As filed with the Securities and Exchange Commission on March 24,June 1, 2004

Registration No. 333–113903

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2

TO

FORM S–1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

DESIGN WITHIN REACH, INC.

(Exact name of registrant as specified in its charter)

225 Bush Street, 20^th Floor

San Francisco, CA 94104

(415) 676-6500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Wayne Badovinus

President and Chief Executive Officer

Design Within Reach, Inc.

225 Bush Street, 20^th Floor

San Francisco, CA 94104

(415) 676-6500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  ¨

CALCULATION OF REGISTRATION FEE

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the SEC, acting pursuant to Section 8(a), may determine.

Subject to Completion, Dated March 24,June 1, 2004

The information contained in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

4,200,000 Shares

Common Stock

$     per share

This is an initial public offering of common stock of Design Within Reach, Inc. Design Within Reach is offering 3,000,000 shares and the selling stockholders identified in this prospectus are offering 1,200,000 shares.

We expect that the price to the public in the offering will be between $$9.00 and $$11.00 per share. The market price of the shares after the offering may be higher or lower than the offering price.

We have applied to include theOur common stock has been approved for listing on the Nasdaq National Market under the symbol “DWRI.”

Investing in the common stock involves risks. See “Risk Factors” beginning on page7.6.

We and theThe selling stockholders have granted an over-allotment option to the underwriters. Under this option, the underwriters may elect to purchase a maximum of 630,000 additional shares (              from us and from the selling stockholders)stockholders within 30 days following the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

CIBC World Markets

William Blair & Company

SG Cowen & Co.

The date of this prospectus is                         , 2004

Table of Contents

You should rely only on the information contained in this prospectus. We and the selling stockholders have not authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

“Design Within Reach” is a registered trademark of Design Within Reach, Inc. All rights are reserved. All other trademarks, service marks or trade names referred to in this prospectus are the property of their respective owners.

i

Prospectus Summary

This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that you should consider before buying shares in this offering. You should read the entire prospectus carefully, especially “Risk Factors” and our financial statements and related notes included elsewhere in this prospectus, before deciding to invest in shares of our common stock. In this prospectus, “Design Within Reach,” “DWR,” “we,” “us” and “our” refer to Design Within Reach, Inc.

Design Within Reach, Inc.

DWR isWe are an integrated multi-channel provider of distinctive modern design furnishings and accessories. We market and sell our products to both residential and commercial customers through four integrated sales channels, consisting of our catalog, studios, website and direct sales force. We offer a distinctive assortment of modern design merchandise that we believe shares an aesthetic appeal, superior quality and authenticity. We offer products in numerous categories, including chairs, tables, workspace and outdoor furniture, lighting, floor coverings, beds and related accessories, bathroom fixtures, fans and other home and office accessories. Our products includetop ten highest selling product lines in 2001 through 2003 included items created by such notable designers as Ludwig Mies van der Rohe and Charles and Ray Eames, George Nelson and Philippe Starck, among others.Eames. Our business strategy has enabled us to develop a national presence in modern design furnishings, achieve rapid growth, and build a brand which we believe is recognized for design excellence by our customers and the design community. In fiscal year 2003, we had net sales of $81.1 million, an increase of 41.7% from fiscal year 2002. In fiscal year 2003, we had net earnings of $3.0 million.million, inclusive of $852,000 attributable to a one-time income tax benefit.

We believe that we have created a differentiated business model based on multiple, integrated sales channels and a single common inventory. Our business model improves customer convenience, reinforces brand awareness, enhances customer knowledge of our products, and produces operational benefits that drive market penetration and higher returns on capital. Seamless channel integration, meaning that all of our products are available, and order processing, customer service assistance and product returns can be handled, through any of our four sales channels, is crucial to our success because a substantial portion of both our residential and commercial customers purchase our products after having had contact with two, three or sometimes all four of our sales channels. For example, customers may research products online and make purchases in our studios or through our catalog. We ship substantially all customer orders, regardless of the sales channel in which they are placed, from our centralized Hebron, Kentucky fulfillment center. Our studios carry inventory solely for customers to view and evaluate, but not for carry-out upon purchase. Our policy of having products “in stock and ready to ship” is a departure from the approach taken by traditionalmany other modern design furnishings retailers, which typically requires customers to wait weeks or months to receive their products. We ship substantially all in stock product by the next business day after an order has been processed. Our common inventory and shared information systems provide a level of scalability to facilitate future growth. This integration further improves customer service by speeding delivery times and providing real-time inventory information across all sales channels.

The modern design furnishings market is a sub-sector of the residential and commercial furnishings market. Modern design is a twentieth century movement dating back to the 1920s, the purpose of which is to utilize current technologies and production methods to create more useful products for a broad audience. We believe that the philosophy of modern design may be summarized as “form follows function.” Characteristics of modern design furnishings are simplicity, originality, intelligent use of materials, quality, longevity and the avoidance of superfluous ornamentation or period styling. Importantly, we operate in the upscale segment of the modern furnishings industry, which typically has large average order values that, in turn, help improve the economics of this segment. In fiscal year 2003, we had an average order value of $917. We believe that the upscale furnishings segment will continue to benefit from several long-term trends, including an increasing interest in design among both individuals and businesses and middle-market consumers’ willingness to trade up for premium products, favorable demographic trends in our core audience and consumers’ heightened focus on the home as a place of comfort and refuge.products. Consumers’ expanding focus on design and the increasing popularity of home-related design products have been featured in several new television programs, such as Bravo Network’sQueer Eye for the Straight Guy, which has featured some of our products, and The Learning Channel’sTrading Spaces.

Competitive Advantages

We believe our competitive advantagesbusiness strengths position us to be a leading provider of modern design furnishings in the United States. These advantagesstrengths create the foundation of our distinct business model and we believe they have enabled us to grow rapidly, while achieving attractiveprofitably, through focusing on gross margins, inventory turns and returns on capital, and to better serve the fragmented modern design furnishings marketplace. Our competitive advantagesbusiness strengths include:

Strong Brand Authority.    We believe that we have developed strong recognition of the Design Within Reach brand within the modern design communityauthority; multiple, integrated sales channels; distinctive merchandising; strategic designer, manufacturer and among residential and commercial consumers. To build our brand, we have cultivated relationships with leading and emerging designers, highlighted designers and classic design products, and carefully sourced products that embody what we believe are the principles of enduring design, performance and authenticity. Our catalog and online publications have broad consumer reach. We mail on average over 800,000 catalogs each month and more than 240,000 people receive our weekly electronic newsletter, “Design Notes.” This brand recognition drives awareness and demand for our products.

Multiple, Integrated Sales Channels.    We believe that our integrated multi-channel strategy allows us to better serve consumers who may prefer shopping for products in different ways and to obtain greater exposure for our merchandise and brand. Each channel provides specific benefits which contribute to our overall success. Our catalog and website allow us to obtain rapid feedback as to customers’ needs and permit us to cost effectively prospect for new customers. Our studios enable us to provide the touch and feel of our merchandise to customers and provide a local presence to enhance our market penetration. We maintain consistent pricing across all of our sales channels for all customers. We support our sales channels with a common inventory and centralized information system, which enable us to improve product availability, facilitate inventory turns and utilize information from each channel to benefit the others.

Distinctive Merchandising.    We seek to be a leader in identifying and selling products that are innovative and not widely available from other retailers. We take a selective approach to product sourcing, and now offer over 725 products in numerous categories. Working with our selected designers and manufacturers, we ensure that products meet our stringent standards for design, quality and authenticity before they are included in our product assortment. We complement our merchandise mix by providing the customer with authoritative educational information regarding the designers of our products and other design topics.

Strategic Designer, Manufacturer and Distributor Relationships.    Our credibility and reputation among residential and commercial consumers for high quality, innovative modern design products are enhanced by our relationships with over 200 select designers, manufacturers and distributors in Europe and North America. These include small businesses, as well as larger, more prominent vendors, such as Herman Miller, Inc.^®, Vitra Inc. and Kartell US Inc. We purchase products from our vendors frequently and in large volumes, and in many cases we are a vendor’s largest customer. As a result, we are able to develop long-lasting relationships with most of our vendors and often become the de facto sole provider of their products in the United States.

Superior Customer Service.    We focus on providingdistributor relationships; superior customer service in each of our sales channels. Key elements of our customer service include: high product availabilityservice; and rapid delivery; well-designed and attractive catalogs; knowledgeable sales personnel; our easy-to-use website for around-the-clock purchases; a liberal product return policy; extensive product information; and insightful design-oriented commentary. In fiscal year 2003, we had an initial fulfillment rate, meaning the product was in stock and ready to ship at the time of order, of approximately 87%.

Experienced Management Team.    We were founded in 1998 by Robert Forbes, Jr., who continues to be our leading influence in modern design and our principal contact with the design community. Since May 2000, ourexperienced management team has been led by our Chief Executive Officer Wayne Badovinus. Mr. Badovinus was formerly the President of Williams-Sonoma, Inc. and Chief Executive Officer of Eddie Bauer, Inc. Mr. Badovinus has assembled what we believe to be a first-class management team, who have on average approximately 20 years of experience with leading companies in the retail and consumer products industries.

Growth Strategyteam.

Our goal is to strengthen our position as a leading provider of modern design furnishings and accessories. We believe that as a truly integrated multi-channel business, we must measure ourselves by total market penetration, or sales across all of our channels. We believe we can maximize our market penetration with the following growth strategies:

Open Additional Studios.    We believe our studio concept has broad consumer appeal, offers attractive financial returns and can be implemented successfully in many open additional markets across the United States. We intend tostudios; expand our studio presence from 16 at the end of 2003 by opening 13 to 16 new studios in each of 2004 and 2005. As of March 15, 2004, we had opened one of these new studios and had signed leases for nine additional studios. In fiscal year 2003, studios open the entire fiscal year had an average annual sales volume of $2.0 million and an average annual studio operating margin of 22.9%. Our average initial investment per studio opened in fiscal year 2003 was approximately $500,000, including net build-out and pre-opening expenses and the cost of product floor samples.

Expand and Edit Product Offerings.    We believe there are substantial opportunities in the near-term to expand our product offerings in existing categories and enter into new, complementary categories. We continually evaluate and edit our merchandise assortment based upon product performance and compatibility. In recent years, we have introduced several new product categories, such as bedroom furnishings and mattresses, which is currently our fastest growing product category, as well as bathroom fixtures and accessories, floor coverings and lighting. Products introduced since January 1, 2002 accounted for 49.4% of our net sales for fiscal year 2003. Additionally, we intend to focus on and expand the product offerings for which we believe we are the sole supplier in the United States.

Increase Marketing Within and Across Our Sales Channels.    We believe that opportunities exist to expand net sales withofferings; increase marketing initiatives focused within and across each of our sales channels. We have recently expanded the number of catalogs in circulation by introducing new, targeted catalogs that vary in size, merchandise selectionchannels; and frequency of delivery, in order to enable us to more cost-effectively reach new customers. For example, we recently began to mail smaller catalogs containing our most popular products to prospective customers in markets where we have studiosexpand market awareness and in other select markets. We intend to promote our studio locations and new studio openings in our catalogs and on our website and utilize customer data to target studio openings. We provide in-studio computers allowing customers online access towww.dwr.com, and we encourage studio personnel to promote online usage and distribute our catalogs. To drive online sales, we intend to implement additional third-party marketing agreements with selected search engines and affiliate programs. We also intend to continue to add new business development executives to further grow our commercial business.appreciation for design products.

Expand Market AwarenessOur business is subject to numerous risks, which are highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. In particular, our limited operating history makes it difficult for us to accurately forecast net sales and Appreciationearnings. Furthermore, we primarily purchase our inventory in advance of sale to the customer and, as such, certain products may not achieve continued consumer acceptance requiring us to take significant inventory markdowns. In addition, we do not maintain vendor contracts and therefore may not have access to products we currently offer for Design Products.    We seek to expand our addressable market by continuing to promote innovative design products and to educate both residential and commercial consumers onsale in the principles of modern design. We intend to achieve this through our weekly electronic newsletter, catalogs and other publications, periodic design seminars, conferences, studio events and design contests. Recently, we received over 350 entries to our online contest in which we asked customers to create chairs made from the corks and wire cages of champagne bottles. We often host events featuring leading industry speakers and promote studios by hosting in-studio activities such as wine tastings for consumers and neighboring galleries. We believe that these activities enhance consumers’ appreciation of modern design and expand the market for our products.future.

Corporate Information

We were incorporated in California in November 1998, and we reincorporated in Delaware in March 2004. In April 1999, we received funding from a group of investors led by Jesse.Hansen&Co.,JH Partners, LLC, a San Francisco-based private equity investment firm.firm formerly known as Jesse.Hansen&Co. Our principal executive offices are located at 225 Bush Street, 20^th Floor, San Francisco, California 94104, and our telephone number is (415) 676-6500. Our website address iswww.dwr.com. Information contained in, or accessible through, our website, and information contained in our catalogs, does not constitute part of this prospectus.

The Offering

The number of shares of common stock to be outstanding after this offering is based upon 3,352,3093,484,916 shares outstanding as of March 15,May 31, 2004 and excludes, as of that date:

Unless otherwise stated, information in this prospectus assumes:

Summary Financial and Operating Data

The following tables provide our summary financialstatements of earnings data and additional operating data as of and for each of the fiscal years in the three year period ended December 27, 2003.2003 and as of and for each of the fiscal quarters ended March 29, 2003 and March 27, 2004 and balance sheet data as of March 27, 2004. The pro forma information contained in the balance sheet data gives effect to the automatic conversion of all our outstanding shares of preferred stock into shares of our common stock upon the closing of this offering, and the assumed exercise of warrants to purchase 261,172 shares of our Series B preferred stock at an exercise price of $2.55 per share in cash, which will convert automatically into 261,172 shares of common stock upon the closing of this offering.offering, and the assumed exercise of warrants to purchase 700,000 shares of our common stock at an exercise price of $1.50 in cash. The statements of earnings data for the fiscal quarters ended March 29, 2003 and March 27, 2004 and the balance sheet data as of March 27, 2004 are derived from our unaudited financial statements included elsewhere in this prospectus. Such unaudited interim financial statements have been prepared on the same basis as the audited financial statements and reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial information for such periods. The pro forma as adjusted balance sheet data reflects the pro forma balance sheet data at DecemberMarch 27, 20032004 adjusted for the sale of 3,000,000 shares of our common stock by us in this offering at an assumed initial offering price to the public of $$10.00 per share (which is the midpoint of the range given on the cover page of this prospectus), after deducting $$3,750,000 in underwriting discounts and commissions and estimated offering expenses payable by us. This summary information should be read in conjunction with, and is qualified in its entirety by reference to, “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

(footnotes on following page)

Risk Factors

Any investment in shares of our common stock involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this prospectus, before you decide to buy our common stock. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

Risks Relating to Design Within Reach

Our limited operating history makes evaluation of our business difficult.

We were originally incorporated in November 1998 and began selling products in July 1999. As an early stage company with limited operating history, we face risks and difficulties, such as challenges in accurate financial planning and forecasting as a result of limited historical data and the uncertainties resulting from having had a relatively limited time period in which to implement and evaluate our business strategies as compared to older companies with longer operating histories. These difficulties are particularly evident with respect to the evaluation and prediction of the operating results and expenses of our studios, as we opened our first studio in November 2000 and have expanded from one studio at the end of 2001 to 1625 studios at the endas of 2003.May 31, 2004. Further, our limited operating history will make it difficult for investors and securities analysts who may choose to follow our common stock, if any, to evaluate our business, strategy and prospects. Our failure to address these risks and difficulties successfully would seriously harm our business.

If we fail to offer merchandise that our customers find attractive, the demand for our products may be limited.

In order for our business to be successful, our product offerings must be distinctive in design, useful to the customer, well made, affordable and generally not widely available from other retailers. We cannot predict with certainty that we will successfully offermay not be successful in offering products that meet these requirements in the future. If our products become less popular with our customers, if other retailers, especially department stores or discount retailers, offer the same products or products similar to those we sell, or if demand generally for design products such as ours decreases or fails to grow, our sales may decline or we may be required to offer our products at lower prices. If customers buy fewer of our products or if we have to reduce our prices, our net sales and earnings will decline and our business will be harmed and the price of our common stockoperating results would be affected adversely.

We believe that our future growth will be substantially dependent on the continued increase in sales growth of existing core products, such as the Aeron^® Chair and the Eames^® Lounge Chair and Ottoman manufactured by Herman Miller, Inc. and other design classics and new products, while at the same time maintaining or increasing our current gross margin rates. We cannot predict whether we willmay not be able to increase the growth of existing core and new products or successfully introduce new products or maintain or increase our gross margin rate in future periods. Failure to do so may adversely affect our business.

Moreover, in order to meet our strategic goals, we must successfully identify, obtain supplies of, and offer to our customers new, innovative and high quality design products on a continuous basis. These products must appeal to a wide range of residential and commercial customers whose preferences we cannot predict with certainty and may change in the future. If we misjudge either the market for our products or our customers’ purchasing habits, we may be faced with significant excess inventories for some products and missed opportunities for products we chose not to stock. In addition, our sales may decline or we may be required to sell our products at lower prices. This would have a negative effect on our business.

We do not have long-term vendor contracts and as a result we may not have continued or exclusive access to popular products that we sell.

ManyAll of ourthe products that we offer are unique designs manufactured by third-party suppliers that are not widely available from other retailers.suppliers. We do not typically enter into formal exclusive supply agreements for theseour products and, therefore, have no contractual rights to exclusively market and sell them. Since we do not have arrangements with any vendor or distributor that would guarantee the availability or exclusivity of theseour products from year to year, we do not have a predictable or guaranteed supply of these products in the future. If we are unable to provide our customers with continued access to popular exclusive design products, our net sales will decline and our operating results couldwould be harmed.

Our business depends, in part, on factors affecting consumer spending that are not within our control.

Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer spending, including general economic conditions, disposable consumer income, recession and fears of recession, stock market volatility, war and fears of war, acts of terrorism, inclement weather, consumer debt, interest rates, sales tax rates and rate increases, inflation, consumer confidence in future economic conditions and political conditions, and consumer perceptions of personal well-being and security generally. Adverse changes in factors affecting discretionary consumer spending could reduce consumer demand for our products, thus reducing our net sales and harmingadversely affecting our business and operating results.

Our business will be harmed if we are unable to implement our growth strategy successfully.

Our growth strategy primarily includes the following components:

Any failure on our part to implement any or all of our growth strategies successfully would likely have a material adverse effect on our financial condition, results of operations and cash flows. We believe our past growth has been attributable in large part to our success in meeting the merchandise, timing and service demands of an expanding customer base, but there is no assurance that we will be able to continue to have such success.

We must successfully manage the complexities associated with a multi-channel business.

During the past few years, with the launch of our website and the launch and expansion of our studios, our overall business has become substantially more complex. The changes in our business have forced us to develop new expertise and face new challenges, risks and uncertainties. We cannot assure you that, if our studio business continues to grow, it will not take away a significant portion of our catalog and online sales.condition.

The expansion of our studio operations could result in increased expenses with no guarantee of increased earnings.

We plan to open between 13 and 16 new studios in each of 2004 and 2005. We anticipate the costs associated with opening these new studios will be between approximately $9 million and $10 million in each of 2004 and 2005. However, we may not be able to attain our target number of new studio openings, and any of the new studios that we open may not be profitable, either of which could have an adverse impact on our financial results. Our ability to expand by opening new studios will depend in part on the following factors:

Even though we plan to continue to expand the number of geographic areas in which our studios are located, we expect that our studio operations will remain concentrated in limited geographic areas. Please see “Business—Sales Channels—Studios” for a list of the geographic areas where we currently have studios. This concentration could increase our exposure to fluctuating customer demand, adverse weather conditions, competition, distribution problems and poor economic conditions in these regions. In addition, our catalog sales, online sales or existing studio sales in a specific region may decrease as a result of new studio openings in that region.

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

Some of our expenses will increase with the opening of new studios, such as headcount and lease occupancy expenses. Moreover, as we increase inventory levels to provide studios with product samples and support the incremental sales generated from additional studios, our inventory expenses will increase. We may not be able to manage this increased inventory without decreasing our earnings. If studio sales are inadequate to support these new costs, our earnings will decrease. In addition, if we were to close any studio, whether because a studio is unprofitable or otherwise, we likely would be unable to recover our investment in leasehold improvements and equipment at that studio and would be liable for remaining lease obligations.

We rely on our catalog operations, which could have significant cost increases and could have unpredictable results.

Our success depends in part on our ability to market, advertise and advertisesell our products effectively through the Design Within Reach catalog. In fiscal year 2003, phone sales totaled $25.5 million, representing 31.4% of our total net sales. We believe that the success of our catalog operations depends on the following factors:

Catalog production and mailings entail substantial paper, postage, merchandise acquisition and human resource costs, including costs associated with catalog development and increased inventories. We incur nearly all of these costs prior to the mailing of each catalog. As a result, we are not able to adjust the costs incurred in connection with a particular mailing to reflect the actual performance of the catalog. Increases in costs of mailing, paper or printing would increase our costs and would adversely impact our earnings as we would be unable to pass such increases directly on to our customers or offset such increases by raising prices. If we were to experience a significant shortfall in anticipated sales from a particular mailing, and thereby not recover the costs associated with that mailing, our future results would be adversely affected. In addition, response rates to our mailings and, as a result, sales generated by each mailing, are affected by factors such as consumer preferences, economic conditions, the timing of catalog mailings, the product mix in a particular catalog, the timely delivery by the postal system of our catalog mailings and changes in our merchandise mix, several of which may be outside our control. Furthermore, we have historically experienced fluctuations in the response rates to our catalog mailings. Customer response to our catalogs is dependent on merchandise assortment, merchandise availability and creative presentation, as well as the size and timing of delivery of the catalogs. If we are unable to achieve adequate response rates, we could experience lower sales, significant markdowns or write-offs of inventory and lower margins, which would adversely affect our future operating results.

We must manage our online business successfully or our business will be adversely affected.

Our success depends in part on our ability to market, advertise and sell our products through our website. In fiscal year 2003, online sales totaled $18.7 million, representing 23.0% of our total net sales. The success of our online business depends, in part, on factors over which we have limited control. In addition to changing consumer preferences and buying trends relating to Internet usage, we are vulnerable to additional risks and uncertainties associated with the Internet. These risks include changes in required technology interfaces, website downtime or slowdowns and other technical failures or human errors, changes in applicable federal and

state regulation, security breaches, and consumer privacy concerns. Our failure to respond successfully to these risks

and uncertainties might adversely affect the sales through our online business, as well as damage our reputation and increase our selling, general and administrative expenses.

If we do not manage our inventory levels successfully, our operating results will be adversely affected.

We must maintain sufficient inventory levels to operate our business successfully. However, we also must guard against the risk of accumulating excess inventory as we seek to fulfill our “in stock and ready to ship” philosophy. Our success depends upon our ability to anticipate and respond to changing merchandise trends and customer demands in a timely manner. If we misjudge market trends, we may overstock unpopular products and be forced to take significant inventory markdowns, which would have a negative impact on our operating results. Conversely, shortages of popular items could result in loss of sales and have a material adverse effect on our operating results.

We cannot predict consumer preferences with certainty, and theseConsumer preferences may change between the time we order a product and the time it is available for sale. We base our product selection on our projections of consumer preferences in a future period, and we cannot guarantee that theseour projections willmay not be accurate. As a result, we are vulnerable to consumer demands and trends, to misjudgments in the selection and timing of our merchandise purchases and fluctuations in the U.S. economy. Additionally, much of our inventory is sourced from vendors located outside the United States that often require lengthy advance notice of our requirements in order to be able to produce products in the quantities we request. This usually requires us to order merchandise, and enter into purchase order contracts for the purchase and manufacture of such merchandise, well in advance of the time such products will be offered for sale, which makes us vulnerable to changes in consumer demands and trends. If we do not accurately predict our customers’ preferences and acceptance levels of our products, our inventory levels will not be appropriate and our business, financial condition and operating results may be negatively impacted.

We source many of our products from manufacturers and suppliers located in Europe, many of which close for vacation during the month of August each year. Accordingly, during September and in many cases for several weeks thereafter as manufacturing resumes and products are shipped to the United States, we are often unable to receive product shipments from these suppliers. As a result, we are required to make projections regarding customer demand for these products for the third and fourth quarters of each year and order sufficient product quantities for delivery in advance of the August shutdown. If we misjudge demand for any of these items, our inventory levels may be too high or low. If we have a shortage of a particular item affected by the August shutdown, we may not be able to procure additional quantities for some weeks or months, which could result in loss of sales and have a material adverse effect on our operating results.

We depend on domestic and foreign vendors, some of which are our competitors, for timely and effective sourcing of our merchandise, and we are subject to various risks and uncertainties that might affect our ability to procure quality merchandise.

Our performance depends on our ability to purchase our merchandise in sufficient quantities at competitive prices. We purchase our merchandise from over 200 foreign and domestic designers, manufacturers and distributors. We have no long-term purchase contracts with any of our suppliers and, therefore, have no contractual assurances of continued supply, pricing or access to products, and any vendor could discontinue selling to us at any time. SomeIn fiscal year 2003, products supplied by our five largest vendors represented approximately 31.8% of net sales.

Additionally, some of our principal suppliers, including Herman Miller, Inc., Vitra Inc. and Kartell US Inc., compete directly with us in both residential and commercial markets and may in the future choose not to supply products to us. In fiscal year 2003, products supplied by Herman Miller, Inc., Vitra Inc. and Kartell US Inc. represented approximately 15.4% of our net sales. Additionally, some of our smaller vendors have limited resources, production capacities and operating histories, which means that they may not be able to timely produce sufficient quantities of certain products demanded by our customers. There can be no assurance that we willWe may not be able to acquire desired merchandise in sufficient quantities on terms acceptable to us in the future. Any inability to acquire suitable merchandise or the loss of one or more key vendors could have a negative effect on our business and operating results because we

would be missing products from our merchandise mix unless and until alternative supply arrangements are made. WeMoreover, we may not be able to develop relationships with new vendors and products from alternative sources, if any, may be of a lesser quality or more expensive than those we currently purchase.

We are subject to various risks and uncertainties that might affect our ability to procure quality merchandise.

In addition,

Our performance depends on our ability to procure quality merchandise from our vendors. Our vendors are subject to certain risks, including availability of raw materials, labor disputes, union organizing activity, inclement weather, natural disasters, and general economic and political conditions, that might limit their ability to provide us with quality merchandise on a timely basis. For these or other reasons, one or more of our vendors might not adhere to our quality control standards, and we might not identify the deficiency before merchandise ships to us or our customers. Our vendors’ failure to manufacture or import quality merchandise in a timely and effective manner could reduce our net sales, damage our reputation and have an adverse effect on our business, results of operations and financial condition.

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.

During fiscal year 2003, our sales of products supplied by Herman Miller, Inc., the manufacturer of, among other items, the Aeron Chair, the Eames Lounge Chair and Ottoman, the Eames^® Aluminum Management Chair and the Noguchi Table, constituted approximately 10.4% of our total net sales. Sales of products supplied by our top five vendors constituted approximately 31.8% of our total net sales for fiscal year 2003. Although we have no formal supply agreements with any of these vendors, we believe that sales of products we obtain from these vendors will continue to constitute a substantial portion of our sales in the future. However, we cannot assure you that sales of products from these vendors willmay not continue to increase or willmay not continue at this level.level in the future. If sales of products from these vendors decrease, our net sales will decrease and the price of our common stock may be adversely affected.

Declines in the value of the U.S. dollar relative to foreign currencies could adversely affect our operating results.

We procure supplies of our products from manufacturers in eleven countries outside the United States. In fiscal year 2003, approximately 59% of our merchandise purchases were sourced from outside the United States, primarily from Europe. Our dependence on foreign vendors means, in part, that we may be affected by declines in the relative value of the U.S. dollar to other foreign currencies, particularly the euro. Specifically, as the value of the U.S. dollar declines relative to other currencies, such as the euro, our effective cost of supplies of product increases. As a result, continued declines in the value of the U.S. dollar relative to the euro and other foreign currencies would increase our cost of goods sold and decrease our gross margin.

We rely on foreign sources of production, which subjects us to various risks.

We alsocurrently source a substantial portion of our products from foreign manufacturers located in Canada, the Czech Republic, Denmark, France, Germany, Israel, Italy and in other countries. As such, we are subject to other risks and uncertainties associated with changing economic and political conditions in foreign countries. These risks and uncertainties include import duties and quotas, work stoppages, economic uncertainties including inflation, foreign government regulations, wars and fears of war, acts of terrorism, political unrest and trade restrictions. We cannot predict whether any of theAdditionally, countries in which our products are currently manufactured or may be manufactured in the future will bemay become subject to trade restrictions imposed by the United States or foreign governments or the likelihood, type or effect of any such restrictions.governments. Any event causing a disruption or delay of imports from foreign vendors, including the imposition of additional import restrictions, restrictions on the transfer of funds or increased tariffs or quotas, or both could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition and operating results.

There is also a risk that one or more of our foreign vendors will not adhere to fair labor standards and may engage in child labor practices. If this happens, we could lose customer goodwill and favorable brand recognition, which could negatively affect our business and operating results.business.

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.

We cannot control all of the various factors that might affect our timely and effective procurement of supplies of product from our vendors and delivery of merchandise to our customers. All products that we purchase, domestically or overseas, must be shipped to our fulfillment center in Hebron, Kentucky by third-party freight carriers, except for those products that are shipped directly to our customers from the manufacturer. Our

dependence on foreign imports also makes us vulnerable to risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to our fulfillment center, work stoppages including as a result of events such as longshoremen strikes, transportation and other delays in shipments including as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the United States, lack of freight availability and freight cost increases. In addition, if we experience a shortage of a popular item, we may be required to arrange for additional quantities of the item, if available, to be delivered to us through airfreight, which is significantly more expensive than standard shipping by sea. As a result, we cannot assure you that we willmay not be able to obtain sufficient freight capacity on a timely basis or at favorable shipping rates and, therefore, we may not be able to timely receive merchandise from our vendors or deliver our products to our customers.

We rely upon land-based carriers for merchandise shipments from U.S. ports to our facility in Hebron, Kentucky and from this facility to our customers. Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather and increased fuel costs, associated with such carriers’ ability to provide delivery services to meet our inbound and outbound shipping needs. Failure to procure and deliver merchandise either to us or to our customers in a timely and effective manner could damage our reputation and adversely affect our business and operating results.business. In addition, any increase in fulfillment costs and expenses could adversely affect our business and operating results.future financial performance.

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.

We conduct all of our fulfillment operations from our facility in Hebron, Kentucky. Our fulfillment center houses all of our product inventory and is the location from which all of our products are shipped to customers, except for those products that are shipped directly to our customers from the manufacturer. A natural disaster or other catastrophic event, such as an earthquake, fire, flood, severe storm, break-in, terrorist attack or other comparable event would cause interruptions or delays in our business and loss of inventory and could render us unable to accept or fulfill customer orders in a timely manner, or at all. Further, we have no formal disaster recovery plan and our business interruption insurance may not adequately compensate us for losses that may occur. In the event that a fire, natural disaster or other catastrophic event were to destroy a significant part of our Hebron, Kentucky facility or interrupt our operations for any extended period of time, or if harsh weather conditions prevent us from delivering products in a timely manner, our business, financial conditionnet sales would be reduced and our operating results would be harmed.

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

Our ability to receive and fulfill orders successfully is critical to our success and largely depends upon the efficient and uninterrupted operation of our computer and communications hardware and software systems. Our systems and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, catastrophic events, and errors in usage by our employees and customers. Further, our servers are located at the facilities of, and hosted by, a third-party service provider in Santa Clara, California. In the event that this service provider experiences any interruption in its operations or ceases operations for any reason or if we are unable to agree on satisfactory terms for a continued

hosting relationship, we would be forced to enter into a relationship with another service provider or take over hosting responsibilities ourselves. We cannot assure you that, inIn the event it became necessary to switch hosting facilities in the future, we wouldmay not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. Any significant interruption in the availability or functionality of our website or our sales processing, distribution or communications systems, for any reason, could seriously harm our business, financial condition and operating results.business.

We are planning certain systems changes that might disrupt our supply chain operations.

Our success depends on our ability to source merchandise efficiently through appropriate systems and procedures. We are in the process of substantially modifying our information technology systems supporting our

product sourcing, merchandise planning, forecasting, inventory management, product distribution and transportation and price management. Modifications will involve updating or replacing legacy systems with successor systems during the course of fiscal year 2004. There are inherent risks associated with replacing our core systems, including supply chain disruptions that affect our ability to deliver products to our customers. There canWe may not be no assurance that we willable to successfully launch these new systems or that the launch will occurthem without supply chain disruptions.disruptions in the future. Any resulting supply chain disruptions could have a material adverse effect on our business and operating results.

If we are unable to provide satisfactory customer service, we could lose customers and our reputation could be harmed.

Our ability to provide satisfactory levels of customer service depends, to a large degree, on the efficient and uninterrupted operation of our customer call center. Any material disruption or slowdown in our order processing systems resulting from labor disputes, telephone or Internet failures, power or service outages, natural disasters or other events could make it difficult or impossible to provide adequate customer service and support. Further, we may be unable to attract and retain adequate numbers of competent customer service representatives, who are essential in creating a favorable, interactive customer experience. In addition, we cannot assure you that e-mail and telephone call volumes will notin the future may exceed our present system’s capacities. If this occurs, we could experience delays in taking orders, responding to customer inquiries and addressing customer concerns, which would have an adverse effect on customer satisfaction and our reputation.

We also are dependent on third-party shipping companies for delivery of products to customers. If these companies do not deliver goods in a timely manner or damage products in transit, our customers may be unsatisfied. Because our success depends in large part on keeping our customers satisfied, any failure to provide high levels of customer service would likely impair our reputation and have an adverse effect on our business.future financial performance.

We face intense competition and if we are unable to compete effectively, we may not be able to maintain profitability.

The specialty retail furnishings market is highly fragmented but highly competitive. We compete with other companies that market lines of merchandise similar to or in some cases the same as, ours, such as large retailers with a national or multinational presence, regional operators with niche assortments and catalog and Internet companies. Many of our competitors are larger companies with greater financial resources a wider selection of merchandise and greater inventory availability.than us. We expect that as demand for high quality design products grows, many new competitors will enter the market and competition from established companies will increase.

Moreover, increased competition may result in potential or actual litigation between us and our competitors relating to such activities as competitive sales practices, relationships with key suppliers and manufacturers and other matters. As a result, increased competition may adversely affect our future financial performance.

The competitive challenges facing us include:

The U.S. retail industry, the specialty retail industry in particular, and the e-commerce sector are constantly evolving and have undergone significant changes over the past several years. Our ability to anticipate and successfully respond to continuing challenges is critical to our long-term growth, and we cannot assure you that we will anticipatemay not be successful in anticipating and successfully respondresponding to changes in the retail industry and e-commerce sector.

In light of the many competitive challenges facing us, there can be no assurance that we willmay not be able to compete successfully. Increased competition could adversely affect our sales, operating results and business.future net sales.

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.

We maintain a liberal merchandise return policy that allows customers to return most merchandise received from us if they are dissatisfied with those items.We make allowances for returns in our financial statements based on historical return rates. We cannot assure you that actualActual merchandise returns will notmay exceed our allowances.allowances for returns. In addition, because our allowances are based on historical return rates, we cannot assure you that the introduction of new products, the opening of new studios, the introduction of new catalogs, increased sales online, changes in our merchandise mix or other factors will notmay cause actual returns to exceed return allowances. Any significant increase in merchandise returns that exceed our allowances could have a material adverse effect on our future operating results.

The loss of key personnel would have a material adverse effect on our business financial condition and operating results.

Our success depends to a significant extent upon the abilities of our senior management, particularlymanagement. In particular, we are dependent on the services of Robert Forbes, our founder, and Wayne Badovinus, our President and Chief Executive Officer, and David Barnard, our Chief Financial Officer. We do not have long-term employment agreements with any of our key personnel. The loss of the services of Mr. Forbes, or Mr. Badovinus, Mr. Barnard or any of the other members of our senior management team or of other key employees could have a material adverse effect on our business financial condition and operating results. Additionally, our future performance will depend upon our ability to attract and retain qualified management, merchandising and sales personnel. If members of our existing management team are not able to manage our company or our growth, or if we are unable to attract and hire additional qualified personnel as needed in the future, our business financial condition and operating results will be negatively impacted.

We have grown quickly and if we fail to manage our growth, our business will suffer.

We have rapidly and significantly expanded our operations, and anticipate that further significant expansion will be required to address potential growth in our customer base and market opportunities. This expansion has placed, and is expected to continue to place, a significant strain on our management and operational resources. Some of our officers or senior management personnel have no prior senior management experience at public companies. Additionally, we need to properly implement and maintain our financial and managerial controls, reporting systems and procedures, including disclosure controls and procedures and internal controls over financial reporting. Moreover, if we are presented with appropriate opportunities, we may in the future make investments in, or possibly acquire, assets or businesses that we believe are complementary to ours. Any such investment or acquisition may further strain our financial and managerial controls and reporting systems and procedures. These difficulties could disrupt our business, distract our management and employees and increase our costs. If we are unable to manage growth effectively or successfully integrate any assets or businesses that we may acquire, our business,future financial condition and results of operationsperformance would be adversely affected.

If the protection of our trademarks and proprietary rights is inadequate, our brand and reputation could be impaired and we could lose customers.

We regard our copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to our success. WeOur principal intellectual property rights include a registered trademark on our name, “Design Within Reach,” copyrights in our catalogs, rights to our domain name,www.dwr.com, and our databases and information management systems. As such, we rely on trademark and copyright law, trade secret protection and confidentiality agreements with our employees, consultants, suppliers, and others to protect our proprietary rights. Nevertheless, the steps we take to protect our proprietary rights may be inadequate. In addition, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. If we are unable to protect or preserve the value of our trademarks, copyrights, trade secrets or other proprietary rights for any reason, our business wouldbrand and reputation could be harmed.

We also rely on technologies thatimpaired and we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms, or at all, in the future. As a result, we may be required to obtain substitute technology of lower quality or at greater cost, which could materially adversely affect our business, operating results and financial condition.lose customers.

Intellectual property claims against us could be costly and could impair our business.

Third parties may assert claims against us alleging infringement, misappropriation or other violations of patent, trademark or other proprietary rights held by them, whether or not such claims have merit. We cannot predict whether third parties will assert such claims against us, or whether any such claim would prevent us from offering any of our products or operating our business as planned. If we are forced to defend against third-party infringement claims, whether they are with or without merit or are determined in our favor, we could face expensive and time-consuming litigation, which could divert management personnel, or result in product shipment delays. If an infringement claim is determined against us, we may be required to pay monetary damages or ongoing royalties, or to cease selling the infringing product, which may have a significant impact on our sales volume. Further, as a result of infringement claims either against us or against those who license rights to us, we may be required to enter into costly royalty or licensing agreements. Such royalty or licensing agreements, if required, may be unavailable on terms that are acceptable to us, or at all. If a third party successfully asserts an infringement claim against us and we are required to pay monetary damages or royalties or we are unable to obtain suitable non-infringing alternatives or license the infringed or similar intellectual property on reasonable terms on a timely basis, it could significantly harm our business.

We may face product liability claims or product recalls that are costly and create adverse publicity.

The products we sell may from time to time contain defects which could subject us to product liability claims and product recalls. Any such product liability claim or product recall may result in adverse publicity regarding us and the products we sell, which may harm our reputation. If we are found liable under product liability claims, we could be required to pay substantial monetary damages. Further, even if we successfully defend ourselves against this type of claim, we could be forced to spend a substantial amount of money in litigation expenses, our management could be required to spend valuable time in the defense against these claims and our reputation could suffer, any of which could harm our business. In addition, although we maintain limited product liability insurance, if any successful product liability claim or product recall is not covered by or exceeds our insurance coverage, our business, results of operations and financial condition would be harmed.

The security risks of online commerce, including credit card fraud, may discourage customers from purchasing products from us online.

For our online sales channel to continue to succeed, we and our customers must be able to transmit confidential information, including credit card information, securely over public networks. Third parties may have the technology or know-how to breach the security of customer transaction data. Any breach could cause customers to lose confidence in the security of our website and choose not to purchase from us. Although we take the security of our systems very seriously, we cannot guarantee that our security measures willmay not effectively prohibit others from obtaining improper access to our information. If a person is able to circumvent our security measures, he or she could destroy or steal valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and harm our reputation.

We do not carry insurance against the risk of credit card fraud, so the failure to prevent fraudulent credit card transactions could adversely affect our operating results. In addition, we may in the future suffer losses as a result of orders placed with fraudulent credit card data even though the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature when we sell our products by telephone or online. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, operating results and financial condition.

Existing or future government regulation could harm our business.

We are subject to the same federal, state and local laws as other companies conducting business online, including consumer protection laws, user privacy laws and regulations prohibiting unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations, we must provide notice to our customers of our policies on sharing non-public information with third parties, must provide advance notice of any changes to our privacy policies and, with limited exceptions, must give consumers the right to prevent sharing of their non-public personal information with unaffiliated third parties. Further, the growth of online commerce could result in more stringent consumer protection laws that impose additional compliance burdens on us. Today there are an increasing number of laws specifically directed at the conduct of business on the Internet. Moreover, due to the increasing use of the Internet, many additional laws and regulations relating to the Internet are being debated at the state and federal levels. These laws and regulations could cover issues such as freedom of expression, pricing, user privacy, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability of existing laws to the Internet relating to issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also harm our business. For example, U.S. and international laws regulate our ability to use customer information and to develop, buy and sell mailing lists. Many of these laws were adopted prior to the advent of the Internet, and do not contemplate or address the unique issues raised by the Internet. The applicability and reach of those laws that do reference the Internet, such as the Digital Millennium Copyright Act, are uncertain. The restrictions imposed by, and costs of complying with, current and possible future laws and regulations related to our business could harm our business,future operating results and financial condition.results.

Tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes, which could have an adverse effect on our cash flows and results of operations. Further, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements.

The State of California recently enacted a law that requires any company that does business in California and possesses computerized data, in unencrypted form, containing certain personal information about California residents to provide prompt notice to such residents if that personal information was, or is reasonably believed to have been, obtained by an unauthorized person such as a computer hacker. The law defines personal information as an individual’s name together with one or more of that individual’s social security number, driver’s license number, California identification card number, credit card number, debit card number, or bank account information, including any necessary passwords or access codes. As our customers, including California residents, generally provide information to us that is covered by this definition of personal information in connection with their purchases via our website, our business will be affected by this new law. As a result, we will need to ensure that all computerized data containing the previously-described personal information is sufficiently encrypted or that we have implemented appropriate measures to detect unauthorized access to our data. We cannot be certain that theseThese measures willmay not be sufficient to prevent unauthorized access to the previously described personal information. In the event of an unauthorized access, we are required to notify our California customers of any such access to the extent it involves their personal information. Such measures will likely increase the costs of doing business and, if we fail to detect and provide prompt notice of unauthorized access as required by the new law, we could be subject to potential claims for damages and other remedies available to California residents whose information was improperly accessed or, under certain circumstances, the State of California could seek to

enjoin our online operations until appropriate corrective actions have been taken. While we intend to comply fully with this new law, we cannot assure you that we willmay not be successful in avoiding all potential liability or disruption of business resulting from this law. If we were required to pay any significant amount of money in satisfaction of claims under this new law, or any similar law enacted by another jurisdiction, or if we were forced to cease our business operations for any length of time as a result of our inability to comply fully with any such law, our business, operating results and financial condition could be adversely affected. Further, complying with the applicable notice requirements in the event of a security breach could result in significant costs.

In addition, because our website is accessible over the Internet in multiple states and other countries, we may be subject to their laws and regulations or may be required to qualify to do business in those locations. Our failure to qualify in a state or country where we are required to do so could subject us to taxes and penalties and we could be subject to legal actions and liability in those jurisdictions. The restrictions or penalties imposed by, and costs of complying with, these laws and regulations could harm our business, operating results and financial condition. Our ability to enforce contracts and other obligations in states and countries in which we are not qualified to do business could be hampered, which could have a material adverse effect on 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 are subject to increasing regulation relating to privacy and the use of personal user information. For example, we are subject to various telemarketing laws that regulate the manner in which we may solicit future customers. Such regulations, along with increased governmental or private enforcement, may increase the cost of growing our business. In addition, several states have proposed legislation that would limit the uses of personal, user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has adopted regulations regarding the collection and use of personal identifying information obtained from children under 13 years of age. Bills proposed in Congress would extend online privacy protections to adults. Moreover, proposed legislation in the United States and existing laws in other countries require companies to establish procedures to notify users of privacy and security policies, obtain consent from users for collection and use of personal information, and/or provide users with the ability to access, correct and delete personal information stored by companies. These data protection regulations and enforcement efforts may restrict our ability to collect demographic and personal information from users, which could be costly or harm our marketing efforts. Further, any violation of privacy or data protection laws and regulations may subject us to fines, penalties and damages and may otherwise have material adverse effect on our business, results of operations and financial condition.

We may be subject to liability for the content that we publish.

As a publisher of catalogs and online content, we face potential liability for defamation, negligence, intellectual property infringement orand other claims based on the information and other content contained in our catalogs and website. In the past, parties have brought these types of claims and sometimes successfully litigated them against online services. If we incur liability for our catalog or online content, our financial condition could be affected adversely and our reputation could suffer.adversely.

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.

We may need to raise additional capital in the future to open additional studios, to facilitate long-term expansion, to respond to competitive pressures or to respond to unanticipated financial requirements. We cannot be certain that we willmay not be able to obtain additional financing on commercially reasonable terms or at all. A failure to obtain additional financing or an inability to obtain financing on acceptable terms could require us to incur indebtedness that has high rates of interest or substantial restrictive covenants, issue equity securities that will dilute the ownership interests of existing stockholders, or scale back, or fail to address opportunities for expansion or enhancement of, our operations.

Our inability to obtain commercial insurance at acceptable prices might have a negative impact on our business.

During fiscal year 2003, we experienced a substantial increase in the costs of insurance. We believe that extensive commercial insurance coverage is prudent for risk management and anticipate that our insurance costs may continue to increase substantially. However, for certain types or levels of risk (e.g., risks associated with earthquakes or terrorist attacks), we might determine that we cannot obtain commercial insurance at acceptable

prices. Therefore, we might choose to forego or limit our purchase of relevant commercial insurance, choosing instead to self-insure one or more types or levels of risks. If we suffer a substantial loss that is not covered by commercial insurance, the loss and attendant expenses could have a material adverse effect on our business and operating results.

Anti-takeover provisions in our organizational documents and Delaware law make any change in control more difficult. This could affect our stock price adversely.

Our amended and restated certificate of incorporation and bylaws will contain provisions that may delay or prevent a change in control, discourage bids at a premium over the market price of our common stock and affect adversely the market price of our common stock and the voting and other rights of the holders of our common stock. These provisions will include:

We are also subject to provisions of the Delaware corporation law that, in general, prohibit any business combination with a beneficial owner of 15% or more of our common stock for five years unless the holder’s acquisition of our common stock was approved in advance by our board of directors.

Risks Relating to this Offering of Common Stock

Our stock price may be volatile and you may lose all or a part of your investment.

Prior to this offering, there has been no public market for our common stock, and an active market for these shares may not develop or be sustained after this offering. The initial public offering price for our common stock will be determined by negotiations between us and the underwriters of this offering and may not be representative of the price that will prevail in the open market. The market price of our common stock may be subject to significant fluctuations after our initial public offering. It is possible that in some future periods our results of operations may be below the expectations of securities analysts who may choose to follow our common stock, if any, and investors. If this occurs, our stock price may decline. Factors that could affect our stock price include the following:

In addition, the stock markets have experienced significant price and trading volume fluctuations, and the market prices of retail companies in particular have been extremely volatile and have recently experienced sharp share

price and trading volume changes. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been instituted against that company. Such litigation could result in substantial costs to us and a likely diversion of our management’s attention which could adversely affect our business. We cannot assure that you will receive a positive return on your investment when you sell your shares or that you will not lose the entire amount of your investment.

We will have broad discretion in how we use the proceeds of this offering, and we may not use these proceeds effectively.

We will have considerable discretion in the application of the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether we will use the proceeds effectively. We currently intend to use the net proceeds to finance the opening of additional studios, to repay all of the indebtedness outstanding under our bank credit facility, and for other general corporate purposes, including working capital. We have not finalized yet the amount of net proceeds that we will use specifically for each of these purposes. We may use the net proceeds for corporate purposes that do not yield a significant return or any return at all for our stockholders.

As a new investor, you will incur substantial dilution as a result of this offering and future equity issuances, and as a result, our stock price could decline.

The initial public offering price will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock. As a result, investors purchasing common stock in this offering will incur immediate dilution of $$6.99 per share in pro forma net tangible book value, assuming an offering price of $$10.00 per share. This dilution is due in large part to earlier investors in our company having paid substantially less than the initial public offering price when they purchased their shares, and also reflects the deduction of the $$3,750,000 in underwriting discounts and commissions and estimated offering expenses payable by us. The exercise of outstanding options and warrants and future equity issuances, including any additional shares issued in connection with acquisitions, will result in further dilution to investors.

Securities analysts may not initiate coverage of our common stock or may issue negative reports, and this may have a negative impact on our common stock’s market price.

There is no guarantee that securitiesSecurities analysts willmay not cover our common stock after the completion of this offering. If securities analysts do not cover our common stock after the completion of this offering, the lack of research coverage may adversely affect our common stock’s market price. The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts who cover us downgrades our common stock, our common stock price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our common stock price to decline. In addition, recently-adopted rules mandated by the Sarbanes-Oxley Act of 2002, and a global settlement reached between the Securities and Exchange Commission, or the SEC, other regulatory analysts and a number of investment banks in April 2003 will lead to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms will now be required to contract with independent financial analysts for their stock research. It may be difficult for companies with smaller market capitalizations, such as our company, to attract independent financial analysts that will cover our common stock, which could have a negative effect on the market price of our common stock.

Our directors, executive officers and significant stockholders will continue to hold a substantial portion of our common stock after this offering, which may lead to conflicts with other stockholders over corporate transactions and other corporate matters.

Following the completion of this offering, our directors, executive officers and current beneficial holders of 5% or more of our outstanding common stock will beneficially own approximately %60.3% of our outstanding common

stock, including warrants and options to purchase shares of our common stock that are exercisable within 60 days after ,May 31, 2004. These stockholders, acting together, will be able to influence significantly all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers or other business combinations. This control may delay, deter or prevent a third party from acquiring or merging with us, which could adversely affect the market price of our common stock.

There may be sales of substantial amounts of our common stock after this offering, which could cause our stock price to fall.

Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. Upon the closing of this offering, 12,673,149 shares of common stock will be outstanding. In addition, as of March 15, 2004: 2,348,841May 31, 2004, 2,216,234 shares of our common stock were subject to outstanding stock options; 700,000 shares of our common stock were subject to outstanding warrants; and 261,172 shares of our common stock were issuable upon the exercise of warrants to purchase shares of our Series B preferred stock, which will convert automatically into shares of our common stock upon the closing of this offering.options. All of the shares sold in this offering will be freely tradable, except for shares held by holders who are subject to market stand-off provisions or lock-up agreements entered into in connection with this offering, or by any of our “affiliates,” as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended, or the Securities Act, which generally includes officers, directors and 10% or greater stockholders. A significant portion of the shares of our common stock outstanding after this offering will continue to be restricted as a result of securities laws, market stand-off provisions or lock-up agreements with the underwriters, represented by CIBC World Markets Corp. The market stand-off provisions and lock-up agreements restrict holders’ ability to transfer their stock for 180 days after the date of this prospectus. Of the outstanding restricted shares, 85,890 will be available for sale in the public market on the date of this offering will be available for sale in the public market 90 days after the date of this prospectus,and 8,387,259 will be available for sale in the public market 180 days after the date of this prospectus,prospectus. The information in this paragraph assumes that the 261,172 shares of our Series B preferred stock subject to outstanding warrants will be exercised on a cashless basis, based on a fair market value of $10.00 per share (the mid-point of the range as set forth on the cover of this prospectus), and will convert automatically into 194,573 shares of common stock effective upon the closing of this offering, and the remaining700,000 shares of our common stock subject to outstanding warrants will be available for saleexercised on a cashless basis, based on a fair market value of $10.00 per share (the mid-point of the range as set forth on the cover of this prospectus), resulting in the public market from time to time after the dateissuance of this prospectus upon expiration595,000 shares of their applicable Rule 144 holding periods.common stock. CIBC World Markets Corp., as representative of the underwriters may, however, waive the lock-up period at any time for any stockholder.stockholder who is party to a lock-up agreement. Sales of a substantial number of shares of our common stock within a short period of time after this offering, or after the expiration of applicable lock-up periods, could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock.

We do not intend to pay dividends on our common stock.

We have never declared or paid any cash dividends on our common stock and do not intend to pay dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends from us on our common stock for the foreseeable future.

Special Note Regarding Forward-Looking Statements

We have made forward-looking statements in this prospectus, including in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” All statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,“could,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in the section entitled “Risk Factors” and elsewhere in this prospectus.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events. We cannot assure you that theThe events and circumstances reflected in the forward-looking statements willmay not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, including the securities laws of the United States, and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements after we distribute this prospectus, whether as a result of any new information, future events or otherwise.

Use of Proceeds

We estimate that the net proceeds to us from the sale of 3,000,000 shares of common stock that we are offering will be approximately $              million or $              million if the underwriters exercise their over-allotment option in full,$26,250,000, assuming an offering price of $$10.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses. We will not receive any of the proceeds from the sale of shares of common stock offered by the selling stockholders.

We intend to use the estimated net proceeds from this offering as follows:

Our bank credit facility provides for an operating line of credit and an equipment line of credit. Amounts borrowed under the operating line of credit of our bank credit facility bear interest at the rate of the greater of 4.25% or the prime lending rate plus 0.25% and mature on July 31, 2004. As of March 15,May 31, 2004, the outstanding balance under the operating line of credit was $1.2 million$687,000 and the effective rate of interest was 4.25%. Amounts borrowed under the equipment line of credit bear interest at the rate of 4.50% and mature on July 31, 2004. As of March 15,May 31, 2004, the outstanding balance under the equipment line of credit was $1.7$2.5 million. During fiscal year 2003, we used amounts borrowed under the credit facility for working capital purposes, including for the acquisition of inventory, property and equipment.

We will retain broad discretion in the allocation and use of the net proceeds of this offering. We also may use a portion of the net proceeds for the acquisition of complementary businesses or products.products in the event that an attractive opportunity presents itself in the future. We have no current agreements or commitments with respect to any acquisition. Pending application of the net proceeds, we will invest the net proceeds in short-term, investment-grade, interest-bearing securities.

Dividend Policy

We have not declared or paid any dividends on our common stock since our inception and do not intend to pay any dividends on our common stock in the foreseeable future. We currently intend to retain our future earnings, if any, to finance our business and for general corporate purposes. Our board of directors has the authority to declare and pay dividends on our common stock, in its discretion, as long as there are funds legally available to do so.

Capitalization

The following table sets forth our cash and cash equivalents, indebtedness under our bank credit facility and our capitalization as of DecemberMarch 27, 2003:2004:

The table above excludes the following shares:

Please read the above information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes contained elsewhere in this prospectus.

Dilution

Our net tangible book value on DecemberMarch 27, 20032004 was $9.8$10.5 million, or $2.96$3.06 per share of common stock. “Net tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value per share of common stock” is net tangible book value divided by the total number of shares of common stock outstanding.

After giving effect to adjustments relating to this offering, our pro forma net tangible book value on DecemberMarch 27, 20032004 would have been $$38.4 million or $$3.01 per share of common stock. The adjustments made to determine pro forma net tangible book value per share are the following:

The following table illustrates the pro forma increase in net tangible book value of $$0.03 per share of common stock and the dilution of $6.91 per share (the difference between the offering price per share and net tangible book value per share) to new investors:

The following table summarizes, on a pro forma basis as of DecemberMarch 27, 2003,2004, the differences between our existing stockholders and new investors with respect to the number of shares of common stock issued by us, the total consideration paid and the average price per share paid. The table assumes that the public offering price will be $$10.00 per share of common stock.

As of DecemberMarch 27, 2003,2004, there was an aggregate of (1) 1,902,0762,273,003 shares of our common stock subject to outstanding options at a weighted average exercise price of $0.67$1.89 per share, (2) 700,000 shares of our common stock subject to outstanding warrants at an exercise price of $1.50 per share, which we have assumed will be exercised for cash prior to the closing of this offering, and (3) 261,172 shares of our Series B preferred stock subject to outstanding warrants at an exercise price of $2.55 per share, which we have assumed will be exercised for cash and will convert automatically into 261,172 shares of common stock effective upon the closing of this offering. The following table adjusts the information set forth in the table above to reflect the assumed exercise of options and warrants, in each case outstanding as of DecemberMarch 27, 2003,2004, that are described in the preceding sentence:

Assuming the exercise of the foregoing outstanding options and warrants, dilution to new investors in net tangible book value per share would be $            .$7.16.

Selected Financial Data

The statements of operations data for the five fiscal years in the period ended December 27, 2003 and the balance sheet data as of December 28, 2002 and December 27, 2003 have been derived from our audited financial statements, which have been audited by Grant Thornton LLP, our independent auditors, and included elsewhere in this prospectus. The statements of operations data for the two years ended December 31, 1999 and December 30, 2000 and the balance sheet data as of December 31, 1999, December 30, 2000 and December 29, 2001 have been derived from our audited financial statements not included in this prospectus. The statements of operations data for the fiscal quarters ended March 29, 2003 and March 27, 2004 and the balance sheet data as of March 27, 2004 are derived from our unaudited financial statements included elsewhere in this prospectus. Such unaudited interim financial statements have been prepared on the same basis as the audited financial statements and reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial information for such periods. The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. The selected financial data in this section is not intended to replace our financial statements.

(footnotes on following page)

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes to those statements included elsewhere in this prospectus. This discussion may contain forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

Design Within Reach is an integrated multi-channel provider of distinctive modern design furnishings and accessories. We market and sell our products to both residential and commercial customers through four integrated sales channels, consisting of our catalog, studios, website and direct sales force. We offer over 725 products in numerous categories, including chairs, tables, workspace and outdoor furniture, lighting, floor coverings, beds and related accessories, bathroom fixtures, fans and other home and office accessories. Our policy of having products “in stock and ready to ship” is a departure from the approach taken by traditionalmany other modern design furnishings retailers, which typically requires customers to wait weeks or months to receive their products.

We established our business strategy on the premise that multiple, integrated sales channels improve customer convenience, reinforce brand awareness, enhance customer knowledge of our products, and produce operational benefits that ultimately improve market penetration and returns on capital. All of our sales channels utilize a single common inventory held at our Hebron, Kentucky fulfillment center and share centralized information technology systems, which together provide a level of scalability to facilitate our future growth. This integration further improves customer service, speeds delivery times and provides real-time data availability.

We have experienced significant growth in customers and net sales since our founding in 1998. We began selling products through our catalog and online in the second half of 1999, and we opened our first studio in November 2000. We generated a profit in each fiscal quarter from the second quarter of fiscal year 2001 through the fourthfirst quarter of fiscal year 2003.2004. In recent years, we have continued to increase sales across all distribution channels with particular growth in sales through our studios, which have increased in number from one at the end of 2001 to 16 studios operating in six states at the end of 2003. We expect to open 13 to 16 new studios in each of fiscal years 2004 and 2005, and as of March 15,May 31, 2004, we had opened onenine of these new studios and had signed leases for ninefour additional studios.

As one measure of the performance of our business, we analyze our total market penetration rates across all of our sales channels in the top 50 metropolitan areas in the United States by household population as identified by the U.S. Census Bureau. We calculate our market penetration rates in a particular metropolitan market area based on net sales per capita in that area. We base our decisions on where to open new studios by categorizing markets into five “tiers” based on household population statistics and supporting sales data collected from our other sales channels. We plan to open the majority of our new studios in markets in our top two tiers during 2004 and 2005. Although nearly all of our studios have been open less than two full years, our experience indicates that studio openings significantly improve our overall market penetration rates in the markets in which they are located even though the opening of a studio may initially have an adverse effect on sales growth in our other sales channels in the same market.

In January 2004, we moved our fulfillment operations from Union City, California to Hebron, Kentucky. The new facility, at approximately 217,000 square feet, is nearly 100,000 square feet larger than our previous Union City facility. We have a right of first refusal on an adjacent 100,000 square feet in the new facility, and we expect this facility to support our distribution capacity needs for at least the next four years. We support all of our sales channels through the new fulfillment center, and the vast majority of our inventory is received and distributed through it. A small portion of our merchandise is shipped directly by the manufacturers to our customers. In February 2004, we moved our corporate headquarters from an approximately 23,000 square foot facility in

Oakland, California to an approximately 59,000 square foot facility in downtown San Francisco, California. We expect that this headquarters facility will provide us with adequate space for growth for at least the next five years. In fiscal year 2003, we incurred $559,000 in costs and $170,000 in accelerated depreciation expense on abandoned assets associated with the relocation of our fulfillment center operations, and we expect to incur approximately $175,000 in costs inoperations. In the first quarter of 2004, to complete this relocation. We also anticipate incurring an additional $400,000we incurred approximately $172,000 in costs duringassociated with the first quarterrelocation of 2004our fulfillment center operations and approximately $26,000 in costs associated with the relocation of our headquarters.

We have funded our capital expenditures and working capital needs primarily through cash flows from operations, private sales of equity securities and borrowings under our bank credit facility, which includes a $7.5 million operating line of credit and a $2.5 million equipment line of credit.

Basis of Presentation

Net sales consist of studio sales, phone sales, online sales, other sales and shipping and handling fees, net of returns by customers. Studio sales consist of sales of merchandise to customers at our studios, phone sales consist of sales of merchandise through the toll-free numbers associated with our printed catalogs, online sales consist of sales of merchandise from orders placed through our website, and other sales consist of sales made by our business development executives to commercial customers and warehouse sales. Warehouse sales consist of periodic clearance sales at our fulfillment center of product samples and products that customers have returned. Shipping and handling fees consist of amounts we charge customers for the delivery of merchandise. Cost of sales consists of the cost of the products we sell and inbound and outbound freight costs. Handling costs, including our fulfillment center expenses, are included in selling, general and administrative expenses.

Selling, general and administrative expenses consist of studio costs, including salaries and studio occupancy costs, costs associated with publishing our catalogs and maintaining our website, and corporate and fulfillment center costs, including salaries and occupancy costs, among others.

We operate on a 52- or 53-week fiscal year, which ends on the Saturday closest to December 31. Each fiscal year consists of four 13-week quarters, with an extra week added onto the fourth quarter every five to six years. Our 2001 fiscal year ended on December 29, 2001, our 2002 fiscal year ended on December 28, 2002 and our 2003 fiscal year ended on December 27, 2003. Each of fiscal years 2001, 2002 and 2003 consisted of 52 weeks, and fiscal year 2004 will consist of 53 weeks.

Results of Operations

Net Sales and Other Data.    The following table sets forth information for fiscal years 2001, 2002 and 2003 and the fiscal quarters ended March 29, 2003 and March 27, 2004 about our net sales by sales channel, total net sales, gross margin, operating expenses, earnings from operations, net interest income, income taxes and net earnings both in dollars and as a percentage of net sales.