<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                   FORM 10-Q


[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                                        
               For the quarterly period ended November 1, 1997
                                              ----------------
                                      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 0-21406
                                               -------

                               Brookstone, Inc.
                               ----------------
            (Exact name of registrant as specified in its charter)

                Delaware                                    06-1182895
                --------                                    ----------
(State or other jurisdiction of incorporation            (I.R.S. Employer
            or organization)                            Identification No.)


                     17 Riverside Street, Nashua, NH  03062
                     --------------------------------------
               (address of principal executive offices, zip code)

                                  603-880-9500
                                  ------------
              (Registrant's telephone number, including area code)
 
    ------------------------------------------------------------------
              (Former name, former address and former fiscal year
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]  No [_]

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS
                                        
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed, by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X]  No [_]

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:  7,867,634 shares of Common
                                                 -----------                
Stock as of  December 11, 1997  
             -------------------
<PAGE>
 
                               BROOKSTONE, INC.
                                        
                              Index to Form 10-Q
<TABLE>
<CAPTION>
 
                                                                                      Page No.
                                                                                      --------
<S>                                                                                    <C>     
Part I:       Financial Information 
              --------------------- 
Item 1:
         Consolidated Balance Sheet
         as of November 1, 1997, February 1, 1997, and November 2, 1996                     3 

         Consolidated Statement of Operations for the thirteen and thirty-nine weeks
         ending November 1, 1997 and November 2, 1996                                       4 

         Consolidated Statement of Cash Flows for the thirteen and thirty-nine 
         weeks ending November 1, 1997 and November 2, 1996                                 5 

         Notes to Consolidated Financial Statements                                         6

Item 2:
       
         Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                              7 - 8
 
Part II: Other Information
         -----------------
 
Item 1:
         Legal Proceedings                                                                  9
 
Item 2:
         Change in Securities                                                               9
 
Item 3:
         Defaults by the Company upon its Senior Securities                                 9
 
Item 4:
         Submission of matters to a vote of Security Holders                                9
 
Item 5:
         Other Information                                                                  9
 
Item 6:
         Exhibits and Reports on Form 8-K                                                   9
 
Signatures                                                                                  10
 
</TABLE>

                                       2
<PAGE>
 
                               BROOKSTONE, INC.
                          CONSOLIDATED BALANCE SHEET
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                        
<TABLE>
<CAPTION>
                                                           (Unaudited)                                    (Unaudited)
                                                         November 1, 1997      February 1, 1997         November 2, 1996
                                                         ----------------      ----------------         ---------------- 
            Assets
            ------
<S>                                                       <C>                    <C>                      <C>
Current Assets:                                              
    Cash and cash equivalents                                $  2,409              $ 10,576                 $  1,694
    Receivables, net                                            4,556                 5,448                    5,250
    Merchandise inventories                                    47,950                31,266                   50,245
    Deferred income taxes                                       6,675                 1,026                    5,675
    Other current assets                                        5,929                 2,953                    5,850
                                                             --------              --------                 --------
        Total current assets                                   67,519                51,269                   68,714
                                                             --------              --------                 --------
Deferred income taxes                                           2,493                 1,845                    1,864
Property and equipment, net                                    34,728                33,413                   31,817
Other assets                                                    1,688                   734                    2,470
                                                             --------              --------                 --------
                                                             $106,428              $ 87,261                 $104,865
                                                             ========              ========                 ========  
Liabilities and Shareholders' Equity
------------------------------------
 
Current liabilities:
Current Portion of obligation under capital
 lease                                                       $     87               $    79                 $     84
 
Short term borrowings                                          20,000                    --                   22,985
Accounts payable                                               19,738                 8,616                   22,407
Other current liabilities                                       9,350                12,902                    7,561
                                                             --------              --------                 --------
      Total current liabilities                                49,175                21,597                   53,037
                                                             --------              --------                 --------
Other long term liabilities                                     8,405                 8,923                    8,547
Long term obligation under capital lease                        2,720                 2,784                    2,805
 
Commitments and contingencies
 
Shareholders' Equity:
Preferred stock, $0.001 par value:
 Authorized - 2,000,000 shares; issued and
 outstanding - 0 shares at November 1, 1997,
 February 1, 1997 and November 2, 1996
Common stock, $0.001 par value
 Authorized 50,000,000 shares; issued and
 outstanding - 7,821,384 at November 1,
 1997, 7,793,613 shares at February 1, 1997
 and 7,768,613 shares at November 2, 1996                           8                     8                        8
Additional paid-in capital                                     46,799                46,663                   46,529
Retained earnings / (Accumulated deficit)                        (632)                7,333                   (6,014)
Treasury stock, at cost - 3,616 shares at
 November 1, 1997, February 1, 1997 and
 November 2, 1996                                                 (47)                  (47)                     (47)
                                                             --------              --------                 --------
      Total Shareholders' Equity                               46,128                53,957                   40,476
                                                             --------              --------                 --------
                                                             $106,428               $87,261                 $104,865
                                                             ========              ========                 ========
</TABLE> 

                                       3
<PAGE>
 
                                BROOKSTONE, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (Unaudited)

<TABLE>  
<CAPTION>
    
                                                 Thirteen Weeks Ended              Thirty-nine Weeks Ended
                                        -------------------------------------------------------------------------
                                        November 1, 1997   November 2, 1996   November 1, 1997   November 2, 1996
                                        -----------------  ----------------   -----------------  ----------------
<S>                                       <C>                <C>                <C>                <C>
Net Sales                                   $ 38,922           $ 35,022           $116,907           $105,704
Cost of Sales                                 28,647             25,473             83,892             75,025
                                            --------           --------           --------           -------- 
Gross profit                                  10,275              9,549             33,015             30,679
                                            
Selling, general and administrative         
    expenses                                  16,102             14,639             45,518             42,447
                                            --------           --------           --------           --------
    Loss from operations                      (5,827)            (5,090)           (12,503)           (11,768)
                                            
Interest expense, net                            333                325                639                565
                                            
    Loss before taxes                         (6,160)            (5,415)           (13,142)           (12,333)
                                            --------           --------           --------           --------
    Income tax benefit                        (2,427)            (2,134)            (5,178)            (4,859)
                                            --------           --------           --------           --------
Net loss                                    $ (3,733)          $ (3,281)          $ (7,964)          $ (7,474)
                                            ========           ========           ========           ========
Net loss per share                          $  (0.48)          $  (0.42)          $  (1.02)          $  (0.97)
                                            ========           ========           ========           ========
Weighted average shares                     
outstanding                                    7,802              7,761              7,794              7,734
 
</TABLE>

                               BROOKSTONE, INC.

                                       4

<PAGE>
 
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                (IN THOUSANDS)
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                                             Thirty-nine Weeks Ended
                                                                                    ----------------------------------------
                                                                                    November 1, 1997        November 2, 1996
                                                                                    ----------------        ---------------- 
<S>                                                                                  <C>                    <C>
Cash flows from operating activities:
Net loss                                                                               $ (7,964)               $ (7,474)
                                                                                       
Adjustments to reconcile net loss to net cash 
used by operating activities:
 
  Depreciation and amortization                                                           4,619                   4,236
  Deferred income taxes                                                                  (6,297)                 (5,525)
  (Increase) Decrease in other assets                                                      (954)                 (1,272)
  Increase (Decrease) in other long term liabilities                                       (518)                    (25)
 
Changes in working capital:
   Accounts receivable, net                                                                 892                    (938)
   Merchandise Inventories                                                              (16,684)                (24,501)
   Other current assets                                                                  (2,976)                 (2,851)
   Accounts Payable                                                                      11,122                  12,943
   Other current liabilities                                                             (3,552)                 (1,508)
                                                                                       --------                --------
Net cash used by operating activities                                                   (22,312)                (26,915)
                                                                                       --------                --------
Cash flows from investing activities:
   Expenditures for property and equipment                                               (5,934)                 (5,896)
                                                                                       --------                --------
 Net cash used for investing activities                                                  (5,934)                 (5,896)
                                                                                       --------                --------
Cash flows from financing activities:
   Borrowings from revolving credit                                                      20,000                  22,985
   Payments for capitalized lease                                                           (56)                    (49)
   Proceeds from exercise of stock options
    and related tax benefits                                                                135                     236
 
Net cash provided by financing activities                                                20,079                  23,172
                                                                                       --------                -------- 
Net decrease in cash and cash equivalents                                                (8,167)                 (9,639)
                                                                                       --------                --------
Cash and cash equivalents at beginning of period                                         10,576                  11,333
                                                                                       --------                --------
Cash and cash equivalents at end of period                                             $  2,409                $  1,694
                                                                                       ========                ========
</TABLE>                                                       

                               BROOKSTONE, INC.

                                       5

<PAGE>
 
                   Notes to Consolidated Financial Statements
                                        
1.   The results of the thirteen and thirty-nine week periods ending November 1,
     1997, are not necessarily indicative of the results for the full fiscal
     year. The Company's business, like the business of retailers in general, is
     subject to seasonal influences. Historically, the Company's fourth fiscal
     quarter, which includes the Christmas selling season, has produced a
     disproportionate amount of the Company's net sales and generally all of its
     income from operations. The Company expects that its business will continue
     to be subject to such seasonal influences.

2.   The accompanying unaudited consolidated financial statements have been
     prepared in accordance with generally accepted accounting principles and
     practices consistently applied, and in the opinion of the Company, contain
     all adjustments (consisting of only normal recurring adjustments) necessary
     to present fairly the financial position and the results of operations for
     the periods reported. Certain information and footnote disclosures normally
     included in financial statements presented in accordance with generally
     accepted accounting principles have been condensed or omitted. It is
     suggested that the accompanying consolidated financial statements be read
     in conjunction with the annual financial statements and notes thereto which
     may be found in the Company's 1996 annual report.

3.   The exercise of stock options which have been granted under the Company's
     stock option plans gives rise to compensation which is includable in the
     taxable income of the optionees and deductible by the Company for tax
     purposes upon exercise. Such compensation reflects an increase in the fair
     market value of the Company's Common Stock subsequent to the date of grant.
     For financial reporting purposes, the tax effect of this deduction is
     accounted for as a credit to additional paid-in capital rather than as a
     reduction of income tax expense. Such exercises resulted in a tax benefit
     to the Company of approximately $300 for the thirteen week period November
     1, 1997 and $ 66,800 for the thirty-nine week period ended November 1,
     1997.

4.   In February, 1997 the Financial Accounting Standards Board issued
     "Statement of Financial Accounting Standards No. 128, Earnings per Share"
     ("FAS 128").  This pronouncement will be effective for the Company's
     financial statements for the year-ended January 31, 1998.  FAS 128  will
     supersede the pronouncement of the Accounting Principles Board ("APB") No.
     15.  FAS 128 eliminates the calculation of primary earnings per share and
     requires the disclosure of Basic Earnings per Share and Diluted Earnings
     per Share (formerly referred to as fully diluted earnings per share), if
     applicable.  As the Company has recorded net losses for the three and nine
     month periods ended November 1, 1997 and November 2, 1996, any common stock
     equivalents would be anti-dilutive; therefore primary earnings per common
     share, as presented on the consolidated statement of operations is
     equivalent to Basic Earnings per Share and Diluted Earnings per Share, as
     prescribed by FAS 128.

5.   On September 22, 1997 the Company entered into a new revolving credit
     agreement.  The agreement provides for borrowings of up to $75 million for
     letters of credit and working capital, as long as the Company meets a
     borrowing base test equal to 50% of the amount of eligible inventory and
     outstanding documentary letters of credit (increasing to 65% June through
     July and to 75% August through November).  Letters of credit under the
     agreement may not exceed $40 million.  The revolving credit agreement
     requires the Company to have no more than $10 million in borrowings
     (excluding letters of credit) outstanding for one 30 consecutive day period
     during the December 15 to April 30 period.  Borrowings outstanding under
     this facility bear interest, based on election by the Company, equal to the
     agent bank's base lending rate or the Eurodollar rate for the applicable
     period plus an additional 1.0%, 1.25% or 1.5% depending on the applicable
     cash flow coverage ratio.  In addition, the Company is obligated to pay a
     fee of 0.25% or 0.30% on the unused portion of the commitment and 0.50%,
     0.625% or 0.75% on documentary letters of credit (depending of the
     applicable cash flow coverage ratio).  The facility expires July 31, 2002.
     At the Lender's option, all positive cash balances held by the Lender's
     banks may be applied to the outstanding balance of the revolving line of
     credit.  The revolving credit agreement contains a number of restrictive
     covenants, including limitations on incurring additional indebtedness,
     granting liens, selling assets, engaging in mergers and other similar
     transactions, engaging in new business lines and making capital
     expenditures.  In addition, the agreement prohibits the paying of cash
     dividends on common stock and requires that the Company maintain certain
     financial ratios, including tests pertaining to net worth, ratio of
     liabilities to net worth and cash flow coverage.

                                       6
<PAGE>
 
                                BROOKSTONE, INC.
                                        
                    Management's Discussion and Analysis of
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
     THE THIRTEEN WEEK AND THIRTY-NINE WEEK PERIODS ENDED NOVEMBER 1, 1997

                                        
Results of Operations
---------------------

     For the thirteen week and thirty-nine week periods ended November 1, 1997,
net sales increased 11.1% and 10.6% respectively over the comparable periods
last year.  Comparable store sales for the thirteen week and thirty-nine week
periods increased 4.5% and 3.3% respectively.  The sales increase reflects the
results of opening six new stores during the fourth quarter of Fiscal 1996 and
12 new stores during Fiscal 1997 offset by the closing of one store in Fiscal
1997.  The total Brookstone stores open at the end of the thirty-nine week
period ended November 1, 1997 was 170 versus 153 at the end of the comparable
period in Fiscal 1996.   Mail order sales decreased 14.7% and 16.6% for the same
thirteen and thirty-nine week periods.  This decrease was primarily the result
of decreased catalog circulation.

     Gross Profit as a percentage of net sales was 26.4% and 28.2% for the
thirteen and thirty-nine week periods ended November 1, 1997, versus 27.3% and
29.0% for the comparable periods last year. The decrease in the percentage is
primarily the result of an increase in occupancy costs as a result of the new
stores opened and the renewal of certain leases after the expiration of their
original term subsequent to the third Fiscal quarter of 1996.

     Selling, general and administrative expenses as a percentage of net sales
were 41.4% and 38.9% for the thirteen and thirty-nine week periods ended
November 1, 1997 versus 41.8% and 40.2% for the comparable periods last year.
The decrease in the percentage is primarily the result of reduced costs related
to catalog production/distribution and a reduction in costs of shipping to
customers.

     Net interest expense for the thirteen week and thirty-nine week periods
ended November 1, 1997, was $333,000 and $639,000, compared to $325,000 and
$565,000 during the comparable periods last year. The increase for these
thirteen and thirty-nine week periods is related to increased borrowings under
the revolving credit agreement during comparable periods for Fiscal 1997
compared with Fiscal 1996.

     As a result of the foregoing, the Company reported a net loss of $3,733,000
or $0.48 per share, for the thirteen week period ended November 1, 1997, as
compared to a net loss of $3,281,000 or $0.42 per share, for the comparable
period last year. For the thirty-nine week period ended November 1, 1997 the
Company reported a net loss of $7,964,000 or $1.02 per share, compared to a net
loss of $7,474,000 or $0.97 per share, for the comparable period last year.


Liquidity and Capital Resources
-------------------------------

   For the thirty-nine week, ended November 1, 1997, net cash used by operating
activities totaled $22.3 million, reflecting primarily the net loss, purchase of
merchandise inventories, and payment of income taxes.  Cash used for investment
activities during the thirty-nine weeks of Fiscal 1997 amounted to $5.9 million
associated with the purchase of property and equipment.  Cash provided by
financing activities during the thirty-nine weeks of Fiscal 1997 amounted to
$20.1 million, primarily derived from borrowings under the Company's revolving
credit agreement.

   For the thirty-nine week period ended November 2, 1996, net cash used by
operating activities totaled $26.9 million, primarily reflecting the net loss,
purchase of merchandise inventories and payment of income taxes.  Cash used for
investment activities during the thirty-nine week period of Fiscal 1996 amounted
to $5.9 million, associated with the purchase of property and equipment.  Cash
provided by financing activities during the thirty-nine week period of Fiscal
1996 amounted to $23.2 million, derived primarily from borrowings under the
Company's revolving credit agreement.

                                       7
<PAGE>
 
Merchandise inventories were $48.0 million at November 1, 1997 compared to
inventories of $31.3 million at February 1, 1997, advance of the 1997 winter
holiday selling season.  Accounts payable were $19.7 million at November 1, 1997
compared to $8.6 million at February 1, 1997 as a result of increased product
purchases in advance of the 1997 winter holiday selling season.

Cash used for property and equipment investments principally related to the
remodeling of 5 retail stores and the opening of 12 new stores during the 39
weeks ended November 1, 1997.  The Company anticipates opening approximately 18
new stores and remodeling approximately 7 stores during Fiscal 1997.

The Company maintains a revolving credit agreement to finance inventory
purchases, which historically peak in the third quarter in anticipation of the
holiday selling season. At November 1, 1997, the Company had $20.0 million in
outstanding borrowings under its revolving credit agreement, and at November 2,
1996, it had $23.0 million outstanding. In addition, the Company had $14.2
million in outstanding documentary Letters of Credit at November 1, 1997 and
$10.3 million at November 2, 1996. On September 22, 1997 the Company entered
into a Revolving Credit Agreement that increases borrowings available to the
Company to a maximum of $75 million over the next five years (the "New Credit
Agreement" [see note number 5 to `Notes to Consolidated Financial Statements']).

The Company believes that available borrowings under the New Credit Agreement,
cash on hand and anticipated cash generated from operations will be sufficient
to finance planned retail store openings / remodelings and other capital
requirements through Fiscal 1997.

                                       8
<PAGE>
 
                                    PART II
                                        
                               OTHER INFORMATION
                                        
                                        
Item 1:    LEGAL PROCEEDINGS
           -----------------

          The Company is involved in various legal proceedings arising in the
          normal course of business.  The Company believes that the resolution
          of these matters will not have a material effect on the Company's
          financial condition or results of operations.


Item 2:    CHANGES IN SECURITIES
           ---------------------
           
           None


Item 3:    DEFAULT UPON SENIOR SECURITIES
           ------------------------------

           None


Item 4:    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
           ---------------------------------------------------

           None

Item 5:    OTHER INFORMATION
           -----------------

           None

Item 6:    EXHIBITS AND REPORTS ON FORM 8-K
           --------------------------------

       A)  Exhibits

           10.25 - Revolving Credit Agreement dated as of September 22, 1997,
                   among the Company, Brookstone Company, Inc. ("BCI") and
                   Brookstone Stores, Inc. and BankBoston N.A. as agent for the
                   lenders (filed herewith).

           11 - Computation of Net Loss Per Share
 

       B)  Reports on Form 8-K

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

                                       9
<PAGE>
 
                                   Signatures
                                   ----------


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



                             Brookstone, Inc.
                             ----------------
                               (Registrant)
                             
                             
                             
                             /s/  Philip W. Roizin
                             ---------------------------------
December 15, 1997                        (Signature)
         ---                         
                             
                            Philip W. Roizin
                            Executive Vice President Finance and Administration,
                            Treasurer and Secretary
                            (Principal Financial Officer
                            and duly authorized to sign on behalf of registrant)

                                                                                

                                       10