<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-K

           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended February 3, 2001

         [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                 For the transition period from        to
                                                ------    ------

                        Commission File Number 0-21406
                               BROOKSTONE, INC.
            (Exact name of registrant as specified in its charter)

           DELAWARE                                  06-1182895
           --------                                  ----------
(State or other jurisdiction of            (IRS Employer Identification No.)
incorporation or organization)

17 RIVERSIDE STREET, NASHUA, NH                         03062
-------------------------------                         -----
(Address of principal executive offices)             (Zip Code)

        Registrant's telephone number, including area code 603-880-9500

         Securities registered pursuant to Section 12(b) of the Act:

                             Title of each class
                             -------------------

                                     None

         Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, par value $.001

     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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_].

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. (X)

     The aggregate market value of the voting stock held by non-affiliates of
the registrant on April 20, 2001 was $129,498,966

     The number of shares outstanding of the registrant's Common Stock, $.001
par value, as of April 20, 2001 was 8,354,772 shares.

                      Documents Incorporated By Reference

     Portions of the registrant's Proxy Statement for its 2002 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.

                     Table of Exhibits appears on Page 58.
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                               BROOKSTONE, INC.

                         2000 FORM 10-K ANNUAL REPORT
                               Table of Contents

                                                                        Page No.
                                                                        --------
Item 1   Business                                                           3
Item 2   Properties                                                        11
Item 3   Legal Proceedings                                                 11
Item 4   Submission of Matters to a Vote of Securities Holders             12
Item 4A. Executive Officers of the Registrant                              12
Item 5   Market for Registrant's Common Equity and Related
         Stockholders Matters                                              14
Item 6   Selected Financial Data                                           15
Item 7   Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                         16
Item 8   Financial Statements and Supplementary Data                       25
Item 9   Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure                                          25
Item 10  Directors and Executive Officers of the Registrant                25
Item 11  Executive Compensation                                            25
Item 12  Security Ownership of Certain Beneficial Owners and Management    25
Item 13  Certain Relationships and Related Transactions                    25
Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K   26

Exhibits Filed Herewith:
-----------------------
Exhibit 10.28    Employment Agreement with Gregory B. Sweeney              61
Exhibit 21       Subsidiary of Registrant                                  65

                                                                               2
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ITEM 1. Business

     Brookstone, Inc. is a nationwide multi-channel specialty retailer offering
an assortment of consumer products functional in purpose, distinctive in quality
and design and not widely available from other retailers. Brookstone's
merchandise includes lawn and garden, health and fitness, home and office and
travel and auto products. The Company offers approximately 2,500 active stock-
keeping units ("SKUs") at any given time. Brookstone sells its products through
223 full-year stores (including 14 airport based stores and 3 outlet stores) in
38 states, the District of Columbia and Puerto Rico. In addition to these full-
year stores, Brookstone operates temporary stores and kiosks during the winter
holiday season; there were a total of 60 such stores operating during the 2000
holiday season. Brookstone also operates a direct marketing business, which
includes its traditional Hard-to-Find Tools, its Brookstone Gift Collection and
its Gardeners Eden catalogs in addition to an interactive Internet site,
www.Brookstone.com. For a further description of the Company's business
segments, see Note 6 of the Notes to Consolidated Financial Statements on
page 40.

     The Company was incorporated in Delaware in 1986. The Company is a holding
company, the principle asset of which is the capital stock of Brookstone
Company, Inc., a New Hampshire corporation that, along with its direct and
indirect subsidiaries, operates Brookstone's business. As used in this report,
unless the context otherwise requires, the terms "Company" and "Brookstone"
refer collectively to Brookstone, Inc. and its operating subsidiaries. The
Company's executive offices are located at 17 Riverside Street, Nashua, New
Hampshire 03062 and its telephone number is (603) 880-9500.

RETAIL STORE BUSINESS

MERCHANDISING AND MARKETING

     Merchandising. Brookstone seeks to be a leader in identifying and selling
products which are functional in purpose, distinctive in quality and design and
not widely available from other retailers. Brookstone's products are intended to
make some aspect of the user's life easier, better, more enjoyable or more
comfortable. A majority of the Company's products bear the Brookstone name in an
effort to reinforce its franchise value and generate customer loyalty.

     The following lists the Company's four current product worlds and 23
current product categories:

Lawn & Garden         Health & Fitness         Home & Office    Travel & Auto
Backyard Leisure      Personal Care            Audio/Video      Automobile
Garden                Personal Accessories     Optical          Travel
Outdoor Games         Home Comfort             Wine             Safety/Security
Christmas             Household                Kitchen          Lighting
Pool / Beach          Bedding                  Games            Tools
Time / Weather        Massage                  Stationery

                                                                               3
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The Company believes that the high quality construction, innovation and design
of its products are apparent to its customers. For example, Brookstone offers a
five-piece garden tool set, which is ergonomically designed, and made of high
strength, rustproof aluminum. This design and construction are intended to
convey the message that this tool set will tend to outlast and be easier to work
with than competing garden tools in a similar price range. Information on the
features and benefits of products is further conveyed through display cards and
attentive customer service.

     The qualities of Brookstone's products make them suitable for gift giving.
A majority of the Company's sales are attributable to products purchased as
gifts, especially for men, and the Company's two busiest selling seasons occur
prior to Christmas and Father's Day. The distinctive quality and design of
Brookstone's products are intended to create an image that each product is
special. In addition, Brookstone's effort to educate its customers about its
products is often important in connection with the purchase of a gift,
particularly if the customer is uncertain as to which product features might be
most attractive to the recipient.

     Brookstone prices its products to be affordable to the typical mall
shopper. The majority of the Company's products are priced at less than $40.00,
although the items in its stores are priced in a range from $5.00 to
approximately $3,000. Brookstone closely monitors gross profit dollar
contribution by SKU and adjusts merchandise displays accordingly on a monthly
basis.

     The Company's success depends to a large degree upon its ability to
introduce new or updated products in a timely manner. The Company's current
policy is to replace or update approximately 30% of the items in its merchandise
assortment every year, thereby maintaining customer interest through the
freshness of its product selections and further establishing Brookstone as a
leader in identifying high quality, functional products which are not widely
available from other retailers. While the average sales life of Brookstone
products is between two and four years, the sales life of certain products may
be significantly shorter.

     The Brookstone Store. Brookstone believes its retail stores are distinctive
in appearance and in the shopping experience they provide. The Company
emphasizes the visual aspects of its merchandise presentation and the creation
of a sense of "theater" in its stores. Recognizing the functional nature of many
of its products, Brookstone strives to present its merchandise in a manner that
will spark the interest of shoppers and encourage them to pick up sample
products. At least one sample of each product is displayed with an information
card highlighting the features and benefits of the product in an easy-to-read
format. Special signs and displays give prominence to selected products which
the Company believes will have particular appeal to shoppers.

     Seasonal Stores. Brookstone's seasonal stores are typically open during the
winter holiday selling season. These include both kiosks positioned in common
areas of shopping malls and other retail sites and temporary stores set up
within vacant retail in-line space. These locations are designed to carry a
limited line of the Company's most popular, gift-oriented merchandise. The
typical Brookstone kiosk is a temporary structure of approximately 160 square
feet, which can carry approximately 120 SKUs. The typical temporary store has
approximately 1,500 square feet and is designed to carry up to 300 SKUs. Both
kiosks and temporary stores are built with reusable, portable and modular
materials.

                                                                               4
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     Marketing. The Company's principal marketing vehicle is the Brookstone
store. Brookstone's eye-catching open storefront design and attractive window
displays are designed to attract shoppers into its stores by highlighting
products that are anticipated to be of particular interest to customers and are
appropriate to the season. In addition, the Company creates in-store displays of
many of its key products in attractively gift-wrapped packages to provide added
convenience to its customers, particularly during its two busiest selling
periods, Christmas and Father's Day. Both the Company's Brookstone Gift
Collection catalog and its Internet operations identify its retail store
locations, and the stores advertise the Internet program and supply customers
with catalogs. The Company's merchandising strategy does not depend on price
discounting.

PRODUCT SOURCING

     Brookstone continually seeks to develop, identify and introduce new
products, which meet its quality and profitability standards. Brookstone employs
nine specialized merchandise buyers who actively participate in the design
process for many new products. These buyers also travel worldwide visiting trade
shows, manufacturers and inventors in search of new products for Brookstone's
stores, Internet site and catalogs. The Company has product development sourcing
agents in Hong Kong, Paris, Taipei and Tokyo. These agents provide the Company
with important venues for developing relationships with manufacturers and allow
the Company to monitor and maintain quality standards throughout the development
and manufacturing process. During Fiscal 1999 the Company established
"Brookstone Labs," an internal product design and development team which, in
cooperation with the merchandise buyers, provides design and engineering support
for innovative Brookstone-branded products.

     Those products not developed in-house meeting the Company's initial
merchandise selection criteria are tested and reviewed by the Company's quality
control department. Company associates home-test many products as part of this
quality control review. Once a product has been approved, Brookstone begins
negotiations with the product's vendor to secure a source of supply. When
determining which products to introduce, the Company takes into account the
probable cost of the product relative to what the Company believes the product's
appropriate selling price will be, as well as whether the vendor expects to
distribute the product through mass merchant channels, thereby diluting the
sense of uniqueness which Brookstone seeks to convey to its customers. While the
time between the approval of a new product and its introduction in the stores
varies widely, the typical period is between two and four months. For products
designed by the Company, the period from conception of the idea to introduction
in the stores can be significantly longer.

                                                                               5
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STORE OPERATION AND TRAINING

     Three regional managers, 13 district managers and six assistant district
managers supervise the Company's stores. Staffing of a typical store includes a
store manager who supervises an assistant store manager, a second assistant
store manger, and approximately 10 to 15 full- and part-time sales associates,
depending upon the time of year. Store associates are trained to inform and
assist customers in the features, benefits and operation of Brookstone
merchandise. Store associates receive weekly product updates from the Company's
headquarters, which highlight both new and other selected products. Brookstone
has developed incentive compensation programs for regional, district, assistant
district, store and assistant store managers which reward individual and store
performance based on profitability.

     The Company uses "Closing Strong," a selling skills program designed to
train all associates in the art of identifying and qualifying customers, and in
closing the sale. The program focuses on generating incremental sales through
increasing demo sales, units per transaction and big-ticket sales.

EXPANSION STRATEGY

     Brookstone currently operates 223 stores in 38 states, the District of
Columbia and Puerto Rico. Brookstone's stores are primarily located in high
traffic regional malls, as well as in central retail districts and multi-use
specialty projects, such as Copley Square in Boston, The Forum Shops in Las
Vegas and Rockefeller Center and West 57th Street in New York City. Brookstone's
stores also include airport stores in terminals throughout the country.

     Brookstone locates its stores in areas which are destinations for large
numbers of shoppers and which reinforce the Company's quality image. To assess
potential new mall locations, Brookstone applies a stringent set of financial as
well as other criteria to determine the overall acceptability of a mall and the
optimal locations within it. Non-mall locations are selected based on the level
and nature of retail activity in the area. Brookstone believes that its
distinctive store and innovative merchandise provide a unique shopping
experience, which makes it a desirable tenant to regional mall developers and
other prospective landlords. The Company's new stores average approximately
3,500 square feet, approximately 2,800 of which is selling space. Airport stores
range from 600 to 2,000 square feet in size and typically carry a limited
assortment of the Company's products.

     Brookstone's store expansion strategy is to open stores in existing markets
where it can build on its name recognition and achieve certain operating
economies of scale, and in new markets where management believes it can
successfully transport Brookstone's unique positioning and strategy. Brookstone
opened 14 stores in Fiscal 2000, including two airport stores; 15 stores in
Fiscal 1999, one of which was an airport store; 24 stores in Fiscal 1998, seven
of which were airport stores; 19 stores in Fiscal 1997 including three airport
stores; and 16 stores in Fiscal 1996. The Company plans to open approximately 15
to 20 new Brookstone stores, up to five of which will be in airport locations,
and approximately three new Gardeners Eden stores during Fiscal 2001. Brookstone
continually monitors individual store profitability and will consider closing
any stores that do not meet its performance criteria. Brookstone closed two
stores in Fiscal 2000, no stores in Fiscal 1999, five stores in Fiscal 1998, and
one store in each of Fiscal 1997, Fiscal 1996.

                                                                               6
<PAGE>

     Brookstone operated 60 seasonal stores (31 kiosks and 29 temporary
in-line) during the 2000 winter holiday season. During the 1999 winter holiday
selling season, Brookstone operated 71 seasonal stores (44 kiosk and 27
temporary in-line) ; 95 seasonal stores (52 kiosk and 43 temporary in-line)
during the 1998 winter holiday season and 50 temporary in-line seasonal stores
during the 1998 summer season; 138 seasonal stores (75 kiosk and 63 temporary
in-line) during the 1997 winter holiday selling season and 13 temporary in-line
seasonal stores during the 1997 summer season and 121 seasonal stores (62 kiosk
and 59 temporary in-line) during the 1996 winter holiday selling season.
Brookstone plans to operate approximately 60 seasonal stores during the 2001
winter holiday selling season based on the availability of acceptable sites. Use
of seasonal stores also provides the Company the ability to test retail sites
during the period of the year when customer traffic and sales prospects are
greatest. In certain cases, seasonal stores may be operated at a mall where
there is a Brookstone retail store. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - - Outlook: Important Factors and
Uncertainties" (found on 22-24 of this document).

     Gardeners Eden. Beginning in Fiscal 2001 the Company will launch a new
retail store concept tied to its Gardeners Eden catalog title. The stores will
contain approximately 4,000 - 5,000 sq. ft. of interior selling space coupled
with exterior selling space of approximately 1,500 sq. ft. These stores will
carry lifestyle products dedicated to the home and garden including furniture,
dinnerware and flatware, lighting, plants and plant accessories and decorator
items. The products will be displayed in a home like environment and in the
Brookstone tradition, these stores will be distinctive in nature and reflect the
quality the Company is characterized for. The Company through extensive research
believes there to be a significant market for a store of this type and will
begin testing the concept with up to three stores in Fiscal 2001.

DIRECT MARKETING BUSINESS

     Brookstone was founded in 1965 as a mail order marketer of hard-to-find
tools. In Fiscal 2000, the direct marketing business accounted for approximately
18% of the Company's net sales as compared to 17% of the Company's net sales in
Fiscal 1999 and 12% in Fiscal 1998. The Company operates three catalogs,
Hard-to-Find-Tools, Brookstone Gift Collection and Gardeners Eden. In Fiscal
2000, Brookstone mailed a total of approximately 40.5 million catalogs, with 31
separate mail dates.

     The Hard-To-Find Tools catalog features a broad assortment of approximately
1,500 products, set forth in what the Company believes to be an informative and
convenient format. Whereas most of the products sold through the Company's
stores are sold as gifts, most of the products sold through the Hard-To-Find
Tools catalog are primarily sold directly to the end-user. Approximately 80-85%
of the products in the Hard-To-Find Tools catalog are not available in the
Company's stores.

                                                                               7
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     The Company also produces the Brookstone Gift Collection catalog, which
offers a selection of merchandise generally available in the Company's retail
stores. The Brookstone Gift Collection catalog is usually distributed before
Father's Day and Christmas, the Company's two busiest selling seasons. The
Brookstone Gift Collection catalog is mailed to persons with demographic
profiles similar to those of buyers in the Company's stores.

In May 1999, the Company acquired the Gardeners Eden catalog from Williams-
Sonoma, Inc. The core product categories of the catalog are; Plants, Furniture &
Accessories, Plant Containers & Accessories, Wreath & Dried Arrangements, Garden
Tools, Indoor and Outdoor Decorative, Entry, Tabletop and Personal Care. Product
assortment within these categories ranges from fine teak furniture to fresh
plants.

     During Fiscal 1997, Brookstone created an interactive Internet site at
www.Brookstoneonline.com, featuring an offering of current products from both
the Hard-To-Find-Tools and Brookstone Gift Collection catalogs. In January of
1999, following the successful resolution of lengthy negotiations, the Company
obtained the domain name of www.Brookstone.com. The site has subsequently been
upgraded to include enhanced speed, additional product categories and SKU
content and increased site functionality. During the fourth quarter of Fiscal
1999, Brookstone entered into an agreement with Cyberian Outpost, Inc. pursuant
to which Cyberian Outpost, Inc. purchases product from Brookstone to sell to
third parties via a Brookstone-specific section of Cyberian Outpost, Inc.'s
website located at www.outpost.com. Further in Fiscal 2000, the Company entered
into an agreement with Cyberian Outpost, Inc. pursuant to which Cyberian Outpost
manages the Company's web site www.brookstone.com and virtually all of the
customer service and distribution associated with Internet orders. In April
2001, Cyberian Outpost, Inc. ("Outpost") issued several Press Releases. In their
Press Releases which address Fiscal 2001 operating results, Outpost commented
that they were having difficulty obtaining required working capital financing.
Brookstone is continuing to conduct business with Outpost on a cash basis and
exploring alternatives.

MERCHANDISING, MARKETING AND PRODUCT SOURCING

     Brookstone employs a two-person merchandising team that is dedicated
exclusively to identifying products for the Company's Hard-To-Find-Tools
catalog. The approval process for new Hard-To-Find-Tools products is similar to
the approval process for new products in the Company's stores. One dedicated
buyer selects products for the Brookstone Gift Collection catalog from the
product assortment available in the Company's stores, plus catalog-exclusive
products in existing categories. A three person merchandising team is dedicated
to the selection of products for the Gardeners Eden catalog. Products for all
catalogs are chosen based on their previous or estimated direct marketing order
productivity.

     The Company also employs a four-person marketing team responsible for list
selection, management of marketing offers and tests of catalog activity. As
noted in more detail below, the Company's Mexico, Missouri distribution and call
centers, handle almost all in-bound telemarketing and fulfillment for all three
catalog titles.

                                                                               8
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DISTRIBUTION AND MANAGEMENT INFORMATION SYSTEMS

     The Company operates a single 181,000 square foot distribution facility
located in Mexico, Missouri. Nearly all of the Company's inventory is received
and distributed through this facility, which supports both the retail store and
direct marketing distribution systems. The Company maintains an inventory of
products in the distribution center in order to ensure a sufficient supply for
sale to customers. Distributions to stores are made, at a minimum, on a weekly
basis via UPS. Distributions to direct marketing customers are made daily via
UPS and the U.S. Postal Service. The facility also houses the Company's direct
marketing call center. Also, the Company uses an outside call center to handle
overflow order calls and to provide coverage during off-peak hours. In addition
the Company leases approximately 167,000 square feet in Mexico, Missouri to
handle its distribution support functions.

     The efficient coordination of inventory planning, inventory logistics and
store operations is a primary focus for the Company. The Company uses
distribution control software and a sales forecasting system. These systems,
along with the store-based point-of-sale system, provide daily tracking of item
activity and availability to the Company's inventory allocation and distribution
teams. Additionally, the Company uses an inventory planning and distribution
requirements planning client-server based system. This system uses weekly sales
forecasts by SKU and selling location to determine inventory replenishment
requirements and will recommend inventory purchases to the merchandise
procurement team.

VENDORS

     Brookstone currently conducts business with approximately 900 vendors, of
which approximately 300 are located overseas. In Fiscal 2001, no single vendor
supplied products representing more than 13% of net sales, with the 10 largest
vendors representing approximately 35% of net sales. Although the Company's
sales are not dependent on any single vendor, the Company's operating results
could be adversely affected if any of its 10 largest vendors were unable to
continue to fill the Company's orders for such vendor's products or failed to
fill those orders in a timely way.

SEASONALITY

     The Company's sales in the second fiscal quarter are generally higher than
sales during the first and third quarters as a result of sales in connection
with Father's Day. The fourth fiscal quarter, which includes the winter holiday
selling season, has historically produced a disproportionate amount of the
Company's net sales and substantially all of its income from operations.

     The seasonal nature of the Company's business increased in Fiscal 2000 and
is expected to continue to increase in Fiscal 2001 as the Company opens
additional retail stores and continues its program to operate a significant
number of small, temporary locations during the

                                                                               9
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winter holiday selling season. In Fiscal 2000, most of the Company's new stores
were opened in the second half of the fiscal year.

COMPETITION

     Competition is highly intense among specialty retailers, traditional
department stores and mass-merchant discount stores in regional shopping malls
and other high-traffic retail locations. Brookstone competes for customers
principally on the basis of product assortment, convenience, customer service,
price and the attractiveness of its stores. Brookstone also competes against
other retailers for suitable real estate locations and qualified management
personnel. Because of the highly seasonal nature of Brookstone's business,
competitive factors are most important during the winter holiday selling season.

     Brookstone differentiates itself from department and mass-merchant
discount stores, which offer a broader assortment of consumer products, by
providing a concentrated selection of functional, hard-to-find products of
distinctive quality and design. The Company believes that the uniqueness,
functionality and generally affordable prices of its products differentiate it
from other mall-based specialty retailers and specialty companies, which
primarily or exclusively offer their products through direct marketing channels.

     The Company's direct marketing business competes with other direct
marketing retailers offering similar products. The direct marketing industry has
become increasingly competitive in recent years, as the number of catalogs
mailed to consumers has increased and with the advent of the Internet.

     In addition, the Company's retail and direct marketing businesses have
begun to experience competition from other businesses that sell via the
Internet. While the extent of that competition remains to be seen, the Company
expects that it will have to compete over the Internet both with its traditional
competitors as they begin to use the Internet as a channel to sell their goods
and with new "Internet-only" businesses that are seeking to compete in areas
where the Company does business.

EMPLOYEES

     As of April 14, 2001, Brookstone had 1,252 regular full-time associates, of
which 687 were salaried staff and 575 were hourly workers. As of such date, the
Company also employed an additional 1,303 part-time associates and 308 temporary
hourly workers. The Company regularly supplements its workforce with temporary
workers, especially in the fourth quarter of each year to service increased
customer traffic during the peak winter holiday selling season. The Company
believes that the success of its business depends, in part, on its ability to
attract and retain qualified personnel. None of Brookstone's employees are
represented by labor unions, and Brookstone believes its employee relations are
excellent.

                                                                              10
<PAGE>

TRADEMARKS

     The Company's "BROOKSTONE" trademark has been registered in various product
classifications with the United States Patent and Trademark Office and in
several foreign countries. In addition, the Company has applications to register
the "BROOKSTONE" trademark still pending in several foreign countries. The
Company acquired the trademarks "GARDENERS EDEN" and "GARDENERS EDEN (with
Design)" and their associated registrations with the United States Patent and
Trademark Office from Williams-Sonoma, Inc. in connection with its acquisition
of the Gardeners Eden catalog in May 1999. The Company also owns or is seeking
registration of in various jurisdictions of other marks used by the Company in
its business.

ITEM 2.  PROPERTIES

     Brookstone leases all of its retail stores. New retail store leases have an
average initial term of 10 years. As of February 3, 2001, the unexpired terms
under the Company's then existing store leases averaged just under seven years.
Store leases may permit Brookstone to terminate the lease after five years if
the store does not achieve specified levels of sales. In most cases, the Company
pays a minimum fixed rent plus a contingent rent based upon net sales of the
store in excess of a certain threshold. The Company does not believe the
termination of any particular lease would have a material adverse effect on the
Company. The following chart describes the number of store leases which will
expire in the periods indicated:

                 YEAR                       LEASES EXPIRING
                 2001                              17
                 2002                              11
                 2003                               8
                 2004                              11
                 2005                              23
                 2006 and thereafter              153

     The space for a seasonal store is leased only for the period during which
the temporary location will be operating. Generally, each such location is
leased only for the season in question, although certain agreements have been
reached with landlords covering more than a single season. The Company generally
pays a minimum fixed rent for each temporary location plus a contingent rent
based upon net sales in excess of a certain threshold.

ITEM 3.  LEGAL PROCEEDINGS

     Brookstone is involved in various routine legal proceedings incidental to
the conduct of its business. The Company does not believe that any of these
legal proceedings will have a material adverse effect on Brookstone's financial
condition or results of operations.

                                                                              11
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders of the Company
during the fourth quarter of Fiscal 2000.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers of the Company are as follows:

     NAME                AGE     PRESENT POSITION
     ------------------  ---     --------------------------------------
     Michael F. Anthony  46      Chairman of the Board, President and
                                 Chief Executive Officer
     Philip W. Roizin    42      Executive Vice President, Finance &
                                 Administration
     Kenneth J. Mesnik   51      Executive Vice President, Merchandising

     Alexander M.        53      Executive Vice President, Store Operations
      Winiecki

     Gregory B. Sweeney  46      Vice President, General Manager
                                 Direct Marketing

     Carol A. Lambert    47      Vice President, Human Resources


     MICHAEL F. ANTHONY was appointed Chairman of the Board, President and Chief
Executive Officer of the Company in March 1999. He was President and Chief
Executive Officer of the Company from September 1995 until March 1999. From
October 1994 until September 1995, Mr. Anthony served as President and Chief
Operating Officer of the Company. From 1989 to October 1994, he held various
senior executive positions with Lechter's, Inc., a nationwide chain of 600
specialty stores, including President in 1994, Executive Vice President from
1993 to 1994 and Vice President/General Merchandise Manager from 1989 to 1993.
From 1978 to 1989, he was with Gold Circle, which at the time was a division of
Federated Department stores, where he held various merchandising positions,
including Divisional Vice President/Divisional Merchandise Manager from February
1986 to 1989.

     PHILIP W. ROIZIN has been Executive Vice President, Finance and
Administration of the Company since December 1996. From May 1995 to December
1996, Mr. Roizin served as Chief Financial Officer of The Franklin Mint. From
July 1989 to May 1995, he held various senior positions with Dole Food Company,
including Vice President / General Manager of Dole Beverages and Vice President
of Strategic Services. From 1985 to 1989, Mr. Roizin served as a consultant for
Bain & Co., a management consulting firm.

                                                                              12
<PAGE>

     KENNETH J. MESNIK was appointed Executive Vice President, Merchandising in
February 2000. From December 1998 to February 2000, Mr. Mesnik was Senior Vice
President of Merchandising for 1-800-Flowers.com. From April 1993 to November
1998, he served as Senior Vice President for Federated Department stores. From
January 1990 until April 1993, Mr. Mesnik was a Vice President of Merchandising
for May Department stores.

     ALEXANDER M. WINIECKI was appointed Executive Vice President, Store
Operations in May 2000. He was Senior Vice President, Store Operations of the
Company from March 1994 until May 2000, having previously served as Vice
President, Store Operations of the Company beginning in October 1990. Mr.
Winiecki was Executive Vice President of Decor Corporation, a retailer of framed
fine art prints and posters, from November 1989 until September 1990. He was
Vice President, Administration of Claire's Boutiques, Inc., a chain of women's
costume jewelry and accessory specialty stores, from November 1986 until October
1989. From February 1985 until November 1986, Mr. Winiecki was a Regional Vice
President of The Ben Franklin Stores, a chain of craft and variety stores, which
was a division of Household Merchandising Inc. He was a Regional Manager of The
Gap Stores, Inc., a specialty retailer of apparel, from May 1978 until January
1985.

     CAROL A. LAMBERT was appointed Vice President of Human Resources in April
2000. Prior to such time, Ms. Lambert held the position of Director of
Compensation and Benefits for the Company from August 1996 to April 2000. From
1990 until August 1996 she served as Senior Vice President of Human Resources
for Home Bank where she was employed since 1979.

     GREGORY B. SWEENEY was appointed Vice President and General Manager of the
Direct Marketing segment in February 2001. From June 1998 to January 2001, Mr.
Sweeney served as Vice President of Database Marketing at Office Depot, the
world's largest office supply company. From 1981 to 1998, Mr. Sweeney was with
L. L. Bean, a national specialty mail order company, where he held various
positions including Director of Strategic Planning and Vice President of
Customer Loyalty Marketing.

     Each executive officer has been elected to hold office until the first
meeting of the Board of Directors following the next annual meeting of
stockholders and until such executive officer's successor is chosen or qualified
or until such executive officer sooner dies, resigns, is removed or becomes
disqualified.

                                                                              13
<PAGE>

PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
         MATTERS.

     Stock exchange listing: The Company's common stock trades on the NASDAQ
National Market tier of The NASDAQ Stock Market under the Symbol: BKST

Common Stock:  Fiscal 1999                          Fiscal 2000
         Quarter  High     Low                Quarter  High    Low
         -----------------------              -----------------------
         First    $15.50  $12.00              First    $19.00  $14.94
         Second   $15.88  $13.75              Second   $17.06  $ 9.25
         Third    $17.81  $13.50              Third    $14.50  $11.75
         Fourth   $18.25  $15.56              Fourth   $14.94  $10.61

     As of April 20, 2001, there were 8,354,772 shares of common stock, $.001
par value per share, outstanding and held of record by 166 stockholders. The
Company has never paid a cash dividend and currently plans to retain any
earnings for use in the operations of the business. Any determination by the
Board of Directors to pay future cash dividends will be based upon conditions
then existing, including the Company's earnings, financial condition and
requirements, restrictions in its financing arrangements and other factors.

                                                                              14
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                               Brookstone, Inc.
                           Selected Financial Data
              (In thousands, except operating and per share data)
<TABLE>
<CAPTION>
                                                                           Fiscal
                                                   --------------------------------------------------------
                                                       2000*      1999      1998       1997        1996
-----------------------------------------------------------------------------------------------------------
Income Statement Data: (1)
<S>                                               <C>          <C>       <C>        <C>          <C>
Net sales                                           $  364,541 $ 326,855  $ 276,051  $ 243,662    $ 221,629
Cost of sales                                          224,968   199,569    175,381    155,952      142,368
Gross profit                                           139,573   127,286    100,670     87,710       79,261
Selling, general and administrative expenses           114,187   104,554     83,589     74,500       68,685
Income from operations                                  25,386    22,732     17,081     13,210       10,576
Interest expense, net                                      626     1,125      1,672      1,084          885
Provision for income taxes                               9,508     8,297      6,071      4,778        3,818
                                                     ------------------------------------------------------
Income before cumulative effect of
  accounting change                                     15,252    13,310      9,338      7,348        5,783
Cumulative effect of accounting change                   (308)       ---       ---        ---         ---
                                                     ------------------------------------------------------
Net income                                           $  14,944  $ 13,310   $  9,338   $  7,348    $   5,873
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Earnings per share - basic
<S>                                                 <C>          <C>       <C>       <C>         <C>
Income before effect of accounting                    $   1.84   $  1.63     $ 1.17     $ 0.94     $   0.76
 change
Cumulative effect of accounting change,                  (0.04)      ---        ---        ---          ---
                                                      -----------------------------------------------------
Net income                                            $   1.80   $  1.63     $ 1.17     $ 0.94     $   0.76
                                                      -----------------------------------------------------
Earnings per share - diluted
Income before cumulative effect of                    $   1.80   $  1.58     $ 1.13     $ 0.91     $   0.73
 accounting change
Cumulative effect of accounting change                   (0.04)      ---        ---        ---          ---
                                                      -----------------------------------------------------
Net income                                            $   1.76   $  1.58     $ 1.13     $ 0.91     $   0.73
                                                      -----------------------------------------------------
Weighted average shares outstanding - basic              8,310     8,155      7,988      7,824        7,744
Weighted average shares outstanding - diluted            8,472     8,422      8,285      8,119        8,061
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Operating Data: (Unaudited)
<S>                                                  <C>         <C>        <C>        <C>        <C>
Increase in same store sales (2)                        3.5%**      5.8%       6.0%       3.6%         5.6%
Net sales per square foot of selling space (3)        $    538   $   521     $  501     $  469     $    461
Number of stores:
Beginning of period                                        211       196        177        159          144
Opened during period                                        14        15         24         19           16
Closed during period                                         2        --          5          1            1
End of period                                              223       211        196        177          159
Number of winter holiday seasonal stores                    60        71         95        138          121

Balance Sheet Data (at period end):
Total assets                                          $159,168  $141,906   $114,561   $105,318     $ 87,261
Long-term debt, excluding current portion                2,414     2,511      2,612      2,698        2,784
Total shareholders' equity                             102,511    87,310     72,310     61,766       53,957
</TABLE>
  *Fifty-three week year **Based upon fifty-two weeks
(1) Effective January 30, 2000, the Company changed its revenue recognition
    policy for catalog sales and other drop shipment sales to be in accordance
    with the provisions of Securities and Exchange Commission's Staff Accounting
    Bulletin No.101, "Revenue Recognition in Financial Statements". Under the
    provision of SAB101, revenue is recognized at time of customer receipt
    instead of at time of shipment. The cumulative effect of this change for
    prior periods is $.3million, net of tax of $.2 million The pro forma effect
    of SAB 101 on the net income of prior periods presented is not material.

    In the fourth quarter of Fiscal 2000, the Company changed its income
    statement classification of shipping and handling fees and costs in
    accordance with EITF 00-10, "Shipping and Handling Fees and Costs" ("EITF
    00-10"). As a result of this adoption of EITF 00-10, the Company now
    reflects shipping and handling fees billed to customers as revenue while
    the related shipping and handling costs are included in cost of goods sold.
    Prior to the adoption of EITF 00-10 such fees and costs were netted in
    selling, general and administrative expenses. Shipping and handling fees
    and costs for all prior periods presented have been reclassified to
    conform to the new income statement presentation.

                                                                              15
<PAGE>

(2) Same store sales percentage is calculated using net sales of stores, which
    were open for the full current period and the entire preceding fiscal year.

(3) Net sales per square foot of selling space dollar amount is calculated using
    net sales generated for stores open for the entire fiscal period divided by
    the square feet of selling space of such stores. Selling space does not
    include stock rooms.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

RESULTS OF OPERATIONS

The following table sets forth certain financial data of the Company expressed
as a percentage of net sales for Fiscal 2000, Fiscal 1999 and Fiscal 1998.
<TABLE>
<CAPTION>
                                                          Fiscal Year
                                                 2000        1999         1998
<S>                                           <C>          <C>          <C>
Net sales                                      100.0%       100.0%       100.0%

Cost of sales                                   61.7         61.1         63.5
                                               ------       ------       ------
Gross profit                                    38.33         8.9         36.5

Selling, general and
   administrative expenses                      31.33         2.0         30.3

Income from operations                           7.0          6.9          6.2
Interest expense, net                            0.2          0.3          0.6
                                               ------       ------       ------

Income before taxes                              6.8          6.6          5.6
Provision for income taxes                       2.6          2.5          2.2
                                               ------       ------       ------
Income before cumulative effect of
   accounting change                             4.2          4.1          3.4
Cumulative effect of accounting change,
   net of tax                                   (0.1)          --           --
                                               ------       ------       ------
Net income                                       4.1%         4.1%         3.4%
                                               ------       ------       ------
</TABLE>
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

     During the fourth quarter of Fiscal 2000, the Company changed its revenue
recognition policy for catalog sales and other drop shipment sales in accordance
with the provisions of the Securities and Exchange Commission's Staff Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements."
Under the provision of SAB 101, revenue is recognized at time of customer
receipt instead of at time of shipment as the Company retains risk of loss while
the goods are in transit. The cumulative effect of this change for periods prior
to Fiscal 2000 is $.3 million, net of tax of $.2 million and is reflected in the
Company's first fiscal quarter.

                                                                              16
<PAGE>

     In the fourth quarter of Fiscal 2000, the Company changed its income
statement 16 classification of shipping and handling fees and costs in
accordance with the Emerging Issues Task Force 2000-10, "Shipping and Handling
Fees and Costs ("EITF 00-10"). As a result of this adoption of EITF 00-10, the
Company now reflects shipping and handling fees billed to customers as revenue
while the related shipping and handling costs are included in cost of goods
sold. Prior to the adoption of EITF 00-10 such fees and costs were netted in
selling, general and administrative expenses. Shipping and handling fees and
costs for all prior periods presented have been reclassified to conform to the
new income statement presentation.

FIFTY-THREE WEEKS ENDED FEBRUARY 3, 2001 VERSUS FIFTY-TWO WEEKS ENDED JANUARY
29, 2000

     Net sales for Fiscal 2000 increased by $37.7 million, or 11.5%, over Fiscal
1999, primarily as the result of a $27.7 million, or 10.2%, increase in retail
sales, combined with a $10.0 million, or 17.8%, increase in direct marketing
sales. Of the increase in retail sales, $9.8 million was attributable to the
opening of 14 new stores (12 full line and 2 airport store), $8.8 million to
additional sales from the operation of 15 stores for the full year in Fiscal
2000 that were only open for a portion of Fiscal 1999 (14 full line and 1
airport store), and $10.3 million is from same store sales. Offsetting this
increase is the loss of sales of $1.2 million attributable to operating 11 less
Holiday seasonal stores. The $10.0 million, or 17.8%, increase in direct
marketing sales was primarily attributable to $3.9 million in sales from the
Gardeners Eden catalog (which was acquired in May, 1999) and a $4.9 million
increase in Internet sales. The remaining increase of $1.2 million is primarily
the result of revenue generated from customers for shipping and handling and
increased sales from the Hard-To-Find-Tools and Brookstone Gift Collection
catalogs.

     Gross profit as a percentage of net sales decreased 0.6% to 38.3% in Fiscal
2000 compared to 38.9% in Fiscal 1999. The decrease was primarily due to a 0.9%
increase in net material costs as a percentage of net sales, resulting primarily
from sales of lower margin products in Fiscal 2000 versus Fiscal 1999. As a
percentage of net sales, Fiscal 2000 occupancy costs decreased by 0.3% as
compared to Fiscal 1999. The decrease in occupancy is primarily the result of
additional sales from the Company's Direct Marketing business without any
associated occupancy costs.

     Selling, general and administrative ("SG&A") expenses increased $9.6
million to $114.2 million in Fiscal 2000 from $104.6 million in Fiscal 1999. As
a percent of net sales, SG&A decreased to 31.3% in Fiscal 2000 from 32.0% in
Fiscal 1999. This $9.6 million increase included $3.5 million expended for
operating expenses associated with new stores opened in Fiscal 2000 and stores
open for the full year in Fiscal 2000 that were only open for a partial year in
Fiscal 1999. Also, $3.0 million associated with marketing for the Direct
Marketing segment, which includes the internet and full year costs for the
Gardeners Eden catalog, which was acquired in May, 1999. Additionally, there was
a $3.1 million increase in compensation and benefits to support the base
business and distribution center.

     Income from operations was $25.4 million, or 7.0% of net sales, in Fiscal
2000 as compared to $22.7 million, or 6.9% of net sales, in Fiscal 1999.

     Net interest expense decreased to $0.6 million, or 0.2% of net sales, in
Fiscal 2000 from $1.1 million, or 0.3% of net sales, in Fiscal 1999, primarily
due to increased average cash balance

                                                                              17
<PAGE>

resulting from a higher beginning of year balance and decreased capital
expenditures offset by 17 increased working capital in Fiscal 2000 versus Fiscal
1999. In Fiscal 2000, the Company recorded a provision for income taxes of $9.5
million, or 2.6% of net sales, as compared to $8.3 million, or 2.5% of net
sales, in Fiscal 1999, resulting from an increase in pre-tax income.

     As a result of the foregoing factors, net income increased to $14.9 million
in Fiscal 2000 (after reflecting the reduction of a cumulative effect of an
accounting change of $.3 million, net of tax) versus $13.3 million in Fiscal
1999. Net income was 4.1% of net sales in Fiscal 2000 and Fiscal 1999. Earnings
per share on a diluted basis increased to $1.76 in Fiscal 2000 (after reflecting
the reduction of a cumulative effect of accounting change of $0.04) from $1.58
in Fiscal 1999.

FIFTY-TWO WEEKS ENDED JANUARY 29, 2000 VERSUS FIFTY-TWO WEEKS ENDED JANUARY 30,
1999

     Net sales for Fiscal 1999 increased by $50.8 million, or 18.4%, over Fiscal
1998, primarily as the result of a $26.9 million, or 11.0%, increase in retail
sales, combined with a $23.9 million, or 74.3%, increase in direct marketing
sales. Of the increase in retail sales, $11.6 million was attributable to the
opening of 15 new stores (14 full line and 1 airport store), $10.5 million to
additional sales from the operation of 24 stores for the full year in Fiscal
1999 that were only open for a portion of Fiscal 1998 (17 full line and 7
airport stores), and $12.3 million from a 5.8% increase in same store sales.
Partially offsetting such sales increases was the loss of $1.4 million in sales
from 5 stores closed in Fiscal 1998 and $6.1 million less sales from temporary
winter holiday locations in Fiscal 1999 and from not operating temporary summer
locations during Fiscal 1999 that were open in Fiscal 1998. The reduced holiday
sales from temporary locations, are primarily the result of operating 24 less
stores during holiday season of Fiscal 1999 versus Fiscal 1998. The $23.9
million, or 74.3%, increase in direct marketing sales was primarily attributable
to $15.1 million in sales from the Gardeners Eden catalog acquired in May 1999
and a $3.6 million increase in Internet sales and $2.7 million in revenue
generated from customers for shipping and handling The remaining increase of
$2.5 million is the result of a 8.5% increase in sales primarily from a 17.7%
increase in circulation for the Hard-To-Find-Tools and Brookstone Gift
Collection catalogs.

     Gross profit as a percentage of net sales increased 2.4% to 38.9% in Fiscal
1999 compared to 36.5% in Fiscal 1998. The increase was primarily due to a 2.0%
reduction in net material costs as a percentage of net sales, resulting
primarily from lower sourcing costs, offset by 0.6% increase in shipping costs
associated with the Direct Marketing segment. The lower sourcing costs resulted
as the Company continued to increase the penetration of products bearing the
Brookstone Brand. As a percentage of net sales, Fiscal 1999 occupancy costs
decreased by 1.0% as compared to Fiscal 1998. The decrease in occupancy is
primarily the result of additional sales from the Company's Direct Marketing
business without any associated occupancy costs and the strong increase in same
store sales.

     Selling, general and administrative ("SG&A") expenses increased $21.0
million to $104.6 million in Fiscal 1999 from $83.6 million in Fiscal 1998. As a
percent of net sales, SG&A rose to 32.0% in Fiscal 1999 from 30.3% in Fiscal
1998. This $21.0 million increase included $7.8 million associated with the
acquisition and operation of the Gardeners Eden catalog, $1.5 million associated
with catalog costs as a result of increased circulation and $1.2 million
associated with

                                                                              18
<PAGE>

Internet operating costs. Additionally, $4.4 million was expended for operating
expenses associated with new stores opened in Fiscal 1999 and stores open for
the full year in Fiscal 1999 18 that were only open for a partial year in Fiscal
1998, there was a $5.1 million increase in compensation and benefits to support
the base business and distribution center and $1.0 million associated with
upgrading and modifying systems as part of Y2k remediation efforts.

     Income from operations was $22.7 million, or 7.0% of net sales, in Fiscal
1999 versus $17.1 million, or 6.2% of net sales, in Fiscal 1998.

     Net interest expense decreased to $1.1 million, or 0.3% of net sales, in
Fiscal 1999 from $1.7 million, or 0.6% of net sales, in Fiscal 1998, primarily
due to refinement of inventory management coupled with a strong operating
performance. In Fiscal 1999, the Company recorded a provision for income taxes
of $8.3 million, or 2.5% of net sales, as compared to $6.1 million, or 2.2% of
net sales, in Fiscal 1998, resulting from an increase in pre-tax income offset
by a reduction in the effective tax rate.

     As a result of the foregoing factors, net income increased to $13.3 million
in Fiscal 1999 versus $9.3 million in Fiscal 1998. Net income was 4.1% and 3.4%
of net sales in Fiscal 1999 and Fiscal 1998, respectively. Earnings per share on
a diluted basis increased to $1.58 in Fiscal 1999 from $1.13 in Fiscal 1998.

SEASONALITY

     The seasonal nature of the Company's business increased in Fiscal 2000 and
is expected to continue to increase in Fiscal 2001 as the Company opens
additional retail stores and continues its program to operate a significant
number of small, temporary locations during the winter holiday selling season.
In Fiscal 2000, most of the Company's new stores were opened in the second half
of the fiscal year.

     The Company's sales in the second fiscal quarter are generally higher than
sales during the first and third quarters as a result of sales in connection
with Father's Day. The fourth fiscal quarter, which includes the winter holiday
selling season, has historically produced a disproportionate amount of the
Company's net sales and all of its income from operations.

LIQUIDITY AND CAPITAL RESOURCES

     During Fiscal 2000, the Company generated a total of $24.4 million of cash
including $24.1 million from operations and $0.3 million from the exercise of
stock options and related tax benefits. In addition, the Company's working
capital increased approximately $11.7 million principally from increased
inventory as compared to Fiscal 1998. The Company applied $8.5 million to fund
capital expenditures. The capital expenditures included $3.3 million for new
stores, $3.2 million for remodeling and maintenance in existing stores, $1.4
million for information systems developments and $0.6 million for distribution
center and infrastructure improvements. The Company's cash position increased
$4.0 million from the end of the prior fiscal year, with total cash on hand
amounting to $35.4 million.

                                                                              19
<PAGE>

     During Fiscal 1999, the Company generated a total of $25.8 million of cash
including $24.1 million from operations and $1.7 million from the exercise of
stock options and related tax benefits. In addition, the Company's working
capital decreased approximately $7.5 million principally from income and sales
taxes payable and compensation liability as compared to Fiscal 1998. The Company
applied $9.6 million to acquire the Gardeners Eden catalog and $9.7 million to
fund capital expenditures. The capital expenditures included $3.7 million for
new stores, $4.7 million for remodeling and maintenance in existing stores, $0.9
million for information systems developments and $0.4 million for distribution
center and infrastructure improvements. The Company's cash position increased
$14.0 million from the end of the prior fiscal year, with total cash on hand
amounting to $31.4 million.

     The Company's primary short-term liquidity needs consist of financing
seasonal merchandise inventory build-ups. The Company's primary sources of
financing for such needs are from operations, borrowings under its revolving
credit facility and trade credit. The Company's borrowings under the revolving
credit facility are typically at low levels from January through April,
increases through May as inventory is increased in anticipation of Father's Day,
declines in June, increases somewhat through August and sharply increases from
September through November to finance purchases of merchandise inventory in
advance of the winter holiday selling season. The Company generally repays all
outstanding borrowings under its revolving credit facility prior to Christmas
and relies on cash from operations obtained during the winter holiday selling
season until it begins to borrow again under its revolving credit facility the
following fiscal year. At February 3, 2001, the Company had no outstanding
borrowings under its revolving credit facility, although certain letters of
credit in an aggregate amount of approximately $8.1 million were outstanding.
During Fiscal 2000, the Company borrowed a maximum amount of $35.8 million under
the revolving credit facility.

     The Company's revolving credit facility provides for borrowings of up to
$75 million for letters of credit and working capital, as long as the Company
meets a borrowing base test equal to 50% of the amount of eligible inventory and
outstanding documentary letters of credit (increasing to 65% June through July
and to 75% August through November). Amounts available for borrowings are
reduced by the aggregate amount of outstanding letters of credit, which may not
exceed $40 million, and borrowings. The revolving credit agreement requires the
Company to have no more than $10 million in borrowings (excluding letters of
credit) outstanding for one 30 consecutive day period during the December 15 to
April 30 period. Borrowings outstanding under this facility bear interest, at
the election by the Company, equal to the agent bank's base lending rate or the
Eurodollar rate for the applicable period plus an additional 1.0%, 1.25% or 1.5%
depending on the applicable cash flow coverage ratio (at February 3, 2001 the
rate was 6.56% and was 7.03% at January 29, 2000). In addition, the Company is
obligated to pay a fee of 0.25% or 0.30% on the unused portion of the commitment
and 0.50%, 0.625% or 0.75% on documentary letters of credit (depending on the
applicable cash flow coverage ratio). The facility expires July 31, 2002. At the
Lender's option, all positive cash balances held by the lender banks may be
applied to the outstanding balance of the revolving line of credit. The
revolving credit agreement contains a number of restrictive covenants, including
limitations on incurring additional indebtedness, granting liens, selling
assets, engaging in mergers and other similar transactions, engaging in new
business lines and

                                                                              20
<PAGE>

making capital expenditures. In addition, the agreement prohibits the paying of
cash dividends on common stock and requires that the Company maintain certain
financial ratios, including tests pertaining to net worth, ratio of liabilities
to net worth and cash flow coverage. During the year ended, and as of, February
3, 2001, the Company was in compliance with these covenants.

     The Company has never paid a cash dividend and currently plans to retain
any earnings for use in the operations of the business. Any determination by the
Board of Directors to pay future cash dividends will be based upon conditions
then existing, including the Company's earnings, financial condition and
requirements, restrictions in its financing arrangements and other factors.

FISCAL 2001 STORE OPENINGS AND CAPITAL EXPENDITURE EXPECTATIONS

     The following discussion includes certain forward-looking statements of
management's expectations for store growth and related capital expenditures.
These statements should be read in light of the considerations presented under
the caption Outlook: Important Factors and Uncertainties (found on pages 22 - 24
of this document).

     The Company expects to add approximately 15 to 20 new Brookstone stores,
including up to five airport locations and open as many as three Gardeners Eden
retail stores, in Fiscal 2001. The Company anticipates the cost of opening a new
Brookstone store, including leasehold improvements (net of landlord allowances),
furniture and fixtures, and pre-opening expenses, to average approximately
$375,000. In addition, the Company expects new stores to require $150,000 of
working capital per store. The Company anticipates the cost of opening airport
stores, including leasehold improvements, furniture and fixtures, and pre-
opening expenses, to average approximately $250,000, and expects airport stores
to require $100,000 of working capital per store. The Company expects to
identify approximately 10 stores for remodeling, and update and maintain other
stores, during Fiscal 2001, incurring capital expenditures of approximately $5.0
million. The Company plans to operate approximately 60 seasonal stores during
the Fiscal 2001 winter holiday season subject to the availability of acceptable
sites. In addition to the capital expenditures listed above, the Company
anticipates making capital expenditures of approximately $8.0 million in Fiscal
2001, primarily to enhance the Company's management information, distribution
and other support systems.

     In Fiscal 2001, the Company expects to open most of its new stores in the
second half of the year. The Company's retail operations are not generally
profitable until the fourth quarter of each fiscal year.

     The Company believes its cash balances, funds to be generated by future
operations and borrowing capacity will be sufficient to finance its capital
requirements during Fiscal 2001.

                                                                              21
<PAGE>

OUTLOOK: IMPORTANT FACTORS AND UNCERTAINTIES

     The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves without fear of litigation so long as
the forward-looking information is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those set forth in the forward-looking statement.
Statements in this 2000 Annual Report on Form 10-K which are not historical
facts, including statements about the Company's or management's confidence or
expectations, seasonality of the Company's future sales and earnings, plans for
opening new stores and other retail locations, introduction of new or updated
products, opportunities for sales growth or cost reductions and other statements
about the Company's operational outlook, are forward-looking statements subject
to risks and uncertainties that could cause actual results to vary materially.
The following are important factors, among others, that should be considered in
evaluating these forward-looking statements, as well as in evaluating the
Company's business prospects generally:

     Concentration of Sales in Winter Holiday Season. A high percentage of the
     Company's annual sales and all or substantially all of its annual income
     from operations have historically been attributable to the winter holiday
     selling season. In addition, like many retailers, the Company must make
     merchandising and inventory decisions for the winter holiday selling season
     well in advance of actual sales. Accordingly, unfavorable economic
     conditions and/or deviations from projected demand for products during this
     season could have a material adverse effect on the Company's results of
     operations for the entire fiscal year. While the Company anticipates
     implementing certain measures to improve its results during periods outside
     of the winter holiday selling season, such as the opening of stores in
     airports and the development of Gardeners Eden stores, the Company expects
     that its annual results of operations will remain dependent on the
     Company's performance during the winter holiday selling season.

     Dependence on Innovative Merchandising. Successful implementation of the
     Company's merchandising strategy depends on its ability to introduce in a
     timely manner new or updated products which are affordable, functional in
     purpose, distinctive in quality and design and not widely available from
     other retailers. If the Company's products or substitutes for such products
     become widely available from other retailers (especially department stores
     or discount retailers), demand for these products from the Company may
     decline or the Company may be required to reduce their retail prices. A
     decline in the demand for, or a reduction in the retail prices of, the
     Company's important existing products can cause fluctuations in the
     Company's sales and profitability if the Company is unable to introduce in
     a timely fashion new or replacement products of similar sales levels and
     profitability.

     New Stores and Temporary Locations. The Company's ability to open new
     stores, including airport locations and the new Gardeners Eden concept
     stores, and to operate its temporary location program successfully depends
     upon, among other things, the Company's capital resources and its ability
     to locate suitable sites, negotiate favorable

                                                                              22
<PAGE>

     rents and other lease terms and implement its operational strategy. In
     addition, because the Company's store designs must evolve over time so that
     the Company may effectively compete for customers in top malls, airports
     and other retail locations, actual store-related capital expenditures may
     vary from historical levels (and projections based thereon) due to such
     factors as the scope of remodeling projects, general increases in the costs
     of labor and materials and unusual product display requirements.
     Competition. The Company faces intense competition for customers, personnel
     and innovative products. This competition comes primarily from other
     specialty retailers, department stores, discount retailers and direct
     marketers, including Internet sites. Many of the Company's competitors have
     substantially greater financial, marketing and other resources than the
     Company.

     Retention of Qualified Employees. The Company's success depends upon its
     ability to attract and retain highly skilled and motivated, full-time and
     temporary associates with appropriate retail experience to work in
     management and in its stores and temporary locations. Because of the robust
     U.S. economy and resulting low unemployment, it has become more difficult
     to locate and hire suitable associates. Further, because of the limited
     time periods during which temporary locations are open each year, the
     availability of suitable associates for such locations is limited.

     Seasonal Fluctuation of Operating Results. The Company's quarterly results
     of operations fluctuate based upon such factors as the amount and timing of
     sales contributed by new stores, the success of its temporary location
     program, capital expenditures and the timing of catalog mailings and
     associated expenses.

     Centralized Distribution. The Company conducts all of its distribution
     operations and a significant portion of its direct marketing processing
     functions from a multiple facilities in Mexico, Missouri and through
     Cyberian Outpost, Inc. for its Internet operation. A disruption in
     operations at the distribution center may significantly increase the
     Company's distribution costs and prevent goods from flowing to stores and
     customers.

     Direct Marketing Costs. Increases in the costs of printing and mailing
     catalogs could have an adverse effect on the Company's direct marketing
     business.

     Dependence on Key Vendors. Because the Company strives to sell only unique
     merchandise, adequate substitutes for certain key products may not be
     widely available in the marketplace. Because of this, there can be no
     assurance that vendor manufacturing or distribution problems, or the loss
     of the Company's exclusive rights to distribute important products, would
     not have a material adverse effect on the Company's performance.

     Foreign Vendors. The Company is purchasing an increasing portion of its
     merchandise from foreign vendors. Although management expects this strategy
     to increase profit margins for these products, the Company's reliance on
     such vendors subjects the

                                                                              23
<PAGE>

     Company to associated legal, social, political and economic risks,
     including import, licensing and trade restrictions. In addition, while the
     shortage of cargo containers used to transport goods from Asia to the
     United States experienced in recent years has eased somewhat, the Company
     remains vulnerable should such shortages reemerge. In such a situation, the
     Company could face inventory shortages in certain products, increased
     transportation costs and increased interest expense as a result of moving
     inventory receipts forward.

     Increased Petroleum Prices. Recent increases in petroleum prices have
     resulted in increased transportation and shipping costs for the Company.
     Further increases in petroleum prices, or failure of such prices to
     decline, could continue to increase the Company's costs for transportation
     and shipping and also cause increases in the cost of goods that are
     manufactured from plastics and other petroleum-based products.

     Increased Reliance on E-Commerce. As a greater proportion of the Company's
     sales begin to be made via the Internet, and as the Company begins to look
     more to that channel to increase overall sales, the Company will become
     more subject to the uncertainties inherent in the quickly developing area
     of e-commerce. Such uncertainties include, but are not limited to, the
     extent to which the Company's customers will adopt the Internet as their
     method of purchase, the effect that government regulation of the Internet
     (or lack thereof) will have on the Internet as a medium of commerce and the
     Company's continued relationship with its Internet provider Cyberian
     Outpost ("Outpost"). In April 2001, Outpost issued a press release with
     respect to its Fiscal 2001 results. Outpost commented in this release that
     is was experiencing difficulty in obtaining required working capital
     financing. The Company is continuing to conduct business with Outpost on a
     cash basis and is exploring other business alternatives.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued statement
No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts,
collectively referred to as derivatives, and for hedging activities. The Company
will adopt SFAS No. 133 as required by SFAS No.137, "Deferral of the Effective
Date of the FASB Statement No. 133," in fiscal year 2001. To date the Company
has not utilized derivative instruments or hedging activities and, therefore,
the adoption of SFAS 133 is not expected to have a material impact on our
financial position or results of operations.

                                                                              24
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, dated March 16, 2001, and supplementary data appear
on pages 27 through 51 of this document.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     None.


PART III.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Information in response to this item with respect to directors of the
Company may be found in the sections entitled "Election of Directors" and
"Timeliness of Certain SEC filings" of the Company's definitive Proxy Statement
for the Company's 2001 Annual Meeting of Stockholders (the "Proxy Statement"),
and such information is incorporated herein by reference.

     Information in response to this item with respect to executive officers of
the Company appears in Item 4A entitled "Executive Officers of the Registrant"
on pages 12 through 13 of this report, and such information is incorporated
herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

     Information in response to this item may be found in the sections
entitled "Board of Directors Committees" and "Compensation of Executive
Officers" of the Proxy Statement, and such information is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Information in response to this item may be found in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" of the Proxy
Statement, and such information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Information in response to this item may be found in the section entitled
"Certain Relationships and Related Transactions" of the Proxy Statement, and
such information is incorporated herein by reference.

                                                                              25
<PAGE>

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  List of Financial Statements, Financial Statement Schedules, and Exhibits.

1.   FINANCIAL STATEMENTS

     The financial statements appear on the following pages of this document.
<TABLE>
<CAPTION>
                                                                                   Page in
                                                                                   Report
                                                                                   -------
<S>                                                                             <C>
Report of Independent Accountants                                                    27

Consolidated balance sheet as of February 3, 2001 and January 29, 2000               28

Consolidated statement of income for the years ended February 3, 2001
January 29, 2000 and January 30, 1999                                                29

Consolidated statement of cash flows for the years ended February 3, 2001,
January 29, 2000 and January 30, 1999                                                30

Consolidated statement of changes in shareholders' equity for the years ended
February 3, 2001, January 29, 2000, and January 30, 1999                             31

Notes to Consolidated Financial Statements                                           32
</TABLE>

                                                                              26
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Brookstone, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Brookstone, Inc. and its subsidiaries at February 3, 2001 and January 29, 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended February 3, 2001, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedules listed in the accompanying index
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for revenue recognition in accordance with the
provisions of the Securities and Exchange Commission's Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements".

/s/ PricewaterhouseCoopers LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
March 16, 2001

                                                                              27
<PAGE>

                               BROOKSTONE, INC.

                          CONSOLIDATED BALANCE SHEET
                       (In thousands, except share data)

                                    February 3, 2001       January 29, 2000
                                    ----------------       ----------------
Assets
Current assets:
Cash and cash equivalents              $   35,397             $  31,389
Receivables, less allowances of
 $606 at February 3,
 2001 and $325 at January 29, 2000          7,477                 5,425
 Merchandise inventories                   55,059                43,639
 Deferred income                            3,633                 2,561
 taxes, net
 Other current assets                       4,030                 4,572
                                       ----------             ---------
   Total current assets                   105,596                87,586

Deferred income taxes, net                  3,662                 3,806
Property and equipment, net                41,956                43,074
Intangible assets, net                      5,359                 5,906
Other assets                                2,595                 1,534
                                       ----------             ---------
                                       $  159,168             $ 141,906
                                       ==========             =========

Liabilities and Shareholders' Equity
Current liabilities:
 Accounts payable                      $   13,522             $  15,759
 Other current liabilities                 28,966                25,530
                                       ----------             ---------
   Total current liabilities               42,488                41,289
Other long term liabilities                11,755                10,796
Long term obligation under                  2,414                 2,511
 capital lease

Commitments and contingencies (Note 11)

Shareholders' equity:
 Preferred stock, $0.001 par value:
   Authorized - 2,000,000 shares;
   0 shares issued and outstanding -
   at February 3, 2001 and
   January 29, 2000
 Common stock, $0.001 par value:
   Authorized-50,000,000 shares;
   issued and outstanding -
   8,320,640 shares at February 3,
   2001 and 8,296,890 shares at
   January 29, 2000                             8                     8
Additional paid-in capital                 50,277                50,020
  Retained earnings                        52,273                37,329
Treasury stock, at cost - 3,616
  shares at February 3, 2001 and
  January 29, 2000                            (47)                  (47)
                                       ----------             ---------
  Total shareholders' equity              102,511                87,310
                                       ==========             =========
                                       $  159,168             $ 141,906
                                       ==========             =========
See Notes to Consolidated Financial Statements

                                                                              28
<PAGE>

                               BROOKSTONE, INC.

                       CONSOLIDATED STATEMENT OF INCOME
                     (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                      Year Ended
                                              ----------------------------------------------------------
                                              February 3, 2001    January 29, 2000      January 30, 1999
                                              ----------------    ----------------      ----------------
<S>                                          <C>                 <C>                   <C>
Net sales                                     $    364,541        $      326,855        $      276,051
Cost of sales                                      224,968               199,569               175,381
                                              ------------        --------------        --------------
Gross profit                                       139,573               127,286               100,670

Selling, general and administrative
  Expenses                                         114,187               104,554                83,589
                                              ------------        --------------        --------------
  Income from operations                            25,386                22,732                17,081

Interest expense, net                                  626                 1,125                 1,672
                                              ------------        --------------        --------------
Income before taxes and cumulative
  effect of accounting change                       24,760                21,607                15,409

  Income tax provision                               9,508                 8,297                 6,071
                                              ------------        --------------        --------------
  Income before cumulative effect of
   accounting change                                15,252                13,310                 9,338

  Cumulative effect of accounting change,
   net of tax of $193                                 (308)                  ---                   ---
                                              ------------        --------------        --------------
  Net income                                  $     14,944        $       13,310        $        9,338
                                              ============        ==============        ==============

Earnings per share - basic

  Income before cumulative effect of
   accounting change                          $       1.84        $         1.63        $         1.17

  Cumulative effect of accounting change             (0.04)                  ---                   ---
                                              ------------        --------------        --------------
  Net income                                  $       1.80        $         1.63        $         1.17
                                              ============        ==============        ==============

Earnings per share - diluted

  Income before cumulative effect of
   accounting change                          $       1.80        $         1.58        $         1.13

   Cumulative effect of accounting change            (0.04)                  ---                   ---
                                              ------------        --------------        --------------
   Net income                                 $       1.76        $         1.58        $         1.13
                                              ============        ==============        ==============

   Weighted average shares outstanding
    - basic                                          8,310                 8,155                 7,988
                                              ============        ==============        ==============
   Weighted average shares outstanding
    - diluted                                        8,472                 8,422                 8,285
                                              ============        ==============        ==============
</TABLE>

                See Notes to Consolidated Financial Statements

                                                                              29
<PAGE>

                               BROOKSTONE, INC.

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                (In thousands)
<TABLE>
<CAPTION>
                                                                     Year Ended
                                              --------------------------------------------------------
                                              February 3, 2001    January 29, 2000    January 30, 1999
                                              ----------------    ----------------    ----------------
<S>                                         <C>                 <C>                  <C>
Cash flows from operating activities:
Net income                                        $   14,944         $    13,310          $     9,338

Adjustments to reconcile net income to net
 cash provided by operating activities:

Depreciation and amortization                         10,187               9,144                7,792
Amortization of debt issuance costs                      158                 154                  143
Deferred income taxes                                  (928)                (549)                 297
(Increase) Decrease in other assets                  (1,219)               1,240                 (377)
Increase in other long term liabilities                  959                 834                  150

Changes in working capital:
Accounts receivable, net                              (2,052)                831                 (724)
Merchandise inventories                              (11,420)             (3,792)                (159)
Other current assets                                     542                (343)              (3,668)
Accounts payable                                      (2,237)              5,032               (3,713)
Other current liabilities                              3,436               5,849                2,349
                                                  ----------         -----------          -----------
Net cash provided by operating activities             12,370              31,710               11,428

Cash flows from investing activities:
 Expenditures for Gardeners Eden acquisition             ---              (9,616)                 ---
 Expenditures for property and equipment              (8,522)             (9,684)             (12,062)
                                                  ----------         -----------          -----------
Net cash used for investing activities                (8,522)            (19,300)             (12,062)
Cash flows from financing activities:
 Payments for capitalized lease                          (97)               (102)                 (87)
 Proceeds from exercise of stock options,
 employee stock purchase plan
 and related tax benefits                                257               1,690                1,206
                                                  ----------         -----------          -----------
Net cash provided by financing activities                160               1,588                1,119
                                                  ----------         -----------          -----------
Net increase in cash and cash equivalents              4,008              13,998                  485

Cash and cash equivalents at beginning of period      31,389              17,391               16,906
                                                  ----------         -----------          -----------
Cash and cash equivalents at end of period        $   35,397         $    31,389          $    17,391
                                                  ==========         ===========          ===========
Supplemental disclosures of cash flow information:
Cash paid for interest                            $      784         $       706          $       917
Cash paid for income taxes                        $    9,066         $     5,901          $     5,737
</TABLE>

                See Notes to Consolidated Financial Statements

                                                                              30
<PAGE>

                               BROOKSTONE, INC.

           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
  For the years ended January 30, 1999, January 29, 2000 and February 3, 2001
                       (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                Additional                                        Total
                                                     Common       Paid-In        Retained        Treasury      Shareholders'
                                      Shares         Stock        Capital        Earnings         Stock          Equity
                                   -----------     ---------- -------------    ------------    ------------  -----------------
<S>                               <C>            <C>         <C>              <C>             <C>           <C>
Balance at January 31, 1998         7,871,384           8         47,124          14,681           (47)            61,766
   Issuance of common stock
        under employee stock
          purchase plan                17,102                        178                                              178
   Options exercised including
     related tax benefit              176,100                      1,028                                            1,028
   Net income                                                                      9,338                            9,338
                                   --------------------------------------------------------------------------------------------
Balance at January 30, 1999         8,064,586           8         48,330          24,019           (47)            72,310
   Options exercised including
     related tax benefit              232,304                      1,690                                            1,690
   Net income                                                                     13,310                           13,310
                                   --------------------------------------------------------------------------------------------
Balance at January 29, 2000         8,296,890        $  8       $ 50,020        $ 37,329        $  (47)         $  87,310
   Options exercised including
     related tax benefit               23,750                        257                                              257
   Net income                                                                     14,944                           14,944
                                   --------------------------------------------------------------------------------------------
Balance at February 3, 2001         8,320,640        $  8       $ 50,277        $ 52,273        $  (47)         $ 102,511
                                   --------------------------------------------------------------------------------------------
</TABLE>
                See Notes to Consolidated Financial Statements

                                                                              31
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND ORGANIZATION

     Brookstone, Inc. (the "Company") is a nationwide specialty retailer that
offers an assortment of consumer products that are functional in purpose,
distinctive in quality and design and not widely available from other retailers.
The Company sells its products nationally through 223 retail stores in 38
states, the District of Columbia and Puerto Rico, temporary stores typically
operated during the winter holiday season and direct marketing vehicles
including its Hard-to-Find Tools, Brookstone Gift Collection and Gardeners Eden
catalogs and the Internet. The Company's merchandise includes lawn and garden,
health and fitness, home and office and travel and auto products.

     The Company's fiscal year end is the Saturday nearest the last day in
January. Results of operations for Fiscal 2000 are for the 53 weeks ended
February 3, 2001. Results for Fiscal 1999 are for the 52 weeks ended January 29,
2000, and results for Fiscal 1998 are for the 52 weeks ended January 30, 1999.

2. SIGNIFICANT ACCOUNTING POLICIES

Principals of Consolidation

     The accompanying consolidated financial statements include the accounts of
the Company and Brookstone Company, Inc., its wholly owned subsidiary and the
direct and indirect wholly owned subsidiaries of Brookstone Company, Inc.
(Brookstone Stores, Inc., Brookstone Purchasing, Inc., Brookstone Properties,
Inc., Brookstone By Mail, Inc., Fork Distribution Corporation, Gardeners Eden By
Mail, Inc., Brookstone Retail Puerto Rico, Inc., Brookstone Holdings, Inc. and
Brookstone O'Hare LLC). All significant intercompany accounts and transactions
have been eliminated in consolidation.

Cash and Cash Equivalents

     The Company considers all highly liquid investment instruments purchased
with a remaining maturity of three months or less to be cash equivalents. These
instruments are carried at cost plus accrued interest. The Company invests its
excess cash in money market funds and commercial paper with institutions with
strong credit ratings. These investments are subject to minimal credit and
market risk.

Fair Value of Financial Instruments

     The recorded amounts for cash and cash equivalents, other current assets,
accounts receivable, accounts payable and other current liabilities approximate
fair value due to the short-term nature of these financial instruments.

                                                                              32
<PAGE>

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

Merchandise Inventories

     Merchandise inventories are stated at the lower of cost or market. Cost is
determined using the weighted average cost method. In addition to the cost of
merchandise purchased, certain costs related to the purchasing, storage and
handling of merchandise are included in inventory.

Property and Equipment

     Property and equipment are recorded at cost. Expenditures for maintenance
and repairs of minor items are charged to expense as incurred. Depreciation and
amortization of property and equipment (excluding temporary locations) are
determined using the straight-line method over the estimated useful lives shown
below. Materials used in the construction of temporary locations such as kiosks
are depreciated based on usage over a maximum five-year period and are included
in equipment and fixtures.

          Equipment, furniture and fixtures    3 to 10 years
          Leasehold improvements               The lesser of the lease term
                                               or the estimated useful life

     The Company leases retail store locations under operating lease agreements,
which sometimes provide for leasehold completion allowances to be received from
the lessors. These allowances are recorded against the cost of leasehold
improvements related to individual retail store locations.

Advertising Costs

     Direct response advertising costs, which consist of catalog production and
postage costs, are deferred and amortized over the period of expected direct
marketing revenue, which is less than one year. Deferred costs were $2.1 million
and $1.3 million at February 3, 2001 and January 29, 2000, respectively and are
classified as non-current assets. The Company expenses in-store and print
advertising costs as incurred. Advertising expense was approximately $22.3
million, $18.2 million and $11.6 million for the years ended February 3, 2001,
January 29, 2000 and January 30, 1999, respectively.

                                                                              33
<PAGE>

Intangible Assets

     Intangible assets include trade name and customer lists. Intangible assets
are amortized on the straight -line basis over the estimated useful lives
ranging from 3 years to 20 years.

Impairment of Long-Lived Assets

     The Company reviews long-lived assets for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable or that the useful lives of these assets are
no longer appropriate. Each impairment test is based on a comparison of the
undiscounted cash flows to the recorded value of the asset. If impairment is
indicated, the asset is written down to its estimated fair value on a discounted
cash flow basis.

Revenue Recognition

     The Company recognizes revenue from sales of merchandise at the time of
sale in its stores, or at the time of customer receipt for direct marketing
sales. Revenue is recognized net of actual merchandise returns and allowances.
Revenue from merchandise credits and gift certificates is deferred until
redemption.

     The Company allows merchandise returns for all merchandise, and has
established an allowance for merchandise returns based on historical experience,
in accordance with SFAS No.48. The returns allowance is recorded as a reduction
to net sales.

     In the fourth quarter of Fiscal 2000, the Company changed its income
statement classification of shipping and handling fees and costs in accordance
with the Emerging Issues Task Force 2000-10, "Shipping and Handling Fees and
Costs" ("EITF 00-10"). As a result of this adoption of EITF 00-10, the Company
now reflects shipping and handling fees billed to customers as revenue while the
related shipping and handling costs are included in cost of goods sold. Prior to
the adoption of EITF 00-10 such fees and costs were netted in selling, general
and administrative expenses. Shipping and handling fees and costs for all prior
periods presented have been classified to conform to the new income statement
presentation.

Store Closings

     The Company continually assesses the operating financial results of its
retail stores. As a result of this assessment, management may decide to remodel
or phase out and close certain stores. When such determinations are made, a
provision for store closing costs is recorded in the Statement of Income.

                                                                              34
<PAGE>

Employee Benefit Programs

     The Company accounts for post-retirement benefits in accordance with
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pension" (FAS 106). FAS 106 requires the
recognition of a liability for post-retirement benefits as earned during an
employee's years of service.

     The Company accounts for pension benefits in accordance with Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" (FAS
87). Pension expense is determined using the projected unit credit actuarial
cost method.

     Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Post-Retirement Benefits" (FAS 132), issued
in February 1998, amends both FAS 106 and FAS 87, by standardizing disclosure
requirements, requiring additional information on changes in benefit obligations
and fair value of plan assets, and eliminating certain disclosures. The Company
adopted this statement for the fiscal year ended January 30, 1999.

Income Taxes

     The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to be applied to taxable income in
the fiscal year in which those temporary differences are expected to be
recovered or settled. The effect of any future change in tax rates is recognized
in the period in which the change occurs.

Earnings Per Share

     Earnings per share are presented in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which requires
the presentation of "basic" earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average shares of common stock outstanding during
the period. For the purposes of calculating diluted earnings per share, the
denominator includes both the weighted average number of shares of common stock
outstanding during the period and the weighted average number of potential
common stock, such as stock options.

Segment Reporting

     The Company presents its financial information in accordance with Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). Under SFAS 131, the Company's
business is comprised of two distinct business segments determined by the method
of distribution channel. The retail

                                                                              35
<PAGE>

segment is comprised of all full-year stores in addition to all temporary stores
and kiosks. Retail product distribution is conducted directly through the store
location. The direct marketing segment is comprised of the Hard-to-Find-Tools,
Brookstone Gift Collection and Gardeners Eden catalogs and products promoted via
the Internet site www.Brookstone.com. Direct marketing product distribution is
conducted through the Company's direct marketing call center and distribution
facility located in Mexico, Missouri and by Cyberian Outpost, Inc.

Reclassifications

     Certain reclassifications have been made to the Fiscal 2000 and Fiscal
1999 balances to conform with the current year.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued statement No.
133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts,
collectively referred to as derivatives, and for hedging activities. The Company
will adopt SFAS No. 133 as required by SFAS No.137, "Deferral of the Effective
Date of the FASB Statement No. 133," in fiscal year 2001. To date, the Company
has not utilized derivative instruments or hedging activities and therefore, the
adoption of SFAS 133 is not expected to have a material impact on the Company's
financial position or results of operations.

Accounting Principle Change

     During the fourth quarter of Fiscal 2000, the Company changed its revenue
recognition policy for catalog sales and other drop shipment sales in accordance
with Securities and Exchange Commission's Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements". Under the provisions
of SAB 101, revenue on catalog sales is recognized at time of receipt instead of
at time of shipment, as the company retains risk of loss while the goods are in
transit. The cumulative effect of this change for periods prior to Fiscal 2000
is $308,000, net of tax benefit of $193,000, and is reflected in the Company's
first fiscal quarter of 2000. The pro forma effect of SAB 101 on the net income
of prior periods presented is not material.

                                                                              36
<PAGE>

3. CONSOLIDATED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
                                            February 3, 2001        January 29, 2000
                                         ---------------------------------------------
<S>                                     <C>                     <C>
Other Current Assets:
Prepaid rent                             $       3,490,000        $    3,200,000
Prepaid insurances, postage, deposits
and other                                          540,000             1,372,000
                                         -----------------        --------------
                                         $       4,030,000        $    4,572,000
                                         =================        ==============
Property and Equipment:
Leasehold improvements                   $      38,288,000        $   37,292,000
Equipment furniture and fixtures                56,083,000            52,516,000
                                         -----------------        --------------
Total property and equipment                    94,371,000            89,808,000

Accumulated depreciation and
   amortization                                (52,415,000)          (46,734,000)
                                         -----------------        --------------
                                         $      41,956,000        $   43,074,000
                                         =================        ==============
Intangible Assets:
Trade name                               $       5,407,000        $    5,407,000
Customer list                                      908,000               908,000
                                         -----------------        --------------
Total intangible assets                          6,315,000             6,315,000
Accumulated amortization                          (956,000)             (409,000)
                                         -----------------        --------------
                                         $       5,359,000        $    5,906,000
                                         =================        ==============
Other Current Liabilities:
Merchandise credits and
 gift certificates                       $       5,425,000        $    4,344,000
Accrued employee compensation and
   benefits                                      5,680,000             6,792,000
     Rent payable                                  819,000               924,000
     Income taxes payable                        9,104,000             8,249,000
     Accrued expenses                            7,938,000             5,221,000
                                         -----------------        --------------
                                         $      28,966,000        $   25,530,000
                                         =================        ==============
Other Long-term Liabilities:
Straight-line rent liability             $       6,249,000        $    5,796,000
Employee benefit obligations and other
 long term liabilities                           5,506,000             5,000,000
                                         -----------------        --------------
                                         $      11,755,000        $   10,796,000
                                         =================        ==============
</TABLE>

                                                                              37
<PAGE>

4. GARDENERS EDEN ACQUISITION

     Effective on May 3, 1999, the Company acquired certain assets relating to
the Gardeners Eden catalog from Williams-Sonoma, Inc. at a purchase price of
approximately $9.6 million. The acquisition was accounted for as a purchase. The
assets acquired were comprised of inventory valued at approximately $2.4
million, prepaid catalog costs of approximately $0.3 million and deferred
catalog costs valued at approximately $0.3 million. The value of these assets
was offset by a liability of approximately $0.7 million for open customer orders
under the Gardeners Eden continuity program. The Company allocated the remaining
purchase price, approximately $6.3 million, to the valuation of intangible
assets consisting of trade name for $5.4 million and customer lists for $0.9
million. The intangible assets are being amortized on a straight-line basis,
from 3 years to 20 years.

5. INCOME TAXES

         Temporary differences, which give rise to deferred tax assets and
liabilities for Fiscal 2000 and Fiscal 1999, are as follows:
<TABLE>
<CAPTION>

                                      February 3, 2001             January 29, 2000
                                      ----------------             ----------------
Deferred tax assets:
<S>                                <C>                         <C>
Rent expense                         $       2,366,000           $         2,173,000
Inventory capitalization and
   reserves                                    607,000                       439,000
Employee benefit obligations                 1,475,000                     1,667,000
Vacation accrual                                94,000                       269,000
Merchandise credits and
     gift certificates                       1,710,000                     1,301,000
Tax depreciation                               215,000                       463,000
Sales return reserve                           380,000
Other items                                  1,102,000                       635,000
                                     -----------------           -------------------
Total deferred tax asset             $       7,949,000           $         6,947,000
                                     =================           ===================
Deferred tax liabilities:

Deferred catalog costs                         639,000           $           477,000
Other items                                     15,000                       103,000
                                     -----------------           -------------------
Total deferred tax liability         $         654,000           $           580,000
                                     -----------------           -------------------
Net deferred tax asset               $       7,295,000           $         6,367,000
                                     =================           ===================
</TABLE>

                                                                              38
<PAGE>

     Current and non-current deferred tax assets and liabilities within the same
tax jurisdiction are offset for presentation in the consolidated balance sheet.
A valuation allowance has not been established as management expects that it is
more likely than not that the net deferred tax asset will be realized.

     The provision for income taxes is comprised of the following:

                                    Year Ended
                                    ----------
             February 3, 2001   January 29, 2000    January 30, 1999
             ----------------   ----------------    ----------------
Current:
   Federal    $   9,380,000       $  7,962,000        $  4,894,000
   State            863,000            884,000             880,000

Deferred:
   Federal         (606,000)          (476,000)            225,000
   State           (129,000)           (73,000)             72,000
              -------------       ------------        ------------
              $   9,508,000       $  8,297,000        $  6,071,000

     Reconciliation of the U. S. Federal statutory rate to the Company's
effective tax rate is as follows:

                                       Year Ended
                                       ----------
                 February 3, 2001   January 29, 2000    January 30, 1999
                 ----------------   ----------------    ----------------
Statutory federal
income tax rate         35%               35%                  34%

State income taxes,
net of federal tax
benefit                  2%                2%                   3%

Other                    1%                1%                   2%
                      --------          --------             --------
Effective income
tax rate                38%               38%                  39%
                      ========          ========             ========

     The exercise of stock options which have been granted under the Company's
stock option plans (refer to Note 8) gives rise to compensation which is
includable in the taxable income of the optionees and deductible by the Company
for federal and state income tax purposes. Such compensation considers increases
in the fair market value of the Company's common stock subsequent to the date of
the grant. For financial reporting purposes, the tax effect of this

                                                                              39
<PAGE>

deduction is accounted for as a credit to additional paid-in capital rather than
as a reduction of income tax expense. Such exercises resulted in a tax benefit
to the Company of approximately $48,000, $782,000, and $832,000 in Fiscal 2000,
Fiscal 1999 and Fiscal 1998, respectively.

6. SEGMENT REPORTING

     Business conducted by the Company can be segmented into two distinct areas
determined by the method of distribution channel. The retail segment is
comprised of all full-year stores in addition to all temporary stores and
kiosks. Retail product distribution is conducted directly through the store
location. The direct marketing segment is comprised of the Hard-to-Find Tools,
Brookstone Gift Collection and Gardeners Eden catalogs and products promoted via
the Internet site www.Brookstone.com. Direct marketing product distribution is
conducted through the Company's direct marketing call center and distribution
facility located in Mexico, Missouri along with Cyberian Outpost, Inc. Both
segments of the Company sell similar products, although not all Company products
are fully available within both segments.

     All costs directly attributable to the direct marketing segment are charged
accordingly while all remaining operating costs are charged to the retail
segment. The Company's management does not review assets by segment.

     The following table discloses segment net sales, pre-tax income and
depreciation and amortization expense for Fiscal 2000, Fiscal 1999 and Fiscal
1998 (in thousands):
<TABLE>
<CAPTION>
                                                         Net Sales                                  Pre-tax Income
                                    ------------------------------------------    --------------------------------------------
                                            2000           1999           1998         2000              1999             1998
                                    ------------------------------------------    --------------------------------------------
Reportable segment:
<S>                                 <C>          <C>            <C>              <C>           <C>              <C>
   Retail                             $  298,360  $     270,660  $     243,805    $  25,008   $        21,729  $        16,273
   Direct marketing                       66,181         56,195         32,246          378             1,003              808

Reconciling items:
   Interest income                           ---            ---            ---          982               535              206
   Interest expense                          ---            ---            ---       (1,608)           (1,660)          (1,878)
                                    ------------------------------------------    --------------------------------------------
Consolidated:                         $  364,541  $     326,855  $     276,051    $  24,760   $        21,607  $        15,409
                                    ==========================================    ============================================
</TABLE>
<TABLE>
<CAPTION>
                                               Depreciation & Amortization

                                      ---------------------------------------------
                                            2000           1999           1998
                                      ---------------------------------------------
Reportable segment:
<S>                                 <C>               <C>             <C>
  Retail                              $    9,336  $       8,514  $       7,575
  Direct marketing                           851            630            217
                                      ---------------------------------------------
Consolidated:                         $   10,187  $       9,144  $       7,792
                                      =============================================
</TABLE>

                                                                              40
<PAGE>

7.   DEBT

Revolving Credit Agreement

     The Company has a revolving credit agreement that provides for borrowings
of up to $75 million for letters of credit and working capital as long as the
Company meets a borrowing base test equal to 50% of the amount of eligible
inventory and outstanding documentary letters of credit (increasing to 65% June
through July and to 75% August through November). Amounts available for
borrowings are reduced by the aggregate amount of outstanding letters of credit,
which may not exceed $40 million, and borrowings. The revolving credit agreement
requires the Company to have no more than $10 million in borrowings (excluding
letters of credit) outstanding for one 30 consecutive day period during the
December 15 to April 30 period. Borrowings outstanding under this facility bear
interest, at the election by the Company, equal to the agent bank's base lending
rate or the Eurodollar rate for the applicable period plus an additional 1.0%,
1.25% or 1.5% depending on the applicable cash flow coverage ratio (at February
3, 2001 the rate was 6.56%). In addition, the Company is obligated to pay a fee
of 0.25% or 0.30% on the unused portion of the commitment and 0.50%, 0.625% or
0.75% on documentary letters of credit (depending on the applicable cash flow
coverage ratio). The facility expires July 31, 2002. At the Lender's option, all
positive cash balances held by the Lender's banks may be applied to the
outstanding balance of the revolving line of credit. The revolving credit
agreement contains a number of restrictive covenants, including limitations on
incurring additional indebtedness, granting liens, selling assets, engaging in
mergers and other similar transactions, engaging in new business lines and
making capital expenditures. In addition, the agreement prohibits the paying of
cash dividends on common stock and requires that the Company maintain certain
financial ratios, including tests pertaining to net worth, ratio of liabilities
to net worth and cash flow coverage. During the year ended and as of February 3,
2001, the Company was in compliance with these covenants.

     On May 11, 1999 the Company amended and restated the above-mentioned
credit agreement to accommodate the Company's acquisition of the Gardeners Eden
catalog from Williams-Sonoma, Inc. The amended agreement remains substantially
the same as outlined above.

     During Fiscal 2000, the Company borrowed a maximum amount of $35.8 million
under the revolving credit facility. There were no outstanding borrowings under
the revolving credit agreement respectively at February 3, 2001 and January 29,
2000. There were $6.6 million and $6.0 million in outstanding documentary
letters of credit at February 3, 2001 and January 29, 2000, respectively. In
addition, $1.5 million in stand-by letters of credit were drawable by store
lessors at February 3, 2001 and January 29, 2000.

Capital Lease Obligation

     The Company's lease for its Mexico, Missouri distribution facility extends
over twenty years at prime plus 1% per annum (10.50% at February 3, 2001 and
9.25% at January 29, 2000). The interest rate is adjusted annually on
November 1.


                                                                              41
<PAGE>

     The principal balance of this obligation amounted to $2.5 million at
February 3, 2001 and $2.6 million at January 29, 2000. Property capitalized
under this capital lease amounted to $3.1 million, with accumulated amortization
of $730,000 and $631,000 at February 3, 2001 and January 29, 2000, respectively.

     Scheduled payments of the capital lease obligation as of February 3,
2001 are as follows:

Fiscal Year
2001                          $  360,000
2002                             360,000
2003                             360,000
2004                             360,000
2005                             360,000
Thereafter                     2,760,000
                              ----------
                              $4,560,000

Interest on capital lease
obligation included above     (2,047,000)
                              ----------
Remaining principal           $2,513,000
                              ==========

     Current portion of the capital lease obligation equaled $99,000 and
$100,000 at February 3, 2001 and January 29, 2000, respectively.

8. SHAREHOLDERS' EQUITY

Preferred Stock

     The Board of Directors is authorized, subject to any limitations prescribed
by law, to issue shares of preferred stock in one or more series. Each such
series of preferred stock shall have rights, preferences, privileges and
restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
Board of Directors.

Employee Stock Plans

The Company has stock option plans for key associates, officers and directors of
the Company, which provide for nonqualified and incentive stock options. The
Board of Directors determines the term of each option, option price and number
of shares at the date of grant. For all options granted after Fiscal 1991, such
option prices equaled the fair market value at the date of grant. Options
granted generally vest over four years from the date of grant and expire after
ten years. Certain non-qualified options become exercisable five years from the
date of grant, however, the exercise date of all or a portion of such options
may be accelerated if the price of the Company's common stock reaches certain
target amounts. At February 3, 2001 options of 557,009 shares were exercisable
under the various associate stock option plans, and 42,000 shares were
exercisable under the Directors' stock option plan. At February 3, 2001, options
of 764,845 shares were available for future grants under the various associate
stock option plans, and 94,000 shares were available for future grants under the
Directors' stock option plan.

                                                                              42
<PAGE>

Stock Purchase Plans

     The Company's stock purchase plans which cover substantially all
associates, allows for the issuance of a maximum of 60,000 and 75,000 shares of
common stock under the 1992 Employee Stock Purchase Plan ("1992 ESPP") and 2000
Employee Stock Purchase Plan ("2000 ESPP"), respectively. The options are
exercisable at the lower of 85% of market value at the beginning or end of the
six-month period, through accumulation of payroll deductions of up to 10% of
each participating employee's regular base pay during such period. Purchases
occur at the end of one or more option periods. Since adoption, there have been
three, six-month option periods under the 1992 ESPP, which began on July 1,
1993, January 1, 1994 and November 4, 1997. The six-month option period that
began on November 4, 1997 expired on May 4, 1998, resulting in the issuance of
17,102 shares to participating associates. The Board of Directors may, at its
discretion, extend the 1992 Employee Stock Purchase Plan for additional periods.
As of February 3, 2001, there were 14,033 options available for future grants
under this plan. On November 1, 2000 a six-month option period began under the
2000 ESPP.

     Transactions under the Company's stock option plans for each of the three
years in the period ended February 3, 2001 are as follows:

                       Number of Shares     Weighted Average Exercise Price
                       ----------------------------------------------------
Outstanding at
   January 31, 1998         1,261,622                 $    7.10
     Granted                  113,500                 $   12.89
     Exercised               (176,100)                $    0.53
     Canceled                 (67,625)                $    9.26

Outstanding at
   January 30, 1999         1,131,397                 $    8.58
     Granted                   68,000                 $   15.21
     Exercised               (232,304)                $    3.91
     Canceled                 (85,584)                $   12.84

Outstanding at
   January 29, 2000           881,509
     Granted                  368,000                 $    8.58
     Exercised                (23,750)                $   15.21
     Canceled                 (64,500)                $    3.91

Outstanding at
   February 3, 2001         1,161,259                 $   11.42

     Of the 1,161,259 shares outstanding at February 3, 2001, 1,097,259 shares
were outstanding under the various associate stock option plans, and 64,000
shares were outstanding under the Directors' stock option plan.

                                                                              43
<PAGE>

     SFAS No. 123, "Accounting for Stock-Based Compensation" permits the Company
to follow the measurement provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and not recognize compensation expense for its
stock-based incentive plans. Had 43 compensation cost for the Company's stock-
based incentive compensation plans been determined based on the fair value at
the grant dates of awards under those plans, consistent with the methodology
prescribed by SFAS No. 123, the Company's net income and related earnings per
share for fiscal 2000, 1999 and 1998 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
                                                              Fiscal Year
                                         -----------------------------------------------------
                                                2000            1999              1998
                                         -----------------------------------------------------
<S>                                    <C>                 <C>               <C>
Net income - as reported                 $     14,944,000   $  13,310,000     $   9,338,000
Net income - pro forma                         14,672,000      12,958,000         8,973,000

Earnings per share - basic
As reported                                      $  1.80       $  1.63           $  1.17
Pro forma                                           1.77          1.59              1.12

Earnings per share - diluted
As reported                                      $  1.76       $  1.58           $  1.13
Pro forma                                           1.73          1.54              1.08
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black -Scholes option-pricing model with the following weighted-average
assumptions.

                                                   Fiscal Year
                                           ------------------------------
                                           2000         1999         1998
                                           ----         ----         ----
Expected stock price volatility            46.9%        47.9%       47.8%
Risk-free interest rate                     6.6%         5.8%        5.4%
Expected life of options                  5 years      5 years     5 years
Dividend yield                              ---          ---         ---

     The weighted average fair value of options granted for Fiscal 2000, Fiscal
1999 and Fiscal 1998 are $10.34, $7.52 and $6.30, respectively.

                                                                              44
<PAGE>

     The following table summarizes information about stock options outstanding
at February 3, 2001:
<TABLE>
<CAPTION>
                                          Options Outstanding                      Options Exercisable
                                ------------------------------------------------------------------------
           Range of Exercise    Number          Weighted        Weighted       Number           Weighted
                Prices          Outstanding     Average         Average        Exercisable      Average
                                at 2/3/01       Remaining       Exercise       at 2/3/01        Exercise
                                                Contractual     Price                              Price
                                                Life
                                ------------------------------------------------------------------------
<S>                           <C>             <C>              <C>           <C>             <C>
$0.002                          31,882         0.6 years         $ 0.002          31,882       $  0.002
$0.63                            2,000         1.3 years         $ 0.63            2,000       $   0.63
$5.375-$8.00                   106,502         3.6 years         $ 5.46          106,502       $   5.46
$8.125-$12.5625                478,875         5.9 years         $ 9.45          282,000       $   9.52
$13.4375-$15.3125              542,000         7.4 years         $15.05          176,625       $  14.56
---------------------------------------------------------------------------------------------------------
                             1,161,259                                           599,009
</TABLE>

     Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants are expected to
be made each year, the above pro forma disclosures are not representative of pro
forma effects of reported net income for future periods.

EARNINGS PER COMMON SHARE

     The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with SFAS No. 128, "Earnings per Share".
<TABLE>
<CAPTION>
                                  February 3, 2001       January 29, 2000       January 30, 1999
                                  ----------------       ----------------       ----------------
<S>                             <C>                    <C>                    <C>
Net income                        $  14,944,000          $ 13,310,000            $ 9,338,000
                                  ================       ================       ================
Weighted average common shares
outstanding                           8,310,000             8,155,000              7,988,000


Effect of dilutive securities:
   Stock options                        162,000               267,000                297,000
                                 -----------------       ----------------        ---------------
Weighted average common shares
and common share equivalents          8,472,000             8,422,000              8,285,000
                                 =================       ================        ===============
</TABLE>

                                                                              45
<PAGE>

9. PENSION AND 401(k) PLANS

     The Company sponsors the Brookstone Pension Plan, which provides retirement
benefits 45 for its employees who have completed one year of service and who
were participating in the plan prior to May 31, 1998. As of May 30, 1998, the
Board of Directors approved freezing future benefits under this plan. As a
result, the Company recorded a gain on curtailment of $111,000 in Fiscal 1998.
The Company anticipates that curtailment of the plan will not have a material
effect on the Company's consolidated financial statements. The retirement plan
is a final average pay plan. It is the Company's policy to fund the cost of
benefits expected to accrue during the year plus amortization of any unfunded
accrued liabilities related to periods of service prior to the valuation date.

     The Company sponsors a 401(k) plan for all associates who have completed at
least one year of service with a minimum of 1,000 hours and have attained the
age of 21. The Board of Directors, concurrently with freezing the pension plan,
approved the increase of the Company's 401(k) matching contribution of each
participating employee's salary from a maximum of 1.5% to a maximum of 4.0%. The
Company's matching 401(k) contribution was $710,000, $618,000 and $402,000 in
Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively.

     The following tables set forth the pension plan's funded status and amounts
recognized in the Company's consolidated financial statements.

                                 February 3, 2001      January 29, 2000
------------------------------------------------------------------------
Change in Projected benefit
   obligation:

Projected benefit obligation
at beginning of fiscal year      $ 3,840,000             $  4,092,000
Service cost                         125,000                  120,000
Interest cost                        286,000                  282,000
Actuarial loss (gain)                 (3,000)                (344,000)
Expenses paid                        (80,000)                (117,000)
Benefits paid                       (221,000)                (193,000)
Projected benefit obligation     -----------             ------------
at end of fiscal year            $ 3,947,000             $  3,840,000
                                 ===========             ============

                                                                              46
<PAGE>

     The change in plan assets was:

                                 February 3, 2001      January 29, 2000
------------------------------------------------------------------------

Fair value at beginning of
 fiscal year                     $ 4,211,000             $  3,940,000
Actual return on plan assets        (199,000)                 553,000
Employer contributions               107,000                   28,000
Expenses paid                        (80,000)                (117,000)
Benefits paid                       (221,000)                (193,000)
                                 -----------             ------------
Fair value at end of fiscal year $ 3,818,000             $  4,211,000
                                 ===========             ============

     The funded status was:

                                 February 3, 2001      January 29, 2000
------------------------------------------------------------------------
Funded status at end of year     $  (129,000)            $   371,000
Unrecognized net actuarial gain     (220,000)               (812,000)
                                 -----------             -----------
Accrued benefit cost             $  (349,000)            $  (441,000)
                                 ===========             ===========

     Assumptions used in computing the funded status were as follows:

Weighted average discount rate      7.50%                    7.50%
Expected return on plan assets         9%                       9%
Rate of increase in compensation
levels                                 4%                       4%

     The components of net periodic pension cost were as follows:

                                 February 3, 2001      January 29, 2000
------------------------------------------------------------------------
Service cost                     $   125,000             $   120,000
Interest cost                        286,000                 282,000
Expected return on plan assets      (366,000)               (340,000)
Amortization of prior service
cost                                     ---                     ---
Recognized net actuarial loss        (30,000)                    ---
                                 -----------             -----------
Net periodic benefit cost        $    15,000             $    62,000
                                 ===========             ===========

                                                                              47
<PAGE>

10. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS

     The Company sponsors a defined benefit post-retirement medical plan that
covers all of 47 its full time associates. All associates who retire from the
Company's defined benefit pension plan who have either attained age 65 with five
years of service, or who have attained age 55 with 10 years of service and 70
points are eligible. Associates, who retire prior to age 65, and their spouses,
are each required to contribute 50% of the premium. Spouses of associates who
retire after age 65 with 10 years of service are required to contribute 50% of
their premium. Associates, who retire at age 65 with five to nine years of
service, and their spouses, are required to contribute 50% and 75% of the
premium, respectively. Associates not eligible for retirement as of February 1,
1992 will be required to contribute the amount of premium in excess of $4,200
pre-65 and $2,225 post-65; spouses are not eligible. The plan is not funded.

     The following tables set forth the post-retirement plans funded status and
amounts recognized in the Company's consolidated financial statements.
<TABLE>
<CAPTION>
                                                           February 3, 2001   January 29, 2000
                                                           ----------------   ----------------
Accumulated post-retirement benefit obligation("APBO"):
<S>                                                     <C>                    <C>
APBO at end of prior fiscal year                         $       1,332,000      $    1,192,000
Service Cost                                                       106,000              81,000
Interest Cost                                                       99,000              86,000
Actuarial loss / (gain) and assumption change                      (79,000)             41,000
Benefits paid                                                      (86,000)            (68,000)
                                                         -----------------      --------------
APBO at end of current fiscal year                       $       1,372,000      $    1,332,000
                                                         =================      ==============

The change in plan assets was:
                                                          February 3, 2001    January 29, 2000
                                                          ----------------    ----------------
Fair value at beginning of fiscal year                   $             ---      $          ---
Actual return on plan assets                                           ---                 ---
Employer contributions                                              86,000              68,000
Participant Contributions                                              ---                 ---
Expenses paid                                                          ---                 ---
Benefits paid                                                      (86,000)            (68,000)
                                                         -----------------      --------------
Fair value at end of fiscal year                         $               0        $          0
                                                         =================      ==============
</TABLE>

                                                                              48
<PAGE>

     The amounts recognized in the statement of financial position consisted of:
<TABLE>
<CAPTION>
                                        February 3, 2001        January 29, 2000
--------------------------------------------------------------------------------
<S>                                     <C>                     <C>
Accrued benefit cost (other plans)         $ (2,890,000)          $  (2,901,000)
                                           ------------           -------------
Accrued benefit cost                       $ (2,890,000)          $  (2,901,000)

Funded status at end of fiscal year          (1,372,000)             (1,332,000)
Unrecognized prior service cost                (843,000)               (945,000)
Unrecognized net actuarial gain                (675,000)               (624,000)
                                           ------------           -------------
Accrued benefit cost                       $ (2,890,000)          $  (2,901,000)
</TABLE>
     The components of the net periodic post-retirement benefit cost were:
<TABLE>
<CAPTION>
                                        February 3, 2001        January 29, 2000
--------------------------------------------------------------------------------
<S>                                     <C>                    <C>
Service cost                               $    106,000           $      81,000
Interest cost                                    99,000                  86,000
Amortization of prior service cost             (102,000)               (102,000)
Recognized net actuarial gain                   (28,000)                (25,000)
                                           ------------           -------------
Net periodic benefit cost                  $     75,000           $      40,000
</TABLE>

     The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.50% as of February 3, 2001 and 7.50%
as of January 29, 2000. For measurement purposes, a 7.4% annual rate of
increase in the per capita cost of covered health care benefits was assumed
for Fiscal 2000; this rate was assumed to decrease gradually down to 5% for
Fiscal 2004 and remain at that level thereafter.

     The medical cost trend rate assumption has a significant effect on the
amounts reported. However, the impact of medical inflation eventually diminishes
because of the limit of the Company's share of plan cost for accruals for
associates who were not eligible to retire as of February 1, 1992. A one
percentage point change in assumed health care cost trend rate would have had
the following effects on February 3, 2001:

                                        Increase          Decrease
                                        --------          --------
Effect on total of service
   and interest cost components          $   1,745        $  (1,653)

Effect on accumulated post-retirement
     benefit obligation                  $  25,008        $ (23,688)

                                                                              49
<PAGE>

11. COMMITMENTS AND CONTINGENCIES

Lease Commitments

     The Company leases all of its retail store locations and its corporate
headquarters. These leases are non-cancelable and have terms of up to 15 years.
Certain leases provide for additional rents payable based on store sales.

     At February 3, 2001, the minimum future rentals on non-cancelable operating
leases are as follows:

Fiscal Year

2001                      $     26,018,000
2002                            25,822,000
2003                            24,770,000
2004                            23,837,000
2005                            22,106,000
Thereafter                      85,124,000
                          ----------------
                          $    207,677,000
                          ================

     Rent expense was approximately $27.0 million, $24.9 million and $22.7
million for the years ended February 3, 2001, January 29, 2000 and January 30,
1999, respectively, including contingent rent expenses of approximately
$284,000, $200,000 and $310,000, respectively. This rent expense, along with
other costs of occupancy are included in cost of sales in the consolidated
statement of income.

Litigation

     The Company is involved in various legal proceedings arising in the normal
course of business. Management believes that the resolution of these matters
will not have a material effect on the consolidated financial statements.

                                                                              50
<PAGE>

12.  QUARTERLY FINANCIAL DATA (unaudited).

     The following fiscal 2000 quarterly information includes the impact of the
adoption of SAB 101 and EITF 00-10 (in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                         Fiscal 2000
                                            --------------------------------------------------------------------------
                                              First Quarter     Second Quarter      Third Quarter     Fourth Quarter
                                            ----------------  -----------------   ----------------- ------------------
<S>                                          <C>               <C>                 <C>               <C>
Net Sales                                       $51,077             $68,699           $63,817             $180,948
Gross Profit                                     13,670              22,915            18,084               84,904
Income (loss) from operations                    (7,638)               (606)           (7,537)              41,167
Income (loss) before cumulative effect of
accounting change                                (4,682)               (606)           (7,537)              41,167
Cumulative effect of accounting change             (308)                ---               ---                  ---
                                                -------             -------           -------             --------
Net income (loss)                               $(4,990)            $  (399)          $(4,889)            $ 25,222
                                                -------             -------           -------             --------

Earnings (loss) per share: Basic
Earnings (loss) before cumulative effect of
accounting change                               $ (0.56)            $ (0.05)          $ (0.59)            $   3.03
Cumulative effect of accounting change            (0.04)                ---               ---                  ---
                                                -------             -------           -------             --------
Net income (loss)                               $ (0.60)            $ (0.05)          $ (0.59)            $   3.03
                                                -------             -------           -------             --------

Earnings (loss) per share: Diluted
Earnings (loss) before cumulative effect of
accounting change                               $ (0.56)            $ (0.05)          $ (0.59)            $   2.98
Cumulative effect of accounting change            (0.04)                ---               ---                  ---
                                                -------             -------           -------             --------
Net income (loss)                               $ (0.60)            $ (0.05)          $ (0.59)            $   2.98
                                                -------             -------           -------             --------
</TABLE>

The effect of SAB 101 and EITF 00-10 on previously reported quarters was as
follows (in thousands, except per share data):
<TABLE>
                                         Effect of Change in Fiscal 2000
                                ------------------------------------------------
Quarter Ended                   Net Sales         Net Income         Diluted EPS
-------------                   ---------         ----------         -----------
<S>                             <C>               <C>                <C>
April 29, 2000                   $1,849             $(271)             $(0.03)
July 29, 2000                     2,048                45                 ---
October 28, 2000                    881               (97)              (0.01)
</TABLE>

Had the provisions of SAB 101 and EITF 00-10 been applied to Fiscal 1999, the
pro forma effect on previously reported net sales, gross profit, net income
(loss) and earnings per share would have been as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
                                                                            Fiscal 1999
                                            --------------------------------------------------------------------------
                                              First Quarter     Second Quarter      Third Quarter     Fourth Quarter
                                            ----------------  -----------------   ----------------- ------------------
<S>                                          <C>               <C>                 <C>               <C>
Net Sales
   As reported                                  $42,100             $64,104           $53,234             $160,193
   Pro forma                                     43,068              65,413            54.034              163,715
Gross Profit
   As reported                                   10,281              23,045            15,964               79,128
   Pro forma                                     10,228              22,964            15,262               78,491
Income (loss) from operations
   As reported                                   (7,371)                363            (6,759)              36,499
   Pro forma                                     (7,330)                368            (6,985)              36,521
Net income (loss)
   As reported                                  $(4,624)            $     9           $(4,489)            $ 22,414
   Pro forma                                     (4,599)                 12            (4,628)              22,428

Earnings (loss) per share: Basic
Net income (loss)
   As reported                                  $ (0.57)            $   ---           $(0.55)             $   2.72
   Pro forma                                      (0.57)                ---            (0.57)                 2.73

Earnings (loss) per share: Diluted
Net income (loss)
   As reported                                  $ (0.57)            $   ---       $    (0.55)             $   2.64
   Pro forma                                      (0.57)                ---            (0.57)                 2.64
</TABLE>

                                                                              51
<PAGE>

                      Consent of Independent Accountants


We hereby consents to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-88174, 33-48580, 33-32018, 33-17341 and
33-63740) of Brookstone, Inc. of our report dated March 16, 2001 relating to the
financial statements and financial statement schedules, which appears in this
Form 10-K.



PricewaterhouseCoopers LLP
Boston, Massachusetts
May 3, 2001

                                                                              52
<PAGE>

2.   CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.

Schedule II         Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
                                            Year ended February 3, 2001
-------------------------------------------------------------------------------------------------------------
                                 Beginning         Charged to costs                              Ending
Description                       Balance            and expenses           Deductions          Balance
<S>                          <C>                 <C>                      <C>                <C>
Allowance for doubtful
accounts                      $     325,000         $   478,000            $  (197,000)        $    606,000
                              -------------         -----------            -----------         ------------
Inventory reserve             $   3,061,000         $   548,000            $  (617,000)        $  2,992,000
                              -------------         -----------            -----------         ------------
</TABLE>
<TABLE>
<CAPTION>
                                             Year ended January 29, 2000
-------------------------------------------------------------------------------------------------------------
                                 Beginning         Charged to costs                               Ending
Description                       Balance            and expenses           Deductions           Balance
<S>                          <C>                 <C>                      <C>                <C>
Allowance for doubtful
accounts                     $      176,000        $    211,000            $   (62,000)        $    325,000
                              -------------         -----------            -----------         ------------
Inventory reserve            $    2,378,000        $    683,000            $         0         $  3,061,000
                              -------------         -----------            -----------         ------------
</TABLE>
<TABLE>
<CAPTION>
                                             Year ended January 31, 1999
-------------------------------------------------------------------------------------------------------------
                                 Beginning         Charged to costs                               Ending
Description                       Balance            and expenses           Deductions           Balance
<S>                          <C>                 <C>                      <C>                <C>
Allowance for doubtful
accounts                     $     324,000         $     86,000            $  (234,000)        $    176,000
                              -------------         -----------            -----------         ------------
Inventory reserve            $   1,926,000         $    452,000            $         0         $  2,378,000
                              -------------         -----------            -----------         ------------
</TABLE>

     All other schedules of which provision is made in the applicable regulation
of the Securities and Exchange Commission have been omitted because the
information is disclosed in the Consolidated Financial Statements or because
such schedules are not required or are not applicable.

                                                                              53
<PAGE>

3.      EXHIBITS.

EXHIBIT NO.                         DESCRIPTION

3.1         Restated Certificate of Incorporation, (filed with the Securities
            and Exchange Commission as Exhibit 3.1 to the Registrant's
            Registration Statement on Form S-1 (File No. 33-47123), and
            incorporated herein by reference).

3.2         Amended and restated by-laws (filed with the Securities and Exchange
            Commission as Exhibit 3.2 to the Registrant's Registration Statement
            on Form S-1 (File No. 33-47123), and incorporated herein by
            reference).

4.1         Specimen Certificate Representing the Common Stock (filed with the
            Securities and Exchange Commission as Exhibit 3.1 to the
            Registrant's Registration Statement on Form S-1 (File No. 33-47123),
            and incorporated herein by reference).

10.1        Amended and Restated Stockholders Agreement dated as of August 22,
            1991, among the Company and its stockholders party thereto and named
            therein (filed with the Securities and Exchange Commission as
            Exhibit 10.1 to the Registrant's Registration Statement on Form S-1
            (File No. 33-47123), and incorporated herein by reference).

10.2        1991 Stock Purchase and Option Plan, as amended (filed with the
            Securities and Exchange Commission as Exhibit 4.1 to the
            Registrant's Registration Statement on Form S-8 (File No. 33-63470),
            and incorporated herein by reference).

10.3        Stock Option Agreement dated as of August 22, 1991, between the
            Company and Merwin F. Kaminstein, including amendment dated February
            29, 1992, (filed with the Securities and Exchange Commission as
            Exhibit 10.4 to the Registrant's Registration Statement on Form S-1
            (File No. 33-47123), and incorporated herein by reference).

10.5        Stock Option Agreement dated as of August 22, 1991, between the
            Company and Alexander M. Winiecki (filed with the Securities and
            Exchange Commission as Exhibit 10.7 to the Registrant's Registration
            Statement on Form S-1 (File No. 33-47123), and incorporated herein
            by reference).

10.6        Stock Option Agreement dated as of August 22, 1991, between the
            Company and Jo-Ann B. Karalus (filed with the Securities and
            Exchange Commission as Exhibit 10.9 to the Registrant's Registration
            Statement on Form S-1 (File No. 33-47123), and incorporated herein
            by reference).

                                                                              54
<PAGE>

EXHIBIT NO.                         DESCRIPTION

10.7        Stock Option Agreement dated as of October 11, 1991, between the
            Company and Mone Anathan, III (filed with the Securities and
            Exchange Commission as Exhibit 10.10 to the Registrant's
            Registration Statement on Form S-1 (File No. 33-47123), and
            incorporated herein by reference).

10.8        1992 Equity Incentive Plan, as amended and restated (filed with the
            Securities and Exchange Commission as Exhibit A to the Registrant's
            1999 Proxy Statement, and incorporated herein by reference).

10.9        1992 Stock Purchase Plan, as amended (filed with the Securities and
            Exchange Commission as Exhibit 4.3 to the Registrant's Registration
            Statement on Form S-8 (File No. 33-63740), and incorporated herein
            by reference).

10.10       1992 Management Incentive Bonus Plan (filed with the Securities and
            Exchange Commission as Exhibit 10.12 to the Registrant's Form 10-K
            for Fiscal 1993, and incorporated herein by reference).

10.11       1992 Profit Sharing Plan (filed with the Securities and Exchange
            Commission as Exhibit 10.14 to the Registrant's Registration
            Statement on Form S-1 (File No. 33-47123), and incorporated herein
            by reference).


10.12       Form of the Company's Pension Plan (filed with the Securities and
            Exchange Commission as Exhibit 10.15 to the Registrant's
            Registration Statement on Form S-1 (File No. 33-47123), and
            incorporated herein by reference).

10.13       Amendment No. 1 dated as of February 25, 1994, to Kaminstein
            Agreement (filed with the Securities and Exchange Commission as
            Exhibit 10.15.1 to the Registrant's Registration Statement on Form
            S-1 (File No. 33-75728), and incorporated herein by reference).

10.14       Employment Agreement dated April 2, 1991, between the Company and
            Alexander M. Winiecki (filed with the Securities and Exchange
            Commission as Exhibit 10.18 to the Registrant's Registration
            Statement on Form S-1 (File No. 33-47123), and incorporated herein
            by reference).

10.15       Severance Agreement dated March 15, 1991, between the Company and
            Jo-Ann B. Karalus (filed with the Securities and Exchange
            Commission as Exhibit 10.21 to the Registrant's Registration
            Statement on Form S-1 (File No. 33-47123), and incorporated herein
            by reference).

                                                                              55
<PAGE>

EXHIBIT NO.                         DESCRIPTION

10.16       Employment Agreement dated September 30, 1994, between the Company
            and Michael F. Anthony (filed with the Securities and Exchange
            Commission as Exhibit 10.17 to the Registrant's Form 10-K for the
            year ended January 28, 1995, and incorporated herein by reference).

10.18       Lease Agreement dated as of March 26, 1993, between the City of
            Mexico, Missouri, as lessor, and BCI, as lessee (filed with the
            Securities and Exchange Commission as Exhibit 10.23 to the
            Registrant's Registration Statement on Form S-1 (File No. 33-75728),
            and incorporated herein by reference).

10.19       Option Agreement dated as of March 26, 1993, between the City of
            Mexico, Missouri and BCI (filed with the Securities and Exchange
            Commission as Exhibit 10.24 to the Registrant's Registration
            Statement on Form S-1 (File No. 33-75728), and incorporated herein
            by reference).

10.20       Loan Agreement dated as of March 26, 1993, among BCI, the City of
            Mexico, Missouri, The Industrial Development Authority of Mexico,
            Missouri and First National Bank (filed with the Securities and
            Exchange Commission as Exhibit 10.24 to the Registrant's
            Registration Statement on Form S-1 (File No. 33-75728), and
            incorporated herein by reference).

10.22       1996 Directors Stock Option Plan (filed with the Securities and
            Exchange Commission as Exhibit A to the Registrant's 1996 Proxy
            Statement, and incorporated herein by reference).

10.23       Employment Agreement dated November 3, 1996, between the Company and
            Philip W. Roizin (filed with the Securities and Exchange Commission
            as Exhibit 10.25 to the Registrant's Form 10-Q for the quarter ended
            November 2, 1996, and incorporated herein by reference).

10.24       Revolving Credit Agreement dated September 22, 1997, among the
            Company, Brookstone Company, Inc. ("BCI") and Brookstone Stores,
            Inc. and BankBoston N.A. as agent for the lenders (files with the
            Securities and Exchange Commission s Exhibit 10.25 to the
            Registrant's Form 10-Q for the quarter ended November 1, 1997 and
            incorporated herein by reference.)

10.25       Amended and Restated Revolving Credit Agreement dated May 11, 1999,
            among the Company, Brookstone Company, Inc. ("BCI") and Brookstone
            Stores, Inc., Brookstone Acquisitions Sub, Inc. and BankBoston N.A.
            as agent for the lenders (filed with the Securities and Exchange
            Commission as Exhibit 10.25 to the Registrant's Form 10-K for the
            year ended January 29, 2000 and incorporated herein by reference).

                                                                              56
<PAGE>

EXHIBIT NO.                         DESCRIPTION

10.26       1999 Equity Incentive Plan (filed with the Securities and Exchange
            Commission as Exhibit A to the Registrant's 1999 Proxy Statement,
            and incorporated herein by reference).

10.27       Employment Agreement dated January 17, 2000, between the Company and
            Kenneth J. Mesnik (filed with the Securities and Exchange Commission
            as Exhibit 10.27 to the Registrant's Form 10-K for the year ended
            January 29, 2000 and incorporated herein by reference).

10.28       Employment Agreement dated January 4, 2001, between the Company and
            Gregory B. Sweeney (filed herewith).

10.29       2000 Employee Stock Purchase Plan (filed with the Securities and
            Exchange Commission on Registrant's Form S-8 dated October 25,2000
            and incorporated herein by reference.

                                                                              57
<PAGE>

EXHIBIT NO.                         DESCRIPTION

13          The 2000 Annual Report to Stockholders of the Company, except for
            those portions thereof which are incorporated in this Form 10-K,
            shall be furnished for the information of the Commission and shall
            not be deemed "filed".

21          List of Subsidiaries (filed herewith)

23.1        Consent of PricewaterhouseCoopers LLP, which is reflected on page
            (filed herewith).

14(b)   Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter ended
February 3, 2001.

                                                                              58
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on May 4, 2001.

                                   Brookstone, Inc.



                                   By: /s/ Philip W. Roizin
                                       --------------------
                                       Philip W. Roizin
                                       Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities, each on May 4, 2001.

Signature                     Title

/s/ Michael F. Anthony        Chairman, President and Chief Executive Officer
----------------------        Director
Michael F. Anthony            (Principal Executive Officer)


/s/ Philip W. Roizin          Executive Vice President, Finance & Administration
----------------------        (Principal Financial and Accounting Officer)
Philip W. Roizin


/s/ Mone Anathan, III         Director
----------------------
Mone Anathan, III


/s/ Kenneth E. Nisch          Director
----------------------
Kenneth E. Nisch


/s/ Michael L. Glazer         Director
----------------------
Michael L. Glazer


/s/ Robert F. White           Director
----------------------
Robert F. White

                                                                              59