Brookstone Inc – ‘10-K405’ for 1/30/99

As of:  Friday, 4/30/99   ·   For:  1/30/99   ·   Accession #:  927016-99-1730   ·   File #:  0-21406

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Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [x] Reg. S-K Item 405                57    246K 
 2: EX-11       Calculation of Earnings Per Share                      1      6K 
 3: EX-23.1     Consent of Pricewaterhousecoopers                      1      5K 
 4: EX-27       Financial Data Schedule                                2      6K 

10-K405   —   Annual Report — [x] Reg. S-K Item 405
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549 

FORM 10-K 

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended January 30, 1999

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE 

SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 
For the transition period from _______to_____ 

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

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

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

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

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

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

None

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

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

Yes  X    No     .                                                              
-----    ------                                                           

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant on April 9, 1999 was $113,871,982.                                   
-------------   

The number of shares outstanding of the registrant's Common Stock, $.001 par
value, as of April 9, 1999 was 8,133,713 shares.                                
---------         

Documents Incorporated By Reference 

Portions of the registrant's Proxy Statement for its 1999 Annual Meeting of     
Stockholders are incorporated by reference in Part III hereof.                  

Table of Exhibits appears on Page 53. 

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BROOKSTONE, INC.
----------------

1998 FORM 10-K ANNUAL REPORT
Table of Contents 

                                                        [Enlarge/Download Table]


                                                                                      Page No.
                                                                                      ------- 
                                                                                              

Item 1....Business                                                                         3  
Item 2....Properties                                                                      10  
Item 3....Legal Proceedings                                                               11  
Item 4....Submission of Matters to a Vote of Securities Holders                           11  
Item 4A...Executive Officers of the Registrant                                            11  
Item 5....Market for Registrant's Common Equity and Related Stockholders Matters          13  
Item 6....Selected Financial Data                                                         13  
Item 7....Management's Discussion and Analysis of Financial Condition and Results of          
          Operations                                                                      15  
Item 8....Financial Statements and Supplementary Data                                     25  
Item 9....Changes in and Disagreements with Accountants on Accounting and Financial           
          Disclosure                                                                      25  
Item 10...Directors and Executive Officers of the Registrant                              25  
Item 11...Executive Compensation                                                          25  
Item 12...Security Ownership of Certain Beneficial Owners and Management                  25  
Item 13...Certain Relationships and Related Transactions                                  25  
Item 14...Exhibits, Financial Statement Schedules and Reports on Form 8-K                 26  



Exhibits Filed Herewith:                                                                      
------------------------                                                                      
                                                                                              
Exhibit 11    Calculation of Earnings Per Share                                           58  
Exhibit 23.1  Consent of PricewaterhouseCoopers LLP                                       59  
Exhibit 27    Financial Data Schedule                                                     60  


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ITEM 1.  Business                                                               

    Brookstone, Inc. is a nationwide specialty retailer offering an assortment
of consumer products functional in purpose, distinctive in quality and design   
and not widely available from other retailers.  Brookstone's merchandise        
includes lawn and garden, health and fitness, home and office and travel and    
auto products.  The Company offers approximately 1,500 active stock-keeping     
units ("SKUs") at any given time.  Brookstone sells its products through 198    
full-year stores in 36 states and the District of Columbia.  In addition to the 
full-year stores, Brookstone typically operates temporary stores and kiosks     
during the winter holiday season.  Brookstone also operates a direct marketing  
business which includes its traditional Hard-to-Find Tools and its Brookstone   
Gift Collection catalogs in addition to an interactive Internet site,           
www.Brookstone.com. For a further description of the Company's business         
------------------                                                              
segments, see Note 5 of the Notes to Consolidated Financial Statements on       
page 39.                                                                        

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

Merchandising and Marketing                                                     

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

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

                                                                [Download Table]

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

Brookstone's merchandise assortment is carefully edited within a given
product category. In effect, Brookstone pre-shops for its customers by          
identifying high quality products for a given price, providing its customers    
with an added value when they shop at Brookstone.  For example,                 

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a Brookstone customer may only find two or three different types of umbrellas,  
scales, binoculars or travel clocks, but Brookstone's buyers attempt to ensure  
that each product offered is among the best available in its price range.       

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

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

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

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

The Brookstone Store.  Brookstone believes its retail stores are      
distinctive in appearance and in the shopping experience they provide.  The     
Company emphasizes the visual aspects of its merchandise presentation and the   
creation of a sense of "theater" in its stores.  Recognizing the functional     
nature of many of its products, Brookstone strives to present its merchandise in
a manner that will spark the interest of shoppers and encourage them to pick up 
sample products.  At least one sample of each product is removed from its       
packaging and displayed with an information card highlighting the features and  
benefits of the product in an easy-to-read format.  Special signs and displays  
give prominence to selected products which the Company believes will have       
particular appeal to shoppers.  The Company's existing stores occupy an average 
of approximately 3,400 square feet, approximately 2,500 of which is selling     
space.                                                                          

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Since Fiscal 1996, all of the Company's new stores, and certain stores
targeted for remodeling, reflect an updated store prototype design which        
features increased flexibility in display methods and storage capacity.  In     
Fiscal 1997, the Company introduced its retrofit strategy, a limited remodel    
process which incorporates certain new store format elements into a traditional 
store at a cost significantly less than that of a full remodel.  During Fiscal  
1997 and Fiscal 1998, the Company completed a total of 31 of these retrofits.   
At the end of Fiscal 1998, 63% of the Company's retail stores were in the new   
design.  The Company anticipates the further aesthetic evolution of this store  
prototype during Fiscal 1999 and 2000 while retaining the product-oriented focus
of the current prototype.                                                       

  Seasonal Stores.  Brookstone's seasonal stores are typically open during
the winter holiday selling season.  These include both kiosks positioned in     
common areas of shopping malls and other retail sites and temporary stores set  
up within vacant retail in-line space.  These locations are designed to carry a 
limited line of the Company's most popular, gift-oriented merchandise.  The     
typical Brookstone kiosk is a temporary structure of approximately 160 square   
feet, which can carry approximately 120 SKUs.  The typical temporary store has  
approximately 1,500 square feet and is designed to carry up to 300 SKUs.  Both  
kiosks and temporary stores are built with reusable, portable and modular       
materials.  In Fiscal 1997 and Fiscal 1998, Brookstone also operated certain    
temporary seasonal stores during the period between Memorial Day and Labor Day. 
The Company does not plan to operate this summer seasonal store program in      
Fiscal 1999.                                                                    

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

Product Sourcing                                                                

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

     Those products meeting the Company's initial merchandise selection criteria
are tested and reviewed by the Company's quality control department.  Company   
associates home-test                                                            

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most products as part of this quality control review. Once a product has been   
approved, Brookstone begins negotiations with the product's vendor to secure a  
source of supply. When determining which products to introduce, the Company     
takes into account the probable cost of the product relative to what the Company
believes the product's appropriate selling price will be, as well as whether the
vendor expects to distribute the product through mass merchant channels, thereby
diluting the sense of uniqueness which Brookstone seeks to convey to its        
customers. While the time between the approval of a new product and its         
introduction in the stores varies widely, the typical period is between two and 
four months. For products designed by the Company, the period from conception of
the idea to introduction in the stores can be significantly longer.             

   Brookstone currently conducts business with approximately 900 vendors, of
which approximately 200 are located overseas.  In Fiscal 1998, no single vendor 
supplied products representing more than 12% of net sales, with the 10 largest  
vendors representing approximately 32% of net sales.  Although the Company's    
sales are not dependent on any single vendor, there can be no assurance that the
Company's operating results would not be adversely affected if any of its 10    
largest vendors were unable to continue to fill the Company's orders for such   
vendor's products.                                                              

Store Operation and Training                                                    

     The Company's stores are supervised by three regional managers, 12 district
managers and four to six assistant district managers.  A typical store is       
supervised by a store manager, an assistant store manager and a second assistant
store manger, and also employs approximately 10 to 15 full- and part-time sales 
associates, depending upon the time of year.  Store associates are trained to   
inform and assist customers in the features, benefits and operation of          
Brookstone merchandise.  Store associates receive weekly product updates from   
the Company's headquarters, which highlight both new and other selected         
products.  Brookstone has developed incentive compensation programs for         
regional, district, assistant district, store and assistant store managers which
reward individual and store performance.                                        

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

Expansion Strategy                                                              

   Brookstone currently operates 198 stores in 36 states and the District of
Columbia. Brookstone's stores are primarily located in high traffic regional    
malls, as well as in central retail districts and multi-use specialty projects, 
such as Copley Square in Boston, The Forum Shops in Las Vegas and Rockefeller   
Center and West 57th Street in New York City. Brookstone's stores include       
airport stores in terminals throughout the country.                             

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

     Brookstone's store expansion strategy is to open stores in existing markets
where it can build on its name recognition and achieve certain operating        
economies of scale, and in new markets where management believes it can         
successfully transport Brookstone's unique positioning and strategy.  Brookstone
opened 24 stores in Fiscal 1998, seven of which were airport stores; 19 stores  
in Fiscal 1997, three of which were airport stores; 16 stores in Fiscal 1996; 14
stores in Fiscal 1995 and 22 stores in Fiscal 1994.  The Company plans to open  
approximately 20 to 25 new stores, including up to seven airport locations, in  
Fiscal 1999.  Brookstone continually monitors individual store profitability and
will consider closing any stores that do not meet its performance criteria.     
Brookstone closed five stores in Fiscal 1998, one store in each of Fiscal 1997, 
Fiscal 1996 and Fiscal 1995 and two stores in Fiscal 1994.  The Company         
anticipates closing up to two stores prior to the end of Fiscal 1999.           

    Brookstone operated 95 seasonal stores (52 kiosk and 43 temporary in-line)
during the 1998 winter holiday selling season and 50 temporary in-line seasonal 
stores during the 1998 summer season; 138 seasonal stores (75 kiosk and 63      
temporary in-line) during the 1997 winter holiday selling season and 13         
temporary in-line seasonal stores during the 1997 summer season; 121 seasonal   
stores (62 kiosk and 59 temporary in-line) during the 1996 winter holiday       
selling season, and 125 seasonal stores (78 kiosk and 47 temporary in-line)     
during the 1995 winter holiday selling season.  Brookstone plans to operate     
approximately 75 seasonal stores during the 1999 winter holiday selling season  
based on the availability of acceptable sites.  Use of seasonal stores also     
provides the Company the ability to test retail sites during the period of the  
year when customer traffic and sales prospects are greatest.  In certain cases, 
seasonal stores may be operated at a mall where there is a Brookstone retail    
store.  See "Management's Discussion and Analysis of Financial Condition and    
Results of Operations - - Outlook: Important Factors and Uncertainties" (found  
on pages 21-23 of this document).                                               

Direct Marketing                                                                

 Brookstone was founded in 1965 as a mail order marketer of hard-to-find
tools.  In Fiscal 1998, the direct marketing business accounted for             
approximately 11% of the Company's net sales as compared to approximately 12% of
the Company's net sales in Fiscal 1997.  The Company operates two catalogs,     
Hard-to-Find-Tools and the Brookstone Gift Collection.                          

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

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

In Fiscal 1998 Brookstone mailed a total of approximately 20 million  
catalogs, with 20 separate mail dates.  In addition, during Fiscal 1998,        
Brookstone also promoted products via SkyMall (an in-flight selection of        
catalogs available on many U.S. airlines).  Orders for SkyMall are taken by     
SkyMall, then transmitted to the Company's distribution center where they are   
fulfilled.                                                                      

During Fiscal 1997, Brookstone created an interactive Internet site at
www.Brookstoneonline.com, featuring an offering of current products from both   
the Hard-To-Find-Tools and Brookstone Gift Collection catalogs.  In January of  
1999, following the successful resolution of lengthy negotiations, the Company  
obtained the domain name of www.Brookstone.com.__ The site has subsequently been
-------------------     
upgraded to include enhanced speed, additional product categories and SKU       
content and increased site functionality.                                       

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

   The Company also employs a four-person marketing team responsible for
list selection, management of marketing offers and tests of catalog activity.   
In-bound telemarketing and fulfillment are handled primarily by the Company's   
Mexico, Missouri distribution and call centers.                                 

Distribution and Management Information Systems                                 

 The Company operates a single 181,000 square foot distribution facility
located in Mexico, Missouri.  Nearly all of the Company's inventory is received 
and distributed through this facility, which supports both the retail store and 
direct marketing distribution systems.  The Company maintains an inventory of   
products in the distribution center in order to ensure a                        
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sufficient supply for sale to customers. Distributions to stores are made, at a 
minimum, on a weekly basis via UPS. Distributions to direct marketing customers 
are made daily via UPS and the U.S. Postal Service. The facility also houses the
Company's direct marketing call center.                                         

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

Seasonality                                                                     

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

    The seasonal nature of the Company's business increased in Fiscal 1998 and
is expected to continue to increase in Fiscal 1999 as the Company opens         
additional retail stores and continues its program to operate a significant     
number of small, temporary locations during the winter holiday selling season.  
In Fiscal 1998, most of the Company's new stores were opened in the second half 
of the fiscal year.                                                             

Competition                                                                     

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

     Brookstone differentiates itself from department and mass-merchant discount
stores, which offer a broader assortment of consumer products, by providing a   
concentrated selection of functional, hard-to-find products of distinctive      
quality and design.  The Company believes that the uniqueness, functionality and
generally affordable prices of its products differentiate it from other mall-   
based specialty retailers and specialty companies which primarily or exclusively
offer their products through direct marketing channels.  The Company's direct   
marketing business competes with other direct marketing retailers offering      
similar products.  The direct marketing industry has become increasingly        
competitive in recent years, as the number of catalogs mailed to consumers has  
increased.                                                                      

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Employees                                                                       

    As of April 9, 1999, Brookstone had 1,002 regular full-time associates, of
which 558 were salaried staff and 444 were hourly workers.  As of such date, the
Company also employed an additional 1,243 part-time associates and 200 temporary
hourly workers.  The Company regularly supplements its workforce with temporary 
workers, especially in the fourth quarter of each year to service increased     
customer traffic during the peak winter holiday selling season.  The Company    
believes that the success of its business depends, in part, on its ability to   
attract and retain qualified personnel.  None of Brookstone's employees are     
represented by labor unions, and Brookstone believes its employee relations are 
excellent.                                                                      

Trademarks                                                                      

     The Company's "BROOKSTONE" trademark has been registered in various product
classifications with the United States Patent and Trademark Office.  In         
addition, the Company has applied to register the "BROOKSTONE" trademark in     
several foreign countries.                                                      

Adoption of Accounting Standards                                                

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards  (SFAS) No. 133, "Accounting for    
Derivative Instruments and Hedging Activities", which requires that an          
enterprise recognize all derivatives as either assets or liabilities in the     
statement of financial position and measure those instruments at fair value.  In
October 1998, FASB issued SFAS No. 134, "Accounting for Mortgage-Backed         
Securities Retained after the Securitization of Mortgage Loans Held for Sale by 
a Mortgage Banking Enterprise", which amends SFAS No. 115 in the required       
classification of a mortgage-backed security committed for sale before or during
the securitization process.  In February 1999,  FASB issued SFAS No. 135,       
"Rescission of FASB Statement No. 75 and Technical Corrections", which re-      
defines financial reporting standards for defined benefit pension plans.  The   
Company believes adoption of these standards will not impact the Company's      
consolidated financial position, results of operations or cash flows, and any   
effect will be limited to form and content of its disclosures.                  

ITEM 2.  Properties                                                             

   Brookstone leases all of its retail stores.  New retail store leases have
an average initial term of 12 years.  As of January 30, 1999, the unexpired     
terms under the Company's then existing store leases averaged seven years.      
Store leases typically permit Brookstone to terminate the lease after five years
if the store does not achieve specified levels of sales.  In most cases, the    
Company pays a minimum fixed rent plus a contingent rent based upon net sales of
the store in excess of a certain threshold.  The Company does not believe the   
termination of any particular                                                   

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lease would have a material adverse effect on the Company.  The following chart 
describes the number of store leases which will expire in the periods indicated:

                                                                [Download Table]

YEAR                      LEASES EXPIRING
----                      ---------------
                                         
1999                            4        
2000                           10        
2001                           13        
2002                           11        
2003                           13        
2004 and thereafter           146        

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

ITEM 3.  Legal Proceedings                                                      

        Brookstone is involved in various routine legal proceedings incidental
to the conduct of its business.  The Company believes that none of these legal  
proceedings will have a material adverse effect on Brookstone's financial       
condition or results of operations.                                             

ITEM 4.  Submission of Matters to a Vote of Security Holders                    

        No matters were submitted to a vote of security holders of the Company
during the fourth quarter of Fiscal 1998.                                       

ITEM 4A.  Executive Officers of the Registrant                                  

The executive officers of the Company are as follows:               

                                                                [Download Table]


NAME                     AGE   PRESENT POSITION                       
--------------------    ----   ----------------------------------     
                                                                      
Michael F. Anthony       44    Chairman of the Board, President and   
                                 Chief  Executive Officer             
Philip W. Roizin         40    Executive Vice President, Finance &    
                                 Administration                       
Alexander M. Winiecki    51    Senior Vice President, Store Operations
Jo-Ann B. Karalus        53    Vice President, Human Resources        
Steven C. Strickland     36    Vice President, Marketing              
Scott R. Ornstein        37    Vice President, General Merchandise    
                                 Manager                              

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

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

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

     JO-ANN B. KARALUS has been Vice President, Human Resources of the
Company since July 1990. Prior to such time, Ms. Karalus held various positions 
at Brookstone since joining the Company in 1980, including Director of Human    
Resources from 1987 to July 1990.                                               

          STEVEN C. STRICKLAND has been Vice President, Marketing of the Company
since March 1997. Prior to such time, Mr. Strickland held the position of       
Operating Vice President, Creative & Visual Services for the Company from       
September 1995 to March 1997. From March 1994 to September 1995, he served as   
Vice President Strategic Design & Visual Merchandising for Women's Specialty    
Retailing, a division of U.S. Shoe Corporation and a retailer of women's ready- 
to-wear. From April 1985 to March 1994, Mr. Strickland was with The Limited,    
Inc. where he held various positions including Corporate Design Manager from    
March 1991 through March 1994.                                                  

          SCOTT R. ORNSTEIN has been Vice President, General Merchandise Manager
of the Company since May 1998.  From November 1997 to May 1998, Mr. Ornstein    
served as Senior                                                                

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Vice President for G.T. Interactive, a publisher/distributor of game and        
educational software. He was Vice President, General Merchandise Manager of the 
Company from March 1997 to November 1997. He served as Operating Vice President,
Merchandising for the Company from April 1995 to March 1997. From May 1990 to   
March 1995, Mr. Ornstein was employed by Lechters, Inc., a nationwide chain of  
600 specialty stores, where he held various merchandising positions including   
Vice President, Merchandise Manager from April 1993 to March 1995. Mr. Ornstein 
was a buyer with Abraham & Straus, formerly a division of Federated Department  
Stores, from June 1987 to April 1990. He held various positions of increasing   
responsibility with Macy's New York and Jordan Marsh, which at the time was a   
division of Allied Department Stores, from January 1985 to May 1987.            

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

PART II.                                                                        

ITEM 5.  Market for Registrant's Common Equity and Related Stockholders'        
Matters.                                                                        

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

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

                                                                [Download Table]


Common Stock:                     Fiscal 1997            Fiscal 1998        
                                  ----------             -----------        
                             Quarter  High     Low   Quarter   High    Low  
                             ---------------------  ------------------------
                                                                            
                             First   $ 9.38  $ 7.75  First    $14.94  $11.50
                             Second  $ 9.00  $ 8.25  Second   $15.47  $13.63
                             Third   $13.13  $ 8.88  Third    $14.13  $ 9.19
                             Fourth  $12.50  $10.50  Fourth   $17.81  $11.25


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

     As of April 9, 1999, there were 8,133,713 shares of common stock,
$.001 par value per share, outstanding and held of record by 200 stockholders.  
The Company has never paid a cash dividend and currently plans to retain any    
earnings for use in the operations of the business.  Any determination by the   
Board of Directors to pay future cash dividends will be based upon conditions   
then existing, including the Company's earnings, financial condition and        
requirements, restrictions in its financing arrangements and other factors.     

ITEM 6.  Selected Financial Data                                                

         The selected financial data for the five years ended January 30, 1999
may be found on the following page of this document.                            

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Brookstone, Inc.
Selected Financial Data 
(In thousands, except operating and per share data) 

                                                        [Enlarge/Download Table]

                                                                        Fiscal                     
                                                   ----------------------------------------------- 
                                                     1998      1997      1996     1995 *     1994  
-------------------------------------------------------------------------------------------------- 
      Income Statement Data:                                                                       
                                                                                                   
      Net sales                                    $271,858 $239,866  $218,044  $196,333  $167,575 

      Cost of sales                                 170,639  151,633   137,612   123,413   102,298 

      Gross profit                                  101,219   88,233    80,432    72,920    65,277 

      Selling, general and administrative            84,138   75,023    69,856    64,328    55,837 
          expenses                                                                                 

      Income from operations                         17,081   13,210    10,576     8,592     9,440 

      Interest expense, net                           1,672    1,084       885       845       648 

      Provision for income taxes                      6,071    4,778     3,818     3,130     3,649 

      Net income                                     $9,338   $7,348    $5,873    $4,617    $5,143 
-------------------------------------------------------------------------------------------------- 
      Earnings per share - basic                      $1.17    $0.94     $0.76     $0.60     $0.68 
      Earnings per share - diluted                    $1.13    $0.91     $0.73     $0.58     $0.66 
-------------------------------------------------------------------------------------------------- 

      Weighted average shares outstanding - basic     7,988    7,824     7,744     7,662     7,530 
      Weighted average shares outstanding -                                                        
          diluted                                     8,285    8,119     8,061     7,973     7,849 
-------------------------------------------------------------------------------------------------- 

      Operating Data:  (Unaudited)                                                                 
      -------------------------------------------                                                  
      Increase in same store sales (1)                  6.0%     3.6%      5.6%      2.2% **   0.3%

      Net sales per square foot of selling space       $481     $469      $461      $452      $463 
      (2)                                                                                          

      Number of stores:                                                                            
          Beginning of period                           177      159       144       131       111 
          Opened during period                           24       19        16        14        22 
          Closed during period                            5        1         1         1         2 
          End of period                                 196      177       159       144       131 

      Number of winter holiday seasonal stores           95      138       121       125       103 

      Balance Sheet Data (at period end) :                                                         
      -------------------------------------------                                                  
      Total assets                                 $114,561 $105,318   $87,261   $77,757   $72,553 
      Long-term debt, excluding current portion       2,612    2,698     2,784     2,863     2,936 
      Total shareholders' equity                     72,310   61,766    53,957    47,714    42,756 

      *Fifty-three week year  **Based upon                                                         
        fifty-two weeks                                                                            

(1)  Same store sales percentage is calculated using net sales of stores which  
     were open for the full current period and the entire preceding fiscal year.
(2)  Net sales per square foot of selling space dollar amount is calculated     
using net sales generated for stores open for the entire fiscal period
   divided by the square feet of selling space of such stores. Selling space
does not include stock rooms.                                         

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ITEM 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.                                                

Results of Operations                                                           
---------------------                                                           
The following table sets forth certain financial data of the Company expressed  
as a percentage of net sales for Fiscal 1998, Fiscal 1997 and Fiscal 1996.      

                                                                [Download Table]

                                     Fiscal Year    
                              ----------------------
                               1998    1997    1996 
                              ------  ------  ------
                                                    
Net sales                     100.0%  100.0%  100.0%

Cost of sales                  62.8    63.2    63.1 
                              -----   -----   ----- 

Gross profit                   37.2    36.8    36.9 

Selling, general and                                
  administrative expenses      30.9    31.3    32.0 

Income from operations          6.3     5.5     4.9 
Interest expense, net           0.6     0.4     0.4 
                              -----   -----   ----- 

Income before taxes             5.7     5.1     4.5 
Provision for income taxes      2.3     2.0     1.8 
                              -----   -----   ----- 

Net income                      3.4%    3.1%    2.7%
                              -----   -----   ----- 


Fifty-two weeks ended January 30, 1999 versus Fifty-two weeks ended January 31, 
------------------------------------------------------------------------------- 
1998                                                                            
----                                                                            

     Net sales for Fiscal 1998 increased by $32.0 million, or 13.3%, over Fiscal
1997, primarily as the result of a $30.8 million, or 14.5%, increase in retail  
sales, combined with a $1.2 million, or 4.2%, increase in direct marketing      
sales.  Of the increase in retail sales, $11.6 million was attributable to the  
opening of 24 new stores (17 full line and 7 airport stores), $9.7 million to   
additional sales from the operation of 19 stores for the full year in Fiscal    
1998 that were only open for a portion of Fiscal 1997 (16 full line and 3       
airport stores), and $11.1 million from a 6.0% increase in same store sales.    
The retail sales increase also included $1.6 million in sales primarily         
attributable to operating 50 temporary summer seasonal locations and 95         
temporary winter holiday locations in Fiscal 1998, versus 13 temporary summer   
seasonal locations and 138 temporary winter holiday locations in Fiscal 1997.   
Partially offsetting such sales increases was the loss of $3.2 million in sales 
from the closing of five stores during Fiscal 1998.  The $1.2 million, or 4.2%, 
increase in direct marketing sales was primarily attributable to a $1.0 million 
increase in sales from the Brookstone Gift Collection catalog combined with a   
$0.5 million increase in Internet sales, partially offset by a $0.3 million     
decrease in sales from the Hard-to-Find-Tools catalog.  Catalog circulation was 
decreased by approximately 8.0% in Fiscal 1998 as compared to Fiscal 1997.      

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     Gross profit as a percentage of net sales increased 0.4% to 37.2% in Fiscal
1998 compared to 36.8% in Fiscal 1997. The increase was primarily due to a      
0.4% reduction in net material costs as a percentage of net sales, resulting    
primarily from lower sourcing costs. As a percentage of net sales, Fiscal 1998  
occupancy costs were flat to Fiscal 1997.                                       

Selling, general and administrative expenses increased $9.1 million to
$84.1 million in Fiscal 1998 from $75.0 million in Fiscal 1997, and decreased as
a percentage of net sales to 30.9% in Fiscal 1998 from 31.3% in Fiscal 1997.    
This $9.1 million increase included a $4.4 million increase for operating       
expenses associated with new stores opened in Fiscal 1998 and stores open for   
the full year in Fiscal 1998 that were only open for a partial year in Fiscal   
1997 and a $4.7 million increase in compensation and benefits to support the    
base business and distribution center. These increases were partially offset by 
a decrease in catalog costs as a result of decreased circulation.               

   Income from operations was $17.1 million, or 6.3% of net sales, in Fiscal
1998 versus $13.2 million, or 5.5% of net sales, in Fiscal 1997.                

  Net interest expense increased to $1.7 million, or 0.6% of net sales, in
Fiscal 1998 from $1.1 million, or 0.4% of net sales, in Fiscal 1997, primarily  
to finance earlier inventory acquisition combined with increased fees associated
with the refinancing of the Company's revolving credit agreement during the     
third quarter of Fiscal 1997.  In Fiscal 1998, the Company recorded a provision 
for income taxes of $6.1 million, or 2.3% of net sales, as compared to          
$4.8 million, or 2.0% of net sales, in Fiscal 1997, resulting from an increase  
in pre-tax income.                                                              

    As a result of the foregoing factors, net income increased to $9.3 million
in Fiscal 1998 versus $7.3 million in Fiscal 1997.  Net income was 3.4% and 3.1%
of net sales in Fiscal 1998 and Fiscal 1997, respectively.  Earnings per share  
on a diluted basis increased to $1.13 in Fiscal 1998 from $0.91 in Fiscal 1997. 

Fifty-two weeks ended January 31, 1998 versus Fifty-two weeks ended February 1, 
------------------------------------------------------------------------------- 
1997                                                                            
----                                                                            

     Net sales for Fiscal 1997 increased by $21.8 million, or 10.0%, over Fiscal
1996 as the result of a $24.0 million, or 12.8%, increase in retail sales,      
partially offset by a $2.2 million, or 7.4%, decrease in direct marketing sales.
Of the increase in retail sales, $10.2 million was attributable to the opening  
of 19 new stores (16 full line and 3 airport stores), $7.8 million to additional
sales from the operation of 16 stores for the full year in Fiscal 1997 that were
only open for a portion of Fiscal 1996, and $6.3 million from a 3.6% increase in
same store sales.  The retail sales increase also included $0.4 million in sales
primarily attributable to operating 13 temporary summer locations for the first 
time during Fiscal 1997 and operating 138 temporary winter holiday locations for
Fiscal 1997, versus 121 such locations in Fiscal 1996.  Partially offsetting    
such sales increases was the loss of $0.7 million in sales from the closing of  
one store during Fiscal 1996. The $2.2 million, or 7.4%, decrease in direct     
marketing sales reflected a decrease of $2.8 million, or 11.2%, in sales from   
the Hard-to-Find-Tools catalog partially offset by a $0.6 million increase in   
sales from the Brookstone Gift Collection catalog. The decrease in direct       
marketing sales was partially driven by a 5.1% decrease in catalog circulation. 

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     Gross profit as a percentage of net sales decreased 0.1% to 36.8% in Fiscal
1997 compared to 36.9% in Fiscal 1996.  The decrease was primarily due to a 0.4%
increase in occupancy costs, offset by a reduction in net material costs as a   
percentage of net sales.  The primary reasons for the increase in occupancy cost
were the opening of 19 new stores in Fiscal 1997 and the operation of 16 stores 
for the full year in Fiscal 1997 that were only open for a portion of Fiscal    
1996.  The impact of these store openings was largely mitigated by strong same  
store sales growth in Fiscal 1997.  The net material cost rate decreased 0.3% in
Fiscal 1997.                                                                    

Selling, general and administrative expenses increased $5.1 million to
$75.0 million in Fiscal 1997 from $69.9 million in Fiscal 1996, and decreased as
a percentage of net sales to 31.3% in Fiscal 1997 from 32.0% in Fiscal 1996.    
This $5.1 million increase included a $3.7 million increase for operating       
expenses associated with new stores opened in Fiscal 1997 and stores open for   
the full year in Fiscal 1997 that were only open for a partial year in Fiscal   
1996 and a $2.2 million increase in compensation and benefits to support the    
base business and distribution center.  These increases were partially offset by
decreases primarily attributable to improved customer delivery expense and a    
decrease in catalog costs as a result of decreased circulation.                 

   Income from operations was $13.2 million, or 5.5% of net sales, in Fiscal
1997 versus $10.6 million, or 4.9% of net sales, in Fiscal 1996.                

  Net interest expense increased to $1.1 million, or 0.4% of net sales, in
Fiscal 1997 from $0.9 million, or 0.4% of net sales, in Fiscal 1996 primarily as
a result of reduced average cash balances in Fiscal 1997 versus Fiscal 1996.  In
Fiscal 1997, the Company recorded a provision for income taxes of $4.8 million, 
or 2.0% of net sales, as compared to $3.8 million, or 1.8% of net sales, in     
Fiscal 1996, resulting primarily from an increase in pre-tax income.            

    As a result of the foregoing factors, net income increased to $7.3 million
in Fiscal 1997 versus $5.9 million in Fiscal 1996.  Net income was 3.1% and 2.7%
of net sales in Fiscal 1997 and Fiscal 1996, respectively.  Earnings per share  
on a diluted basis increased to $0.91 in Fiscal 1997 from $0.73 in Fiscal 1996. 

Quarterly Results                                                               
-----------------                                                               

    The following table sets forth certain unaudited quarterly information for
Fiscal 1998 and Fiscal 1997, which in the opinion of the Company, has been      
prepared on the same basis as the Consolidated Financial Statements. This       
information includes all adjustments, consisting only of normal recurring       
adjustments, which management considers necessary for a fair presentation when  
read in conjunction with the Consolidated Financial Statements, including the   
notes thereto. The operating results for any quarter are not necessarily        
indicative of results for any future period.                                    

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

                                                        [Enlarge/Download Table]

(Unaudited, in thousands, except per share data)                  Fiscal 1998              
------------------------------------------------    -------------------------------------- 
                                                     First     Second    Third     Fourth  
                                                    Quarter   Quarter   Quarter   Quarter  
                                                    --------  --------  --------  -------- 
                                                                                           
Net sales                                           $37,919   $53,756   $43,459   $136,724 
Gross profit                                          8,887    17,303    11,383     63,646 
Income (loss)                                                                              
 from operations                                     (7,059)     (319)   (6,780)    31,239 
Net income (loss)                                    (4,417)     (475)   (4,464)    18,694 
Earnings (loss) per share:                                                                 
 Basic                                              $ (0.56)  $ (0.06)  $ (0.56)  $   2.32 

 Diluted                                              (0.56)    (0.06)    (0.56)      2.25 
-------------------------------------------------------------------------------------------

(Unaudited, in thousands, except per share data)                  Fiscal 1997              
------------------------------------------------    -------------------------------------  
                                                     First    Second    Third     Fourth   
                                                    Quarter   Quarter   Quarter   Quarter  
                                                    -------   -------   -------   -------  
                                                                                           
Net sales                                           $33,136   $44,848   $38,922   $122,960 
Gross profit                                          8,187    14,551    10,275     55,220 
Income (loss)                                                                              
 from operations                                     (6,122)     (554)   (5,827)    25,713 
Net income (loss)                                    (3,773)     (458)   (3,733)    15,312 
Earnings (loss) per share:                                                                 
 Basic                                              $ (0.48)  $ (0.06)  $ (0.48)  $   1.95 

 Diluted                                              (0.48)    (0.06)    (0.48)      1.87 

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

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

    The seasonal nature of the Company's business increased in Fiscal 1998 and
is expected to continue to increase in Fiscal 1999 as the Company opens         
additional retail stores and continues its program to operate a significant     
number of small, temporary locations during the winter holiday selling season.  
In Fiscal 1998, most of the Company's new stores were opened in the second half 
of the fiscal year.                                                             

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

    During Fiscal 1998, the Company generated a total of $18.5 million of cash
including $17.3 million from operations and $1.2 million from the exercise of   
stock options, the employee stock purchase plan and related tax benefits.  In   
addition, the Company's working capital increased approximately $5.9 million    
principally from the timing of trade payments as compared to Fiscal 1997.  The  
Company applied $12.1 million to fund capital expenditures.  The capital        
expenditures included $5.4 million for new stores, $5.1 million for remodeling  
and maintenance in existing                                                     

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stores, $0.8 million for information systems developments and $0.8 million for  
distribution center and infrastructure maintenance. The Company's cash position 
increased $0.5 million from the end of the prior fiscal year, with total cash on
hand amounting to $17.4 million.                                                

    During Fiscal 1997, the Company generated a total of $13.0 million of cash
including $12.5 million from operations and $0.5 million from the exercise of   
stock options and related tax benefits.  In addition, the Company's working     
capital decreased approximately $5.5 million principally from the timing of     
trade payments as compared to Fiscal 1996.  The Company applied $11.4 million to
fund capital expenditures.  The capital expenditures included $5.5 million for  
new stores, $3.0 million for remodeling and maintenance in existing stores, $1.1
million for information systems developments and $1.8 million for distribution  
center and infrastructure maintenance.  The Company's cash position increased   
$6.3 million from the end of the prior fiscal year, with total cash on hand     
amounting to $16.9 million.                                                     

 The Company's primary short-term liquidity needs consist of financing
seasonal merchandise inventory build-ups.  The Company's primary sources of     
financing for such needs are from operations, borrowings under its revolving    
credit facility and trade credit.  The Company's revolving credit facility is   
typically at low levels from January through April, increases through May as    
inventory is increased in anticipation of Father's Day, declines in June,       
increases somewhat through August and sharply increases from September through  
November to finance purchases of merchandise inventory in advance of the winter 
holiday selling season.  The Company generally repays all outstanding borrowings
under its revolving credit facility prior to Christmas and relies on cash from  
operations obtained during the winter holiday selling season until it begins to 
borrow again under its revolving credit facility the following fiscal year.  At 
January 30, 1999, the Company had no outstanding borrowings under its revolving 
credit facility, although certain letters of credit in an aggregate amount of   
approximately $7.2 million were outstanding.  During Fiscal 1998, the Company   
borrowed a maximum amount of $40.3 million under the revolving credit facility. 

  The Company's revolving credit facility provides for borrowings of up to
$75 million for letters of credit and working capital, as long as the Company   
meets a borrowing base test equal to 50% of the amount of eligible inventory and
outstanding documentary letters of credit (increasing to 65% June through July  
and to 75% August through November).  Amounts available for borrowings are      
reduced by the aggregate amount of outstanding letters of credit, which may not 
exceed $40 million, and borrowings.  The revolving credit agreement requires the
Company to have no more than $10 million in borrowings (excluding letters of    
credit) outstanding for one 30 consecutive day period during the December 15 to 
April 30 period.  Borrowings outstanding under this facility bear interest, at  
the election by the Company, equal to the agent bank's base lending rate or the 
Eurodollar rate for the applicable period plus an additional 1.0%, 1.25% or 1.5%
depending on the applicable cash flow coverage ratio (at January 30, 1999 the   
rate was 6.44%).  In addition, the Company is obligated to pay a fee of 0.25% or
0.30% on the unused portion of the commitment and 0.50%, 0.625% or 0.75% on     
documentary letters of credit (depending on the applicable cash flow coverage   
ratio).  The facility expires July 31, 2002.  At the Lender's option, all       
positive cash balances held by the lender banks may be applied to the           
outstanding balance of the revolving line of credit.  The revolving credit      
agreement                                                                       

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contains a number of restrictive covenants, including limitations on incurring  
additional indebtedness, granting liens, selling assets, engaging in mergers and
other similar transactions, engaging in new business lines and making capital   
expenditures. In addition, the agreement prohibits the paying of cash dividends 
on common stock and requires that the Company maintain certain financial ratios,
including tests pertaining to net worth, ratio of liabilities to net worth and  
cash flow coverage. During the year ended, and as of, January 30, 1999, the     
Company was in compliance with these covenants.                                 

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

Fiscal 1999 Store Openings and Capital Expenditure Expectations                 
---------------------------------------------------------------                 

 The following discussion includes certain forward-looking statements of
management's expectations for store growth and related capital expenditures.    
These statements should be read in light of the considerations presented under  
the caption Outlook: Important Factors and Uncertainties (found on pages 21 - 23
--------------------------------------------            
of this document).                                                              

    The Company expects to add approximately 20 to 25 new stores, including up
to seven airport locations, in Fiscal 1999.  The Company anticipates the cost of
opening a new store, including leasehold improvements (net of landlord          
allowances), furniture and fixtures, and pre-opening expenses, to average       
approximately $340,000.  In addition, the Company expects new stores to require 
$150,000 of working capital per store.  The Company anticipates the cost of     
opening airport stores, including leasehold improvements, furniture and         
fixtures, and pre-opening expenses, to average approximately $235,000, and      
expects airport stores to require $92,000 of working capital per store.  The    
Company expects to remodel approximately 10 stores, and update and maintain     
other stores, during Fiscal 1999, incurring capital expenditures of             
approximately $5.8 million. The Company plans to operate approximately 75       
seasonal stores during the Fiscal 1999 winter holiday season based on the       
availability of acceptable sites.  In addition to the capital expenditures      
listed above, the Company anticipates making capital expenditures of            
approximately $1.9 million in Fiscal 1999, primarily to enhance the Company's   
management information and other support systems.                               

   In Fiscal 1999, the Company expects to open most of its new stores in the
second half of the year.  The Company's retail operations are not generally     
profitable until the fourth quarter of each fiscal year.  Accordingly, the      
Company expects the new stores opened in the second half of Fiscal 1998 and its 
store opening schedule in Fiscal 1999 to cause the Company to experience an     
increase in losses from operations over the first three quarters of Fiscal 1999 
as compared to the corresponding period of Fiscal 1998.  Consequently, in order 
for the Company to have income from operations in Fiscal 1999 that equals or    
exceeds its income from operations in Fiscal 1998,  the Company's income from   
operations during the fourth quarter of Fiscal 1999 will need to exceed the     
level achieved during the fourth quarter of Fiscal 1998.                        

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   The Company anticipates closing up to two stores during Fiscal 1999.  The
Company does not expect the closings to have a materially adverse effect on its 
financial condition or results of operations for current or future periods.     

 The Company believes its cash balances, funds to be generated by future
operations and  borrowing capacity will be sufficient to finance its capital    
requirements during Fiscal 1999.                                                

Outlook: Important Factors and Uncertainties                                    

     The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide  
prospective information about themselves without fear of litigation so long as  
the forward-looking information is accompanied by meaningful cautionary         
statements identifying important factors that could cause actual results to     
differ materially from those set forth in the forward-looking statement.        
Statements in this 1998 Annual Report on Form 10-K which are not historical     
facts, including statements about the Company's or management's confidence or   
expectations, seasonality of the Company's future sales and earnings, plans for 
opening new stores and other retail locations, introduction of new or updated   
products, opportunities for sales growth or cost reductions and other statements
about the Company's operational outlook, are forward-looking statements subject 
to risks and uncertainties that could cause actual results to vary materially.  
The following are important factors, among others, that should be considered in 
evaluating these forward-looking statements:                                    

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

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

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   is unable to introduce in a timely fashion new or replacement products of
similar sales levels and profitability.                               

 New Stores and Temporary Locations.   The Company's ability to open new
    stores, including airport locations, and to operate its temporary location
program successfully depends upon, among other things, the Company's  
capital resources and its ability to locate suitable sites, negotiate 
favorable rents and other lease terms and implement its operational   
 strategy.  In addition, because the Company's store designs must evolve
    over time so that the Company may effectively compete for customers in top
  malls, airports and other retail locations, actual store-related capital
expenditures may vary from historical levels (and projections based   
   thereon) due to such factors as the scope of remodeling projects, general
   increases in the costs of labor and materials and unusual product display
requirements.                                                         

Competition.  The Company faces intense competition for customers,    
   personnel and innovative products.  This competition comes primarily from
     other specialty retailers, department stores, discount retailers and direct
  marketers.  Many of the Company's competitors have substantially greater
financial, marketing and other resources than the Company.            

   Retention of Qualified Employees.  The Company's success depends upon its
   ability to attract and retain highly skilled and motivated, full-time and
temporary associates with appropriate retail experience to work in    
management and in its stores and temporary locations.  Because of the 
   limited time periods during which temporary locations are open each year,
the availability of suitable associates for such locations is limited.

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

 Centralized Distribution.  The Company conducts all of its distribution
 operations and a significant portion of its direct marketing processing
functions from a single facility in Mexico, Missouri.  A disruption in
operations at the distribution center may significantly increase the  
Company's distribution costs.                                         

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

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

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  Foreign Vendors.  The Company is purchasing an increasing portion of its
merchandise from foreign vendors.  Although management expects this   
strategy to increase profit margins for these products, the Company's 
    reliance on such vendors subjects the Company to associated legal, social,
political and economic risks, including import, licensing and trade   
    restrictions.  In addition, the recent imbalance in trade between Asia and
    the United States has created disruption to the traditional ocean shipping
    trade and has resulted in a shortage of cargo containers used to transport
goods from Asia to the United States.  Should this trade imbalance    
   continue, the Company could face inventory shortages in certain products,
   increased transportation costs and increased interest expense as a result
of moving inventory receipts forward.                                 

    Many of the foregoing factors and uncertainties have been discussed in the
Company's prior SEC filings but, because the Act did not become effective until 
December 1995, were not presented in a format intended to comply with the Act.  
The foregoing review of important factors and uncertainties is intended to      
comply with the substantive and presentation requirements of the Act, but should
not be construed as exhaustive or as an admission regarding the adequacy of     
disclosures made by the Company prior to the effective date of the Act.         

Year 2000 Software Compliance                                                   

     Many computer programs in use today were originally written using two digit
fields to identify years instead of four digits to define century and year.     
These programs were written without considering the impact of the upcoming      
change in the century and may experience difficulty in handling dates beyond    
December 31, 1999.  This phenomenon, sometimes referred to as "the year 2000    
problem" or "the Y2K problem", could cause computer software to fail or create  
erroneous results unless corrective or alternative measures are instituted.     

   The Company relies on software for the efficient operation of many of its
important functions, including inventory purchasing, shipping and receiving,    
logistics, inventory forecasting and replenishment, payroll and human resource  
record-keeping, direct marketing operations, point-of-purchase transaction      
recording and financial reporting.  Nearly all of the software relied upon in   
the Company's operations is purchased from outside sources (who, in some        
instances, modify or customize pre-packaged software to fit the Company's       
needs).  In addition, the Company has entered into maintenance contracts from   
such vendors to ensure that such programs will remain operable or will be       
upgraded at marginal incremental cost to the Company in the event that such a   
program is not functioning optimally.  Since 1996, the Company has been working 
with its outside software vendors to (i) assess the Y2K readiness of their      
products, (ii) implement changes and upgrades necessary to eliminate the risk of
Y2K problems and (iii) test the Company's systems and components to ensure      
proper functionality.                                                           

The Company has decided to implement upgraded shipping, receiving and 
logistics software (which has been represented to be year 2000 compliant) in    
1999.  In addition, the Company will implement upgrades of the employee         
timekeeping, merchandise analysis, call                                         

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scheduling and sales tax software in 1999 and will also complete the            
installation of its point-of-purchase year 2000 compliant system which is now   
being rolled out chain-wide after being successfully tested in five stores. With
the exception of the software mentioned in the previous two sentences, each of  
the software products involved in the Company's significant operations has been 
represented to be year 2000 compliant, or has been upgraded to versions that    
have been represented to be year 2000 compliant, by their respective vendors. In
addition, the Company has received representations from its primary bank and its
credit card processors that the software programs they operate to facilitate    
services provided to the Company are, or are in the process of becoming, year   
2000 compliant. The total incremental cost to the Company for the software and  
hardware upgrades described in this paragraph is expected to be approximately   
$300,000.                                                                       

   Because the Y2K problem is often concealed, the Company believes that the
evaluation of its systems and the assessment of their readiness must be a       
continuous process.  During the first half of Fiscal 1999, the Company will     
continue to test and evaluate its systems for year 2000 compliance.             

     There can be no assurance that the Company's operating results would not be
adversely affected if any of its largest vendors were unable to fill the        
Company's orders.  The Company has received written statements from each of its 
largest vendors which represent that each such vendor has addressed, or is in   
the process of addressing, the year 2000 issue such that manufacturing and      
shipping activities will not be disrupted by the Y2K problem.  The Company's    
merchandising team is also considering other sources for similar products in the
event that such vendors are unable to meet the Company's needs.  Because the    
products sold by the Company are oftentimes unique in the marketplace, however, 
there can be no assurance that adequate substitute products will be available.  
See "Outlook: Important Factors and Uncertainties -- Dependence on Innovative   
Merchandising".  The Company currently uses neither electronic data interchange 
("EDI") technology, nor advance shipping notification ("ASN") technology with   
its vendors.                                                                    

The Company believes that it has established appropriate measures to  
minimize the risk of disruption to its business as it approaches the year 2000. 
This belief is a forward-looking statement and is premised, in part, on         
representations provided to the Company by third-party sources and vendors, the 
accuracy of which is in many cases difficult or impossible for the Company to   
validate.  If any such representation relating to a software product relied upon
for a significant business function, or a representation from a significant     
vendor, ultimately proves inaccurate, the Company could incur material          
remediation expenses and/or lost sales.  In addition, like most other retailers,
the Company could be materially adversely affected by disruption in the         
externally controlled distribution channel (including ports, United States      
Customs and transportation vendors), the banking and credit systems and electric
and other utility suppliers.                                                    
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ITEM 8.   Financial Statements and Supplementary Data.                          

The financial statements, together with the report thereon of         
PricewaterhouseCoopers LLP, dated March 23, 1999, appear on pages 27 through 52 
of this document.                                                               

  In addition, information in response to this item may be found under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations--Quarterly Results"                        

ITEM 9.   Changes in and Disagreements with Accountants on Accounting and       
Financial Disclosure.                                       

None.                                                                 

PART III.                                                                       

ITEM 10.  Directors and Executive Officers of the Registrant.                   

Information in response to this item with respect to directors of the 
Company may be found in the sections entitled "Election of Directors" and       
"Timeliness of Certain SEC Filings" of the Company's definitive Proxy Statement 
for the Company's 1999 Annual Meeting of Stockholders (the "Proxy Statement"),  
and such information is incorporated herein by reference.                       

    Information in response to this item with respect to executive officers of
the Company appears in Item 4A entitled "Executive Officers of the Registrant"  
on pages 11 through 13 of this report, and such information is incorporated     
herein by reference.                                                            

ITEM 11.  Executive Compensation.                                               

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

ITEM 12.  Security Ownership of Certain Beneficial Owners and Management.       

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

ITEM 13.  Certain Relationships and Related Transactions.                       

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

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PART IV.                                                                        

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.      

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

1.   Financial Statements                                                       

  The financial statements appear on the following pages of this document.

                                                        [Enlarge/Download Table]

                                                                               Page in
                                                                               Report 
                                                                               -------
                                                                                      
Report of Independent Accountants                                                27   

Consolidated balance sheet as of January 30, 1999 and January 31, 1998           28   

Consolidated statement of income for the years ended January 30, 1999,                
January 31, 1998 and February 1, 1997                                            29   

Consolidated statement of cash flows for the years ended January 30, 1999,            
January 31, 1998 and February 1, 1997                                            30   

Consolidated statement of changes in shareholders' equity for the years ended         
January 30, 1999, January 31, 1998 and February 1, 1997                          31   

Notes to Consolidated Financial Statements                                       32   


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Report of Independent Accountants                                               

TO THE BOARD OF DIRECTORS AND                                                   
SHAREHOLDERS OF BROOKSTONE, INC.                                                

In our opinion, the accompanying consolidated balance sheet and the related     
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of      
Brookstone, Inc. and its subsidiaries at January 30, 1999 and January 31, 1998, 
and the results of their operations and their cash flows for each of the three  
years in the period ended January 30, 1999, in conformity with generally        
accepted accounting principles.  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 of these statements in accordance with generally accepted auditing       
standards which require that we plan and perform the audit to obtain reasonable 
assurance about whether the financial statements are free of material           
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the          
accounting principles used and significant estimates made by management, and    
evaluating the overall financial statement presentation.  We believe that our   
audits provide a reasonable basis for the opinion expressed above.              

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

Boston, Massachusetts                                                           
March 23, 1999                                                                  
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BROOKSTONE, INC.  

CONSOLIDATED BALANCE SHEET  
(In thousands, except share data) 

                                                                [Download Table]

                                         January 30, 1999   January 31, 1998 
                                         ----------------   ---------------- 
                                                                             
         Assets                                                              
         ------                                                              
Current assets:                                                              
    Cash and cash equivalents                    $ 17,391           $ 16,906 
    Receivables, less allowances of                 6,256              5,532 
     $176 at January 30, 1999 and $324                                       
     at January 31, 1998                                                     
    Merchandise inventories                        37,444             37,285 
    Deferred income taxes                           1,781              2,805 
    Other current assets                            4,623                955 
                                                 --------           -------- 
        Total current assets                       67,495             63,483 
                                                 --------           -------- 
Deferred income taxes                               3,643              2,916 
Property and equipment, net                        42,124             37,854 
Other assets                                        1,299              1,065 
                                                 --------           -------- 
                                                 $114,561           $105,318 
                                                 ========           ======== 
  Liabilities and Shareholders' Equity                                       
  ------------------------------------                                       

Current liabilities:                                                         
   Accounts payable                              $ 10,727           $ 14,440 
   Other current liabilities                       18,950             16,602 
                                                 --------           -------- 
      Total current liabilities                    29,677             31,042 

Other long term liabilities                         9,962              9,812 
Long term obligation under capital lease            2,612              2,698 

Commitments and contingencies (Note 10)                                      

Shareholders' equity:                                                        
Preferred stock, $0.001 par value:                                           
 Authorized - 2,000,000 shares;                                              
 issued and outstanding - 0 shares at                                        
 January 30, 1999 and  January 31, 1998                                      
Common stock, $0.001 par value:                                              
 Authorized - 50,000,000 shares;                                             
 issued and outstanding - 8,064,586                                          
 shares at January 30, 1999 and                                              
 7,871,384 shares at January 31, 1998                   8                  8 
Additional paid-in capital                         48,330             47,124 
Retained earnings                                  24,019             14,681 
Treasury stock, at cost - 3,616 shares                                       
 at January 30, 1999 and January 31,                                         
 1998                                                 (47)               (47)
                                                 --------           -------- 
          Total shareholders' equity               72,310             61,766 
                                                 --------           -------- 
                                                 $114,561           $105,318 
                                                 ========           ======== 

See Notes to Consolidated Financial Statements  

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BROOKSTONE, INC.  

CONSOLIDATED STATEMENT OF INCOME  
(In thousands, except per share data) 

                                                        [Enlarge/Download Table]

                                                           Year Ended                             
                              --------------------------------------------------------------------
                              January 30, 1999          January 31, 1998          February 1, 1997
                              ----------------          ----------------          ----------------
                                                                                                  
Net sales                                                                                         
                                  $271,858                   $239,866                   $218,044  
Cost of sales                      170,639                    151,633                    137,612  
                                  --------                   --------                   --------  
Gross profit                       101,219                     88,233                     80,432  

Selling, general and                                                                              
  administrative expenses           84,138                     75,023                     69,856  
                                  --------                   --------                   --------  
  Income from operations            17,081                     13,210                     10,576  

Interest expense, net                1,672                      1,084                        885  
                                  --------                   --------                   --------  
  Income before taxes               15,409                     12,126                      9,691  

  Income tax provision               6,071                      4,778                      3,818  
                                  --------                   --------                   --------  
Net income                        $  9,338                   $  7,348                   $  5,873  
                                  ========                   ========                   ========  
Earnings per share - basic        $   1.17                   $   0.94                   $   0.76  
                                  ========                   ========                   ========  
Earnings per share - diluted      $   1.13                   $   0.91                   $   0.73  
                                  ========                   ========                   ========  
Weighted average shares                                                                           
  outstanding - basic                7,988                      7,824                      7,744  
                                  ========                   ========                   ========  
Weighted average shares                                                                           
  outstanding - diluted              8,285                      8,119                      8,061  
                                  ========                   ========                   ========  

See Notes to Consolidated Financial Statements  

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BROOKSTONE, INC.  

CONSOLIDATED STATEMENT OF CASH FLOWS  
(In thousands)  

                                                        [Enlarge/Download Table]

                                                              Year Ended                             
                                 --------------------------------------------------------------------
                                 January 30, 1999          January 31, 1998          February 1, 1997
                                 ----------------          ----------------          ----------------
                                                                                                     
Cash flows from operating                                                                            
  activities:                                                                                        
Net income                           $  9,338                   $  7,348                    $ 5,873  

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

  Depreciation and amortization         7,792                      6,921                      6,463  
  Amortization of debt issuance                                                                      
    costs                                 143                         55                        ---  
  Deferred income taxes                   297                     (2,850)                      (857) 
  (Increase) Decrease in other                                                                       
    assets                               (377)                       178                        464  
  Increase in other long term                                                                        
    liabilities                           150                        889                        351  

Changes in working capital:                                                                          
  Accounts receivable, net               (724)                       (84)                    (1,136) 
  Merchandise inventories                (159)                    (6,019)                    (5,522) 
  Other current assets                 (3,668)                     2,131                         46  
  Accounts payable                     (3,713)                     5,824                       (848) 
  Other current liabilities             2,349                      3,609                      3,833  
                                     --------                   --------                    -------  
Net cash provided by operating                                                                       
  activities                           11,428                     18,002                      8,667  
                                     --------                   --------                    -------  
Cash flows from investing                                                                            
  activities:                                                                                        
  Expenditures for property and                                                                      
    equipment                         (12,062)                   (11,362)                    (9,719) 
                                     --------                   --------                    -------  
Net cash used for investing                                                                          
  activities                          (12,062)                   (11,362)                    (9,719) 
                                     --------                   --------                    -------  
Cash flows from financing                                                                            
  activities:                                                                                        
  Payments for capitalized lease          (87)                       (74)                       (75) 
  Payment of debt issuance costs          ---                       (697)                       ---  
  Proceeds from exercise of stock                                                                    
    options, employee stock                                                                          
    purchase plan and related                                                                        
    tax benefits                        1,206                        461                        370  
                                     --------                   --------                    -------  
Net cash provided / (used) by                                                                        
  financing activities                  1,119                       (310)                       295  
                                     --------                   --------                    -------  
Net increase (decrease) in cash                                                                      
  and cash equivalents                    485                      6,330                       (757) 

Cash and cash equivalents at                                                                         
  beginning of period                  16,906                     10,576                     11,333  
                                     --------                   --------                    -------  
Cash and cash equivalents at end                                                                     
  of period                          $ 17,391                   $ 16,906                    $10,576  
                                     ========                   ========                    =======  
Supplemental disclosures of cash                                                                     
  flow information:                                                                                  
  Cash paid for interest             $    917                   $    471                    $   435  
  Cash paid for income taxes         $  5,737                   $  4,461                    $ 2,521  

See Notes to Consolidated Financial Statements  
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BROOKSTONE, INC.  

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 
For the years ended February 1, 1997, January 31, 1998 and January 30, 1999 
(In thousands, except share data) 

                                                        [Enlarge/Download Table]

                                                               Additional                                Total     
                                                   Common       Paid-In      Retained     Treasury    Shareholders'
                                       Shares       Stock       Capital      Earnings       Stock        Equity    
                                       ------       -----       -------      --------       -----        ------    
                                                                                                                   
Balance at February 3, 1996           7,680,708        $8        $46,293      $ 1,460        $(47)      $47,714    
  Options exercised including                                                                                      
    related tax benefit                 112,905                      370                                    370    
  Net income                                                                    5,873                     5,873    
-------------------------------------------------------------------------------------------------------------------
Balance at February 1, 1997           7,793,613         8         46,663        7,333         (47)       53,957    
  Options exercised including                                                                                      
    related tax benefit                  77,771                      461                                    461    
  Net income                                                                    7,348                     7,348    
-------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1998           7,871,384         8         47,124       14,681         (47)       61,766    
  Issuance of common stock                                                                                         
    under employee stock                                                                                           
    purchase plan                        17,102                      178                                    178    
  Options exercised including                                                                                      
    related tax benefit                 176,100                    1,028                                  1,028    
  Net income                                                                    9,338                     9,338    
-------------------------------------------------------------------------------------------------------------------
Balance at January 30, 1999           8,064,586        $8        $48,330      $24,019        $(47)      $72,310    
===================================================================================================================

See Notes to Consolidated Financial Statements  
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Notes to Consolidated Financial Statements                                      

1. NATURE OF BUSINESS AND ORGANIZATION                                          
--------------------------------------                                          

  Brookstone, Inc. (the "Company") is a nationwide specialty retailer that
offers an assortment of consumer products that are functional in purpose,       
distinctive in quality and design and not widely available from other retailers.
The Company sells its products nationally through 198 retail stores in 36 states
and the District of Columbia, temporary stores typically operated during the    
winter holiday season and direct marketing vehicles including its Hard-to-Find  
Tools and Brookstone Gift Collection catalogs and the Internet.  The Company's  
merchandise includes lawn and garden, health and fitness, home and office and   
travel and auto products.                                                       

The Company's fiscal year end is the Saturday nearest the last day in 
January.  Results of operations for Fiscal 1998 are for the 52 weeks ended      
January 30, 1999.  Results for Fiscal 1997 are for the 52 weeks ended           
January 31, 1998, and results for Fiscal 1996 are for the 52 weeks ended        
February 1, 1997.                                                               

2. SIGNIFICANT ACCOUNTING POLICIES                                              
----------------------------------                                              

Principals of Consolidation                                                     
---------------------------                                                     

    The accompanying consolidated financial statements include the accounts of
the Company and Brookstone Company, Inc., its wholly owned subsidiary and the   
direct and indirect wholly owned subsidiaries of Brookstone Company, Inc.       
(Brookstone Stores, Inc., Brookstone Purchasing, Inc., Brookstone Properties,   
Inc., Brookstone By Mail, Inc. and Brookstone Holdings, Inc.).  All significant 
intercompany accounts and transactions have been eliminated in consolidation.   

Cash and Cash Equivalents                                                       
-------------------------                                                       

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

Fair Value of Financial Instruments                                             
-----------------------------------                                             

     The recorded amounts for cash and cash equivalents, other current
assets, accounts receivable, accounts payable and other current liabilities     
approximate fair value due to the short-term nature of these financial          
instruments.  The fair values of amounts outstanding under the Company's debt   
instruments approximate their book values in all material respects due to the   
variable nature of the interest rate provisions associated with such            
instruments.                                                                    

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Use of Estimates                                                                
----------------                                                                

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

Merchandise Inventories                                                         
-----------------------                                                         

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

Property and Equipment                                                          
----------------------                                                          

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

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

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

Deferred Catalog Costs                                                          
----------------------                                                          

    Direct response advertising costs, which consist of catalog production and
postage costs, are deferred and amortized over the period of expected direct    
marketing revenue, which is less than one year.  Deferred costs were $0.9       
million and $0.6 million at January 30, 1999 and January 31, 1998, respectively 
and are classified as non-current assets. The Company expenses in-store         
advertising costs as incurred. Advertising expense was approximately $10.1      
million, $11.3 million and $11.3 million for the years ended January 30, 1999,  
January 31, 1998 and February 1, 1997, respectively.                            

                                                                              33

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Revenue Recognition                                                             
-------------------                                                             

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

Store Closings                                                                  
--------------                                                                  

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

Employee Benefit Programs                                                       
-------------------------                                                       

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

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

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

Income Taxes                                                                  
-------------                                                                   

The provision for income taxes includes federal and state income taxes
currently payable and those deferred because of temporary differences between   
the financial statement and tax basis of assets and liabilities.  Deferred tax  
assets are recognized, utilizing current tax rates for deductible temporary     
differences that are more likely than not to be realized.  Deferred tax benefit 
or expense represents the change in the deferred tax asset or liability         
balances.                                                                       

Earnings Per Share                                                              
------------------                                                              

     Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average common shares outstanding during the       
period.  Diluted earnings per share is computed by giving effect to all dilutive
potential common shares that were outstanding during the period.                

                                                                              34

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Segment Reporting                                                               
-----------------                                                               

Statement of Financial Accounting Standards (SFAS) No. 131, 
"Disclosures about Segments of an Enterprise and Related Information" (FAS 131),
became effective for financial statements issued for annual periods beginning   
after December 15, 1997. FAS 131 supersedes SFAS 14, "Financial Reporting for   
Segments of a Business Enterprise" and amends SFAS 94, "Consolidation of All    
Majority-Owned Subsidiaries". Under FAS 131, the Company's business is comprised
of two distinct business segments determined by the method of distribution      
channel. The retail segment is comprised of all full-year stores in addition to 
all temporary stores and kiosks. Retail product distribution is conducted       
directly through the store location. The direct marketing segment is comprised  
of the Hard-to-Find-Tools and Brookstone Gift Collection catalogs, products     
promoted via SkyMall and the interactive Internet site www.Brookstone.com.      
Direct marketing product distribution is conducted                              
                                                ------------------
through the Company's direct marketing call center and distribution facility    
located in Mexico, Missouri.                                                    

                                                                              35

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3. CONSOLIDATED BALANCE SHEET DETAILS                                           
-------------------------------------                                           

                                                                [Download Table]

                                          January 30, 1999   January 31, 1998
                                          ----------------   ----------------
                                                                             
Other Current Assets:                                                        
Prepaid rent                                 $  2,760,000       $    159,000 
Prepaid leases and deposits                       383,000            299,000 
Prepaid insurances, postage and other           1,480,000            497,000 
                                             ------------       ------------ 
                                             $  4,623,000       $    955,000 
                                             ============       ============ 
Property and Equipment:                                                      
  Leasehold improvements                     $ 34,311,000       $ 28,150,000 
  Equipment and fixtures                       49,421,000         44,343,000 
                                             ------------       ------------ 
Total property and equipment                   83,732,000         72,493,000 
                                             ============       ============ 
Accumulated depreciation and                                                 
  amortization                                (41,608,000)       (34,639,000)
                                             ------------       ------------ 
                                             $ 42,124,000       $ 37,854,000 
                                             ============       ============ 
Other Current Liabilities:                                                   
Merchandise credits and gift                                                 
  certificates                               $  3,357,000       $  2,640,000 
Accrued employee compensation and                                            
  benefits                                      6,013,000          4,177,000 
Rent payable                                      966,000            920,000 
Income taxes payable                            5,337,000          5,013,000 
Accrued expenses                                3,277,000          3,852,000 
                                             ------------       ------------ 
                                             $ 18,950,000       $ 16,602,000 
                                             ============       ============ 
Other Long-term Liabilities:                                                 
Straight-line rent liability                 $  5,156,000       $  4,815,000 
Employee benefit obligations and other                                       
  long term liabilities                         4,806,000          4,997,000 
                                             ------------       ------------ 
                                             $  9,962,000       $  9,812,000 
                                             ============       ============ 

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4. INCOME TAXES                                                                 
---------------                                                                 

    Temporary differences which give rise to deferred tax assets and
liabilities for Fiscal 1998 and Fiscal 1997 are as follows:                     

                                                                [Download Table]


                                         January 30, 1999  January 31, 1998
                                         ----------------  ----------------
                                                                           
Deferred tax assets:                                                       

  Rent expense                                 $1,920,000        $1,809,000
  Inventory capitalization and reserves           323,000         1,197,000
  Accrued compensation                                ---           179,000
  Employee benefit obligations                  1,645,000         1,584,000
  Vacation accrual                                267,000           270,000
  Merchandise credits and                                                  
   gift certificates                              920,000           663,000
  Tax depreciation                                598,000               ---
  Other items                                     165,000           412,000
                                               ----------        ----------
  Total deferred tax asset                     $5,838,000        $6,114,000
                                               ==========        ==========
Deferred tax liabilities:                                                  

  Tax depreciation                             $      ---        $   89,000
  Prepaid rent                                        ---            95,000
  Deferred catalog costs                          347,000           209,000
  Other items                                      67,000               ---
                                               ----------        ----------
  Total deferred tax liability                 $  414,000        $  393,000
                                               ----------        ----------
Net deferred tax asset                         $5,424,000        $5,721,000
                                               ==========        ==========

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

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The provision for income taxes is comprised of the following:         

                                                                [Download Table]

                                             Year Ended                       
                    ----------------------------------------------------------
                    January 30, 1999      January 31, 1998    February 1, 1997
                    ----------------      ----------------    ----------------
                                                                              
Current:                                                                      
    Federal             $4,894,000           $ 6,713,000          $4,137,000  
    State                  880,000               915,000             538,000  

Deferred:                                                                     
    Federal                225,000            (2,534,000)           (824,000) 
    State                   72,000              (316,000)            (33,000) 
                        ----------           -----------          ----------  
                        $6,071,000           $ 4,778,000          $3,818,000  
                        ==========           ===========          ==========  

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

                                                                [Download Table]

                                             Year Ended                       
                    ----------------------------------------------------------
                    January 30, 1999      January 31, 1998    February 1, 1997
                    ----------------      ----------------    ----------------
                                                                              
Statutory federal                                                             
income tax rate             34%                   34%                 34%     

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

Other                        3%                    2%                  2%     
                           ----                  ----                ----     

Effective income                                                              
tax rate                    39%                   39%                 39%     
                           ====                  ====                ====     

   The exercise of stock options which have been granted under the Company's
stock option plans (refer to Note 7) gives rise to compensation which is        
includable in the taxable income of the optionees and deductible by the Company 
for federal and state income tax purposes. Such compensation considers increases
in the fair market value of the Company's common stock subsequent to the date of
the grant. For financial reporting purposes, the tax effect of this 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 $832,000, $256,000 and $165,000 in Fiscal 1998, Fiscal 
1997 and Fiscal 1996, respectively.                                             

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5.  SEGMENT REPORTING                                                           
---------------------                                                           

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

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

The following table discloses segment net sales, pre-tax income and   
depreciation and amortization expense for Fiscal 1998, Fiscal 1997 and Fiscal   
1996 (in thousands):                                                            

                                                        [Enlarge/Download Table]

(in thousands)                            Net Sales                                    Pre-tax Income             
                       --------------------------------------------   ------------------------------------------- 
                        1998                1997              1996     1998              1997               1996  
                        ----                ----              ----     ----              ----               ----  
                                                                                                                  
Reportable segment:                                                                                               
  Retail             $242,769             $211,938         $187,895  $16,273            $12,964           $10,584 
  Direct marketing     29,089               27,928           30,149      808                246                (8)

Reconciling items:                                                                                                
  Interest expense         --                   --               --   (1,672)            (1,084)             (885)
                     --------             --------         --------  -------            -------           ------- 
  Consolidated:      $271,858             $239,866         $218,044  $15,409            $12,126           $ 9,691 
                     ========             ========         ========  =======            =======           ======= 

                                                                [Download Table]

(in thousands)                       Depreciation & Amortization       
                           --------------------------------------------
                            1998                1997              1996 
                            ----                ----              ---- 
                                                                       
Reportable segment:                                                    
  Retail                   $7,575             $6,708          $6,290   
  Direct marketing            217                213             173   
                           ------             ------          -------  
  Consolidated:            $7,792             $6,921          $6,463   
                           ======             ======          ======   

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6. DEBT                                                                         
-------                                                                         

Revolving Credit Agreement                                                      

On September 22, 1997, the Company entered into a new revolving credit
agreement replacing the existing $35 million revolving credit agreement. The new
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).
Amounts available for borrowings are reduced by the aggregate amount of         
outstanding letters of credit, which may not exceed $40 million, and borrowings.
The revolving credit agreement requires the Company to have no more than        
$10 million in borrowings (excluding letters of credit) outstanding for one     
30 consecutive day period during the December 15 to April 30 period. Borrowings 
outstanding under this facility bear interest, at the election by the Company,  
equal to the agent bank's base lending rate or the Eurodollar rate for the      
applicable period plus an additional 1.0%, 1.25% or 1.5% depending on the       
applicable cash flow coverage ratio (at January 30, 1999 the rate was 6.44%).   
In addition, the Company is obligated to pay a fee of 0.25% or 0.30% on the     
unused portion of the commitment and 0.50%, 0.625% or 0.75% on documentary      
letters of credit (depending on the applicable cash flow coverage ratio).       
The facility expires July 31, 2002. At the Lender's option, all positive cash   
balances held by the Lender's banks may be applied to the outstanding balance of
the revolving line of credit. The revolving credit agreement contains a number  
of restrictive covenants, including limitations on incurring additional         
indebtedness, granting liens, selling assets, engaging in mergers and other     
similar transactions, engaging in new business lines and making capital         
expenditures. In addition, the agreement prohibits the paying of cash dividends 
on common stock and requires that the Company maintain certain financial ratios,
including tests pertaining to net worth, ratio of liabilities to net worth and  
cash flow coverage. During the year ended and as of January 30, 1999, the       
Company was in compliance with these covenants.                                 

  The previous credit agreement provided for borrowings of up to
$30 million for letters of credit and working capital ($35 million in October   
through December), as long as the Company met a borrowing base test equal to 50%
of the amount of eligible inventory and outstanding documentary letters of      
credit (increasing to 75% August through November). Amounts available for       
borrowings were reduced by the aggregate amount of outstanding letters of       
credit, which could not exceed $15 million and borrowings. The previous         
revolving credit agreement required the Company to have no borrowings           
outstanding (excluding letters of credit) for one 30 consecutive day period     
during the fiscal year. Borrowings outstanding under this facility bore         
interest, at the election by the Company, equal to the bank's base lending rate,
money market rate or the Eurodollar rate for the applicable period plus an      
additional 1.5% (at February 1, 1997 the rate was 6.82%). In addition, the      
Company was obligated to pay a fee of 0.375% per annum on the unused portion of 
the commitment. The facility would have expired on January 31, 1998.            

The previous credit agreement was terminated on September 22, 1997 and, 
pursuant to the terms and provisions of the new credit agreement, all           
outstanding borrowings and outstanding letters of credit under the previous     
credit agreement became borrowings and outstanding letters                      

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of credit under the new credit agreement. During Fiscal 1998, the Company       
borrowed a maximum amount of $40.3 million under the revolving credit facility. 
There were no outstanding borrowings under the new or previous revolving credit 
agreement respectively at January 30, 1999, January 31, 1998 or February 1,     
1997. There were $5.7 million and $8.6 million in outstanding documentary       
letters of credit at January 30, 1999 and January 31, 1998, respectively. In    
addition, $1.5 million and $1.6 million in stand-by letters of credit were      
drawable by store lessors at January 30, 1999 and January 31, 1998,             
respectively.                                                                   

Capital Lease Obligation                                                        

    The Company's lease for its Mexico, Missouri distribution facility extends
over twenty years at prime plus 1% per annum (9.50% at January 30, 1999 and     
January 31, 1998). The interest rate is adjusted annually on October 1.         

The principal balance of this obligation amounted to $2.7 million at  
January 30, 1999 and $2.8 million at January 31, 1998. Property capitalized     
under this capital lease amounted to $3.1 million, with accumulated amortization
of $533,000 and $435,000 at January 30, 1999 and January 31, 1998, respectively.

   Scheduled payments of the capital lease obligation as of January 30, 1999
are as follows:                                                                 

                                                                [Download Table]


Fiscal Year                                            
                                                       
1999                                       $   342,000 
2000                                           342,000 
2001                                           342,000 
2002                                           342,000 
2003                                           342,000 
Thereafter                                   3,302,000 
                                           ----------- 
                                           $ 5,012,000 

Interest on capital lease obligation                   
 included above                             (2,311,000)
                                           ----------- 
Remaining principal                        $ 2,701,000 
                                           =========== 

     Current portion of the capital lease obligation equaled $89,000 and $91,000
at January 30, 1999 and January 31, 1998, respectively.                         

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7. SHAREHOLDERS' EQUITY                                                         
-----------------------                                                         

Preferred Stock                                                                 

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

Employee Stock Plans                                                            

       The Company has stock option plans for key associates, officers and
directors of the Company, which provide for nonqualified and incentive stock    
options. The Board of Directors determines the term of each option, option price
and number of shares at the date of grant. For all options granted after Fiscal 
1991, such option prices equaled the fair market value at the date of grant.    
(Options granted generally vest over four years from the date of grant and      
expire after ten years). Certain non-qualified options become exercisable five  
years from the date of grant, however, the exercise date of all or a portion of 
such options may be accelerated if the price of the Company's common stock      
reaches certain target amounts. At January 30, 1999, options of 615,105 shares  
were exercisable under the various associate stock option plans, and 22,664     
shares were exercisable under the Directors' stock option plan. At January 30,  
1999, options of 187,511 shares were available for future grants under the      
various associate stock option plans, and 102,000 shares were available for     
future grants under the Directors' stock option plan.                           

The Company also has an employee stock purchase plan which covers     
substantially all associates and allows for the issuance of a maximum of 60,000 
shares of common stock. The options are exercisable at the lower of 85% of      
market value at the beginning or end of the six-month period, through           
accumulation of payroll deductions of up to 10% of each participating employee's
regular base pay during such period. Purchases occur at the end of one or more  
option periods. Since adoption, there have been three, six-month option         
periods, which began on July 1, 1993, January 1, 1994 and November 4, 1997. The 
six-month option period that began on November 4, 1997 expired on May 4, 1998,  
resulting in the issuance of 17,102 shares to participating associates. The     
Board of Directors may, at its discretion, extend the 1992 Employee Stock       
Purchase Plan for additional periods. As of January 30, 1999, there were 14,033 
options available for future grants under this plan.                            

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Transactions under the Company's stock option plans for each of the   
three years in the period ended January 30, 1999 are as follows:                

                                                                [Download Table]


                                                             Weighted Average   
                          Number of Shares                     Exercise Price   
--------------------------------------------------------------------------------
                                                                                
Outstanding at                                                                  
  February 3, 1996           1,114,794                             $ 6.00       
     Granted                   324,000                             $ 9.22       
     Exercised                (112,905)                            $ 1.77       
     Canceled                 (152,246)                            $11.95       
                             ----------                                         
Outstanding at                                                                  
  February 1, 1997           1,173,643                             $ 6.51       
     Granted                   354,000                             $ 8.79       
     Exercised                 (77,771)                            $ 2.14       
     Canceled                 (188,250)                            $ 8.65       
                             ----------                                         
Outstanding at                                                                  
  January 31, 1998           1,261,622                             $ 7.10       
      Granted                  113,500                             $12.89       
      Exercised               (176,100)                            $ 0.53       
      Canceled                 (67,625)                            $ 9.26       
                             ----------                                         
Outstanding at                                                                  
  January 30, 1999           1,131,397                             $ 8.58       
                             ==========                                         

   Of the 1,131,397 shares outstanding at January 30, 1999, 1,075,397 shares
were outstanding under the various associate stock option plans, and 56,000     
shares were outstanding under the Directors' stock option plan.                 

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No compensation expense was recorded related to stock-based employee  
compensation awards. Had compensation cost for the Company's stock option plans 
been determined based on the fair value of the options granted at grant date as 
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation" (FAS 123),
net income and earnings per share would have been reduced to the pro forma      
amounts indicated in the table below (in thousands except per share amounts):   

                                                                [Download Table]

                                                 Fiscal Year            
                                     ---------------------------------- 
                                     1998           1997           1996 
                                     ----           ----           ---- 
                                                                        
Net income - as reported            $9,338         $7,348         $5,873
Net income - pro forma               8,973          6,992          5,641

Earnings per share - basic                                              
                    As reported     $ 1.17         $ 0.94         $ 0.76
                    Pro forma         1.12           0.89           0.73

Earnings per share - diluted                                            
                    As reported     $ 1.13         $ 0.91          $0.73
                    Pro forma         1.08           0.86           0.70

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

                                                                [Download Table]

                                                 Fiscal Year           
                                     ----------------------------------
                                     1998           1997           1996
                                     ----           ----           ----
                                                                       
Expected stock price volatility     47.8%          49.9%          53.4%
Risk-free interest rate              5.4%           6.1%           6.4%
Expected life of options          5 years        5 years        5 years
Dividend yield                       ---            ---            --- 

The weighted average fair value of options granted for Fiscal 1998,   
Fiscal 1997 and Fiscal 1996 are $6.30, $4.49 and $4.92, respectively.           

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    The following table summarizes information about stock options outstanding
at January 30, 1999:                                                            

                                                        [Enlarge/Download Table]

                                                     Options Outstanding                                Options Exercisable         
                              ------------------------------------------------------------    ------------------------------------- 
 Range of Exercise            Number Outstanding      Weighted Average    Weighted Average    Number Exercisable   Weighted Average 
     Prices                      at 1/30/99              Remaining         Exercise Price         at 1/30/99        Exercise Price  
                                                      Contractual Life                                                              
                              ------------------------------------------------------------    ------------------------------------- 
                                                                                                                                    
$0.002                             155,459               2.5 years             $0.002               155,459              $0.002     

$0.63                                4,192               3.3 years             $ 0.63                 4,192              $ 0.63     

$5.375-$8.00                       131,371               5.4 years             $ 5.94               129,371              $ 5.93     

$8.125-$11.8125                    624,875               7.6 years             $ 9.24               191,247              $ 9.11     

$13.4375-$15.00                    215,500               6.6 years             $14.62               157,500              $14.51     

------------------------------------------------------------------------------------------------------------------------------------
                                 1,131,397                                                          637,769                         

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

Earnings per common share                                                       

   The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with SFAS No. 128, "Earnings per Share".

                                                                [Download Table]

                            January 30, 1999  January 31, 1998  February 1,1997
                            ----------------  ----------------  ---------------
                                                                               
Net income                       $9,338            $7,348           $5,873     
                                 ======            ======           ======     
Weighted average common                                                        
 shares outstanding               7,988             7,824            7,744     

Effect of dilutive securities:                                                 
 Stock options                      297               295              317     
                                 ------            ------           ------     
Weighted average common shares                                                 
 and common share equivalents     8,285             8,119            8,061     
                                 ======            ======           ======     

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8. PENSION AND 401(k) PLANS                                                     
---------------------------                                                     

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

     The Company sponsors a 401(k) plan for all associates who have completed at
least one year of service with a minimum of 1,000 hours and have attained the   
age of 21. The Board of Directors, concurrently with freezing the pension plan, 
approved the increase of the Company's 401(k) matching contribution of each     
participating employee's salary from a maximum of 1.5% to a maximum of 4.0%. The
Company's matching 401(k) contribution was $402,000, $175,000 and $133,000 in   
Fiscal 1998, Fiscal 1997 and Fiscal 1996, respectively.                         

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

                                                                [Download Table]


                                          January 30, 1999   January 31, 1998
                                          ----------------   ----------------
                                                                             
Change in projected benefit obligation:                                      

Projected benefit obligation                                                 
 at beginning of fiscal year                 $ 4,576,000        $ 3,959,000  
Service cost                                     230,000            378,000  
Interest cost                                    284,000            298,000  
Actuarial loss                                   385,000            219,000  
Expenses paid                                   (120,000)           (80,000) 
Benefits paid                                   (168,000)          (198,000) 
Curtailment                                   (1,095,000)               ---  
Special termination benefits                         ---                ---  
                                              ----------         ----------  
Projected benefit obligation                                                 
 at end of fiscal year                        $4,092,000         $4,576,000  
                                              ==========         ==========  

                                                                              46

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The change in plan assets was:                                        

                                                                [Download Table]

                                         January 30, 1999      January 31, 1998 
--------------------------------------------------------------------------------
                                                                                
Fair value at beginning of fiscal year      $3,373,000             $2,728,000   
Actual return on plan assets                   458,000                401,000   
Employer contributions                         397,000                522,000   
Expenses paid                                 (120,000)               (80,000)  
Benefits paid                                 (168,000)              (198,000)  
                                            ----------             ----------   
Fair value at end of fiscal year            $3,940,000             $3,373,000   
                                            ==========             ==========   

The funded status was:                                                

                                                                [Download Table]

                                         January 30, 1999      January 31, 1998 
--------------------------------------------------------------------------------
                                                                                
Funded status at end of year                 $(152,000)           $(1,203,000)  
Unrecognized prior service cost                    ---               (120,000)  
Unrecognized net actuarial loss / (gain)      (255,000)               585,000   
                                             ---------            -----------   
Accrued benefit cost                         $(407,000)           $  (738,000)  
                                             =========            ===========   

Assumptions used in computing the funded status were as follows:      

                                                                [Download Table]
                                                                           
Weighted average discount rate                 6.75%                  7.00%
Expected return on plan assets                    9%                     9%
Rate of increase in compensation levels           4%                     4%

The components of net periodic pension cost were as follows:          

                                                                [Download Table]

                                         January 30, 1999      January 31, 1998 
--------------------------------------------------------------------------------
                                                                                
Service cost                                 $ 230,000          $ 378,000       
Interest cost                                  284,000            298,000       
Expected return on plan assets                (334,000)          (265,000)      
Amortization of prior service cost              (8,000)           (24,000)      
Recognized net actuarial loss                    6,000                ---       
                                             ---------          ---------       
Net periodic benefit cost                    $ 178,000          $ 387,000       
                                             =========          =========       

                                                                              47

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9. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS                                 
-----------------------------------------------                                 

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

    The following tables set forth the post-retirement plans funded status and
amounts recognized in the Company's consolidated financial statements.          

                                                                [Download Table]

                                          January 30, 1999   January 31, 1998
-----------------------------------------------------------------------------
                                                                             
Accumulated post-retirement benefit                                          
 obligation:                                                                 
APBO at end of prior fiscal year              $1,378,000         $1,184,000  
Service cost                                      72,000             62,000  
Interest cost                                     78,000             94,000  
Actuarial loss / (gain) and assumption                                       
 change                                         (287,000)            99,000  
Benefits paid                                    (49,000)           (61,000) 
                                              ----------         ----------  
APBO at end of current fiscal year            $1,192,000         $1,378,000  
                                              ==========         ==========  

 The change in plan assets was:                                              

                                          January 30, 1999   January 31, 1998
-----------------------------------------------------------------------------
                                                                             
Fair value at beginning of fiscal year          $    ---           $    ---  
Actual return on plan assets                         ---                ---  
Employer contributions                            49,000             61,000  
Participant contributions                            ---                ---  
Expenses paid                                        ---                ---  
Benefits paid                                    (49,000)           (61,000) 
                                                --------           --------  
Fair value at end of fiscal year                $      0           $      0  
                                                ========           ========  

                                                                              48

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     The amounts recognized in the statement of financial position consisted of:

                                                                [Download Table]

                                          January 30, 1999    January 31, 1998
                                          ----------------    ----------------
                                                                              
Accrued benefit cost (other plans)           $(2,929,000)         $(2,964,000)
                                             -----------          ----------- 
Accrued benefit cost                         $(2,929,000)         $(2,964,000)

Funded status at end of fiscal year          $(1,192,000)         $(1,378,000)
Unrecognized prior service cost               (1,047,000)          (1,149,000)
Unrecognized net actuarial gain                 (690,000)            (437,000)
                                             -----------          ----------- 
Accrued benefit cost                         $(2,929,000)         $(2,964,000)

     The components of the net periodic post-retirement benefit cost were:    

                                          January 30, 1999    January 31, 1998
                                          ----------------    ----------------
                                                                              
Service cost                                 $    72,000          $    62,000 
Interest cost                                     78,000               94,000 
Amortization of prior service cost              (102,000)            (102,000)
Recognized net actuarial gain                    (34,000)             (23,000)
                                             -----------          ----------- 
Net periodic benefit cost                    $    14,000          $    31,000 

The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 6.75% as of January 30, 1999 and 7.00% as
of January 31, 1998. For measurement purposes, an 8.6% annual rate of increase  
in the per capita cost of covered health care benefits was assumed for Fiscal   
1998; this rate was assumed to decrease gradually down to 5% for Fiscal 2004 and
remain at that level thereafter.                                                

The medical cost trend rate assumption has a significant effect on the
amounts reported. However, the impact of medical inflation eventually diminishes
because of the limit of the Company's share of plan cost for accruals for       
associates who were not eligible to retire as of February 1, 1992. A one        
percentage point change in assumed health care cost trend rate would have had   
the following effects on January 30, 1999:                                      

                                                                [Download Table]

                                           Increase     Decrease 
                                           --------     -------- 
                                                                 
Effect on total of service                                       
  and interest cost components              $ 5,500     $ (4,200)

Effect on accumulated post-retirement                            
  benefit obligation                        $53,800     $(33,400)

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10. COMMITMENTS AND CONTINGENCIES                                               
---------------------------------                                               

Lease Commitments                                                               

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

     At January 30, 1999, the minimum future rentals on noncancellable operating
leases are as follows:                                                          

                                                                [Download Table]


Fiscal Year                

                           
   1999        $ 20,926,000
   2000          20,804,000
   2001          19,891,000
   2002          19,591,000
   2003          18,345,000
Thereafter       75,404,000
               ------------
               $174,961,000
               ============

Rent expense was approximately $22.7 million, $19.6 million and $16.9 
million for the years ended January 30, 1999, January 31, 1998 and February 1,  
1997, respectively, including contingent rent expenses of approximately         
$310,000, $253,000 and $285,000, respectively. This rent expense, along with    
other costs of occupancy are included in cost of sales in the consolidated      
statement of income.                                                            

Litigation                                                                      

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

                                                                              50

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REPORT OF INDEPENDENT ACCOUNTANTS 
--------------------------------- 

ON FINANCIAL STATEMENT SCHEDULE 
------------------------------- 

TO THE BOARD OF DIRECTORS OF                                                    
BROOKSTONE, INC.                                                                

Our audits of the consolidated financial statements referred to in our report   
dated March 23, 1999 appearing in this Form 10-K for the fiscal year ended      
January 30, 1999 also included an audit of the Financial Statement Schedule     
listed in Item 14 (2) of this Form 10-K.  In our opinion, the Financial         
Statement Schedule presents fairly, in all material respects, the information   
set forth therein when read in conjunction with the related consolidated        
financial statements.                                                           

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

Boston, Massachusetts                                                           
March 23, 1999                                                                  

                                                                              51

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2.  Consolidated Financial Statement Schedules.                                 

Schedule II    Valuation and Qualifying Accounts and Reserves                   

                                                        [Enlarge/Download Table]

                                            Year ended January 30, 1999                                           
------------------------------------------------------------------------------------------------------------------
                                                            Charged to costs                                      
           Description             Beginning Balance          and expenses           Deductions     Ending Balance
           -----------             -----------------          ------------           ----------     --------------
                                                                                                                  

Allowance for doubtful accounts           $  324,000            $ 86,000              $(234,000)      $  176,000  
                                          ----------            --------              ---------       ----------  

Inventory reserve                         $1,926,000            $452,000              $       0       $2,378,000  
                                          ----------            --------              ---------       ----------  

                                            Year ended January 31, 1998                                           
------------------------------------------------------------------------------------------------------------------
                                                            Charged to costs                                      
           Description             Beginning Balance          and expenses           Deductions     Ending Balance
           -----------             -----------------          ------------           ----------     --------------
                                                                                                                  
Allowance for doubtful accounts           $  222,000            $114,000              $ (12,000)      $  324,000  
                                          ----------            --------              ---------       ----------  

Inventory reserve                         $1,543,000            $713,000              $(330,000)      $1,926,000  
                                          ----------            --------              ---------       ----------  

                                            Year ended February 1,1997                                            
------------------------------------------------------------------------------------------------------------------
                                                            Charged to costs                                      
           Description             Beginning Balance          and expenses           Deductions     Ending Balance
           -----------             -----------------          ------------           ----------     --------------
                                                                                                                  
Allowance for doubtful accounts           $  135,000            $100,000               $(13,000)      $  222,000  
                                          ----------            --------               --------       ----------  

Inventory reserve                         $1,328,000            $283,000               $(68,000)       1,543,000  
                                          ----------            --------               --------       ----------  


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

                                                                              52

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3.  Exhibits.                                                                   

EXHIBIT NO.                           DESCRIPTION                               

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

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

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

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

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

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

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

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

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EXHIBIT NO.                   DESCRIPTION                                       

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

10.8      1992 Equity Incentive Plan, as amended and restated (filed with the   
       Securities and Exchange Commission as Exhibit A to the Registrant's
1998 Proxy Statement, and incorporated herein by reference).

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

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

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

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

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

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

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

                                                                              54

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EXHIBIT NO.                   DESCRIPTION                                       

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

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

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

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

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

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

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

                                                                              55

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EXHIBIT NO.                   DESCRIPTION                                       

11        Calculation of Earnings Per Share (filed herewith).                   

13        The 1998 Annual Report to Stockholders of the Company, except for     
          those portions thereof which are incorporated in this Form 10-K, shall
       be furnished for the information of the Commission and shall not be
deemed "filed".                                             

21        List of Subsidiaries (filed with the Securities and Exchange          
      Commission as Exhibit 21 to the Registrants Form 10-K for the year
  ended February 3, 1996, and incorporated herein by reference).

23.1      Consent of Pricewaterhouse Coopers LLP (filed herewith).              

27        Financial Data Schedule (filed herewith).                             

14(b)     Reports on Form 8-K                                                   

The Company did not file any reports on Form 8-K during the quarter ended       
January 30, 1999.                                                               

                                                                              56

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SIGNATURES  

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange  
Act of 1934, the registrant has duly caused this report to be signed on its     
behalf by the undersigned, thereunto duly authorized, on April 30, 1999.        

                                  Brookstone, Inc.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and  
in the capacities, each on April 30, 1999.                                      

Signature        Title                                      

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

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

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

/s/ Adam Kirsch            Director                                             
------------------------                                                        
Adam Kirsch                                                                   

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

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

                                                                              57

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
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Filed on:		4/30/99		57
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		3/23/99		25		51
For Period End:		1/30/99		1		56
		5/31/98		46
		5/30/98		46
		5/4/98		42
		1/31/98		16		52			10-K405,  10-K405/A
		12/15/97		35
		11/4/97		42
		11/1/97		55					10-Q
		9/22/97		40		55
		2/1/97		29		50			10-K405
		11/3/96		55
		11/2/96		55					10-Q
		2/3/96		56
		1/28/95		55
		9/30/94		55
		2/25/94		54
		1/1/94		42
		7/1/93		42
		3/26/93		55
		2/29/92		53
		2/1/92		48		49
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