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Fifth Amendment To Financing Agreement - TSIC, INC. - 5-1-2000

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Fifth Amendment To Financing Agreement - TSIC, INC. - 5-1-2000 Powered By Docstoc
					FIFTH AMENDMENT TO FINANCING AGREEMENT This FIFTH AMENDMENT TO FINANCING AGREEMENT (this "Amendment"), dated as of March 23, 2000, is entered into by and among SHARPER IMAGE CORPORATION, a Delaware corporation (the "Borrower") and THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation ("CITBC"), and amends that certain Financing Agreement dated September 21, 1994 (as the same is in effect immediately prior to the effectiveness of this Amendment, the "Existing Financing Agreement" and as the same may be amended, supplemented or modified and in effect from time to time, the "Financing Agreement"), by and between the Borrower and CITBC. Capitalized terms used and not otherwise defined in this Amendment shall have the same meanings in this Amendment as set forth in the Financing Agreement. RECITAL The Borrower has requested that CITBC amend various provisions of the Existing Financing Agreement, and CITBC is willing to agree to so amend the Existing Financing Agreement on the terms and subject to the conditions set forth below. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth below and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: Section 1. Amendments. On the terms of this Amendment and subject to the satisfaction of the conditions precedent set forth below in Section 2. (a) The definition of "Availability" set forth in Section 1 of the Financing Agreement is hereby amended by inserting the phrase "and Eligible Ordered Inventory" immediately after the reference therein to "Eligible Inventory". (b) The definition of "Collateral Management Fee" set forth in Section 1 of the Financing Agreement is hereby amended by deleting the reference therein to "$35,000.00" and substituting "$20,000.00" in lieu thereof. (c) The definition of "Early Termination Date" set forth in Section 1 of the Financing Agreement is hereby amended to read in its entirety as follows: "Early Termination Date shall mean the date on which the Company terminates this Financing Agreement or the Line of Credit, which date is prior to the eighth Anniversary Date." (d) The definition of "Early Termination Fee', set forth in Section 1 of the Financing Agreement is hereby amended to read in its entirety as follows: "Early Termination Fee shall (a) mean the fee CITBC is entitled to charge the Company in the event the Company terminates the Line of Credit or this Financing Agreement

on a date prior to the eighth Anniversary Date (except as otherwise provided in Section 10 of this Financing Agreement) and (b) be determined by calculating the sum of (i) the average daily balance of the Revolving Loans for the period from the date of this Financing Agreement to the Early Termination Date, (ii) the average daily undrawn face amount of the Letters of Credit outstanding from the date of this Financing Agreement to the Early Termination Date and (iii) the average daily balance of CAPEX Term Loans for the period from the effective date of the CAPEX Term Loan Line of Credit to the Early Termination Date and multiplying that sum by (x) one percent (1%) per annum if the Early Termination Date occurs prior to the sixth Anniversary Date, (y) three-quarters of one percent (0.75%) per annum if the Early Termination Date occurs on

on a date prior to the eighth Anniversary Date (except as otherwise provided in Section 10 of this Financing Agreement) and (b) be determined by calculating the sum of (i) the average daily balance of the Revolving Loans for the period from the date of this Financing Agreement to the Early Termination Date, (ii) the average daily undrawn face amount of the Letters of Credit outstanding from the date of this Financing Agreement to the Early Termination Date and (iii) the average daily balance of CAPEX Term Loans for the period from the effective date of the CAPEX Term Loan Line of Credit to the Early Termination Date and multiplying that sum by (x) one percent (1%) per annum if the Early Termination Date occurs prior to the sixth Anniversary Date, (y) three-quarters of one percent (0.75%) per annum if the Early Termination Date occurs on or after the sixth Anniversary Date but prior to the seventh Anniversary Date; and (z) one-half of one percent (0.50%) per annum if the Early Termination Date occurs on or after the seventh Anniversary Date but prior to the eighth Anniversary Date, in each case for the number of days from the Early Termination Date to the eighth Anniversary Date." (e) The definition of "Line of Credit" set forth in Section 1 of the Financing Agreement is hereby amended by inserting the following clauses immediately after clause (e) thereof: "(f) October 1 - December 31, 2003 $33,000,000.00 (g) October 1 - December 31, 2004 $33,000,000.00" (f) The following definitions are hereby added to Section 1 of the Financing Agreement: "Eligible Ordered Inventory shall mean the gross amount of the Company's Ordered Inventory less any reserves required by CITBC in its reasonable judgment and without duplication. The amount of such reserves shall be determined solely by CITBC in its reasonable business judgment using standards consistently applied by CITBC. Such standards shall take into consideration amounts representing, historically, the Company's reserves, discounts, returns, claims, credits and allowances." "Ordered Inventory shall mean all finished goods which have been ordered but not yet received by the Company and as to which a documentary Letter of Credit supporting the Company's purchase of such finished goods is outstanding." (g) Section 3, Paragraph 1 of the Financing Agreement is hereby amended to read in its entirety as follows: "CITBC agrees, subject to the terms and conditions of this Financing Agreement from time to time, and within x) the Availability and y) the Line of Credit, but subject to CITBC's right to make "Overadvances", to make loans and advances to the Company on a revolving basis, and subject to the limitations set forth herein, the Company may borrow, repay and re-borrow Revolving Loans. Such loan and advances shall be in an aggregate amount not exceeding the sum of: (a) (i) (i) for the period from January I to and including September 30 of each year, the lower of (A) eighty percent (80%) of the aggregate appraised orderly liquidation value of all Eligible Inventory and Eligible Ordered Inventory which 2

constitutes Proprietary Products Inventory and (B) fifty-five percent (55%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventor), which constitutes Proprietary Products Inventory; (ii) for the period from October 1 to and including October 31 of each year, the lower of (A) eighty percent (80%) of the aggregate appraised orderly liquidation value of all Eligible Inventory and Eligible Ordered Inventory which constitutes Proprietary Products Inventory and (B) sixty percent (60%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventory which constitutes Proprietary Products Inventory; and (iii) for the period from November 1 to and including December 31 of each year, the lower of (A) eighty percent (80%) of the aggregate appraised orderly liquidation value of all Eligible Inventory and Eligible Ordered Inventory which constitutes Proprietary Products Inventory and (B) sixty-five percent (65%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventory which constitutes Proprietary Products Inventory;

constitutes Proprietary Products Inventory and (B) fifty-five percent (55%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventor), which constitutes Proprietary Products Inventory; (ii) for the period from October 1 to and including October 31 of each year, the lower of (A) eighty percent (80%) of the aggregate appraised orderly liquidation value of all Eligible Inventory and Eligible Ordered Inventory which constitutes Proprietary Products Inventory and (B) sixty percent (60%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventory which constitutes Proprietary Products Inventory; and (iii) for the period from November 1 to and including December 31 of each year, the lower of (A) eighty percent (80%) of the aggregate appraised orderly liquidation value of all Eligible Inventory and Eligible Ordered Inventory which constitutes Proprietary Products Inventory and (B) sixty-five percent (65%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventory which constitutes Proprietary Products Inventory; plus (b) (i) for the period from January 1 to and including September 30 of each year, the lower of (A) ninety percent (90%) of the aggregate appraised orderly liquidation value of all Eligible Inventory and Eligible Ordered Inventory, other than Proprietary Products Inventory and (B) fifty-five percent (55%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventory other than Proprietary Products Inventory, (ii) for the period from October 1 to and including October 31 of each year, the lower of (A) ninety percent (90%) of the aggregate appraised orderly liquidation value of all Eligible Inventory and Eligible Ordered Inventory, other than Proprietary Products Inventory and (13) sixty percent (60%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventory other than Proprietary Products Inventory; and (iii) for the period from November 1 to and including December 31 of each year, the lower of (A) ninety percent (90%) of the aggregate appraised orderly liquidation value of all Eligible Inventory and Eligible Ordered Inventory, other than Proprietary Products Inventory and (B) sixty-five percent (65%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventory other than Proprietary Products Inventory; provided, that in no event shall (x) the aggregate amount of Proprietary Products Inventory computed pursuant to clause (a) above exceed fifty percent (50%) of the aggregate cost of all Eligible Inventory and Eligible Ordered Inventory and (y) the aggregate amount of Eligible Ordered Inventory computed pursuant to clauses (a) and (b) above exceed $6,500,000." (h) Clause (i) of the first sentence of Section 4, Paragraph 1 of the Financing Agreement is hereby amended by increasing the limit on documentary Letters of Credit from "$5,000,000" to $15,000,000". 3

(i) Section 6, Paragraph 8, Subparagraph (c) of the Financing Agreement is hereby increased by increasing the minimum Net Worth amount from "$27,000,000" (or $24,000,000 for fiscal quarters ending in October) to "$45,000,000". (j) Section 6, Paragraph 12 of the Financing Agreement is hereby amended to read in its entirety as follows: "Without the prior written consent of CITBC, the Company will not contract for, purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise incur obligations with respect to Capital Expenditures (whether subject to a security interest or otherwise) during any fiscal year in the aggregate amount in excess of $12,500,000; provided, that such amount shall be increased by $9,000,000 solely for the fiscal year ending January 3 1, 2001 so long as (i) the increased amount is used by the Company solely to finance (a) an upgrade of its Internet web site and (b) the addition of a distribution center, or the expansion of its current distribution center, in Little Rock Arkansas and (ii) both before and after giving effect to the making of each such proposed capital expenditure, no Default or Event of Default exists. Notwithstanding the foregoing, if the Company, in any fiscal year, spends less than the permitted Capital Expenditures for such year, then fifty percent (50%) of such unused amount shall be added to the amount permitted solely for the next succeeding fiscal year; provided, that any unused portion of the $9,000,000 amount set forth in the proviso of the previous sentence may be carried

(i) Section 6, Paragraph 8, Subparagraph (c) of the Financing Agreement is hereby increased by increasing the minimum Net Worth amount from "$27,000,000" (or $24,000,000 for fiscal quarters ending in October) to "$45,000,000". (j) Section 6, Paragraph 12 of the Financing Agreement is hereby amended to read in its entirety as follows: "Without the prior written consent of CITBC, the Company will not contract for, purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise incur obligations with respect to Capital Expenditures (whether subject to a security interest or otherwise) during any fiscal year in the aggregate amount in excess of $12,500,000; provided, that such amount shall be increased by $9,000,000 solely for the fiscal year ending January 3 1, 2001 so long as (i) the increased amount is used by the Company solely to finance (a) an upgrade of its Internet web site and (b) the addition of a distribution center, or the expansion of its current distribution center, in Little Rock Arkansas and (ii) both before and after giving effect to the making of each such proposed capital expenditure, no Default or Event of Default exists. Notwithstanding the foregoing, if the Company, in any fiscal year, spends less than the permitted Capital Expenditures for such year, then fifty percent (50%) of such unused amount shall be added to the amount permitted solely for the next succeeding fiscal year; provided, that any unused portion of the $9,000,000 amount set forth in the proviso of the previous sentence may be carried forward solely to the fiscal year ending January 31, 2002." (k) The following sentences shall be inserted at the end of Section 6, Paragraph 15 of the Financing Agreement: "If at any time the average Availability is less than $7,500,000 for more than two consecutive weeks, then CITBC may order an appraisal of the Inventory, which appraisal shall be performed by an appraiser satisfactory to CITBC in its sole discretion and shall be at the sole expense of the Company. Without limiting the foregoing, CITBC may order an appraisal of the Inventory once every three fiscal years, which appraisal shall be performed by an appraiser satisfactory to CITBC in its sole discretion and shall be at the sole expense of the Company." (l) Section 7, Paragraph I (d)(i) of the Existing Financing Agreement is hereby amended to read in its entirety as follows: "i) The spread over the Chase Manhattan Bank Rate and the Libor may be reduced or increased in accordance with the grid set forth below from the rate set forth in subparagraphs (a) and (b) above, as applicable (as such rate may be adjusted from, time to time hereunder) based on the EBITDA of the Company for any period of four consecutive fiscal quarters: 4 REVOLVING LOANS
EBITDA for the then most recently ended four consecutive quarters -------------------Less than $7,000,000 Greater than or equal to $7,000,000 but less than $10,000,000 Greater than or equal to $10,000,000 but less than $15,000,000 Chase Manhattan Bank Rate Margin ----------0.50% 0.25%

Libor Margin -----------2.25% 2.00%

0.00%

1.75%

Greater than or equal to $15,000,000 0.00". 1.50% --------------------------------------------------------------------------------

CAPEX LOANS
EBITDA for the then most recently ended four consecutive quarters Chase Manhattan Bank Rate Margin

Libor Margin

REVOLVING LOANS
EBITDA for the then most recently ended four consecutive quarters -------------------Less than $7,000,000 Greater than or equal to $7,000,000 but less than $10,000,000 Greater than or equal to $10,000,000 but less than $15,000,000 Chase Manhattan Bank Rate Margin ----------0.50% 0.25%

Libor Margin -----------2.25% 2.00%

0.00%

1.75%

Greater than or equal to $15,000,000 0.00". 1.50% --------------------------------------------------------------------------------

CAPEX LOANS
EBITDA for the then most recently ended four consecutive quarters -------------------Less than $5,000,000 Greater than or equal to $5,000,000 but less than $6,500,000 Chase Manhattan Bank Rate Margin ----------1.00% 0.75%

Libor Margin -----------3.00% 2.75%

Greater than or equal to $6,500,000 0.50% 2.50% --------------------------------------------------------------------------------

(m) Clause (ii) of Section 7, Paragraph 2 of the Financing Agreement is hereby amended by decreasing the Letter of Credit Guaranty Fee for documentary Letters of Credit from "one and one-half percent per annum" to "one and one-quarter of one percent (1.25%) per annum". (n) The first sentence of Section 10 of the Financing Agreement is hereby amended by deleting the reference therein to "ninth or any subsequent Anniversary Date" and substituting "tenth or any subsequent Anniversary Date" in lieu thereof. 5

(o) The proviso of the fourth sentence of Section 10 of the Financing Agreement is hereby amended by deleting the reference therein to "fifth Anniversary Date" and substituting "eighth Anniversary Date" in lieu thereof. Section 2. Conditions to Effectiveness. The amendments set forth in Section I of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of all such conditions being referred to as the "Amendment Effective Date"): (a) On or before the Amendment Effective Date, CITBC shall have received this Amendment, duly executed and delivered by the Borrower. (b) On or before the Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Amendment, and all documents incidental thereto, shall be reasonably satisfactory in form and substance to CITBC and its counsel, and CITBC and such counsel shall have received all such counterpart originals or certified copies of such documents as they may reasonably request. (c) Each of the representations and warranties set forth in this Amendment shall be true and correct as of the Amendment Effective Date. Section 3. Representations and Warranties. In order to induce CITBC to enter into this Amendment and to

(o) The proviso of the fourth sentence of Section 10 of the Financing Agreement is hereby amended by deleting the reference therein to "fifth Anniversary Date" and substituting "eighth Anniversary Date" in lieu thereof. Section 2. Conditions to Effectiveness. The amendments set forth in Section I of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of all such conditions being referred to as the "Amendment Effective Date"): (a) On or before the Amendment Effective Date, CITBC shall have received this Amendment, duly executed and delivered by the Borrower. (b) On or before the Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Amendment, and all documents incidental thereto, shall be reasonably satisfactory in form and substance to CITBC and its counsel, and CITBC and such counsel shall have received all such counterpart originals or certified copies of such documents as they may reasonably request. (c) Each of the representations and warranties set forth in this Amendment shall be true and correct as of the Amendment Effective Date. Section 3. Representations and Warranties. In order to induce CITBC to enter into this Amendment and to amend the Existing Financing Agreement in the manner provided in this Amendment, the Borrower represents and warrants to CITBC as of the Amendment Effective Date as follows: (a) Power and Authority. The Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Existing Financing Agreement as amended by this Amendment (hereafter referred to as the "Amended Financing Agreement"). (b) Authorization of Agreements. The execution and delivery of this Amendment by the Borrower and the performance of the Amended Financing Agreement by the Borrower have been duly authorized by all necessary action, and this Amendment has been duly executed and delivered by the Borrower. (c) Enforceabilily. The Amended Financing Agreement constitutes the legal valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general. The enforceability of the obligations of the Borrower hereunder is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) No Conflict. The execution and delivery by the Borrower of this Amendment and the performance by the Borrower of the Amended Financing Agreement do not and will not (i) contravene, in any material respect, any provision of any law, regulation, decree, ruling, judgment or order that is applicable to the Borrower or its properties or other assets, (ii) result in a breach of or constitute a default under the charter, bylaws; or other organizational 6

documents of the Borrower, or any material agreement, indenture, lease or instrument binding upon the Borrower or its properties or other assets or (iii) result in the creation or imposition of any liens on its properties other than as permitted under the Financing Agreement. (e) Governmental Consents. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Amendment. (f) Representations and Warranties in the Financing Agreement. The Borrower confirms that as of the Amendment Effective Date the representations and warranties contained in Section 6 of the Financing Agreement are (before and after giving effect to this Amendment) true and correct in all material respects (except to the extent any such representation and warranty is expressly stated to have been made as of a specific date, in which

documents of the Borrower, or any material agreement, indenture, lease or instrument binding upon the Borrower or its properties or other assets or (iii) result in the creation or imposition of any liens on its properties other than as permitted under the Financing Agreement. (e) Governmental Consents. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Amendment. (f) Representations and Warranties in the Financing Agreement. The Borrower confirms that as of the Amendment Effective Date the representations and warranties contained in Section 6 of the Financing Agreement are (before and after giving effect to this Amendment) true and correct in all material respects (except to the extent any such representation and warranty is expressly stated to have been made as of a specific date, in which case it shall be true and correct as of such specific date) and that no Default or Event of Default has occurred and is continuing. Section 4. Miscellaneous. (a) Reference to and Effect on the Existing Financing Agreement. (i) Except as specifically amended by this Amendment and the documents executed and delivered in connection herewith, the Existing Financing Agreement shall remain in full force and effect and is hereby ratified and confirmed. (ii) The execution and delivery of this Amendment and performance of the Amended Financing Agreement shall not, except as expressly provided herein, constitute a. waiver of any Provision of, or operate as a waiver of any right, power or remedy of CITBC under, the Existing Financing Agreement or any agreement or document executed in connection therewith. (iii) Upon the conditions precedent set forth herein being satisfied, this Amendment shall be construed as one with the Existing Financing Agreement, and the Existing Financing Agreement shall, where the context requires, be read and construed throughout so as to incorporate this Amendment. (b) Fees and Expenses. The Borrower acknowledges that all costs, fees and expenses incurred in connection with this Amendment will be paid in accordance with Section 7, Paragraph 4 of the Existing Financing Agreement. (c) Headings. Section and subsection headings in this Amendment are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. (d) Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument, 7

(e) Governing Law. This Amendment shall be governed by and construed according to the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written. SHARPER IMAGE CORPORATION, a Delaware corporation
By: /s/ Jeffrey P. Forgan --------------------------------------------Name: Jeffrey P. Forgan ------------------------------------------Title: Sr. Vice President/Chief Financial Officer

(e) Governing Law. This Amendment shall be governed by and construed according to the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written. SHARPER IMAGE CORPORATION, a Delaware corporation
By: /s/ Jeffrey P. Forgan --------------------------------------------Name: Jeffrey P. Forgan ------------------------------------------Title: Sr. Vice President/Chief Financial Officer -----------------------------------------By: /s/ Tracy Wan --------------------------------------------Name: Tracy Wan ------------------------------------------Title: President/Chief Operating Officer ------------------------------------------

THE CIT GROUP/BUSINESS CREDIT, INC., a Delaware corporation
/s/ Adrian Avalos -------------------------------------------Name: Adrian Avalos ------------------------------------------Title: AVP -----------------------------------------By:

8

ELEVENTH AMENDMENT TO LEASE THIS ELEVENTH AMENDMENT TO LEASE (this "Amendment") is dated February 9, 2000, for reference purpose only, by and between CARRAMERICA REALTY CORPORATION, a Maryland corporation ("Landlord"), and SHARPER IMAGE CORPORATION, a Delaware corporation ("Tenant"). RECITALS A. Golden Gateway North, a limited partnership and Landlord's predecessor in interest ("GGN") and The Thalheimer Company, a California corporation and Tenant's predecessor in interest ("Thalheimer") entered into that certain Office Lease and Addendum to Office Lease, both dated February 8, 1983 (the "Initial Lease"), pursuant to which GGN leased to Thalheimer and Thalheimer leased from GGN premises in that certain building located at 650 Davis Street, San Francisco, California in the Golden Gateway Project. B. The Initial Lease was subsequently amended by that certain Amendment No. 1 to Office Lease between GGN and Thalheimer dated as of September 15, 1983 (the "First Amendment"), that certain Amendment No. 2 to Office Lease between GGN and Thalheimer dated as of April 6, 1984 (the "Second Amendment"), that certain Third Amendment to Lease between GGN and Thalheimer dated as of June 30, 1987 (the "Third Amendment"), that certain Amendment No. 4 to Office Lease between GGN and Tenant dated as of July 2, 1987 (the "Fourth Amendment'), that certain Fifth Amendment to Lease between GGN and Tenant dated as of March 4, 1988 (the "Fifth Amendment"), that certain Amendment No. 6 to Office Lease between GGN and Tenant dated as of November 1, 1990 (the "Sixth Amendment"), that certain Amendment No. 1 to Office Lease

ELEVENTH AMENDMENT TO LEASE THIS ELEVENTH AMENDMENT TO LEASE (this "Amendment") is dated February 9, 2000, for reference purpose only, by and between CARRAMERICA REALTY CORPORATION, a Maryland corporation ("Landlord"), and SHARPER IMAGE CORPORATION, a Delaware corporation ("Tenant"). RECITALS A. Golden Gateway North, a limited partnership and Landlord's predecessor in interest ("GGN") and The Thalheimer Company, a California corporation and Tenant's predecessor in interest ("Thalheimer") entered into that certain Office Lease and Addendum to Office Lease, both dated February 8, 1983 (the "Initial Lease"), pursuant to which GGN leased to Thalheimer and Thalheimer leased from GGN premises in that certain building located at 650 Davis Street, San Francisco, California in the Golden Gateway Project. B. The Initial Lease was subsequently amended by that certain Amendment No. 1 to Office Lease between GGN and Thalheimer dated as of September 15, 1983 (the "First Amendment"), that certain Amendment No. 2 to Office Lease between GGN and Thalheimer dated as of April 6, 1984 (the "Second Amendment"), that certain Third Amendment to Lease between GGN and Thalheimer dated as of June 30, 1987 (the "Third Amendment"), that certain Amendment No. 4 to Office Lease between GGN and Tenant dated as of July 2, 1987 (the "Fourth Amendment'), that certain Fifth Amendment to Lease between GGN and Tenant dated as of March 4, 1988 (the "Fifth Amendment"), that certain Amendment No. 6 to Office Lease between GGN and Tenant dated as of November 1, 1990 (the "Sixth Amendment"), that certain Amendment No. 1 to Office Lease between GGN and Tenant dated as of November 30, 1992 (the "Seventh Amendment"), that certain Amendment No. 8 to Office Lease between GGN and Tenant dated as of June 1, 1993 (the "Eighth Amendment") that certain Amendment No. 9 to Office Lease between Shorenstein Realty Investors, L.P., a California limited partnership and Landlord's predecessor in interest ("Shorenstein") and Tenant dated as of December 14, 1994 (the "Ninth Amendment") and that certain Amendment No. 10 to Office Lease between Shorenstein and Tenant dated as of March 26, 1998 (the "Tenth Amendment"). The Initial Lease, as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Eight Amendment, the Ninth Amendment, and the Tenth Amendment is defined herein as the "Original Lease"). C. GGN's interest in the Original Lease was subsequently assigned to Shorenstein and Shorenstein's interest in the Original Lease was subsequently assigned to Landlord. D. Thalheimer's interest in the Original Lease was subsequently assigned to Tenant. E. Landlord and Tenant desire to amend the Original Lease to, among other things, extend the term of the Original Lease on the terms and conditions set forth herein. 1

AMENDMENT 1. Incorporation of Recitals and Definitions. The foregoing recitals are hereby incorporated herein by this reference. The Original Lease as amended by this Amendment is hereinafter referred to as the "Lease". All terms which are capitalized herein but which are not defined, shall have the same meanings given such terms in the Original Lease. In the event of any conflict between the terms set forth in the Original Lease and this Amendment, the terms of this Amendment will control. 2. Term. The Lease is hereby amended to extend the term of the Lease for an additional five (5) year period commencing on February 1, 2001 and terminating on January 31, 2006 (the "Renewal Term"). 3. Premises. Landlord and Tenant hereby agree that for the Renewal Term, the "Premises" shall contain a total of 58,295 rentable square feet and be comprised of the Second Floor Space, the Photography Studio and the First Floor Retail Space (as such terms are defined below) at 650 Davis Street, San Francisco, California (the "Building")

AMENDMENT 1. Incorporation of Recitals and Definitions. The foregoing recitals are hereby incorporated herein by this reference. The Original Lease as amended by this Amendment is hereinafter referred to as the "Lease". All terms which are capitalized herein but which are not defined, shall have the same meanings given such terms in the Original Lease. In the event of any conflict between the terms set forth in the Original Lease and this Amendment, the terms of this Amendment will control. 2. Term. The Lease is hereby amended to extend the term of the Lease for an additional five (5) year period commencing on February 1, 2001 and terminating on January 31, 2006 (the "Renewal Term"). 3. Premises. Landlord and Tenant hereby agree that for the Renewal Term, the "Premises" shall contain a total of 58,295 rentable square feet and be comprised of the Second Floor Space, the Photography Studio and the First Floor Retail Space (as such terms are defined below) at 650 Davis Street, San Francisco, California (the "Building") (a) "Second Floor Space" means the 48,328 rentable square feet of the upper level of the Building, as shown on Exhibit C attached hereto. (b) "Photography Studio" means the 6,673 rentable square feet located on the southeast comer of the lower level of the Building, as shown on Exhibit C attached hereto. (c) "First Floor Retail Space" means the 3,294 rentable square feet on the lower level of the Building, as shown on Exhibit C attached hereto.
4. Base Rent For the Premises. of "Base Rent" is amended as follows: Time Period ----------February 1, February 1, February 1, February 1, February 1, As of February 1, 2001, the definition

2001 2002 2003 2004 2005

-

January January January January January

31, 31, 31, 31, 31,

2002: 2003: 2004: 2005: 2006:

Annual Base Rent ---------------$2,404,668.72 $2,462,963.76 $2,521,258.80 $2,579,553.72 $2,637,848.76

Monthly Base Rent ----------------$200,389.06 $205,246.98 $210,104.90 $214,962.81 $219,820.73

With respect to the Renewal Term, Tenant has no other Base Rent payment obligations (except for accrued but unpaid Rent obligations relating to the period prior to the Renewal Term) and the foregoing Base Rent payments cover the entire Premises, including, without limitation, the First Floor Retail Space. 5. Base Year/Operating Expenses/Property Taxes. As of February 1, 2001, (a) the "Base Year" shall be amended to be calendar year 2001, (b) "Base Operating Expenses" shall mean the Operating Expenses paid or incurred by Landlord in calendar year 2001, and (c) "Base Property Taxes" shall mean the Property Taxes paid or incurred by Landlord in calendar year 2

2001. Effective as of February 1, 2001, Section 3(a)(3) of the Lease is amended to read in its entirety as follows: "Lessee shall pay Lessor as additional rent the sum of (i) Lessee's percentage share of the total dollar increase, if any, in Operating Expenses paid or incurred by Lessor in each year subsequent to the Base Year over the Base Operating Expenses and (ii) Lessee's percentage share of the total dollar increase, if any, in Property Taxes paid or incurred by Lessor in each year subsequent to the Base Year over the Base Property Taxes." 6. Proportionate Share. Landlord and Tenant agree that "Lessee's percentage share" of the Commercial Area is 62.22%. 7. Tenant Improvements. Landlord shall provide Tenant with a "Tenant Improvement Allowance" in the total

2001. Effective as of February 1, 2001, Section 3(a)(3) of the Lease is amended to read in its entirety as follows: "Lessee shall pay Lessor as additional rent the sum of (i) Lessee's percentage share of the total dollar increase, if any, in Operating Expenses paid or incurred by Lessor in each year subsequent to the Base Year over the Base Operating Expenses and (ii) Lessee's percentage share of the total dollar increase, if any, in Property Taxes paid or incurred by Lessor in each year subsequent to the Base Year over the Base Property Taxes." 6. Proportionate Share. Landlord and Tenant agree that "Lessee's percentage share" of the Commercial Area is 62.22%. 7. Tenant Improvements. Landlord shall provide Tenant with a "Tenant Improvement Allowance" in the total amount of $540,394.65, in accordance with the terms and conditions of the "Tenant Improvement Agreement" attached hereto as Exhibit A. 8. First Floor Retail Space. As of February 1, 2001, the Tenant may convert the First Floor Retail Space to general office use; provided, however, that (a) any alterations or improvements Tenant desires to make in the First Floor Retail Space shall be subject to the terms and conditions of the Lease, including the requirement that Tenant obtain Landlord's prior written approval for any alterations, additions or improvements, which approval shall not be unreasonably withheld, delayed or conditioned, (b) Tenant shall be responsible for any improvements to the Building's common areas that are required as a condition of obtaining the necessary permits and approvals for such First Floor Retail Space conversion, and (c) with the exception of the Tenant Improvement Allowance set forth above Landlord shall have no obligation to pay for any alterations or improvements performed by Tenant in connection with such First Floor Retail Space conversion. Tenant is not obligated to pay "percentage rent", as defined in the Eighth Amendment, with respect to the Renewal Term. Tenant has no obligation to report Gross Sales with respect to the Renewal Term. Tenant has no obligation to continuously operate its business in the First Floor Retail Space during the Renewal Tom and effective as of February 1, 2001, Section 6(g) of the Eighth Amendment is deleted from the Lease. 9. Janitorial Service. Tenant shall provide any janitorial service required for the Premises during the Renewal Term. Landlord shall provide Tenant with a janitorial credit in the amount of $9,000.00 per month (as set forth in Section 3 of the Sixth Amendment) during the Renewal Term. Tenant shall recover this janitorial credit by offset against the Base Rent payable each month. 10. Signage. Landlord hereby approves all existing Tenant signs installed on the Project, except for the neon sign with the Tenant's name located on the inside of the windows facing Broadway Street which Tenant hereby agrees to remove as of the date Tenant executes this Amendment. Any new signs Tenant proposes to install in the Project shall conform with Landlord's signage standards, a copy of which is attached hereto as Exhibit B and shall be subject to Landlord's prior written approval. In the event that (i) Tenant delivers written notice 3

to Landlord that provides all of the information Landlord requires to make a decision to approve or disapprove a sign Tenant proposes to install at the Premises (the "First Sign Request Notice"), (ii) Landlord does not approve or disapprove such proposed sign within twenty five (25) days of Landlord's receipt of the First Sip Request Notice, (iii) after such twenty five (25) day period Tenant delivers written notice to Landlord specifying that Landlord has not responded to the request (the "`Second Sign Request Notice"), and (iv) Landlord does not approve or disapprove the proposed sign within fifteen (15) days of Landlord's receipt of the Second Sign Request Notice, then Landlord shall be deemed to have approved the proposed sign. 11. Option To Extend. Landlord and Tenant agree that Tenant exercised its first option to extend the Lease Term as provided in Section 8(b)(1) of the Sixth Amendment and amended by Section 8 of the Seventh Amendment, and that this Amendment documents such extension. Landlord and Tenant further agree that Tenant may exercise the second option to extend the Term of the Lease for a period of five (5) years pursuant to the terms and conditions set forth in Section 8 of the Sixth Amendment as amended by Section 8 of the Seventh Amendment; provided, however, that Landlord and Tenant agree that this second option is the final remaining option available to Tenant under the

to Landlord that provides all of the information Landlord requires to make a decision to approve or disapprove a sign Tenant proposes to install at the Premises (the "First Sign Request Notice"), (ii) Landlord does not approve or disapprove such proposed sign within twenty five (25) days of Landlord's receipt of the First Sip Request Notice, (iii) after such twenty five (25) day period Tenant delivers written notice to Landlord specifying that Landlord has not responded to the request (the "`Second Sign Request Notice"), and (iv) Landlord does not approve or disapprove the proposed sign within fifteen (15) days of Landlord's receipt of the Second Sign Request Notice, then Landlord shall be deemed to have approved the proposed sign. 11. Option To Extend. Landlord and Tenant agree that Tenant exercised its first option to extend the Lease Term as provided in Section 8(b)(1) of the Sixth Amendment and amended by Section 8 of the Seventh Amendment, and that this Amendment documents such extension. Landlord and Tenant further agree that Tenant may exercise the second option to extend the Term of the Lease for a period of five (5) years pursuant to the terms and conditions set forth in Section 8 of the Sixth Amendment as amended by Section 8 of the Seventh Amendment; provided, however, that Landlord and Tenant agree that this second option is the final remaining option available to Tenant under the Lease to extend the Term of the Lease, 12. Right of First Opportunity. Landlord and Tenant agree that Tenant has (and shall continue to have during the Renewal Term) a Right of First Opportunity subject to the tam and conditions set forth in Section 9 of the Sixth Amendment, as amended by Section 9 of the Seventh Amendment. 13. Notices. Section 33 of the Lease is hereby amended to provide that Landlord's new address for receipt of notices under the Lease is as follows: CarrAmerica Realty Corporation 1810 Gateway Drive, Suite 150 San Mateo, CA 94404 Attention: Vice President - Market Officer with a copy to: CarrAmerica Realty Corporation 1850 K Street, N.W., Suite 500 Washington, D.C. 20006 Attention: Lease Administrator 14. Brokers. Landlord and Tenant represent and warrant to each other that neither has dealt with any broker respecting this Amendment other than Kenmark Commercial ("Tenant's Broker") and The CAC, Group ("CAC"). Each party shall indemnify and hold the other harmless from any and all other claims by any other broker, agent or person claiming a commission or other form of compensation by virtue of this Amendment as a result of such party's dealing with the party from whom indemnification is sought. Landlord shall pay a commission in the total amount of $145,737.50 to Tenant's Broker; provided, however, that Landlord shall pay Tenant's Broker half of the commission ($72,868.75) upon full execution of this Amendment by both Landlord and Tenant, and half of the commission ($72,868.75) on February 1, 2001. In addition, 4

Landlord shall pay the commission and any other compensation due to CAC in connection with this Amendment and Landlord shall indemnify Tenant from any and all claims by CAC claiming a commission or other form of compensation in connection with this Amendment. 15. Attorneys' Fees. In any arbitration, quasi-judicial or administrative proceedings or any action in any court of competent jurisdiction, brought by either party to enforce any covenant or any of such party's rights or remedies under this covenant or any of such party's rights or remedies under this Amendment, including any action for declaratory relief, or any action to collect any payments required under this Amendment or to quiet title against the other party, the prevailing party shall be entitled to reasonable attorneys' fees and all costs, expenses and disbursements in connection with such action, including the costs of reasonable investigation, preparation and professional or expert consultation, which sums may be included in any judgment or decree entered in such action in favor of the prevailing party. 16. Successors. All terms and provisions of this Amendment shall be binding upon, be enforceable by, and shall

Landlord shall pay the commission and any other compensation due to CAC in connection with this Amendment and Landlord shall indemnify Tenant from any and all claims by CAC claiming a commission or other form of compensation in connection with this Amendment. 15. Attorneys' Fees. In any arbitration, quasi-judicial or administrative proceedings or any action in any court of competent jurisdiction, brought by either party to enforce any covenant or any of such party's rights or remedies under this covenant or any of such party's rights or remedies under this Amendment, including any action for declaratory relief, or any action to collect any payments required under this Amendment or to quiet title against the other party, the prevailing party shall be entitled to reasonable attorneys' fees and all costs, expenses and disbursements in connection with such action, including the costs of reasonable investigation, preparation and professional or expert consultation, which sums may be included in any judgment or decree entered in such action in favor of the prevailing party. 16. Successors. All terms and provisions of this Amendment shall be binding upon, be enforceable by, and shall inure to the benefit of, the respective assignees and successors of the parties hereof. 17. Time is of the Essence. Time is of the essence for each and every provision of this Amendment. 5

18. Confirmation of Lease. Except as amended by this Amendment, the parties hereby agree and confirm that the Lease is in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment the day and year first above written, "LANDLORD" CARRAMERICA REALTY CORPORATION, a Maryland corporation
By: Name: Title: /s/ Philip L. Hawkins Philip L. Hawkins Chief Operating Officer

By: Name: Title:

/s/ Leah N. Segawa Leah N. Segawa Managing Director

"TENANT" SHARPER IMAGE CORPORATION, a Delaware corporation
By: Name: Title: /s/ Tracy Wan Tracy Y. Wan President C.O.O.

By: Name: Title:

/s/ Jeffrey P. Forgan Jeffrey P. Forgan Senior Vice President and Chief Financial Officer

6

18. Confirmation of Lease. Except as amended by this Amendment, the parties hereby agree and confirm that the Lease is in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment the day and year first above written, "LANDLORD" CARRAMERICA REALTY CORPORATION, a Maryland corporation
By: Name: Title: /s/ Philip L. Hawkins Philip L. Hawkins Chief Operating Officer

By: Name: Title:

/s/ Leah N. Segawa Leah N. Segawa Managing Director

"TENANT" SHARPER IMAGE CORPORATION, a Delaware corporation
By: Name: Title: /s/ Tracy Wan Tracy Y. Wan President C.O.O.

By: Name: Title:

/s/ Jeffrey P. Forgan Jeffrey P. Forgan Senior Vice President and Chief Financial Officer

6

EXHIBIT A TENANT IMPROVEMENT AGREEMENT This Tenant Improvement Agreement ("Agreement") is an integral part of the Eleventh Amendment to Lease dated as of February 9, 2000 between CarrAmerica Realty Corporation and Sharper Image Corporation (the "Amendment") relating to certain Premises described in the Amendment. Capitalized terms used in this Amendment not otherwise defined herein shall have the meaning given such terms in the Amendment Landlord and Tenant agree as follows with respect to the Tenant Improvements, if any, to be installed in the Premises: 1. INITIAL TENANT IMPROVEMENTS. A. Plans. Tenant shall cause to be performed certain remodeling work (the "Tenant Improvements") in and about the Premises in accordance with plans and specifications prepared by Tenant and approved by Landlord (the "Plans"), which approvals shall not be unreasonably withheld, delayed or conditioned. Tenant may perform the design and/or construction of the Tenant Improvements in stages in order to accommodate the ongoing growth in the number of Tenant's employees in the Premises, Tenant's on-going business operations and other operational issues for Tenant, Tenant shall cause the Plans to be prepared, at Tenant's cost, by a registered professional architect and mechanical and electrical engineer(s). Landlord's Tenant Improvements Guidelines, attached hereto as Exhibit A-1, which are attached for the purpose of informing Tenant of Landlord's general design preferences

EXHIBIT A TENANT IMPROVEMENT AGREEMENT This Tenant Improvement Agreement ("Agreement") is an integral part of the Eleventh Amendment to Lease dated as of February 9, 2000 between CarrAmerica Realty Corporation and Sharper Image Corporation (the "Amendment") relating to certain Premises described in the Amendment. Capitalized terms used in this Amendment not otherwise defined herein shall have the meaning given such terms in the Amendment Landlord and Tenant agree as follows with respect to the Tenant Improvements, if any, to be installed in the Premises: 1. INITIAL TENANT IMPROVEMENTS. A. Plans. Tenant shall cause to be performed certain remodeling work (the "Tenant Improvements") in and about the Premises in accordance with plans and specifications prepared by Tenant and approved by Landlord (the "Plans"), which approvals shall not be unreasonably withheld, delayed or conditioned. Tenant may perform the design and/or construction of the Tenant Improvements in stages in order to accommodate the ongoing growth in the number of Tenant's employees in the Premises, Tenant's on-going business operations and other operational issues for Tenant, Tenant shall cause the Plans to be prepared, at Tenant's cost, by a registered professional architect and mechanical and electrical engineer(s). Landlord's Tenant Improvements Guidelines, attached hereto as Exhibit A-1, which are attached for the purpose of informing Tenant of Landlord's general design preferences and material specifications with respect to any Tenant Improvements. Tenant agrees to use reasonable efforts to prepare its plans and specifications in compliance with Landlord's Tenant Improvement Guidelines to the extent applicable to the Tenant Improvements contemplated by Tenant; provided, however, that Tenant must obtain Landlord's written approval prior to the installation of any Tenant Improvements that deviate from the terms and conditions set forth in Landlord's Tenant Improvement Guidelines. Tenant shall furnish the initial draft of the Plans to Landlord for Landlord's review and approval. In the event that (i) Tenant delivers a draft of the Plans which includes all of the information Landlord requires to make a decision to approve or disapprove the Plans (the "First Plans Request Notice"), (ii) Landlord does not approve or disapprove such proposed Plans within twenty five (25) days of Landlord's receipt of the First Plans Request Notice, (iii) after such twenty five (25) day period Tenant delivers written notice to Landlord specifying that Landlord has not responded to the request (the "Second Plans Request Notice"), and (iv) Landlord does not approve or disapprove the proposed Plans within fifteen (15) days of Landlord's receipt of the Second Plans Request Notice, then Landlord shall be deemed to have approved the proposed Plans. If Landlord provides Tenant with comments to the initial draft of the Plans, Tenant shall provide revised Plans to Landlord incorporating Landlord's comments after receipt of Landlord's comments. Landlord agrees to use commercially reasonable efforts to respond promptly to revisions to Plans. Plans will be revised by Tenant and reviewed by Landlord until the Plans have been finally approved by Landlord. Tenant hereby agrees that the Plow for the Tenant Improvements shall comply with all applicable Governmental Requirements. Landlord's approval of the Plans shall be solely for the purposes of authorizing construction of the Tenant Improvements, and shall not be deemed to be 1

an approval of the technical merits of the Plans nor a verification that such Tenant Improvements and/or the Plans comply with applicable Governmental Requirements. Tenant shall be solely responsible for ensuring that the `Tenant Improvements are designed and constructed in accordance with all applicable Governmental Requirements. B. Construction by Tenant. Tenant shall be solely responsible for the construction of the Tenant Improvements in and about the Premises. Tenant shall construct the Tenant Improvements in accordance with the approved Plans and in accordance with all rules, regulations, codes, statutes, ordinances and laws of all government and quasigovernmental authorities and in a good and workmanlike manner, Landlord shall have no responsibility whatsoever for the construction of the Tenant Improvements. The Tenant Improvements shall be constructed with new materials of good quality and with adequately trained and supervised labor using currently approved methods of their particular trade. C. Contractor. Prior to commencement of construction, Tenant shall select a general contractor which is reasonably acceptable to Landlord (whose consent shall not be unreasonably withheld or delayed) ("Contractor")

an approval of the technical merits of the Plans nor a verification that such Tenant Improvements and/or the Plans comply with applicable Governmental Requirements. Tenant shall be solely responsible for ensuring that the `Tenant Improvements are designed and constructed in accordance with all applicable Governmental Requirements. B. Construction by Tenant. Tenant shall be solely responsible for the construction of the Tenant Improvements in and about the Premises. Tenant shall construct the Tenant Improvements in accordance with the approved Plans and in accordance with all rules, regulations, codes, statutes, ordinances and laws of all government and quasigovernmental authorities and in a good and workmanlike manner, Landlord shall have no responsibility whatsoever for the construction of the Tenant Improvements. The Tenant Improvements shall be constructed with new materials of good quality and with adequately trained and supervised labor using currently approved methods of their particular trade. C. Contractor. Prior to commencement of construction, Tenant shall select a general contractor which is reasonably acceptable to Landlord (whose consent shall not be unreasonably withheld or delayed) ("Contractor") to construct the Tenant Improvements. The Contractor shall be licensed by the State of California and bondable. The construction contract ("Construction Contract") for the Tenant Improvements shall be between Tenant (not Landlord) and Contractor. D. Construction Process. Tenant shall not commence the construction of any Tenant Improvements until after Landlord and Tenant have agreed on the approved Plans and selection of the Contractor. Thereafter, Tenant shall be responsible for completing the construction of the Tenant Improvements in accordance with the approved Plans. E. Insurance. Tenant shall deliver to Landlord prior to Tenant or Contractor's entry onto the Premises to commence construction of the Tenant Improvements certificates evidencing the following insurance: (1) Tenant, and any contractor of Tenant performing work on the Premises, shall maintain insurance as follows. (a) Commercial General Liability Insurance, including premises operation, products operation, contractual liability coverage, completed operations coverage, broad form property damage to afford protection with limits, for each occurrence, of not less than One Million Dollars ($1,000,000) with respect to personal injury, death or property damage. (b) Workers' compensation or similar insurance in form and amounts required by law, and Employer's Liability with not less than the following limits: Each Accident $500,000 Disease - Policy Limit $500,000 Disease - Each Employee $500,000 2

(2) Contractor's insurance shall contain a waiver of subrogation provision in favor of Landlord and its agents. Tenant's contractor's insurance shall be primary and not contributory to that carried by Tenant, Landlord, their agents or mortgagees. Tenant and Landlord, and if any, Landlord's building manager or agent, mortgagee or ground lessor shall be named as additional insured on Tenant's contractor's liability insurance policies. F. Compliance. The Tenant Improvements and all materials incorporated therein shall comply with the approved Plans, as may be revised from time to time pursuant to the terms of this Agreement, and shall be free from all design, material and workmanship defects. Tenant and Contractor shall comply with all applicable laws, regulations, permits and other approvals applicable to construction of the Tenant Improvements. G. Liens. Tenant shall defend and indemnify Landlord and hold it harmless from any and all claims, losses, demands, judgments, settlements, costs and expenses, including reasonable attorneys' fees, resulting from any act or omission of Tenant or anyone claiming by, through, or under Tenant, in connection with construction of the Tenant Improvements, for any mechanics' lien or other lien filed against the Premises or any Building or against other property of Landlord (whether or not the lien is valid or enforceable). Tenant shall, at its own expense, (i) cause any such liens to be discharged of record, or (ii) cause to be recorded a bond in compliance with CC

(2) Contractor's insurance shall contain a waiver of subrogation provision in favor of Landlord and its agents. Tenant's contractor's insurance shall be primary and not contributory to that carried by Tenant, Landlord, their agents or mortgagees. Tenant and Landlord, and if any, Landlord's building manager or agent, mortgagee or ground lessor shall be named as additional insured on Tenant's contractor's liability insurance policies. F. Compliance. The Tenant Improvements and all materials incorporated therein shall comply with the approved Plans, as may be revised from time to time pursuant to the terms of this Agreement, and shall be free from all design, material and workmanship defects. Tenant and Contractor shall comply with all applicable laws, regulations, permits and other approvals applicable to construction of the Tenant Improvements. G. Liens. Tenant shall defend and indemnify Landlord and hold it harmless from any and all claims, losses, demands, judgments, settlements, costs and expenses, including reasonable attorneys' fees, resulting from any act or omission of Tenant or anyone claiming by, through, or under Tenant, in connection with construction of the Tenant Improvements, for any mechanics' lien or other lien filed against the Premises or any Building or against other property of Landlord (whether or not the lien is valid or enforceable). Tenant shall, at its own expense, (i) cause any such liens to be discharged of record, or (ii) cause to be recorded a bond in compliance with CC Section 3143, within a reasonable time, not to exceed thirty (30) days, after the later of (a) Tenant's actual notice of the lien or (b) the date of filing. H. Indemnity. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all suits, claims, actions, loss, cost or expense (including claims for workers' compensation, reasonable attorneys' fees and costs) based on personal injury or property damage caused in, or contract claims (including, but not limited to claims for breach of warranty) arising from, construction of the Tenant's Improvements, except to the extent caused by Landlord's acts or omissions or Landlord's agents', employees' or contractors' acts or omissions. Tenant shall repair or replace any portion of a Building or item of Landlord's equipment or any of Landlord's real or personal property damaged, lost or destroyed in construction of the Tenant Improvements, except to the extent the damage, loss or destruction is the result of Landlord's acts or omissions or Landlord's agents', employees' or contractors' acts or omissions. Notwithstanding the foregoing, in the event Tenant fails to complete such repair or replacement work within ten (10) days following Tenant's receipt of Landlord's written notice therefor (or if the nature of such work is such that more than ten (10) days is required, then in the event Tenant fails to commence such work within such ten (10) days and thereafter diligently prosecute such work to completion to the reasonable satisfaction of Landlord), then Landlord may (but shall have no obligation to) cause such work to be performed and/or completed at Tenant's sole cost and expense. I. Project Management Fee. Landlord, or an agent of Landlord, shall provide project management services in connection with the construction of the Tenant Improvements and the Change Orders (hereinafter defined). Such project management services shall be performed, at Tenant's cost, for a fee of three percent (3%) of the Tenant Improvement Allowance. 3

J. Notices. Tenant shall notify Landlord at least ten (5) business days prior to the commencement of construction of any Tenant Improvements and permit Landlord to post on the Premises such notices of nonresponsibility, and such other notices to other tenants in the Project, as Landlord may deem reasonable under the circumstances. 2. CHANGE ORDERS. Tenant shall not make any change to the approved Plans without Landlord's prior approval, which approval shall not be unreasonably withheld or delayed; provided, however, that Landlord may withhold its consent if such requested change would negatively affect the structural components or exterior appearance of the Buildings. Landlord agrees to use commercially reasonable efforts to respond promptly to proposed change requests. If Landlord does not approve of the plans and specifications for the change order request, Landlord shall advise Tenant of the revisions required. Tenant shall revise and redeliver the plans and specifications to Landlord within five (5) business days of Landlord's advice or Tenant shall be deemed to have abandoned its request for such change order request. Tenant shall pay for all preparations and revisions of plans and specifications, and the construction of all change order requests, subject to Tenant Improvement Allowance. All approved change order requests to the approved Plans shall be in writing and shall be signed by both Landlord and Tenant prior to the change being made.

J. Notices. Tenant shall notify Landlord at least ten (5) business days prior to the commencement of construction of any Tenant Improvements and permit Landlord to post on the Premises such notices of nonresponsibility, and such other notices to other tenants in the Project, as Landlord may deem reasonable under the circumstances. 2. CHANGE ORDERS. Tenant shall not make any change to the approved Plans without Landlord's prior approval, which approval shall not be unreasonably withheld or delayed; provided, however, that Landlord may withhold its consent if such requested change would negatively affect the structural components or exterior appearance of the Buildings. Landlord agrees to use commercially reasonable efforts to respond promptly to proposed change requests. If Landlord does not approve of the plans and specifications for the change order request, Landlord shall advise Tenant of the revisions required. Tenant shall revise and redeliver the plans and specifications to Landlord within five (5) business days of Landlord's advice or Tenant shall be deemed to have abandoned its request for such change order request. Tenant shall pay for all preparations and revisions of plans and specifications, and the construction of all change order requests, subject to Tenant Improvement Allowance. All approved change order requests to the approved Plans shall be in writing and shall be signed by both Landlord and Tenant prior to the change being made. 3. TENANT IMPROVEMENT ALLOWANCE. Landlord shall contribute an amount up to $540,394.65 ($9.27 per rentable square foot) (the "Tenant Improvement Allowance") toward the costs incurred by Tenant in connection with the Tenant Improvements, Change Orders, Landlord's project management fee and other work related to the remodeling of the Premises, including without limitation, the installation of work stations, partitions, wall and floor coverings and light fixtures (collectively, "Remodeling Work") in accordance with and subject to the provisions in this Agreement. Not sooner than the date on which the Remodeling Work within the Premises has been commenced, Tenant may submit invoices to Landlord for payment out of the Tenant Improvement Allowance to reimburse Tenant for Remodeling Work. costs incurred for work actually performed within the Premises. Following Landlord's receipt of such invoices, Landlord shall within thirty (30) days thereafter pay Tenant for the amount requested in such invoice; provided in no event shah Landlord be obligated to pay Tenant more than the maximum amount of the Tenant Improvement Allowance. Any expenses incurred by Tenant for the Remodeling Work in excess of the Tenant Improvement Allowance shall be at Tenant's sole cost and expense. Landlord shall have no obligation to disburse any portion of the Tenant Improvement Allowance which has not be requested by Tenant pursuant to the terms hereof on or before February 28, 2002 and such amount shall be deemed forfeited by Tenant and shall not be applicable against any other amounts (e.g., Rent) payable by Tenant under the Lease. In the event that (i) Tenant has fully satisfied all of the terms and conditions as set forth in this Agreement required for payment of a portion of the Tenant Improvement Allowance, (ii) Landlord has failed to pay such portion when due, and (iii) Landlord has not notified Tenant of a good faith dispute regarding the portion to be paid, then Tenant may offset the amount overdue, together with interest at the rate applicable to late Tenant payments under the Lease, against ensuing Base Rent Unless notified by Landlord when Tenant requests Landlord's approval for the Tenant Improvements that certain Tenant Improvements must be removed upon the expiration or termination of the Lease (the "Designated Tenant Improvements"), then except for those Designated Tenant Improvements, all other Tenant Improvements whose cost is paid for or 4

reimbursed by Landlord's payment of the Tenant Improvement Allowance shall belong to Landlord upon the later of Landlord's payment or their installation in the Premises. 4. AS-BUILTS. Upon completion of construction of the Tenant Improvements, Tenant shall deliver to Landlord "as-built" drawings for the completed Tenant Improvements. 5. MISCELLANEOUS. Terms used in this Exhibit A shall have the meanings assigned to them in the Amendment. The terms of this Exhibit A are subject to the terms of the Amendment. Landlord hereby designates the following individual as Landlord's representative for purposes of Tenant's communications with Landlord regarding the Tenant Improvements: Eric Dameron Drew CarrAmerica Realty Corporation 150 Pacific Avenue San Francisco, CA 94111 Phone: (415) 397-2760 Fax: (415) 397-6627

reimbursed by Landlord's payment of the Tenant Improvement Allowance shall belong to Landlord upon the later of Landlord's payment or their installation in the Premises. 4. AS-BUILTS. Upon completion of construction of the Tenant Improvements, Tenant shall deliver to Landlord "as-built" drawings for the completed Tenant Improvements. 5. MISCELLANEOUS. Terms used in this Exhibit A shall have the meanings assigned to them in the Amendment. The terms of this Exhibit A are subject to the terms of the Amendment. Landlord hereby designates the following individual as Landlord's representative for purposes of Tenant's communications with Landlord regarding the Tenant Improvements: Eric Dameron Drew CarrAmerica Realty Corporation 150 Pacific Avenue San Francisco, CA 94111 Phone: (415) 397-2760 Fax: (415) 397-6627 Tenant hereby designates the following individual as Tenant's representative for purposes of Landlord's communications with Tenant regarding the Tenant Improvements: Mr. Glenn Dutcher The Sharper Image 650 Davis Street San Francisco, California 94111 Phone: (415) 4456097 Fax: (415) 445-1515 5

SHARPER IMAGE CORPORATION STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE Fiscal Year Ended January 31, 2000 ----------$ 9,325 Fiscal Ende Januar 199 -----$

Net Earnings ($000) Average shares of common stock outstanding during the period

10,516,358 ===========

8,53 ======

Basic Income per Share

$ 0.89 -----------

$ ------

Average shares of common stock outstanding during the period Add: Incremental shares from assumed exercise of stock options - diluted

10,516,358

8,53

841,646 ----------11,358,004 ===========

54 -----9,07 ======

Diluted Income per Share

$ 0.82 ===========

$ ======

THE SHARPER IMAGE 1999 Annual Report

SHARPER IMAGE CORPORATION STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE Fiscal Year Ended January 31, 2000 ----------$ 9,325 Fiscal Ende Januar 199 -----$

Net Earnings ($000) Average shares of common stock outstanding during the period

10,516,358 ===========

8,53 ======

Basic Income per Share

$ 0.89 -----------

$ ------

Average shares of common stock outstanding during the period Add: Incremental shares from assumed exercise of stock options - diluted

10,516,358

8,53

841,646 ----------11,358,004 ===========

54 -----9,07 ======

Diluted Income per Share

$ 0.82 ===========

$ ======

THE SHARPER IMAGE 1999 Annual Report

Corporate Profile Sharper Image Corporation is a multi-channel specialty retailer and product developer that is nationally and internationally renowned as a leading source of new, innovative, high-quality products that make life eaiser and more enjoyable. The Sharper Image enjoys an exceptionally strong brand identity, with a name that is synonymous with fun and entertainment, design and creativity, uniqueness and technological innovation. A key strength is the Company's ability to create exclusive proprietary merchandise. These products, labeled Sharper Image Design(TM), are highly marketable and form the foundation of the Company's success in diverse channels of distribution. The Company currently operates 90 stores nationwide, and generates direct sales through its monthly Sharper Image print catalog and online at sharperimage.com, the Company's Internet e-commerce Web site. The Company also generates business-to-business revenues through its corporate incentive and rewards programs and wholesale operations. NET EARNINGS TOTAL REVENUES INTERNET REVENUES ($ THOUSANDS) ($ MILLIONS) ($ MILLIONS)

THE SHARPER IMAGE 1999 Annual Report

Corporate Profile Sharper Image Corporation is a multi-channel specialty retailer and product developer that is nationally and internationally renowned as a leading source of new, innovative, high-quality products that make life eaiser and more enjoyable. The Sharper Image enjoys an exceptionally strong brand identity, with a name that is synonymous with fun and entertainment, design and creativity, uniqueness and technological innovation. A key strength is the Company's ability to create exclusive proprietary merchandise. These products, labeled Sharper Image Design(TM), are highly marketable and form the foundation of the Company's success in diverse channels of distribution. The Company currently operates 90 stores nationwide, and generates direct sales through its monthly Sharper Image print catalog and online at sharperimage.com, the Company's Internet e-commerce Web site. The Company also generates business-to-business revenues through its corporate incentive and rewards programs and wholesale operations. NET EARNINGS TOTAL REVENUES INTERNET REVENUES ($ THOUSANDS) ($ MILLIONS) ($ MILLIONS)
1997 ---1998 ---FISCAL 4,602 1999 ---1997 ---1998 ---FISCAL 243.1 1999 ---1997 ---1998 ---FISCAL 4.9 1999 ----

593

9,325

216.8

294.4

1.6

28.5

Record Accomplishments Record net earnings of $9.3 million, a 103 percent increase over the prior fiscal year, and Record total revenues of $294.4 million, a 21 percent increase Record gross margin rate of 51.0 percent, a 2.0 percentage point increase Record Internet sales of $28.5 million, a 479 percent increase Record store sales of $188.4 million, a 16 percent increase, including 12 percent increase in comparable store sales. Financial Highlights
Fiscal Year Ended January 31, --------------------------------------------------------------2000 1999 1998 1997 (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) (Fiscal 1996) (F --------------------------------------------------------------Operating Results

Corporate Profile Sharper Image Corporation is a multi-channel specialty retailer and product developer that is nationally and internationally renowned as a leading source of new, innovative, high-quality products that make life eaiser and more enjoyable. The Sharper Image enjoys an exceptionally strong brand identity, with a name that is synonymous with fun and entertainment, design and creativity, uniqueness and technological innovation. A key strength is the Company's ability to create exclusive proprietary merchandise. These products, labeled Sharper Image Design(TM), are highly marketable and form the foundation of the Company's success in diverse channels of distribution. The Company currently operates 90 stores nationwide, and generates direct sales through its monthly Sharper Image print catalog and online at sharperimage.com, the Company's Internet e-commerce Web site. The Company also generates business-to-business revenues through its corporate incentive and rewards programs and wholesale operations. NET EARNINGS TOTAL REVENUES INTERNET REVENUES ($ THOUSANDS) ($ MILLIONS) ($ MILLIONS)
1997 ---1998 ---FISCAL 4,602 1999 ---1997 ---1998 ---FISCAL 243.1 1999 ---1997 ---1998 ---FISCAL 4.9 1999 ----

593

9,325

216.8

294.4

1.6

28.5

Record Accomplishments Record net earnings of $9.3 million, a 103 percent increase over the prior fiscal year, and Record total revenues of $294.4 million, a 21 percent increase Record gross margin rate of 51.0 percent, a 2.0 percentage point increase Record Internet sales of $28.5 million, a 479 percent increase Record store sales of $188.4 million, a 16 percent increase, including 12 percent increase in comparable store sales. Financial Highlights
Fiscal Year Ended January 31, --------------------------------------------------------------2000 1999 1998 1997 (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) (Fiscal 1996) (F --------------------------------------------------------------Operating Results Revenues Provision for loss on the closure the SPA Collection division Earnings (loss) before income taxes Net earnings (loss) Net earnings (loss) per share - Basic Diluted Balance Sheet Data Working capital Total assets Long term notes payable $ 294,365 -15,541 9,325 0.89(2) 0.82(2) 54,644 142,119 2,366 $ 243,114 -7,670 4,602 0.54 0.51 16,003 82,045 2,513 $ 216,815 -988 593 0.07 0.07 11,633 78,662 3,299 $ 210,245 $

$ $

$ $

$ $

$ $

(8,000)(1) (7,241) (4,345) (0.53) (0.53) $ 9,429 78,804 4,245 $

Record Accomplishments Record net earnings of $9.3 million, a 103 percent increase over the prior fiscal year, and Record total revenues of $294.4 million, a 21 percent increase Record gross margin rate of 51.0 percent, a 2.0 percentage point increase Record Internet sales of $28.5 million, a 479 percent increase Record store sales of $188.4 million, a 16 percent increase, including 12 percent increase in comparable store sales. Financial Highlights
Fiscal Year Ended January 31, --------------------------------------------------------------2000 1999 1998 1997 (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) (Fiscal 1996) (F --------------------------------------------------------------Operating Results Revenues $ 294,365 Provision for loss on the closure the SPA Collection division -Earnings (loss) before income taxes 15,541 Net earnings (loss) 9,325 Net earnings (loss) per share - Basic 0.89(2) Diluted $ 0.82(2) Balance Sheet Data Working capital $ 54,644 Total assets 142,119 Long term notes payable 2,366 Stockholders' equity $ 77,123 Current ratio 1.93 Statistics Number of stores at year end 89 Comparable store sales increase (decrease) 12.3% Annualized net sales per square foot $ 546 Number of catalogs mailed(4) 47,581,000 Average revenue per transaction: Stores $ 106 Catalog(4) $ 145 Internet $ 97(5) Return on average stockholders' equity 16.4% Book value per share $ 7.33 Weighted average number of shares outstanding Basic 10,516,358 Diluted 11,358,004 $ 243,114 -7,670 4,602 0.54 0.51 16,003 82,045 2,513 36,649 1.40 $ 216,815 -988 593 0.07 0.07 11,633 78,662 3,299 29,156 1.27 $ 210,245 $

$ $

$ $

$ $

(8,000)(1) (7,241) (4,345) (0.53) (0.53) $ 9,429 78,804 4,245 28,449 1.22 $

$

$

$

$

87 5.3% $ 484 41,338,000 $ $ $ $ 102 141 140 14.0% 4.30

85 1.1% $ 465 38,261,000 $ $ $ $ 104 160 111 2.1% 3.51

82(3) (2.1%) $ 458 34,795,000 $ $ $ $ 97 169 77 N/A 3.44

$

$ $ $ $

8,532,588 9,072,832

8,303,425 8,537,032

8,260,208 8,260,208

Dollars are in thousands except net earnings (loss) per share and statistics. (1) The Company incurred a one-time charge related to the closure of the SPA Collection division of $0.56 loss per share. (2) The earnings per share for fiscal 1999 reflect the dilutive effect of the additional 3.0 million shares generated from the July 1999 secondary offering. (3) Excludes six and four SPA Collection stores at January 31, 1997 and 1996. (4) Based upon Sharper Image catalog - excludes other specialty and test mailing catalogs. (5) Includes results from auction site started in February 1999.

To Our Shareholders I'm delighted to report that 1999 was our best year ever. Annual revenues reached a record $294.4 million climbing 21 percent over last year's record level. Our net earnings were the highest in our 23-year history, reaching $9.3 million, a 103 percent increase over the prior year's $4.6 million. Every sales channel posted consistently impressive gains and outperformed our expectations. Our comparable store sales increased 12 percent on top of last year's five percent gain; total retail store sales increased 16 percent, to a record $188.4 million. The Sharper Image catalog posted sales of $65.6 million, a 12 percent gain, as increased circulation help to drive sales in stores and online. Internet sales surged 479 percent, to $28.5 million. Our business-to-business operations also enjoyed excellent sales gains to record levels. Most importantly, we achieved these outstanding financial results by having a sound strategic vision that was consistently executed by an experienced team of associates. Sharper Image Design(TM) Sharper Image is one of the most powerful brand names in retail, and our sophisticated product development capability gives us a distinct advantage over other retailers of hard goods. This year, Sharper Image Design(TM) products accounted for an impressive 29 percent of sales - 11 percentage points over last year's 18 percent. The popularity of both established and new proprietary products exceeded our expectations. The Ionic Breeze(TM) Silent Air Purifier, with exclusive patented electronics that propel air silently, was again the year's top seller. In 1999, we extended the Ionic Breeze line to include a Car Air Purifier, a Plug-In Air Purifier for small spaces, and a wearable Personal Air Purifier - all top performers. We created the Q Ball(TM), an irreverent, talking, hightech version of a fortune-teller's crystal ball - our best-selling novelty item ever. And we created the world's first and only shower CD stereo. Sharper Image Design(TM) products, combined with private-label merchandise from other manufacturers, accounted for 50 percent of sales in 1999 and helped raise our gross margin to 51.0 percent, up 2.0 percentage points. As the selection continues to expand, plans for 2000 target our own-label products to account for up to 60% of sales. Internet E-Commerce We launched our Web site nearly half a decade ago. It's difficult to fully characterize the dimensions of shifts in consumers' buying patterns, but one story will tell: During the peak days of December 1999, we did more online business in 72 hours than we did in all of 1997! In 1999, innovations at our Web site included establishing an auction site; adding 3D interactivity and sound to Web product presentations; creating successful email campaigns to our Internet buyers; and enhancing the ease of use with express shopping settings in a secure environment. E-commerce is a key focus of our strategy, and we will continue to devote significant human and financial resources to achieving high sales growth on the Web. The Internet is a quicker and more economical way to reach a vast consumer base and it gives us the best opportunity to realize our vision and become a much larger and more profitable company. Growth This record year was the result of a unique business model and a great strategy, well executed. Powerful brand. Proprietary products. Direct-marketing know-how. Multi-channel synergy. Effective, aggressive multimedia advertising to attract new customers. Innovative use of online technologies. Superior merchandising and marketing. Solid operational infrastructure. We demonstrated our ability to achieve excellent results, consistently. This strategy will continue to be our focus in the next fiscal year and beyond. I want to express my heartfelt gratitude to our entire team of associates. They worked very hard all year and have enjoyed, with me, the satisfaction of achieving our goals. On behalf of all of us, I thank you for your confidence and support. Sincerely,
/s/ Richard

Richard Thalheimer Chairman, Founder and Chief Executive Officer

4

FULL PAGE PHOTO The CD Shower Companion(TM) was created by Sharper Image Design(TM) and is the world's first and only stereo CD player made for use in the Shower

FULL PAGE COLOR PHOTO

PHOTOS IONIC HAIR WAND-PRO LIGHTSCAPE RELAXATION SYSTEM PERSONAL COOLING SYSTEM 2.0 SHARPER IMAGE DESIGN(TM) Sharper Image Design" products are conceived, designed, engineered, packaged, contract manufactured and marketed solely by the Company. Led by founder and CEO Richard Thalheimer, and Sharper Image senior vice president, Charles Taylor, our development team creates a wide range of innovative, high quality items - from interactive toy robots to silent air purifiers. Our "Invented Here" assortment is diverse, fresh, exciting, attractive and highly marketable to a broad base of consumers. Many products incorporate patented technologies that are unavailable elsewhere. Such items have no equal in the marketplace, cannot be price shopped, and vet they represent clear value to customers because of their imaginative, problem-solving usefulness. The higher margins of our own brand allow us to broaden our customer reach through increased multimedia advertising in our catalog and special single product mailers; in print media; on television, radio, infomercials and online; with email marketing programs; and in business-to-business trade publications. This combination of brand, product and advertising drove Sharper Image Design(TM) items to the top of our selling charts, accounting for 29 percent of sales to consumers. With more extraordinary products to be launched in 2000, Sharper Image Design" will continue to increase as a percentage of our growing sales. PHOTOS Powerflow Height-Enhancing Insoles CD Radio/Alarm Clock with Sound Soother Power Tower 100 Motorized CD Rack PROPRIETARY PRODUCTS (PERCENTAGE OF SALES) FISCAL 1997 1998 1999 8% 18% 29%

Sharper Image for Everyone

FULL PAGE PHOTO The CD Shower Companion(TM) was created by Sharper Image Design(TM) and is the world's first and only stereo CD player made for use in the Shower

FULL PAGE COLOR PHOTO

PHOTOS IONIC HAIR WAND-PRO LIGHTSCAPE RELAXATION SYSTEM PERSONAL COOLING SYSTEM 2.0 SHARPER IMAGE DESIGN(TM) Sharper Image Design" products are conceived, designed, engineered, packaged, contract manufactured and marketed solely by the Company. Led by founder and CEO Richard Thalheimer, and Sharper Image senior vice president, Charles Taylor, our development team creates a wide range of innovative, high quality items - from interactive toy robots to silent air purifiers. Our "Invented Here" assortment is diverse, fresh, exciting, attractive and highly marketable to a broad base of consumers. Many products incorporate patented technologies that are unavailable elsewhere. Such items have no equal in the marketplace, cannot be price shopped, and vet they represent clear value to customers because of their imaginative, problem-solving usefulness. The higher margins of our own brand allow us to broaden our customer reach through increased multimedia advertising in our catalog and special single product mailers; in print media; on television, radio, infomercials and online; with email marketing programs; and in business-to-business trade publications. This combination of brand, product and advertising drove Sharper Image Design(TM) items to the top of our selling charts, accounting for 29 percent of sales to consumers. With more extraordinary products to be launched in 2000, Sharper Image Design" will continue to increase as a percentage of our growing sales. PHOTOS Powerflow Height-Enhancing Insoles CD Radio/Alarm Clock with Sound Soother Power Tower 100 Motorized CD Rack PROPRIETARY PRODUCTS (PERCENTAGE OF SALES) FISCAL 1997 1998 1999 8% 18% 29%

Sharper Image for Everyone Nearly a quarter century of visionary merchandising and imaginative marketing has made Sharper Image one of the most widely recognized and respected brands - an enduring American icon that conveys genuine enthusiasm for well designed, technologically innovative products that make life easier and more enjoyable. We aim to build on our brand's strengths to reach a larger base of consumers with proprietary Sharper Image Design(TM) products that are unique yet broadly appealing, fun yet useful, sophisticated yet affordable. Our aggressive multimedia advertising programs are designed to support the initiative to build a larger customer base.

FULL PAGE COLOR PHOTO

PHOTOS IONIC HAIR WAND-PRO LIGHTSCAPE RELAXATION SYSTEM PERSONAL COOLING SYSTEM 2.0 SHARPER IMAGE DESIGN(TM) Sharper Image Design" products are conceived, designed, engineered, packaged, contract manufactured and marketed solely by the Company. Led by founder and CEO Richard Thalheimer, and Sharper Image senior vice president, Charles Taylor, our development team creates a wide range of innovative, high quality items - from interactive toy robots to silent air purifiers. Our "Invented Here" assortment is diverse, fresh, exciting, attractive and highly marketable to a broad base of consumers. Many products incorporate patented technologies that are unavailable elsewhere. Such items have no equal in the marketplace, cannot be price shopped, and vet they represent clear value to customers because of their imaginative, problem-solving usefulness. The higher margins of our own brand allow us to broaden our customer reach through increased multimedia advertising in our catalog and special single product mailers; in print media; on television, radio, infomercials and online; with email marketing programs; and in business-to-business trade publications. This combination of brand, product and advertising drove Sharper Image Design(TM) items to the top of our selling charts, accounting for 29 percent of sales to consumers. With more extraordinary products to be launched in 2000, Sharper Image Design" will continue to increase as a percentage of our growing sales. PHOTOS Powerflow Height-Enhancing Insoles CD Radio/Alarm Clock with Sound Soother Power Tower 100 Motorized CD Rack PROPRIETARY PRODUCTS (PERCENTAGE OF SALES) FISCAL 1997 1998 1999 8% 18% 29%

Sharper Image for Everyone Nearly a quarter century of visionary merchandising and imaginative marketing has made Sharper Image one of the most widely recognized and respected brands - an enduring American icon that conveys genuine enthusiasm for well designed, technologically innovative products that make life easier and more enjoyable. We aim to build on our brand's strengths to reach a larger base of consumers with proprietary Sharper Image Design(TM) products that are unique yet broadly appealing, fun yet useful, sophisticated yet affordable. Our aggressive multimedia advertising programs are designed to support the initiative to build a larger customer base. The Internet has fundamentally altered the business model for retailers. Many companies are threatened. But established sellers with a clearly positioned brand, exclusive products, multi-channel capability and directmarketing know-how are capitalizing on this change in the competitive arena. The Sharper Image is among a select group of premier specialty retailers that, because of the Internet, is poised to seize this extraordinary opportunity for significant, profitable growth.

PHOTOS IONIC HAIR WAND-PRO LIGHTSCAPE RELAXATION SYSTEM PERSONAL COOLING SYSTEM 2.0 SHARPER IMAGE DESIGN(TM) Sharper Image Design" products are conceived, designed, engineered, packaged, contract manufactured and marketed solely by the Company. Led by founder and CEO Richard Thalheimer, and Sharper Image senior vice president, Charles Taylor, our development team creates a wide range of innovative, high quality items - from interactive toy robots to silent air purifiers. Our "Invented Here" assortment is diverse, fresh, exciting, attractive and highly marketable to a broad base of consumers. Many products incorporate patented technologies that are unavailable elsewhere. Such items have no equal in the marketplace, cannot be price shopped, and vet they represent clear value to customers because of their imaginative, problem-solving usefulness. The higher margins of our own brand allow us to broaden our customer reach through increased multimedia advertising in our catalog and special single product mailers; in print media; on television, radio, infomercials and online; with email marketing programs; and in business-to-business trade publications. This combination of brand, product and advertising drove Sharper Image Design(TM) items to the top of our selling charts, accounting for 29 percent of sales to consumers. With more extraordinary products to be launched in 2000, Sharper Image Design" will continue to increase as a percentage of our growing sales. PHOTOS Powerflow Height-Enhancing Insoles CD Radio/Alarm Clock with Sound Soother Power Tower 100 Motorized CD Rack PROPRIETARY PRODUCTS (PERCENTAGE OF SALES) FISCAL 1997 1998 1999 8% 18% 29%

Sharper Image for Everyone Nearly a quarter century of visionary merchandising and imaginative marketing has made Sharper Image one of the most widely recognized and respected brands - an enduring American icon that conveys genuine enthusiasm for well designed, technologically innovative products that make life easier and more enjoyable. We aim to build on our brand's strengths to reach a larger base of consumers with proprietary Sharper Image Design(TM) products that are unique yet broadly appealing, fun yet useful, sophisticated yet affordable. Our aggressive multimedia advertising programs are designed to support the initiative to build a larger customer base. The Internet has fundamentally altered the business model for retailers. Many companies are threatened. But established sellers with a clearly positioned brand, exclusive products, multi-channel capability and directmarketing know-how are capitalizing on this change in the competitive arena. The Sharper Image is among a select group of premier specialty retailers that, because of the Internet, is poised to seize this extraordinary opportunity for significant, profitable growth. Sharper Image Stores The mortar in our "click and mortar" formula finished fiscal 1999, during the highest volume months, with five straight months of double-digit comparable stores sales growth. For the year, comparable store sales increased

Sharper Image for Everyone Nearly a quarter century of visionary merchandising and imaginative marketing has made Sharper Image one of the most widely recognized and respected brands - an enduring American icon that conveys genuine enthusiasm for well designed, technologically innovative products that make life easier and more enjoyable. We aim to build on our brand's strengths to reach a larger base of consumers with proprietary Sharper Image Design(TM) products that are unique yet broadly appealing, fun yet useful, sophisticated yet affordable. Our aggressive multimedia advertising programs are designed to support the initiative to build a larger customer base. The Internet has fundamentally altered the business model for retailers. Many companies are threatened. But established sellers with a clearly positioned brand, exclusive products, multi-channel capability and directmarketing know-how are capitalizing on this change in the competitive arena. The Sharper Image is among a select group of premier specialty retailers that, because of the Internet, is poised to seize this extraordinary opportunity for significant, profitable growth. Sharper Image Stores The mortar in our "click and mortar" formula finished fiscal 1999, during the highest volume months, with five straight months of double-digit comparable stores sales growth. For the year, comparable store sales increased 12 percent - a clear signal that shopping in a store is still a vital and fun experience. Synergistic use of multimedia advertising - increased catalog circulation, new radio and TV campaigns, expanded newspaper coverage helped our 89 stores to set an enviable record sales pace. In 2000, a new POS system will be installed in our stores to further enhance customer service capabilities. We're pleased with the updated look of our new format for stores. This year we plan to remodel up to eight stores and to open four to six new stores. PHOTOS Sharper Image stores in Palm Beach Gardens, FLA, showcases our new design format. 8

FULL PAGE PHOTO Colorful, distinctive packaging is key to the visual merchandising and marketing of our Sharper Image Design(TM) brand in our stores. 9

FULL PAGE PHOTO

Internet Revenues ($ Millions) FISCAL 1998 ---4.9

Internet Percentage of Revenues FISCAL 1998 ---2.0%

1997 ---1.6

1999 ---28.5

1997 ---0.7%

1999 ---9.7%

Internet Our e-commerce site, sharperimage.com, is widely recognized as a great place to visit, shop and buy. We're continuously improving our site's usability and entertainment value. In 1999, we added 3D interactivity and sound to dozens of product presentations using state-of-the-art 3D technology; rich media technology to show off the fun of the Q Ball's(TM) sound effects; express shopping enhancements to free customers from redundant keying

FULL PAGE PHOTO Colorful, distinctive packaging is key to the visual merchandising and marketing of our Sharper Image Design(TM) brand in our stores. 9

FULL PAGE PHOTO

Internet Revenues ($ Millions) FISCAL 1998 ---4.9

Internet Percentage of Revenues FISCAL 1998 ---2.0%

1997 ---1.6

1999 ---28.5

1997 ---0.7%

1999 ---9.7%

Internet Our e-commerce site, sharperimage.com, is widely recognized as a great place to visit, shop and buy. We're continuously improving our site's usability and entertainment value. In 1999, we added 3D interactivity and sound to dozens of product presentations using state-of-the-art 3D technology; rich media technology to show off the fun of the Q Ball's(TM) sound effects; express shopping enhancements to free customers from redundant keying of information; multiple ship-to addresses; virtual electronic gift certificates for "Last-Second Shopping!"(TM); online gift registry; email promotions; gift guides; and a $2 incentive for catalog recipients to place orders online. Sales surged nearly six-fold in 1999. Early in 2000, Forbes.com honored us as one of only 33 Forbes Favorite Web sites - picking us as the best online store for "perfect gifts." We also launched our own auction site for Sharper Image merchandise and it was immensely popular right from the start. Our goals for fiscal 2000 are to maintain a very high rate of growth, fueled by Sharper Image Design(TM) products, increased advertising and dramatic site enhancements. Our sales goal for fiscal 2000 is to at least double 1999's record Internet revenues.

Catalog & Direct Marketing The Internet has revitalized the world of direct marketing - an arena where Sharper Image is one of the most recognized and prestigious brands. The industry's trade magazine, Catalog Age, last year named us as one of "The 10 Best Catalog Concepts Ever" - noting that The Sharper Image was "seminal in creating and influencing the catalog business" by being the first direct marketer "to make it cool for well-to-do, educated guys to buy by mail." The Company has obviously grown and changed in 23 years; research shows that two-thirds of our catalog buyers this holiday were women. What's more, our unique product assortment is now driven by best-sellers that clean air, remove carpet stains, address personal grooming needs and, in general, provide the kinds of innovative solutions that consumers have always sought from direct merchants. In 1999, we tested a single-product "solo mailer" and enjoyed tremendous success with several campaigns. These targeted solo mailers introduced our Ionic Breeze(TM) Silent Air Purifier - and The Sharper Image - to an entire new universe of consumers. This exceptionally profitable new program is expanding this year, with additional products and greatly increased circulation. To millions of loyal customers, our colorful monthly catalog is The Sharper Image - the medium that built the brand. It remains our principle advertising vehicle and, in 1999, we increased circulation 15 percent to its highest level ever - 47.6 million catalogs. This year, boosted by the surging popularity of our Sharper Image Design(TM) exclusive products and of online ordering, we plan to continue to increase catalog circulation and other direct

FULL PAGE PHOTO

Internet Revenues ($ Millions) FISCAL 1998 ---4.9

Internet Percentage of Revenues FISCAL 1998 ---2.0%

1997 ---1.6

1999 ---28.5

1997 ---0.7%

1999 ---9.7%

Internet Our e-commerce site, sharperimage.com, is widely recognized as a great place to visit, shop and buy. We're continuously improving our site's usability and entertainment value. In 1999, we added 3D interactivity and sound to dozens of product presentations using state-of-the-art 3D technology; rich media technology to show off the fun of the Q Ball's(TM) sound effects; express shopping enhancements to free customers from redundant keying of information; multiple ship-to addresses; virtual electronic gift certificates for "Last-Second Shopping!"(TM); online gift registry; email promotions; gift guides; and a $2 incentive for catalog recipients to place orders online. Sales surged nearly six-fold in 1999. Early in 2000, Forbes.com honored us as one of only 33 Forbes Favorite Web sites - picking us as the best online store for "perfect gifts." We also launched our own auction site for Sharper Image merchandise and it was immensely popular right from the start. Our goals for fiscal 2000 are to maintain a very high rate of growth, fueled by Sharper Image Design(TM) products, increased advertising and dramatic site enhancements. Our sales goal for fiscal 2000 is to at least double 1999's record Internet revenues.

Catalog & Direct Marketing The Internet has revitalized the world of direct marketing - an arena where Sharper Image is one of the most recognized and prestigious brands. The industry's trade magazine, Catalog Age, last year named us as one of "The 10 Best Catalog Concepts Ever" - noting that The Sharper Image was "seminal in creating and influencing the catalog business" by being the first direct marketer "to make it cool for well-to-do, educated guys to buy by mail." The Company has obviously grown and changed in 23 years; research shows that two-thirds of our catalog buyers this holiday were women. What's more, our unique product assortment is now driven by best-sellers that clean air, remove carpet stains, address personal grooming needs and, in general, provide the kinds of innovative solutions that consumers have always sought from direct merchants. In 1999, we tested a single-product "solo mailer" and enjoyed tremendous success with several campaigns. These targeted solo mailers introduced our Ionic Breeze(TM) Silent Air Purifier - and The Sharper Image - to an entire new universe of consumers. This exceptionally profitable new program is expanding this year, with additional products and greatly increased circulation. To millions of loyal customers, our colorful monthly catalog is The Sharper Image - the medium that built the brand. It remains our principle advertising vehicle and, in 1999, we increased circulation 15 percent to its highest level ever - 47.6 million catalogs. This year, boosted by the surging popularity of our Sharper Image Design(TM) exclusive products and of online ordering, we plan to continue to increase catalog circulation and other direct marketing activities to attract new customers. The Company intends to continue the strategy of growing its customer base through aggressive multimedia advertising programs with the objective of achieving an appropriate return on investment.

Business-to-Business

Internet Revenues ($ Millions) FISCAL 1998 ---4.9

Internet Percentage of Revenues FISCAL 1998 ---2.0%

1997 ---1.6

1999 ---28.5

1997 ---0.7%

1999 ---9.7%

Internet Our e-commerce site, sharperimage.com, is widely recognized as a great place to visit, shop and buy. We're continuously improving our site's usability and entertainment value. In 1999, we added 3D interactivity and sound to dozens of product presentations using state-of-the-art 3D technology; rich media technology to show off the fun of the Q Ball's(TM) sound effects; express shopping enhancements to free customers from redundant keying of information; multiple ship-to addresses; virtual electronic gift certificates for "Last-Second Shopping!"(TM); online gift registry; email promotions; gift guides; and a $2 incentive for catalog recipients to place orders online. Sales surged nearly six-fold in 1999. Early in 2000, Forbes.com honored us as one of only 33 Forbes Favorite Web sites - picking us as the best online store for "perfect gifts." We also launched our own auction site for Sharper Image merchandise and it was immensely popular right from the start. Our goals for fiscal 2000 are to maintain a very high rate of growth, fueled by Sharper Image Design(TM) products, increased advertising and dramatic site enhancements. Our sales goal for fiscal 2000 is to at least double 1999's record Internet revenues.

Catalog & Direct Marketing The Internet has revitalized the world of direct marketing - an arena where Sharper Image is one of the most recognized and prestigious brands. The industry's trade magazine, Catalog Age, last year named us as one of "The 10 Best Catalog Concepts Ever" - noting that The Sharper Image was "seminal in creating and influencing the catalog business" by being the first direct marketer "to make it cool for well-to-do, educated guys to buy by mail." The Company has obviously grown and changed in 23 years; research shows that two-thirds of our catalog buyers this holiday were women. What's more, our unique product assortment is now driven by best-sellers that clean air, remove carpet stains, address personal grooming needs and, in general, provide the kinds of innovative solutions that consumers have always sought from direct merchants. In 1999, we tested a single-product "solo mailer" and enjoyed tremendous success with several campaigns. These targeted solo mailers introduced our Ionic Breeze(TM) Silent Air Purifier - and The Sharper Image - to an entire new universe of consumers. This exceptionally profitable new program is expanding this year, with additional products and greatly increased circulation. To millions of loyal customers, our colorful monthly catalog is The Sharper Image - the medium that built the brand. It remains our principle advertising vehicle and, in 1999, we increased circulation 15 percent to its highest level ever - 47.6 million catalogs. This year, boosted by the surging popularity of our Sharper Image Design(TM) exclusive products and of online ordering, we plan to continue to increase catalog circulation and other direct marketing activities to attract new customers. The Company intends to continue the strategy of growing its customer base through aggressive multimedia advertising programs with the objective of achieving an appropriate return on investment.

Business-to-Business Sharper Image Corporate Incentives & Rewards have soared in popularity as sales-driven companies compete to keep their increasingly valuable human resources. The Sharper Image brand is widely recognized as one of the most effective motivators in this thriving marketplace - few can match the prized "trophy value" of a product award from The Sharper Image. What's more, our programs are regarded as among the most innovative in the

Catalog & Direct Marketing The Internet has revitalized the world of direct marketing - an arena where Sharper Image is one of the most recognized and prestigious brands. The industry's trade magazine, Catalog Age, last year named us as one of "The 10 Best Catalog Concepts Ever" - noting that The Sharper Image was "seminal in creating and influencing the catalog business" by being the first direct marketer "to make it cool for well-to-do, educated guys to buy by mail." The Company has obviously grown and changed in 23 years; research shows that two-thirds of our catalog buyers this holiday were women. What's more, our unique product assortment is now driven by best-sellers that clean air, remove carpet stains, address personal grooming needs and, in general, provide the kinds of innovative solutions that consumers have always sought from direct merchants. In 1999, we tested a single-product "solo mailer" and enjoyed tremendous success with several campaigns. These targeted solo mailers introduced our Ionic Breeze(TM) Silent Air Purifier - and The Sharper Image - to an entire new universe of consumers. This exceptionally profitable new program is expanding this year, with additional products and greatly increased circulation. To millions of loyal customers, our colorful monthly catalog is The Sharper Image - the medium that built the brand. It remains our principle advertising vehicle and, in 1999, we increased circulation 15 percent to its highest level ever - 47.6 million catalogs. This year, boosted by the surging popularity of our Sharper Image Design(TM) exclusive products and of online ordering, we plan to continue to increase catalog circulation and other direct marketing activities to attract new customers. The Company intends to continue the strategy of growing its customer base through aggressive multimedia advertising programs with the objective of achieving an appropriate return on investment.

Business-to-Business Sharper Image Corporate Incentives & Rewards have soared in popularity as sales-driven companies compete to keep their increasingly valuable human resources. The Sharper Image brand is widely recognized as one of the most effective motivators in this thriving marketplace - few can match the prized "trophy value" of a product award from The Sharper Image. What's more, our programs are regarded as among the most innovative in the business. Recently, the editors and online readers of Incentive magazine honored sharperimage.com as one of the incentive industry's best Web sites. New online programs include custom Web sites with major corporate customers, targeted emails as motivational tools, and e-Awards(TM) for tiered, points-based online Sharper Image catalogs. As part of our strategy to leverage our strong brand and exclusive products, this area of business-to-business sales is targeted for continued high growth in 2000. Sharper Image Wholesale enhances our market presence and helps to establish The Sharper Image as a premier source of innovative merchandise to a larger universe of consumers. Taking advantage of our Company's vertical integration, the wholesale sales force targets select department and specialty stores, catalogs and Web sites with appropriate selections of Sharper Image Design(TM) products. In 2000, this portion of our business is planned to selectively increase its international presence. PHOTOS The Sharper Image is a leader in the incentives and rewards industry. 13 Management's Discussion and Analysis of Results of Operations and Financial Condition
Sharper Image Corporation

Business-to-Business Sharper Image Corporate Incentives & Rewards have soared in popularity as sales-driven companies compete to keep their increasingly valuable human resources. The Sharper Image brand is widely recognized as one of the most effective motivators in this thriving marketplace - few can match the prized "trophy value" of a product award from The Sharper Image. What's more, our programs are regarded as among the most innovative in the business. Recently, the editors and online readers of Incentive magazine honored sharperimage.com as one of the incentive industry's best Web sites. New online programs include custom Web sites with major corporate customers, targeted emails as motivational tools, and e-Awards(TM) for tiered, points-based online Sharper Image catalogs. As part of our strategy to leverage our strong brand and exclusive products, this area of business-to-business sales is targeted for continued high growth in 2000. Sharper Image Wholesale enhances our market presence and helps to establish The Sharper Image as a premier source of innovative merchandise to a larger universe of consumers. Taking advantage of our Company's vertical integration, the wholesale sales force targets select department and specialty stores, catalogs and Web sites with appropriate selections of Sharper Image Design(TM) products. In 2000, this portion of our business is planned to selectively increase its international presence. PHOTOS The Sharper Image is a leader in the incentives and rewards industry. 13 Management's Discussion and Analysis of Results of Operations and Financial Condition
Sharper Image Corporation Results of Operations Percentage of Total Revenues Fiscal Year Ended Jan. 31, ----------------------------------------------2000 1999 1998 (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) ----------------------------------------------Revenues: Net store sales Net catalog sales Net Internet sales Net wholesale sales List rental Licensing Total Revenues Costs and Expenses: Cost of products Buying and occupancy Advertising and promotion General, selling, and administrative Operating Income Other Income (Expense) Earnings Before Income Tax Income Tax Net Earnings 64.0% 22.3 9.7 3.5 0.4 0.1 ----100.0% 66.8% 29.1 2.0 1.4 0.5 0.2 ----100.0% 69.9% 27.1 0.7 1.5 0.5 0.3 ----100.0%

48.8 9.5 12.9 23.7 ----5.1 0.2 ----5.3 2.1 ----3.2% =====

50.6 10.8 11.2 24.3 ----3.1 0.1 ----3.2 1.3 ----1.9% =====

53.3 11.0 10.5 24.5 ----0.7 (0.2) ----0.5 0.2 ----0.3% =====

Revenues

Management's Discussion and Analysis of Results of Operations and Financial Condition
Sharper Image Corporation Results of Operations Percentage of Total Revenues Fiscal Year Ended Jan. 31, ----------------------------------------------2000 1999 1998 (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) ----------------------------------------------Revenues: Net store sales Net catalog sales Net Internet sales Net wholesale sales List rental Licensing Total Revenues Costs and Expenses: Cost of products Buying and occupancy Advertising and promotion General, selling, and administrative Operating Income Other Income (Expense) Earnings Before Income Tax Income Tax Net Earnings 64.0% 22.3 9.7 3.5 0.4 0.1 ----100.0% 66.8% 29.1 2.0 1.4 0.5 0.2 ----100.0% 69.9% 27.1 0.7 1.5 0.5 0.3 ----100.0%

48.8 9.5 12.9 23.7 ----5.1 0.2 ----5.3 2.1 ----3.2% =====

50.6 10.8 11.2 24.3 ----3.1 0.1 ----3.2 1.3 ----1.9% =====

53.3 11.0 10.5 24.5 ----0.7 (0.2) ----0.5 0.2 ----0.3% =====

Revenues Fiscal Year Ended Jan. 31, ----------------------------------------------2000 1999 1998 (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) ----------------------------------------------$188,416 $162,371 $151,589 65,617 70,750* 58,772* 28,495 4,922 1,633 10,483 3,464 3,199 ---------------------293,011 241,507 215,193 1,129 1,088 982 225 519 640 ---------------------$294,365 $243,114 $216,815 ======== ======== ========

Dollars in thousands Net Net Net Net store sales catalog sales Internet sales wholesale sales

Total Net Sales List rental Licensing Total Revenues

* Includes net sales from the Home Collection Catalog of $12,016,000 and $9,647,000 for fiscal 1998 and 1997, respectively. The test mailings of the Home Collection Catalog were terminated in late fiscal 1998 and accordingly those sales are not recurring in net catalog sales for fiscal 1999. Net sales for fiscal 1999 increased $51,504,000, or 21.3%, from the prior fiscal year. Returns and allowances were 11.0% of sales for fiscal 1999, as compared with 11.4% for fiscal 1998. The increase in fiscal 1999 Company net sales compared to fiscal 1998 was attributable to increases in net sales from Sharper Image stores of $26,045,000; increases in net sales from the Sharper Image catalog (excluding Home Collection) of $6,883,000; and increases in net sales from Internet operations of $23,573,000. The total Company increase in net sales was partially offset by the decrease in net sales attributable to the discontinuance of the test mailings of the Sharper Image Home Collection catalog in fiscal 1998. Excluding the net sales of the Sharper Image Home Collection catalog for fiscal 1998 for comparative purposes, Company net sales increased $63,520,000, or

27.7%, respectively. There were three key factors that contributed to the revenue growth. The first was the continued popularity of Sharper Image Design proprietary products, as well as private label products. The continuing development and introduction of these new and popular products is an important factor in the Company's future success. Sharper Image Design proprietary products increased from 18% of net sales to consumers in fiscal 1998 to 29% in fiscal 1999. Private label products increased from 11% of net sales to consumers in fiscal 1998 to 21% in fiscal 1999. Secondly, management believes the effectiveness of its increased multimedia advertising initiatives in fiscal 1999 was also a significant contributing factor in achieving record revenue levels and attracting new customers and will be an important factor in future revenue growth, although there can be no assurances of the continued success of these and future advertising initiatives. Rounding out the factors, the surge in the popularity of online shopping, and the Company's determined push to have a robust e-commerce site, also contributed to the higher level of revenue growth. For fiscal 1999, net store sales increased $26,045,000, or 16.0%, and comparable store sales increased by 12.3%. The increase in net store sales for fiscal 1999 reflects a 12.8% increase in total store transactions, with a 3.0% increase in average revenue per transaction. Partially contributing to the increased transactions is that several key stores were remodeled in 1998. Although during the remodeling only a portion of the remodeled stores were open for business, the appealing new store format increased store traffic in subse14 Management's Discussion and Analysis of (continued) Sharper Image Corporation Revenues (continued) quent months by reaching an expanded customer base with broad appeal products, and enhanced visibility through additional advertising. The increase in net store sales in fiscal 1999 is also attributable to the fiscal 1999 opening of five new stores and annualized sales of four new stores opened in fiscal 1998 partially offset by three stores that closed at their lease maturity in fiscal 1999. Net sales per average square foot increased to $546 for fiscal 1999, compared to $484 in fiscal 1998 and $465 in fiscal 1997. The Company's store productivity continues to improve as sales per square foot increases and compares favorably to the industry. Net catalog sales for fiscal year 1999 decreased $5,133,000 or 7.3% from fiscal 1998, which includes the decrease in the Sharper Image Home Collection Catalog sales, due to the discontinuation of the test mailings of that catalog in late fiscal 1998. Excluding the sales of the Home Collection Catalog in fiscal 1998, net catalog sales increased $6,883,000, or 11.7% in fiscal 1999. Excluding Home Collection Catalog operations, the fiscal 1999 increase in Sharper Image Catalog net sales reflects an increase of 9.0% in transactions and a 2.5% increase in average revenue per transaction, compared to the prior year. Management believes the increase in Sharper Image catalog sales is partially attributable to a 13.5% increase in Sharper Image Catalog pages circulated in fiscal 1999 as compared to fiscal 1998, as well as the continued popularity of Sharper Image Design proprietary and private label products. Management is continually reviewing the number of catalogs and the pages circulated in its efforts to optimize the revenues from catalog advertising and is currently planning an increase in pages circulated for fiscal 2000. The Company intends to continue the strategy of growing its customer base through aggressive multimedia advertising programs, as well as marketing to these newly acquired customers. The Company's fiscal 1999 Internet sales from sharperimage.com, which includes the Sharper Image auction site, increased $23,573,000, or 478.9%, from fiscal 1998. The fiscal 1999 increase in Internet net sales reflects an increase of 736.4% in transactions. The Company's e-commerce site, sharperimage.com, was enhanced with several new feature improvements from ease-of-use and technology perspectives. 3D interactivity and sound technology was introduced along with other rich media technologies to present products in fun and entertaining ways. New features include express shopping settings, one time registration in a secure environment, gift guides, virtual gift certificates, email marketing promotions, multiple addresses stored securely for customer's gift lists, and $2 off ordering incentives for Internet purchases. The increase in transactions was partially offset by a 30.8% decrease in average revenue per transaction, compared to the prior year. The decrease in average revenue per transaction is primarily attributable to the Internet auction activity, which began in the Company's first quarter

Management's Discussion and Analysis of (continued) Sharper Image Corporation Revenues (continued) quent months by reaching an expanded customer base with broad appeal products, and enhanced visibility through additional advertising. The increase in net store sales in fiscal 1999 is also attributable to the fiscal 1999 opening of five new stores and annualized sales of four new stores opened in fiscal 1998 partially offset by three stores that closed at their lease maturity in fiscal 1999. Net sales per average square foot increased to $546 for fiscal 1999, compared to $484 in fiscal 1998 and $465 in fiscal 1997. The Company's store productivity continues to improve as sales per square foot increases and compares favorably to the industry. Net catalog sales for fiscal year 1999 decreased $5,133,000 or 7.3% from fiscal 1998, which includes the decrease in the Sharper Image Home Collection Catalog sales, due to the discontinuation of the test mailings of that catalog in late fiscal 1998. Excluding the sales of the Home Collection Catalog in fiscal 1998, net catalog sales increased $6,883,000, or 11.7% in fiscal 1999. Excluding Home Collection Catalog operations, the fiscal 1999 increase in Sharper Image Catalog net sales reflects an increase of 9.0% in transactions and a 2.5% increase in average revenue per transaction, compared to the prior year. Management believes the increase in Sharper Image catalog sales is partially attributable to a 13.5% increase in Sharper Image Catalog pages circulated in fiscal 1999 as compared to fiscal 1998, as well as the continued popularity of Sharper Image Design proprietary and private label products. Management is continually reviewing the number of catalogs and the pages circulated in its efforts to optimize the revenues from catalog advertising and is currently planning an increase in pages circulated for fiscal 2000. The Company intends to continue the strategy of growing its customer base through aggressive multimedia advertising programs, as well as marketing to these newly acquired customers. The Company's fiscal 1999 Internet sales from sharperimage.com, which includes the Sharper Image auction site, increased $23,573,000, or 478.9%, from fiscal 1998. The fiscal 1999 increase in Internet net sales reflects an increase of 736.4% in transactions. The Company's e-commerce site, sharperimage.com, was enhanced with several new feature improvements from ease-of-use and technology perspectives. 3D interactivity and sound technology was introduced along with other rich media technologies to present products in fun and entertaining ways. New features include express shopping settings, one time registration in a secure environment, gift guides, virtual gift certificates, email marketing promotions, multiple addresses stored securely for customer's gift lists, and $2 off ordering incentives for Internet purchases. The increase in transactions was partially offset by a 30.8% decrease in average revenue per transaction, compared to the prior year. The decrease in average revenue per transaction is primarily attributable to the Internet auction activity, which began in the Company's first quarter ended April 30, 1999. The auction site was launched to further the Company's strategy of increasing its Internet business and broadening its customer base, and has significantly increased total visits and page views on the Company's Web site. The auction site not only offers consumers the fun of bidding on and winning products at less than retail prices, it also allows the Company the opportunity to effectively manage its closeout products. Net wholesale sales for fiscal year 1999 increased $7,019,000, or 202.6%, compared to fiscal 1998, primarily due to new customers acquired prior to the 1999 holiday season. Certain of these customers were part of a test concept program and may not generate repeat sales in fiscal 2000. Net sales of $241,507,000 for fiscal 1998 increased $26,314,000, or 12.2%, from the prior fiscal year. Returns and allowances as a percentage of sales were 11.4% for fiscal 1998, compared to 12.2% for fiscal 1997. Net store sales increased $10,782,000, or 7.1%, comparable store sales increased 5.3%, net catalog sales increased $11,978,000, or 20.4%, net Internet sales increased $3,289,000, or 201.5%, and net wholesale sales increased $265,000, or 8.3%, as compared to fiscal 1997. The increase in net store sales for fiscal 1998 was primarily attributable to an 8.7% increase in total store transactions, partially offset by a 1.3% decrease in average revenue per transaction. Also contributing to the increase was the fiscal 1998 opening of four new stores and annualized sales of six stores opened in fiscal 1997, partially offset by the 1998 closing of two stores at the maturity of the store leases. Net catalog sales for fiscal 1998 were positively impacted by an increase of 34.7% in total catalog orders partially offset by a 10.6% decrease in average revenue per order. The increase in catalog orders was partially

attributable to advertising campaigns in major consumer magazines and newspapers. The Company believes that the 8.0% increase in the number of catalogs circulated for 15 Management's Discussion and Analysis of (continued) Sharper Image Corporation Revenues (continued) Sharper Image catalog during fiscal 1998 also contributed to increases in net store sales and comparable store sales. The Company's Internet sales increased to $4.9 million in fiscal 1998 from $1.6 million in fiscal 1997. Fiscal 1998 experienced a 139.1% increase in Internet orders and a 26.1% increase in average revenue per transaction from fiscal 1997. The threefold increase in sales reflects the increase in the number of online shoppers and the Company's commitment to grow its e-commerce. Net wholesale sales increased $264,000, or 8.3%, primarily due to increased sales of the Company's Sharper Image Design proprietary products. For the purpose of determining comparable store sales, comparable stores are defined as those which were open during the entire comparable month of the previous year and are compared monthly for purposes of this analysis. Inflationary effects are not considered significant to the growth of sales. Cost of Products Cost of products for fiscal 1999 increased $20,551,000, or 16.7%, from fiscal 1998. The increase in cost of products is due to the higher sales volume compared to the prior year, partially offset by the reduced sales of The Sharper Image Home Catalog Collection, which carried products with higher costs. The gross margin rate for fiscal 1999 was 51.0%, which was 2.0 percentage points better than the comparable prior year period. The higher gross margin rate reflects an increase in sales of Sharper Image Design proprietary and private label products, which generally carry higher margins than branded products. The Sharper Image Design proprietary products percentage of net sales, exclusive of wholesale, increased to 29% from 18%, in fiscal 1999 compared to fiscal 1998. The private label products increased to 21% from 11% in fiscal 1999, compared to the prior year. Cost of products increased $7,596,000, or 6.6%, in fiscal 1998 from fiscal 1997. The increase was primarily related to increases in net sales. The increase in cost of sales was lower than the increase in sales, reflecting the beneficial impact of the higher gross margin rate produced during fiscal 1998. The gross margin rate for fiscal 1998 was 49.0%, compared to 46.3% for fiscal 1997. The higher gross margin rate reflected an increase in sales of Sharper Image Design proprietary products to 18% of total sales to consumers from 8% for the prior fiscal year. The Company's gross margin rate fluctuates with the changes in its merchandise mix, which is affected by new items available in various categories. The variation in merchandise mix from category to category from year to year reflects the characteristic that the Company is driven by individual products, as opposed to general lines of merchandise. Additionally, the Company's expanding auction site and other promotional activities will tend to in part offset the rate of increase in our gross margin performance. It is impossible to predict future gross margin rates, although the Company's goal is to continue to increase sales of Sharper Image Design proprietary products and other exclusive private label products, as these products generally carry higher margins than branded products. The popularity of these proprietary products contributed to the 2.0 percentage point increase in the gross margin rate for fiscal 1999, and should continue to have a positive impact on the Company's gross margin rate. Buying and Occupancy Buying and occupancy costs for fiscal 1999 increased $1,689,000, or 6.5%, from fiscal 1998. The increase primarily reflects a full year of occupancy costs for four new stores opened in fiscal 1998 and the costs

Management's Discussion and Analysis of (continued) Sharper Image Corporation Revenues (continued) Sharper Image catalog during fiscal 1998 also contributed to increases in net store sales and comparable store sales. The Company's Internet sales increased to $4.9 million in fiscal 1998 from $1.6 million in fiscal 1997. Fiscal 1998 experienced a 139.1% increase in Internet orders and a 26.1% increase in average revenue per transaction from fiscal 1997. The threefold increase in sales reflects the increase in the number of online shoppers and the Company's commitment to grow its e-commerce. Net wholesale sales increased $264,000, or 8.3%, primarily due to increased sales of the Company's Sharper Image Design proprietary products. For the purpose of determining comparable store sales, comparable stores are defined as those which were open during the entire comparable month of the previous year and are compared monthly for purposes of this analysis. Inflationary effects are not considered significant to the growth of sales. Cost of Products Cost of products for fiscal 1999 increased $20,551,000, or 16.7%, from fiscal 1998. The increase in cost of products is due to the higher sales volume compared to the prior year, partially offset by the reduced sales of The Sharper Image Home Catalog Collection, which carried products with higher costs. The gross margin rate for fiscal 1999 was 51.0%, which was 2.0 percentage points better than the comparable prior year period. The higher gross margin rate reflects an increase in sales of Sharper Image Design proprietary and private label products, which generally carry higher margins than branded products. The Sharper Image Design proprietary products percentage of net sales, exclusive of wholesale, increased to 29% from 18%, in fiscal 1999 compared to fiscal 1998. The private label products increased to 21% from 11% in fiscal 1999, compared to the prior year. Cost of products increased $7,596,000, or 6.6%, in fiscal 1998 from fiscal 1997. The increase was primarily related to increases in net sales. The increase in cost of sales was lower than the increase in sales, reflecting the beneficial impact of the higher gross margin rate produced during fiscal 1998. The gross margin rate for fiscal 1998 was 49.0%, compared to 46.3% for fiscal 1997. The higher gross margin rate reflected an increase in sales of Sharper Image Design proprietary products to 18% of total sales to consumers from 8% for the prior fiscal year. The Company's gross margin rate fluctuates with the changes in its merchandise mix, which is affected by new items available in various categories. The variation in merchandise mix from category to category from year to year reflects the characteristic that the Company is driven by individual products, as opposed to general lines of merchandise. Additionally, the Company's expanding auction site and other promotional activities will tend to in part offset the rate of increase in our gross margin performance. It is impossible to predict future gross margin rates, although the Company's goal is to continue to increase sales of Sharper Image Design proprietary products and other exclusive private label products, as these products generally carry higher margins than branded products. The popularity of these proprietary products contributed to the 2.0 percentage point increase in the gross margin rate for fiscal 1999, and should continue to have a positive impact on the Company's gross margin rate. Buying and Occupancy Buying and occupancy costs for fiscal 1999 increased $1,689,000, or 6.5%, from fiscal 1998. The increase primarily reflects a full year of occupancy costs for four new stores opened in fiscal 1998 and the costs associated with the five new stores opened in fiscal 1999, partially offset by the three stores that closed at their lease maturity during fiscal 1999. Buying and occupancy costs as a percentage of net sales decreased from 10.8% in fiscal 1998 to 9.5% in fiscal 1999. Buying and occupancy expenses increased $2,249,000, or 9.4%, in fiscal 1998 from fiscal 1997. The increase

primarily reflects a full year of occupancy cost of six new stores opened during fiscal 1997 and the cost of four new stores opened in fiscal 1998, partially offset by the 1998 closure of two stores at their lease maturity. Buying and occupancy costs as a percentage of net sales decreased from 11.1% in fiscal 1997 to 10.8% in fiscal 1998. Advertising and Promotion Advertising and promotion expenses for fiscal 1999 increased $10,596,000, or 38.7%, from fiscal 1998. The increase in advertising and promotion expenses was partially attributable to a 13.5% increase in Sharper Image catalog pages circulated in fiscal 1999 and a seven percent increase in paper costs instituted in the fourth quarter of 16 Management's Discussion and Analysis of (continued) Sharper Image Corporation Advertising and Promotion (continued) fiscal 1999. Although the Company does not anticipate significant paper cost increases in fiscal 2000, if significant increases materialized, the Company's circulation plans and/or advertising and promotion costs could be significantly impacted. The increased cost related to circulation increases was partially offset by the reduction in costs attributable to the discontinuance of The Sharper Image Home Collection Catalog in fiscal 1998. In addition, the Company deployed several advertising initiatives to broaden its customer base, including radio advertising, television commercials, infomercials, direct response or single product mailers, among others. These increased advertising initiatives were launched 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 future periods. Advertising and promotion expenses as a percentage of net sales increased from 11.3% in fiscal 1998 to 13.0% in fiscal 1999. Advertising and promotion expenses for fiscal 1998 increased $4,601,000, or 20.2%, from fiscal 1997. The increase was primarily due to an 8.0% increase in the number of Sharper Image catalogs mailed and an 11.6% increase in the number of pages circulated, as compared with fiscal 1997. Other costs, such as advertising campaigns in major consumer magazines and newspapers; infomercials; and development of Internet marketing also contributed to the increased expenses in fiscal 1998. The increase was partially offset by the 51.3% decrease in mailings of the test concept Sharper Image Home Collection catalog. Advertising and promotion expenses as a percentage of net sales increased from 10.6% in fiscal 1997 to 11.3% in fiscal 1998. While the Sharper Image catalog serves as the primary source of advertising for its retail stores, mail order and Internet business, the Company continually reevaluates its advertising strategies and catalog circulation plans to maximize the effectiveness of its advertising programs. General, Selling, and Administrative General, selling and administrative expenses for fiscal 1999 increased $10,847,000, or 18.4%, from fiscal 1998. The increase was primarily due to increases in variable expenses from increased net sales, expenses in the Internet and proprietary product areas for improved and expanded operational infrastructure, increased costs associated with attracting and retaining key employees, and overall selling expenses related to the opening of five new stores. The Company competes for employees in certain highly competitive market segments. As a result, the Company's efforts to attract and retain certain employees are becoming more difficult and therefore more expensive. The Company is continually evaluating its salary, benefits, and stock option programs to remain competitive in the marketplace. General, selling and administrative expenses as a percentage of net sales decreased from 24.4% in fiscal 1998 to 23.8% in fiscal 1999. General, selling, and administrative expenses for fiscal 1998 increased $5,932,000, or 11.2%, from fiscal 1997, primarily due to increases in overall selling expenses related to the increase in net sales and related additional administrative support costs. The increase was partially offset by the improvement in net delivery income related to mail order shipments. General, selling and administrative expenses as a percentage of net sales decreased from 24.7% in fiscal 1997 to 24.4% in fiscal 1998.

Management's Discussion and Analysis of (continued) Sharper Image Corporation Advertising and Promotion (continued) fiscal 1999. Although the Company does not anticipate significant paper cost increases in fiscal 2000, if significant increases materialized, the Company's circulation plans and/or advertising and promotion costs could be significantly impacted. The increased cost related to circulation increases was partially offset by the reduction in costs attributable to the discontinuance of The Sharper Image Home Collection Catalog in fiscal 1998. In addition, the Company deployed several advertising initiatives to broaden its customer base, including radio advertising, television commercials, infomercials, direct response or single product mailers, among others. These increased advertising initiatives were launched 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 future periods. Advertising and promotion expenses as a percentage of net sales increased from 11.3% in fiscal 1998 to 13.0% in fiscal 1999. Advertising and promotion expenses for fiscal 1998 increased $4,601,000, or 20.2%, from fiscal 1997. The increase was primarily due to an 8.0% increase in the number of Sharper Image catalogs mailed and an 11.6% increase in the number of pages circulated, as compared with fiscal 1997. Other costs, such as advertising campaigns in major consumer magazines and newspapers; infomercials; and development of Internet marketing also contributed to the increased expenses in fiscal 1998. The increase was partially offset by the 51.3% decrease in mailings of the test concept Sharper Image Home Collection catalog. Advertising and promotion expenses as a percentage of net sales increased from 10.6% in fiscal 1997 to 11.3% in fiscal 1998. While the Sharper Image catalog serves as the primary source of advertising for its retail stores, mail order and Internet business, the Company continually reevaluates its advertising strategies and catalog circulation plans to maximize the effectiveness of its advertising programs. General, Selling, and Administrative General, selling and administrative expenses for fiscal 1999 increased $10,847,000, or 18.4%, from fiscal 1998. The increase was primarily due to increases in variable expenses from increased net sales, expenses in the Internet and proprietary product areas for improved and expanded operational infrastructure, increased costs associated with attracting and retaining key employees, and overall selling expenses related to the opening of five new stores. The Company competes for employees in certain highly competitive market segments. As a result, the Company's efforts to attract and retain certain employees are becoming more difficult and therefore more expensive. The Company is continually evaluating its salary, benefits, and stock option programs to remain competitive in the marketplace. General, selling and administrative expenses as a percentage of net sales decreased from 24.4% in fiscal 1998 to 23.8% in fiscal 1999. General, selling, and administrative expenses for fiscal 1998 increased $5,932,000, or 11.2%, from fiscal 1997, primarily due to increases in overall selling expenses related to the increase in net sales and related additional administrative support costs. The increase was partially offset by the improvement in net delivery income related to mail order shipments. General, selling and administrative expenses as a percentage of net sales decreased from 24.7% in fiscal 1997 to 24.4% in fiscal 1998. Other Income (Expense) Other income, net, for fiscal 1999 increased $303,000 from fiscal 1998, primarily due to the interest income earned during fiscal 1999 from higher investment balances generated from improved operating results and the proceeds of the secondary offering completed in July 1999. Other income, net, for fiscal 1998 increased $761,000 from fiscal 1997, reflecting primarily the gain on the sale of certain equipment. Income Taxes The effective tax rate for fiscal 1999, 1998, and 1997 was 40.0%. Income taxes are accounted for using an asset

and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. In estimating future tax consequences, all expected future events then known to management are considered, other than changes in the tax law or rates. Liquidity and Capital Resources The Company met its short-term liquidity needs and its capital requirements in fiscal 1999 with cash generated from operations, trade credit, and proceeds from the secondary offering. During fiscal 1999, the Company's cash increased by $47,068,000 to $55,457,000 primarily due to proceeds 17 Management's Discussion and Analysis of (continued) Sharper Image Corporation Liquidity and Capital Resources (continued) from the secondary offering and the highest annual revenues and earnings in the Company's history. On July 22, 1999, the Company completed an offering of 3.0 million shares of its common stock, all of which shares were offered by the Company. The proceeds from the offering, net of underwriters discount and offering expenses, totaled $30.2 million. The Company intends to use the proceeds from this offering for general corporate purposes, including investments in the Company's Internet business, expansion of its distribution and fulfillment capacity, and working capital. At January 31, 2000, the Company had no amounts outstanding on its revolving loan credit facility. The highest amount of direct borrowings under the revolving loan credit facility during fiscal 1999 was $3,873,000, compared to $14,288,000 during fiscal 1998. Letter of credit commitments outstanding under the credit facility at January 31, 2000 and 1999 were $3,192,000 and $4,108,000, respectively. The Company has a revolving secured credit facility which expires September 2003. The credit facility has been amended on several occasions and, as of January 31, 2000, the agreement allows Company borrowings and letters of credit up to a maximum of $31 million for the period from October 1, 2000 through December 31, 2000, and up to $20 million at other times of the year based on inventory levels. The credit facility is secured by the Company's inventory, accounts receivable, general intangibles and certain other assets. Borrowings under this facility bear interest at either prime plus 0.25% per annum or at LIBOR plus 2.25% per annum determined by financial performance. The credit facility contains certain financial covenants pertaining to interest coverage ratio and net worth and contains limitations on operating leases, other borrowings, dividend payments and stock repurchases. For the period ended January 31, 2000, the Company was in compliance with all covenants. Subsequent to January 31, 2000, an amendment to the credit facility was completed to set lower interest rates and to extend the expiration date to September 2004. Borrowings under the credit facility will now bear interest at either the prime rate per annum or at LIBOR plus 1.5% per annum determined by financial performance. The credit facility allows seasonal borrowings of up to $31 million for the period October 1 through December 31, 2000, increasing by $1 million for this period in each of the two subsequent years, and remaining at $33 million for this period the following year. In addition, the credit facility provides for term loans for capital expenditures (Term Loans) up to an aggregate of $2.5 million. Amounts borrowed under the Term Loans bear interest at a variable rate of either prime plus 0.50% per annum or at LIBOR plus 2.50% per annum determined by financial performance. Each Term Loan is to be repaid in 36 equal monthly principal installments. At January 31, 2000, there were no amounts outstanding on the Term Loan facility. At January 31, 2000, notes payable included a $2,513,000 mortgage loan collateralized by the Company's distribution center. This note bears interest at a fixed rate of 8.40%, provides for monthly payments of principal and interest in the amount of $29,367, and matures in January 2011. The Company's merchandise inventory at January 31, 2000, was approximately 21.6% higher than the prior

Management's Discussion and Analysis of (continued) Sharper Image Corporation Liquidity and Capital Resources (continued) from the secondary offering and the highest annual revenues and earnings in the Company's history. On July 22, 1999, the Company completed an offering of 3.0 million shares of its common stock, all of which shares were offered by the Company. The proceeds from the offering, net of underwriters discount and offering expenses, totaled $30.2 million. The Company intends to use the proceeds from this offering for general corporate purposes, including investments in the Company's Internet business, expansion of its distribution and fulfillment capacity, and working capital. At January 31, 2000, the Company had no amounts outstanding on its revolving loan credit facility. The highest amount of direct borrowings under the revolving loan credit facility during fiscal 1999 was $3,873,000, compared to $14,288,000 during fiscal 1998. Letter of credit commitments outstanding under the credit facility at January 31, 2000 and 1999 were $3,192,000 and $4,108,000, respectively. The Company has a revolving secured credit facility which expires September 2003. The credit facility has been amended on several occasions and, as of January 31, 2000, the agreement allows Company borrowings and letters of credit up to a maximum of $31 million for the period from October 1, 2000 through December 31, 2000, and up to $20 million at other times of the year based on inventory levels. The credit facility is secured by the Company's inventory, accounts receivable, general intangibles and certain other assets. Borrowings under this facility bear interest at either prime plus 0.25% per annum or at LIBOR plus 2.25% per annum determined by financial performance. The credit facility contains certain financial covenants pertaining to interest coverage ratio and net worth and contains limitations on operating leases, other borrowings, dividend payments and stock repurchases. For the period ended January 31, 2000, the Company was in compliance with all covenants. Subsequent to January 31, 2000, an amendment to the credit facility was completed to set lower interest rates and to extend the expiration date to September 2004. Borrowings under the credit facility will now bear interest at either the prime rate per annum or at LIBOR plus 1.5% per annum determined by financial performance. The credit facility allows seasonal borrowings of up to $31 million for the period October 1 through December 31, 2000, increasing by $1 million for this period in each of the two subsequent years, and remaining at $33 million for this period the following year. In addition, the credit facility provides for term loans for capital expenditures (Term Loans) up to an aggregate of $2.5 million. Amounts borrowed under the Term Loans bear interest at a variable rate of either prime plus 0.50% per annum or at LIBOR plus 2.50% per annum determined by financial performance. Each Term Loan is to be repaid in 36 equal monthly principal installments. At January 31, 2000, there were no amounts outstanding on the Term Loan facility. At January 31, 2000, notes payable included a $2,513,000 mortgage loan collateralized by the Company's distribution center. This note bears interest at a fixed rate of 8.40%, provides for monthly payments of principal and interest in the amount of $29,367, and matures in January 2011. The Company's merchandise inventory at January 31, 2000, was approximately 21.6% higher than the prior fiscal year. The increase in inventory reflected the Company's plan to bring inventory to the optimal level to support sales growth trends currently being experienced by the Company. The Company leases all of its offices, stores, and seasonal warehouse space. During the fiscal year ended January 31, 2000, the Company opened five stores located in Palm Desert, California; Tampa, Florida; Buford, Georgia; Providence, Rhode Island; and Mission Viejo, California. During fiscal 1999, the Company closed three stores located in Palm Springs, California; San Francisco, California; and Philadelphia, Pennsylvania at the maturity of the leases. In fiscal 2000, the Company plans include expanding its fulfillment and distribution center capacity; updating the Company's e-commerce Web site for sharperimage.com; opening four to six new stores and remodeling approximately eight stores at lease maturity. These initiatives, combined with a recurring level of capital expenditures, will result in significantly higher capital expenditures in fiscal 2000 over fiscal 1999.

The Company is currently planning to open four to six new Sharper Image stores during fiscal 2000. Total capital expenditures estimated for new and existing stores, corporate headquarters and the distribution center for fiscal 2000 are between $15 million and $25 million. The Company believes it will be able to fund its cash needs for fiscal 2000 through existing cash balances, internally generated cash, trade credit, and the credit facility. 18 Management's Discussion and Analysis of (continued) Sharper Image Corporation Quantitative and Qualitative Disclosure About Market Risk The Company is exposed to market risks, which include changes in interest rates and, to a lesser extent, foreign exchange rates. The Company does not engage in financial transactions for trading or speculative purposes. The interest payable on the Company's credit facility is based on variable interest rates and therefore affected by changes in market interest rates. If interest rates on existing variable rate debt rose 0.8% (10% from the bank's reference rate) as of January 31, 2000, the Company's results from operations and cash flows would not be materially affected. In addition, the Company has fixed and variable income investments consisting of cash equivalents and short-term investments, which are also affected by changes in market interest rates. The Company does not use derivative financial instruments in its investment portfolio. The Company enters into a significant amount of purchase obligations outside of the U.S. which are settled in U.S. dollars and, therefore, has only minimal exposure to foreign currency exchange risks. The Company does not hedge against foreign currency risks and believes that foreign currency exchange risk is immaterial. Seasonality The Company's business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the holiday 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 the fourth quarter ending January 31. The Company generally experiences lower revenues and earnings 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 operations for these interim periods are not necessarily indicative of the results for the full fiscal year. Uncertainties and Risk The foregoing discussion and analysis should be read in conjunction with the Company's financial statements and notes thereto included with this report. The foregoing discussion contains certain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such forward-looking statements. Such risks and uncertainties include, without limitation, risks of changing market conditions in the overall economy and the retail industry, consumer demand, the opening of new stores, actual advertising expenditures by the Company, the success of the Company's advertising and merchandising strategy, availability of products, and other factors detailed from time to time in the Company's annual and other reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligations to revise these forward-looking statements to reflect events or circumstances after the date hereof. 19 Statements of Operations Sharper Image Corporation
Fiscal Year Ended January 31, -----------------------------------------------------2000 1999 1998 Dollars in thousands except per share amounts (Fiscal 1999) (Fiscal 1998) (Fiscal 1997 -------------------------------------------------------------------------------------------------------

Management's Discussion and Analysis of (continued) Sharper Image Corporation Quantitative and Qualitative Disclosure About Market Risk The Company is exposed to market risks, which include changes in interest rates and, to a lesser extent, foreign exchange rates. The Company does not engage in financial transactions for trading or speculative purposes. The interest payable on the Company's credit facility is based on variable interest rates and therefore affected by changes in market interest rates. If interest rates on existing variable rate debt rose 0.8% (10% from the bank's reference rate) as of January 31, 2000, the Company's results from operations and cash flows would not be materially affected. In addition, the Company has fixed and variable income investments consisting of cash equivalents and short-term investments, which are also affected by changes in market interest rates. The Company does not use derivative financial instruments in its investment portfolio. The Company enters into a significant amount of purchase obligations outside of the U.S. which are settled in U.S. dollars and, therefore, has only minimal exposure to foreign currency exchange risks. The Company does not hedge against foreign currency risks and believes that foreign currency exchange risk is immaterial. Seasonality The Company's business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the holiday 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 the fourth quarter ending January 31. The Company generally experiences lower revenues and earnings 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 operations for these interim periods are not necessarily indicative of the results for the full fiscal year. Uncertainties and Risk The foregoing discussion and analysis should be read in conjunction with the Company's financial statements and notes thereto included with this report. The foregoing discussion contains certain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such forward-looking statements. Such risks and uncertainties include, without limitation, risks of changing market conditions in the overall economy and the retail industry, consumer demand, the opening of new stores, actual advertising expenditures by the Company, the success of the Company's advertising and merchandising strategy, availability of products, and other factors detailed from time to time in the Company's annual and other reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligations to revise these forward-looking statements to reflect events or circumstances after the date hereof. 19 Statements of Operations Sharper Image Corporation
Fiscal Year Ended January 31, -----------------------------------------------------2000 1999 1998 Dollars in thousands except per share amounts (Fiscal 1999) (Fiscal 1998) (Fiscal 1997 ------------------------------------------------------------------------------------------------------Revenues: Sales $ 329,384 $ 272,721 $ 245,095 Less: returns and allowances 36,373 31,214 29,902 ---------------------------------Net Sales 293,011 241,507 215,193 List rental 1,129 1,088 982 Licensing 225 519 640 ---------------------------------294,365 243,114 216,815

Statements of Operations Sharper Image Corporation
Fiscal Year Ended January 31, -----------------------------------------------------2000 1999 1998 Dollars in thousands except per share amounts (Fiscal 1999) (Fiscal 1998) (Fiscal 1997 ------------------------------------------------------------------------------------------------------Revenues: Sales $ 329,384 $ 272,721 $ 245,095 Less: returns and allowances 36,373 31,214 29,902 ---------------------------------Net Sales 293,011 241,507 215,193 List rental 1,129 1,088 982 Licensing 225 519 640 ---------------------------------294,365 243,114 216,815 ---------------------------------Costs and Expenses: Cost of products 143,682 123,131 115,535 Buying and occupancy 27,842 26,153 23,904 Advertising and promotion 37,992 27,396 22,795 General, selling, and administrative 69,853 59,006 53,074 ---------------------------------279,369 235,686 215,308 ---------------------------------Other Income (Expense): Interest income (expense) - net 603 (645) (564) Other - net (58) 887 45 ---------------------------------545 242 (519) ---------------------------------Earnings Before Income Tax 15,541 7,670 988 Income Tax 6,216 3,068 395 ============ ============ ============ Net Earnings $ 9,325 $ 4,602 $ 593 ============ ============ ============ Net Earnings Per Share - Basic $ 0.89 $ 0.54 $ 0.07 ============ ============ ============ Net Earnings Per Share - Diluted $ 0.82 $ 0.51 $ 0.07 ============ ============ ============ Weighted Average Number of Shares-Basic 10,516,358 8,532,588 8,303,425 ============ ============ ============ Weighted Average Number of Shares-Diluted 11,358,004 9,072,832 8,537,032 ============ ============ ============

See Notes to Financial Statements. 20
Balance Sheets -------------------------------------------------------------------------------Sharper Image Corporation January 31, ----------------------------2000 1999 Dollars in thousands except per share amounts (Fiscal 1999) (Fiscal 1998) -------------------------------------------------------------------------------Assets Current Assets: Cash and equivalents Accounts receivable, net of allowance for doubtful accounts of $834 and $804 Merchandise inventories Deferred catalog costs Prepaid expenses and other Total Current Assets

$ 55,457 7,882 39,652 3,079 7,494 -------113,564

$

8,389

6,787 32,598 2,454 5,605 -------55,833

Balance Sheets -------------------------------------------------------------------------------Sharper Image Corporation January 31, ----------------------------2000 1999 Dollars in thousands except per share amounts (Fiscal 1999) (Fiscal 1998) -------------------------------------------------------------------------------Assets Current Assets: Cash and equivalents Accounts receivable, net of allowance for doubtful accounts of $834 and $804 Merchandise inventories Deferred catalog costs Prepaid expenses and other Total Current Assets Property and Equipment, Net Deferred Taxes and Other Assets Total Assets

$ 55,457 7,882 39,652 3,079 7,494 -------113,564 23,961 4,594 -------$142,119 ========

$

8,389

6,787 32,598 2,454 5,605 -------55,833 22,513 3,699 -------$ 82,045 ========

Liabilities and Stockholders' Equity Current Liabilities: Accounts payable Accrued expenses Deferred revenue Income taxes payable Current portion of notes payable Total Current Liabilities Notes Payable Other Liabilities Commitments and Contingencies Total Liabilities Stockholders' Equity: Preferred stock, $0.01 par value: Authorized, 3,000,000 shares: Issued and outstanding, none Common stock, $0.01 par value: Authorized, 25,000,000 shares: Issued and outstanding, 12,016,827 and 8,916,995 shares Additional paid-in capital Retained earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity

$ 20,307 22,667 8,605 7,194 147 -------58,920 2,366 3,710 --------64,996

$ 11,653 16,960 7,268 3,314 635 -------39,830 2,513 3,053 --------45,396

--

--

120 43,707 33,296 -------77,123 -------$142,119 ========

89 12,589 23,971 -------36,649 -------$ 82,045 ========

See Notes to Financial Statements. 21 Statements of Stockholders' Equity Sharper Image Corporation
Additional Common Stock Paid-in Retained Dollars in thousands Shares Amount Capital Earnings Total -----------------------------------------------------------------------------------------------Balance at January 31,1997 8,266,940 $ 83 $ 9,590 $18,776 $ 28,449

Statements of Stockholders' Equity Sharper Image Corporation
Additional Common Stock Paid-in Retained Dollars in thousands Shares Amount Capital Earnings Total -----------------------------------------------------------------------------------------------Balance at January 31,1997 8,266,940 $ 83 $ 9,590 $18,776 $ 28,449 Issuance of common stock for stock options exercised, (net of income tax benefit) Repurchase of common stock Net earnings Balance at January 31, 1998 Issuance of common stock for stock options and warrants exercised (net of income tax benefit) Net earnings Balance at January 31, 1999 Issuance of common stock from secondary offering and for stock options exercised (net of income tax benefit) Net earnings Balance at January 31, 2000 ----------12,016,827 =========== ----$ 120 ===== -------$ 43,707 ======== ----------8,916,995 ----89 -------12,589 ----------8,356,280 ----83 -------9,704

124,340 (35,000)

1 (1)

237 (123) 593 ------19,369

238 (124) 593 -------29,156

560,715

6

2,885 4,602 ------23,971

2,891 4,602 -------36,649

3,099,832

31

31,118 9,325 ------$33,296 =======

31,149 9,325 -------$ 77,123 ========

See Notes to Financial Statements. 22 Statements of Cash Flows Sharper Image Corporation
Fiscal Year Ended January 3 -----------------------------------2000 1999 Dollars in thousands (Fiscal 1999) (Fiscal 1998) (Fi --------------------------------------------------------------------------------------------------------Cash was Provided by (Used for) Operating Activities: Net earnings $ 9,325 $ 4,602 Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: Depreciation and amortization 6,480 5,027 Deferred rent expense 170 78 Deferred income taxes (1,348) (1,459) Gain on sale of equipment -(840) Changes in operating assets and liabilities: Accounts receivable (1,095) 1,402 Merchandise inventories (7,054) 1,936 Deferred catalog costs, prepaid expenses and other (2,061) 1,298 Accounts payable and accrued expenses 14,361 (5,822) Deferred revenue, income taxes and other liabilities 5,704 3,568 --------------Cash Provided by (Used for) Operating Activities 24,482 9,790 ======== ======== Cash was Provided by (Used for) Investing Activities: Property and equipment expenditures (8,039) (8,431) Proceeds from sale of equipment 111 1,736

Statements of Cash Flows Sharper Image Corporation
Fiscal Year Ended January 3 -----------------------------------2000 1999 Dollars in thousands (Fiscal 1999) (Fiscal 1998) (Fi --------------------------------------------------------------------------------------------------------Cash was Provided by (Used for) Operating Activities: Net earnings $ 9,325 $ 4,602 Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: Depreciation and amortization 6,480 5,027 Deferred rent expense 170 78 Deferred income taxes (1,348) (1,459) Gain on sale of equipment -(840) Changes in operating assets and liabilities: Accounts receivable (1,095) 1,402 Merchandise inventories (7,054) 1,936 Deferred catalog costs, prepaid expenses and other (2,061) 1,298 Accounts payable and accrued expenses 14,361 (5,822) Deferred revenue, income taxes and other liabilities 5,704 3,568 --------------Cash Provided by (Used for) Operating Activities 24,482 9,790 ======== ======== Cash was Provided by (Used for) Investing Activities: Property and equipment expenditures (8,039) (8,431) Proceeds from sale of equipment 111 1,736 --------------Cash Used for Investing Activities (7,928) (6,695) ======== ======== Cash was Provided by (Used for) Financing Activities: Proceeds from issuance of common stock, including warrants and stock options exercised (net of stock repurchases) 31,149 2,891 Proceeds from notes payable and revolving credit facility 11,955 46,921 Principal payments on notes payable and revolving credit facility (12,590) (48,019) --------------Cash Provided by (Used for) Financing Activities 30,514 1,793 ======== ======== Net Increase (Decrease) in Cash and Equivalents Cash and Equivalents at Beginning of Period Cash and Equivalents at End of Period Supplemental Disclosure of Cash Paid for: Interest Income Taxes 47,068 8,389 -------$ 55,457 ======== $ $ 403 3,839 4,888 3,501 -------$ 8,389 ======== $ $ 813 --

See Notes to Financial Statements. 23 Notes to Financial Statements Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998

Notes to Financial Statements Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note A -- Summary of Significant Accounting Policies The Company is a leading specialty retailer that introduces and sells quality, innovative, and entertaining products. These products are sold through its retail stores, catalogs, Internet, and other marketing channels throughout the United States. The Company also has stores and catalog operations internationally through licensees. Additional revenue is derived from rental of the Company's mailing list and from licensing activities relating to the Company's trade name. Revenue Recognition: The Company recognizes revenue at the point of sale at its retail stores and at the time of shipment to a customer for its mail order sales, including Internet. The Company provides for an allowance for returns based upon historical returns rate. Deferred revenue represents merchandise certificates outstanding and unfilled cash orders at the end of the fiscal period. Mailing list rental revenue is recognized when the list is fulfilled. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments: The carrying value of cash, accounts receivable, accounts payable and notes payable approximates the estimated fair value. Merchandise Inventories: Merchandise inventories are stated at lower of cost (first-in, first-out method) or market. Cash and Equivalents: Cash and equivalents represent cash and short-term, highly liquid investments with original maturities of three months or less. Deferred Catalog and Advertising Costs: Direct costs incurred for the production and distribution of catalogs are capitalized. Capitalized catalog costs are amortized, once the catalog is mailed, over the expected sales period which is generally three months. Other advertising costs are expensed as incurred and amounted to $15,055,000, $4,470,000, and $3,580,000, for the fiscal years ended January 31, 2000,1999 and 1998. Start-Up Activities: All start-up and preopening costs are expensed as incurred. Property and Equipment: Property and equipment are stated at cost. Depreciation is computed using the straightline method over the estimated useful lives of the various assets which range from three to 10 years for office furniture and equipment, and 40 years for the building. Leasehold improvements are amortized using the straightline method over the lesser of their estimated useful lives or the term of the applicable lease which ranges from seven to 18 years. The Company manufactures its own proprietary products for sale. Costs incurred for tooling,dies and package design are capitalized and amortized over the estimated life of these products, which is generally two years. At January 31, 2000 and 1999, capitalized costs included in property and equipment, net of related amortization, were $2,631,000 and $2,239,000, respectively. The Company reviews its long-lived assets, including identifiable intangible assets, whenever events or changes indicate the carrying amount of such assets may not be recoverable. The Company's policy is to review the recoverability of all assets, at a minimum, on an annual basis. Based on the Company's review at January 31, 2000, no material adjustment was made to long-lived assets. Income Taxes: Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events then known to management that have been recognized in the Company's consolidated financial statements or tax returns. In

estimating future tax consequences, all expected future events then known to management are considered other than changes in the tax law or rates. Stock-Based Compensation: The Company accounts for stockbased awards to employees using the intrinsic value method in accordance with APB No. 25, Accounting for Stock Issued to Employees. Earnings Per Share: Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding during each year of 10,516,358, and 8,532,588, and 8,303,425, for the fiscal years ended January 31, 2000, 1999 and 1998. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through stock options. Weighted average number of common shares outstanding was adjusted for 841,646, and 540,244, and 233,607 incremental shares assumed issued on the exercise of common stock during the fiscal years ended January 31, 2000, 1999 and 1998. Options for which the exercise price was greater than the average market price of common stock for the period were not included in the computation of diluted earnings per share. The number of such options for which the exercise price was greater than the average market price of $11.92, $6.66 and $3.56 for the fiscal years ended January 31, 2000, 1999 and 1998, was 9,000, and 14,000 and 97,500, respectively. Comprehensive Income: In 1998, the Company implemented Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. Comprehensive income consists of net earnings or loss for the current period and other comprehensive income (income, expenses, gains, and losses that currently bypass the income statement and are reported directly as a separate component of equity). Comprehensive income does not differ from net earnings for the Company for the years ended January 31, 2000, 1999 and 1998. New Accounting Standards: In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No. 137, "Accounting for Derivative Instruments." SEAS 137 extends the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that an entity recognize all derivatives as either assets or- liabilities in the statement of financial position and measure those instruments at fair value. As amended by SFAS 137, SFAS 133 is effective for fiscal years beginning after June 15, 2000 and is not to be applied retroactively. Management has not vet determined the potential effects of SFAS No. 133 on the Company's financial position or results of operations. 24 Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note A -- Summary of Significant Accounting Policies (continued) Reclassification: Certain reclassifications have been made to prior years' financial statements in order to conform with the classifications of the January 31, 2000, financial statements. Note B -- Property and Equipment Property and equipment is summarized as follows:
Fiscal Year Ended January 31, ------------------------------2000 1999 Dollars in thousands (Fiscal 1999) (Fiscal 1998) -----------------------------------------------------------------------------Leasehold improvements $25,494 $25,419 Office furniture and equipment 42,117 35,482 Land 53 53 Building 2,874 2,874 ------------70,538 63,828

Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note A -- Summary of Significant Accounting Policies (continued) Reclassification: Certain reclassifications have been made to prior years' financial statements in order to conform with the classifications of the January 31, 2000, financial statements. Note B -- Property and Equipment Property and equipment is summarized as follows:
Fiscal Year Ended January 31, ------------------------------2000 1999 Dollars in thousands (Fiscal 1999) (Fiscal 1998) -----------------------------------------------------------------------------Leasehold improvements $25,494 $25,419 Office furniture and equipment 42,117 35,482 Land 53 53 Building 2,874 2,874 ------------70,538 63,828 Less accumulated depreciation and amortization 46,577 41,315 ------------$23,961 $22,513 ======= =======

Note C -- Other Assets The Company has an agreement under which it will advance the premiums on a split-dollar life insurance policy for its Chairman of the Board, Founder, and Chief Executive Officer. The Company has an interest in the insurance benefits equal to the amount of the premiums advanced. The amount receivable for premiums advanced as of January 31, 2000, and 1999 was $1,120,000 and $766,000, respectively. Note D -- Revolving Loan and Notes Payable The Company has a revolving secured credit facility which expires September 2003. The credit facility has been amended on several occasions and, as of January 31, 2000, the agreement allows Company borrowings and letters of credit up to a maximum of $31 million for the period from October 1, 2000, through December 31, 2000, and up to $20 million for other times of the year based on inventory levels. The credit facility is secured by the Company's inventory, accounts receivable, general intangibles and certain other assets. Borrowings under this facility bear interest at either the prime rate plus 0.25% or at LIBOR plus 2.25% per annum, but may change determined by financial performance. The credit facility contains certain financial covenants pertaining to interest coverage ratio and net worth and contains limitations on operating leases, other borrowings, dividend payments and stock repurchases. For the period ended January 31, 2000 and 1999, the Company was in compliance with all covenants. Subsequent to January 31, 2000, an amendment to the credit facility was completed to set lower interest rates and to extend the expiration date to September 2004. Borrowings under the credit facility will now bear interest at either the prime rate per annum or at LIBOR plus 1.5% per annum determined by financial performance. The credit facility allows seasonal borrowings of up to $31 million for the period October 1 through December 31, 2000, increasing by $1 million for this period in each of the two subsequent years, and remaining at $33 million for this period the following year. At January 31, 2000, and 1999, the Company had no amounts outstanding on its revolving loan credit facility. Letter of credit commitments as of January 31, 2000, and 1999 were $3,192,000 and $4,108,000, respectively.

In addition, the credit facility provides for term loans for capital expenditures (Term Loans) up to an aggregate of $2.5 million. Amounts borrowed under the Term Loans bear interest at a variable rate of either prime plus 0.50% (9.0% at January 31, 2000) per annum or at LIBOR plus 2.50% per annum based on financial performance. Each Term Loan is to be repaid in 36 equal monthly principal installments. At January 31, 1999, the balance of the Term Loan was $500,000 which was paid off in fiscal 1999. Notes payable included a mortgage loan collateralized by the Company's distribution center. This note bears interest at a fixed rate of 8.40%, provides for monthly payments of principal and interest in the amount of $29,367, and matures in January 2011. At January 31, 2000, and 1999, the balance of this note was $2,513,000 and $2,648,000, respectively. Future minimum principal payments on notes payable at January 31, 2000, are as follows: Dollars in thousands Fiscal Year Ending January 31,
2001 2002 2003 2004 2005 Later years Total notes payable $ 147 160 173 189 205 1,639 -----$2,513 ======

25 Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998
Note E -- Income Taxes Fiscal Year Ended January 31, --------------------------------------------2000 1999 1998 Dollars in thousands (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) -------------------------------------------------------------------------------Currently payable (refundable): Federal $ 6,430 $ 3,848 $(1,036) State 1,135 679 (183) ------------------7,565 4,527 (1,219) Deferred: Federal (1,147) (1,240) 1,372 State (202) (219) 242 ------------------(1,349) (1,459) 1,614 ------------------$ 6,216 $ 3,068 $ 395 ======= ======= =======

The difference between the effective income tax rate and the United States federal income tax rate is summarized as follows:
Fiscal Year Ended January 31, --------------------------------------------2000 1999 1998 (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) --------------------------------------------------------------------------------

Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998
Note E -- Income Taxes Fiscal Year Ended January 31, --------------------------------------------2000 1999 1998 Dollars in thousands (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) -------------------------------------------------------------------------------Currently payable (refundable): Federal $ 6,430 $ 3,848 $(1,036) State 1,135 679 (183) ------------------7,565 4,527 (1,219) Deferred: Federal (1,147) (1,240) 1,372 State (202) (219) 242 ------------------(1,349) (1,459) 1,614 ------------------$ 6,216 $ 3,068 $ 395 ======= ======= =======

The difference between the effective income tax rate and the United States federal income tax rate is summarized as follows:
Fiscal Year Ended January 31, --------------------------------------------2000 1999 1998 (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) -------------------------------------------------------------------------------Federal tax rate State income tax, less federal benefit Effective tax rate 34.0% 6.0 ---40.0% ==== 34.0% 6.0 ---40.0% ==== 34.0% 6.0 ---40.0% ====

Deferred taxes result from differences in the recognition of expense for income tax and financial reporting purposes. Temporary differences which give rise to deferred tax assets (liabilities) are as follows:
January 31, -----------------------------2000 1999 Dollars in thousands (Fiscal 1999) (Fiscal 1998) -------------------------------------------------------------------------------Current: Nondeductible reserves $ 4,966 $ 4,123 Deferred catalog costs (1,232) (981) State taxes (332) (755) ------------Current -- net 3,402 2,387 ======= ======= Noncurrent: Deferred rent 1,049 1,198 Depreciation 3,474 2,967 Deductible software costs (1,168) (1,127) Other -- net (157) (173) ------------Noncurrent -- net 3,198 2,865 ======= ======= Total $ 6,600 $ 5,252 ======= =======

Note F -- Leases The Company leases its offices, retail facilities, and equipment under operating leases for terms expiring at various dates through 2008. Under the terms of certain of the leases, rents are adjusted annually for changes in the consumer price index and increases in property taxes. The aggregate minimum annual lease payments under leases in effect at January 31, 2000, are as follows:
Dollars in thousands -------------------------------------------------------------------------------Fiscal Year Ending January 31, 2001 $15,775 2002 11,994 2003 11,625 2004 10,871 2005 9,618 Later years 18,658 ------Total minimum lease commitments $78,541 =======

Many of the Company's leases contain predetermined fixed escalations of the minimum rentals during the initial term. For these leases, the Company has recognized the related rental expense on a straight-line basis and has recorded the difference between the expense charged to income and amounts payable under the leases as deferred rent which is included in Other Liabilities. Some store leases contain renewal options for periods ranging up to five years. Most leases also provide for payment of operating expenses, real estate taxes, and for additional rent based on a percentage of sales. Net rental expense for all operating leases was as follows:
Fiscal Year Ended January 31, --------------------------------------------2000 1999 1998 Dollars in thousands (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) -------------------------------------------------------------------------------Minimum rentals Percentage rentals and other charges $16,146 6,367 ------$22,513 ======= $15,273 5,914 ------$21,187 ======= $13,812 5,559 ------$19,371 =======

26 Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note G - Stockholders' Equity On July 22, 1999, the Company completed an offering of 3.0 million shares of its common stock, all of which shares were offered by the Company. The proceeds from the offering, net of underwriters discount and offering expenses, totaled $30.2 million. The Company intends to use the proceeds from this offering for general corporate purposes, including investments in the Company's Internet business, expansion of its distribution and fulfillment capacity, and working capital. Under the Company's stock repurchase program, the Company is authorized by its Board of Directors to

Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note G - Stockholders' Equity On July 22, 1999, the Company completed an offering of 3.0 million shares of its common stock, all of which shares were offered by the Company. The proceeds from the offering, net of underwriters discount and offering expenses, totaled $30.2 million. The Company intends to use the proceeds from this offering for general corporate purposes, including investments in the Company's Internet business, expansion of its distribution and fulfillment capacity, and working capital. Under the Company's stock repurchase program, the Company is authorized by its Board of Directors to repurchase up to $1,600,000 of common stock. Through January 31, 1998, the Company has repurchased a total of 186,100 shares at an average price of $5.95 per share. No shares were repurchased in fiscal 1999 or 1998. Under the Company's 1985 Stock Option Plan, as amended, non-qualified options to purchase common stock are granted to officers, key employees and consultants, up to an aggregate 3,155,000 shares. Options generally vest over a four- to six-year period from the date of the grant and are priced at 100% of the fair market value at the date of the grant. The Stock Option Plan limits the maximum number of shares any one individual may be granted per fiscal year, and allows individuals owning more than 25% of the Company's common stock to receive stock options. Nonemployee members of the Board are ineligible to receive stock option grants under this plan. The Company also has the 1994 Non-Employee Directors Stock Option Plan, as amended and approved by stockholders, to allow for stock option grants of common stock to the non-employee members of the Board of Directors, up to an aggregate 250,000 shares. Options will be immediately exercisable, vest over one year of Board service from the date of the grant, and are priced at 100% of the fair market value at the date of the grant. Any shares purchased under the option plan will be subject to repurchase by the Company at the exercise price paid per share, upon the optionee's cessation of Board service prior to vesting. At January 31, 2000, the Company had reserved 124,785 shares and 187,000 shares, under the 1985 Stock Option Plan and the 1994 Non-Employee Directors Stock Option Plan, respectively, for the granting of additional stock options. Additional Stock Plan Information As discussed in Note A, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, and its related interpretations. Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements. Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, requires the disclosure of pro forma net earnings (loss) and earnings (loss) per share had the Company adopted the fair value method as of the beginning of fiscal 1995. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options -without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the BlackScholes option pricing model with the following weighted average assumptions: expected life from date of grant, six years in fiscal 1999, and five years in both fiscal 1998 and 1997; stock volatility, 57% in fiscal 1999, and 51 % in both fiscal 1998 and 1997; risk-free interest rates, 5.70% in fiscal 1999, 5.12% in fiscal 1998, and 6.10% in fiscal 1997; and no dividends during the expected term.

The Company's calculations are based on a single option valuation approach, and forfeitures are recognized as they occur. If the computed fair values of the fiscal years 1995 through 1999 awards had been amortized to expense over the vesting period of the awards, pro forma net earnings would have been $8,324,490 ($0.79 earnings per share -basic and $0.73 earnings per share diluted) in fiscal 1999, $4,338,715 ($0.51 earnings per share-basic and $0.48 earnings per share - diluted) in fiscal 1998, and $383,000 ($0.05 earnings per share basic and 50.04 earnings per share -diluted) in fiscal 1997. However, the impact of outstanding non-vested stock options granted prior to fiscal 1995 has been excluded from the pro forma calculation; accordingly, the fiscal 1999, fiscal 1998 and fiscal 1997 pro forma adjustments are not necessarily indicative of future period pro forma adjustments, when the calculation will apply to all future applicable stock options. 27 Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note G -- Stockholders' Equity (continued) The following table reflects the activity under these plans:
Weighted Number of Average Options Exercise Price -------------------------------------------------------------------------------Balance at January 31, 1997 Granted (weighted average fair value of $1.81) Exercised Cancelled 1,504,500 129,300 (124,340) (71,260) ---------1,438,200 463,000 (410,715) (345,380) ---------1,145,105 1,228,100 (99,832) (167,385) ---------2,105,988 ========== 591,000 ========== 379,000 ========== 531,391 ========== $3.13 3.24 1.92 3.83

Balance at January 31, 1998 Granted (weighted average fair value of $2.07) Exercised Cancelled

3.21 4.05 2.39 3.48

Balance at January 31, 1999 Granted (weighted average fair value of $5.41) Exercised Cancelled Balance at January 31, 2000

3.76 9.28 4.11 3.78 $6.96

Exercisable at January 31, 1998 Exercisable at January 31, 1999 Exercisable at January 31, 2000

$2.73 $3.58 $4.39

Options Outstanding ----------------------------------------------------------------------Number Weighted Average Weighted Range of of Options Remaining Contractual Average Exercise Prices Outstanding Life (years) Exercise Price ----------------------------------------------------------------------$ 1.16-$1.99 16,015 2.9 $ 1.88 2.00-3.99 791,489 7.8 3.70 4.00-7.99 78,384 8.5 4.94 8.00-11.99 1,211,100 10.0 9.22 11.99-17.00 9,000 10.0 15.91 --------$ 1.16-$17.00 2,105,988 9.1 $ 6.96

Options Exercisable ---------------------------Number Weighted of Options Average Exercisable Exercise Price ---------------------------16,015 $ 1.88 440,542 3.72 23,384 5.16 49,450 10.38 2,000 17.00 ------531,391 $ 4.39

Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note G -- Stockholders' Equity (continued) The following table reflects the activity under these plans:
Weighted Number of Average Options Exercise Price -------------------------------------------------------------------------------Balance at January 31, 1997 Granted (weighted average fair value of $1.81) Exercised Cancelled 1,504,500 129,300 (124,340) (71,260) ---------1,438,200 463,000 (410,715) (345,380) ---------1,145,105 1,228,100 (99,832) (167,385) ---------2,105,988 ========== 591,000 ========== 379,000 ========== 531,391 ========== $3.13 3.24 1.92 3.83

Balance at January 31, 1998 Granted (weighted average fair value of $2.07) Exercised Cancelled

3.21 4.05 2.39 3.48

Balance at January 31, 1999 Granted (weighted average fair value of $5.41) Exercised Cancelled Balance at January 31, 2000

3.76 9.28 4.11 3.78 $6.96

Exercisable at January 31, 1998 Exercisable at January 31, 1999 Exercisable at January 31, 2000

$2.73 $3.58 $4.39

Options Outstanding ----------------------------------------------------------------------Number Weighted Average Weighted Range of of Options Remaining Contractual Average Exercise Prices Outstanding Life (years) Exercise Price ----------------------------------------------------------------------$ 1.16-$1.99 16,015 2.9 $ 1.88 2.00-3.99 791,489 7.8 3.70 4.00-7.99 78,384 8.5 4.94 8.00-11.99 1,211,100 10.0 9.22 11.99-17.00 9,000 10.0 15.91 --------$ 1.16-$17.00 2,105,988 9.1 $ 6.96 =========

Options Exercisable ---------------------------Number Weighted of Options Average Exercisable Exercise Price ---------------------------16,015 $ 1.88 440,542 3.72 23,384 5.16 49,450 10.38 2,000 17.00 ------531,391 $ 4.39 =======

Note H -- 401k Savings Plan The Company maintains a defined contribution, 401k Savings Plan, covering all employees who have completed one year of service with at least 1,000 hours and who are at least 21 years of age. The Company makes employer matching contributions at its discretion. Company contributions amounted to $152,000, $73,000 and $77,000 for the fiscal years ended January 31, 2000, 1999 and 1998, respectively. Note I -- Commitments and Contingencies

The Company is party to various legal proceedings arising from normal business activities. Management believes that the resolution of these matters will not have an adverse material effect on the Company's financial position or results of operations. 28 Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note J -- Segment Information The Company classifies its business interests into three reportable segments: retail stores, catalog and Internet. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note A). The Company evaluates performance and allocates resources based on operating contribution, which excludes unallocated corporate general and administrative costs and income tax expense or benefit. The Company's reportable segments are strategic business units that offer the same products and utilize common merchandising, distribution, and marketing functions, as well as common information systems and corporate administration. The Company does not have intersegment sales, but the segments are managed separately because each segment has different channels for selling the products. Financial information for the Company's business segments is as follows:
Fiscal Year Ended January 31, ------------------------------------------------2000 1999 1998 Dollars in thousands (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) -----------------------------------------------------------------------------------------Revenues Stores $ 188,416 $ 162,371 $ 151,589 Catalog 65,617 70,750 58,772 Internet 28,495 4,922 1,633 Other 11,837 5,071 4,821 ------------------------Total Revenues $ 294,365 $ 243,114 $ 216,815 ========= ========= ========= Operating Contributions Stores $ 27,947 $ 19,405 $ 15,170 Catalog 9,134 9,632 4,090 Internet 3,193 659 160 Unallocated (24,733) (22,026) (18,432) ------------------------Earnings Before Income Tax $ 15,541 $ 7,670 $ 988 ========= ========= ========= Depreciation and Amortization Stores $ 3,534 $ 2,812 $ 2,516 Catalog ---Internet 14 1 -Unallocated 2,932 2,214 1,818 ------------------------Total Depreciation and Amortization $ 6,480 $ 5,027 $ 4,334 ========= ========= ========= Capital Asset Expenditures Stores $ 3,561 $ 5,988 $ 2,722 Catalog ---Internet 425 38 -Unallocated 4,053 2,405 1,715 ------------------------Total Capital Asset Expenditures $ 8,039 $ 8,431 $ 4,437 ========= ========= ========= Assets Stores $ 13,590 $ 13,673 $ 11,564 Catalog ---Internet 448 37 -Unallocated 128,081 68,335 67,098 ------------------------Total Assets $ 142,119 $ 82,045 $ 78,662

Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note J -- Segment Information The Company classifies its business interests into three reportable segments: retail stores, catalog and Internet. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note A). The Company evaluates performance and allocates resources based on operating contribution, which excludes unallocated corporate general and administrative costs and income tax expense or benefit. The Company's reportable segments are strategic business units that offer the same products and utilize common merchandising, distribution, and marketing functions, as well as common information systems and corporate administration. The Company does not have intersegment sales, but the segments are managed separately because each segment has different channels for selling the products. Financial information for the Company's business segments is as follows:
Fiscal Year Ended January 31, ------------------------------------------------2000 1999 1998 Dollars in thousands (Fiscal 1999) (Fiscal 1998) (Fiscal 1997) -----------------------------------------------------------------------------------------Revenues Stores $ 188,416 $ 162,371 $ 151,589 Catalog 65,617 70,750 58,772 Internet 28,495 4,922 1,633 Other 11,837 5,071 4,821 ------------------------Total Revenues $ 294,365 $ 243,114 $ 216,815 ========= ========= ========= Operating Contributions Stores $ 27,947 $ 19,405 $ 15,170 Catalog 9,134 9,632 4,090 Internet 3,193 659 160 Unallocated (24,733) (22,026) (18,432) ------------------------Earnings Before Income Tax $ 15,541 $ 7,670 $ 988 ========= ========= ========= Depreciation and Amortization Stores $ 3,534 $ 2,812 $ 2,516 Catalog ---Internet 14 1 -Unallocated 2,932 2,214 1,818 ------------------------Total Depreciation and Amortization $ 6,480 $ 5,027 $ 4,334 ========= ========= ========= Capital Asset Expenditures Stores $ 3,561 $ 5,988 $ 2,722 Catalog ---Internet 425 38 -Unallocated 4,053 2,405 1,715 ------------------------Total Capital Asset Expenditures $ 8,039 $ 8,431 $ 4,437 ========= ========= ========= Assets Stores $ 13,590 $ 13,673 $ 11,564 Catalog ---Internet 448 37 -Unallocated 128,081 68,335 67,098 ------------------------Total Assets $ 142,119 $ 82,045 $ 78,662 ========= ========= =========

29

Notes to Financial Statements (continued) Sharper Image Corporation Fiscal Years Ended January 31, 2000, 1999 and 1998 Note K -- Quarterly Financial Information (Unaudited)
Three Months Ended -----------------------------------------------------April 30, July 31, October 31, Janu Fiscal Year Ended January 31, 2000 1999 1999 1999 2 --------------------------------------------------------------------------------------------------------Revenues $ 40,859 $ 57,704 $58,280 $13 Expenses Cost of products 20,280 28,355 29,384 6 Buying and occupancy 6,748 6,887 6,934 Advertising and promotion 4,234 8,193 6,619 1 General, selling and administrative 12,413 14,332 15,286 2 Other income (expense) (36) (107) 190 Earnings (loss) before income tax (benefit) (2,852) (170) 247 1 Income tax (benefit) (1,141) (68) 99 Net earnings (loss) $ (1,711) $ (102) $ 148 $ 1 Net earnings (loss) per share - Basic(1) $ (0.19) $ (0.01)* $ 0.01* $ Diluted(2) $ (0.19) $ (0.01)* $ 0.01* $ Dollars in thousands except per share amounts

Three Months Ended -----------------------------------------------------April 30, July 31, October 31, Janu Fiscal Year Ended January 31, 1999 1998 1998 1998 1 --------------------------------------------------------------------------------------------------------Revenues Expenses Cost of products Buying and occupancy Advertising and promotion General, selling and administrative Other income (expense) Earnings (loss) before income tax (benefit) Income tax (benefit) Net earnings (loss) Net earnings (loss) per share - Basic(1) Diluted(2) $ 39,751 20,743 6,337 4,512 11,646 (163) (3,650) (1,460) $ (2,190) $ (0.26) $ (0.26) $ 49,532 25,780 6,261 6,904 12,383 (176) (1,972) (789) $ (1,183) $ (0.14) $ (0.14) $ 42,955 22,404 6,397 4,906 12,285 603 (2,434) (974) $ (1,460) $ (0.17) $ (0.17) $ 1

Dollars in thousands except per share amounts

$ $ $

* Includes the weighted average impact of 3.0 million shares of common stock issued in connection with the secondary offering dated July 22, 1999. (1) Basic earnings per share is calculated for interim periods including the effect of stock options exercised in prior interim periods. Basic earnings per share for the fiscal year is calculated using weighted shares outstanding based on the date stock options were exercised. Therefore, basic earnings per share for the cumulative four quarters may not equal fiscal year basic earnings per share. (2) Diluted net earnings per share for the fiscal year and for quarters with net earnings are computed based on weighted average common shares outstanding which include common stock equivalents (stock options). Net loss per share for quarters with net losses is computed based solely on weighted average common shares outstanding. Therefore, the net earnings (loss) per share for each quarter do not sum up to the earnings per share for the full fiscal year. 30

Sharper Image Corporation
Board of Directors --------------------------------------------------------------------------------

Sharper Image Corporation
Board of Directors -------------------------------------------------------------------------------Richard Thalheimer Gerald Napier Founder Retired President of Chairman of the Board I. Magnin and Company Chief Executive Officer George James Alan Thalheimer Retired Senior Vice President Retired Business Executive and Chief Financial Officer, Levi Strauss & Co. Morton David Retired Chairman, President, and Chief Executive Officer, Franklin Electronic Publishers, Inc. Officers -------------------------------------------------------------------------------Richard Thalheimer Robert Thompson Founder Senior Vice President Chairman of the Board Merchandising Chief Executive Officer Joe Williams Tracy Wan Senior Vice President President Loss Prevention Chief Operating Officer Roger Bensinger Greg Alexander Vice President Senior Vice President Business Development Management Information Systems William Feroe Tony Farrell Vice President Senior Vice President Merchandise Planning Creative Services and Allocation Jeff Forgan Senior Vice President Chief Financial Officer Corporate Secretary Barry Jacobsen Senior Vice President Distribution Charles Taylor Senior Vice President Sharper Image Design Tom Krysiak Vice President Sharper Image Design Robert Pintane Vice President Product Development Craig Trabeaux Vice President Stores

Corporate Information -------------------------------------------------------------------------------Corporate Headquarters SEC Form 10-K 650 Davis Street A copy of the Company's annual San Francisco, CA 94111 report to the Securities and Telephone (415) 445-6000 Exchange Commission of Form 10-K FAX: (415) 445-1574 (exclusive of exhibits) is available without charge upon Transfer Agent and written request to: Registrar Investor Relations The Sharper Image Chase Mellon Shareholder 650 Davis Street Services LLC San Francisco, CA 94111 85 Challenger Road Overbeck Center Annual Meeting Ridgefield Park, NJ 07660 The Annual Meeting of Stockholders of Sharper Image Corporation will Corporate Counsel be held on Monday, June 12, 2000, Brobeck, Phleger & Harrison LLP at 10 a.m. at the World Trade Club, One Market Ferry Building, Spear Street Tower San Francisco, California. San Francisco, CA 94105

Independent Auditors Deloitte & Touche LLP 50 Fremont Street San Francisco, CA 94105 Common Stock Market Prices and Dividend Policy --------------------------------------------------------------------------------

The common stock of Sharper Image Corporation is traded in the Nasdaq National Market under the symbol SHRP. The following table sets forth, for the periods indicated, the range of high and low prices reported for the common stock. The Company has not paid cash dividends to holders of its common stock.
Fiscal Year 1999 High Low 17 3/16 9 5/8 12 1/2 8 14 3/8 8 7/8 23 1/2 8 3/4 Fiscal Year 1998 High Low 11 5/8 4 1/16 8 3/8 4 11/16 5 5/8 2 1/2 25 3 3/4

First Quarter Second Quarter Third Quarter Fourth Quarter

Independent Auditors' Report Board of Directors Sharper Image Corporation San Francisco, California We have audited the accompanying balance sheets of Sharper Image Corporation as of January 31, 2000, and 1999, and the related statements of operations, stockholders' equity and cash flows for each of the three fiscal years in the period ended January 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Sharper Image Corporation as of January 31, 2000, and 1999, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP [Deloitte & Touche Logo] San Francisco, California March 24, 2000

31

The Ionic Breeze(TM) Quadra Air Purifier uses exclusive, patented electronics to circulate air in total silence.

This top-seller was created by Sharper Image Design.

The Ionic Breeze(TM) Quadra Air Purifier uses exclusive, patented electronics to circulate air in total silence.

This top-seller was created by Sharper Image Design. Sharper Image Corporation 650 Davis Street San Francisco, CA 94111 www.sharperimage.com (R)The Sharper Image is a registered trademark of Sharper Image Corporation. (TM) Sharper Image Design is a trademark of Sharper Image Corporation. Copyright (C) 2000 by Sharper Image Corporation. All rights reserved.

Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-12755, No. 33-80504 and No. 33-3327 of Sharper Image Corporation on Form S-8 of our reports dated March 24, 2000, appearing in and incorporated by reference in this Annual Report on Form 10-K of Sharper Image Corporation for the year ended January 31, 2000.
/s/ Deloitte & Touche LLP San Francisco, California April 28, 2000

34
ARTICLE 5

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION

12 MOS JAN 31 2000 FEB 01 1999 JAN 31 2000 55,457 0 8,716 (834) 39,652 113,564 70,538 46,577 142,119 58,920 2,366 0 0 120 77,003 142,119 329,384 293,011 143,682 279,369 58 0

Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-12755, No. 33-80504 and No. 33-3327 of Sharper Image Corporation on Form S-8 of our reports dated March 24, 2000, appearing in and incorporated by reference in this Annual Report on Form 10-K of Sharper Image Corporation for the year ended January 31, 2000.
/s/ Deloitte & Touche LLP San Francisco, California April 28, 2000

34
ARTICLE 5

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS BASIC EPS DILUTED

12 MOS JAN 31 2000 FEB 01 1999 JAN 31 2000 55,457 0 8,716 (834) 39,652 113,564 70,538 46,577 142,119 58,920 2,366 0 0 120 77,003 142,119 329,384 293,011 143,682 279,369 58 0 (603) 15,541 6,216 9,325 0 0 0 9,325 0.89 0.82

ARTICLE 5

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS BASIC EPS DILUTED

12 MOS JAN 31 2000 FEB 01 1999 JAN 31 2000 55,457 0 8,716 (834) 39,652 113,564 70,538 46,577 142,119 58,920 2,366 0 0 120 77,003 142,119 329,384 293,011 143,682 279,369 58 0 (603) 15,541 6,216 9,325 0 0 0 9,325 0.89 0.82


				
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