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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended January 31, 2004

For the transition period from                          to                         

Commission File Number 0-21406

BROOKSTONE, INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)   Yes  x    No  ¨

At August 2, 2003, the aggregate market value of common stock held by non-affiliates of the Registrant was $189,179,097 based on the closing price ($14.67 per share) for the common stock as reported on The NASDAQ Stock Market on August 2, 2003.

The number of shares outstanding of the Registrant’s Common Stock, $.001 par value, as of March 12, 2004 was 13,349,866 shares.

Documents Incorporated By Reference

Portions of the Registrant’s Proxy Statement for its 2004 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.

Table of Exhibits appears on Page 73.

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BROOKSTONE, INC.

2003 FORM 10-K ANNUAL REPORT

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Exhibits Filed Herewith:

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PART I

This Annual Report on Form 10-K, including the following discussion, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. See also Item 7, “Management’s Discussions and Analysis of Financial Condition and Results of Operations.” We disclaim any intent or obligation to update any forward-looking statements.

Brookstone, Inc. (“We” “Brookstone” or the “Company”) is a nationwide specialty retailer whose strategy is to develop unique, proprietary branded products and offer them to customers via multiple distribution channels, retail stores and direct to customer via catalog and the Internet. The Company’s portfolio includes three brands: Brookstone, Hard-to-Find-Tools and Gardeners Eden. The Brookstone brand features 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. Hard-to-Find-Tools features solutions for homeowners primarily focused on home improvement and the indoor and outdoor home environment. Gardeners Eden is a garden inspired lifestyle brand that features garden themed home accessories, live plants, and outdoor furniture. The Company offers approximately 2,500 active stock-keeping units (“SKUs”) for Brookstone and Hard-to-Find-Tools, and approximately 3,000 for Gardeners Eden at any given time. The Company sells its products through 273 full-year stores (including 34 airport based stores, three outlet stores and three Gardeners Eden stores) in 39 states, the District of Columbia and Puerto Rico. In addition to these full-year stores, Brookstone operates temporary stores and kiosks primarily during the winter holiday season; there were a total of 67 such stores operating during the 2003 winter holiday season. The Company also operates a direct marketing business, which is comprised of three catalog titles (Hard-To-Find-Tools, Brookstone Catalog, and Gardeners Eden), two interactive Internet sites, www.Brookstone.com and www.Gardenerseden.com, and sales to corporate customers. For a further description of the Company’s business segments, see Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations and Note 6 of the Notes to Consolidated Financial Statements on pages 22 and 58 of this Annual Report on Form 10-K.

The Company was incorporated in Delaware in 1986. The Company is a holding company, the principle assets of which is the capital stock of Brookstone Company, Inc. a New Hampshire corporation that, along with their direct and indirect subsidiaries, operate the Company’s business. As used in this report, unless the context otherwise requires, the term “Company” refers 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.

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Retail Store Business

Brookstone Brand

Merchandising and Marketing

Merchandising. The Brookstone brand seeks to be a leader in identifying and selling products that 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 Brookstone products bear the Brookstone name in an effort to reinforce its franchise value and generate customer loyalty.

The following lists Brookstone’s four current product worlds and 18 current product categories:

The Company seeks to design, engineer and bring to market unique, high quality and functional products that resonate with its customers and enhance their lives. Every year Brookstone introduces new merchandise across a wide range of categories. In 2003, these products included stereos that incorporate cutting-edge flat-panel speaker technology for improved design and performance, a Microbeam Keychain Flashlight judged ‘Best Overall’ by The Wall Street Journal, grilling tools powered by smart-chips that take the guess work out of cooking, and home and comfort items that enhance relaxation and salubrity.

Because of Brookstone’s dedication to product development, the Company has earned a number of function and design patents for its products. The Company conveys the features and benefits of its merchandise through a variety of mediums, including in-store, catalog and Internet marketing, attentive customer service and an aggressive public relations program that seeks to generate news media coverage of a variety of Brookstone products.

We believe that the qualities of Brookstone’s products make them suitable for gift giving. The Company believes that a majority of Brookstone’s sales are attributable to products purchased as gifts, especially for men, and Brookstone’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 believes that its 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 seeks to price its products to be affordable to the typical mall shopper. The

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majority of Brookstone’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 $4,500.00. Brookstone closely monitors gross profit dollar contribution by SKU and adjusts merchandise assortment and displays accordingly.

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

The Brookstone Store. Brookstone believes its retail stores are distinctive in appearance and in the shopping experience they provide. Brookstone attempts to emphasize the visual aspects of its merchandise presentation and to create 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 often 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 Brookstone believes will have particular appeal to shoppers. The Company continues to refine its retail store. In Fiscal 2003 the Company introduced a new store design intended to better showcase the Company’s innovative products. During Fiscal 2003, the company opened 17 stores and remodeled 13 existing stores using this new store design.

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 Brookstone’s most popular, gift-oriented merchandise. The typical Brookstone kiosk is a temporary structure of approximately 160 square feet, which can carry approximately 110 SKUs. The typical temporary store has approximately 1,000 square feet and is designed to carry up to 135 SKUs. Both kiosks and temporary stores are built with reusable, portable and modular materials.

Marketing. Brookstone’s principal marketing vehicles are the Brookstone stores and its catalogs. Brookstone’s open storefront design and 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. Both the Company’s Brookstone Catalog and its Internet site identify Brookstone’s 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.

In addition to its stores, catalogs and Internet site, Brookstone markets its brand and products to consumers via an aggressive public relations program aimed at the news media.

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Throughout 2003, key Brookstone products appeared prominently in a variety of national publications, including The New York Times, The Wall Street Journal, USA Today, Time and Newsweek magazines, as well as on some of the country’s top television shows, including NBC Today, ABC Good Morning America, the CBS Evening News, the NBC Nightly News and The Ellen DeGeneres Show.

Product Sourcing

Brookstone continually seeks to develop, identify and introduce new products that meet its quality and profitability standards. Brookstone employs a staff of specialized merchandise directors who actively participate in the design, development and selection process for many new products. These directors 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, Taiwan, France, and Mainland China. 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.

Brookstone Labs, the Company’s internal product design and development facility, in cooperation with the merchandise directors, provides design and engineering support for innovative Brookstone-branded products.

As an extension of this aspect of the Company’s business, during Fiscal 2003, the Company established Advanced Audio Concepts, Ltd. This business is a wholly owned subsidiary located in Hong Kong and is focused on development of cutting edge audio technology.

For quality assurance, the Company employs a staff to review and evaluate its potential products. 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 product has the potential to be available 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 three and six months. For products designed by the Company, the period from conception of the idea to introduction in the stores can be significantly longer.

As a result of Brookstone’s product development infrastructure, the percentage of Brookstone branded products in Brookstone stores has risen from 14% in 1996 to approximately 65% in 2003.

See “Managements Discussion and Analysis of Financial Condition and Results of Operations” – “Outlook: Important Factors and Uncertainties” found on page 22 and 33 of this document.

Store Operation and Training

The Company employs regional managers, district managers and associate district

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managers to supervise the Company’s stores. Staffing of a typical store includes a store manager, an assistant store manager, a second assistant store manager, and approximately 5 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 the Company’s merchandise. Store associates usually receive weekly product updates from the Company’s headquarters, which highlight both new and other selected products. The Company has developed incentive compensation programs for its retail store management team which reward individual and store performance based on profitability, among other factors.

The Company uses “Closing Strong” and “Prodigy,” selling skills programs designed to train all associates in the art of identifying and qualifying customers, and in closing the sale. The programs focus on generating incremental sales through increasing add on sales, units per transaction and big-ticket sales.

Expansion Strategy

The Company operates 270 Brookstone stores in 39 states, the District of Columbia and Puerto Rico. Brookstone’s stores are primarily located in high traffic regional malls, as well as in central retail districts and multi-use specialty projects, such as Copley Square in Boston, The Forum Shops in Las Vegas, Rockefeller Center in New York City and Mohegan Sun in Connecticut. Brookstone’s stores also include stores in airport terminals throughout the country.

Brookstone strives to locate 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 Brookstone stores average approximately 3,500 square feet, approximately 2,800 of which is selling space. Airport stores range from approximately 600 to 2,000 square feet in size and typically carry a limited assortment of Brookstone’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. The Company opened 17 Brookstone stores in Fiscal 2003, including eight airport stores; 12 Brookstone stores in Fiscal 2002, including six airport stores; 25 stores in Fiscal 2001, including seven airport stores; 14 stores in Fiscal 2000, including two airport stores; and 15 stores in Fiscal 1999, one of which was an airport store. The Company plans to open approximately 20 new Brookstone stores in Fiscal 2004, including up to eight airport locations. Brookstone continually monitors individual store profitability and will consider closing any stores that do not meet its performance criteria. Brookstone closed three stores in Fiscal 2003, two stores in Fiscal 2002, two stores in Fiscal 2001, two stores in Fiscal 2000, and no stores in Fiscal 1999. In Fiscal 2004, the Company may close a nominal number of stores, none of which have been identified.

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Brookstone operated 67 seasonal stores (35 kiosks and 32 temporary in-line) during the 2003 winter holiday season. During the 2002 winter holiday selling season, Brookstone operated 64 seasonal stores (27 kiosks and 37 temporary in-line); 67 seasonal stores (35 kiosks and 32 temporary in-line) during the 2001 winter holiday selling season; 60 seasonal stores (31 kiosks and 29 temporary in-line) during the 2000 winter holiday selling season; and 71 seasonal stores (44 kiosk and 27 temporary in-line) during the 1999 winter holiday season. Brookstone plans to operate approximately 65 seasonal stores during the 2004 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 traditionally the 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 22 and 33 of this document).

Gardeners Eden Brand

The Company purchased the Gardeners Eden brand in May of 1999. At the time, Gardeners Eden was a catalog-only business. The Company believes that a Gardeners Eden retail store concept contains much promise, and in Fiscal 2001 the Company opened its first two Gardeners Eden stores, signifying the launch of its new retail store concept tied to its Gardeners Eden catalog title. The Company opened one store in Fiscal 2003 and currently operates three stores in two states, Connecticut and Massachusetts.

The Gardeners Eden product assortment features garden inspired products for the home that can be used for decorating, gifting and entertaining. Gardeners Eden seeks to identify and sell products that feature excellent craftsmanship and quality, and help fulfill home and garden decorating and gift giving needs. Key product categories include Outdoor Furniture, Live Plants, and Indoor and Outdoor Decorative Accessories. The stores feature approximately 1,800 SKUs and a wide range of price points. Currently, the majority of products are sourced domestically through Europe and Asia.

The stores contain approximately 4,000 – 5,000 sq. ft. of interior selling space coupled with exterior selling space of approximately 1,500 sq. ft. The stores design is meant to reflect nature; when the customer enters they smell the aroma of live plants. The stores also feature natural lighting through extensive use of skylights.

The Company employs dedicated Gardeners Eden merchants, planners and store personnel, while seeking to leverage the Company’s support infrastructure.

The Company anticipates opening up to three additional Gardeners Eden locations in Fiscal 2004.

The Company continues to invest in further development and definition of the Gardeners Eden brand, including the continual refinement of optimal product mix and its retail store

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concept and subsequent rollout. The Company believes the Gardeners Eden Brand will attain profitability in the next two to four years.

Direct Marketing Business

The Company was founded in 1965 as a mail order marketer of hard-to-find tools. During Fiscal 2003 and Fiscal 2002 the direct marketing business accounted for approximately 17% of the Company’s net sales and 18% in 2001. The direct marketing business is comprised of three catalog titles (Brookstone Catalog, Hard-To-Find-Tools and Gardeners Eden), two interactive Internet sites, www.Brookstone.com and www.Gardenerseden.com, and sales to corporate customers. In Fiscal 2003, the Company mailed a total of approximately 39.4 million catalogs, with 31 separate mail dates.

The Company produces the Brookstone Catalog, which offers a selection of merchandise generally available in the Company’s retail stores. The Brookstone Catalog is usually distributed four times per year including during the months prior to Father’s Day and winter holiday, the Company’s two busiest selling seasons. The Brookstone Catalog is mailed to persons with demographic profiles similar to those of buyers in the Company’s stores.

The Hard-To-Find-Tools catalog features a broad assortment of approximately 2,000 products, set forth in what the Company believes to be an informative and convenient format. The Company believes that 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 90% of the products in the Hard-To-Find-Tools catalog are not available in the Company’s stores.

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

Brookstone has operated an interactive Internet site (www.Brookstone.com) since 1996 featuring an offering of products from catalogs and retail stores. In September 2003, the Company launched www.Gardenerseden.com for its Gardeners Eden brand. The websites are an integral component of the Company’s integrated multi-channel strategy offering the Company’s widest selection of products.

Merchandising, Marketing and Product Sourcing

Brookstone employs a 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. A dedicated staff selects products for the Brookstone Catalog and Internet from the product assortment available in the Company’s stores, plus catalog and Internet-exclusive products in existing categories. A merchandising team is similarly dedicated to the selection of products for the Gardeners Eden catalog and Internet site. Products for all catalogs are chosen based on their previous or estimated direct marketing order productivity. The Company also

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employs a marketing staff responsible for list selection, management of marketing offers and tests of catalog activity.

Distribution and Management Information Systems

After a comprehensive review of the Company’s anticipated distribution requirements, management decided to upgrade its distribution systems and to physically expand its current distribution center in Mexico, Missouri. The Company segregated this project into three distinct phases: Systems upgrade, facility expansion and material handling systems. In Fiscal 2001, Phase I was completed with the enhancement of the current warehouse management system which was designed to increase the efficiency of receiving and shipping goods.

Phase II was completed in Fiscal 2003 with the addition to the existing facilities of 213,000 square feet of high bay, high density space, bringing the total square footage of the distribution center to 392,000. During Phase III, which the Company anticipates to be completed in Fiscal 2004, the current material handling system will be replaced with a state-of-the art material handling system designed to further enhance productivity by increasing automation and reducing the amount of physical handing of product.

During Fiscal 2003 overflow from the direct marketing business was handled by a third party distribution center, which primarily handled Internet order fulfillment for www.Brookstone.com. As of the close of Fiscal 2003 the contract with this third party distributor was terminated. In addition to this distribution center the company leased up to an additional 167,000 square feet in Mexico, Missouri to handle its distribution support functions. As a result of the Company’s physical distribution center expansion, the Company anticipates being out of this leased space in the first half of Fiscal 2004.

Nearly all of the Company’s inventory is received and distributed through its Mexico, MO facility, which supports both the retail store and direct marketing distribution channels. The Company seeks to maintain an inventory of products in the distribution center that will ensure a sufficient supply for sale to customers. Distributions to stores are made, at a minimum, on a weekly basis predominantly via United Parcel Service (“UPS”). Distributions to direct marketing customers are made daily, predominantly via UPS. Additionally, certain of the Company’s products are shipped direct to its customers by its vendors.

The facility also houses the Company’s direct marketing customer sales and contact center. The Company utilizes an outside customer sales and contact center to handle overflow order calls and to provide coverage during off-peak hours.

Efficient and effective logistics management is a primary focus for the Company throughout the supply chain. The Company uses distribution control software and a sales and inventory management system. These systems, along with the store-based point-of-sale system and our direct marketing management system are designed to provide daily tracking of item activity and availability to the Company’s inventory allocation and distribution teams. Additionally, the Company uses a sales forecasting and a distribution requirements planning

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client-server based system. This system is designed to generate weekly sales forecasts by SKU by selling location to determine replenishment requirements and recommend optimal inventory purchases to the merchandise procurement team.

Vendors

The Company currently conducts business with approximately 950 vendors, of which approximately 275 are located overseas. In Fiscal 2003, no single vendor supplied products representing more than 17.2% of net sales, with the 10 largest vendors representing approximately 41% of net sales. The Company’s operating results could be adversely affected if any of its 10 largest vendors were unable to continue to fill the Company’s orders for such vendor’s products or failed to fill those orders in a timely way. See “Managements Discussion and Analysis of Financial Condition and Results of Operations” – “Outlook: Important Factors and Uncertainties” found on page 22 and 33 of this document.

Seasonality

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

The seasonal nature of the Company’s business increased in Fiscal 2003 and is expected to continue to increase in Fiscal 2004 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 2003, 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. The Company strives to compete for customers principally on the basis of product assortment, convenience, customer service, price and the attractiveness of its stores. The Company also competes against other retailers and other businesses for suitable real estate locations and qualified management personnel. Because of the highly seasonal nature of the Company’s business, competitive factors are most important during the winter holiday selling season.

The Company seeks to differentiate 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.

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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 Company believes that the number of catalogs mailed to consumers has increased and with the advent of the Internet.

Environmental Matters

Compliance with federal, state and local environmental regulations has not had, nor is it expected to have any material effect on our capital expenditures, earnings or competitive position based on information and circumstances known to us at this time.

Employees

As of March 12, 2004, the Company had 1,353 regular full-time associates, of which 671 were salaried and 682 were hourly. As of such date, the Company also employed an additional 1,182 part-time and 370 temporary associates. 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 the Company’s employees are represented by labor unions, and the Company 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 and in several foreign countries. In addition, the Company has applications to register the “BROOKSTONE” trademark still pending in several foreign countries. The Company acquired the trademarks “GARDENERS EDEN” and “GARDENERS EDEN (with Design)” and their associated registrations with the United States Patent and Trademark Office from Williams-Sonoma, Inc. in connection with its acquisition of the Gardeners Eden catalog in May of 1999. When appropriate, the Company seeks to register various trademarks in jurisdictions used by the Company in its business.

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Available Information

The Company makes its Annual Reports on Form10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports available, free of charge, under the “Investor Relations” section of the Company’s website, www.Brookstone.com, as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission. The Code of Ethics for the Company’s board members, senior executives and employees can be found at the Company’s website, www.Brookstone.com.

The Company leases all of its retail stores. New non-airport retail store leases usually have an initial term of 12 years and airport locations typically have an initial term of eight years. As of January 31, 2004, the unexpired terms under the Company’s then existing store leases averaged just under six years. Store leases may permit the Company to terminate the lease after approximately five years if the store does not achieve specified levels of sales. In most leases, the Company pays a minimum fixed rent plus a contingent rent based upon net sales of the store in excess of a certain threshold amount. The following chart describes the number of store leases that will expire in the periods indicated:

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.

The Company operates a single 392,000 square foot distribution facility located in Mexico, Missouri under a capital lease obligation (see Note 7 of the Notes to Consolidated Financial Statements) that extends over 20 years at prime plus 1% per annum. The interest rate is adjusted annually on November 1.

On March 1, 2004 the Company amended the lease for the Mexico, Missouri distribution facility. The amendment extends the term of the lease from October 2013 until March 2024 and requires payments that bear interest at the prime rate as published from time to time in the Wall Street Journal.

The Company currently leases a building with approximately 51,000 square feet in Nashua, New Hampshire to house its corporate headquarters. The Company evaluated its immediate and future space requirements and after careful review decided to construct a 100,000

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square foot facility in the adjoining town of Merrimack, New Hampshire. The lease for the existing Nashua HQ was scheduled to expire on May 31, 2004; however, management has negotiated with the landlord to extend the lease until the Company has completed its new facility, which is anticipated to be completed during the third fiscal quarter of 2004. In addition, the Company is reviewing financing alternatives for the facility.

In March of 2002, the Company was served with a lawsuit brought in California superior court in Los Angeles as a class action on behalf of current and former managers and assistant managers of the Company’s California stores, alleging that they were improperly classified as exempt employees. The lawsuit sought damages including overtime pay, restitution and attorneys fees. On August 15, 2003, a settlement agreement was finalized with a maximum amount of $1.5 million for this matter. As a result of this settlement and settlement of other ongoing routine legal matters, a charge of $1.1 million was recorded during the second quarter of 2003. A final fairness and settlement approval hearing is scheduled for April 16, 2004, at which time the court may rule on the fairness of the settlement agreement. Settlement funds will not be distributed unless and until the parties’ settlement agreement receives final approval by the court.

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

No matters were submitted to a vote of security holders of the Company during the fourth quarter of Fiscal 2003.

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The executive officers of the Company are set forth below. There are no family relationships among any of the executive officers named below.

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

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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 was appointed Executive Vice President, Store Operations, Customer Sales and Contact Center in May 2000. He was Senior Vice President, Store Operations of the Company from March 1994 until May 2000, having previously served as Vice President, Store Operations of the Company beginning in October 1990. Mr. Winiecki was Executive Vice President of Decor Corporation from November 1989 until September 1990. He was Vice President, Administration of Claire’s Boutiques, Inc. from November 1986 until October 1989. Prior to this time Mr. Winiecki held various management positions with The Ben Franklin Stores and the Gap.

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

MICHAEL W. LUCE was appointed President and Chief Executive Officer, Gardeners Eden in August 2003. Prior to joining the Company, Mr. Luce was Vice President of Global Business Development for Eddie Bauer, Inc. from 2000 to 2002. From 1989 to 1998 he was the Founder, President and Chief Executive Officer Garden Botanika. Mr. Luce was with Eddie Bauer, Inc. from 1984 to 1988 where he held various positions including President and Chief Operating Officer and prior to joining Eddie Bauer he was with Meier & Frank and Co.

KATHLEEN A. STAAB was appointed Vice President of Gardeners Eden in April 2002 after having worked as a consultant for various retailers since 1998. From 1991 to 1997, Ms. Staab was Vice President, General Merchandise Manager at Talbot’s. Previous to her positions at Talbot’s, Ms. Staab held managerial positions at Jordan Marsh Company and R. H. Macy and Company.

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

M. RUFUS WOODARD, JR. was appointed Vice President of Merchandising in January 2002. From April 2001 until his recent appointment, Mr. Woodard was Operational Vice President, General Merchandise Manager. In 1998, Mr. Woodard was appointed to Divisional Merchandise Manager and held that position until 2001. Mr. Woodard joined the Company in

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1993 as Buyer and managed numerous product categories from 1993 to 1998. Prior to joining the Company, Mr. Woodard held senior buying positions at Jordan Marsh /Abraham & Strauss and Miller and Rhoads.

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.

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PART II

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

As of March 12, 2004, there were 13,349,866 shares of common stock, $.001 par value per share, outstanding and held of record by 143 stockholders. The Company has never paid a cash dividend and currently plans to retain any earnings for use in the operations of the business. For restrictions on payment of dividends, see Note 7 of the Notes to Consolidated Financial Statements.

Equity Compensation Plan Information

The above table summarizes the Company’s Equity Compensation Plans. At January 31, 2004, the Company had no equity compensation plans that were not approved by security holders.

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Brookstone, Inc.

Selected Financial Data

(In thousands, except operating and per share data)