1116755--4/1/2009--DESIGN_WITHIN_REACH

related topics

{customer, product, revenue}

{system, service, information}

{acquisition, growth, future}

{stock, price, share}

{property, intellectual, protect}

{condition, economic, financial}

{regulation, government, change}

{stock, price, operating}

{cost, operation, labor}

{operation, international, foreign}

{cost, contract, operation}

{competitive, industry, competition}

{product, liability, claim}

{personnel, key, retain}

{control, financial, internal}

{provision, law, control}

Risks Relating to our Business Recent turmoil in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition, liquidity or market price of our common stock. Our business depends, in part, on factors affecting consumer spending that are not within our control. We have recently revised our corporate strategy and our new strategy may not be successful. If we fail to offer merchandise that our customers find attractive, the demand for our products may be limited. The expansion of our studio operations could result in increased expenses with no guarantee of increased earnings. We do not have long-term vendor contracts with our vendors and as a result we may not have continued or exclusive access to products that we sell. We rely on catalog-based marketing, which could have significant cost increases and could have unpredictable results. We must manage our online business successfully or our business will be adversely affected. We have made and will continue to make certain systems changes that might disrupt our supply chain operations and delay financial results. Management has identified material weaknesses in internal controls over financial reporting. Our failure to implement and maintain effective internal controls in our business could have a material adverse effect on our business, financial condition, results of operations and stock price. We may need additional financing and may not be able to obtain additional financing on favorable terms or at all, which could increase our costs, limit our ability to grow and dilute the ownership interests of existing stockholders. If we do not manage our inventory levels successfully, our operating results will be adversely affected. Intellectual property claims against us could be costly and could impair our business. We are subject to various risks and uncertainties that might affect our ability to procure quality merchandise from our vendors or receive favorable payment terms from our vendors. Changes in the value of the U.S. dollar relative to foreign currencies and any failure by us to adopt and implement an effective hedging strategy could adversely affect our operating results. We rely on foreign sources of production, which subjects us to various risks. If we fail to timely and effectively obtain shipments of product from our vendors and deliver merchandise to our customers, our operating results will be adversely affected. All of our fulfillment operations are located in our facility in Hebron, Kentucky, and any significant disruption of this center s operations would hurt our ability to make timely delivery of our products. Our computer and communications hardware and software systems are vulnerable to damage and interruption, which could harm our business. We outsourced the hosting of our website and point-of-sale system and the transmission of our customer orders and sales back to our processing system to a third-party vendor, which subjects us to risks, including disruptions in our business and increased costs. If we are unable to provide satisfactory customer service, we could lose customers and our reputation could be harmed. We face intense competition, and if we are unable to compete effectively, we may not be able to maintain profitability. We maintain a liberal merchandise return policy, which allows customers to return most merchandise and, as a result, excessive merchandise returns could harm our business. Our success depends to a significant extent upon the efforts and abilities of our current senior management to execute our business plan. We have grown quickly and if we fail to manage future growth, our business will suffer. If the protection of our trademarks and proprietary rights is inadequate, our brand and reputation could be impaired and we could lose customers. We may face product liability claims or product recalls that are costly and create adverse publicity. The security risks of online commerce, including credit card fraud, may discourage customers from purchasing products from us online. Existing or future government regulation could harm our business. Laws or regulations relating to privacy and data protection may adversely affect the growth of our online business or our marketing efforts. We may be subject to liability for the content that we publish. Anti-takeover provisions in our organizational documents and Delaware law make any change in control more difficult. This could affect our stock price adversely. Risks Relating to the Securities Markets and Ownership of Our Common Stock Our stock price may be volatile and you may lose all or a part of your investment. Our operating and financial performance in any given period might not meet the guidance that we have provided to the public. We do not intend to pay dividends on our common stock. Our process of exploring strategic alternatives may not be successful.

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1116755--4/1/2009--DESIGN_WITHIN_REACH_INC