Specialty retailer Sharper Image (NASDAQ:SHRP) just celebrated an unfortunate anniversary: two straight years of falling sales and profits. Worse yet, the plummet in sales appears to only be gathering steam, and recent developments suggest time is running out for the company to get its house in order. So why are insiders and other investors buying?

First-quarter sales released last evening were anything but stable, falling almost 37% overall. Catalog and direct marketing revenue fell a staggering 79%. Store revenue plummeted just over 22% on a big drop in namesake branded merchandise and weak sales of the "air purification product line," which was recently subject to an unfavorable class action lawsuit.

Fellow Fool Rich Duprey also recently pointed out that competitors such as Target (NYSE:TGT), Costco (NASDAQ:COST), and Best Buy (NYSE:BBY) now sell products that consumers used to be able to find only at Sharper Image. And to exacerbate the challenging sales environment, the firm recently changed its CEO and had to delay and restate past financial statements, primarily due to questionable stock option grant issues.

Additionally, it now appears the company has become reliant on short-term revolving loans with relaxed financial covenants to stem persistent negative cash flow generation. It even mentioned the possible need for further debt or the issuance of equity securities if sales trends don't improve.

In other words, a bankruptcy filing could be in Sharper Image's future if it doesn't soon start posting profits at its stores.

But before investors throw in the towel for good, last month another Foolish colleague highlighted that the interim CEO and a group of investors recently spent at least $37 million to accumulate some 21.1% of Sharper Image's outstanding shares. Perhaps they know something outside investors don't, because based off the current information known publicly, Sharper Image will soon be a has-been in the retailing industry.                           

Best Buy and Costco are Motley Fool Stock Advisor recommendations. Sharper Image is a Hidden Gems PayDirt selection.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.