1116755--4/14/2006--DESIGN_WITHIN_REACH

related topics

{customer, product, revenue}

{system, service, information}

{acquisition, growth, future}

{stock, price, share}

{personnel, key, retain}

{property, intellectual, protect}

{control, financial, internal}

{product, liability, claim}

{regulation, government, change}

{stock, price, operating}

{regulation, change, law}

{operation, international, foreign}

{cost, operation, labor}

{competitive, industry, competition}

{provision, law, control}

{cost, contract, operation}

{condition, economic, financial}

Risks Relating to our Business Our limited operating history makes evaluation of our business difficult. 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 and as a result we may not have continued or exclusive access to products that we sell. Our business depends, in part, on factors affecting consumer spending that are not within our control. Our business will be harmed if we are unable to implement our growth strategy successfully. We rely on our catalog operations, which could have significant cost increases and could have unpredictable results. We have made and will continue to make certain systems changes that might disrupt our supply chain operations and delay our release of 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 must manage our online business successfully or our business will be adversely affected. If we do not manage our inventory levels successfully, our operating results will be adversely affected. We depend on domestic and foreign vendors, some of which are our competitors, for timely and effective sourcing of our merchandise. New accounting pronouncement may impact our future results of operations. 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. A substantial portion of our sales during any given period of time may be generated by a particular product or line of products obtained from a small number of vendors, and if sales of those products or line of products decrease, our common stock price may be adversely affected. Changes in the value of the U.S. dollar relative to foreign currencies and/or 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. 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. The loss of key personnel could have an adverse effect on our ability to execute our business strategy and on our business results. Our senior management team has limited experience working together as a group, and may not be able to manage our business effectively. We have grown quickly and if we fail to manage our 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. 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. Our inability to obtain commercial insurance at acceptable prices might have a negative impact on our business. 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. Securities analysts may not cover our common stock or may issue negative reports, and this may have a negative impact on our common stock s market price. We do not intend to pay dividends on our common stock.

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1116755--4/14/2006--DESIGN_WITHIN_REACH_INC