SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K


(Mark One)
 /X/           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
               EXCHANGE ACT OF 1934

               For the fiscal year ended January 29, 2000

                                    OR

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


               For the transition period from _____________ to ______________


                         Commission file number 0-24902

                              QUALITY STORES, INC.
             (Exact Name of Registrant As Specified In Its Charter)

  Delaware                                                           42-1425562
  (State of Incorporation)                                (I.R.S. Employer No.)

  455 E. Ellis Road, Muskegon, MI                                         49441
  (Address of Principal Executive Offices)                           (Zip Code)

  Registrant's telephone number, including area code:  (231) 798-8787

                                 Not Applicable
              (Former Name, Former Address, and Former Fiscal Year,
                         If Changed Since Last Report)

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]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of April 28, 2000: 100. All of the  registrant's  stock is held
by QSI Holdings, Inc., and is not publicly traded.
<PAGE>
<TABLE>
<CAPTION>
                                                QUALITY STORES, INC.

                                                      INDEX TO
                                             ANNUAL REPORT ON FORM 10-K
                                       FOR FISCAL YEAR ENDED JANUARY 29, 2000


                                                                                                            PAGE
<S>              <C>                                                                                          <C>
PART  I.

ITEM 1.           Business ....................................................................................1
ITEM 2.           Properties...................................................................................8
ITEM 3.           Legal Proceedings............................................................................8
ITEM 4.           Submission of Matters to a Vote of Security Holders..........................................8


PART II.

ITEM 5.           Market for Registrant's Common Equity and Related Stockholder Matters........................9
ITEM 6.           Selected Financial Data.....................................................................10
ITEM 7.           Management's Discussion and Analysis of Financial Condition and
                  Financial Disclosure........................................................................11
ITEM 7A.          Quantitative and Qualitative Disclosures About Market Risk..................................16
ITEM 8.           Financial Statements and Supplementary Data.................................................16
ITEM 9.           Changes In and Disagreements With Accountants on Accounting and
                  Financial Disclosure........................................................................16


PART III.

ITEM 10.          Directors and Executive Officers of the Registrant..........................................17
ITEM 11.          Executive Compensation......................................................................20
ITEM 12.          Security Ownership of Certain Beneficial Owners and Management..............................23
ITEM 13.          Certain Relationships and Related Transactions..............................................23


PART IV.

ITEM 14.          Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................24
</TABLE>

                                                        -2-
<PAGE>

                                     PART I

Note: Reference herein to fiscal 1999 are references to Quality Stores,  Inc.'s,
fiscal year ended January 29, 2000.  During fiscal 1999,  Quality Stores,  Inc.,
changed  its  fiscal  year end from the  Saturday  nearest  to October 31 to the
Saturday nearest to January 31. References herein to "fiscal years",  other than
fiscal 1999, are references to Quality Stores, Inc.'s, 52 or 53-week fiscal year
which ended on the Saturday nearest to October 31 in that year.

ITEM 1. BUSINESS

Overview

Quality Stores,  Inc., a Delaware  corporation  [formerly Central Tractor Farm &
Country, Inc. ("CT")], together with its primary subsidiaries, including Country
General,  Inc., and the former Quality Stores, Inc.  ("Quality"),  (collectively
the "Company" or "QSI"), is the largest  agricultural  specialty retailer in the
United States with 361 stores in 31 states as of March 31, 2000.  QSI serves the
agricultural,  hardware,  and  related  needs  of  rural  consumers,  especially
part-time and full-time farmers,  hobby gardeners,  skilled trades persons,  and
do-it-yourself  ("DIY")  customers.  The  Company  was  founded  in 1935 and has
established  itself as a market  leader in the  agricultural  specialty  market,
having strong name recognition and a loyal customer base.

Acquisition of the Company by J.W. Childs

On November 27, 1996,  the Board of Directors of the Company  approved,  and the
Company  entered into, a merger  agreement  (the "Merger  Agreement")  with J.W.
Childs Equity Partners,  L.P. and two of its affiliates  (collectively "Childs")
that  provided  for the  acquisition  of the  Company  by Childs in a  two-stage
transaction (the  "Acquisition").  The Merger Agreement  provided that following
the  acquisition  by Childs of all of the Company  shares held by  affiliates of
Butler Capital Corporation  (collectively,  "BCC"), an affiliate of Childs would
merge with and into the Company  (the  "Merger")  and Childs  would  acquire the
remaining   shares  of  the  Company  held  by  public   shareholders   ("Merger
Consideration")  for $14.25 per share in cash. The Merger was completed on March
27, 1997.

Concurrent  with the  execution  of the Merger  Agreement,  Childs  entered into
agreements  (the  "Securities  Purchase  Agreements")  with BCC and with certain
members of the Company's management (the "Management  Shareholders") pursuant to
which  Childs  agreed to  purchase  at a price of $14.00 per share 100% of BCC's
shares  and  36.4%  of  the   Management   Shareholders'   shares   representing
approximately  64.0%  and  1.4%  of  the  Company's  outstanding  common  stock,
respectively (collectively the "Securities Purchases").

As of January 2, 1997, Childs had consummated the Securities  Purchases and paid
related  expenses  utilizing  (i) $65.4  million of cash equity and,  (ii) $35.1
million of  borrowings  under an interim  margin loan facility (the "Margin Loan
Facility").  In connection  with the Securities  Purchases,  the Company entered
into a term loan and revolving credit facility (the "Credit  Facility") and used
a  portion  of such  facilities  to  refinance  existing  debt  of the  Company,
including a $16.0 million  convertible note held by BCC. The Credit Facility has
since  been  amended.  See "Item 7.  Management's  Discussion  and  Analysis  of
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources".

On March 27, 1997, the Company  consummated a public  offering of $105.0 million
aggregate  principal  amount of Senior Notes. The net proceeds from the offering
were used to repay  borrowings  under the Margin Loan  Facility,  pay the Merger
Consideration,  repay a portion of the outstanding  borrowings  under the Credit
facility, and pay fees and expenses of the Acquisition.

The  Acquisition  was accounted for as a purchase.  The total purchase price has
been allocated to the tangible and intangible  assets and the liabilities of the
Company based upon their  respective  fair values.  The cost of the  Acquisition
over the  allocated  fair  value of the  underlying  tangible  net  assets is as
follows (in thousands):


<PAGE>

    Cost of acquiring the outstanding common stock of the Company
      from predecessor shareholders                                  $159,393
    Fair value of underlying tangible net assets                       72,050
                                                                     --------
    Excess of cost of acquisition over the allocated fair value
      of the underlying tangible net assets                          $ 87,343
                                                                     ========

As a result of the Acquisition,  the Company is a wholly owned subsidiary of QSI
Holding,  Inc.  [formerly  CT  Holdings,  Inc.  ("Holdings")],  an affiliate of
Childs,  and a new  basis of  accounting  has been  reflected  in the  Company's
financial  statements  reflecting  the fair values for the Company's  assets and
liabilities  as of March 27, 1997.  The financial  statements of the Company for
periods prior to March 27, 1997, are presented on the  historical  cost basis of
accounting.

Acquisitions

Effective June 26, 1997,  the Company  acquired all of the  outstanding  capital
stock of Country General for  approximately  $138.6 million  (including  related
costs and expenses) in cash (the "Country General Acquisition"). Country General
operated a chain of 114 agricultural specialty retail stores. The Company funded
the acquisition price in part from a $49.8 million cash equity contribution from
Holdings,  and the  remainder  from funds drawn  under the amended and  restated
Credit Facility (see "Item 7. Management's  Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").

The Country General  Acquisition  was accounted for as a purchase.  The purchase
price was allocated to the tangible and  intangible  assets and the  liabilities
based on fair values, as follows (in thousands):


Total purchase price                                              $138,563
Fair value of underlying tangible net assets                        86,788
                                                                  --------
Excess of cost of acquisition over the allocated fair value
  of the underlying tangible net assets                           $ 51,775
                                                                  ========

In January  1999,  the  Company  acquired  nine  retail  stores and  certain net
operating assets from H.C. Shaw Co., a privately owned specialty  retailer doing
business as Fisco Farm and Home, for approximately $7.1 million. The transaction
was accounted for as a purchase.

On May 7, 1999,  the Company  acquired  Quality  Stores,  Inc.  ("Quality") in a
transaction  in  which  Quality  was  merged  with and  into  the  Company  (the
"Merger").  In connection with the Merger,  the former  shareholders  and option
holders of Quality Stores received, in the aggregate, $111.5 million in cash and
792,430 shares of common stock of Holdings that had a value of $91.8 million. In
connection with the Merger, the Company also repaid  approximately $42.1 million
in debt owed by Quality  Stores.  The total purchase  price for Quality  Stores,
including transaction expenses, was approximately $208.0 million.

Quality, based in Muskegon, Michigan, had a strong presence in Michigan and Ohio
and,  at the time of the  Merger,  operated a chain of 114  stores,  with annual
sales of approximately  $525 million,  which offer merchandise  oriented to farm
and country  living,  including  animal care products,  farm and ranch supplies,
workwear,  and lawn and garden  products.  In  connection  with the Merger,  the
Company changed its name from "Central Tractor Farm & Country, Inc." to "Quality
Stores, Inc." and relocated its headquarters to Muskegon,  Michigan. The Company
will  continue to operate  stores  primarily  under the Central  Tractor  Farm &
Country,  Country General,  Quality Farm & Fleet, Quality Farm & Country,  Fisco
Farm & Home, and County Post names.

The non-cash portion of the Merger  consideration was contributed to the Company
by Holdings  (which,  in  connection  with the  Merger,  changed its name to QSI
Holdings, Inc.). The Company funded the cash portion of the Merger consideration
and various fees and expenses  associated with the Merger from funds drawn under
an amendment and  restatement of the Company's  Credit  Agreement,  dated May 7,
1999, with Fleet National Bank, as administrative agent for the banks, financial
institutions,  and other  institutional  lenders  party thereto (the "New Credit
Facility").  Among other things, the amendment and restatement of the New Credit
Facility  increased  the

                                      -2-
<PAGE>
aggregate  principal  amount of the facility from  $150,000,000 to $320,000,000,
consisting of a  $220,000,000  term loan facility and a  $100,000,000  revolving
credit facility.

The  acquisition  of Quality Stores has been accounted for as a purchase and the
results of operations of Quality  Stores have been included in the  consolidated
financial  statements  from  the date of  purchase.  The  estimated  cost of the
acquisition over the estimated fair value of the underlying  tangible net assets
is as follows (in thousands):

Cost of acquiring Quality Stores capital stock                    $208,043

Fair value of underlying tangible net assets acquired               44,074
                                                                  --------
Excess of cost of acquisition over the allocated fair
value of the underlying tangible net assets                       $163,969
                                                                  ========
Expansion Plan

Since the beginning of fiscal  1997(1),  the Company has increased the number of
its retail  stores from 111 to 350 as of January 29, 2000.  In fiscal 1997,  the
Company  opened 3 new  stores and  acquired  118 stores  primarily  through  the
Country  General  Acquisition.  Five stores were closed in 1997. In fiscal 1998,
the  Company  opened 1 new store  and  closed  14  stores  (including  12 stores
acquired from Country General,  for which the closure was reserved in connection
with the acquisition).  For the period from November 1998 through January 2000,
the Company opened 24 new stores, closed 10 stores, and acquired 122 stores.

The  integration of the Country  General  stores into the Company's  systems was
completed  during fiscal 1998, and the integration of the Quality stores will be
completed  in the first  quarter of fiscal  2000.  The  Company  plans to add an
additional 25 stores in fiscal 2000, and 40 to 50 per year  thereafter,  through
further penetration of the Northeastern and Midwestern United States markets and
through  expansion into the Southeastern  and Western United States.  Management
intends  to  achieve  this  growth  through  new store  openings  and  selective
acquisitions.  On a preliminary basis, the Company has identified  potential new
markets outside of its existing markets that management  believes are attractive
candidates  for one or more new QSI  stores.  The number of actual new QSI store
openings  in the next two  years  may  differ  materially  from the  projections
outlined  above if the Company  makes a major  acquisition  or is unable to find
attractive store locations to rent at reasonable  prices,  negotiate  acceptable
lease terms, or acquire small regional farm store chains at reasonable prices.

The Company seeks to locate stores in high-traffic  shopping  districts whenever
possible in order to attract  customers who prefer to do much of their  shopping
at one time and place. As with the majority of its existing stores,  the Company
intends to lease its new  stores.  The  estimated  cash  required to open a new,
leased store  (approximately  25,000 to 30,000 square feet of selling  space) is
$1,100,000,  including  inventory  net  of  accounts  payable  and  $130,000  in
pre-opening expenses.  Of these estimated cash expenditures,  approximately half
is used for initial  inventory (net of accounts payable) and the balance is used
for capital  expenditures,  principally  leasehold  improvements,  fixtures  and
equipment, and pre-opening expenses.

The Company  also  intends to continue to  opportunistically  relocate  existing
stores.  These relocations reflect, in most cases, the expiration of an existing
lease  coupled  with an  opportunity  to move to a more  demographically  and/or
physically attractive site.

Retail Stores

QSI stores focus on agricultural and agricultural related products.  The Company
segments its merchandising mix into seven key product  categories:  agricultural
products (including tractor parts and accessories), specialty hardware, lawn and
garden products, workwear products, rural automotive parts and accessories,  pet
supplies,  and  general  consumer  products.  Sale of  agricultural  and related
products represents approximately 50% of QSI's total net sales.
-------------
(1) On August  17,  1999,  the  Company  changed  its  fiscal  year end from the
Saturday  closest to October 31 to the Saturday closest to January 31, effective
as of January 29, 1999.
                                      -3-
<PAGE>
The growth and percentage of total store sales for each retail product  category
for fiscal 1999, fiscal 1998, and fiscal 1997, and a description of each product
category, are set forth below:
<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended
                                                                --------------------------------------------
                                                                 January 29,    October 31,     November 1,
                                                                  2000 (1)          1998          1997 (2)
                                                                --------------------------------------------

<S>                                                                 <C>             <C>            <C>
Agricultural (including tractor parts and accessories)               21.7%           26.6%          26.8%
Specialty Hardware                                                   18.0%           17.6%          17.7%
Lawn & Garden and Seasonal                                           19.6%           17.4%          18.4%
Workwear                                                             10.9%           10.2%           9.3%
Rural Automotive Parts & Accessories                                 13.2%           14.3%          14.3%
Pet Supplies                                                          8.6%            7.0%           6.6%
General Consumer                                                      8.0%            6.9%           6.9%
                                                                --------------------------------------------
                                                                    100.0%          100.0%         100.0%
                                                                ============================================
<FN>
(1)      Includes Quality from the date of the merger.
(2)      Includes Country General from the date of acquisition.
</FN>
</TABLE>
Agricultural  Products.  QSI  stores'  agricultural  product  line  consists  of
approximately  6,000 stock  keeping  units  (SKU's)  supplying  the needs of the
part-time and full-time farmer,  including tractor parts, tillage and harvesting
parts, fencing materials, and animal health supplies. This product line consists
largely of  consumable  products  and other items  requiring  replacements  on a
regular basis.  This product line accounted for $236.5 million,  $156.3 million,
and $110.5  million of the Company's  total revenue in fiscal years 1999,  1998,
and 1997,  respectively.  Agricultural  product sales,  as a percentage of total
sales,  decreased to 21.7% in fiscal 1999,  as compared to 26.6% in fiscal 1998.
This  decrease  resulted  to the  difference  in product mix  relating  from the
Quality  stores.  QSI  emphasizes  consumable  agricultural  supplies  that  are
purchased  frequently by its customers and does not sell heavy equipment such as
tractors or combines.

Specialty  Hardware.  QSI's  specialty  hardware line consists of  approximately
9,000 SKU's with an emphasis on products with agricultural  applications.  These
products accounted for $196.4 million,  $103.6 million, and $72.7 million of the
Company's total revenue in fiscal years 1999, 1998, and 1997, respectively.  QSI
stores  carry a broad  range  of  high-quality  hardware  with  an  emphasis  on
recognized  branded  professional  products,  including hand tools, power tools,
mechanical tools,  electrical  products,  including  outdoor lighting,  security
lighting and motors, welders, air compressors,  generators, paints (as well as a
competitively priced private-label brand), and plumbing supplies.

Lawn and Garden and Seasonal Products. QSI's lawn and garden products consist of
approximately  2,000 SKU's,  including  lawn and garden  tools,  nursery  stock,
fertilizers, lawn fencing, and weed killers. These products accounted for $214.7
million,  $102.1  million,  and $75.8 million of the Company's  total revenue in
fiscal years 1999, 1998, and 1997,  respectively.  To differentiate  itself from
other  retailers,  QSI also  stocks a  selection  of lawn  mowers  ranging  from
competitively  priced items to full-featured  riding lawn mowers.  QSI assembles
and tests the lawn  mowers and sells a full  assortment  of parts for  follow-up
service needs.  QSI stores offer seasonal  bedding plants,  trees, and shrubs in
their garden centers. QSI stores also offer heating/energy equipment,  including
stoves, space heaters, and fans.

Workwear.  QSI's workwear products,  including products sold under the Carhartt,
Walls,  and Iron Age brand names,  are targeted at the specialized  needs of its
outdoor-oriented  customers who require high quality  functional  apparel.  This
product  category  consists of  approximately  3,000  SKU's,  including  premium
quality insulated  outerwear,  overalls,  flannel shirts,  and work jeans. These
products accounted for $118.6 million,  $59.8 million,  and $38.1 million of the
Company's total revenue in fiscal years 1999, 1998, and 1997, respectively.  The
Company has been  expanding its workwear  line in its stores to include  quality
non-insulated workwear, bib overalls, twill pants, and hunting clothing.

Rural  Automotive  Parts  and  Accessories.  QSI's  rural  automotive  parts and
accessories consist of approximately 4,000 SKU's,  including a core selection of
automotive parts, batteries,  and accessories for rural vehicles,  primarily for
pick-up trucks and tractors.  The products  accounted for $144.4 million,  $83.9
million,  and $58.6 million of the Company's total revenue in fiscal years 1999,
1998,  and 1997,  respectively.  QSI also stocks a small  assortment  of general
automotive  items  as  a  convenience  to  its  customers,   including  oil  and
lubrication  products  and  anti-freeze.  In  addition  to brand name  products,
certain of the Company's automotive products are offered under QSI's own private
label.

                                      -4-
<PAGE>
Pet Supplies. QSI's pet supplies consist of approximately 1,000 SKU's, including
dog and cat foods, wild bird feed, and rabbit supplies. These products accounted
for $94.0  million,  $40.9  million,  and $27.2 million of the  Company's  total
revenue in fiscal years 1999,  1998,  and 1997,  respectively.  The pet supplies
sold by QSI include  economically  priced large sizes,  such as 50-pound bags of
dog food.  Certain of these items are sold under QSI's  private  label.  QSI has
been expanding its pet supplies product category.

General  Consumer  Products.  QSI's general  consumer  products line consists of
approximately  2,000 SKU's,  including  farm replicas and  collectible  toys and
sporting goods,  including guns and  ammunition,  hunting  accessories,  camping
items,  and outdoor living needs.  These  products  accounted for $87.4 million,
$40.6 million,  and $28.3 million of the Company's total revenue in fiscal years
1999, 1998, and 1997,  respectively.  QSI stores also offer seasonal merchandise
such as charcoal grills and coolers in the summer.

Store Operations

QSI's stores are designed primarily to meet the needs of farmers operating small
to medium-sized  farms (i.e.,  farms typically under 250 acres) as well as hobby
gardeners and DIY customers.

Quality operates under six store names:  Quality Farm and Country,  Quality Farm
and Fleet, CT Farm and Country, Country General, Fisco Farm and Home, and County
Post.  The Company's  stores average 21,086 square feet of indoor selling space,
ranging from 8,500 to 62,500 square feet. Average sales per store in fiscal 1999
was $3.5 million.  In addition to indoor  selling  space,  the Company looks for
store sites that have 15,000 to 20,000 square feet of available  outdoor selling
space.  The outdoor  selling  space is primarily  used for  displaying  lawn and
garden products,  fencing, tractor accessories,  and livestock watering and feed
equipment.

QSI  prototype  stores are designed to provide  customers  with ease in locating
desired  products  and are clean and  colorful  in order to  provide  an overall
enjoyable shopping environment.  The use of informative directional signing adds
to the ease of the customer's shopping experience.  Plan-o-grams are utilized to
set  merchandise  assortments  in the seven core  product  categories  to ensure
uniformity of presentation,  ease of shopping for the customer and to facilitate
inventory management, replenishment and restocking.

Each store is managed by a store manager who is  responsible  for all aspects of
the store's  operations,  including the hiring and training of store associates,
work  scheduling,  inventory  control,  expense control,  and customer  service.
Typically,  the store  manager is  supported  by an  assistant  manager and core
department heads, along with an average of 18 sales associates. Store operations
are coordinated through district managers, each of whom is currently responsible
for eleven to twenty retail stores.  In addition,  the Company has developed and
implemented  consistent  store  standards,  processes and best practices for the
chain.

The Company has established an internal store  management-training  program that
focuses  training  on  store  operations,   systems,  financial  matters,  human
resources  and  sales.  To  support  the  Company's  planned  expansion  and its
management training programs, the Company has implemented a long-range personnel
plan that provides for internal promotions,  coupled with recruitment of college
graduates and hiring of  individuals  with  previous  retail  experience.  Store
associates receive training that emphasizes customer service, sales, and product
knowledge and store procedures.  All QSI store operations management,  including
district managers,  store managers, and assistant managers are compensated based
on  job  performance  and  participate  in an  incentive  program  based  on the
store/district  exceeding  a  targeted  level  of  profitability.  QSI has  also
established an incentive  program for all store associates that focuses on sales
and profitability.

Other Operations

In addition to QSI's  retail  stores,  the Company  also  distributes  an annual
catalog.  The QSI catalog  offers a broad  assortment of new,  used, and rebuilt
tractor parts and agricultural components, including approximately 25,000 SKU's.
In fiscal 1999,  catalog  sales were $7.5 million.  The catalog was  distributed
nationally  to  approximately  675,000  households  in  rural  and  agricultural
communities  in fiscal  1999.  The  breadth of this  distribution  provides  the
Company with name recognition among  agricultural  consumers in areas outside of
its core geographical  markets. As a result of the catalog's broad distribution,
QSI anticipates that as it expands,  customer familiarity will already have been
established.  The  Company  also sells  tractor  parts and other  items to other
agricultural  retailers and

                                      -7-
<PAGE>
distributors.  In recent  years,  the  Company has been  reducing  the number of
products  offered and the number of customers  served in this manner.  In fiscal
1999, the Company generated sales of $2.5 million from such sales.

Purchasing and Distribution

The  Company  maintains  a  staff  of 15  merchandise  buyers,  each  of whom is
responsible for specific  product  categories,  at its headquarters in Muskegon,
Michigan.  The purchasing and inventory control process is controlled  centrally
by the Company's  point-of-sale ("POS") and automatic replenishment systems. The
Company  purchases its merchandise  from  approximately  2,000 vendors,  none of
which accounted for more than 10% of the Company's purchases during fiscal 1999.
The Company generally  maintains  multiple sources of supply for its products in
order to minimize the risk of supply  disruption  and to maximize its purchasing
power. The Company has no material long-term contractual commitments with any of
its vendors.

The Company  operates two full-line  distribution  facilities:  one in Fostoria,
Ohio, with 583,000 square feet, and one in Des Moines, Iowa, with 135,000 square
feet. In addition, the Company operates ten satellite  distribution  facilities,
ranging in size from 25,000 to 300,000  square feet,  on a hub and spoke network
in various regional geographic regions of the country.

Corporate Offices and Management Information Systems

To facilitate  the Company's  expansion  plan and to maintain  consistent  store
operations, QSI has centralized specific functions of its operations,  including
accounting,  the development of policies and procedures,  store layouts,  visual
merchandise  presentation,  inventory  management,  merchandise  procurement and
allocations,  marketing and advertising,  human resources and real estate.  This
centralization   effectively  utilizes  the  experience  and  resources  of  the
Company's senior management and provides a high level of consistency  throughout
the chain.

The Company has invested  considerable  resources in management  information and
control systems to ensure world-class  customer service and to improve operating
efficiencies. These systems provide support for the purchase and distribution of
merchandise  and help to improve the manner in which QSI stores,  the  corporate
offices, and distribution centers are operated. All QSI stores use the Company's
POS system to  capture  sales  information  at the SKU  level.  Through  the POS
system,  the Company can monitor  customer  purchases and inventory  levels with
respect to every item of merchandise in each store daily.

The Company also has an automated inventory  replenishment system which uses POS
information, and facilitates the timely replenishment of both the stores and the
warehouses.  The sales and inventory  information used in this system is updated
on a daily  basis.  This system also  provides for minimum  stocking  levels for
lower volume items enabling QSI to carry a large number of SKU's at a minimum of
inventory carrying expense.

Competition

The  Company  faces  competition  primarily  from other  chain and  single-store
agricultural  specialty  retailers  and from mass  merchandisers.  Some of these
competitors have  substantially  greater  financial and other resources than the
Company.

Currently,  most of the Company's  stores do not compete directly in the markets
of other agricultural specialty retail chains.  However, the Company's expansion
plans will likely result in some new stores being  located in markets  currently
serviced  by one or more of these  chains;  and there can be no  assurance  that
these chains,  certain of which have announced  expansion plans, will not expand
into the Company's markets.

In  addition,  the  Company  competes  in over  half of its  markets  with  mass
merchandisers.  The  Company  believes  that its  merchandise  mix and  level of
customer service currently successfully differentiate it from mass merchandisers
and that as a result, the Company has to date not been significantly impacted by
competition  from  mass  merchandisers.  However,  in  the  past,  certain  mass
merchandisers  have modified  their  product mix and marketing  strategies in an
effort  apparently  intended to permit them to compete more  effectively  in the
Company's markets; and it is likely that these efforts will continue.

                                      -6-
<PAGE>
Advertising and Promotions

QSI's  advertising  is  focused  on  its  commitment  to  guaranteeing  customer
satisfaction.  QSI's primary  advertising occurs through the weekly distribution
of color circulars, the creation and management of customer loyalty programs and
local TV  advertising.  In connection  with the company's  target  marketing and
customer loyalty programs,  QSI developed the "Thank Q" program to build loyalty
in all of its customer  segments.  The benefits to customers include  guaranteed
lowest  farm  prices  plus a year-end  rebate on  everything  the  customer  has
purchased during the year, a year-end itemized statement of every purchase made,
and  bulk  discounts.  The  program  also  tracks  customer  purchases,  thereby
providing  a  database  of  the  members'   purchasing  patterns  for  marketing
initiatives.

Seasonality

Unlike many specialty retailers, the Company has historically generated positive
operating  income in each of its four  fiscal  quarters.  However,  because  the
Company is an agricultural  specialty retailer,  its sales necessarily fluctuate
with the seasonal needs of the agricultural  community.  The Company responds to
this  seasonality by attempting to manage  inventory  levels (and the associated
working capital requirements) to meet expected demand, and by varying its use of
part-time employees. Historically, the Company's sales and operating income have
been highest in the second quarter (May through July) of each fiscal year due to
the  farming  industry's  planting  season  and the sale of  seasonal  products.
Working  capital needs are highest  during the first quarter  (February  through
April). The Company expects these trends to continue for the foreseeable future.

Employees

As of March 31, 2000, QSI had approximately 9,343 employees (approximately 4,563
in  full-time  and  approximately  4,780 in  part-time  positions).  The Company
believes its relations with its employees are good.

                                      -7-
<PAGE>

ITEM 2.  PROPERTIES

As of March 31,  2000,  the Company had 361 stores in 31 states as  described in
the chart below.
                          # of                                     # of
State                    Stores            State                  Stores
------------------------------------------------------------------------
Alabama                     1              North Dakota               5
California                 11              Nebraska                  46
Colorado                   15              New Jersey                 3
Delaware                    2              New York                  26
Georgia                    10              Ohio                      44
Indiana                    19              Oklahoma                   2
Iowa                       25              Pennsylvania              25
Kansas                      8              South Carolina             6
Kentucky                    9              South Dakota              11
Maryland                    4              Tennessee                  3
Massachusetts               1              Virginia                  13
Michigan                   38              Vermont                    1
Minnesota                  10              West Virginia             10
Missouri                    1              Wisconsin                  3
Montana                     2              Wyoming                    4
North Carolina              3                                     -----
                                           TOTAL:                   361

The  Company  owns 79 of the stores and leases the  remaining  282  stores.  The
Company owns the  distribution  center in Fostoria,  Ohio,  leases the remaining
distribution   facilities   described  in  Item  1,  and  leases  its  corporate
headquarters in Muskegon,  Michigan.  The Company  generally  negotiates  retail
store leases with an initial  term  between  five and seven  years,  with two or
three renewal periods of five years each,  exercisable at the Company's  option.
Through  January,  2000, the Company paid an average of $4.83 per square foot in
retail store occupancy  expenses,  including rent,  taxes,  common area charges,
repairs and maintenance.  Rent expenses generally do not vary based on sales and
generally  increase  10-15% at the beginning of each option  period.  Management
believes that the Company's  properties  are generally in good condition and are
adequate for their intended uses.

ITEM 3. LEGAL PROCEEDINGS

The Company has been notified by the U.S.  Environmental  Protection Agency that
it may have potential liability for cleanup costs associated with the cleanup of
a  dumpsite  near  Owensburg,  Kentucky.  To date,  the only  articles  of waste
identified as possibly  once  belonging to the Company are certain empty battery
acid  containers.  The Company  believes  that any  liability it might have as a
result of this action would be as a de minimis  contributor  and will not have a
material  effect on the Company's  financial  position,  liquidity or results of
operations.

The Company is not a party to any other legal  proceedings,  other than  routine
claims and lawsuits arising in the ordinary course of business. The Company does
not believe that such claims and  lawsuits,  individually  or in the  aggregate,
will have a material adverse effect on the Company's  business.  Compliance with
federal,  state and local laws and  regulations  pertaining  to the discharge of
materials into the environment,  or otherwise  relating to the protection of the
environment, has not had, and is not anticipated to have, a material effect upon
the capital expenditures, earnings or competitive position of the Company.


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

                                      None


                                      -8-
<PAGE>


                                     PART II

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

Quality Stores,  Inc.,  Common Stock is held entirely by Holdings.  See "Item 1.
Business - Acquisition of the Company by J.W. Childs".

In fiscal 1999, the Company paid cash  dividends of $1,542,000 to Holdings.  The
Company has not previously paid any cash dividends on its common stock. Although
the Company may pay limited cash  dividends on its common  stock,  the Company's
ability to pay cash  dividends  is  restricted  by the New Credit  Facility  and
Senior Notes.


                                      -9-
<PAGE>
<TABLE>
<CAPTION>
ITEM 6.  SELECTED FINANCIAL DATA


                                                         Successor                      |                 Predecessor
                                         ---------------------------------------------- |  -----------------------------------------
                                                                              Seven     |
                                           Fiscal Year     Fiscal Year        Months    |   Five Months           Fiscal Year
                                              Ended           Ended           Ended     |     Ended        -------------------------
                                           January 29,      October 31,     November 1, |    March 26,      November 2,  October 28,
                                            2000(5)(7)          1998           1997     |       1997          1996          1995
                                           ---------------------------------------------|-------------------------------------------
<S>                                         <C>           <C>           <C>                <C>            <C>           <C>
                                                                                        |
Net sales (000's)                            $1,092,021    $  587,195    $  305,122     |   $  106,048     $  293,020    $ 251,703
Income (loss) from continuing                     3,163         9,975         1,365     |       (1,247)         8,744        8,185
  Operations (000's)                                                                    |
Ratio (deficiency) of earnings to                                                       |
  fixed charges (1)                                1.2x          1.8x          1.3x     |       (1,881)          5.3x         5.8x
Number of stores at end of period (2)               350           214           227     |          112            111           66
Comparable store sales per square                                                       |
  foot of indoor selling space (3)                  163           180           191(8)  |                         222          224
Comparable store sales increases                                                        |
   (decreases) (4)                                  0.8%          4.6%        (4.7%)(8) |                         1.0%        (1.6%)
Balance sheet data (at end of period):                                                  |
  (000's) (5)                                                                           |
   Working capital                           $  191,904    $  130,484    $   85,639     |                  $   63,803    $  62,496
   Total assets                                 822,463       418,845       434,235     |                     159,238      149,977
   Long-term debt, less current portion (6)     388,554       181,075       153,171     |                      17,341       16,862
   Stockholders' equity                         224,627       129,757       119,547     |                      90,063       81,277
                                                                                        |
                                                                                        |
<CAPTION>
                                                                                        |
                                                   Three Months Ended                   |
                                       ----------------------------------------         |
                                                               January 31, 1998         |
                                         January 30, 1999         (Unaudited)           |
                                       ----------------------------------------         |
<S>                                         <C>                     <C>
Net sales (000's)                            $146,147                $144,393           |
Income (loss) from continuing                  $1,485                    $590           |
  Operations (000's)                                                                    |
Ratio (deficiency) of earnings to                                                       |
  fixed charges (1)                              1.5x                    1.2x           |
Number of stores at end of period                 224                     227           |
Comparable store sales per square foot                                                  |
  of indoor selling space (3)                                                           |
Comparable store sales increases                                                        |
  (decreases) (4)                                6.1%                    2.3%           |
Balance sheet data (at end of period)                                                   |
  (000's):                                                                              |
  Working capital                            $136,310                 $85,501           |
  Total assets                               $439,606                $425,210           |
  Long-term debt, less current portion       $190,843                $150,500           |
  Stockholders' equity                       $131,242                $120,137           |

<FN>
(1)  For purposes of computing  this ratio,  earnings  consist of income  before  income taxes plus fixed  charges.  Fixed charges
     consist of interest  expense,  amortization of deferred  financing costs and 20.0% of the rent expense from operating leases,
     which the Company  believes is a reasonable  approximation  of the interest  factor  included in the rent. For the five-month
     period ended March 26, 1997 earnings were insufficient to cover fixed charges by $1,881.

(2)  Net of 5 store closings in fiscal 1997, 14 store closings in fiscal 1998 , and 10 store closings in fiscal 1999.

(3)  Comparable  sales per square foot of indoor  selling  space and  calculated by dividing  store sales by total indoor  selling
     square footage for stores open and operated by QSI at least twelve months in each fiscal year.

(4)  Percentage  change in store sales as compared to sales for the same stores for the prior year for stores open and operated by
     QSI for at least twelve months in each year. The 1.0% increase in comparable store sales in 1996 has been adjusted to reflect
     a comparable  52-week year.  Comparable store sales grew 2.9% without such adjustment.  The 4.7% decrease in comparable store
     sales in 1997 has been  adjusted to reflect that fiscal year 1996 was a 53 week year.  Comparable  store sales  declined 6.5%
     without such adjustment.

                                                               -10-
<PAGE>
(5)  During the fiscal year ended January 29, 2000, the Company acquired Quality in a transaction in which Quality was merged with
     and into the Company.

(6)  Excluding, in fiscal 1995, long-term debt from discontinued operations.

(7)  During fiscal 1999, the Company changed its fiscal year end from the Saturday  nearest to October 31 to the Saturday  nearest
     to January 31.

(8)  Calculations are for the fiscal year ended November 1, 1997.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The  following  discussion  and analysis of financial  condition  and results of
operations  should  be  read  in  conjunction  with  the  selected  consolidated
financial  data and the  consolidated  financial  statements  of the Company and
related notes thereto.

Results of Operations

The following table sets forth, for the periods indicated,  certain items in the
Company's  Statements  of Income  expressed  as a percentage  of net sales.  All
amounts and percentages for the fiscal year ended November 1, 1997,  include the
activity  for the periods of the seven months  ended  November 1, 1997,  and the
five months ended March 26, 1997, on a combined basis.
<TABLE>
<CAPTION>
                                                     -----------------------------------------------
                                                                    Fiscal Year Ended
                                                     -----------------------------------------------
                                                       January 29,     October 31,      November 1,
                                                          2000             1998            1997
                                                     -----------------------------------------------
<S>                                                      <C>              <C>              <C>
Net sales                                                 100.0%           100.0%           100.0%
Cost of sales                                              70.9%            69.9%            70.9%
                                                     -----------------------------------------------
Gross profit                                               29.1%            30.1%            29.1%
Selling, general, and administrative expense               23.0%            22.9%            24.6%
Merger integration expenses                                 1.5%             0.0%             0.0%
Amortization of intangibles                                 0.6%             0.6%             0.6%
                                                     -----------------------------------------------
Operating income                                            4.0%             6.6%             3.9%
Interest expense                                            3.2%             3.5%             3.5%
                                                     -----------------------------------------------
Income before income taxes                                  0.9%             3.1%             0.4%
Income taxes                                                0.6%             1.4%             0.4%
                                                     -----------------------------------------------
Net income                                                  0.3%             1.7%             0.0%
                                                     ===============================================
</TABLE>
Fiscal 1999 Compared to Fiscal 1998

Net sales for the fiscal year ended January 29, 2000,(2) were $1,092.0  million,
an increase of $504.8 million, or 86.0%, as compared to net sales for the fiscal
year ended October 31, 1998, of $587.2 million. The increase was due principally
to the  acquisition of 122 stores,  primarily  through the Quality  merger.  Net
sales include $445.5 million of Quality sales since the date of acquisition.  In
addition,  the Company opened 24 new stores  subsequent to October 31, 1998, and
had an increase in comparable store sales of $4.4 million, or 0.8%.

Gross profit for fiscal 1999 was $317.6 million,  an increase of $140.6 million,
or 79.4%, as compared to $177.0 million for fiscal 1998, principally as a result
of the increase in net sales. Gross profit as a percentage of sales decreased to
29.1% for fiscal  1999,  as compared to 30.1% for fiscal  1998.  The decrease in
gross profit percentage was primarily the result of the Quality merger.  Quality
historically had a lower gross profit percentage than CT.

Selling,  general,  and  administrative  expenses  for fiscal  1999 were  $251.4
million, an increase of $116.8 million, or 86.7% over fiscal 1998. This increase
was due  primarily  to costs  related to the  acquisition  and  operation of the

------
(2) Effective for the year ended January 29, 2000, the Company's fiscal year end
was changed from the Saturday  closest to October 31 to the Saturday  closest to
January 31.

                                      -11-
<PAGE>
Quality stores and costs related to new store openings.  Selling,  general,  and
administrative  expenses as a percentage  of sales  increased to 23.0% in fiscal
1999  as  compared  to  22.9%  in  fiscal  1998.   This  increase  is  primarily
attributable to costs related to new store openings in fiscal 1999.

Merger  integration  expenses for fiscal 1999 were $15.8 million (none in fiscal
1998).  The merger  integration  expenses are  attributable  to costs related to
closing  the QSI  corporate  headquarters  in Des  Moines,  Iowa,  and  expenses
incurred  to  integrate  the CT and  Quality  operations.  These  costs  include
severance  and  retention  costs for  employees,  costs  associated  with leased
facilities to be closed, and costs to facilitate the integration process.

Amortization of intangibles was $6.3 million for fiscal 1999 and $3.6 million in
fiscal 1998.  The increase is due to  amortization  of the  additional  goodwill
acquired in the Quality merger.

Operating income for fiscal 1999 was $44.0 million, an increase of $5.2 million,
or 13.4%, as compared to fiscal 1998.  Operating income as a percentage of sales
decreased to 4.0% in fiscal 1999 from 6.6% in fiscal 1998. The decrease resulted
from the factors  affecting  net sales,  gross  profit,  selling,  general,  and
administration  expenses,  merger and integration expenses,  and amortization of
intangibles discussed above.

Interest  expense  for  fiscal  1999 was $34.6  million,  an  increase  of $14.1
million,  as  compared to $20.5  million  for fiscal  1998.  This  increase  was
primarily due to the interest  expense on the  additional  debt incurred to fund
the Quality merger.

Income tax expense for fiscal 1999 was $6.2 million, a decrease of $2.2 million,
or  25.8% as  compared  to $8.4  million  for  fiscal  1998.  Income  taxes as a
percentage of pretax  earnings were 66.3% in fiscal 1999 as compared to 45.7% in
fiscal 1998. The increase is due primarily to amortization  of goodwill  related
to the Quality merger, which is not deductible for income tax purposes.

Three-Month Period Ended January 30, 1999, Compared to the Unaudited Results for
the Quarter Ended January 31, 1998

Net sales for the  three-month  period  ended  January  30,  1999,  were  $146.1
million,  an increase of $1.7 million, or 1.2%, as compared to net sales for the
quarter  ended  January 31,  1998,  of $144.4  million.  This  increase  was due
principally to a comparable store sales increase of 6.1% and to sales derived in
1999 from new stores  opened in fiscal  1999 to date,  partially  offset by $8.1
million of sales derived in 1998 from stores closed in fiscal 1998.

Gross  profit for the  three-month  period  ended  January 30,  1999,  was $42.6
million,  an increase of $1.0 million or 2.4%,  as compared to $41.6 million for
the quarter  ended  January 31,  1998,  as a result of the increase in net sales
discussed  above and an increase in gross profit  percentage.  Gross profit as a
percentage  of net sales  increased  to 29.2% for the  three-month  period ended
January 30, 1999,  as compared to 28.8% for the quarter  ended January 31, 1998.
The  increase  in the gross  profit  percentage  is  attributable  to the fuller
realization of the increased  purchasing power of the company resulting from the
acquisition of Country General during fiscal 1997.

Selling,  general,  and administrative (SGA) expenses for the three-month period
ended January 30, 1999, were $33.7 million, a decrease of $0.4 million, or 1.2%,
as compared to the quarter ended January 31, 1998.  SGA expenses as a percentage
of net sales  improved to 23.1% for the  three-month  period  ended  January 30,
1999, as compared to 23.6% for the quarter ended January 31, 1998. This decrease
is attributable to completion of the integration of the Country General stores.

Amortization of intangibles remained relatively constant at $1.0 million for the
three-month  period ended  January 30, 1999, as compared to $0.9 million for the
quarter ended January 31, 1998.

Operating  income for the  three-month  period ended January 30, 1999,  was $7.9
million,  an increase of $1.2 million, or 17.9%, as compared to $6.7 million for
the quarter  ended  January 31, 1998.  Operating  income as a percentage  of net
sales increased to 5.4% for the three-month  period ended January 30, 1999, from
4.6% for the quarter ended January 31, 1998.  The increase was the result of the
factors affecting net sales, gross profit, and SGA expenses discussed above.

                                      -12-
<PAGE>
Interest  expense was $5.0 million for the three-month  period ended January 30,
1999, as compared to $5.3 million for the quarter  ended  January 31, 1998.  The
decrease in interest expense is attributable to a lower average debt balance and
a decrease in interest rates on the Company's variable rate borrowings.

Income  taxes for the  three-month  period  ended  January 30,  1999,  were $1.5
million,  an increase of $0.7 million as compared to the quarter  ended  January
31,  1998.  Income tax as a  percentage  of pretax  earnings  was 49.7% in 1999,
compared to 57.1% in 1998.  This  decrease is due primarily to  amortization  of
goodwill  related to the  acquisition  of the  Company  by Childs,  which is not
deductible  for income tax purposes,  being spread over a larger  pre-tax income
base.

Net income for the three-month  period ended January 30, 1999, was $1.5 million,
as compared to $0.6 million for the quarter  ended January 31, 1998, as a result
of the factors discussed above.

Fiscal 1998 Compared to Fiscal 1997

Net sales for the fiscal year ended  October 31,  1998 were $587.2  million,  an
increase of $176.0  million,  or 42.8%,  as compared to net sales for the fiscal
year ended November 1, 1997 of $411.2 million.  The increase was due principally
to the fact that the Country  General  stores had a full year of sales in fiscal
1998 compared to four months in fiscal 1997. Net sales  includes  $257.3 million
and $99.4  million  of Country  General  sales in fiscal  1998 and fiscal  1997,
respectively. In addition, the Company had an increase in comparable store sales
of $13.2  million  or 4.6% and had a full  year of  operations  for the 4 stores
acquired from Walsh and the 3 stores opened in 1997.  The increase in comparable
store sales was due  primarily  to the fact that fiscal year 1998 had warm early
spring weather conditions while fiscal year 1997 had a mild winter followed by a
cool spring and dry summer in the Northeast where most of the comparable  stores
are located.

Gross profit for fiscal 1998 was $177.0  million,  an increase of $57.5 million,
or 48.1%, as compared to $119.5 million for fiscal 1997, principally as a result
of the increase in net sales. Gross profit as a percentage of sales increased to
30.1% for fiscal  1998,  as compared to 29.1% for fiscal  1997.  The increase in
gross profit  percentage is a result of the increased  purchasing power obtained
as a result of the Country General Acquisition.

Selling,  general,  and  administrative  expenses  for fiscal  1998 were  $134.6
million, an increase of $33.4 million, or 33.0%, over fiscal 1997. This increase
was due  primarily  to costs  related to the  operation  of the Country  General
stores  and new  stores  opened in fiscal  1997 for a full year in fiscal  1998.
Selling, general, and administrative expenses as a percentage of sales decreased
to 22.9% in fiscal 1998 as compared to 24.6% in fiscal  1997.  This  decrease is
attributable  to completion of the integration of the Country General stores and
increased sales volume.

Amortization of intangibles was $3.6 million for fiscal 1998 and $2.2 million in
fiscal  1997.  The  increase  is due  to a  full  year  of  amortization  of the
additional  goodwill  incurred  in  the  Acquisition  and  the  Country  General
Acquisition.

Operating  income for fiscal  1998,  was $38.8  million,  an  increase  of $22.6
million, or 139.9%, as compared to fiscal 1997. Operating income as a percentage
of sales increased to 6.6% in fiscal 1998 from 3.9% in fiscal 1997. The increase
resulted from the factors affecting net sales,  gross profit,  selling,  general
and administrative expenses and amortization of intangibles discussed above.

Interest expense for fiscal 1998 was $20.5 million, an increase of $5.8 million,
as compared to $14.7 million for fiscal 1997. This increase was primarily due to
a full year of  interest  expense on the  additional  debt  incurred to fund the
Acquisition and the Country General Acquisition.

Income tax  expense  for fiscal  1998,  was $8.4  million,  an  increase of $7.0
million,  or 490.3% as compared to $1.4 million for fiscal 1997. Income taxes as
a percentage  of pretax  earnings were 45.7% in fiscal 1998 as compared to 92.3%
in fiscal  1997.  The  decrease is due  primarily  to  amortization  of goodwill
related to the  Acquisition,  which is not  deductible  for income tax purposes,
being spread over a larger income base in fiscal 1998.

                                      -13-
<PAGE>
Liquidity and Capital Resources

In addition to cash to fund operations,  QSI's primary ongoing cash requirements
are  those  necessary  for the  Company's  expansion  and  relocation  programs,
including  inventory  purchases and capital  expenditures and debt service.  The
Company's primary sources of liquidity have been funds provided from operations,
borrowings  pursuant to the  Company's  revolving  and term  credit  facilities,
short-term trade credit, and additional equity investments.

On January 29,  2000,  the Company had  working  capital of $191.9  million,  an
increase of $61.4 million,  as compared to working  capital of $130.5 million on
October 31, 1998.  This increase  resulted  primarily  from the working  capital
acquired as a result of the Quality  merger.  On January 29, 2000, the Company's
inventories were $365.4 million,  an increase of $148.3 million,  as compared to
$217.1 million at October 31, 1998. On January 29, 2000, the Company's  accounts
payable were $124.0 million,  an increase of $45.7 million, as compared to $78.3
million at October  31,  1998.  The  increase  in the  Company's  inventory  and
accounts payable is attributable to the Quality merger.

Operating  activities of the Company  utilized  $19.0 million and provided $37.2
million of net cash in fiscal 1999 and 1998, respectively, and used $0.5 million
of net cash in fiscal 1997.  The decrease in net cash  generated in fiscal 1999,
as  compared  to fiscal  1998,  resulted  primarily  from a decrease in accounts
payable.  The  increase in net cash  generated  in fiscal  1998,  as compared to
fiscal  1997,  resulted  primarily  from an  increase  in net  income,  a larger
increase in accounts payable,  and a net decrease in inventory compared to a net
increase in 1997.

The  Company's  capital  expenditures  were $35.7  million and $4.8  million for
fiscal 1999 and 1998,  respectively.  The majority of capital  expenditures were
for store fixtures,  equipment and leasehold  improvements  for new and existing
stores.  The Company  presently  expects its capital  expenditures for new store
openings  and  for  renewal  and  replacement   costs  at  existing  stores  and
distribution centers in fiscal 2000 to be approximately $43.0 million.

During  fiscal 1997,  the Company was  acquired by an  affiliate of J.W.  Childs
Equity  Partners,  L.P.  and  thereafter  became a wholly  owned  subsidiary  of
Holdings.  See "--Item 1. Business - Acquisition of the Company by J.W.  Childs"
and  Notes  to  Consolidated  Financial  Statements.   In  connection  with  the
Acquisition,  on March 27, 1997,  the Company  consummated a public  offering of
$105.0 million  aggregate  principal amount of 10-5/8% Senior Notes (the "Senior
Notes"). The net proceeds of the offering were used to repay borrowings of $35.9
million under the Margin Loan Facility,  pay the Merger  Consideration  of $51.8
million,  pay fees and  expenses  of the  Acquisition,  and  reduce  outstanding
short-term  borrowings.  The Senior Notes mature on April 1, 2007, with interest
payable  semiannually  in arrears on April 1 and October 1. The Senior Notes may
be redeemed  beginning  April 1, 2002,  at a price of 105.3125% of the principal
amount decreasing  approximately  1.77% annually thereafter until April 1, 2005,
at which time they are  redeemable at face value.  Furthermore,  notwithstanding
the  foregoing,  the  Company  may  redeem up to 35% of the  original  aggregate
principal  amount of the Senior Notes at a price of 110% of the principal amount
with the net cash proceeds of a public equity offering within 60 days of closing
such offering.

In  addition,  effective  June  26,  1997,  the  Company  acquired  all  of  the
outstanding capital stock of Country General.  The acquisition was accounted for
as a purchase,  and the Company  elected to treat the  purchase as a purchase of
all of the assets of Country General for Federal income tax purposes.  See "Item
1. Business - Acquisitions" and Notes to the Consolidated  Financial Statements.
The Company  funded the  acquisition  price in part from a $49.75  million  cash
equity  contribution  from Holdings and the remainder from funds drawn under the
amended and restated Credit Facility described below.

At January 29,  2000,  the Company had a bank credit  facility  that allowed for
borrowings up to $320.0  million,  consisting  of $220.0  million under two term
loan facilities  (Tranche A and B) of which $216.9 million was outstanding and a
$100.0  million   revolving  credit  facility  under  which  $87.5  million  was
outstanding.  On March 31,  2000,  this credit  facility was amended to increase
total available borrowings to $374.6 million, including $214.6 million under the
term loan facilities and $160.0 million of revolving credit debt  (collectively,
the "Amended Credit Facility").

The Tranche A term loan ($95.6  million)  under the Amended  Credit  Facility is
payable in  quarterly  installments  of $5.0 million  through  October 31, 2004,
while  the  Tranche  B  term  loan  ($119.0  million)  has  quarterly  principal
installments  of $0.4  million  through  January 31, 2004 that  increase to $9.6
million  through  January 31, 2005, and then to $15.1 million  through April 30,
2006. The revolving  credit debt is due in full on October 30, 2006. The Company
is also required to make mandatory prepayments on the term loan facilities based
on the Company's excess cash flow, as defined.

                                      -14-
<PAGE>

Borrowings  under the Amended  Credit  Facility are secured by all assets of the
Company and bear interest at the prime or  eurodollar  rates plus a margin (8.6%
to 10% at January 29, 2000). The revolving credit debt is also subject to a 0.5%
commitment fee on its unused portion.

The Company's long-term borrowing agreements contain covenants which require the
Company to maintain  certain  financial  ratios and also restricts,  among other
things,  the  payment of  dividends,  incurrence  of  additional  debt,  capital
expenditures, mergers and acquisitions, and the disposition of assets.

Commercial  and  standby  letters of credit  outstanding  at January  29,  2000,
January 30, 1999 and October 31, 1998, totaled $9.9 million,  $6.3 million,  and
$6.7 million, respectively.

In May and June of 1999, the Company entered into interest rate cap transactions
(the "Cap Transactions") with a bank to reduce the impact of changes in interest
rates on its  floating  term loan  debt.  The Cap  Transactions  had an  initial
notional amount totaling $105.0 million.  The Cap  Transactions cap the interest
rate on $105.0  million of the Credit  Facility at a  three-month  Libor rate of
7.0%, plus the applicable  margin.  The Company is exposed to interest rate risk
in the event of  nonperformance  by the counter  party to the Cap  Transactions.
However, the Company does not anticipate nonperformance by the bank.

The  Company  anticipates  that its  principal  uses of cash in the  foreseeable
future will be working  capital  requirements,  debt  service  requirements  and
capital expenditures,  as well as expenditures  relating to acquisitions.  Based
upon current and anticipated levels of operations, the Company believes that its
cash flow from  operations,  together  with amounts  available  under the Credit
Facility,  will  be  adequate  to  meet  its  anticipated  requirements  in  the
foreseeable  future for  working  capital,  capital  expenditures  and  interest
payments.  The  Company  expects  that  if  it  were  to  pursue  a  significant
acquisition,  it would arrange prior to the  acquisition  any additional debt or
equity financing required to fund the acquisition.

There can be no assurance, however, that the Company's business will continue to
generate sufficient cash flow from operations in the future to service its debt,
and the Company may be required to  refinance  all or a portion of its  existing
debt or to obtain additional financing or to reduce its capital spending.  There
can be no  assurance  that any such  refinancing  would be  possible or that any
additional  financing  could be obtained.  The  inability  to obtain  additional
financing could have a material adverse effect on the Company.

Seasonality

Unlike many specialty retailers, the Company has historically generated positive
operating  income in each of its four  fiscal  quarters.  However,  because  the
Company is an agricultural  specialty retailer,  its sales necessarily fluctuate
with the seasonal needs of the agricultural  community.  The Company responds to
this  seasonality by attempting to manage  inventory  levels (and the associated
working capital requirements) to meet expected demand, and by varying its use of
part-time employees. Historically, the Company's sales and operating income have
been highest in the second quarter (May through July) of each fiscal year due to
the  farming  industry's  planting  season  and the sale of  seasonal  products.
Working  capital needs are highest  during the first quarter  (February  through
April). The Company expects these trends to continue for the foreseeable future.

Inflation

Management  does not believe its  operations  have been  materially  affected by
inflation.

Year 2000

In prior  years,  he Company  discussed  the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company  completed its remediation and
testing of systems.  As a result of those planning and  implementation  efforts,
the  Company   experienced  no  significant   disruptions  in   mission-critical
information technology and non-information technology systems and believes those
systems successfully  responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues,  either with its
products,  its internal systems,  or the products and services of third parties.
The Company will continue to monitor its mission-critical  computer applications
and those of its suppliers and vendors throughout the fiscal 2000 to ensure that
any latent Year 2000 matters that may arise are  addressed  promptly.  Year 2000
remediation costs were not significant.

                                      -15-
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

The market risk inherent in the Company's financial  instruments subject to such
risks,  is the  potential  market value loss  arising  from  adverse  changes in
interest rates. The Company's  financial  instruments subject to market risk are
held for purposes other than trading.

Interest Rate Cap Agreements

The Company uses  interest rate cap  agreements  to reduce  exposure to interest
rate  fluctuations  on its term debt.  At January  29,  2000,  the  Company  had
interest  rate cap  agreements  that  provided  for an interest  rate cap of 7.0
percent,  based on the  three-month  LIBOR  rate,  which was 5.97 at January 29,
2000, plus the applicable margin. These agreements cover $105.0 million notional
amount  of  debt.  At  January  29,  2000,  $216.9  million  of  term  debt  was
outstanding.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Included at pages F-1 through F-28.

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

None.

                                      -16-
<PAGE>
                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  following  table  sets  forth the  name,  age and  position  of each of the
Company's directors, executive officers, and other significant employees. All of
the Company's  officers are elected  annually and serve at the discretion of the
Board of Directors.

Name                    Age    Position(s)
----------------------------------------------------------------------------
James T. McKitrick       54    President, Chief Executive Officer, Director
Alan L. Fansler          49    Executive Vice-President, Chief Operating
                               Officer, Director
John W. Childs           58    Director
Steven G. Segal          39    Vice-President, Director
Adam L. Suttin           32    Vice-President, Director
David C. Bliss           62    Chairman of the Board, Director
Jerry D. Horn            62    Director
Jeffrey B. Swartz        38    Director
William E. Watts         45    Director
Habib Y. Gorgi           43    Director
Peter Lamm               48    Director
Richard C. Dresdale      44    Director
John L. Hilt             54    Director
G. Dean Longnecker       51    Executive Vice-President, Integration, Director
Denny L. Starr           46    Senior Vice-President of Finance, CFO, Secretary
Jeffery A. Stanton       49    Senior Vice-President, Merchandising & Marketing

James T. McKitrick, President and Chief Executive Officer, joined the Company in
July 1992. He has over 30 years  experience in retailing,  including 20 years at
Kmart  Corporation.  Prior to joining QSI, Mr. McKitrick was President and Chief
Executive Officer of Builder's  Emporium,  a  California-based  home improvement
center chain.  Previously,  he was with Ames Department Stores from 1987 through
1990, where he held the positions of Executive Vice President, Chairman of Zayre
Discount  Store  Division,  and  President and Chief  Executive  Officer of G.C.
Murphy  Division,  a $900 million variety store chain. Mr. McKitrick also served
as President  and Chief  Executive  Officer of Warehouse  Club,  Inc.  from 1986
through 1987 and Executive Vice President of  Merchandising  for T.G.&Y.  Stores
Company from 1984 through 1986.  From 1963 through 1984, Mr.  McKitrick was with
the Kmart Corporation.

Alan L. Fansler,  Executive  Vice-President and Chief Operating Officer,  joined
the Company in May,  1999.  Prior to May,  1999,  Mr.  Fansler  was  employed by
Quality  for 27  years,  where he held  several  management  positions  in Store
Operations,  Marketing,  and Human Resources,  including Vice-President of Human
Resources,   Vice-President  of  Store  Operations,   Senior  Vice-President  of
Operations,  and President and Chief Executive Officer. Mr. Fansler received his
B.S. degree from Purdue University in 1972.

John W. Childs has been President of J.W. Childs  Associates  since July,  1995.
Prior to that time, he was an executive at Thomas H. Lee Company from May, 1987,
most recently holding the position of Senior Managing Director. He is a director
of  Big  V  Supermarkets,   Inc.,  Edison  Schools,  Inc.,  Chevys,  Inc.,  DESA
International,  Inc., Pan Am  International  Flight  Academy,  Inc., and Beltone
Electronics, Inc.

Steven G. Segal is Senior Managing  Director of J.W.  Childs  Associates and has
been an executive of J.W.  Childs  Associates  since July,  1995.  Prior to that
time,  he was an  executive at Thomas H. Lee Company  from  August,  1987,  most
recently  holding  the  position  of  Managing  Director.  He is a  director  of
Universal  Hospital  Services,  Inc.,  National  Nephrology  Associates,   Inc.,
International  DiverseFoods,  Inc.,  Big V  Supermarkets,  Inc.,  and  Jillian's
Entertainment  Holdings,  Inc.  and is  Chairman  of the Board of Empire  Kosher
Poultry, Inc.

                                      -17-
<PAGE>

Adam L. Suttin is a Managing  Director of J.W. Childs Associates and has been an
executive of J.W. Childs  Associates since July 1995. Prior to that time, he was
an executive at Thomas H. Lee Company from August 1989,  most  recently  holding
the position of Associate.  He is a director of American  Safety Razor  Company,
Empire Kosher Poultry, Inc. and DESA International, Inc.

David C. Bliss, Chairman of the Board, joined the Company in May, 1999. Prior to
May,  1999, Mr. Bliss was employed by Quality and served as  Vice-President  and
Secretary/Treasurer  in 1976 and was  appointed  to the  Board of  Directors  of
Quality at that time. He was promoted to President in 1986,  to Chief  Executive
Officer  in 1992,  and to  Chairman  of the Board in 1995.  Mr.  Bliss is a 1960
graduate of Western Michigan University.

Jerry D.  Horn was CEO from  1985 to 1991,  then  Chairman  from 1991 to 1999 of
General  Nutrition  Companies,  Inc.,  a  4,500-store  vitamin  and  nutritional
supplement retail chain operating under the GNC name. Mr. Horn was President and
CEO of Recreational  Equipment,  Inc., from 1979 to 1984 and has been a Managing
Director of J. W. Childs Associates since July, 1995.

Jeffrey  B.  Swartz  has been  Chief  Executive  Officer  of  Timberland  Co., a
manufacturer and marketer of branded  footwear and apparel,  since 1998, and has
worked for that company in various positions since June, 1986.

William E. Watts has been President,  Chief Executive Officer, and a Director of
General Nutrition Companies,  Inc., since October, 1991 and, prior to that, held
various positions with its predecessor since 1984.

Habib Y. Gorgi is  President of the general  partners of Fleet  Equity  Partners
VII, L.P., and the general partner of Silverado III, L.P.,  which is the general
partner of Chisholm  Partners,  and has worked at Fleet  Equity  Partners  since
1986. He is a director of Skyline  Chili,  Roadrunner  Freight  Systems,  Savage
Sports Corporation,  Simonds Industries, and FTD Corporation. Mr. Gorgi received
a bachelor's  degree from Brown  University and a master's  degree from Columbia
University.

Peter Lamm is Chairman and Chief Executive Officer of Fenway Partners, Inc., and
was a founding  partner.  Fenway is a New  York-based  private  equity  firm for
institutional   investors  with  the  primary  objective  of  acquiring  leading
middle-market  companies.  Prior to founding  Fenway,  Mr.  Lamm was  previously
Managing  Director of Butler Capital  Corporation and General Partner of each of
the BCC funds.  Mr. Lamm serves as a director of a number of Fenway's  portfolio
companies,  including Aurora Foods,  Inc.,  Simmons Company,  Delimex  Holdings,
Inc., Blue Capital Management, LLC, and Iron Age Corporation.

Richard C. Dresdale is President of Fenway  Partners,  Inc.,  and was a founding
partner.  Prior to  founding  Fenway,  Mr.  Dresdale  was  employed  by Clayton,
Dubilier and Rice,  Inc.,  most recently as Principal.  Mr. Dresdale serves as a
director of a number of Fenway's  portfolio  companies,  including Aurora Foods,
Inc., Simmons Company, Delimex Holdings, Inc., and Blue Capital Management, LLC.

John L. Hilt is  retired  from  Quality.  Prior to his  retirement,  he held the
position of Chairman Emeritus of the Board of Directors.  John joined Quality in
1967 and held several positions during his full-time career with the Company. He
became  President in 1974,  was  promoted to Chairman of the Board in 1986,  and
became  Chairman  Emeritus in December of 1995.  Mr. Hilt is a 1967  graduate of
Purdue University.

G. Dean Longnecker,  Executive Vice-President of Integration, joined QSI in 1980
as  Controller.  Mr.  Longnecker  was  promoted to Executive  Vice-President  of
Finance in 1985, Executive Vice-President,  Chief Operating Officer in 1997, and
Executive  Vice-President of Integration in 1999. Mr. Longnecker was employed at
Payless Cashways from 1973 until 1980, most recently as Treasurer. He received a
B.S. from Iowa State University in 1970 and C.P.A. in 1972.

Denny L. Starr,  Senior  Vice-President of Finance and Chief Financial  Officer,
joined the Company in  October,  1989 as  Assistant  Controller.  Mr.  Starr was
promoted to  Vice-President  and Controller in 1993,  Senior  Vice-President  of
Finance  in 1996,  and Senior  Vice-President  of  Finance  and Chief  Financial
Officer in 1998. In 1999,  Mr. Starr  terminated  his  employment  and became an
independent  consultant to the Company.  Effective  February 1, 2000,  Mr. Starr
rejoined  the Company and was  reelected  Senior Vice  President  of Finance and
Chief Executive  Officer.  He previously  served as Assistant  Controller of The
Witten Group, a holding company with operations in  manufacturing,  real estate,
and finance,  from 1986 through 1989.  He was an Audit Manager with  McGladrey &
Pullen from 1982 until 1986.  Mr. Starr received his B.A. from the University of
Iowa in 1982 and C.P.A. in 1982.

                                      -18-
<PAGE>

Jeffery A. Stanton, Senior Vice-President, Merchandising & Marketing, joined the
Company in June, 1992.  Previously,  he was employed by R.R. Donnelly & Sons and
Meredith/Burda Corporation from 1985 through 1992, as well as Reichardt's, Inc.,
a specialty  retailer,  from 1972 through 1985.  Mr.  Stanton  received a B.B.A.
degree from the University of Iowa in 1972.


                                      -19-
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth compensation  earned for all services rendered to
the Company during fiscal 1999, fiscal 1998, and fiscal 1997, as applicable,  by
the Company's Chief Executive Officer and four other executive officers who were
employed  by the Company as such during  fiscal 1999  (collectively,  the "Named
Executives").
<TABLE>
<CAPTION>

                                                                                   Annual Compensation
                                                                 ---------------------------------------------------------
                                                                                                           All Other
                                                                  Fiscal    Salary (1)      Bonus       Compensation (2)
Name and Principal Position                                        Year        ($)           ($)              ($)
--------------------------------------------------------------------------------------------------------------------------

<S>                                                               <C>        <C>           <C>              <C>
James T. McKitrick                                                 1999       535,000       286,318          6,742
President, Chief Executive Officer, Director                       1998       435,000       224,743          5,000
                                                                   1997       399,423            --          9,586

Alan L. Fansler (3)                                                1999       198,654       147,173          4,520
Executive Vice-President, Chief Operating Officer, Director


G. Dean Longnecker                                                 1999       273,000       146,103          1,890
Executive Vice-President, Integration, Director                    1998       265,000       136,912          4,587
                                                                   1997       254,327            --          2,043

James F. Hurley (3)                                                1999       146,038        75,995          4,446
Senior Vice-President, Finance, Chief Financial Officer

Jeffery A. Stanton                                                 1999       200,000        85,835          3,002
Senior Vice-President, Merchandising & Marketing                   1998       145,385        61,998          5,000
                                                                   1997       108,692        20,300          9,465

-------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Includes compensation deferred at the Named Executive's election under the Company's 401(k) Plan.

(2)  Represents amounts contributed by the Company during each fiscal year, as applicable, to the Named Executive's 401(k) Plan.

(3)  Mr. Fansler, and Mr. Hurley joined the Company as of May 7, 1999, in connection with the merger of CT and Quality. Mr. Hurley's
     employment with the Company terminated on January 31, 2000.
</FN>
</TABLE>

Employment Arrangements with Executive Officers

Mr.  McKitrick's  Employment  Agreement  provides  for a base salary of $535,000
subject to the annual  increases as determined by the Board of Directors  (which
increases  must at least equal  increases  in the  consumer  price  index).  Mr.
McKitrick is eligible for a cash bonus if the Company achieves certain operation
cash flow targets,  which  bonuses are not subject to any ceilings  contained in
the Employment  Agreement.  Mr. McKitrick's  Employment Agreement provides for a
severance  payment  equal to his base salary for 18 months if his  employment is
terminated (other than in the case of death, disability,  or for cause) or if he
is not  reelected  as President  and Chief  Executive  Officer or Chairman,  not
subject,  however,  to reduction  for any  compensation  earned from during such
18-month period from other businesses.

Mr.  Fansler's  Employment  Agreement  provides  for a base  salary of  $275,000
subject to the annual  increases as determined by the Board of Directors  (which
increases  must at least equal  increases  in the  consumer  price  index).  Mr.
Fansler is eligible for a cash bonus if the Company achieves  certain  operation
cash flow targets,  which  bonuses are not subject to any ceilings  contained in
the Employment  Agreement.  Mr. Fansler's  Employment  Agreement

                                      -20-
<PAGE>

provides for a severance  payment  equal to his base salary for 12 months if his
employment is terminated  (other than in the case of death,  disability,  or for
cause) or if he is not reelected as Executive Vice-President and Chief Operating
Officer.

Mr.  Longnecker's  Employment  Agreement  provides for a base salary of $273,000
subject to the annual  increases as determined by the Board of Directors  (which
increases  must at least equal  increases  in the  consumer  price  index).  Mr.
Longnecker  is  eligible  for a cash  bonus  if  the  Company  achieves  certain
operation  cash flow  targets,  which  bonuses are not  subject to any  ceilings
contained in the Employment  Agreement.  Mr. Longnecker's  Employment  Agreement
provides for a severance  payment  equal to his base salary for 12 months if his
employment is terminated  (other than in the case of death,  disability,  or for
cause).

Mr. Hurley's Employment Agreement provided for a base salary of $200,000 subject
to the annual increases as determined by the Board of Directors (which increases
must at least equal  increases  in the consumer  price  index).  Mr.  Hurley was
eligible for a cash bonus if the Company  achieves  certain  operation cash flow
targets,  which  bonuses  are  not  subject  to any  ceilings  contained  in the
Employment Agreement. Mr. Hurley's Employment Agreement provided for a severance
payment equal to his base salary for 12 months if his  employment was terminated
(other  than in the case of death,  disability,  or for  cause) or if he was not
reelected as Senior Vice-President of Finance, Chief Financial Officer.

Mr.  Stanton's  Employment  Agreement  provides  for a base  salary of  $200,000
subject to the annual  increases as determined by the Board of Directors  (which
increases  must at least equal  increases  in the  consumer  price  index).  Mr.
Stanton is eligible for a cash bonus if the Company achieves  certain  operation
cash flow targets,  which  bonuses are not subject to any ceilings  contained in
the Employment  Agreement.  Mr. Stanton's  Employment  Agreement  provides for a
severance  payment  equal to his base salary for 12 months if his  employment is
terminated (other than in the case of death, disability,  or for cause) or if he
is not reelected as Senior Vice-President.

The Employment  Agreements also  contemplate  that certain members of management
will participate in stock option plans of Holdings. Allocations of options among
the management group are to be made in the first instance by the Chief Executive
Officer of the Company, subject to ratification by Holdings' Board of Directors.
A portion of such  allocations  was made during fiscal years 1999 and 1998.  The
management  stock  options  are  subject  to  accelerated  vesting  based on the
Company's  achievement  of certain  operating  cash flow targets.  The following
table  provides  certain  information  concerning  options to purchase  Holdings
common stock during fiscal 1999 to each Named Executive Officer of the Company.


                                      -21-
<PAGE>


<TABLE>
<CAPTION>
Options Granted in Last Fiscal Year
                                                                                 Potential Realizable Value At
                                                                                    Assumed Annual Rates Of
                                                                                 Stock Price Appreciation For
                                         Individual Grants                                Option Term
                           ----------------------------------------------------------------------------------------
                             Number of       Percent Of       Exercise
                              Shares       Total Options         or         Expiration
Name                          Granted         Granted         Base Price       Date            5%            10%
-------------------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>            <C>         <C>              <C>          <C>

James T. McKitrick              7,185           12.35%         $115.80     June 7, 2009     $523,255     $1,326,030
Alan L. Fansler                 8,636           14.85%         $115.80     June 7, 2009     $628,925     $1,593,821
Jeffery A. Stanton              2,297            3.95%         $115.80     June 7, 2009     $167,282       $423,924
James F. Hurley                 4,318            7.42%         $115.80     June 7, 2009     $314,462       $796,909
</TABLE>

Additionally,  the Employment Agreements contemplate that Messrs.  McKitrick and
Longnecker  will receive  additional  stock options which vest if the Company is
sold within six years after the  effective  time of the Merger and the  realized
value of the common equity of the original  investment  group in Holdings should
equal or  exceed  ten times the value  thereof  at the time of the  Merger.  Mr.
McKitrick's  and Mr.  Longnecker's  options  under this  program  are to acquire
12,750 and 7,650 shares of common stock of Holdings.

In addition various other  executives of the Company have employment  agreements
that contain,  among other items,  one-year  severance  provisions under certain
circumstances as well as various bonus provisions.


                                      -22-
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of January 29,  2000,  Holdings  holds 100% of the  outstanding  stock of the
Company.  All  outstanding  options  were  repurchased  in  connection  with the
Acquisition or exchanged for options to acquire shares of Holdings common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Two of the  Company's  suppliers,  Iron Age  Corporation  ("Iron  Age") and DESA
International,   Inc.  ("DESA"),  are  controlled  by  certain  stockholders  of
Holdings.  Iron  Age  is a  manufacturer  and  distributor  of  work  boots  and
protective  footwear.  DESA is a manufacturer and marketer of zone  heating/home
comfort products and specialty tools. The Company believes that the terms of its
purchases  from Iron Age and DESA are at least as  favorable  to the  Company as
could be obtained from other suppliers.  In fiscal 1999, the Company's purchases
from Iron Age and DESA totaled $21.6 million.

For fiscal 1999, the three-month period ended January 30, 1999, and fiscal 1998,
Childs  was  paid  an  annual   management  and   consulting   services  fee  of
approximately  $240,000 $60,000,  and $240,000  respectively,  under a five-year
agreement, annually renewable thereafter, requiring annual payments of $240,000,
subject to  limitations of the Company's debt  agreements.  In addition,  during
fiscal 1999, the  three-month  period ended January 30, 1999,  and 1998,  Fenway
Partners,  a  stockholder  of  Holdings,  was paid an annual  management  fee of
$120,000, $30,000, and $120,000 respectively.

In connection with the  consummation of the Acquisition and subsequent  employee
stock purchases,  Holdings loaned amounts to certain employees of the Company to
partially  fund their  investment  in Holdings  common stock.  The loans,  which
totaled  $362,000 at January 29, 2000, are due in ten years and bear interest at
an interest rate of 8.5%.

Additionally, Messrs. Bliss, McKitrick, Fansler, Hurley, Stanton, and Longnecker
are parties to a Stockholders  Agreement dated as of May 7, 2000,  applicable to
all shares of Holdings  common  stock or vested  options to acquire  such common
stock held now or hereafter acquired by them. The Stockholders Agreement,  among
other terms, permits Holdings to "call" their shares and vested options on their
termination of employment for any reason. Additionally, if either Mr. McKitrick,
Mr. Bliss, Mr. Fansler, Mr. Hurley, Mr. Stanton, or Mr. Longnecker is terminated
for any reason  other than for cause or without  good reason (as those terms are
defined in the Stockholders Agreement),  he has the right to "put" his shares or
vested options to Holdings. Depending on the circumstances, the price for shares
of Holdings  common stock  purchased in connection  with a call or put under the
Stockholders  Agreement will range from cost to seven times EBITDA.  The put and
call features of the Stockholders  Agreement terminate on completion of a public
offering of Holdings  common stock with  aggregate net proceeds of $50.0 million
or more.

In February 2000, the Company sold the land, buildings, and certain fixtures and
equipment  for three  stores to be opened in fiscal 2000 to a limited  liability
company whose  principal  members are Messrs.  McKitrick and Fansler.  The sales
price of $7.0  million  was  equal to the  Company's  cost for the  assets.  The
Company then entered into a twelve-year  lease  agreement with this same company
for the use of these stores.  The total minimum lease  payments  under the lease
agreements  range  from $0.8  million in fiscal  2000 to $1.0  million in fiscal
2011. The Company  believes the terms of the lease agreements to be as favorable
to the Company as could be obtained from other sources.

                                      -23-
<PAGE>
                                     PART IV

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

(a)    Documents filed as part of this Report:

         1.       Financial  Statements.  See the Index to Financial  Statements
                  appearing at page F-1.

         2.       Financial  Statement  Schedules.  The  following  Consolidated
                  Financial Statement Schedule is included at page F-28:

                  Schedule II - Valuation and Qualifying Accounts

No other  Financial  Statement  Schedules have been presented since the required
information  is not  present or not  present in  amounts  sufficient  to require
submission of the schedule,  or because the information  required is included in
the consolidated financial statements or the notes thereto.

       3.    Exhibits.

             The  following  exhibits are filed with this Annual  Report on Form
             10-K or incorporated herein by reference.

3(i)           Certificate of Incorporation, as amended, filed as exhibit 3.1 to
               the Company's Quarterly Report on Form 10-Q for the quarter ended
               May 1, 1999, and incorporated herein by reference.

3(ii)          Bylaws of the Company,  filed as exhibit  3(ii) to the  Company's
               Registration  Statement on Form S-1 (File  #33-82620)  originally
               filed on August 9, 1994 and incorporated herein by reference.

4.1            Form of Common Stock Certificate of the Company, filed as exhibit
               4.1 to the  Company's  Registration  Statement  on Form S-1 (File
               #33-82620)  originally  filed on August 9, 1994 and  incorporated
               herein by reference.

4.2            Indenture  relating  to the Senior  Notes,  the form of which was
               filed  as  exhibit  4.4  to  Amendment  No.  3 to  the  Company's
               Registration   Statement   on  Form  S-1  (File  No.   333-19613)
               originally  filed on March 19,  1997 and  incorporated  herein by
               reference.

10.1           Employment  Agreement  between the Company and James T. McKitrick
               dated as of  September  16,  1994,  filed as exhibit  10.5 to the
               Company's  Registration  Statement  on Form S-1 (File  #33-82620)
               originally  filed on August 9,  1994 and  incorporated  herein by
               reference.

10.2           Employment  Agreement  between the  Company  and Dean  Longnecker
               dated as of  September  16,  1994,  filed as exhibit  10.6 to the
               Company's  Registration  Statement  on Form S-1 (File  #33-82620)
               originally  filed on August 9,  1994 and  incorporated  herein by
               reference.

10.3           Asset Purchase  Agreement By and Between  Central  Tractor Farm &
               Country, Inc., (the "Buyers") and Big Bear Farm Stores, Inc. (the
               "Sellers")  dated May 22,  1996,  filed as  exhibit  10.15 to the
               Company's  10-Q  originally   filed  on  September  9,  1996  and
               incorporated herein by reference.

10.4           Agreement  Plan of Merger  dated  November  27, 1996 by and among
               Central  Tractor  Farm  &  Country,   Inc.,  J.W.  Childs  Equity
               Partners,  L.P.,  JWC Holdings I, Inc.,  and JWC  Acquisition  I,
               Inc.,  filed as an exhibit to the Company's 8-K originally  filed
               on December 3, 1996 and incorporated herein by reference.

10.5           Securities  Purchase  Agreement  dated as of November 27, 1996 by
               and among  Central  Tractor  Farm & Country,  Inc.,  J.W.  Childs
               Equity Partners,  L.P., JWC Holdings I, Inc., and JWC Acquisition
               I,  Inc.,  filed as an exhibit to the  Company's  8-K  originally
               filed on December 3, 1996 and incorporated herein by reference.

10.6           Securities Purchase  Agreement,  dated as of November 6, 1996, by
               and among Mezzanine Lending Associates I, L.P., Mezzanine Lending
               Associates  II, L.P.,  Mezzanine  Lending  Associates  III, L.P.,
               Senior Lending Associates I, L.P., BCC Industrial  Services,  JWC
               Acquisition I, Inc., J.W. Childs Equity Partners,  L.P.,  Central
               Tractor  Farm &  Country,  Inc.  filed as an  exhibit  to JWCAC's
               Schedule   13D   originally   filed  on   December  9,  1996  and
               incorporated herein by reference.

                                             -24-
<PAGE>

10.7           Letter  Agreement,  dated as of  November  27,  1996  between JWC
               Acquisition  I,  Inc.  and Mr.  James T.  McKitrick,  filed as an
               exhibit to JWCAC's  Schedule 13D originally  filed on December 9,
               1996 and incorporated herein by reference.

10.8           Letter  Agreement,  dated as of  November  27,  1996  between JWC
               Acquisition  I,  Inc.  and Mr. G.  Dean  Longnecker,  filed as an
               exhibit to JWCAC's  Schedule 13D originally  filed on December 9,
               1996 and incorporated herein by reference.

10.9           Credit Agreement dated as of December 23, 1996 among the Company,
               Holdings,  JWCAC, certain banks, financial institutions and other
               institutional  lenders listed therein,  Fleet, as  administrative
               agent,  and NationsBank,  as co-agent,  filed as exhibit 10.22 to
               the  Company's  10-K  originally  filed on January  31,  1997 and
               incorporated herein by reference.

10.10          Stock Purchase Agreement,  dated June 26, 1997 by and between the
               Company and ConAgra,  Inc.  and the Amended and  Restated  Credit
               Agreement,  dated as of July 3, 1997,  filed as  exhibits  to the
               Company's  8-K filed on July 3, 1997 and  incorporated  herein by
               reference.

10.11          Letter  Amendment,  dated as of February 18, 1998, to Amended and
               Restated Credit Agreement, filed as exhibit 10.1 to the Company's
               10-Q  originally  filed on  September  15, 1998 and  incorporated
               herein by reference.

12             Statement  Regarding  Computation  of Ratio of  Earnings to Fixed
               Charges

21             Subsidiaries of the Company

27             Financial Data Schedule

99             Important Factors Regarding Forward-Looking Statements


(b)    Reports on Form 8-K Filed During the Last Quarter of Fiscal 1999

             None

(c)    See Item 14(a)(3) of this report.

(d)    See Item 14(a)(2) of this report.


                                      -25-
<PAGE>


                      Quality Stores, Inc. and Predecessor

                        Consolidated Financial Statements

           Fiscal year ended January 29, 2000, period of three months
           ended January 30, 1999, fiscal year ended October 31, 1998,
               periods of seven months ended November 1, 1997 and
                        five months ended March 26, 1997




                                    Contents

Report of Independent Auditors............................................F-2
Consolidated Balance Sheets  .............................................F-3
Consolidated Statements of Income ........................................F-5
Consolidated Statements of Changes in Stockholder's Equity ...............F-6
Consolidated Statements of Cash Flows.....................................F-7
Notes to Consolidated Financial Statements................................F-9


                                      F-1
<PAGE>








                         Report of Independent Auditors

The Board of Directors
Quality Stores, Inc.

We have audited the accompanying  consolidated balance sheets of Quality Stores,
Inc. (Successor), a wholly owned subsidiary of QSI Holdings, Inc., as of January
29, 2000,  January 30, 1999, and October 31, 1998, and the related  consolidated
statements of income,  changes in  stockholder's  equity,  and cash flows of the
Successor for the fiscal year ended  January 29, 2000,  the  three-month  period
ended  January  30,  1999,  the  fiscal  year  ended  October  31,  1998 and the
seven-month  period  ended  November  1,  1997,  and  its  Predecessor  for  the
five-month  period ended March 26, 1997.  Our audits also included the financial
statement  schedule listed in the index at Item 14a. These financial  statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United  States.  Those  standards  require  that we plan and  perform the
audits 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.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Quality Stores,
Inc. at January  29,  2000,  January 30,  1999,  and October 31,  1998,  and the
consolidated  results  of  operations  and cash flows of the  Successor  for the
fiscal year ended  January 29, 2000,  the  three-month  period ended January 30,
1999,  the fiscal year ended October 31, 1998 and the  seven-month  period ended
November 1, 1997, and the Predecessor for the five-month  period ended March 26,
1997, in conformity with accounting  principles generally accepted in the United
States.  Also, in our opinion,  the related financial statement  schedule,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therin.


                                                 ERNST & YOUNG LLP

Chicago, Illinois
April 11, 2000

                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                         Quality Stores, Inc.

                                     Consolidated Balance Sheets

                        (In Thousands of Dollars, Except Share and Par Value)


                                                      January 29        January 30       October 31
                                                         2000              1999             1998
                                                    ------------------------------------------------
<S>                                                 <C>                <C>              <C>
Assets
Current assets:
   Cash and cash equivalents                         $ 11,029           $  5,144         $  6,971
   Trade and other receivables, less
     allowances of $1,275 in 2000
     and $386 in 1999 and 1998                          7,742              4,597            4,648
   Recoverable income taxes from parent                 4,827              2,345            3,134
   Inventory                                          365,383            234,868          217,064
   Other current assets                                 5,408              2,876            3,010
                                                     --------------------------------------------
Total current assets                                  394,389            249,830          234,827

Property, improvements, and equipment:
   Land                                                 4,242              1,821            1,821
   Buildings and improvements                          75,696             21,111           19,461
   Furniture and fixtures                              65,410             31,121           27,590
   Automobiles and trucks                               2,332                701              703
                                                     --------------------------------------------
                                                      147,680             54,754           49,575
   Less accumulated depreciation and
      amortization                                     24,213              9,140            7,948
                                                     --------------------------------------------
                                                      123,467             45,614           41,627

Goodwill, net of amortization of $12,430 in
   2000, $5,974 in 1999 and $5,080 in 1998            293,895            135,605          134,037
Other intangibles, net of amortization
   of $3,886 in 2000, $1,853 in 1999
   and $1,537 in 1998                                  10,712              8,557            8,354
                                                     --------------------------------------------
Total assets                                         $822,463           $439,606         $418,845
                                                     ============================================


                                                 F-3


<PAGE>
<CAPTION>

                                                      January 29        January 30       October 31
                                                         2000              1999             1998
                                                    ------------------------------------------------
<S>                                                 <C>                <C>              <C>
Liabilities and stockholder's equity
Current liabilities:
   Accounts payable                                  $124,012          $  85,359          $  78,322
   Accrued payroll and bonuses                         10,937              4,728              8,272
   Other accrued expenses                              43,880             16,664             14,084
   Deferred income taxes                                1,285              1,768                506
   Current portion of long-term debt and
     capital lease obligations                         22,371              5,001              3,159
                                                     ----------------------------------------------
Total current liabilities                             202,485            113,520            104,343

Long-term debt, less current portion                  388,554            190,843            181,075
Capital lease obligations, less current portion         1,103              1,370              1,011
Deferred income taxes                                   5,694              2,631              2,659

Stockholder's equity:
   Common stock, $.01 par value: 3,000
     authorized shares; 100 shares issued
     and outstanding                                       --                 --                 --
   Additional paid-in capital                         209,377            119,155            119,155
   Retained earnings                                   15,250             12,087             10,602
                                                     ----------------------------------------------
Total stockholder's equity                            224,627            131,242            129,757


                                                     ----------------------------------------------
Total liabilities and stockholder's equity           $822,463           $439,606           $418,845
                                                     ==============================================

See accompanying notes.
</TABLE>

                                                 F-4


<PAGE>
<TABLE>
<CAPTION>


                                          Quality Stores, Inc. and Predecessor

                                            Consolidated Statements of Income

                                  (In Thousands of Dollars, Except Share and Par Value)


                                                               Successor                             |    Predecessor
                                     --------------------------------------------------------------- |  ---------------
                                                       Period of                        Period of    |     Period of
                                     Fiscal year     three months     Fiscal year     seven months   |    five months
                                        ended            ended           ended            ended      |       ended
                                      January 29      January 30       October 31      November 1    |      March 26
                                         2000            1999             1998            1997       |        1997
                                     --------------------------------------------------------------- |  ---------------
                                                                                                     |
<S>                                   <C>           <C>               <C>             <C>                <C>
Net sales                              $1,092,021    $  146,147        $  587,195      $  305,122    |    $  106,048
Cost of sales                             774,455       103,521           410,179         216,342    |        75,281
                                     --------------------------------------------------------------- |  ---------------
Gross profit                              317,566        42,626           177,016          88,780    |        30,767
                                                                                                     |
Selling, general, and                                                                                |
   administrative expenses                251,385        33,742           134,623          72,142    |        29,045
Merger integration expenses                15,820          --                --              --      |          --
Amortization of intangibles                 6,327           972             3,552           1,753    |           415
                                     --------------------------------------------------------------- |  ---------------
Operating income                           44,034         7,912            38,841          14,885    |         1,307
                                                                                                     |
Interest expense                           34,637         4,959            20,466          11,463    |         3,188
                                     --------------------------------------------------------------- |  ---------------
Income (loss) before income taxes           9,397         2,953            18,375           3,422    |        (1,881)
                                                                                                     |
Income taxes (credit)                       6,234         1,468             8,400           2,057    |           (634)
                                     --------------------------------------------------------------- |  ---------------
Net income (loss)                      $    3,163    $    1,485        $    9,975      $    1,365    |    $   (1,247)
                                     =============================================================== |  ===============
                                                                                                     |
Ratio (deficiency) of earnings to                                                                    |
   fixed charges                             1.2x          1.5x              1.8x            1.3x    |    $   (1,881)
                                     =============================================================== |  ===============

See accompanying notes.
</TABLE>

                                                           F-5
<PAGE>
<TABLE>
<CAPTION>

                                          Quality Stores, Inc. and Predecessor

                               Consolidated Statements of Changes in Stockholder's Equity

                                                (In Thousands of Dollars)


                                                              Stock          Additional       Retained         Total
                                               Common        Warrant          Paid-In         Earnings     Stockholder's
                                               Stock        Outstanding       Capital         (Deficit)        Equity
                                          -------------------------------------------------------------------------------

<S>                                             <C>            <C>           <C>              <C>          <C>
Predecessor
Balances at November 2, 1996                     $106           $665          $  69,709        $19,583       $  90,063
Exercise of stock options                          --             --                252             --             252
Net loss                                           --             --                 --         (1,247)         (1,247)
                                          -------------------------------------------------------------------------------
Balances at March 26, 1997                       $106           $665          $  69,961        $18,336       $  89,068
                                          ===============================================================================

Successor
Initial capitalization of the Company
   after the Merger on March 27, 1997          $   --                         $  69,170      $    (738)      $  68,432
Net income                                         --                                --          1,365           1,365
Capital contribution from parent                   --                            49,750             --          49,750
                                          -----------------              ------------------------------------------------
Balances at November 1, 1997                       --                           118,920            627         119,547

Net income                                         --                                --          9,975           9,975
Capital contribution from parent                   --                               235             --             235
                                          -----------------              ------------------------------------------------
Balances at October 31, 1998                       --                           119,155         10,602         129,757

Net income                                         --                                --          1,485           1,485
                                                                         ------------------------------------------------
                                          ----------------
Balances at January 30, 1999                       --                           119,155         12,087         131,242

Net income                                         --                                --          3,163           3,163
Capital contribution from parent                   --                            91,764             --          91,764
Dividend to parent                                 --                            (1,542)            --          (1,542)
                                          ----------------               ------------------------------------------------
Balances at January 29, 2000                   $   --                          $209,377        $15,250        $224,627
                                          ================               ================================================


See accompanying notes.
</TABLE>
                                                          F-6


<PAGE>
<TABLE>
<CAPTION>
                                          Quality Stores, Inc. and Predecessor

                                          Consolidated Statements of Cash Flows

                                                (In Thousands of Dollars)


                                                                   Successor                          |   Predecessor
                                          ----------------------------------------------------------- |  -------------
                                                           Period of                    Period of     |    Period of
                                          Fiscal year    three months   Fiscal year   seven months    |   five months
                                             ended           ended         ended          ended       |      ended
                                           January 29     January 30     October 31    November 1     |     March 26
                                              2000           1999           1998          1997        |       1997
                                          ----------------------------------------------------------- |  -------------
                                                                                                      |
<S>                                       <C>             <C>          <C>             <C>            |    <C>
Operating activities                                                                                  |
Net income (loss)                          $   3,163       $   1,485    $   9,975       $   1,365     |     $  (1,247)
Adjustments to reconcile net income                                                                   |
   (loss) to net cash provided by (used                                                               |
   in) operating activities:                                                                          |
     Depreciation and amortization            13,713           1,317        5,221           2,716     |         1,490
     Amortization of intangibles               6,327           1,229        4,604           2,253     |           414
     Deferred income taxes                     4,397           1,234        6,417           1,871     |         1,328
     Changes in operating assets and                                                                  |
       liabilities:                                                                                   |
         Trade and other receivables           1,271             839        2,616            (871)    |           144
         Recoverable income taxes                                                                     |
           from parent                        (3,678)            789         (621)         (1,119)    |        (1,885)
         Inventory                             5,177          (9,609)       5,053           1,957     |       (11,894)
         Other current assets                    788             665          126             946     |          (924)
         Accounts payable                    (50,115)          2,065       10,307           1,895     |          1,468
         Other current liabilities               (21)         (1,666)      (6,478)          1,139     |        (1,524)
                                          ----------------------------------------------------------- |  -------------
Net cash provided by (used in)                                                                        |
   operating activities                      (18,978)         (1,652)      37,220          12,152     |       (12,630)
                                                                                                      |
Investing activities                                                                                  |
Purchases of property, improvements,                                                                  |
   and equipment                             (35,681)         (3,997)      (4,842)         (3,816)    |        (2,419)
Acquisition of Central Tractor Farm                                                                   |
   & Country, Inc. (Predecessor)                  --              --           --        (155,963)    |            --
Other business acquisitions, net of                                                                   |
   cash acquired                            (111,502)         (6,020)      (1,568)       (136,995)    |            --
Other                                          2,200            (538)         394             206     |        (1,348)
                                          ----------------------------------------------------------- |  -------------
Net cash used in investing activities       (144,983)        (10,555)      (6,016)       (296,568)    |        (3,767)


                                                          F-7
<PAGE>
<CAPTION>


                                                                   Successor                          |   Predecessor
                                          ----------------------------------------------------------- |  -------------
                                                           Period of                    Period of     |     Period of
                                          Fiscal year    three months   Fiscal year   seven months    |   five months
                                             ended           ended         ended          ended       |      ended
                                           January 29     January 30     October 31    November 1     |     March 26
                                              2000           1999           1998          1997        |       1997
                                          ----------------------------------------------------------- |  -------------
                                                                                                      |
<S>                                       <C>             <C>          <C>             <C>            |    <C>
Financing activities                                                                                  |
Borrowings under revolving line of                                                                    |
   credit                                  $ 401,696       $  91,180    $ 273,645       $ 206,106     |     $ 113,119
Repayments on revolving line of credit      (358,196)        (79,255)    (302,320)       (170,650)    |       (91,494)
Proceeds from issuance of long-term                                                                   |
   debt                                      221,309              --           --         155,000     |         8,000
Payments on long-term debt                   (88,147)         (1,500)      (3,000)         (8,000)    |       (16,000)
Payments on capitalized lease                                                                         |
   obligations                                  (284)            (45)        (171)           (101)    |           (69)
Proceeds from issuance of                                                                             |
   common stock and capital                                                                           |
   contributions                                  --              --          235         115,489     |           252
Cash of Central Tractor Farm &                                                                        |
   Country, Inc. at date of acquisition           --              --           --           1,220     |            --
Payment of dividend                           (1,542)             --           --              --     |            --
Deferred financing costs                      (4,990)             --           --          (8,764)    |             --
Other                                             --              --           --           1,494     |            --
                                          ----------------------------------------------------------- |  -------------
Net cash provided by (used in)                                                                        |
   financing activities                      169,846          10,380      (31,611)        291,794     |        13,808
                                          ----------------------------------------------------------- |  -------------
Net increase (decrease) in cash and cash                                                              |
   equivalents                                 5,885          (1,827)        (407)          7,378     |        (2,589)
                                                                                                      |
Cash and cash equivalents at beginning                                                                |
   of period                                   5,144           6,971        7,378              --     |         3,809
                                          ----------------------------------------------------------- |  -------------
Cash and cash equivalents at end of                                                                   |
   period                                  $  11,029       $   5,144    $   6,971       $   7,378     |     $   1,220
                                          =========================================================== |  =============
                                                                                                      |
Supplemental cash flow information                                                                    |
Interest payments                          $  28,124       $   1,941    $  19,838       $  10,294     |     $   1,746
Net income taxes paid                          4,504             225          355             327     |           412
Note payable issued in acquisition of                                                                 |
   Fisco Farm and Home                            --           1,084           --              --     |            --
Capital contribution of common stock                                                                  |
   received from parent used to                                                                       |
   consummate Quality Stores, Inc.                                                                    |
   acquisition                                91,764              --           --              --     |            --

See accompanying notes
</TABLE>

                                                          F-8
<PAGE>

                      Quality Stores, Inc. and Predecessor

                   Notes to Consolidated Financial Statements

                   Fiscal year ended January 29, 2000, period
                     of three months ended January 30, 1999,
                   fiscal year ended October 31, 1998, periods
                     of seven months ended November 1, 1997
                      and five months ended March 26, 1997

              (In Thousands of Dollars, Except Share and Par Value)


1.  Basis of Presentation and Acquisition of the Company

Quality  Stores,  Inc. (the Company),  formerly known as Central  Tractor Farm &
Country,  Inc.,  is  a  wholly-owned  subsidiary  of  QSI  Holdings,  Inc.  (QSI
Holdings),  formerly  known as CT Holding,  Inc.,  an  affiliate of J. W. Childs
Equity Partners, L.P. (Childs).

As a result of the acquisition of the Company  discussed below,  effective March
27,  1997,  a new  basis of  accounting  has  been  reflected  in the  Company's
consolidated  financial statements  reflecting the fair values for the Company's
assets and  liabilities at that date  (Successor).  The  consolidated  financial
statements of the Company for periods prior to March 27, 1997,  are presented on
the historical cost basis of accounting (Predecessor). A line has been placed in
the  financial   statements  to  distinguish  between  the  different  basis  of
accounting used for the Predecessor and Successor periods.

On November 27, 1996,  the Board of Directors of the Company  approved,  and the
Company entered into, a merger agreement (the Merger Agreement) with Childs, QSI
Holdings and its  subsidiary,  JWC  Acquisition  I, Inc.,  that provided for the
acquisition  of the  Company by QSI  Holdings in a  two-stage  transaction.  The
Merger Agreement provided that following the acquisition of all of the Company's
common stock held by  affiliates  of Butler  Capital  Corporation  (collectively
BCC),  QSI  Holdings'  subsidiary  would  merge with and into the  Company  (the
Merger) and QSI Holdings  would acquire the remaining  shares of common stock of
the Company held by public  shareholders.  The Merger was completed on March 27,
1997.

Concurrent with the Merger closing, the Company consummated a public offering of
$105.0 million aggregate principal amount of Senior Notes. The net proceeds from
the offering and proceeds  from common stock issued by QSI Holdings were used to
pay the Merger consideration, repay certain outstanding borrowings, and pay fees
and expenses of the acquisition.

                                      F-9
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


1.  Basis of Presentation and Acquisition of the Company (continued)

The  acquisition  of the Company was accounted  for as a purchase.  The purchase
price for the  common  stock was $159.4  million,  including  related  costs and
expenses,  of which  $156.0  million was paid in cash and $3.4 million in common
stock and stock options of QSI Holdings was issued.  Transaction  costs included
$1.7  million  paid to  Childs  in  consideration  for  services  regarding  the
planning, structuring and negotiation of the acquisition and related financings.

The purchase price was allocated to the tangible and  intangible  assets and the
liabilities of the Company based on fair values as follows:

Accounts receivable and other assets                              $    9,990
Inventory                                                            124,284
Property, improvements, and equipment                                 25,387
Goodwill                                                              87,343
Bank line of credit                                                  (23,554)
Accounts payable and accrued expenses                                (51,809)
Long-term debt and capitalized lease obligations                      (9,442)
Deferred income taxes                                                 (2,806)
                                                              ----------------
                                                                    $159,393
                                                              ================

2.  Summary of Significant Accounting Policies

Principles of Consolidation and Business

The consolidated  financial  statements include the Company and its wholly owned
subsidiaries. All intercompany transactions are eliminated in consolidation.

The Company  operates  nationally  in a single  business  segment  consisting of
agricultural   specialty  retail  stores  located   primarily  in  the  Midwest,
Northeast, and Southeast United States.


                                      F-10
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


2.  Summary of Significant Accounting Policies (continued)

Fiscal Year End

The  Company  currently  operates  on a 52 or 53-week  fiscal year ending on the
Saturday nearest to January 31. Prior to the fiscal year ended January 29, 2000,
the  Company  operated on a 52 or 53-week  fiscal  year  ending on the  Saturday
nearest to October 31. The three month transition  period ended January 30, 1999
presented herein results from this change in fiscal years.

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 amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company  considers  all highly liquid  investments  with a maturity of three
months or less when purchased to be cash equivalents.

Trade Receivables

The majority of the Company's sales are cash or credit card sales. Limited sales
are made on account and the Company  generally  does not require  collateral  on
such sales.  Concentrations of credit risk with respect to trade receivables are
limited due to the large number of the Company's  customers and their geographic
dispersion.  The allowance for doubtful  accounts is based on a current analysis
of receivable delinquencies and historical loss experience.


                                      F-11
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


2.  Summary of Significant Accounting Policies (continued)

Inventory

Substantially all inventory is recorded at the lower of cost or market using the
last in,  first out  (LIFO)  method.  The  Company  reviews  its  inventory  for
slow-moving,  obsolete or otherwise  unsalable  items and records any  estimated
losses to be incurred as such  inventory is  identified.  If the first in, first
out method of inventory  valuation  had been used,  inventories  would have been
approximately  $6.0 million lower than reported at January 29, 2000, January 30,
1999, and October 31, 1998.

Property, Improvements, and Equipment

Property,  improvements,  and  equipment  are  recorded  on the  basis  of cost.
Depreciation  is  computed  primarily  using the  straight-line  method over the
estimated  useful  lives of the  respective  assets as  follows:  buildings  and
improvements  from 10 to 39  years;  leasehold  improvements  (not in  excess of
underlying lease terms) from 5 to 20 years;  furniture and fixtures from 5 to 15
years; and automobiles and trucks from 3 to 10 years.

Certain long-term lease  transactions have been accounted for as capital leases.
The related  assets are  amortized on a  straight-line  basis over the lesser of
their estimated useful life or the respective terms of the leases.

Goodwill and Other Intangibles

Goodwill is being amortized  utilizing the  straight-line  method over 40 years.
Other  intangibles  consist  primarily  of  deferred  financing  costs  that are
amortized  over  the  term  of  the  related  debt.  The  Company   reviews  the
recoverability of unamortized amounts of intangibles  annually and evaluates any
related  impairment based on an analysis of estimated  undiscounted  cash flows.
Management has determined that no impairment of intangibles currently exists.


                                      F-12
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


2.  Summary of Significant Accounting Policies (continued)

Deferred Income Taxes

Deferred income tax assets and liabilities are determined by applying  currently
enacted tax laws and rates to the cumulative  temporary  differences between the
carrying value of assets and liabilities for financial  reporting and income tax
purposes.  Deferred  income tax  expense or credit is based on the net change in
deferred income tax assets and liabilities during the period.

Financial Instruments and Risk Management

The Company's financial instruments consist of cash and cash equivalents,  trade
and other  receivables,  accounts  payable,  and long-term  debt.  The Company's
estimate of the fair value of these  financial  instruments  approximates  their
carrying amounts at the respective  consolidated balance sheet dates, except for
long-term debt which has an estimated fair value that is $8.4 million lower than
its carrying value at January 29, 2000.  Fair value was determined  using quoted
market prices for the Company's long-term debt and discounted cash flow analyses
for all  other  instruments.  The  Company  does  not  hold or  issue  financial
instruments for trading purposes.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  (SFAS)  No.  133,  Accounting  for  Derivative
Instruments  and  Hedging  Activities,  which  is  effective  for  fiscal  years
beginning  after  June 15,  2000.  SFAS No.  133  requires  companies  to record
derivative  instruments  on the  balance  sheet at fair  value  and  establishes
accounting rules for changes in fair value that result from hedging  activities.
The Company currently engages in limited hedging  activities that require use of
derivative  instruments  and  has  not  completed  all of the  complex  analyses
necessary to determine the effect of adopting  SFAS No. 133 on its  consolidated
financial position or future results of operations.


                                      F-13
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


2.  Summary of Significant Accounting Policies (continued)

Interest Rate Cap Agreements

The fee paid in connection  with interest rate cap agreements is being amortized
over the term of the agreements. Any amounts to be received by the Company under
the agreements are recognized in the period that they become known.

Revenue Recognition

Revenue is  recognized  at the point of purchase and payment by the customer for
cash and credit card sales.  Revenue  associated  with  layaway  merchandise  is
deferred until such time as full payment is received. Sales on account result in
revenue at the time the related goods are released or shipped to the customer.

Catalogs, Sale Flyers, and Advertising Costs

The direct cost of printing and mailing the Company's  annual mail order catalog
is deferred and amortized  against mail order revenues over the year the catalog
is in use. The direct cost of printing and distributing  sale flyers is deferred
and  amortized  over the life of the flyer which is generally two weeks or less.
Other advertising costs are expensed as incurred.  Unamortized  amounts relating
to the costs of the annual catalog and periodic sale flyers were not significant
at January 29,  2000,  January 30,  1999,  and October 31,  1998,  respectively.
Advertising  expenses were $29.1  million,  $3.9 million,  $15.1  million,  $7.8
million,  and $3.3  million for fiscal  1999,  the  three-month  period of 1999,
fiscal 1998, and the seven-month and five-month periods of 1997, respectively.

Store Opening Costs

Direct  costs  incurred  in setting up and  opening  new stores are  expensed as
incurred.

Reclassifications

Certain amounts  previously  reported in prior periods have been reclassified to
conform with the presentation used in fiscal 1999.


                                      F-14
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


3.  Business Acquisitions

Quality Stores, Inc.

On May 7, 1999,  Central  Tractor Farm & Country,  Inc.  (CT)  acquired  Quality
Stores,  Inc.  (Quality) in a  transaction  in which Quality was merged with and
into  CT.  At the  completion  of the  acquisition,  the  name of the  surviving
corporation  was changed to Quality  Stores,  Inc. (the Company).  In connection
with the  acquisition,  the former  shareholders  and option  holders of Quality
received, in the aggregate,  $111.5 million in cash and 792,430 shares of common
stock of CT's parent company that was contributed to CT and had a value of $91.8
million. In addition, CT repaid $42.1 million in debt owed by Quality. The total
purchase price for Quality,  including $4.7 million of transaction expenses, was
$208.0 million.

Quality,  based in Muskegon,  Michigan, has a strong retail presence in Michigan
and Ohio and,  at the time of the  acquisition,  operated  114  stores  offering
merchandise oriented to farm and country living, including animal care products,
farm and ranch supplies, workwear, and lawn and garden products.

The  acquisition of Quality was accounted for as a purchase.  The purchase price
has been  allocated to the tangible and  intangible  assets and the  liabilities
based on fair values as follows:

Accounts receivable and other assets                                $  12,693
Inventory                                                             135,692
Property, leaseholds and equipment                                     57,485
Deferred income taxes                                                   1,817
Goodwill                                                              163,969
Accounts payable and accrued expenses                                (121,504)
Long-term debt                                                        (42,109)
                                                              ------------------
                                                                     $208,043
                                                              ==================

In connection with the acquisition of Quality,  the Company  initiated a plan to
relocate its corporate  headquarters to Muskegon,  Michigan.  This plan included
the closing of the CT  headquarters  in Des Moines,  Iowa and the termination of
certain CT employees.  Liabilities  of $4.0 million for estimated exit costs and
$3.6 million for the cost of severance  payments to  terminated  employees  were
recorded as of the plan's  approval  date. At January 29, 2000,  $2.9 million of
exit costs and $1.1 million of severance

                                      F-15
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


3.  Business Acquisitions (continued)

payments had been incurred and charged against the respective liabilities. Other
merger  integration  costs of $8.2 million  (primarily store and computer system
conversion  costs)  that were  attributable  to fiscal  1999  were  expensed  as
incurred.  The exit plan is expected to be completed during the first quarter of
fiscal 2000.

Fisco Farm and Home

Effective  December 31, 1998, the Company acquired  substantially all assets and
assumed certain  liabilities of The H. C. Shaw Company,  doing business as Fisco
Farm and Home (Fisco), a chain of nine agricultural specialty retail stores, for
$6.0 million in cash and a $1.1 million note payable over a four-year period.

The acquisition of Fisco was accounted for as a purchase. The purchase price was
allocated to the tangible and  intangible  assets and the  liabilities  based on
fair values as follows:

Accounts receivable and other assets                                 $1,319
Inventory                                                             8,195
Leaseholds and equipment                                                756
Goodwill                                                              3,245
Accounts payable and accrued expenses                                (6,411)
                                                              ------------------
                                                                     $7,104
                                                              ==================

Country General, Inc.

Effective June 26, 1997,  the Company  acquired all of the  outstanding  capital
stock of Country  General,  Inc.  (Country  General) for $138.6 million in cash,
including  $1.6 million  related to post closing  adjustments  finalized  during
fiscal 1998.  Country  General  operates a chain of 114  agricultural  specialty
retail  stores.  The Company funded the  acquisition  price in part from a $49.8
million cash equity contribution from its parent and bank debt.


                                      F-16
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


3.  Business Acquisitions (continued)

The  acquisition of Country  General was accounted for as a purchase.  The final
purchase  price was  allocated  to the tangible  and  intangible  assets and the
liabilities based on fair value as follows:

Accounts receivable and other assets                              $    5,824
Inventory                                                             99,790
Property, leaseholds, and equipment                                   17,174
Goodwill                                                              51,775
Deferred income taxes                                                  9,229
Accounts payable and accrued expenses                                (45,229)
                                                              ------------------
                                                                    $138,563
                                                              ==================

The final purchase price  allocation  included  reserves of $4.9 million for the
estimated cost to close twelve  acquired stores and $2.2 million for the cost of
severance  payments to identified  employees in  connection  with the closing of
Country  General's  corporate  headquarters.  As of October 31, 1998,  the store
closing  process and the  termination of employees at Country  General's  closed
corporate  headquarters  had been  completed.  At January 29, 2000,  January 30,
1999, and October 31, 1998, the remaining  reserve for lease costs pertaining to
closed stores was $2.2 million, $3.0 million, and $3.4 million, respectively.

The results of operations of Quality, Fisco, and Country General are included in
the accompanying  consolidated statements of income from the respective dates of
purchase.

                                      F-17
<PAGE>


                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


3.  Business Acquisitions (continued)

Pro Forma Results of Operations

Pro forma  results of  operations  presented  below are based on the  historical
results of operations of the Company, adjusted to give effect to the acquisition
of Quality described above and the debt financing  arrangements  relating to the
acquisitions,  as though this  acquisition  had occurred at the beginning of the
periods  presented.  The  acquisition  of  Fisco  has not been  included  in the
three-month  period of 1999 and fiscal 1998 amounts  below because its operating
results would not materially affect the pro forma calculations.


                            Fiscal year     Period of three       Fiscal year
                               ended         months ended            ended
                             January 29       January 30           October 31
                                2000             1999                 1998
                         ------------------------------------------------------

Net sales                   $1,235,423         $285,282            $1,093,896
Operating income                46,375           15,303                49,711
Net income                       1,477            1,087                 5,051

4. Long-Term Debt

Long-term debt consists of the following obligations:

                                   January 29       January 30     October 31
                                      2000             1999           1998
                                  --------------------------------------------

10.625% Senior Notes               $   105,000        $105,000     $   105,000
Term loans                             216,900          45,500          47,000
Revolving credit obligations            87,500          44,000          32,075
Other notes payable                      1,281             843              --
                                  --------------------------------------------
                                       410,681         195,343         184,075
Less current portion                    22,127           4,500           3,000
                                  --------------------------------------------
                                   $   388,554        $190,843     $   181,075
                                  ============================================


                                      F-18
<PAGE>
                       Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


4.  Long-Term Debt (continued)

The Senior Notes mature on April 1, 2007, and may be redeemed beginning April 1,
2002 at a price of 105.3125% of the principal  amount  decreasing 1.77% annually
thereafter  until April 1, 2005 at which time they are redeemable at face value.
Furthermore,  notwithstanding the foregoing, the Company may redeem up to 35% of
the original  aggregate  principal amount of the Senior Notes at a price of 110%
of the principal  amount with the net cash proceeds of a public equity  offering
within 60 days of closing such an offering.

At January 29,  2000,  the Company had a bank credit  facility  that allowed for
borrowings up to $320.0  million,  consisting  of $220.0  million under two term
loan facilities  (Tranche A and B) of which $216.9 million was outstanding and a
$100.0  million   revolving  credit  facility  under  which  $87.5  million  was
outstanding.  On March 31,  2000,  this credit  facility was amended to increase
total available borrowings to $374.6 million, including $214.6 million under the
term loan facilities and $160.0 million of revolving credit debt  (collectively,
the "Amended Credit Facility").

The Tranche A term loan ($95.6  million)  under the Amended  Credit  Facility is
payable in  quarterly  installments  of $5.0 million  through  October 31, 2004,
while  the  Tranche  B  term  loan  ($119.0  million)  has  quarterly  principal
installments  of $0.4  million  through  January 31, 2004 that  increase to $9.6
million  through  January 31, 2005, and then to $15.1 million  through April 30,
2006. The revolving  credit debt is due in full on October 30, 2006. The Company
is also required to make mandatory prepayments on the term loan facilities based
on the Company's excess cash flow, as defined.

Borrowings  under the Amended  Credit  Facility are secured by all assets of the
Company and bear interest at the prime or  eurodollar  rates plus a margin (8.6%
to 10% at January 29, 2000). The revolving credit debt is also subject to a 0.5%
commitment fee on its unused portion.

The Company's long-term borrowing agreements contain covenants which require the
Company to maintain  certain  financial  ratios and also restricts,  among other
things,  the  payment of  dividends,  incurrence  of  additional  debt,  capital
expenditures, mergers and acquisitions, and the disposition of assets.

                                      F-19
<PAGE>


                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


4.  Long-Term Debt (continued)

Commercial  and  standby  letters of credit  outstanding  at January  29,  2000,
January 30, 1999 and October 31, 1998, totaled $9.9 million,  $6.3 million,  and
$6.7 million, respectively.

In fiscal 1999, the Company  entered into interest rate cap agreements  (the Cap
Agreements) with a bank to reduce the impact of changes in interest rates on its
floating term loan debt.  The Cap  Agreements  have a notional  amount of $105.0
million,  mature in 2001 and cap the Eurodollar  rate on the notional  amount at
7%, plus the applicable  margin. The Company is exposed to interest rate risk in
the event of nonperformance by the counterparty to the Cap Agreements;  however,
the Company does not anticipate nonperformance by the bank.

5. Leases

The Company has entered into certain  long-term capital lease agreements for the
use of warehouses,  certain retail store facilities and computer equipment.  The
net carrying value of the assets recorded under capital leases was $0.8 million,
$1.0  million,  and $0.6  million at January 29,  2000,  January 30,  1999,  and
October 31, 1998, respectively.

The Company also has entered into certain noncancelable operating leases for the
use of real estate,  automobiles  and trucks,  and office  equipment.  Aggregate
rental expense for operating  leases  amounted to $23.6  million,  $3.9 million,
$16.2 million,  $9.3 million,  and $4.1 million for fiscal 1999, the three-month
period of 1999, fiscal 1998, and the seven-month and five-month periods of 1997,
respectively.


                                      F-20
<PAGE>


                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


5. Leases (continued)

At January 29, 2000,  future minimum rental payments due under all noncancelable
leases with a term greater than one year are as follows:

                                               Capital          Operating
                                               Leases             Leases
                                              -----------------------------

Fiscal 2000                                     $   442          $  28,606
Fiscal 2001                                         442             21,658
Fiscal 2002                                         442             16,887
Fiscal 2003                                         243             13,864
Fiscal 2004                                          93              9,435
Thereafter                                           45             14,766
                                              -----------------------------
Total minimum lease payments                      1,707           $105,216
                                                               ============
Less amount representing interest                   360
                                              --------------
Present value of minimum lease payments           1,347
Less current portion                                244
                                              --------------
                                                 $1,103
                                              ==============

6.  Stock Options

QSI  Holdings  has stock option  arrangements  with  various  officers and other
members of Company  management  which are accounted for under the  provisions of
APB Opinion No. 25 and related interpretations. No compensation expense has been
recognized by QSI Holdings or the Company in connection  with these stock option
arrangements  because the fair market value of the underlying stock award on the
measurement date equals the exercise price of the related options.

Under SFAS No. 123, certain pro forma information is required as if QSI Holdings
had accounted for stock options under the alternative  fair value method and the
resulting compensation expense was recorded by the Company. Pro forma net income
of the Company  under the  alternative  fair value method for fiscal  1999,  the
three-month period of 1999, and fiscal 1998 is $2.9 million,  $1.4 million,  and
$9.7 million, respectively. Pro forma results for the seven-month period of 1997
would  not  have  differed  from  amounts   reported  because  no  stock  option
compensation expense would have been recognized during that period.

                                      F-21
<PAGE>


                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


7.  Income Taxes

The Company's results of operations are included in the consolidated  income tax
returns of its parent.  Income tax expense (credit) included in the consolidated
statements  of income have been  calculated  as if the Company  filed a separate
return.

The components of income tax expense (credit) are as follows:
<TABLE>
<CAPTION>

                                              Successor                                |     Predecessor
                ---------------------------------------------------------------------- |  ----------------
                   Fiscal year    Period of three    Fiscal year     Period of seven   |   Period of five
                     ended         months ended         ended         months ended     |    months ended
                   January 29       January 30        October 31       November 1      |      March 26
                      2000             1999              1998             1997         |        1997
                ---------------------------------------------------------------------- |  ----------------
<S>                 <C>             <C>               <C>               <C>                   <C>
Current:                                                                               |
   Federal           $ 1,082         $   234           $    --           $   148       |       $(1,541)
   State                 755              --               200                38       |          (421)
                ---------------------------------------------------------------------- |  ----------------
                       1,837             234               200               186       |        (1,962)
Deferred               4,397           1,234             8,200             1,871       |         1,328
                ---------------------------------------------------------------------- |  ----------------
                     $ 6,234         $ 1,468           $ 8,400           $ 2,057       |       $  (634)
                ====================================================================== |  ================

</TABLE>

A  reconciliation  of the  Company's  income tax expense  (credit) to the amount
computed by applying  the  statutory  federal  income tax rate to income  (loss)
before income taxes is as follows:
<TABLE>
<CAPTION>

                                                    Successor                                |     Predecessor
                      ---------------------------------------------------------------------- |  ----------------
                         Fiscal year    Period of three    Fiscal year     Period of seven   |   Period of five
                           ended         months ended         ended         months ended     |    months ended
                         January 29       January 30        October 31       November 1      |      March 26
                            2000             1999              1998             1997         |        1997
                      ---------------------------------------------------------------------- |  ----------------
<S>                       <C>             <C>               <C>               <C>                 <C>
Income tax at federal                                                                        |
   statutory rate       $ 3,195             $ 1,004         $ 6,248           $ 1,163        |      $  (639)
                                                                                             |
State income taxes,                                                                          |
   net of federal           873                 194           1,214               306        |          (79)
   income tax effect                                                                         |
Nondeductible                                                                                |
   goodwill               1,742                 192             766               391        |           72
   amortization                                                                              |
Other, net                  424                  78             172               197        |           12
                      ---------------------------------------------------------------------- |  ----------------
                        $ 6,234             $ 1,468         $ 8,400           $ 2,057        |      $  (634)
                      ====================================================================== |  ================

</TABLE>


                                                       F-22
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)

7. Income Taxes (continued)

Significant  components of the Company's  deferred  income tax  liabilities  and
assets are as follows:
<TABLE>
<CAPTION>
                                               January 29     January 30     October 31
                                                  2000           1999           1998
                                              -----------------------------------------

<S>                                           <C>            <C>           <C>
Deferred income tax liabilities:
   Tax over book depreciation                  $ (5,732)      $ (3,457)      $ (3,392)
   Cost basis differences in inventory due
      to LIFO and uniform capitalization        (14,123)        (6,411)        (5,623)
   Other                                         (1,271)        (1,128)          (742)
                                              -----------------------------------------
Total deferred income tax liabilities           (21,126)       (10,996)        (9,757)

Deferred income tax assets:
   Net operating loss carryforward                  372          1,325          1,105
   Capital loss carryforward                         --            920            920
   Alternative minimum tax credit
      carryforward                                  750             --             --
   Accounts receivable and inventory
      valuation allowances                        2,667          2,232          2,274
   Compensation and employee benefit
      accruals                                    2,259          1,320          1,319
   Accrued store closing costs                    2,551          1,209          1,374
   Insurance and other reserves                   4,439             --             --
   Other                                          1,109            511            520
                                              -----------------------------------------
                                                 14,147          7,517          7,512
   Less valuation allowance for capital loss
     carryforward                                    --           (920)          (920)
                                              -----------------------------------------
Total deferred income tax assets                 14,147          6,597          6,592
                                              -----------------------------------------
Net deferred income tax liabilities            $ (6,979)      $ (4,399)      $ (3,165)
                                              =========================================
</TABLE>

The Company has a net  operating  loss  carryforward  of $0.9  million that will
expire in 2011. The  alternative  minimum tax credit  carryforward  is available
indefinitely   to  offset  future  income  taxes   payable.   The  capital  loss
carryforward expired in fiscal 1999.

                                      F-23
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


8.  Profit Sharing Plan

The Company has a profit  sharing plan  covering all  employees who meet certain
eligibility   requirements.   The  plan  provides  for  discretionary   employer
contributions  and  allows  voluntary  participant  contributions.  The  Company
recognized  expense in connection with this plan of $1.0 million,  $0.2 million,
$0.7 million,  and $0.1 million for fiscal 1999, the three-month period of 1999,
and the  seven-month  and five-month  periods of 1997,  respectively.  No profit
sharing expense was recognized in fiscal 1998.

9.  Transactions with Related Parties

For  fiscal  1999,  the  three-month  period  of  1999,  fiscal  1998,  and  the
seven-month period of 1997, Childs was paid a management and consulting services
fee of $0.2 million, $0.1 million, $0.2 million and $0.1 million,  respectively,
under a five-year agreement that is renewable annually thereafter.  In addition,
during  fiscal 1999,  the  three-month  period of 1999 and fiscal  1998,  Fenway
Partners, a stockholder of QSI Holdings,  was paid a quarterly management fee of
$0.03 million.

The Company  purchases  inventory  from two  suppliers  that are  controlled  by
stockholders  of  QSI  Holdings.   Purchases  from  these  suppliers  aggregated
approximately  $21.6  million,  $1.4 million,  $5.0 million and $6.1 million for
fiscal 1999,  the  three-month  period of 1999,  fiscal  1998,  and the combined
seven-month and five-month periods of 1997, respectively.

In February 2000, the Company sold the land, buildings, and certain fixtures and
equipment  for three  stores to be opened in fiscal 2000 to a company  owned and
managed by certain of the Company's executive officers.  The sales price of $7.0
million was equal to the Company's cost for the assets. The Company then entered
into a twelve-year  lease  agreement with this same company for the use of these
stores.  The total minimum lease payments under the lease  agreements range from
$0.8 million in fiscal 2000 to $1.0 million in fiscal 2011.


                                      F-24
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


10.  Guarantee of Senior Notes

The Senior  Notes  described  in Note 4 are  guaranteed  jointly and  severally,
fully, and  unconditionally by each of the Company's wholly owned  subsidiaries.
Summarized  financial  information for the Company's  wholly owned  subsidiaries
that guarantee the Senior Notes is as follows:
<TABLE>
<CAPTION>
                                            January 29      January 30       October 31
                                               2000            1999             1998
                                           --------------------------------------------
<S>                                         <C>             <C>             <C>
Balance sheet data
Current assets:
   Trade and other receivables               $  6,654        $  2,742        $  3,437
   Inventory                                  233,771         106,674         104,777
   Other current assets                        14,674           2,257           3,569
                                           --------------------------------------------
Total current assets                          255,099         111,673         111,783

Property, improvements, and equipment, net     94,988          15,390          15,598
Other noncurrent assets, principally
    goodwill and other intangibles            211,094          51,735          52,170
                                           --------------------------------------------
                                             $561,181        $178,798        $179,551
                                           ============================================

Current liabilities, principally accounts
    payable accrued expenses                 $122,848        $ 26,912        $ 28,159
Noncurrent liabilities, principally
    amounts due to affiliates                 275,019           6,613           5,262
Stockholder's equity                          163,314         145,273         146,130
                                           --------------------------------------------
                                             $561,181        $178,798        $179,551
                                           ============================================
</TABLE>


                                      F-25
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)


10.  Guarantee of Senior Notes (continued)
<TABLE>
<CAPTION>
                                                               Period of
                                         Fiscal Year          three months     Fiscal year
                                            ended                ended            ended
                                          January 29          January 30        October 31
                                             2000                1999              1998
                                         ---------------------------------------------------
<S>                                      <C>                <C>                <C>
Income statement data
Net sales                                 $ 694,418          $  63,914          $ 257,342
Cost of sales                               491,579             45,469            178,918
                                         ---------------------------------------------------
Gross profit                                202,839             18,445             78,424

Selling, general, and administrative
  and other expenses                        175,399             13,961             53,151
                                         ---------------------------------------------------
Operating income                             27,440              4,484             25,273
Interest expense                             20,083              2,167              9,167
                                         ---------------------------------------------------
Income before income taxes                    7,357              2,317             16,106
Income taxes                                  5,418                972              6,488
                                         ---------------------------------------------------
Net income                                $   1,939          $   1,345          $   9,618
                                         ===================================================

Cash flow data
Net cash flows provided by (used in):
  Operating activities                    $  (9,598)         $    (743)         $   2,586
  Investing activities, principally
    capital expenditures                    (23,713)              (112)            (3,575)
  Financing activities, principally
    change in amounts due to affiliates      39,465              1,355             (5,192)

</TABLE>


                                      F-26
<PAGE>

                      Quality Stores, Inc. and Predecessor

             Notes to Consolidated Financial Statements (continued)

              (In Thousands of Dollars, Except Share and Par Value)



11.  Quarterly Results of Operations (Unaudited)

The following is a tabulation of the Company's  unaudited  quarterly  results of
operations for fiscal 1999 and 1998:
<TABLE>
<CAPTION>

                                             First           Second           Third           Fourth
                                            Quarter         Quarter           Quarter         Quarter
                                          -------------------------------------------------------------
<S>                                      <C>              <C>              <C>               <C>
Fiscal year ended January 29, 2000
Net sales                                 $ 159,136        $ 330,830        $ 287,085         $ 314,970
Gross profit                                 47,227           96,153           84,336            89,850
Operating income                              7,897           17,329            6,982            11,826
Net income (loss)                               997            4,376           (2,400)              190
Ratio of earnings to fixed charges             1.4x             1.8x             0.8x              1.1x

Fiscal year ended October 31, 1998
Net sales                                 $ 144,393        $ 143,717        $ 167,859         $ 131,226
Gross profit                                 41,619           42,501           51,146            41,750
Operating income                              6,659            8,168           15,696             8,318
Net income                                      590            1,375            6,597             1,413
Ratio of earnings to fixed charges             1.2x             1.4x             3.1x              1.6x

</TABLE>
                                                   F-27
<PAGE>



                                   SCHEDULE II

                              QUALITY STORES, INC.

                        Valuation and Qualifying Accounts



                                                               Allowance For
                                                             Trade Receivables
                                                            -------------------

Balance at November 2, 1996                                     $   (50,000)
  Credited to expense                                                 4,700
                                                                -----------

Balance at March 26, 1997                                           (45,300)
  Debited to expense                                                (54,436)
  Write-off of uncollectible accounts                                49,736
  Acquired from Country General, Inc.                              (336,000)
                                                                -----------

Balance at November 1, 1997                                        (386,000)
  Debited to expense                                               (174,279)
  Write-off of uncollectible accounts                               174,279
                                                                -----------

Balance at October 31, 1998                                        (386,000)
  Debited to expense                                                (24,365)
  Write-off of uncollectible accounts                                24,365
                                                                -----------

Balance at January 30, 1999                                        (386,000)
  Debited to expense                                               (585,954)
  Write-off of uncollectible accounts                               272,407
  Acquired from Quality Stores, Inc.                               (575,453)
                                                                -----------

Balance at January 29, 2000                                     $(1,275,000)
                                                                ===========


                                      F-28
<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.

                                        QUALITY STORES, INC.


DATED:  April 28, 2000                  By:   /s/ James T. McKitrick
                                              James T. McKitrick, President and
                                              Chief Executive 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 and on the date indicated.

DATED:  April 28, 2000

/s/ James T. McKitrick          President and Chief Executive Officer, Director
James T. McKitrick              (Principal Executive Officer)

/s/ Denny L. Starr              Senior Vice-President, Finance and Chief
Denny L. Starr                  Financial Officer (Principal Financial and
                                Accounting Officer)

/s/ Alan L. Fansler             Executive Vice-President and Chief Operating
Alan L. Fansler                 Officer, Director

______________________          Director
John W. Childs

/s/ Steven G. Segal             Director
Steven G. Segal

______________________          Director
Adam L. Suttin

/s/ David C. Bliss              Chairman of the Board, Director
David C. Bliss

/s/ Jerry D. Horn               Director
Jerry D. Horn

______________________          Director
Jeffrey B. Swartz

/s/ William E. Watts            Director
William E. Watts

/s/ Habib Y. Gorgi              Director
Habib Y. Gorgi

/s/ Peter Lamm                  Director
Peter Lamm

/s/ Richard C. Dresdale         Director
Richard C. Dresdale

______________________          Director
John L. Hilt

/s/ G. Dean Longnecker          Executive Vice-President, Integration, Director
G. Dean Longnecker