<PAGE>

     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 2000
______________________________________________________________________________

                     SECURITY AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 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 February 26, 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 0-24904

                                 STROUDS, INC.
            (Exact name of registrant as specified in its charter)

           DELAWARE                                          95-4107241
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                        Identification Number)

                           780 SOUTH NOGALES STREET
                          CITY OF INDUSTRY, CA 91748
                   (Address of principal executive offices)

                                 (626) 912-2866
             (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:     None

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

                             TITLE OF EACH CLASS
                       Common stock, par value $0.0001


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



                         (Page 1 of 2 Page Cover Page)

<PAGE>

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sales price of the Common Stock on May 19,
2000 as reported on the Nasdaq Stock Market, was approximately $10,577,768.

Number of shares of common stock, par value $0.0001 per share, outstanding at
May 19, 2000:   7,146,221


                     DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III, to be filed no later
than June 12, 2000.



                         (Page 2 of 2 Page Cover Page)


<PAGE>

                                    PART I
                                    ------


ITEM 1.   BUSINESS
---------------------

Strouds, Inc. ("Strouds" or the "Company") is a leading specialty retailer of
better quality bed, bath, tabletop and other home textiles products, decorative
accessories, window treatments, furniture and area rugs.

The Company was founded in July 1979 by Wilfred C. Stroud, Jr., currently
serving as the Founder, Chairman Emeritus and a director of the Company's Board
of Directors.  The first store opened in Pasadena, California in November 1979
under the name of "Strouds Linen Warehouse."  As of February 26, 2000, the end
to the Company's fiscal year, the Company operated 68 retail stores in
California, Illinois, Minnesota, Nevada and Arizona.  The Company defines its
fiscal year as the period in which most of the business activity occurs (e.g.,
the year ending February 26, 2000 is referred to as fiscal 1999).


MERCHANDISING

Strouds carries three primary product groupings: bedding, bath, and tabletop.
Bedding merchandise consists of sheets, comforters, bedding accessories, bed
pillows, comforter covers, mattress pads, blankets, decorative pillows and
bedspreads.  Bath merchandise consists of towels, bath accessories, bath rugs,
shower curtains and organization items.  Tabletop merchandise consists of
tablecloths, placemats, kitchen textiles and napkin rings.  Strouds also carries
a limited assortment of home decorating accessories in a number of its stores.

The Company's merchandising strategy is to carry a full line of quality
merchandise to appeal to a broad range of customers, with an emphasis on higher
quality products found in better department and specialty home textile stores.
Strouds' merchandise assortment includes popular brand names and a wide
assortment of more fashion-oriented upscale lines and designer collections, some
of which are not available at certain of its department and specialty store
competitors.  The Company also maintains and continues to develop its own
private label lines of merchandise.  Its private label line, Strouds Essentials,
for pillows, down comforters and mattress pads augments its brand name linen
lines offering a wide assortment at value prices.  The Company believes that the
breadth and depth of its selection exceeds what is generally available in
department stores and is greater than most other specialty home textile stores.

The Company's pricing strategy is to maintain everyday low prices that are
substantially below department store regular prices, and consistently at or
below department store "sale" prices and competitive with prices at its
specialty retail competitors for like merchandise.  As one of the leading
participants in the home textiles market, the Company believes that it benefits
from volume purchasing advantages that support its competitive pricing policy.


                                    Page 3


<PAGE>

CUSTOMER SERVICE

Exceptional customer service has always been a key element of the Company's
business strategy.  To maintain this service level, the Company continually
invests in customer service training of all management, sales and support staff
within each of its stores.  For store management a comprehensive training
program called LEAD (Leadership, Education And Development) is constantly
updated to provide the most current tools available for effective in-store
management, associate training and customer service.  The Company employs its
Linen Experts program for sale associates so customers receive the best
information possible on its linen products.  The Linen Experts program takes all
sales associates from an initial full-day orientation through a series of
activities including product study, computer education and customer service
training.  The program culminates in the Linen Expert Challenge - a formal
examination given twice yearly that, when successfully completed, entitles the
sales associate to wear the Linen Expert badge.

The Company has also taken steps to improve the customer shopping experience at
the point-of-sale ("POS").  This includes developing more efficient "cash wrap"
areas and enhanced POS systems.  The Company has upgraded its existing POS
system to provide faster credit card authorization, customer returns and
improved customer receipt information regarding their purchases.

The continual investment in customer service and its liberal return policy,  the
Company believes, has allowed it to sustain a superior position to its
competitors. This exceptional customer service position has always been a point
of difference for Strouds.


STORE FORMAT

Full-line Stores

In 1988, the Company changed from its original format, which included stores
ranging from 5,000 to 10,000 square feet, to a larger full-line store format
averaging 17,300 square feet (excluding a 50,000 square foot full-line store in
Irvine, CA) as of fiscal year-end 1998.  The primary purpose of the Company's
shift to the full-line store format has been to meet the demands of an
increasingly competitive environment.  These stores feature improved merchandise
presentations, new merchandise categories, higher quality fixtures and an
overall ambiance that management believes substantially improves the Strouds
shopping experience.  These full-line stores, on average, have experienced
higher sales volume but lower sales per square foot than the Company's original
format stores.  As a result, although occupancy costs per square foot have not
risen significantly, occupancy costs as a percentage of net sales have
increased.  This has had a negative effect on the Company's gross profit margin
percentage, which includes buying, occupancy and distribution expenses.  Because
of the impact of the shift in store format on average store-level performance,
results in different periods may not be comparable.

All of the Company's original format stores have either been converted to the
full-line store or outlet store format.  Strouds currently operates 46 full-line
stores averaging approximately 17,300 square feet. The full-line stores that
were open for the full twelve months ended February 26, 2000 generated average
sales of approximately $4.0 million and average sales per square foot of
approximately $222 (excluding the full-line store in Irvine, CA).


                                    Page 4


<PAGE>

Outlet Stores

In 1987, the Company developed, initially through the conversion of original
format and selected full-line stores, an outlet business utilizing the name
and brand development of the Strouds full-line store format.  The outlet
format averages 8,300 square feet and targets a more bargain-oriented
customer.  The outlet store carries a similar breadth of merchandise like the
Company's full-line stores and consists of direct purchases, manufacturers'
close-outs, overruns and irregular product.  Currently, the Company operates
22 outlet stores in California and Arizona.

Comparable outlet stores averaged approximately $2.0 million of sales and
produced average sales per square foot of approximately $252 for the twelve
months ended February 26, 2000 (excluding one outlet store which had sales of
approximately $6.0 million and sales per square foot of approximately $482).

Boutique Stores

In May 2000, the Company opened a new retail concept store, approximately 5,000
square feet, called "Pure Linens" in the upscale community of Rolling Hills
Estates, California.  The Pure Linens concept targets the high-end consumer,
offering an array of the finest affordable linens and accessories in an intimate
boutique setting.  Approximately 70% of the store's merchandise will overlap the
upper end of Strouds' full-line store product; the other 30% will be a
completely new assortment of even higher-end merchandise, among the finest
luxury linens available anywhere.

The following table shows, by store format, the number of stores in operation at
the end of each of the following fiscal years and the number of stores opened,
closed or converted during each year.

<TABLE>
<CAPTION>

                           FULL-LINE                                TOTAL
                            STORES       OUTLET      ORIGINAL      STORES
                           -------      -------      --------     -------
<S>                        <C>          <C>          <C>          <C>
1996 ending store count         51           14            2           67
                           -------      -------      -------      -------
1997
----
Stores opened                    2          ---          ---            2
Stores closed                   (2)          (1)         ---           (3)
Store conversions               (2)           4           (2)         ---
                           -------      -------      -------      -------
Ending store count              49           17            0           66
                           -------      -------      -------      -------
1998
----
Stores opened                    1            1          ---            2
Stores closed                   (2)          (1)         ---           (3)
                           -------      -------      -------      -------
Ending store count              48           17            0           65
                           -------      -------      -------      -------
1999
----
Stores opened                    1            5          ---            6
Stores closed                   (3)         ---          ---           (3)
                           -------      -------      -------      -------
Ending store count              46           22            0           68
                           =======      =======      =======      =======
Average square feet per
   store February 26, 2000  17,300        8,300          ---       14,900
                           =======      =======      =======      =======
</TABLE>

                                    Page 5


<PAGE>

INTERNET BUSINESS

The Company introduced its internet business in May 1999 on a relatively small
scale.  Internet customers are from all 50 states and make higher average
purchases than store customers.  California-based purchases represent only 36%
of all internet sales.   Since 80% of Strouds stores are located in California,
this means that cannibalization of the Company's own store business is minimal.
The 64% of customers from outside of California make purchasing decisions with
virtually no help from the traditional impetus of advertising, direct mail or
name recognition.  Since the initial investment was small, limited marketing
activities have been undertaken in these markets.

The rapid success of the internet business has necessitated some changes that
will allow the site more flexibility and equip it to handle increasing volume.
The Company is working with a leading web site designer to launch a fully
developed, technologically competitive web site in the fall of 2000.
Recognizing that fulfillment will be crucial to the success of the internet
business, the Company invested in a new 85,000 square foot warehouse facility
near its corporate headquarters that will house pick, pack and ship operations
to support internet sales.


MARKETING AND SALES PROMOTION

The Company employs an aggressive advertising program to build brand awareness
and communicate its extensive selection of exceptional values.  The Company
utilizes an everyday low price strategy and frequently runs sales events
inconnection with this strategy.  The Company primarily uses full color inserts
and direct mail pieces to reach existing and new customers.  In addition, the
Company periodically uses television during peak seasonal periods and for
clearance events.


MANAGEMENT INFORMATION SYSTEMS

The Company's management information systems ("MIS") are designed to provide its
management and other personnel with timely and easily accessible information to
control and manage their businesses effectively.  The Company has integrated
sales activity in its stores, inventory, purchasing, planning and replenishment,
distribution and financial systems.  The Company's point-of sale system provides
price and inventory look-up, promotional pricing as well as a number of
back-office administrative features.

The Company continually invests in its MIS in order to improve customer service
and reduce operating costs.  The Company invested heavily in remediation efforts
associated with the year 2000 problem.  These efforts resulted in upgrades to
all its mission critical applications and provided a host of new administrative,
data capturing and decision making tools.  The Company continues to invest in
supply chain technologies such as carton scanning and advance ship notice
capabilities, faster credit authorization at the point-of-sale and internet
commerce.


                                    Page 6


<PAGE>

PRIOR EXPANSION STRATEGY

Strouds expanded into markets outside of its core California markets during 1994
through 1997.  The Company opened 13 full-line stores in the greater Chicago,
Minneapolis and Washington, D.C. markets and Nevada.  These stores averaged over
23,000 square feet and were approximately 35% larger than the Company's average
California full-line stores.  These new full-line stores carried expanded
product lines and new merchandise categories including housewares.  The majority
of these stores experienced high occupancy and operating costs as a result of
low sales volume.  Due to the poor operating results of these stores in
particular, the Company suspended its expansion into new markets outside of
California and initiate a restructuring plan, in part, for the purpose of
closing underperforming stores in its expansion markets.  As of February 26,
2000, the Company has closed 4 stores in the greater Chicago and Minneapolis
markets, 2 in the Washington, D.C. market and 1 in the Nevada market.

The Company has continued a strategy to expand in its core California markets.
This expansion strategy consists of strategic in-filling with new stores,
relocations of existing stores to adjust to demographic shifts and store
expansions to meet increasing demands.  For its fiscal year ended February 26,
2000, the Company opened 1 full-line store in Woodland Hills, California and 2
outlet stores in San Ysidro and Tustin, California.  The continued store
development activity in California has from time to time negatively impacted the
sales of existing Strouds stores.  Management believes that the benefits of
strengthening its market presence and adjusting to demographic shifts in the
California market have generally outweighed the reduced sales impact experienced
by an existing Strouds store that may share a particular trade area.

In fiscal 1999, January and February 2000, the Company opened 3 new outlet
stores in the Phoenix market.  Management believes that Phoenix is an ideal
market for Strouds because of its growth potential and its proximity to
California.


FUTURE EXPANSION

The Company has completed its restructuring efforts, made changes to a number of
merchandise categories which its stores will carry, improved the physical layout
to more visually stimulate the customer, modified the use of advertising media
and increased the frequency of sales events.  The combination of these efforts
has resulted in improved operating performance for most of the Company's stores.
Additionally, the revision to the stores' merchandise categories will result in
a scaled down store size which management believes is more economically
efficient.  As a result, management believes that it is now positioned to expand
outside of California in a more effective manner than in its previous expansion
efforts.  In fiscal 1999, January and February 2000, the Company opened 3 new
outlet stores and in March 2000, opened 1 full-line store in the Phoenix market.
While this name recognition will assist in supporting the introduction of the
Strouds stores, the geographic proximity to California will offer logistical
efficiencies in terms of distribution and management.


                                    Page 7


<PAGE>

COMPETITION

The specialty home textile business is fragmented and highly competitive.  The
Company competes with many different types of retail stores that sell many or
most of the products sold by the Company.  Such competitors include (i)
department stores, (ii) specialty stores (such as specialty home textile
retailers) and other companies operating full-line stores selling similar
product lines as the Company, (iii) national chain and mass merchandise stores
and (iv) catalog retailers.  Many of the Company's competitors have
substantially greater financial and other resources than the Company, including,
in some cases, better name recognition.


The Company believes that the ability to compete successfully in its geographic
markets is determined by several factors, including pricing; breadth and quality
of product selection; in-stock availability of merchandise; effective
merchandise presentation; customer service; and store locations.  The Company
believes that it is well-positioned to compete on the basis of these factors.
Nevertheless, there can be no assurance that any or all of the factors that
enable the Company to compete favorably will not be adopted by companies having
greater financial and other resources than the Company.  The home textiles
industry is becoming increasingly competitive as several specialty retailers are
expanding into new geographic markets, including opening stores in California.
In addition, as the Company expands into new geographic markets, it will face
new competitors.


SEASONALITY AND QUARTERLY FLUCTUATIONS

The Company's business is subject to seasonal and quarterly fluctuations.
Historically, the Company has realized a higher portion of its net sales and
an even greater proportion of its profits in the months of November, December
and January.  Additionally, the timing of promotional events may affect the
Company's results in different quarters from year to year.  The Company may
encounter different seasonality factors as it enters new markets outside of
California.  The timing of new store openings and related preopening expenses,
and the amount of net sales contributed by new and existing stores, may also
cause the Company's quarterly results of operations to fluctuate.


EMPLOYEES

As of February 26, 2000, Strouds employed approximately 1,613 people, of which
1,315 were hourly employees and 298 were salaried.  Of these employees, 1,422
were store employees, 47 were distribution center employees and 144 were
corporate level employees.  None of the Company's employees is covered by a
collective bargaining agreement.  Management believes that the Company enjoys
good employee relations.


TRADEMARKS

The Company has registered in the United States Patent and Trademark Office its
service marks "Strouds," "Strouds, The Linen Experts," "The Linen Experts,"
"Strouds Linen Outlet" and "Strouds Home Compass" for retail services.  Strouds
private label merchandise use the registered marks "Essentials" and "Palette"
for bedding, bath and kitchen textile products.


                                    Page 8


<PAGE>

CAUTIONARY STATEMENT FOR PURPOSE OF "SAFE HARBOR PROVISIONS" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained in this Form 10-K (including the information
incorporated herein by reference) that are not related to historical results are
forward-looking statements.  The statements are made a number of times
throughout the document and may be identified by such forward-looking
terminology as "believe," "expect," "may," "will," "intend" or similar
statements or variations of such terms.  Such forward-looking statements involve
certain risks and uncertainties including levels of sales, store traffic,
acceptance of product offering and fashions, competitive pressures from other
home furnishings retailers, availability of suitable future store locations and
schedules of store expansion plans.  These and other important factors that may
cause actual results to differ materially from such forward-looking statements
are included in the "Risk Factors" section of the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on
September 13, 1994, and may be contained in subsequent reports filed with the
Securities and Exchange Commission.  You are urged to consider such factors.
The Company assumes no obligation for updating any such forward-looking
statements.

Reliance on Key Personnel

The Company is dependent on the services of its Chairman, President and Chief
Executive Officer, Charles R. Chinni and its Chief Operating Officer, Robert M.
Menar.  The Company has employment contracts with Mr. Chinni and Mr. Menar
ending on February 28, 2003 and August 8, 2002, respectively.  The loss of
services of Mr. Chinni, Mr. Menar or other key officers or employees could have
a material adverse effect on the Company's operations.  In addition, there can
be no assurance that the Company will be able to attract and retain additional
key personnel with the skills and expertise to manage its operations.

Business Disruption / Geographic Concentration

The Company's corporate headquarters, principal distribution facility and the
majority of its stores are located in California, a state known for seismic
activity.  Operating results could be materially affected by a significant
earthquake if such an event should occur in a geographic area where there is a
concentration of stores.  In addition, there can be no assurance that operating
results would not be permanently affected due to such an event.

Anti-Takeover Effect of Certain Provisions of the Company's Certificate of
Incorporation and Bylaws

Certain provisions of the Company's Restated Certificate of Incorporation (the
"Certificate") and Restated Bylaws (the "Bylaws"), as well as Delaware corporate
law, may be deemed to have anti-takeover effects and may delay, defer or prevent
a takeover attempt that a stockholder might consider to be in the stockholder's
best interest.  These provisions (i) provide that only the Board of Directors or
Chief Executive Officer of the Company may call special meetings of the
stockholders and that stockholders may not act by written consent, (ii)
establish certain advance notice procedures for nomination of candidates for
election as directors and for stockholder proposals to be considered at
stockholders' meetings and (iii) restrict certain business combinations with
interested stockholders.  The Board of Directors of the Company has the
authority to issue preferred stock in one or more series


                                    Page 9


<PAGE>

without the approval of the holders of the Common Stock, par value $0.0001 per
share "Common Stock."  In certain circumstances, the fact that provisions are in
place which inhibit or discourage takeover attempts could reduce the market
value of the Common Stock.

Volatility of Stock Price

The Company's Common Stock began trading on the Nasdaq Stock Market on October
12, 1994.  The market price of the shares of Common Stock could be subject to
significant fluctuations in response to the Company's operating results and
other factors.  In addition, the stock market in recent years has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of particular companies.  These
fluctuations as well as a shortfall in sales or earnings compared to public
market analysts' expectations, changes in analysts' recommendations or
projections, and general economic and market conditions, may adversely affect
the market price of the Common Stock.


ITEM 2.     PROPERTIES
----------------------

The Company leases all of its retail stores.  The leases expire at various dates
principally between 2001 and 2015.  The average new lease is 10 years,  and
generally has multiple five-year renewal options.  Each store lease is
negotiated individually.  Lease terms usually include a fixed minimum rent plus
a percentage of sales in excess of a specified amount.  A proportionate share of
certain operating costs such as common area maintenance, utilities, insurance,
and taxes are typically paid by tenants.

The table below sets forth certain information concerning the Company's stores
at the end of fiscal 1999:

<TABLE>
<CAPTION>

   State         Full-line Store     Outlet     Total
   -----         ---------------     ------     -----
   <S>           <C>                 <C>        <C>
   California        38                19         57
   Illinois           4                --          4
   Minnesota          2                --          2
   Nevada             2                --          2
   Arizona           --                 3          3
                    ---               ---        ---
       Total         46                22         68
                    ===               ===        ===
</TABLE>

The Company leases its corporate offices (approximately 40,000 square feet) in
City of Industry, California, its distribution center (approximately 100,000
square feet) in Walnut, California and its fulfillment warehouse facility
(approximately 85,000 square feet) in City of Industry, California.



ITEM 3.  LEGAL PROCEEDINGS
--------------------------

The Company is not a party to any material legal proceeding and is not aware of
any pending or threatened litigation that, if decided adversely to the Company,
would have a material adverse effect upon the Company's business, results of
operations or financial condition.

                                    Page 10


<PAGE>

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

At the Company's Special Meeting of Stockholders held on January 26, 2000, the
following proposal was approved:

<TABLE>
<CAPTION>

                                            Votes        Votes       Votes     Broker
                                             For        Against     Abstain   Non-votes
                                          ---------    ---------    -------   ---------
<S>                                       <C>          <C>          <C>       <C>
Approve certain amendments to
the Company's Amended and
Restated 1994 Equity Participation
Plan to, among other things (i)
increase the number of shares of
the Company's Common Stock
available for issuance thereunder
from 1,680,000 to 3,680,000 and
(ii) increase the maximum number
of shares that may be granted to
any individual in any calendar year
from 500,000 to 1,000,000, and (iii)
restate the 1994 Plan, as Amended
as the Second Amended and Restated
1994 Equity Participation Plan.           2,516,505    1,494,094      6,899      ---

</TABLE>

                                    Page 11
<PAGE>

                                    PART II
                                    -------


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

Stroud's Common Stock is listed on the Nasdaq Stock Market under the symbol
"STRO."  On May 19, 2000, there were approximately 1,990 stockholders of the
Company, including beneficial stockholders whose stock is held in nominee or
street name by brokers.  The table below sets forth the high and low sales
prices for Strouds' Common Stock as reported by the Nasdaq Stock Market during
the fiscal periods specified:

<TABLE>
<CAPTION>

Fiscal Year 1999                High         Low
----------------               ------       ------
<S>                            <C>          <C>
First Quarter                  $ 2.06       $ 1.50
Second Quarter                   2.63         1.03
Third Quarter                    2.59         1.88
Fourth Quarter                   2.94         1.75

<CAPTION>

Fiscal Year 1998                High         Low
----------------               ------       ------
<S>                            <C>          <C>
First Quarter                  $ 3.94       $ 1.63
Second Quarter                   3.50         2.38
Third Quarter                    2.50         1.41
Fourth Quarter                   2.13         1.25

</TABLE>

The Company has never declared or paid cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future.  In
addition, the Credit Facility effectively prohibits the payment of cash
dividends by the Company.

On November 17, 1995, the Board of Directors of the Company declared a dividend
of one preferred stock purchase right (the "Rights") for each share of Common
Stock outstanding at the close of business on November 30, 1995.  Each Right
will entitle the registered holder thereof, after the Rights become exercisable
and until November 17, 2005 (or the earlier redemption, exchange or termination
of the Rights), to purchase from the Company one one-hundredth of a share of
Series B Junior Participating Preferred Stock, par value $0.0001 per share
("Preferred Stock"), at a price of $30.00 per one one-hundredth of a Preferred
Share, subject to certain anti-dilution adjustments.  The Rights also, under
certain conditions, entitle the holders to purchase $60.00 worth of Common Stock
for $30.00. The Rights expire on November 17, 2005, unless the Company decides
to redeem them earlier at $0.01 per Right or upon the occurrence of certain
events.

The Rights will not be exercisable or transferable apart from the Common Stock
until the earlier to occur of (i) the 10th day after a public announcement that
a Person (broadly defined as any individual or other entity) or group of
affiliated or associated Persons has become an Acquiring Person (a Person or
group of affiliated or associated Persons who has acquired, or obtained the
right to acquire, beneficial ownership of 20% or more of the Common Stock), or
(ii) the 10th day after a Person or group commences, or announces an intention
to commence, a tender or exchange offer, the consummation of which would result
in the beneficial ownership by a Person or group of 20% or more of the Common
Stock.  On January 31, 2000, the Company entered into a First Amendment to
Rights Agreement between the Company and American Stock Transfer & Trust, as
Rights Agent, pursuant to which the beneficial ownership threshold that would
trigger the Rights was increased from 15% to 20%.


                                    Page 12
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------
                                      STROUDS, INC.
                          SELECTED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>

IN THOUSANDS, EXCEPT PER SHARE
 AND OPERATING DATA                     1999         1998         1997         1996      1995(1)
------------------------------       ----------   ----------   ----------   ----------   --------
<S>                                  <C>          <C>          <C>          <C>          <C>
OPERATING STATEMENT DATA:
   Net sales                         $  223,965   $  227,571   $  221,828   $  209,778   $190,316
   Operating income (loss)           $    3,256   $    2,990   $     (918)  $  (22,766)  $  4,754
   Net income (loss)                 $    1,303   $      214   $   (3,798)  $  (21,968)  $  2,570

   Basic
   Net income (loss) per share       $     0.18   $     0.02   $    (0.44)  $    (2.58)  $   0.31
   Weighted average common shares
      outstanding                         7,242        8,597        8,553        8,521      8,409

   Diluted
   Net income (loss) per share       $     0.18   $     0.02   $    (0.44)  $    (2.58)  $   0.30
   Weighted average common shares
      outstanding(2)                      7,335        8,889        8,553        8,521      8,622

OPERATING DATA:
   Stores at end of period:
      Full-line stores                       46           48           49           53         51
      Outlet stores                          22           17           17           14         10
                                     ----------   ----------   ----------   ----------   --------
                                             68           65           66           67         61
                                     ==========   ==========   ==========   ==========   ========

Total square footage at end of
   period                             1,012,802    1,012,674    1,042,704    1,050,080    850,858
Comparable store net sales
   increase (decrease)(3)                  (1.7)%        3.3%         0.3%         0.1%      (3.4)%

BALANCE SHEET DATA (AT END OF
    PERIOD):
      Working capital                $   47,003   $   30,612   $   36,723   $   44,663   $ 42,879
      Total assets                   $  101,783   $   96,443   $  101,078   $  112,104   $ 94,007
      Long-term debt, including
         current maturities          $   45,648   $   27,511   $   30,031   $   32,693   $ 12,683
      Stockholder's equity           $   29,632   $   30,117   $   29,839   $   33,573   $ 55,469
</TABLE>

(1)   53 weeks

(2)   Includes as common equivalent shares the shares of Common Stock issuable
      upon exercise of the warrants and outstanding employee stock options,
      unless antidilutive.

(3)   A new store or a converted or expanded store becomes comparable after it
      has been open under the same format for 13 months.  Comparable store net
      sales are calculated by comparing new sales for comparable stores on a
      fiscal month basis in the respective periods.


                                    Page 13
<PAGE>


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

                               STROUDS, INC.

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following sets forth certain factors that have affected the Company's
results of operations and management believes may continue to affect the Company
in the future.  The Company defines its fiscal year as the period in which most
of the business activity occurs (e.g., the year ending February 26, 2000 is
referred to as fiscal 1999).

Prior Store Expansion Strategy

Strouds expanded into markets outside of its core California markets during 1994
through 1997.  The Company opened 13 full-line stores in the greater Chicago,
Minneapolis and Washington, D.C. markets and Nevada.  These stores averaged over
23,000 square feet and were approximately 35% larger than the Company's average
California full-line stores.  These new full-line stores carried expanded
product lines and new merchandise categories including housewares.  The majority
of these stores experienced high occupancy and operating costs as a result of
low sales volume.  As a result of the poor operating results of these stores in
particular, the Company suspended its expansion into new markets outside of
California and announced a restructuring plan, in part, for the purpose of
closing underperforming stores in its expansion markets.  As of February 26,
2000, the Company has closed 4 stores in the greater Chicago and Minneapolis
markets, 2 in the Washington, D.C. market and 1 in the Nevada market.

The Company has continued a strategy to expand in its core California markets.
This expansion strategy consists of strategic in-filling with new stores,
relocations of existing stores to adjust to demographic shifts and store
expansions to meet increasing demands.  For its fiscal year ended February 26,
2000, the Company opened 1 full-line store in Woodland Hills, California and 2
outlet stores in San Ysidro and Tustin, California.  The continued store
development activity in California has from time to time negatively impacted the
sales of existing Strouds stores.  Management believes that the benefits of
strengthening its market presence and adjusting to demographic shifts in the
California market have generally outweighed the reduced sales impact experienced
by an existing Strouds store that may share a particular trade area.

In fiscal 1999, January and February 2000, the Company opened 3 new outlet
stores in the Phoenix market.  Management believes that Phoenix is an ideal
market for Strouds because of its growth potential and its proximity to
California.


                                    Page 14
<PAGE>


Restructuring Plan

The Company initiated a comprehensive restructuring and cost reduction plan (the
"Restructuring Plan"), resulting in pretax restructuring and asset impairment
charges of $16.3 million in fiscal 1996.  The Restructuring Plan included the
closure of 9 stores which were closed by not renewing leases upon expiration and
negotiating settlements with landlords for stores with unexpired leases at dates
of anticipated closure.

In fiscal 1997 and 1998, 7 stores were closed.  In June 1999, the Company closed
1 store in the Washington, D.C. market and in February 2000, the Company closed
1 store in the Chicago market.  These store closures completed the Company's
Restructuring Plan.  The remaining reserve in excess of actual Restructuring
Plan costs in the amount of $0.3 million was reversed in the fourth quarter of
fiscal 1999 and is included in other income on the Statements of Operations.

During fiscal 1999, cash used related to the Restructuring Plan totaled $2.5
million, related primarily to lease termination costs, workforce reductions and
consulting and advisory fees associated with the Company's restructuring and
cost reduction efforts.

The total revenue and operating losses related to the 9 stores identified in
the Restructuring Plan are summarized as follows:

<TABLE>
<CAPTION>

                       February 26,    February 27,    February 28,
(in thousands)            2000            1999            1998
--------------         -----------     -----------     -----------
<S>                    <C>             <C>             <C>
Revenues                 $ 3,263         $ 9,283         $12,995
                       ===========     ===========     ===========
Operating Loss           $   926         $ 3,038         $ 4,658
                       ===========     ===========     ===========

</TABLE>

Future Expansion

The Company has completed its restructuring efforts, made changes to a number of
merchandise categories its stores will carry, improved the physical layout to
more visually stimulate the customer, modified the use of advertising media and
increased the frequency of sale events.  The combination of these efforts has
resulted in improved operating performance for most of the Company's stores.
Additionally, the revision to the stores' merchandise categories will result in
a scaled down store size which management believes is more economically
efficient.  As a result, management believes that it is now positioned to expand
outside of California in a more effective manner than in its previous expansion
efforts.  In fiscal 1999, January and February 2000, the Company opened 3 new
outlet stores and in March 2000, opened 1 full-line store in the Phoenix market.
While this name recognition will assist in supporting the introduction of the
Strouds stores, the geographic proximity to California will offer logistical
economies in terms of distribution and management.


                                    Page 15
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth selected statements of operations data expressed
as a percentage of net sales for the period indicated:

<TABLE>
<CAPTION>

                                    February 26, February 27, February 28,
Fiscal year ended                       2000         1999         1998
--------------------------------------------------------------------------
<S>                                 <C>          <C>          <C>
Net sales                              100.0%       100.0%       100.0%
Cost of sales, buying and occupancy     71.0         71.9         73.6
                                       ------       ------       ------
Gross profit                            29.0         28.1         26.4
Selling and administrative expenses     27.4         26.7         26.7
Amortization of intangibles              0.1          0.1          0.1
                                       ------       ------       ------
Operating income (loss)                  1.5          1.3         (0.4)
Other income                             0.2          0.1          0.1
Interest expense, net                   (1.5)        (1.3)        (1.6)
                                       ------       ------       ------
Income (loss) before income taxes        0.2          0.1         (1.9)
Income taxes                             0.4          ---          0.2
                                       ------       ------       ------
Net income (loss)                        0.6%         0.1%        (1.7%)
                                       ======       ======       ======

</TABLE>

Fiscal 1999 Compared To Fiscal 1998

Net sales for fiscal 1999 decreased $3.6 million, or 1.6%, to $224.0 million
versus $227.6 million in fiscal 1998.  Comparable store sales decreased $3.6
million, or 1.7%, for the period.  Sales from new stores and expanded or
replacement stores increased by $8.8 million.  Sales were reduced by $8.8
million due to 6 store closures, 4 in fiscal 1999 and 2 in fiscal 1998.

Net sales for full-line stores in fiscal 1999 decreased $5.8 million, or 3.0%,
to $184.6 million versus $190.4 million in fiscal 1998.  Comparable full-line
store sales decreased $3.6 million, or 2.0%, for the period.  Outlet store net
sales in fiscal 1999 increased $2.2 million, or 5.9%, to $39.4 million versus
$37.2 million in fiscal 1998.  Comparable outlet store sales remained the same
for the period.

Management believes that the decrease in comparable full-line store sales is
attributable to the fact that there were no intense promotional sales campaigns
in the current year designed for inventory liquidation this year as there were
last year to eliminate underperforming merchandise categories as identified in
the Company's Restructuring Plan.  The comparable outlet sales remained the same
as there were no material changes in the operations of these stores.
Approximately 21.3% of the comparable stores were affected by new competitive
openings for fiscal 1999 compared to approximately 10.8% for the same period
last year.

Cost of sales, buying and occupancy for fiscal 1999 were $159.1 million versus
$163.6 million for the same period a year ago, a $4.5 million decrease.  This
dollar decrease was attributable, primarily, to the decreased sales volume over
fiscal 1998.  As a percent of net sales, cost of sales, buying and occupancy
decreased to 71.0% from 71.9% for the same period a year ago. The


                                    Page 16
<PAGE>

improved gross margin points was primarily the result of the Company's
Restructuring Plan which resulted in better inventory management and fewer
markdowns and sales of inventory in underperforming merchandise categories.

Selling and administrative expenses for fiscal 1999 increased $0.6 million to
$61.3 million versus $60.7 million for the same period in fiscal 1998 and
increased as a percentage of net sales from 26.7% to 27.4%.  The increase was
primarily due to increased labor staffing and higher credit card fees due to
increased consumer credit card usage.

The Company had operating income for fiscal 1999 of $3.3 million versus $3.0
million for the same period a year ago, a $0.3 million improvement, as a result
of the factors noted above.

Operating income for full-line stores in fiscal 1999 was $2.8 million versus an
operating income of $2.3 million in fiscal 1998.  The increase in operating
profit for the full-line stores were a result of the various factors discussed
above.  Operating income for the outlet stores was $0.5 million in fiscal 1999
versus $0.7 million in fiscal 1998.  The decrease in operating profit for the
outlet stores was primarily due to preopening costs for 5 new outlet stores this
fiscal year.

Interest expense, net, increased $0.5 million to $3.5 million for fiscal 1999
versus $3.0 million in fiscal 1998.  The increase was primarily the result of
higher average borrowings and increased interest rates during fiscal 1999.

The Company recorded an income tax benefit of $0.9 million for fiscal 1999
versus no income tax expense or benefit associated with its income for fiscal
1998.  The income tax benefit for fiscal 1999 was due to a reduction in the
valuation allowance for certain deferred tax assets.

Fiscal 1998 Compared To Fiscal 1997

Net sales for fiscal 1998 increased $5.8 million, or 2.6%, to $227.6 million
versus $221.8 million in fiscal 1997.  Comparable store sales increased $7.1
million, or 3.3%, for the period.  Sales from new stores and expanded or
replacement stores increased by $3.9 million.  Sales were reduced by $5.2
million due to 6 store closures, 3 in fiscal 1998 and 3 in fiscal 1997.

Net sales for full-line stores in fiscal 1998 increased $3.6 million, or 1.9%,
to $190.4 million versus $186.8 million in fiscal 1997.  Comparable full-line
store sales increased $5.7 million, or 3.1%, for the period.  Outlet store net
sales in fiscal 1998 increased $2.2 million, or 6.2%, to $37.2 million versus
$35.0 million in fiscal 1997.  Comparable outlet store sales increased $1.4
million, or 4.7%, for the period.

Management believes that the increase in comparable full-line store and outlet
store sales over the same period a year ago can be attributable to the Company's
increased promotional efforts, a strong California economy where the majority of
the Company's stores are located and a favorable impact related to fewer
competitive openings.  Approximately 10.8% of the comparable stores were
affected by new competitive openings for fiscal 1998 compared to approximately
21.2% for the same period last year.

Cost of sales, buying and occupancy for fiscal 1998 were $163.6 million versus
$163.2 million for the same period a year ago, a $0.4 million increase.  This
dollar increase was attributable, primarily, to the increased sales volume


                                    Page 17
<PAGE>

over fiscal 1997.  As a percent of net sales, cost of sales, buying and
occupancy decreased to 71.9% from 73.6% for the same period a year ago. The
improved gross profit percentage was primarily due to the favorable impact of
increased sales volume on occupancy costs for existing stores, rent reductions
and the decrease of occupancy costs from the closure of 6 stores over the past
two fiscal years.

Selling and administrative expenses for fiscal 1998 increased $1.4 million to
$60.7 million versus $59.3 million for the same period in fiscal 1997 and
remained constant as a percentage of net sales at 26.7% for the same period a
year ago.  The dollar increase was primarily the result of increased
administrative labor staffing and expense recognition for newly established
employee incentive plans.  In addition, the Company incurred costs of $0.7
million in fiscal 1998 related to the pursuit of a strategic acquisition
opportunity.  The costs primarily consisted of consulting and legal
expenditures.

The Company had operating income for fiscal 1998 of $3.0 million versus an
operating loss of $0.9 million for the same period a year ago, a $3.9 million
improvement, as a result of the factors noted above.

Operating income for full-line stores in fiscal 1998 was $2.3 million versus an
operating loss of $0.9 million in fiscal 1997.  Operating income for the outlet
stores was $0.7 million in fiscal 1998 versus no operating income in fiscal
1997.  The increases in operating profit for the segments were a result of the
various factors discussed above.

Interest expense, net, decreased $0.6 million to $3.0 million for fiscal 1998
versus $3.6 million in fiscal 1997.  The decrease was primarily the result of
lower average borrowings and a lower average interest rate during fiscal 1998.

The Company recorded no income tax expense associated with its income for fiscal
1998.  For fiscal 1997, the Company recognized a tax benefit of $0.5 million.
The income tax benefit for fiscal 1997 was due to the carryback of fiscal 1997
tax losses to prior years resulting in a refund of prior years' income taxes.


LIQUIDITY AND CAPITAL RESOURCES

On March 27, 1998, the Company entered into a revolving credit agreement (the
"Credit Facility").  The borrowing limit under this Credit Facility is the
lesser of $50.0 million or the sum of 85% of eligible accounts receivable plus
the lesser of 75% of eligible inventory or 90% of appraised net liquidation
value of inventory.

The Company's capital requirements are primarily for inventory purchases,  store
expansion and refurbishment activities and systems development.  The Company has
historically financed its operations primarily with internally generated funds
and its credit facility.  At February 26, 2000, the Company's working capital
was $47.0 million, while advances from its Credit Facility were $44.6 million.
The Company had $1.8 million available for borrowings under its Credit Facility
as determined by the Company's eligible "borrowing base," as described above, at
February 26, 2000.

Net cash used in operating activities for fiscal 1999 was $7.0 million versus
net cash provided by operating activities $5.6 million in fiscal 1998.  Cash


                                    Page 18
<PAGE>

flows from operating activities decreased by $12.6 million primarily due to
increased inventory of $4.6 million, accounts payable and accrued expenses
decreased $5.6 million and the restructuring reserve decreased by $4.0 million.

Net cash used in investing activities for fiscal 1999 was $6.7 million.  Net
cash used was for capital expenditures consisting of 6 new store openings, 1
store replacement, improvements to its distribution and warehouse facility,
management information systems development and existing store refurbishments and
remodels.

The Company's capital expenditures for fiscal 2000 are currently expected to be
approximately $5.5 million related primarily to new store development, existing
store expansions, distribution and warehouse expansion and improvements to its
management information systems.

Management believes that funds generated from operations, its Credit Facility
and use of trade credit will be sufficient to satisfy the Company's working
capital requirements and commitments for capital expenditures through fiscal
2000.

Net cash provided by financing activities for fiscal 1999 of $13.7 million.  The
Company had net borrowings of $18.1 million primarily to meet working capital
needs.  In addition, the Company repurchased 1,800,000 shares of its outstanding
Common Stock in a private transaction for total consideration of $1.9 million.


YEAR 2000

To date, the Company has not experienced any disruptions to its business in
connection with Year 2000 matters.  The Company will continue to monitor its
critical systems but does not currently anticipate any significant impacts due
to Year 2000 exposures from its internal systems as well as from the activities
of its suppliers.  The Company's costs incurred associated with the Year 2000
issue were approximately $1.6 million over fiscal 1999 and fiscal 1998.


INFLATION

The Company does not believe that inflation has had or will have a material
adverse effect on net sales or results of operations.  The Company has generally
been able to pass on increased costs through increases in selling prices.


SEASONALITY AND QUARTERLY FLUCTUATIONS

The Company's business is subject to seasonal and quarterly fluctuations.
Historically, the Company has realized a higher portion of its net sales and an
even greater proportion of its profits in the months of November, December and
January.  Additionally, the timing of promotional events may affect the
Company's results in different quarters from year to year.  The Company may
encounter different seasonality factors as it enters new markets outside of
California.  The timing of new store openings and related preopening expenses,
and the amount of net sales contributed by new and existing stores, may also
cause the Company's quarterly results of operations to fluctuate.


                                    Page 19
<PAGE>

NEW PRONOUNCEMENTS BY FINANCIAL ACCOUNTING STANDARDS BOARD

On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation - and interpretation of APB Opinion No. 25" (FIN 44).  This
interpretation provides guidance for issues that have arisen in applying APB
Opinion No. 25, "Accounting for Stock Issued to Employees."  FIN 44 applies
prospectively to new awards, exchanges of award in a business combination,
modifications to outstanding awards, and changes in grantee status that occur on
or after July 1, 2000, except for the provisions related to repricings and the
definition of an employee which apply to awards issued after December 15, 1998.
The provisions related to modifications to fixed stock option awards to add a
reload feature are effective for awards modified after January 12, 2000.  The
new interpretation is not expected to have a material impact upon the financial
statements.


CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not related to historical
results are forward-looking statements.  The statements are made a number of
times throughout the document and may be identified by such forward-looking
terminology as "expect," "believe," "may," "will," "intend" or similar
statements or variations of such terms.  Actual results may differ materially
from those projected or implied in the forward-looking statements.  Further,
certain forward-looking statements are based upon assumptions of future events
which may not prove to be accurate.  These forward-looking statements involve
risks and uncertainties including levels of sales, store traffic, acceptance of
product offering and fashions, competitive pressures from other full-line store
retailers and from department stores which carry other products including
certain designer products not carried by the Company's stores, availability of
future store locations and schedule of store expansion plans.  These and other
important factors that may cause actual results to differ materially from such
forward-looking statements are more fully described in Item 1, Part I of the
Company's Annual Report on Form 10-K for the Fiscal Year Ended February 26,
2000.  You are urged to consider such factors.  The Company assumes no
obligation for updating any such forward-looking statements.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

The Company's $50 million Credit Facility has interest payable at a rate
equivalent to the Chase Manhattan Bank Rate plus 0.25% per annum or LIBOR plus
50% per annum (8.75% and 8.38% at February 26, 2000, respectively).  Changes in
interest rates which dramatically increase the interest rate on the credit
facility would make it more costly to borrow proceeds under that facility and
may impede the Company's growth strategies if management determines that the
costs associated with borrowing funds are too high to implement these
strategies.

The Company does not hold derivative investments and does not earn foreign-
source income, except for an embedded interest-rate swap instrument that is
clearly and closely related to the host long-term debt agreement.  The
Company believes that the existence of this derivative instrument does not
pose a material risk to the Company's financial position or results of
operations.  All of the Company's revenues are realized in dollars and almost
all of the revenues are from customers in the United States.  Therefore, the
Company does not believe that it has any significant direct foreign currency
exchange risk.


                                    Page 20
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------


                                  STROUDS, INC.
                             STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                 FISCAL YEAR ENDED
                                     ----------------------------------------
                                     February 26,   February 27,  February 28,
IN THOUSANDS, EXCEPT PER SHARE DATA      2000           1999          1998
------------------------------------ ----------     ----------    -----------
<S>                                  <C>            <C>            <C>
Net sales                            $  223,965     $  227,571     $  221,828
Cost of sales, buying and
      occupancy                         159,108        163,628        163,198
                                     ----------     ----------     ----------
      Gross profit                       64,857         63,943         58,630

Expenses:
   Selling and administrative
      expenses                           61,343         60,695         59,290
     Amortization of excess of cost
      over net assets acquired              258            258            258
                                     ----------     ----------     ----------
      Operating income (loss)             3,256          2,990           (918)

Other income                                633            254            248
Interest expense, net                    (3,451)        (3,030)        (3,598)
                                     ----------     ----------     ----------
      Income (loss) before income
         taxes                              438            214         (4,268)

Income tax benefit                          865              0            470
                                     ----------     ----------     ----------
      Net income (loss)              $    1,303    $      214     $   (3,798)
                                     ==========     ==========     ==========



Per share of common stock:

Basic:
------
Net income (loss) per share:         $     0.18     $     0.02     $    (0.44)
                                     ==========     ==========     ==========
Weighted average shares outstanding       7,242          8,597          8,553
                                     ==========     ==========     ==========

Diluted:
--------
Net income (loss) per share:         $     0.18     $     0.02     $    (0.44)
                                     ==========     ==========     ==========
Weighted average shares outstanding       7,335          8,889          8,553
                                     ==========     ==========     ==========
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                    Page 21
<PAGE>


                                 STROUDS, INC.
                                BALANCE SHEETS

<TABLE>
<CAPTION>
                                                 FEBRUARY 26,   FEBRUARY 27,
IN THOUSANDS, EXCEPT SHARE DATA                      2000           1999
---------------------------------                  --------       --------
<S>                                              <C>            <C>
ASSETS
Current assets:
   Cash                                            $    214       $    269
   Accounts receivable                                2,050          1,763
   Inventory                                         65,475         60,832
   Prepaid expenses                                   2,244          3,554
   Deferred income taxes                                806            439
                                                   --------       --------
      Total current assets                           70,789         66,857
Property and equipment - at cost, net of
   accumulated depreciation and amortization         22,366         21,354
Excess of cost over net assets acquired, net of
   accumulated amortization                           7,015          7,273
Deferred income taxes                                   498            ---
Other assets                                          1,115            959
                                                   --------       --------
      Total assets                                 $101,783       $ 96,443
                                                   ========       ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current maturities of long-term debt            $    686       $    624
   Accounts payable                                  12,953         15,565
   Accrued expenses                                  10,147         15,726
   Current portion of restructuring and asset
      impairment reserves                               ---          4,330
                                                   --------       --------
      Total current liabilities                      23,786         36,245
Long-term debt (primarily revolving debt)            44,962         26,887
Other non-current liabilities                         3,403          3,194
                                                   --------       --------
      Total liabilities                              72,151         66,326
                                                   --------       --------
Stockholders' equity:
   Preferred stock, $0.0001 par value; authorized
      750,000 shares, no shares issued or
      outstanding                                       ---            ---
   Preferred stock, Series B, $0.0001 par value;
      authorized 250,000 shares; no shares issued
      or outstanding                                    ---            ---
   Common stock, $0.0001 par value; authorized
      25,000,000 shares; issued and outstanding
      February 26, 2000, 7,110,620 shares; and
      February 27, 1999, 8,624,131 shares                 1              1
   Treasury stock at cost;  February 26, 2000,
      1,800,000 shares                               (1,890)           ---
   Additional paid-in capital                        39,248         39,146
   Accumulated deficit                               (7,727)        (9,030)
                                                   --------       --------
      Total stockholders' equity                     29,632         30,117
                                                   --------       --------
      Total liabilities and stockholders' equity   $101,783       $ 96,443
                                                   ========       ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                    Page 22
<PAGE>
                                 STROUDS, INC.
                      STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                               Common stock  Additional                           Total
                              --------------  paid-in   Accumulated  Treasury  stockholders'
IN THOUSANDS                  Shares  Amount  capital    deficit       stock      equity
---------------------         ------  ------  -------   -----------  --------  ------------
<S>                           <C>     <C>    <C>        <C>          <C>       <C>
Balance, March 1, 1997         8,536   $  1    $39,018     $(5,446)  $   ---      $33,573

Net loss                         ---    ---        ---      (3,798)      ---       (3,798)
Common stock issued through
   1994 Employee Stock
   Purchase Plan                  43    ---         64         ---       ---           64
                               -----   ----    -------     -------   -------      -------
   Balance, February 28, 1998  8,579   $  1    $39,082     $(9,244)  $   ---      $29,839

Net income                       ---    ---        ---         214       ---          214
Common stock issued through
   1994 Employee Stock
   Purchase Plan                  44    ---         62         ---       ---           62
Common stock issued upon
   exercise of stock options       1    ---          2         ---       ---            2
                               -----   ----    -------     -------   -------      -------
   Balance, February 27, 1999  8,624   $  1    $39,146     $(9,030)  $   ---      $30,117

Net income                       ---    ---        ---       1,303       ---        1,303
Common stock issued through
   1994 Employee Stock
   Purchase Plan                  56    ---         70         ---       ---           70
Common stock issued upon
   exercise of stock options      18    ---         32         ---       ---           32
Common stock issued upon
   exercise of warrants          213    ---        ---         ---       ---          ---
Purchase of treasury stock    (1,800)   ---        ---         ---    (1,890)      (1,890)
                               -----   ----    -------     -------   -------      -------
   Balance, February 26, 2000  7,111   $  1    $39,248     $(7,727)  $(1,890)     $29,632
                               -----   ----    -------     -------   -------      -------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

















                                    Page 23
<PAGE>
                                           STROUDS, INC.
                                    STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 FISCAL YEAR ENDED
                                                       -----------------------------------
                                                      February 26, February 27, February 28,
IN THOUSANDS                                              2000         1999         1998
------------------------------------                   ---------    ---------    ---------
<S>                                                   <C>          <C>          <C>
Cash flows from operating activities:
   Net income (loss)                                   $   1,303    $     214    $  (3,798)
   Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
         Depreciation and amortization of property and
            equipment                                      5,372        4,749        4,755
         Loss on abandonment of property and equipment         2          ---          165
         Amortization of excess of cost over net assets
            acquired                                         258          258          258
         Deferred income taxes                              (865)         ---          608
         (Increase) decrease in:
            Accounts receivable                             (287)        (113)         307
            Inventory                                     (4,643)       3,170        5,764
            Prepaid expenses                               1,310          (41)      (1,678)
            Income taxes receivable                          ---        1,078        1,410
         Increase (decrease) in:
            Accounts payable and accrued expenses         (5,461)       2,803       (2,286)
            Restructuring and asset impairment reserves   (3,973)      (6,485)      (3,524)
         Other                                                53          (17)         216
                                                       ---------    ---------    ---------
          Net cash (used in) provided by operating
           activities                                     (6,931)       5,616        2,197
                                                       ---------    ---------    ---------
Net cash used in investing activities:
   Capital expenditures                                   (6,743)      (5,233)      (2,426)
                                                       ---------    ---------    ---------
Cash flows from financing activities:
   Borrowings (repayments) under long-term debt-net       18,137       (2,521)      (2,616)
      (primarily revolving debt)
   Principal payments under capital lease obligations       (106)         ---          (46)
   (Decrease) increase in overdraft                       (2,624)       1,825        2,580
   Repurchase of common stock held in treasury            (1,890)         ---          ---
   Other equity transactions                                 102           64           64
                                                       ---------    ---------    ---------
          Net cash provided by (used in) financing
             activities                                   13,619         (632)         (18)
                                                       ---------    ---------    ---------
          Net decrease in cash                               (55)        (249)        (247)
Cash at beginning of period                                  269          518          765
                                                       ---------    ---------    ---------
Cash at end of period                                  $     214     $    269     $    518
                                                       ---------    ---------    ---------
Supplemental disclosure of cash flow information:
   Cash paid during the year for:
      Interest                                         $   3,216     $  2,984     $  3,385
                                                       ---------    ---------    ---------
      Income taxes                                     $     ---     $    ---     $     28
                                                       ---------    ---------    ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                    Page 24
<PAGE>


                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS



1.   THE COMPANY

Strouds, Inc. ("Strouds" or the "Company"), a Delaware corporation, is a
specialty retailer of bed, bath, tabletop and other home textiles products,
decorative accessories and other selected home furnishings.  At February 26,
2000, the Company operated 68 stores (46 full-line stores and 22 outlets) in
five states under the name Strouds.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year

The Company's fiscal year is based on a 52-53 week fiscal year ending on the
Saturday closest to the last day of February.  The fiscal years ended February
26, 2000, February 27, 1999 and February 28, 1998 included 52 weeks.

The Company has defined its fiscal year as the period in which most of the
activity occurs (e.g., the year ending February 26, 2000 is referred to as
fiscal 1999).

Asset Impairment

Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Long-lived operating assets
are reviewed at the individual store level.  Intangible assets are reviewed at
an organizational level.  Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cashflows expected to be generated by the asset.  If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
See note 5.

Revenue Recognition

Revenue is recognized when the customer takes possession of the merchandise,
that is the point of sale .  Revenue is shown net of returns.

Stock Compensation

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock Based Compensation" ("SFAS No. 123"), and has elected
to measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and comply with the pro forma
disclosure requirements of SFAS No. 123, except for options and warrants granted
to non-employees, which are accounted for under SFAS No. 123.






                                    Page 25
<PAGE>

                                  STROUDS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Segment Information

Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131") requires public
business enterprises to report information about operating segments in annual
financial statements and selected information in the notes thereto.  Operating
segments, as defined, are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision makers in deciding how to allocate resources in assessing
performance.  The Company operates in two business segments, full-line stores
and outlet stores.  During the current year, the Company expanded into two new
business segments; internet and boutique stores.  Revenues and results of
operation from these segments were minor in fiscal 1999.  See note 12.

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses are reflected in the financial statements at carrying value which
approximates fair value due to the short-term nature of these instruments.  The
carrying value of the Company's borrowings approximates the fair value based on
the current rates available to the Company for similar instruments.

Use Of Estimates

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

Inventory

Inventory is stated at the lower of cost (principally average cost) or market as
determined by the retail inventory method.  Included in inventory costs for
financial reporting purposes is the capitalization of certain buying,
warehousing, storage and transportation costs.  Capitalized costs in inventory
at February 26, 2000 and February 27, 1999 were $1,713,000 and $1,598,000,
respectively.













                                    Page 26
<PAGE>


                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Depreciation And Amortization

Depreciation and amortization are provided on a straight-line basis over the
following estimated useful lives:

     Furniture, fixtures and equipment        5 to 7 years
     Equipment held under capital leases      Term of the lease
     Leasehold improvements                   Term of the lease or life of
                                              the asset, whichever is shorter
                                              (generally 7 to 10 years)

Excess Of Cost Over Net Assets Acquired

Excess of cost over net assets acquired is amortized on a straight-line basis
over its estimated useful life of 40 years.  As part of an ongoing review and
evaluation of intangible assets, management assesses the carrying value of the
Company's intangible assets if facts and circumstances suggest that it may be
impaired.  If this review indicates that the intangibles will not be
recoverable, as determined by an undiscounted cash flow analysis over the
remaining amortization period, the carrying value would be reduced to estimated
fair market value.  Accumulated amortization amounted to $3,311,000 as of
February 26, 2000 and $3,053,000 as of February 27, 1999.  No writedowns were
recorded during the fiscal years ended February 26, 2000 and February 27, 1999.

Concentration of Credit Risk

The Company's deposits are with various high quality financial institutions.
Customer purchases are transacted generally using cash or credit cards.

Advertising Costs

The Company charges production costs of advertising to expense the first time
the advertising takes place.  The advertising expense amounted to $8,311,000,
$8,222,000 and $8,807,000 for fiscal 1999, 1998 and 1997 respectively.

Store Preopening Costs

Store preopening costs, consisting primarily of advertising, labor and supplies
directly related to the opening of specific stores, are expensed as incurred.

Income Taxes

The Company accounts for income taxes under the asset and liability method,
whereby deferred income taxes are provided for the temporary differences between
the financial reporting basis and income tax basis of the Company's assets and
liabilities.  The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.




                                    Page 27

<PAGE>

                                STROUDS, INC.
                        NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)



2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Store Closure Reserves

Management of the Company periodically determines the need to close certain
underperforming stores.  At the time such a decision is made, a store closure
reserve is provided for representing lease termination costs, severance, tear
down costs and other items.  As of February 26, 2000 and February 27, 1999, the
reserve balance was $50,000 and $0, respectively.  The Company anticipates all
of these costs to be incurred within a twelve to twenty four month period.  The
Company evaluates its store closure reserve on a quarterly basis and makes
periodic adjustments as necessary.

Reclassifications

Certain reclassifications have been made to the fiscal 1998 and 1997 amounts to
conform to the fiscal 1999 presentation.


3.   INCOME (LOSS) PER SHARE

The following is a reconciliation of the numerator and denominator used in the
basic and diluted earnings (loss) per share ("EPS") calculations:

<TABLE>
<CAPTION>

                                        February 26,  February 27,  February 28,
IN THOUSANDS, EXCEPT PER SHARE DATA         2000         1999          1998
------------------------------------    -----------   -----------   -----------
<S><C>                                  <C>           <C>           <C>
Numerator:
   Net income (loss)                    $    1,303    $      214    $   (3,798)

Denominator:
   Basic EPS
     Weighted average common shares
     outstanding                             7,242         8,597         8,553

   Effect of dilutive securities:
     Warrants and stock options                 93           292           ---

   Diluted EPS
     Weighted average common shares
     and dilutive potential common
     shares outstanding                      7,335         8,889         8,553
------------------------------------    -----------   -----------   -----------
Basic EPS                               $     0.18    $     0.02    $    (0.44)
Diluted EPS                             $     0.18    $     0.02    $    (0.44)

</TABLE>


                                    Page 28
<PAGE>

                                STROUDS, INC.
                        NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


3.   INCOME (LOSS) PER SHARE (Continued)

In fiscal 1999 and 1998, respectively, options to purchase 1,492,000 and 918,000
shares of common stock, par value $0.0001 par share, of the Company (the "Common
Stock") were not included in the computation of diluted earnings per common
share because the option price was greater than the average market price of the
Common Stock during the year, and therefore their inclusion would have been
antidilutive.  Options to purchase 697,000 shares and warrants to purchase
213,000 shares of Common Stock in fiscal 1997 were not included in the
computation of diluted earnings per common share because the Company was in a
loss position and their inclusion would have been antidilutive.


4.   PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:

<TABLE>
<CAPTION>

                                                    February 26,  February 27,
     IN THOUSANDS                                       2000         1999
     ---------------------------------               ---------    ---------
     <S>                                            <C>           <C>
     Furniture, fixtures and equipment               $  48,106    $  44,351
     Equipment held under capital leases                   597          ---
     Leasehold improvements                              9,033        8,205
                                                     ---------    ---------
                                                        57,736       52,556
     Accumulated depreciation and amortization         (35,370)     (31,202)
                                                     ---------    ---------
                                                     $  22,366    $  21,354
                                                     =========    =========
</TABLE>


                                    Page 29
<PAGE>

                                STROUDS, INC.
                        NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


5.   RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

The Company initiated a comprehensive restructuring and cost reduction plan (the
"Restructuring Plan"), resulting in pretax restructuring and asset impairment
charges of $16,250,000 in fiscal 1996 ($3.2 million related to write-downs of
merchandise inventory was included in cost of sales).  The write-down of
merchandise inventory was based on management's estimate of markdowns necessary
to liquidate underperforming merchandise categories.  In determining the
restructuring charge for impairment, the Company evaluated the fair market value
of the impaired assets based on historical experience of the liquidation value
of such assets.  The Restructuring Plan was designed to improve the operating
performance of the Company through the closure or disposition of certain
underperforming stores, elimination of underperforming merchandise categories
and implementation of cost reduction measures, including workforce reductions,
to more closely align the Company's cost structure with future expected
revenues.  The Restructuring Plan included the closure of 9 stores which were to
be closed by not renewing leases upon expiration and negotiating settlements
with landlords for stores with unexpired leases at dates of anticipated closure.
As of February 26, 2000, the Company had closed 9 stores related to its
restructuring efforts.

In June 1999, the Company closed 1 store in the Washington, D.C. market and in
February 2000, the Company closed 1 store in the Chicago market.  These store
closures completed the Company's Restructuring Plan.  The remaining reserve in
excess of actual Restructuring Plan costs in the amount of $332,000 was reversed
in the fourth quarter of fiscal 1999 and is included in other income on the
Statements of Operations.

During fiscal 1999, cash used related to the Restructuring Plan totaled
$2,453,000, related primarily to lease termination costs, workforce reductions
and consulting and advisory fees associated with the Company's restructuring and
cost reduction efforts.

The following table summarizes the original Restructuring Plan charge:
(in thousands)
---------------------------------------

<TABLE>

<S>                                             <C>
Occupancy, lease termination and other
   costs related to store closures              $   7,375
Asset write-down                                    4,015
Merchandise inventory reserves                      3,200
Employee severance and related costs                1,660
                                                ---------
                                                $  16,250
                                                =========
</TABLE>


                                    Page 30
<PAGE>

                                STROUDS, INC.
                        NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


5.   RESTRUCTURING AND ASSET IMPAIRMENT CHARGES (Continued)

The asset write-downs have been recorded as a permanent reduction in the cost
basis of the related assets.  The merchandise inventory write-down has been
recorded as a reserve against inventories and the lease termination and employee
severance costs have been recorded in the restructuring reserve.  The following
table summarizes the Restructuring Plan activity:

<TABLE>
<CAPTION>

                      Occupancy, lease   Asset write-down;
                      termination and       merchandise
                       subsidy costs         inventory,
                      associated with    leasehold improve-      Employee
                       the closure or     ments, furniture     severance and
                       disposition of       and fixtures       other related
(in thousands)             stores           and equipment          costs       Total
-------------------   ----------------   ------------------   -------------   -------
<S><C>                <C>                <C>                  <C>             <C>
1996 Provision,
   March 1, 1997          $ 7,375             $ 7,215             $ 1,660     $16,250
Fiscal 1997 payments        2,176               1,444               1,262       4,882
                          --------            --------            --------    --------
Reserve balance,
   February 28, 1998        5,199               5,771                 398      11,368
Fiscal 1998 payments          703               6,238                  97       7,038
Adjustment **                (667)                667                  --          --
                          --------            --------            --------    --------
Reserve balance,
   February 27, 1999        3,829                 200                 301       4,330
Fiscal 1999 payments
   through
   February 26, 2000        2,264               1,514                 220       3,998
Adjustment **              (1,565)              1,314                 (81)       (332)
                          --------            --------            --------    --------
Reserve balance,
   February 26, 2000      $     0             $     0             $     0     $     0
                          ========            ========            ========    ========

</TABLE>


                                    Page 31
<PAGE>

                            STROUDS, INC.
                 NOTES TO CONDENSED FINANCIAL STATEMENTS
                             (Unaudited)


5.   RESTRUCTURING AND ASSET IMPAIRMENT CHARGES (Continued)

**  The adjustments made to the reserve result from a periodic reassessment of
the Company's position with respect to its outstanding retail store leases.  The
reductions in the reserve have been reflected in the statement of operations
during the period in which the adjustments were recorded.  During the fourth
quarter of fiscal 1999, the Company completed its restructuring efforts and
accordingly reversed the remaining reserve of $332,000 which is included in
other income on the Statements of Operations.

Also, during fiscal 1998 and during the second quarter of fiscal 1999, the
Company recorded increases to its merchandise inventory reserves related to the
retail stores included in the Restructuring Plan of $780,000 and $1,353,000,
respectively.  These charges were recorded in cost of sales during the
respective periods.

The total revenue and operating losses related to the 9 stores identified in
the Restructuring Plan are summarized as follows:

<TABLE>
<CAPTION>

                       February 26,    February 27,    February 28,
(in thousands)            2000            1999            1998
--------------         -----------     -----------     -----------
<S>                    <C>             <C>             <C>
Revenues                 $ 3,263         $ 9,283         $12,995
                       ===========     ===========     ===========
Operating Loss           $   926         $ 3,038         $ 4,658
                       ===========     ===========     ===========

</TABLE>

6.   ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>

                                                     February 26, February 27,
     IN THOUSANDS                                        2000         1999
     --------------------------------                -----------   ---------
     <S>                                             <C>          <C>
     Cash overdraft                                  $     1,781   $   4,405
     Salary, wages and related expense                     2,659       3,629
     Sales tax                                             1,258       1,164
     Other                                                 4,449       6,528
                                                     -----------   ---------
                                                     $    10,147   $  15,726
                                                     ===========   =========
</TABLE>


                                    Page 32
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


7.   LONG-TERM DEBT, PRIMARILY REVOLVING DEBT

Long-term debt, primarily revolving debt, is summarized as follows:

<TABLE>
<CAPTION>

                                                         February 26,  February 27,
     IN THOUSANDS                                            2000         1999
     ------------------------------------------------    -----------   ------------
     <S>                                                 <C>           <C>
     Revolving promissory note payable to a financial
       institution ("Credit Facility"), secured by
       inventory, The borrowing limit is the lesser of
       $50,000,000 or the sum of 85% of eligible
       accounts receivable plus the lesser of 75% of
       eligible inventory or 90% of appraised net
       liquidation value of inventory.  Interest is
       payable at a rate equivalent to the Chase
       Manhattan Bank Rate ("Bank Rate") plus 0.25%
       per annum or LIBOR plus 2.50% per annum
       (8.75% and 8.38% at February 26, 2000,
       respectively).  The Company can lower its
       interest spread up to a maximum of 0.25% and
       0.50% on its Bank Rate and LIBOR borrowings,
       respectively, if it achieves a certain fixed
       charge coverage ratio, as defined, measured on
       a quarterly rolling twelve month basis.  The
       revolving promissory note expires March 26, 2001
       and may be renewed annually thereafter.            $ 44,594   $ 25,833
     Promissory note payable to a financial institution,
       secured by equipment, fixtures and leasehold
       improvements at two store locations. Interest is
       payable at the rate of 9.580% per annum.  The
       promissory note is for five years, payable in
       monthly installments through September 2001.          1,054      1,678
                                                          --------   --------
         Total debt                                         45,648     27,511
     Less current maturities                                   686        624
                                                          --------   --------
         Total long-term debt                             $ 44,962   $ 26,887
                                                          ========   ========
</TABLE>

Scheduled maturities for total debt outstanding at February 26, 2000 are as
follows:

<TABLE>
<CAPTION>

     IN THOUSANDS                                 Notes payable
     -------------                                -------------
     <S>                                          <C>
     Fiscal year:
       2000                                          $   686
       2001                                           44,962
                                                     -------
                                                     $45,648
                                                     =======

</TABLE>


                                    Page 33
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


7.   LONG-TERM DEBT (Continued)

The Company's Credit Facility contains various restrictions on the payment of
cash dividends, incurrence of additional indebtedness, acquisitions,
investments, loans, merger or consolidation and disposition of assets.  The
covenants also require the Company to meet a minimum net worth requirement at
anytime the borrowing availability is less than $5,000,000.  The Company was in
compliance with the covenants at February 26, 2000.

Included in this facility is a $7,000,000 letter of credit sub-facility.  At
February 26, 2000, the Company had letters of credit outstanding amounting to
$781,000 for its purchase commitments to foreign suppliers under this
sub-facility.

On February 17, 2000, the Company entered into an Interest Rate Swap Agreement
(the "New Agreement") with a financial institution.  The New Agreement is
effective March 1, 2000 and was entered into for the purpose of converting a
portion of its borrowings to a long-term fixed base rate of interest.  The
Company converted $20,000,000 to a weighted average fixed base interest rate of
6.82% plus 2.25% until this New Agreement expires on March 3, 2003.  The Company
has accounted for this hybrid derivative instrument at fair value.  As of
February 26, 2000, the fair value of the agreement was nominal.  The embedded
interest rate swap is clearly and closely related to the host long-term debt
agreement.  The existence of the embedded swap feature does not have a material
impact on the fair value of the host long-term debt agreement.  In connection
with the New Agreement, the Company has issued a standby letter of credit in the
amount of $500,000 to secure the interest rate risk associated with this
agreement.  Concurrently, the Company terminated its existing agreement with the
same financial institution which covered $10,000,000 at a weighted average fixed
base interest rate of 6.03% plus 2.50%.


                                    Page 34
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


8.   LEASE COMMITMENTS

At February 26, 2000, the Company occupied all of its facilities under operating
leases.  The leases require minimum and percentage rental payments based on
gross sales and provide that the Company pay property taxes and costs arising
from the Company's use of the leased property.  The leases are primarily for
ten-year periods, and certain leases contain renewal options.  For lease
agreements with scheduled rent increases during the lease term or for rental
payments commencing on a date other than the initial occupancy, rental expense
is recognized from the date of occupancy on a straight-line basis over the lease
term.  Total rental expense amounted to $22,454,000, $22,756,000 and $23,778,000
for fiscal 1999, 1998 and 1997, respectively.

The Company is obligated under various capital leases for certain machinery and
equipment that expire in August 2003.  The gross amount of machinery and
equipment and related accumulated depreciation recorded under the capital leases
at February 26, 2000 and February 27, 1999 was $597,000 and $209,000,
respectively.

The Company has operating leases for equipment.  These leases are for six month
to five year periods, and certain leases contain renewal options.  The rental
expense amounted to $178,000, $983,000 and $797,000 for fiscal 1999, 1998 and
1997 respectively.

Minimum rental commitments under all operating leases are as follows:

<TABLE>
<CAPTION>
                                                  CAPITAL       OPERATING
     IN THOUSANDS                                 LEASES         LEASES
     --------------                              ---------      ---------
     <S>                                         <C>            <C>
     Fiscal year:
       2000                                      $    148       $  19,998
       2001                                           148          18,810
       2002                                           148          16,966
       2003                                            37          15,018
       2004                                                        13,783
       Thereafter                                                  37,385
                                                 ---------      ---------
          Total minimum lease payments                481       $ 121,960
       Less amount representing interest               64       =========
                                                 ---------
          Present value of minimum capital
             lease payments                           417
       Less current installments of obligations
          under capital leases                        116
                                                 ---------
          Obligations under capital leases
             excluding current installments      $    301
                                                 =========
</TABLE>


                                    Page 35
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)

9.   INCOME TAXES

The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
                                     February 26,  February 27,  February 28,
     IN THOUSANDS                        2000          1999         1998
     --------------                  -----------     --------     ---------
     <S>                             <C>           <C>           <C>
     Current:
       Federal                         $   ---       $   ---       $(1,078)
       State                               ---           ---           ---
                                       -------       -------       -------
         Total current income tax
            benefit                        ---           ---        (1,078)
                                       -------       -------       -------
     Deferred:
       Federal                            (738)          ---           303
       State                              (127)          ---           305
                                       -------       -------       -------
         Total deferred income tax
            (benefit) expense             (865)          ---           608
                                       -------       -------       -------
         Net income tax
            benefit                    $  (865)      $   ---       $  (470)
                                       =======       =======       =======
</TABLE>

A summary of the deferred tax assets (liabilities) is as follows:

<TABLE>
<CAPTION>
                                        February 26,    February 27,
     IN THOUSANDS                           2000            1999
     -------------------                -----------       --------
     <S>                                <C>             <C>
     Deferred tax assets:
       Inventory                          $   541          $   772
       Cash versus accrual basis            2,630            4,428
       Net operating loss and tax
          credit carryovers                 6,481            5,052
                                          -------          -------
                                            9,652           10,252
       Valuation allowance                 (6,729)          (7,950)
                                          -------          -------
         Total deferred tax assets          2,923            2,302

     Deferred tax liabilities:
       Property and equipment              (1,619)          (1,863)
       Capital equipment held on lease        ---              ---
                                          -------          -------
          Total deferred tax liabilities   (1,619)          (1,863)
                                          -------          -------
             Net deferred tax assets      $ 1,304          $   439
                                          =======          =======
</TABLE>


                                    Page 36
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


9.   INCOME TAXES (Continued)

During fiscal 1999, the Company recorded a reduction in its valuation allowance
of $1,221,000 reflecting management's assessment of the expected benefit to be
derived from deferred tax assets which is considered more likely than not to be
realized.  Such estimate is based upon management's projections of taxable
income for the immediate periods it is able to forecast.

The reconciliation of the Federal statutory rate to the effective tax rate is as
follows:

<TABLE>
<CAPTION>
                                        February 26,  February 27,  February 28,
                                            2000          1999          1998
                                        -----------   -----------   -----------
     <S>                                <C>           <C>           <C>
     Federal statutory rate                35.0%         35.0%         35.0%
     Amortization of excess of cost
       over net assets acquired            24.2          42.2          (2.1)
     Change in valuation allowance       (304.3)        (97.5)        (19.8)
     Non-deductible expenses and other     47.6          20.3          (2.1)
                                         -------       -------       -------
                                         (197.5)%         0.0%         11.0%
                                         =======       =======       =======
</TABLE>

The Company has net operating loss carryforwards of approximately $15.2 million
and $9.6 million for Federal and California income taxes, respectively.  These
loss carryforwards expire in fiscal years ending after 2020 and 2005,
respectively.


10.   STOCKHOLDERS' EQUITY

On November 17, 1995, the Board of Directors of the Company declared a dividend
of one preferred stock purchase right (the "Rights") for each share of Common
Stock outstanding at the close of business on November 30, 1995.  Each Right
will entitle the registered holder thereof, after the Rights become exercisable
and until November 17, 2005 (or the earlier redemption, exchange or termination
of the Rights), to purchase from the Company one one-hundredth of a share of
Series B Junior Participating Preferred Stock, par value $0.0001 per share, at a
price of $30.00 per one one-hundredth of a Preferred Share, subject to certain
anti-dilution adjustments.  The Rights also, under certain conditions, entitle
the holders to purchase $60.00 worth of Common Stock for $30.00. The Rights
expire on November 17, 2005, unless the Company decides to redeem them earlier
at $0.01 per Right or upon the occurrence of certain events.


                                    Page 37
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


10.   STOCKHOLDERS' EQUITY (Continued)

The Rights will not be exercisable or transferable apart from the Common Stock
until the earlier to occur of (i) the 10th day after a public announcement that
a Person (broadly defined as any individual or other entity) or group of
affiliated or associated Persons has become an Acquiring Person (a Person or
group of affiliated or associated Persons who has acquired, or obtained the
right to acquire, beneficial ownership of 20% or more of the Common Stock), or
(ii) the 10th day after a Person or group commences, or announces an intention
to commence, a tender or exchange offer, the consummation of which would result
in the beneficial ownership by a Person or group of 20% or more of the Common
Stock.

No event during fiscal 1999 made the Rights exercisable.

The Company issued 1,025,077 warrants to purchase shares of Common Stock related
to a prior year's financing arrangement.  The warrants were exercisable at any
time at the exercise price of $0.0002 per share.  Such warrants to purchase
212,850 shares of common stock were exercised during fiscal 1999.  As of
February 26, 2000, no warrants to purchase shares of Common Stock were
outstanding.

On April 19, 1999, Strouds repurchased 1,800,000 shares of its outstanding
Common Stock in a private transaction.  The average cost in the repurchase was
$1.05 per share.  The repurchased shares were put into the Company's treasury
stock valued at cost.  Concurrently, warrants for 212,850 shares of Common Stock
were exercised.

11.   EMPLOYEE BENEFITS

Strouds sponsors the Strouds Profit Sharing and Retirement Plan (the "Plan"), a
qualified plan under Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code").  The Plan covers substantially all full-time employees and
provides for Company matching of employee contributions, at the discretion of
the Board of Directors of the Company, up to 3% of each employee's salary.
Effective April 1997, the Company suspended matching contributions.  Matching
contributions totaled $16,000 for fiscal 1997.  At the end of each fiscal year,
the Board of Directors of the Company recommend a specific annual amount to be
awarded to the profit sharing portion of the Plan.  In fiscal 1998, the Company
contributed $100,000 to the profit sharing plan.  No contributions were made in
fiscal 1999.


                                    Page 38
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)


11.   EMPLOYEE BENEFITS (Continued)

On May 19, 1994, the Company's Board of Directors adopted the Second Amended and
Restated 1994 Equity Participation Plan ("1994 Plan") to attract and retain
directors, officers and key employees.  The 1994 Plan authorizes the
Compensation Committee of the Board of Directors to issue 3,680,000 shares of
Common Stock upon exercise of options, stock appreciation rights, and other
awards, or as restricted or deferred stock awards.  Under this plan, 1,351,466
shares are available to be granted.  The exercise price of the non-qualified
stock options awarded under the 1994 Plan is determined by the Compensation
Committee and can be less than fair market value but not less than par value
($0.0001).  The Compensation Committee can determine the period of
exercisability and the vesting schedule; however, the life of the option is
limited to ten years from the date of grant.

On October 20, 1999, the Company's Board of Directors adopted the 1999 Special
Purpose Stock Option Plan ("1999 Plan") to retain key employees who are not
officers or directors and to attract new employees who may become officers or
directors of the Company.  The 1999 Plan authorizes the Compensation Committee
of the Board of Directors to issue 2,000,000 shares of Common Stock upon
exercise of options, stock appreciation rights, and other awards, or as
restricted or deferred stock awards.  Under this plan, 1,524,000 shares are
available to be granted.  The exercise price of the non-qualified stock options
awarded under the 1999 Plan is determined by the Compensation Committee and can
be less than fair market value but not less than par value ($0.0001).  The
Compensation Committee can determine the period of exercisability and the
vesting schedule; however, the life of the option is limited to ten years from
the date of grant.

There were 12,900 options outstanding at February 26, 2000 related to the Stock
Option Plan for Executives and Key Employees (the "1988 Plan").  The 1988 Plan
was amended to prohibit the issuance of any additional options after September
1, 1994.

On May 14, 1997, the Compensation Committee approved repricing all previously
granted options to current employees to $1.75 per share with credit for accrued
vesting in the option.  Repriced options could not be exercised for a period of
one year from the date of repricing.  The number of options cancelled and
reissued due to the repricing were 447,284.


                                    Page 39
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)

11.   EMPLOYEE BENEFITS (Continued)


Information with respect to the Company's option plans is summarized as follows:

<TABLE>
<CAPTION>
                            February 26,         February 27,          February 28,
                               2000                  1999                  1998
                         -----------------    -----------------     -----------------
                                  Weighted-            Weighted-             Weighted-
                                  average              average               average
                                  exercise             exercise              exercise
                         Shares   price       Shares   price        Shares   price
                         -------  --------    -------  --------     -------  --------
<S>                    <C>        <C>         <C>      <C>        <C>        <C>
Outstanding at
   beginning of year   1,087,984    $2.11     909,205    $2.14      755,109    $7.06
Granted                1,942,000    $1.88     373,100    $2.70    1,067,434    $2.01
Exercised                (19,370)   $1.80        (840)   $1.75          ---    $  --
Cancelled               (213,390)   $2.22    (193,481)   $3.39     (913,338)   $6.06
                         -------  --------    -------  --------     -------  --------
Outstanding at
   end of year         2,797,224    $1.94   1,087,984    $2.11      909,205    $2.14
                         =======  ========    =======  ========     =======  ========
Exercisable at
   end of year           517,587              245,810               133,000
                         =======              =======               =======
Weighted-average fair
   value of options
   granted during
   the year              $1.88                $2.70                 $2.00
                         =====                =====                 =====
</TABLE>

The following table summarizes information about the stock options
outstanding at February 26, 2000:

<TABLE>
<CAPTION>
                             Options Outstanding           Options Exercisable
                     ----------------------------------   ---------------------
                                  Weighted-    Weighted-               Weighted-
                     Number       average      average    Number       average
   Range of          outstanding  contractual  exercise   exercisable  exercise
   exercise prices   at 02/26/00  life         price      at 02/26/00  price
   ----------------  -----------  -----------  --------   -----------  --------
   <S>               <C>          <C>          <C>        <C>          <C>
   $ 1.06 to $ 1.50     565,770      9.19       $ 1.30      21,520      $ 1.39
     1.63 to   1.78     345,224      6.49         1.73     178,497        1.75
     1.81 to   2.06     339,500      7.50         1.89     159,600        1.89
     2.06 to   2.16   1,126,000      9.89         2.07     100,000        2.16
     2.25 to   3.25     420,730      8.86         2.68      57,970        2.89
   ----------------  -----------  -----------  --------   -----------  --------
   $ 1.06 to $ 3.25   2,797,224      8.88       $ 1.94     517,587      $ 1.98
   ================  ===========  ===========  ========   ===========  ========
</TABLE>


                                    Page 40
<PAGE>

                                 STROUDS, INC.
                        NOTES TO FINANCIAL STATEMENTS
                                  (CONTINUED)


11.   EMPLOYEE BENEFITS (Continued)

On September 1, 1994, the Company's Board of Directors adopted the 1994 Employee
Qualified Stock Purchase Plan (the "Purchase Plan").  The purpose of the
Purchase Plan is to enable the Company to grant options to employees to buy
shares of its Common Stock, at a 15% discount from the then fair market value
without commissions and other charges, to attract and retain experienced and
capable employees and to help employees to further identify their interests with
those of the Company's stockholders generally.  The Purchase Plan is intended to
qualify as an "employee stock purchase plan," as defined in Section 423(b) of
the Code.  An aggregate of 250,000 shares of Common Stock has been reserved for
issuance under the Purchase Plan, subject to adjustment for stock splits, stock
dividends and similar events.  In fiscal 1999, the Company issued 55,659 shares
under the Purchase Plan.

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123).  Accordingly, no compensation cost has been recognized for the stock
option or stock purchase plans.  Had compensation cost for the Company's 1999,
1994 and 1988 plans been determined consistent with SFAS No. 123, the Company's
net income (loss) and net income (loss) per share for 1999, 1998 and 1997 would
approximate the pro forma amounts below:

<TABLE>
<CAPTION>
                                       February 26,  February 27, February 28,
IN THOUSANDS, EXCEPT PER SHARE DATA        2000          1999         1998
-------------------------------------  ------------  -----------  -----------
<S>                                    <C>           <C>          <C>
Net income (loss):
    As reported                          $  1,303     $    214    $  (3,798)
    Pro forma                            $   (295)    $   (348)   $  (4,153)

Net income (loss) per share:
  Basic
    As reported                          $   0.18     $   0.02    $   (0.44)
    Pro forma                            $  (0.12)    $  (0.04)   $   (0.49)

  Diluted
    As reported                          $   0.18     $   0.02    $   (0.44)
    Pro forma                            $  (0.12)    $  (0.04)   $   (0.49)
</TABLE>


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

<TABLE>
<CAPTION>
                                      February 26,  February 27,  February 28,
     Weighted-average assumptions         2000          1999          1998
     ----------------------------     ------------  -----------   -----------
     <S>                              <C>           <C>           <C>
     Risk-free interest rate              6.0%          5.1%          6.0%
     Expected volatility                   45%           45%           45%
     Expected dividend yield                0%            0%            0%
     Expected life (years)                  9             9             9
</TABLE>


                                   Page 41
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)



12.  SEGMENT INFORMATION

In accordance with the requirements of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information,"  the Company's reportable business
segments and respective accounting policies, policies of the segments are the
same as those described in note 2.  Management evaluates segment performance
based primarily on revenue and earnings from operations.  Interest income and
expense is evaluated on a consolidated basis and not allocated to the Company's
business segments.

Segment information is summarized as follows:

<TABLE>
<CAPTION>

                                   February 26, February 27,  February 28,
IN THOUSANDS                           2000        1999         1998
-------------------------------    -----------  -----------  -----------
<S><C>                             <C>          <C>          <C>
Net revenue:
   Full-line stores                $  184,639   $  190,390   $  186,827
   Outlet stores                       39,326       37,181       35,001
                                    -----------  -----------  ----------
                                   $  223,965   $  227,571   $  221,828
                                    ===========  ===========  ==========
Operating income (loss):
   Full-line stores                $    2,824   $    2,320    $    (946)
   Outlet stores                          432          670    $      28
                                    -----------  -----------  ----------
                                   $    3,256   $    2,990    $    (918)
                                    ===========  ===========  ==========
Total assets:
   Full-line stores                $   68,241   $   65,715
   Outlet stores                       11,117        7,330
   Other (1)                           22,425       23,398
                                    -----------  -----------
                                   $  101,783   $   96,443
                                    ===========  ===========
---------------------------------------------------------------------------

</TABLE>

(1)  Other includes corporate and distribution center property, equipment and
assets which are not attributed to a business segment.


                                    Page 42
<PAGE>

                                STROUDS, INC.
                       NOTES TO FINANCIAL STATEMENTS
                                 (CONTINUED)



13.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The results of operations for fiscal 1999 and 1998 were as follows:

<TABLE>
<CAPTION>

                                              First    Second     Third    Fourth
IN THOUSANDS, EXCEPT PER SHARE DATA          Quarter   Quarter   Quarter   Quarter
----------------------------------------     -------   -------   -------   -------
<S><C>                                       <C>       <C>       <C>       <C>
FISCAL 1999:
     Net sales                               $53,605   $53,399   $57,192   $59,769
     Gross profit                            $14,727   $15,665   $17,049   $17,416
     Operating income (loss)                 $  (528)  $   747   $ 1,056   $ 1,981
     Net income (loss)                       $(1,182)  $    31   $   248   $ 2,206
     Basic net income (loss) per share (1)   $ (0.15)  $ (0.00)  $  0.04   $  0.31
     Diluted net income (loss) per share (1) $ (0.15)  $ (0.00)  $  0.03   $  0.31

FISCAL 1998:
     Net sales                               $55,015   $54,190   $59,162   $59,204
     Gross profit                            $14,678   $15,000   $17,411   $16,854
     Operating income                        $   106   $   358   $ 1,196   $ 1,330
     Net income (loss)                       $  (596)  $  (366)  $   506   $   670
     Basic net income (loss) per share (1)   $ (0.07)  $ (0.04)  $  0.06   $  0.08
     Diluted net income (loss) per share (1) $ (0.07)  $ (0.04)  $  0.06   $  0.08
----------------------------------------------------------------------------------

</TABLE>

(1)  Net income per share amounts for each qaurter are required to be
computed independently and may not equal the amount computed for the total
year.

                                    Page 43
<PAGE>

             MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING


The integrity and objectivity of the financial statements and related financial
information in this report are the responsibility of the management of the
Company.  The financial statements have been prepared in conformity with
generally accepted accounting principles and include, when necessary, the best
estimates and judgments of management.

The Company maintains a system of internal accounting controls designed to
provide reasonable assurance, at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authorization, and the
accounting records provide a reasonable basis for the preparation of the
financial statements.  The system of internal accounting controls is continually
reviewed by management and improved and modified as necessary in response to
changing business conditions and recommendations of the Company's independent
auditors.

The Audit Committee of the Board of Directors, currently consisting solely of
outside non-management directors, meet periodically with management and the
independent auditors to review matters relating to the Company's financial
reporting, the adequacy of internal accounting controls and the scope and
results of audit work.  The independent auditors have free access to the Audit
Committee.

KPMG LLP, certified public accountants, are engaged to audit the financial
statements of the Company.  Their Independent Auditors' Report, which is based
on an audit made in conformity with generally accepted auditing standards,
expresses an opinion as to the fair presentation of these financial statements.





/s/Charles R. Chinni
--------------------
Charles R. Chinni
Chairman of the Board, President and Chief Executive Officer



/s/Robert M. Menar
------------------
Robert M. Menar
Director, Chief Operating Officer and Secretary



/s/Gary A. Van Wagner
---------------------
Gary A. Van Wagner
Vice President - Chief Financial Officer


                                    Page 44
<PAGE>

                    INDEPENDENT AUDITORS' REPORT


The Board of Directors
Strouds, Inc.:

     We have audited the accompanying balance sheets of Strouds, Inc. as of
February 26, 2000 and February 27, 1999 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended February 26, 2000.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  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 financial position of Strouds, Inc. as of February
26, 2000 and February 27, 1999 and the results of its operations and its cash
flows for each of the years in the three-year period ended February 26, 2000 in
conformity with generally accepted accounting principles.


/s/KPMG LLP
-----------
Los Angeles, California
April 18, 2000





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

Not applicable.


                                    Page 45
<PAGE>

                                    PART III
                                    --------


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

DIRECTORS

The information required by this Item is incorporated by reference to the
Company's 2000 Proxy Statement (the "Proxy Statement") under the heading
"General Information - Election of Directors."

EXECUTIVE OFFICERS

The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Officers and Certain Key
Personnel."

COMPLIANCE WITH SECTION 16(a) UNDER THE SECURITIES EXCHANGE ACT

The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance."



ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the headings "Compensation of Directors" and
"Executive Compensation."



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

The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Relationships and Related
Transactions."


                                    Page 46
<PAGE>

                                   PART IV
                                   -------


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

(a)  The following documents are filed as a part of this report.

1.   Financial Statements:

The following financial statements of Strouds, Inc. are included under Item 8:

<TABLE>

<S><C>                                                   <C>
Statements of Operations -
     for the fiscal years ended February 26, 2000,
     February 27, 1999 and February 28, 1998             Page 21

Balance Sheets -
     as of February 26, 2000 and February 27, 1999       Page 22

Statements of Stockholders' Equity -
     for the fiscal years ended February 26, 2000,
     February 27, 1999 and February 28, 1998             Page 23

Statements of Cash Flows -
     for the fiscal years ended February 26, 2000,
     February 27, 1999 and February 28, 1998             Page 24

Notes to the Financial Statements                        Page 25

Management's Responsibility for Financial Reporting      Page 44

Independent Auditors' Report                             Page 45


2.   Not applicable

3.   Exhibits:

</TABLE>

The exhibits on the accompanying Index to Exhibits are filed as part of, or
incorporated by reference into, this report.

<TABLE>
<CAPTION>

Exhibit No.      Description
-----------      -----------
<C>              <S>
    3.1          Form of Restated Certificate of Incorporation of the Company.
                      Incorporated herein by reference to Amendment No. 1 to
                      the Company's Form S-1, Registration No. 33-82090, as
                      filed with the Commission on September 13, 1994.
    3.2          Restated By-laws of the Company.
                      Incorporated herein by reference to Amendment No. 1 to
                      the Company's Form S-1, Registration No. 33-82090, as
                      filed with the Commission on September 13, 1994.
    4.1          Rights Agreement, dated as of November 17, 1995, between
                 Strouds, Inc. and American Stock Transfer & Trust Company.
                      Incorporated herein by reference to the Company's Form
                      8-K, as filed with the Commission on December 1, 1995.
*   4.2          First Amendment to Rights Agreement, dated as of January 31,
                 2000, between Strouds, Inc. and American Stock Transfer &
                 Trust Company.

</TABLE>

                                    Page 47
<PAGE>

<TABLE>
<CAPTION>

Exhibit No.      Description
-----------      -----------
<C>              <S>
** 10.1          Second Amended and Restated 1994 Equity Participation Plan of
                 the Company.
                      Incorporated herein by reference to the Company's
                      Form S-8, Registration No. 333-34684, as filed with
                      the Commission on April 13, 2000.
** 10.2          1999 Special Purpose Stock Option Plan of the Company.
                      Incorporated herein by reference to the Company's
                      Form S-8, Registration No. 333-91515, as filed with
                      the Commission on November 23, 1999.
** 10.3          Form of the Company's Employee Qualified Stock Purchase Plan.
                      Incorporated herein by reference to Amendment No. 1 to
                      the Company's Form S-1, Registration No. 33-82090, as
                      filed with the Commission on September 13, 1994.
** 10.4          Amendment to the Strouds, Inc. Employee Qualified Stock
                 Purchase Plan dated January 5, 1995.
                      Incorporated herein by reference to the Company's Form
                      10-K for the fiscal year ended February 25, 1995, as
                      filed with the Commission on May 25, 1995.
   10.5          Security Agreement between Lyon Credit Corporation and
                 Strouds, Inc., dated July, 1996.
                      Incorporated herein by reference to the Company's Form
                      10-Q for the period ended August 31, 1996, as filed
                      with the Commission on October 11, 1996.
   10.6          Financing Agreement between The CIT Group/Business Credit,
                 Inc. and Strouds, Inc. dated March 27, 1998.
                      Incorporated herein by reference to the Company's Form
                      10-K for the fiscal year ended February 28, 1998, as
                      filed with the Commission on May 27, 1998.
*  10.7          Interest Rate Swap Agreement between Wells Fargo Bank,
                 National Association and Strouds, Inc. dated February 17,
                 2000.
   10.8          Employment Agreement between Charles Chinni and Strouds,
                 Inc., dated October 20, 1999.
                      Incorporated herein by reference to the Company's Form
                      10-Q for the period ended November 27, 1999, as filed
                      with the Commission on January 11, 2000.
   10.9          Employment Agreement between Robert M. Menar and Strouds,
                 Inc., dated August 9, 1999.
                      Incorporated herein by reference to the Company's Form
                      10-Q for the period ended November 27, 1999, as filed
                      with the Commission on January 11, 2000.
   10.10         Employment Agreement between Harry Brown and Strouds,
                 Inc., dated November 1, 1999.
                      Incorporated herein by reference to the Company's Form
                      10-Q for the period ended November 27, 1999, as filed
                      with the Commission on January 11, 2000.
*  23            Consent of Independent Auditors
*  27            Financial Data Schedule
------------------------------

</TABLE>

*    Filed herewith
**   Management contract or compensatory plan or arrangement required to be
     filed as an exhibit to the form pursuant to Item 14(a)3 of Form 10-K.


(b)  Reports on Form 8-K:
     No reports on Form 8-K were filed by the Company during the last fiscal
     quarter of fiscal 1999.


                                    Page 48
<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.

                              STROUDS, INC.
                              (Registrant)

                              /s/Charles R. Chinni          May 19, 2000
                              --------------------
                              Charles R. Chinni
                              Chairman of the Board, President
                              and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on its behalf of the Registrant in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>

Signature                     Title                               Date
---------                     -----                               ----
<S>                           <C>                           <C>
/s/ Charles R. Chinni         Chairman of the Board,        May 19, 2000
---------------------         President and Chief Executive Officer
Charles R. Chinni             (Principal Executive Officer)


/s/ Wilfred C. Stroud         Founder, Chairman Emeritus    May 19, 2000
---------------------         and Director
Wilfred C. Stroud

/s/ Dale D. Achabal           Director                      May 19, 2000
-------------------
Dale D. Achabal

/s/ Larry R. Bemis            Director                      May 19, 2000
------------------
Larry R. Bemis

/s/ Marshall S. Geller        Director                      May 19, 2000
------------------------
Marshall S. Geller

/s/ Marco F. Weiss            Director                      May 19, 2000
------------------
Marco F. Weiss

/s/ Robert M. Menar           Director, Chief Operating     May 19, 2000
---------------------         Officer and Secretary
Robert M. Menar

/s/ Gary A. Van Wagner        Vice President -              May 19, 2000
----------------------        Chief Financial Officer
Gary A. Van Wagner            (Principal Financial Officer and
                               Principal Accounting Officer)

</TABLE>

                                    Page 49
<PAGE>

                                EXHIBIT INDEX

<TABLE>
<CAPTION>

Exhibit No.      Description
-----------      -----------
<C>              <S>
    3.1          Form of Restated Certificate of Incorporation of the Company.
                      Incorporated herein by reference to Amendment No. 1 to
                      the Company's Form S-1, Registration No. 33-82090, as
                      filed with the Commission on September 13, 1994.
    3.2          Restated By-laws of the Company.
                      Incorporated herein by reference to Amendment No. 1 to
                      the Company's Form S-1, Registration No. 33-82090, as
                      filed with the Commission on September 13, 1994.
    4.1          Rights Agreement, dated as of November 17, 1995, between
                 Strouds, Inc. and American Stock Transfer & Trust Company.
                      Incorporated herein by reference to the Company's Form
                      8-K, as filed with the Commission on December 1, 1995.
*   4.2          First Amendment to Rights Agreement, dated as of January 31,
                 2000, between Strouds, Inc. and American Stock Transfer &
                 Trust Company.
** 10.1          Second Amended and Restated 1994 Equity Participation Plan of
                 the Company.
                      Incorporated herein by reference to the Company's
                      Form S-8, Registration No. 333-34684, as filed with
                      the Commission on April 13, 2000.
** 10.2          1999 Special Purpose Stock Option Plan of the Company.
                      Incorporated herein by reference to the Company's
                      Form S-8, Registration No. 333-91515, as filed with
                      the Commission on November 23, 1999.
** 10.3          Form of the Company's Employee Qualified Stock Purchase Plan.
                      Incorporated herein by reference to Amendment No. 1 to
                      the Company's Form S-1, Registration No. 33-82090, as
                      filed with the Commission on September 13, 1994.
** 10.4          Amendment to the Strouds, Inc. Employee Qualified Stock
                 Purchase Plan dated January 5, 1995.
                      Incorporated herein by reference to the Company's Form
                      10-K for the fiscal year ended February 25, 1995, as
                      filed with the Commission on May 25, 1995.
   10.5          Security Agreement between Lyon Credit Corporation and
                 Strouds, Inc., dated July, 1996.
                      Incorporated herein by reference to the Company's Form
                      10-Q for the period ended August 31, 1996, as filed
                      with the Commission on October 11, 1996.
   10.6          Financing Agreement between The CIT Group/Business Credit,
                 Inc. and Strouds, Inc. dated March 27, 1998.
                      Incorporated herein by reference to the Company's Form
                      10-K for the fiscal year ended February 28, 1998, as
                      filed with the Commission on May 27, 1998.
*  10.7          Interest Rate Swap Agreement between Wells Fargo Bank,
                 National Association and Strouds, Inc. dated February 17,
                 2000.
   10.8          Employment Agreement between Charles Chinni and Strouds,
                 Inc., dated October 20, 1999.
                      Incorporated herein by reference to the Company's Form
                      10-Q for the period ended November 27, 1999, as filed
                      with the Commission on January 11, 2000.
   10.9          Employment Agreement between Robert M. Menar and Strouds,
                 Inc., dated August 9, 1999.
                      Incorporated herein by reference to the Company's Form
                      10-Q for the period ended November 27, 1999, as filed
                      with the Commission on January 11, 2000.

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

Exhibit No.      Description
-----------      -----------
<C>              <S>
   10.10         Employment Agreement between Harry Brown and Strouds,
                 Inc., dated November 1, 1999.
                      Incorporated herein by reference to the Company's Form
                      10-Q for the period ended November 27, 1999, as filed
                      with the Commission on January 11, 2000.
*  23            Consent of Independent Auditors
*  27            Financial Data Schedule
------------------------------

</TABLE>

*    Filed herewith
**   Management contract or compensatory plan or arrangement required to be
     filed as an exhibit to the form pursuant to item 14(a)3 of Form 10-K.