SECURITIES AND EXCHANGE COMMISION

                               WASHINGTON DC 20549

                                    FORM 10-Q

   | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For quarterly period ended October 28, 2000

                                       OR

   | | TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                        For the transition period from to

                           Commission File No. 0-17870

                                 LECHTERS, INC.

             (Exact Name Of Registrant As Specified In Its Charter)

               New Jersey                                 No. 13-2821526
(State or Other Jurisdiction of Incorporation)            (I.R.S. Employer
        Identification No.)

1 Cape May Street, Harrison, New Jersey                   07029-2404
(Address of Principal Executive Offices)                  (Zip Code)


Registrant's telephone number, including area code:       (973) 481 - 1100

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been  subject to such  filing  requirements
for the past 90 days.

                                  YES  X      NO
                                     ------     ------

The number of  shares  of  the  Registrant's  common  stock,  without par value,
outstanding at December 8, 2000: 15,334,986


<PAGE>


                         LECHTERS, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                       FOR QUARTER ENDED OCTOBER 28, 2000
                                      INDEX


PART I. Financial Information                                           Page No.
        ---------------------                                           --------

        Item 1.       Financial Statements

                      Consolidated Balance Sheets at
                      October 28, 2000 and January 29, 2000               1

                      Consolidated Statements of Operations
                      for the Thirteen and Thirty-Nine Weeks Ended
                      October 28, 2000 and October 30, 1999               2

                      Consolidated Statements of Cash Flows
                      for the Thirteen and Thirty-Nine Weeks Ended
                      October 28, 2000 October 30, 1999                   3

                      Consolidated Statement of Shareholders'
                      Equity for the Thirty-Nine Weeks Ended
                      October 28, 2000                                    4

                      Notes to Consolidated Financial Statements          5-8

        Item 2.       Management's Discussion and Analysis of
                      Financial Condition and Results of Operations       8-11

        Item 3.       Quantitative and Qualitative Disclosures About
                      Market Risk                                         11

PART II.       Other Information

        Item 6.       Exhibits and Reports on Form 8-K                    12

<PAGE>

--------------------------------------------------------------------------------


                              SAFE HARBOR STATEMENT
             UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT 1995

In  connection  with  the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995  ("Reform  Act"),  the  Company is hereby  filing
cautionary  statements  identifying  important  factors  that  could  cause  the
Company's   actual  results  to  differ   materially  from  those  projected  in
forward-looking  statements  (as such term is defined in the Reform Act) made by
or on  behalf  of the  Company  in  this  quarterly  report  on  Form  10-Q,  in
presentations,  in response to  questions  or  otherwise.  Any  statements  that
express, or involve discussions as to expectations,  beliefs, plans, objectives,
assumptions or future events or performance (often, but not always,  through the
use  of  words  or  phrases  such  as  "anticipates",  "believes",  "estimates",
"expects", "intends", "plans", "predicts",  "projects",  "will  likely  result",
"will continue",  or similar expressions) are not statements of historical facts
and may be forward-looking.

Forward-looking statements involve estimates, assumptions, and uncertainties and
are qualified in their  entirety by reference to, and are  accompanied  by , the
following   important   factors,   which  are  difficult  to  predict,   contain
uncertainties,  are  beyond  the  control of the  Company  and may cause  actual
results to differ materially from those contained in forward-looking statements:

- economics and geographic factors including political and economic risks;
- changes in and compliance with environmental and safety laws and policies;
- weather conditions;
- population growth rates and demographic patterns;
- competition for retail customers;
- market demand, including structural market changes;
- changes in tax rates or policies or in rates of inflation;
- changes in project costs;
- unanticipated changes in operating expenses and capital expenditures;
- capital market conditions;
- legal and administrative proceedings (whether civil or criminal) and
  settlements that influence the business and profitability of the Company.

Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any  forward-looking
statement  to  reflect  events or  circumstances  after  the date on which  such
statements is made or to reflect the  occurrence of  unanticipated  events.  New
factors  emerge  from  time to time and it is not  possible  for  management  to
predict all of such factors,  nor can it assess the impact of any such factor on
the business of the extent to which any factor,  or combination of factors,  may
cause results to differ  materially from those contained in any  forward-looking
statem
--------------------------------------------------------------------------------
<PAGE>

Part. I  Financial Information
Item 1.  Financial Statements     LECHTERS, INC. AND SUBSIDIARIES
                                    CONSOLIDATED BALANCE SHEETS
                  (Amounts in thousands, except share and per share amounts)

                                          October 28, 2000      January 29, 2000
                                                (unaudited)
               A S S E T S
<TABLE>
<S>                                         <C>             <C>
Current Assets:
  Cash and cash equivalents                     $    2,709      $    9,917
  Marketable securities                                - -          65,301
  Accounts receivable                                3,821           2,881
  Merchandise inventories                          130,384         103,100
  Prepaid expenses and other current assets          8,020           2,043
                                                ----------      ----------
               Total Current Assets                144,934         183,242

Property and equipment:
  Fixtures and equipment                            60,000          56,194
  Leasehold improvements                            94,183          92,368
                                                ----------      ----------
                                                   154,183         148,562
  Less accumulated depreciation and
  amortization                                     100,403          93,780
                                                ----------      ----------
  Net property and equipment                        53,780          54,782

  Other Assets                                      14,330          11,497
                                                ----------      ----------
               Total Assets                     $  213,044      $  249,521
                                                ==========      ==========

  LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Borrowings under revolving credit
  facility                                      $   18,765      $      - -
  5% Convertible subordinated debentures due
    September 27, 2001 (net of unamortized
    discount of $780)                               36,130             - -
  Accounts payable                                  25,323          16,305
  Dividends payable-preferred stock                    - -           1,010
  Salaries, wages and other accrued
    expenses                                        14,984          15,662
  Taxes, other than income taxes                     2,155           2,041
                                                ----------      ----------

               Total Current Liabilities            97,357          35,018

Long-Term Debt
  5% Convertible subordinated debentures due
     September 27, 2001 (net of unamortized
     discount of $2,251)                               - -          57,804
                                                ----------      ----------

Total long-term debt                                   - -          57,804

Deferred income taxes and other deferred
  credits                                           10,580          12,538

Shareholders' Equity:
  Convertible preferred stock, $100 par value
    authorized  1,000,000 shares issued and
    outstanding Series A- 149,999
    shares and Series  B-50,001 shares              20,000          20,000
  Common stock, no par value, authorized-
    50,000,000 shares, issued, 17,176,286
    shares and 17,176,286 shares, respectively          58              58
  Accumulated other comprehensive loss                 - -             (65)
  Additional paid-in-capital                        62,380          62,380
  Retained earnings                                 25,771          63,129
                                                ----------      ----------
                                                   108,209         145,502
  Less: Treasury stock at cost
    Common Stock:  1,841,300 shares
    and 684,000 shares, respectively               (3,102)         (1,341)
                                                ----------      ----------
               Total Shareholders' Equity          105,107         144,161
                                                ----------      ----------
Total Liabilities And Shareholders' Equity       $ 213,044       $ 249,521
                                                ==========      ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       -1-
<PAGE>


                               LECHTERS, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands, except share and per share amounts)
<TABLE>

                                                              Thirteen Weeks Ended          Thirty-Nine Weeks Ended
                                                              --------------------          -----------------------
                                                            October 28,    October 30,     October 28,     October 30,
                                                                2000           1999            2000            1999
                                                                ----           ----            ----            ----
                                                                     (UNAUDITED)                   (UNAUDITED)
<S>                                                        <C>            <C>             <C>             <C>
Net sales                                                  $  85,743      $  94,837       $ 253,679       $ 269,157
Cost of goods sold
    (including occupancy and indirect
     costs)
                                                              67,221         71,511         195,839         203,977
                                                          ----------     ----------      ----------      ----------
Gross profit                                                  18,522         23,326          57,840          65,180

Selling, general and administrative
expenses                                                      35,473         31,943          98,876          90,535
                                                          ----------     ----------      ----------      ----------
Operating loss                                               (16,951)        (8,617)        (41,036)        (25,355)
Other expenses (income):
     Interest expense                                            917          1,145           2,851           3,417
     Interest income                                              (1)          (581)           (856)         (2,033)

     Net investment gain/income                                  (36)           (91)           (125)           (425)
                                                          ----------     ----------      ----------      ----------
               Total other expenses (income)                     880            473           1,870             959
                                                          ----------     ----------      ----------      ----------
Loss before tax expense (benefit) and
      extraordinary item                                     (17,831)        (9,090)        (42,906)        (26,314)

Income tax expense (benefit)                                   5,052         (3,726)         (3,725)        (10,788)
                                                          ----------     ----------      ----------      ----------

Net loss before extraordinary item                           (22,883)        (5,364)        (39,181)        (15,526)

Extraordinary item - gain on early  extinguishment
  of debentures (net of income tax
  of ($301) and $173 respectively)                               944            - -           1,823             - -
                                                          ----------     ----------      ----------      ----------
Net loss                                                     (21,939)        (5,364)        (37,358)        (15,526)

Preferred stock dividend requirement                             253            253             758             758
                                                          ----------     ----------      ----------      ----------
Net loss available to common
shareholders                                              ($  22,192)    ($   5,617)     ($  38,116)     ($  16,284)
                                                          ==========     ==========      ==========      ==========

Net loss per common share
    Basic and diluted
    Loss before extraordinary item                        ($    1.51)     ($   0.33)     ($    2.53)     ($    0.95)
    Extraordinary item                                           .07            - -            0.12             - -
                                                          ----------       --------       ---------      ----------
    Net loss                                              ($    1.44)     ($   0.33)     ($    2.41)     ($    0.95)
                                                          ==========       ========       =========      ==========
Weighted average common shares
Outstanding
      Basic and diluted                                   15,363,000     17,048,000      15,794,000      17,107,000
                                                          ==========     ==========      ==========      ==========

</TABLE>



          See accompanying notes to consolidated financial statements.

                                       -2-
<PAGE>

                               LECHTERS, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Amounts in thousands)

<TABLE>



                                                                                   Thirty-Nine Weeks Ended
                                                                           October 28, 2000     October 30, 1999
                                                                           ----------------     ----------------

                                                                                        (UNAUDITED)
<S>                                                                             <C>           <C>
Cash flows from operating activities:
      Net loss                                                                  (   37,358)   ($15,526)

Adjustments to reconcile net loss to net
  cash used in operating activities:
      Depreciation and amortization                                                 12,061      12,375
      Gain on repurchase of debentures                                              (1,996)        - -
      Deferred income tax                                                           (2,556)        - -
      Loss on disposal of property & equipment                                         181       1,498
      Deferred rent                                                                    509         609
      Other                                                                            (65)        504
        Changes in operating assets and liabilities:
            Increase in accounts receivable                                           (940)    (15,633)
            Increase in merchandise inventories                                    (27,284)    (41,888)
            Increase in prepaid expenses                                            (5,977)     (5,586)
            Increase in accounts payable,
              accrued salaries, wages and other accrued
              expenses and taxes, other than income taxes                            8,454      19,412
            Increase in other assets                                                (5,097)     (3,699)
                                                                                ----------     -------

      Net cash used in operating activities                                        (60,068)    (47,934)

Cash flows from investing activities:
      Capital expenditures                                                          (8,207)     (5,761)
      Decrease in available for sale securities                                     65,412      28,218
                                                                                ----------     -------

      Net cash provided by investing activities                                     57,205      22,457

Cash flows from financing activities:
      Payment of preferred stock dividend                                           (1,010)     (1,010)
      Borrowings under Revolving Credit Facility                                    18,765         - -
      Purchase of treasury stock                                                    (1,761)       (731)
      Repurchase of debentures                                                     (20,339)        - -
                                                                                ----------     -------
      Net cash used in financing activities                                         (4,345)     (1,741)
                                                                                ----------     -------

Net decrease in cash and cash equivalents                                           (7,208)    (27,218)

Cash and cash equivalents, beginning of period                                       9,917      35,503
                                                                                ----------     -------

Cash and cash equivalents, end of period                                        $    2,709     $  8,285
                                                                                ==========     ========

Supplemental  disclosures of cash flow information:
Cash paid during the period for:
      Interest                                                                  $     3,180     $  3,252
                                                                                ===========     ========
      Income taxes                                                              $        74     $     99
                                                                                ===========     ========
</TABLE>



          See accompanying notes to consolidated financial statements.

                                       -3-
<PAGE>
<TABLE>

                         LECHTERS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                             (Amounts in thousands)

                                                                                          Accumulated
                                                     Convertible  Additional              Other
                                         Common      Preferred    Paid-In     Retained    Comprehensive                    Compre-
                                         Stock       Stock        Capital     Earnings    Loss      Treasury     Total     hensive
                                         --------    --------     --------    --------    -------   Stock        -------   Loss
                                                                                                    ---------              --------

<S>                                      <C>         <C>          <C>         <C>         <C>       <C>          <C>       <C>
Balance,
   January 29, 2000                      $     58    $  20,000    $ 62,380    $ 63,129    ($   65)   ($ 1,341)   $144,161
Net loss - thirty-nine weeks

   ended October 28, 2000                      - -         - -         - -     (37,358)       -  -        - -     (37,358)  (37,358)

Other comprehensive income

   net of tax:

   Realized loss on available-for-sale
     securities                                - -         - -         - -         - -          65        - -          65        65

Purchase of treasury stock                     - -         - -         - -         - -         - -    (1,761)      (1,761)      - -
                                         ---------   ---------     -------    --------    --------   -------        -----    ------

Balance,
   October 28, 2000 (unaudited)          $    58     $ 20,000     $  62,380   $ 25,771         - -  ($ 3,102)    $105,107  ($37,293)
                                         =======     ========     =========   ========    ========   =======     ========   =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                             -4-
<PAGE>

                               LECHTERS, INC. AND SUBSIDIARIES
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (Amounts in thousands, except share and per share amounts)
                                         (UNAUDITED)

1.      GENERAL

        The accompanying  unaudited  Consolidated Financial Statements have been
        prepared in accordance  with the  instructions  for Form 10-Q and do not
        include all the information and footnotes required by generally accepted
        accounting principles for complete financial statements.  In the opinion
        of management, all adjustments (consisting of normal recurring accruals)
        considered  necessary for a fair  presentation  for interim periods have
        been included.

        Certain  information  and  footnote  disclosures  normally  included  in
        financial  statements  prepared in accordance  with  generally  accepted
        accounting  principles  have been condensed or omitted.  It is suggested
        that  these  condensed  consolidated  financial  statements  be  read in
        conjunction with the audited financial  statements and the notes thereto
        included in the Company's  Annual Report on Form 10-K for the year ended
        January 29, 2000.

        The  Company's  results of operations  for the thirteen and  thirty-nine
        weeks  ended  October  28, 2000 are not  necessarily  indicative  of the
        operating results for the full year.

        Certain  reclassifications have been made to the financial statements of
        the prior year to conform with the classifications used for Fiscal 2000.

2.      NET LOSS PER SHARE

        "Basic"  net loss per share data were  computed  by  dividing  net loss,
        reduced by the Convertible Preferred Stock Dividend requirement,  by the
        weighted average number of common shares outstanding during the thirteen
        and thirty-nine  weeks ended October 28, 2000 and October 30, 1999. With
        respect  to  "diluted"  net loss per  share,  stock  options,  which are
        potential  common  shares,  were excluded  from the weighted  average of
        outstanding  shares because  inclusion  would reduce the loss per share.
        With respect to the Company's 5% Convertible Subordinated Debentures and
        the Company's  Convertible Preferred Stock, for the purpose of computing
        diluted net loss per share,  the assumed  conversion of such  debentures
        and such  preferred  stock  would each have an  anti-dilutive  effect on
        diluted  loss per share for the  thirteen  and  thirty-nine  weeks ended
        October 28, 2000 and October 30, 1999.


                                             -5-
<PAGE>

3.      SEGMENT INFORMATION

        The Company  defines  its  principal  business  into two  segments,  the
        Specialty Housewares segment,  which operates as Lechters  Housewares(R)
        and Lechters Kitchen Place(R),  and the Off-Price Home Business segment,
        which operates as Famous Brands Housewares  Outlet(R) and Cost Less Home
        Store(SM). The contribution of these segments, as well as "corporate and
        other" for the thirteen and thirty-nine weeks ended October 28, 2000 and
        October 30, 1999 are summarized  below.  "Corporate and other"  includes
        general  corporate  expenses,  principally  service  office  expense and
        distribution centers, as well as interest income and expense.

        The Company's segment disclosures are as follows:

<TABLE>


                                            Thirteen Weeks Ended            Thirty-Nine Weeks Ended
                                            --------------------            -----------------------
                                            October 28,   October 30,     October 28,   October 30,
                                                2000          1999            2000          1999
                                              ----          ----            ----          ----

 <S>                                        <C>             <C>           <C>            <C>
 SALES                                       $  63,589       $ 71,060      $190,876       $204,660
 Specialty Housewares
 Off-Price Home Business                        22,154         23,777        62,803         64,497
                                             ---------       --------      --------       --------

 Total sales                                 $  85,743       $ 94,837      $253,679       $269,157
                                             =========        ========      ========       ========

 (LOSS) INCOME BEFORE INCOME TAX
 EXPENSE (BENEFIT) AND EXTRAORDINARY ITEM
 Specialty Housewares                       ($   4,356)     ($  1,570)    ($  7,484)     ($  4,355)
 Off-Price Home Business                    (      166)         1,138     (     876)         1,917
 Corporate and other                        (   12,429)     (   8,185)    (  32,676)     (  22,917)
                                            ----------      ---------     ---------      ---------
 Operating loss                             (   16,951)     (   8,617)    (  41,036)     (  25,355)
 Other expenses                                    880            473         1,870            959
                                            ----------      ---------     ---------      ---------

 Total loss before income tax expense
      (benefit) and extraordinary item      ($ 17,831)      ($  9,090)    ($ 42,906)     ($ 26,314)
                                            =========       =========     =========      =========

  DEPRECIATION AND AMORTIZATION EXPENSE
 Specialty Housewares                        $  2,016        $  2,476      $  6,026       $  6,929
 Off-Price Home Business                          403             376         1,209          1,117
 Corporate and other                            1,856           1,619         4,826          4,329
                                            ---------       ---------     ---------      ---------

 Total depreciation and amortization
      expense                                $  4,275        $  4,471      $ 12,061       $ 12,375

 CAPITAL ADDITIONS
 Specialty Housewares                        $  1,168        $  1,453      $  2,052       $  3,963
 Off-Price Home Business                        1,549             192         2,801            659
 Corporate and other                            1,560             170         3,354          1,139
                                            ---------       ---------     ---------      ---------

 Total capital additions                     $  4,277        $  1,815      $  8,207       $  5,761
                                            =========       =========     =========      =========
</TABLE>

                                            October 28,     October 30,
                                              2000            1999
                                              ----            ----
<TABLE>
 <S>                                         <C>             <C>
 TOTAL ASSETS
 Specialty Housewares                        $100,337        $108,607
 Off-Price Home Business                       27,051          25,860
 Corporate and other                           85,656         136,970
                                            ---------       ---------

 Total assets                                $213,044        $271,437
                                            =========       =========
</TABLE>


                                       -6-
<PAGE>

4.      COMPREHENSIVE LOSS

        The following is a summary of the Company's comprehensive loss:


<TABLE>


                                                                  Thirty-Nine Weeks Ended
                                                                  -----------------------
                                                             October 28, 2000    October 30, 1999
                                                             ----------------    ----------------

<S>                                                             <C>                 <C>
Net Loss                                                        ($37,358)           ($15,526)

Components of comprehensive loss:

Adjustment to unrealized gain/(loss) on available-
  for-sale securities, net of applicable income
  tax provision/benefit                                               65                (192)
                                                                --------            --------

Comprehensive loss                                              ($37,293)           ($15,718)
                                                                ========            ========
</TABLE>


5.      STOCK REPURCHASE PLAN

In May 1999,  the Board of Directors  authorized the Company to repurchase up to
one  million  shares  of the  Company's  common  stock  from  time to time  when
warranted by market conditions. In March 2000, the Board of Directors authorized
an additional  repurchase of up to three million shares of the Company's  common
stock.  During Fiscal 1999, the Company  purchased  684,000 shares at an average
cost of $1.96 per share. As of October 28, 2000 an additional  1,157,300  shares
have been  purchased at an average cost of $1.52 per share.  The total amount of
treasury stock as of December 8, 2000 was 1,841,300 shares at an average cost of
$1.68 per share.

6.      INCOME TAXES

Due to the significantly  lower than anticipated  operating  performance for the
year-to-date  period and based on the Company's expected results for the balance
of Fiscal 2000,  the Company has adjusted its tax  provision  for the year.  The
adjustment  was  reflected  in Third  Quarter  2000 as expense  of $5,052  which
reduced the year-to-date tax benefit to $3,725. The adjustment was the result of
an increase in the valuation allowance against the available deferred tax assets
currently  recorded on the Company's  financial  statements.  As a result of the
adjustment,  the  Company  expects  that the tax rate for  Fiscal  2000  will be
approximately  8.7%.  For  future  fiscal  years,  due  to the  need  for a 100%
valuation  allowance  against any  deferred tax asset  created by net  operating
losses, the tax rate will be 0%.

7.      SUBSEQUENT EVENT - AMENDED AND RESTATED LOAN AGREEMENT

On November 14, 2000, the Company  entered into an amended and restated loan and
security  agreement (the "Amended Credit  Facility") with Fleet Retail Financial
Inc.  (formerly,  BankBoston  Retail  Finance Inc.)  ("Fleet") and certain other
financial  institutions  amending and restating its existing $120 million senior
secured  revolving  credit facility with Fleet. In addition to amending  certain
provisions of the credit facility, the Amended Credit Facility gives the Company
the  right,  exercisable  prior  to May 14,  2001,  subject  to  certain  excess
Borrowing Base (as defined below) availability conditions, to borrow a term loan
in a single  drawing in an amount not less than $7 million and not exceeding $10
million  from Back Bay  Capital  Funding,  LLC,  as a Junior  Secured  Tranche B
Lender.  The Amended Credit Facility is scheduled to mature on December 1, 2003.
The  proceeds of the  Amended  Credit  Facility  may be used for:  (i)  on-going
working capital requirements, (ii) the replacement, refinancing or retirement of
certain of the Company's securities, and (iii) other general corporate purposes.
The Amended Credit Facility is secured by a security  interest in  substantially
all of the Company's assets.

The Company's  maximum borrowing (the "Borrowing Base") under the Amended Credit
Facility may not exceed the lesser of: (a)
                                       -7-
<PAGE>

$120 million  ($130  million if the Tranche B Loan is drawn  down);  and (b) the
total of (i) 72% (78% for  September 1 through  December 31 of each year) (which
advance  rates are  increased  if the  Tranche B Loan is drawn  down to: 79% for
December  16 - March 31; 82% for April 1 - August 31; and 85% for  September 1 -
December  15 of  each  year)  of the  cost  value  of the  Company's  acceptable
inventory,  including eligible letter of credit inventory;  plus (ii) 80% of the
Company's cash and acceptable investments held in a Fleet custody account; minus
(iii)  applicable  reserves.  As of October 28, 2000,  there were $18,765 direct
borrowings  under the credit facility exclusive of  letters of  credit  and  the
remaining  availability  which has been reduced by outstanding letters of credit
was $74,214.

The Amended Credit Facility contains certain covenants, including limitations on
capital  expenditures,  indebtedness  and  transactions  with  affiliates  and a
prohibition  on the  payment of  dividends,  other than  scheduled  payments  of
preferred  dividends  by the  Company and  dividends  paid to the Company by its
subsidiaries.

Advances under the Amended  Credit  Facility will bear interest per annum at the
Fleet base rate plus the applicable  margin (0% to 0.50%) or the Eurodollar rate
plus the  applicable  margin  (1.75% to 2.25%),  at the  Company's  option.  The
applicable  margins are determined based upon the Company's excess  availability
under  the  Amended  Credit  Facility.  As of  October  28,  2000 the base  rate
applicable margin was 0% and the Eurodollar rate applicable margin was 1.75%.

The Company will pay an unused line fee of 0.40% per annum on the unused portion
of the  Amended  Credit  Facility,  a standby  letter of credit fee equal to the
applicable  Eurodollar  margin less 25 basis  points per annum of the total face
amount of each outstanding  letter of credit, a documentary letter of credit fee
equal to 1.25% per annum of the total face amount of each outstanding  letter of
credit and certain other fees. The Tranche B Loan, if drawn down, bears interest
at 13% per annum,  with  payment in kind  interest  accruing  at 2.25% per annum
payable  upon  maturity,  and annual fees of 3% payable on April 28, 2001 and 2%
payable on April 28, 2002.

The Amended Credit Facility permits the Company to repurchase its 5% convertible
subordinated  debentures  provided that the Company can show excess availability
(less  aggregate  repurchases  and debt  prepayments  since  closing)  under the
Amended  Credit  Facility  of not less  than $40  million  for 90 days  prior to
repurchase and $10 million upon giving effect to the  repurchases  and, on a pro
forma basis, for 12 months thereafter.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

RESULTS OF OPERATIONS
    (Amounts in thousands, except share and per share amounts)
THIRTEEN  WEEKS ENDED OCTOBER 28, 2000 IN COMPARISON  WITH THIRTEEN  WEEKS ENDED
OCTOBER 30, 1999.

For the  thirteen  weeks  ended  October  28, 2000  ("Third  Quarter  2000") the
Company's total  comparable  store sales decreased 6.8%.  Comparable store sales
for  the  Specialty   Housewares   segment,   which  is  comprised  of  Lechters
Housewares(R)  and Lechters  Kitchen  Place(R),  decreased 6.0% while comparable
store sales for the Off-Price Home Business segment,  comprised of Famous Brands
Housewares Outlet(R) and Cost Less Home Store(SM), decreased 9.3%. On an overall
basis,  net sales for Third  Quarter 2000  decreased  $9,094 to $85,743,  a 9.6%
decrease from $94,837  reported for the  comparable  thirteen week period of the
prior fiscal year ("Third Quarter 1999").  The decrease was  attributable to the
previously mentioned decrease in comparable store sales, and was also due to the
reduction  in the  number  of  stores  in  operation,  which  averaged  45 fewer
locations  for Third  Quarter 2000  compared to Third  Quarter  1999.  For Third
Quarter 2000,  sales for the Specialty  Housewares  segment,  which  averaged 36
fewer  locations  or 8.2%,  decreased  10.5% to  $63,589,  while  sales  for the
Off-Price  Home Business  segment,  which on the average had 9 fewer  locations,
decreased  6.8% to $22,154.  During Third Quarter 2000,  the Company opened five
stores and closed one store,  increasing  the stores in operation at October 28,
2000 to 515 from the 511 open as July 29, 2000. At the end of Third Quarter 1999
there were 526 stores in operation.

Gross profit for the Third  Quarter 2000 was $18,522,  a decrease of $4,804 from
$23,326 for Third  Quarter  1999.  The gross  profit rate was 21.6% of net sales
compared with 24.6% in the prior year. By operating  segment,  gross  profit for
Specialty  Housewares  decreased $3,337 to $12,668 or 19.9% of net sales,  while
the Off-Price Home Business gross profit  decreased $1,467 to $5,854 or 26.4% of
net sales.  The reduction in gross profit amount was due to reduced  sales.  The
increased level of price reductions  eroded the gross profit rate. The reduction
in gross  profit rate was further  impacted by the decline in  comparable  store
sales, which directly increased the cost of sales rate of occupancy expenses.

                                       -8-
<PAGE>

Selling,  general and administrative expenses increased $3,530 to $35,473, which
constituted  41.4% of sales,  an increase of 7.7% in the expense rate from Third
Quarter  1999.  The  Company's  developing  e-commerce  strategy,  Lechters.com,
constituted  $2,183 of the expense  increase.  The increase in expenses was also
due to the amortization of new systems and the Company's new distribution center
and  continuing  systems  development,  which are expected to provide  operating
efficiencies in the future.

Other expenses for the third quarter  increased $407 to an expense of $880, 1.0%
of sales compared to $473,  0.5% of sales,  for Third Quarter 1999. The increase
was due to the reduction in the interest income and investment income reflecting
the lower  balances of cash and  marketable  securities,  partially  offset by a
reduction in interest expense due to the cumulative  repurchases of $28,090 face
value  of  Convertible  Subordinated  Debentures  prior  to  their  due  date of
September 27, 2001.

Due to the significantly lower-than-expected operating performance for the third
quarter of Fiscal  2000 and the  Company's  expected  operating  results for the
remainder of Fiscal 2000,  the Company has  increased  the  valuation  allowance
against  the  deferred  tax assets  and in the  future  expects to record a 100%
valuation  allowance  against  any  additional  deferred  tax  assets  until the
Company's  operations  return  to  profitability.  The  Company  anticipates  an
effective tax benefit rate of 8.7% for Fiscal 2000 and 0%, for the future.  As a
result of the increase in the valuation allowance, income tax expense during the
Third Quarter 2000 was $5,052.

By operating  segment for Third Quarter 2000,  Specialty  Housewares  incurred a
loss before tax  provision of $4,356  compared to a loss before tax provision of
$1,570 for Third Quarter 1999. For the same period,  the Off-Price Home Business
incurred a loss before  income tax benefit of $166  compared to income of $1,138
for Third Quarter  1999.  Corporate and other  expenses  including  Lechters.com
costs increased the loss before tax benefit by $12,429 for Third Quarter 2000 as
compared to $8,185 for Third Quarter Fiscal 1999.

The Company  recognized  an  extraordinary  gain of $944,  net of tax,  from the
repurchase of $6,395 of Convertible  Subordinated  Debentures prior to their due
date of September 27, 2001.

The net loss for Third  Quarter  Fiscal 2000 was $21,939  compared to a net loss
for the comparable  period of Fiscal 1999 of $5,364.  The increased loss was the
result of decreased sales which reduced gross profit and the net effect of other
contributing expense factors noted above.

THIRTY-NINE  WEEKS ENDED OCTOBER 28, 2000 IN COMPARISON WITH  THIRTY-NINE  WEEKS
ENDED OCTOBER 30, 1999.

For the thirty-nine weeks ended October 28, 2000, the Company's total comparable
store sales decreased 2.3%.  Comparable store sales for the Specialty Housewares
segment,  which is comprised  of Lechters  Housewares(R)  and  Lechters  Kitchen
Place(R),  decreased  1.9% while  comparable  store sales for the Off-Price Home
Business segment,  comprised of Famous Brands Housewares Outlet(R) and Cost Less
Home Store(SM), decreased 3.5%. The sales decrease was due to the reduced number
of stores in  operation  during  Fiscal  2000,  which  averaged  54 fewer  store
locations than in 1999.  Year-to-date  the Company's  total net sales  decreased
$15,478 to $253,679,  a 5.8% decrease from $269,157  reported for the comparable
period of the prior  fiscal  year.  Total  sales  for the  Specialty  Housewares
segment  decreased  6.7% to $190,876 while sales for the Off-Price Home Business
decreased 2.6% to $62,803.  For the year-to-date  period, the Company has opened
seven  stores and closed  fifteen  stores.  As of October  28,  2000 the Company
operated a total of 515 stores (comprised of 392 Specialty Housewares stores and
123 Off-Price  Home  Business  stores) in 41 states and the District of Columbia
compared with 526 stores on October 30, 1999, a decrease of 2.1%.

Gross profit for the  thirty-nine  week period ended October 28, 2000  decreased
11.3% to $57,840.  At 22.8% of sales,  the gross margin rate decreased 1.4% from
the rate for the comparable period of Fiscal 1999. By operating  segment,  gross
profit  for  Specialty  Housewares  decreased  $5,468 to $40,618 or 21.3% of net
sales,  while the  Off-Price  Home  Business  gross profit  decreased  $1,872 to
$17,222 or 27.4% of net sales.  The  reduction in gross profit amount was due to
lower sales over the prior year. The gross profit rate was adversely impacted by
the increase in price reductions and the decline in comparable store sales which
directly increased the cost of sales rate of occupancy expense.

Selling, general and administrative expenses increased $8,341 to $98,876, and at
39.0% of sales, were 5.4 percentage

                                       -9-
<PAGE>

points  higher as a rate  compared to the  comparable  period of fiscal 1999. As
noted, the increase in expenses was due to the amortization of new systems,  the
Company's  new  distribution  center,  and initial  development  expenses of the
Company's  e-commerce strategy,  Lechters.com,  which incurred $3,891 in expense
for the year-to-date period.

Other expenses for the thirty-nine weeks ended October 28, 2000,  increased $911
to $1,870,  0.7% of sales,  compared to $959, 0.4% of sales,  for the comparable
period of the prior fiscal year.  While interest  expense was reduced due to the
early  retirement  of  a  portion  of  the  Company's  Convertible  Subordinated
Debentures,  expense  increased  due  to  the  reduction  in  the  interest  and
investment income, which resulted from reduced invested balances.

Due to the significantly  lower than anticipated  operating  performance for the
year-to-date  period and based on the Company's expected results for the balance
of Fiscal 2000,  the Company has adjusted its tax  provision  for the year.  The
adjustment  was  reflected  in Third  Quarter  2000 as expense  of $5,052  which
reduced the year-to-date tax benefit to $3,725. The adjustment was the result of
an increase in valuation  allowances  against the available  deferred tax assets
currently  recorded on the Company's  financial  statements.  As a result of the
adjustment,  the  Company  expects  that the tax rate for  Fiscal  2000  will be
approximately  8.7%. For future fiscal years, due to the need for 100% valuation
allowance  against any deferred tax asset created by net operating  losses,  the
tax rate will be 0%.

By operating segment for Fiscal 2000 to date,  Specialty  Housewares  incurred a
loss  before tax  provision  of $7,484  compared to a loss before tax benefit of
$4,355 for the comparable  period last year. For the same period,  the Off-Price
Home Business incurred a loss before tax provision of $876 compared to income of
$1,917 for Fiscal 1999  year-to-date.  Corporate  and other  expenses  including
Lechters.com,  increased  the loss  before tax benefit by $32,676 as compared to
$22,917 for the comparable period of the prior fiscal year.

For the year-to-date  period,  the Company  recognized an extraordinary  gain of
$1,823,  net of tax, from the repurchase of $23,145 of Convertible  Subordinated
Debentures prior to their due date of September 27, 2001.

The  year-to-date  net loss for Fiscal  2000 was  $37,358  or ($2.41)  per share
compared to a loss of $15,526 or ($0.95) per share for the comparable  period of
Fiscal 1999.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow during the  thirty-nine  weeks ended  October 28, 2000 as reflected on
the  Consolidated  Statements of Cash Flows, was a net decrease in cash and cash
equivalents of $7,208. Operating activities,  comprised of the operating loss of
$37,358 adjusted for non-cash expenses such as depreciation and amortization and
by changes in operating assets,  utilized $60,068 of cash during the thirty-nine
weeks ended October 28, 2000.  Significant  components  of operating  activities
included  depreciation and amortization  which was a non-cash expense of $12,061
and  merchandise  inventories  which  increased  cash use by  $27,284.  Accounts
receivable  and  prepaid  expenses  increased  cash  use  by  $940  and  $5,977,
respectively.  Accounts  payable,  accrued  expenses and taxes other than income
taxes increased cash by $8,454.

Investing  activities  provided  net cash of $57,205  compared  to  $22,457  for
year-to-date  Fiscal  1999,  due to the  decrease in  Marketable  Securities  of
$65,412. Capital expenditures were primarily for construction of and fixtures of
new stores,  renovations and remodels of existing stores, and a new distribution
center.  Capital expenditures were $8,207 for Fiscal 2000 compared to $5,761 for
the comparable period last year.

Cash flows from financing  activities utilized $4,345 of cash. The repurchase of
$23,145 face value of the Company's Convertible Subordinated Debentures utilized
$20,339  of cash.  The  Company  paid  $1,010 in  dividends  on the  Convertible
Preferred  Stock and purchased  1,157,300  shares of treasury stock at a cost of
$1,761.

On November 30, 1999, the Company entered into a new $120 million senior secured
revolving  credit  facility  with  BankBoston  Retail  Finance  Inc.  and  other
financial  institutions,  replacing the Company's  credit  agreement which would
have expired on March 26, 2001. The proceeds of the credit  facility may be used
for:  (i)  on-going  working  capital   requirements,   (ii)  the  replacements,
refinancing or retirement of certain of the Company's  securities,  and/or (iii)
other general corporate purposes.  The credit facility is scheduled to mature on
December 1, 2003.

On  November 14,  2000,  the  Company  entered  into  an  amended  and  restated
loan and security agreement (the  "Amended Credit Facility")  with Fleet  Retail
Financial  Inc. (formerly, BankBoston Retail Finance Inc.) ("Fleet") and certain
other
                                      -10-
<PAGE>

financial  institutions  amending and restating its existing $120 million senior
secured  revolving  credit facility with Fleet. In addition to amending  certain
provisions of the credit facility, the Amended Credit Facility gives the Company
the  right,  exercisable  prior  to May 14,  2001,  subject  to  certain  excess
Borrowing Base (as defined below) availability conditions, to borrow a term loan
in a single  drawing in an amount not less than $7 million and not exceeding $10
million  from Back Bay  Capital  Funding,  LLC,  as a Junior  Secured  Tranche B
Lender.  The Amended Credit Facility is scheduled to mature on December 1, 2003.
The  proceeds of the  Amended  Credit  Facility  may be used for:  (1)  on-going
working capital requirements, (ii) the replacement, refinancing or retirement of
certain of the Company's securities, and (iii) other general corporate purposes.
The Amended Credit Facility is secured by a security  interest in  substantially
all of the Company's assets.

The Company's  maximum borrowing (the "Borrowing Base") under the Amended Credit
Facility  may not exceed the lesser of: (a) $120  million  ($130  million if the
Tranche B Loan is drawn down); and (b) the total of (i) 72% (78% for September 1
through  December 31 of each year)  (which  advance  rates are  increased if the
Tranche B Loan is drawn down to: 79% for December 16 - March 31; 82% for April 1
- August 31;  and 85% for  September  1 - December  15 of each year) of the cost
value of the Company's acceptable inventory, including eligible letter of credit
inventory;  plus (ii) 80% of the Company's cash and acceptable  investments held
in a Fleet custody account;  minus (iii) applicable reserves.  As of October 28,
2000,  there were $18,765 direct  borrowings under the credit facility exclusive
of letters credit and the remaining  availability  which  has  been  reduced  by
outstanding  letters of credit was $74,214.

The Amended Credit Facility contains certain covenants, including limitations on
capital  expenditures,  indebtedness  and  transactions  with  affiliates  and a
prohibition  on the  payment of  dividends,  other than  scheduled  payments  of
preferred  dividends  by the  Company and  dividends  paid to the Company by its
subsidiaries.

Advances under the Amended  Credit  Facility will bear interest per annum at the
Fleet base rate plus the applicable  margin (0% to 0.50%) or the Eurodollar rate
plus the  applicable  margin  (1.75% to 2.25%),  at the  Company's  option.  The
applicable  margins are determined based upon the Company's excess  availability
under  the  Amended  Credit  Facility.  As of  October  28,  2000 the base  rate
applicable margin was 0% and the Eurodollar rate applicable margin was 1.75%.

The Company will pay an unused line fee of 0.40% per annum on the unused portion
of the  Amended  Credit  Facility,  a standby  letter of credit fee equal to the
applicable  Eurodollar  margin less 25 basis  points per annum of the total face
amount of each outstanding  letter of credit, a documentary letter of credit fee
equal to 1.25% per annum of the total face amount of each outstanding  letter of
credit and certain other fees. The Tranche B Loan, if drawn down, bears interest
at 13% per annum,  with  payment in kind  interest  accruing  at 2.25% per annum
payable  upon  maturity,  and annual fees of 3% payable on April 28, 2001 and 2%
payable on April 28, 2002.

The Amended Credit Facility permits the Company to repurchase its 5% convertible
subordinated  debentures  provided that the Company can show excess availability
(less  aggregate  repurchases  and debt  prepayments  since  closing)  under the
Amended  Credit  Facility  of not less  than $40  million  for 90 days  prior to
repurchase and $10 million upon giving effect to the  repurchases  and, on a pro
forma basis, for 12 months thereafter.

The Company is  considering  what  alternatives  it may have to refinance the 5%
Convertible Subordinated Debentures.

A copy of the amended and restated loan  agreement is filed as an exhibit to the
Form 10-Q.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting for Derivative
Instruments  and  Hedging  Activities."  In July  1999,  the  FASB  delayed  the
effective  date to fiscal years  beginning  after June 15, 2000. The Company has
not  actively  utilized  derivative  instruments  to  hedge  its  market  risks.
Accordingly, the adoption of this statement is not expected to materially impact
the Company's financial statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK

The Company imports about 20% of its merchandise  from Far East,  which subjects
it to the market risk of currency  fluctuations.  However, the Company uniformly
utilizes purchase  contracts and letters of credit  denominated in US dollars to
mitigate this risk. Additionally, there are multiple suppliers, both foreign and
domestic, for its products.


                                      -11-
<PAGE>

Item 6. Exhibits and Reports on Form 8-K

a.      Exhibits

3.1     Restated  Certificate  of  Incorporation  of  the  Company (Incorporated
        herein   by   reference   to  Exhibit 3.2  to the Company's Registration
        Statement on Form S-1 File No. 33-29465 (the "Registration Statement")).

3.2     By-laws of the Company*

4.1     Preferred     Stock    Purchase    Agreement    dated    April  5,  1996
        (Incorporated   herein  by reference to the  Company's  Annual Report on
        Form 10-K for the year ended February 1, 1997).

4.2     Indenture,  dated as of September 27, 1991,   between  the  Company  and
        Chemical Bank,   as   Trustee  (Incorporated  herein by reference to the
        Company's  Annual   Report  on Form 10-K for the year ended  January 25,
        1992).

10.1.1  Amended  and  Restated  Loan Agreement dated November 14, 2000 among the
        Company, Fleet Retail Financial Inc. and Back Bay Capital Funding, LLC.*

27      Financial Data Schedule*

b.      Reports on Form 8-K

1.      No reports on Form 8-K were filed for the quarter for which  this report
        is filed.

*Filed herewith.

                                   SIGNATURES
Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                 LECHTERS, INC.

        By:    /s/ Daniel L. Anderton
               Chief Financial Officer



Date:   December 12, 2000


                                      -12-