/s/ Alan Thalheimer                 Director                             May 1, 2001
---------------------------
Alan Thalheimer


                                       28


<PAGE>


/s/ Gerald Napier                   Director                             May 1, 2001
---------------------------
Gerald Napier

/s/ Morton David                    Director                             May 1, 2001
---------------------------
Morton David

/s/ George James                    Director                             May 1, 2001
---------------------------
George James
</TABLE>


                                       29



<PAGE>

<TABLE>

                            SHARPER IMAGE CORPORATION

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                     --------------------------------------
<CAPTION>

                                     ($000)

            COLUMN                    COLUMN             COLUMN                 COLUMN             COLUMN
              A                          B                  C                      D                 E

-----------------------------------------------------------------------------------------------------------------
                                      Balance at           Additions                                   Balance
                                      Beginning           Charged to                                  at End of
DESCRIPTION                           of Period          Costs & Exp.           Deductions              Period
-----------------------------------------------------------------------------------------------------------------
<S>                                     <C>                <C>                   <C>                   <C>

INVENTORY

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

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

YEAR ENDED JANUARY 31, 1999:
Inventory Obsolescence                  $1,486             $1,298                $  846                $1,938


OTHER

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

YEAR ENDED JANUARY 31, 2000:
Other                                    $804              $  265                $  235                $  834

YEAR ENDED JANUARY 31, 1999:
Other                                    $508              $  830                $  534                $  804
</TABLE>


                                                       30


<PAGE>


INDEPENDENT AUDITORS' REPORT ON SCHEDULE


Board of Directors and Stockholders of
  Sharper Image Corporation

We have audited the  financial  statements of Sharper  Image  Corporation  as of
January 31,  2001 and 2000 and for each of the three  years in the period  ended
January 31, 2001, and have issued our report thereon dated March 30, 2001;  such
financial  statements  and report are  included  in your 2000  Annual  Report to
Stockholders and are incorporated herein by reference.  Our audits also included
the financial  statement schedule of Sharper Image  Corporation,  listed in Item
14. This financial  statement  schedule is the  responsibility  of the Company's
management.  Our responsibility is to express an opinion based on our audits. In
our opinion,  such financial statement schedule,  when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

/s/ Deloitte & Touche LLP

San Francisco, California
March 30, 2001


                                       31


<PAGE>


                                  EXHIBIT INDEX

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

99.1     2000 Stock  Incentive  Plan.  (Incorporated  by reference to Exhibit to
         Definitive Proxy Statement on Schedule 14A filed May 9, 2000.)

99.2     Form of Notice of Grant of Stock Option. (Attached herewith).

99.3     Form of Stock Option Agreement. (Attached herewith).

99.4     Form of Addendum to Stock  Option  Agreement  (Involuntary  Termination
         Following   Corporate   Transaction/Change   in   Control).   (Attached
         herewith).

99.5     Form of Addendum to Stock Option Agreement  (Limited Stock Appreciation
         Right). (Attached herewith).

99.6     Form of Stock Issuance Agreement. (Attached herewith).

99.7     Form of Addendum to Stock Issuance Agreement  (Involuntary  Termination
         Following   Corporate   Transaction/Change   in   Control).   (Attached
         herewith).

99.8     Form of Automatic Stock Option Agreement. (Attached herewith).

99.9     Form of  Notice  of  Grant  of  Non-Employee  Director-Automatic  Stock
         Option. (Attached herewith).

11.1     Statement Re: Computation of Earnings per Share.

13.1     2000 Annual Report to Stockholders.

23.1     Independent Auditor's Consent.

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