<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         FOR THE QUARTERLY PERIOD ENDED October 31, 1998

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

         FOR THE TRANSITION PERIOD FROM ___________ TO ___________


                         COMMISSION FILE NUMBER 0-27920


                              Garden Botanika, Inc.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


           Washington                                    91-1464962
(STATE OR OTHER JURISDICTION OF                (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)



                              8624 154th Avenue NE
                            Redmond, Washington 98052
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


                                 (425) 881-9603
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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 [ ]


THE REGISTRANT HAD 7,069,098 SHARES OF COMMON STOCK, $0.01 PAR VALUE,
OUTSTANDING AT October 31, 1998.


<PAGE>   2



                              GARDEN BOTANIKA, INC.

                               INDEX TO FORM 10-Q


<TABLE>
<CAPTION>
                                                                                    PAGE
                                                                                    ----
<S>        <C>        <C>                                                           <C>

PART I -   FINANCIAL INFORMATION ..................................................   3

           ITEM 1 -   FINANCIAL STATEMENTS ........................................   3

                      Balance Sheets ..............................................  10

                      Statements of Operations ....................................  11

                      Statements of Cash Flows ....................................  12

                      Notes to Financial Statements ...............................  13

           ITEM 2 -   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                      FINANCIAL CONDITION AND RESULTS OF
                      OPERATIONS ..................................................   3

           ITEM 3 -   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                      MARKET RISK .................................................   7


PART II -  OTHER INFORMATION ......................................................   8

           ITEM 1 -   LEGAL PROCEEDINGS ...........................................   8

           ITEM 2 -   CHANGES IN SECURITIES .......................................   8

           ITEM 3 -   DEFAULTS UPON SENIOR SECURITIES .............................   8

           ITEM 4 -   SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS- ........   8

           ITEM 5 -   OTHER INFORMATION ...........................................   8

           ITEM 6 -   EXHIBITS AND REPORTS ON FORM 8-K ............................   8

                      Exhibit 11 - Calculation of Earnings Per Common and
                      Common Equivalent Share .....................................  14

</TABLE>



                                       2
<PAGE>   3



PART I - FINANCIAL INFORMATION:


ITEM 1 - FINANCIAL STATEMENTS -

         The unaudited balance sheet as of October 31, 1998, audited balance
sheet as of January 31, 1998 and unaudited statements of operations and cash
flows of Garden Botanika, Inc. (the "Company") for the quarterly and nine-month
periods ended October 31, 1998 and November 1, 1997 are attached. Notes to the
unaudited financial statements are also attached.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -

         This discussion should be read in conjunction with the "Management's
Discussion and Analysis" section included in the Annual Report on Form 10-K/A
dated May 29, 1998, which has previously been filed with the Securities and
Exchange Commission.

         Certain statements in this discussion constitute "forward-looking
statements" and involve risks, uncertainties and other factors which may cause
the Company's actual performance to be materially different from the performance
expressed or implied by such statements. Such factors include, among others: (a)
the Company's losses and failure to achieve profitability to date; (b) its
limited resources and dependence on a line of credit; (c) declines in its
comparable store sales; (d) the Company's ability to cost-effectively close or
restructure the rent of some of its most unprofitable stores; (e) the
identification and response to emerging industry trends, including the Company's
ability to successfully develop and introduce new products and maintain
inventory levels appropriate for demand; (f) the Company's ability to
successfully implement strategies in new channels of distribution, and (g) other
factors set forth in the Company's Annual Report on Form 10-K/A dated May 29,
1998 and other filings with the Securities and Exchange Commission. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

         The results of operations for the quarterly period ended October 31,
1998 are not necessarily indicative of the results to be expected for the full
fiscal year. In each of the past three fiscal years, 39% to 49% of the Company's
annual net sales have been realized during its fourth fiscal quarter,
particularly during the November and December holiday selling period. The
Company expects this pattern to continue during the current fiscal year. The
Company's quarterly results of operations may also fluctuate significantly as a
result of a variety of other factors, including, among others, increases or
decreases in comparable store sales, net sales contributed by its newer stores,
adverse weather conditions, shifts in the timing of holidays, shifts in the
timing of promotions and catalog mailings, changes in the Company's product mix
and general economic conditions affecting consumer confidence and spending.

         The Company had 273 stores in operation at October 31, 1998, plus one
temporary store location, compared to 278 stores at November 1, 1997 and 280
stores at January 31, 1998. This reflects the opening of one new store and the
closing of eight poorly performing stores in the current fiscal year. In
addition, the Company plans for the additional closing of some of its most
unprofitable stores before the end of fiscal 1998 and, following the holiday
season, the Company plans to review the productivity of each of its stores with
a view toward closing those stores that fail to meet performance standards.
During the year, the Company opened two temporary outlet locations, subsequently
closing one of these locations, and it converted five of its most unprofitable
stores into clearance centers. The temporary outlets and clearance centers are
no longer included in the Company's comparable store base. These non-comparable
locations are intended to sell discounted merchandise in the normal course of
business as new product lines are introduced to replace older ones and
periodically freshen the Company's overall product assortment. The average age
of the Company's stores at October 31, 1998 was 39 months.



                                       3
<PAGE>   4



         The Company reports on a 52/53-week year, consisting of four 13-week
quarters. The fiscal year ends on the Saturday nearest the end of January.

         RESULTS OF OPERATIONS -

         (a) COMPARISON OF THE QUARTERLY PERIODS ENDED OCTOBER 31, 1998 AND
NOVEMBER 1, 1997.

         Net Sales. Net sales for the third quarter of fiscal 1998 were $20.67
million, compared to net sales of $21.28 million for the comparable prior
period, a decrease of 3%. Store net sales decreased $1.07 million, or 5%, during
the quarter, as a result of an 8% decrease in comparable store sales (sales for
stores open at least one complete fiscal year). Management attributes this
decrease, in part, to the cumulative, ongoing impact of the reduction in pages
mailed per store of its retail store catalog mailings, resulting in the erosion
of the Company's historical core customer base consisting of 30- to 45-year old
women; the elimination of certain product sizes and types without a
countervailing increase in sales of the Company's remaining core products; and
increased competition from other specialty retailers and mass merchandisers.
During the quarter, comparable store sales declined 13% in August, 4% in
September, and 7% in October. In the third quarter of fiscal 1997, comparable
store sales increased 6% in August, 1% in October and were flat in September.

         Mail order net sales increased $41,000, or 7%, in the third quarter of
fiscal 1998 versus the comparable prior period. This increase was primarily
attributable to the Company's increased focus on what it believes is its more
productive and cost effective list of customers who have previously purchased
from its mail order catalogs.

         The commercial sale of specifically selected Garden Botanika products
totaling $94,000 is also included in total sales for the quarter, as is the
recognition of $352,000 in revenue from sales of annual memberships in the
Company's discount shopping "Garden Club" program, which membership sales are
amortized over the course of a year.

         Gross Margin. The dollar amount of gross margin increased $206,000, or
3.6%, from the third quarter of fiscal 1997. As a percentage of net sales, gross
margin, which is net of buying and occupancy costs, was 28.5% in the third
quarter of fiscal 1998 versus 26.8% in the comparable prior period. This
increase was primarily attributable to higher merchandise costs in fiscal 1997
as a percentage of sales resulting from the Company's clearance of discontinued
items in connection with its remerchandising program, partially offset in the
current fiscal quarter by the effect of relatively fixed store occupancy costs
in a period of overall declining sales.

         Operating Expenses.

                Stores and Catalog. The dollar amount of store and catalog
expenses increased by $538,000, or 6.2% as compared to the comparable prior
period, primarily due to increases in advertising expenditures, which were
partially offset by planned reductions in payroll and other store operating
expenses. As a percentage of net sales, store and catalog expenses increased to
44.6% from 40.8% in the third quarter of fiscal 1997. The increase in store
expenses as a percentage of sales was primarily attributable to the increased
advertising expenditures.

                General and Administrative. The dollar amount of general and
administrative expenses decreased by $224,000, or 8.2%, from the comparable
prior period. As a percentage of net sales, general and administrative expenses
decreased to 12.1% from 12.8% in the third quarter of fiscal 1997 due to planned
reductions.

         Preopening and Facility Relocation Expense. In the third quarter of
fiscal 1998, the Company did not incur preopening or facility relocation expense
(collectively, "Preopening Expense"). In the third quarter of fiscal 1997,
during which the Company opened nine stores and wrote off the unamortized
balance of leasehold improvements at one remodeled store, Preopening Expense was
$179,000, or 0.8% of net sales.



                                       4
<PAGE>   5

         Operating Loss. For the reasons explained above, the Company's
operating loss decreased 1.2%, from $5.88 million or 27.6% of net sales, to
$5.81 million or 28.1% of net sales, in the respective quarters.

         Interest (Expense) Income, Net. The Company incurred no net interest
expense during the third quarter of fiscal 1998 compared to net interest expense
of $35,000, or 0.2% of net sales, during the comparable prior period.

         Income Tax Provision. The Company did not record an income tax
provision for the third quarter of either fiscal 1998 or fiscal 1997 due to its
pre-tax losses.

         Net Loss and Per Share Data. For the reasons explained above, the
Company's net loss decreased 1.8%, from $5.92 million, or $0.84 per share,
during the third quarter of fiscal 1997 to $5.81 million, or $0.82 per share,
during the third quarter of fiscal 1998. There were approximately 7.07 million
common and common equivalent shares outstanding for both periods.

         (b) COMPARISON OF THE NINE-MONTH PERIODS ENDED OCTOBER 31, 1998 AND
NOVEMBER 1, 1997.

         Net Sales. Net sales for the first nine months of fiscal 1998 were
$63.24 million, compared to net sales of $70.07 million for the comparable prior
period, a decrease of 10%. Store net sales declined $6.55 million or 10%, during
the period, primarily due to a 16% decrease in comparable store sales. In the
first nine months of fiscal 1997, comparable store sales increased 5%.

         Mail order net sales declined $1.54 million, or 46%, in the first nine
months of fiscal 1998 versus the comparable prior period. This decline was
primarily attributable to a planned reduction in mail order catalog circulation
as the Company significantly reduced the level of prospecting for new customers
and focused its primary efforts on what it believes to be its more productive
and cost effective list of customers who have previously purchased from its mail
order catalogs.

         Gross Margin. The dollar amount of gross margin decreased $5.58
million, or 24.8%, from the first nine months of fiscal 1997. As a percentage
of net sales, gross margin was 26.8% versus 32.1% in the comparable prior
period. The decline in gross margin as a percentage of net sales reflected
primarily the effect of relatively fixed store occupancy costs in a period of
declining sales.

         Operating Expenses

                Stores and Catalog. The dollar amount of store and catalog
expenses decreased by $1.4 million, or 5.0%, from the comparable prior period,
primarily as a result of planned reductions in controllable store operating
expenses as well as the elimination of certain remerchandising expenses incurred
in the second quarter of fiscal 1997. As a percentage of net sales, store and
catalog expenses increased to 41.9% from 39.8% in the first nine months of
fiscal 1997. The increase is attributable to decreased leverage on store
expenses due to the decline in sales volumes.

                General and Administrative. The dollar amount of general and
administrative expenses decreased by $414,000, or 5.2%, from the comparable
prior period. As a percentage of net sales, general and administrative expenses
increased from 11.4% to 11.9% as a result of the overall decline in net sales.

         Preopening and Facility Relocation Expense. Preopening Expense was
$350,000, or 0.5% of net sales, in the first nine months of fiscal 1998, during
which the Company opened one store and wrote off the unamortized balance of
leasehold improvements at two remodeled stores. In the comparable prior period,
when the Company opened 25 stores and completed the relocation and expansion of
two of its existing stores, Preopening Expense was $283,000, or 0.4% of net
sales.



                                       5
<PAGE>   6


         Provision for Store Closings. During the second quarter of fiscal 1998,
the Company recorded a provision for store closing costs of $3.55 million to
close additional stores in fiscal 1998. The provision includes both the
estimated costs of asset write-offs and the closure expenses relating to the
Company's extricating itself from lease obligations, of which $3.17 million
reduced property and equipment and $375,000 was provided for other store closure
costs.

         Operating Loss. For the reasons explained above, the Company's
operating loss increased 54.1%, from $13.64 million to $21.02 million, in the
respective nine-month periods. Expressed as a percentage of net sales, the
operating loss increased to 33.2% from 19.5% in the comparable prior period.

         Interest (Expense) Income, Net. Net interest income during the first
nine months of fiscal 1998 was $46,000, or 0.1% of net sales, compared to net
interest income of $340,000, or 0.5% of net sales, during the comparable prior
period. The decrease reflects the decline in the level of cash investments from
the comparable prior period.

         Income Tax Provision. The Company did not record an income tax
provision for the first nine months of either fiscal 1998 or fiscal 1997 due to
its pre-tax losses.

         Net Loss and Per Share Data. For the reasons explained above, the
Company's net loss increased 57.7% from $13.30 million, or $1.88 per share,
during the first nine months of fiscal 1997 to $20.98 million, or $2.97 per
share, during the comparable 1998 period. There were approximately 7.07 million
weighted average common and common equivalent shares outstanding for both
periods.

         LIQUIDITY AND CAPITAL RESOURCES -

         The Company began fiscal 1998 with cash and cash equivalents of $8.59
million. During the first nine months of the year, cash and borrowings under the
credit facility were used to fund the Company's net loss of $11.34 million net
of depreciation and other non-cash write-offs and to fund fixed asset additions
of $1.39 million, primarily for the opening of one new store and the remodeling
of two stores. The Company ended the third quarter with cash and cash
equivalents of $1.25 million, checks drawn in excess of bank balances under its
integrated cash management program of $2.78 million and borrowings under its
credit facility of $3.97 million.

         The terms of the Company's $10.00 million credit facility dated April
19, 1998 and amended on August 12, 1998 with Foothill Capital Corporation
("Foothill") provides interest at prime plus two percent. Credit is generally
available as the lesser of (a) a variable percentage ranging from 55% to 65% of
eligible finished goods inventory, or (b) 80% of the inventory liquidation
value, as determined by an appraisal, less any reserves. The Company is
currently entitled to borrow $6.79 million net of reserves, of which $5.83
million is currently outstanding. As of October 31, 1998, $3.97 million was
outstanding under the Foothill credit facility. The Company's outstanding
balance under the line is cyclical and fluctuates significantly, depending on
such factors as the weekly retail sales cycle, increases in eligible inventory,
the timing of catalog mailings, as well as monthly rent and biweekly payroll
obligations. As of October 31, 1998, the Company was in compliance with all
provisions and covenants under the credit agreement.

         On an ongoing basis, the Company expects to continue to be able to
finance a portion of its merchandise inventory costs by using vendor credit
terms, generally ranging from 30 to 60 days. In addition to such vendor
financing, subject to its meeting certain financial conditions, the Company may
finance 55% to 65% of the cost of its inventory under the terms its credit line
with Foothill.

         The Company's future plans in fiscal 1998 call for the closing of some
of its most unprofitable stores, in addition to the eight stores that have
already been closed. In the prior year, the Company had reserved $1.89 million
for estimated asset write-offs and $1.31 million for closing expenses associated
with the Company's extracting itself from lease obligations. In the second
quarter of fiscal 1998, the Company reserved an additional $3.17 million for
estimated asset write-offs and an additional $375,000 for closing expenses. As
of October 31, 1998, eight stores had been closed and the related closing
expenses were charged against this reserve. The remaining liability for store
closing expenses as of Octo-



                                       6
<PAGE>   7


ber 31, 1998 was $1.37 million. Further assessment of the future profitability
of stores may result in additional provisions for store closings and impairment
of long-lived assets. Store closings in addition to those already planned may
occur following the holiday season depending upon sales, the costs of store
closings and the availability of funds to finance such closings.

         The Company believes that its cash flow from operations and borrowings
under its credit facility will be sufficient to satisfy its currently
anticipated working capital and capital expenditure requirements through the end
of fiscal 1998. Failure of 1998 holiday sales to meet the Company's expectations
could result in additional cash requirements that could be difficult to satisfy
in fiscal 1999 and could require the Company to further reduce its operating
expenditures or to curtail operations, including the closing of additional
stores. The Company's capital requirements, and its ability to obtain financing,
may vary significantly from those anticipated depending particularly upon
continuing poor operating results and related factors, such as the willingness
of Foothill and the Company's suppliers to provide credit terms. The Company may
be required to seek additional sources of funds to support its ongoing
operations, and there can be no assurance that such funds, if required, will be
available on satisfactory terms. Failure to obtain such financing could impair
the Company's future business, financial condition and operating results.

         The Company has been notified by the Nasdaq Stock Market that it has
recently failed to maintain certain requirements concerning the minimum bid
price per share of its Common Stock and the market value of its public float and
that, in the absence of a request for an appeal, continued failure to meet
either of these requirements will result in the de-listing of the Company's
Common Stock from the National Market. The Company intends to request an appeal
of the potential de-listing before the applicable deadline and obtain an
extension of time to execute a plan to meet the National Market listing
requirements. The Company understands that a hearing of the appeal and a
decision from the Nasdaq Listing Qualification Panel could be expected in
January or February of 1999. There can be no assurance, however, that the
Company will be successful in its attempt to remain listed on the National
Market. In the event of a de-listing, trading in the Company's Common Stock
could continue over-the-counter or in the Nasdaq Small Cap Market. In such
event, investors may find it more difficult to trade in the Company's Common
Stock or to obtain accurate, current information concerning market prices.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -

         The Company does not have investments in derivatives or financial
instruments at this time.



                                       7
<PAGE>   8


PART II - OTHER INFORMATION:


ITEM 1 - LEGAL PROCEEDINGS -

         See Item 3 of the Company's Form 10-K/A dated May 29, 1998, which is
incorporated by this reference herein.

ITEM 2 - CHANGES IN SECURITIES -

         None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES -

         None

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

         None

ITEM 5 - OTHER INFORMATION -

         None

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K -

         (a)   Exhibits:

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER     DESCRIPTION

<S>               <C>
         11       Calculation of Earnings Per Common and Common Equivalent Share
</TABLE>

         (b) Reports on Form 8-K:

              No reports on Form 8-K were filed during the third quarter of
fiscal 1998.



                                       8
<PAGE>   9


SIGNATURES:


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



                                   GARDEN BOTANIKA, INC.
                                   Registrant



November 30, 1998                  /s/ Michael W. Luce
-----------------                  ---------------------------------------------
Date                               Michael W. Luce
                                   President and Chief Executive Officer
                                   (Principal Executive Officer)



November 30, 1998                  /s/ George W. Newman
-----------------                  ---------------------------------------------
Date                               George W. Newman
                                   Vice President & Controller
                                   (Principal Financial and Accounting Officer)



                                       9
<PAGE>   10


                              GARDEN BOTANIKA, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            (UNAUDITED)
                                                                             OCTOBER 31,        JANUARY 31,
                                                                               1998               1998
                                                                             -----------        -----------
                                                                               (AMOUNTS IN THOUSANDS)
<S>                                                                          <C>                <C>     
                                 ASSETS
Current assets:
   Cash and cash equivalents                                                 $  1,257           $  8,594
   Short-term investments                                                          --                 --
   Inventories                                                                 22,831             23,747
   Prepaid expenses:
     Rent                                                                       1,639              1,640
     Other                                                                      3,001              1,033
   Receivable from lessors                                                        433                550
   Other                                                                          150                 --
                                                                             --------           --------
        Total current assets                                                   29,311             35,564

Property and equipment:
   Leasehold improvements                                                      50,088             53,030
   Furniture and equipment                                                     15,817             16,420
   Equipment under capital lease                                                  261                261
                                                                             --------           --------
                                                                               66,166             69,711
   Less accumulated depreciation and amortization                             (22,158)           (17,456)
                                                                             --------           --------
     Net property and equipment                                                44,008             52,255

Other assets                                                                       14                 18
                                                                             --------           --------
        Total assets                                                         $ 73,333           $ 87,837
                                                                             ========           ========

                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Checks drawn in excess of bank balances                                   $  2,777           $  6,055
   Note payable to bank                                                         3,969                 --
   Accounts payable                                                             9,502              5,818
   Accrued salaries, wages and benefits                                         1,553              1,536
   Accrued sales tax                                                              503                398
   Reserve for store closing expenses                                           1,371              1,311
   Other                                                                        2,158                756
                                                                             --------           --------
        Total current liabilities                                              21,833             15,874

Deferred rent and other                                                         3,501              3,027
                                                                             --------           --------
        Total liabilities                                                      25,334             18,901

Commitments
Shareholders' equity:
   Preferred Stock, $.01 par value;
     10,000,000 shares authorized; none issued and outstanding                     --                 --
   Common  Stock, $.01 par value;
     36,092,374 shares authorized; 7,069,098 issued and outstanding            98,618             98,573
   Accumulated deficit                                                        (50,619)           (29,637)
                                                                             --------           --------
        Total shareholders' equity                                             47,999             68,936

        Total liabilities & shareholders' equity                             $ 73,333           $ 87,837
                                                                             ========           ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       10
<PAGE>   11


                              GARDEN BOTANIKA, INC.
                            STATEMENTS OF OPERATIONS
                  (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                      (UNAUDITED)                        (UNAUDITED)
                                                             --------------------------------------------------------------------
                                                                     QUARTER ENDED                       39 WEEKS ENDED
                                                             ------------------------------      --------------------------------
                                                             OCTOBER 31,        NOVEMBER 1,        OCTOBER 31,         NOVEMBER 1,
                                                                1998               1997               1998               1997
                                                             -----------        -----------        -----------         ----------
<S>                                                          <C>                <C>                <C>                 <C>     
Net sales                                                     $ 20,669           $ 21,284           $ 63,237           $ 70,075
Cost of sales (including buying and occupancy costs)            14,768             15,589             46,309             47,569
                                                              --------           --------           --------           --------
     Gross margin                                                5,901              5,695             16,928             22,506

Operating expenses:
   Stores and catalog                                            9,218              8,680             26,501             27,899
   General and administrative                                    2,495              2,719              7,555              7,969
Preopening and facility relocation expenses                         --                179                350                283
Provision for Store Closings                                        --                                 3,550
                                                              --------           --------           --------           --------
     Operating loss                                             (5,812)            (5,883)           (21,028)           (13,645)

Interest (expense) income, net                                      --                (35)                46                340
                                                              --------           --------           --------           --------
     Net loss                                                 $ (5,812)          $ (5,918)          $(20,982)          $(13,305)
                                                              ========           ========           ========           ========


     Net loss per share                                       $  (0.82)          $  (0.84)          $  (2.97)          $  (1.88)

Weighted average common and common
   equivalent shares                                             7,069              7,069              7,069              7,069

</TABLE>



   The accompanying notes are an integral part of these financial statements.


                                       11
<PAGE>   12


                              GARDEN BOTANIKA, INC.
                            STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                (UNAUDITED)
                                                                                              39 WEEKS ENDED
                                                                                        -----------------------------
                                                                                        OCTOBER 31,        NOVEMBER 1,
                                                                                          1998               1997
                                                                                        --------           --------
<S>                                                                                     <C>                <C>      
Cash flows from operating activities:
   Net loss                                                                             $(20,982)          $(13,305)
                                                                                        --------           --------

   Adjustments to reconcile net loss to net cash used by operating activities:
     Depreciation and amortization                                                         6,014              5,682
     Loss on retirement of property and equipment                                            450                 --
     Reserve for store closings                                                            3,174
     Changes in assets and liabilities:
       Inventories                                                                           916            (13,228)
       Prepaid rent  and other assets                                                     (1,996)             1,684
       Accounts payable and checks drawn in excess of bank balances                          406              1,115
       Accrued expenses                                                                    1,584                352
       Deferred rent and other                                                               474                421
                                                                                        --------           --------
          Total adjustments                                                               11,022             (3,974)
                                                                                        --------           --------
          Net cash used by operating activities                                           (9,960)           (17,279)
                                                                                        --------           --------

Cash flows from investing activities:
   Redemption (purchase) of short-term investments                                            --             20,426
   Additions to property and equipment                                                    (1,391)           (12,430)
                                                                                        --------           --------
          Net cash provided (used by) investing activities                                (1,391)             7,996
                                                                                        --------           --------

Cash flows from financing activities:
   Advances (payments) on note payable to bank                                             3,969              3,400
   Other, net                                                                                 45                 45
                                                                                        --------           --------
          Net cash provided by financing activities                                        4,014              3,445
                                                                                        --------           --------

(Decrease) increase in cash and cash equivalents                                          (7,337)            (5,838)
Cash and cash equivalents, beginning of period                                             8,594              7,205
                                                                                        --------           --------

Cash and cash equivalents, end of period                                                $  1,257           $  1,367
                                                                                        ========           ========

Supplemental disclosures:
   Cash paid for interest                                                               $     28           $      5
   Cash paid for income taxes                                                           $     --           $     --

</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       12
<PAGE>   13



GARDEN BOTANIKA, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 (UNAUDITED)


1. The accompanying unaudited financial statements include the accounts of
Garden Botanika, Inc. (the "Company"), a Washington corporation. These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to the rules and
regulations of the Securities and Exchange Commission. While these statements
reflect all normal recurring adjustments which are, in the opinion of
management, necessary for fair presentation of the results of the interim
period, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K/A dated May 29, 1998, which
has previously been filed with the Securities and Exchange Commission.

2. 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 the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the amounts of revenues and expenses reported during the period. Actual
results could differ from those estimates.

3. The results of operations for the quarterly period ended October 31, 1998 are
not necessarily indicative of the results to be expected for the full fiscal
year. In each of the past three fiscal years, 39% to 49% of the Company's annual
net sales and all of its profits have been realized during its fourth fiscal
quarter, particularly during the November and December holiday selling period.
The Company expects this general pattern to continue during the current fiscal
year. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including, among
others, the timing of new store openings, net sales contributed by new stores,
increases or decreases in comparable store sales, adverse weather conditions,
shifts in the timing of holidays, shifts in the timing of promotions and catalog
mailings, changes in the Company's product mix and general economic conditions
affecting consumer confidence and spending.

4. The Company's future plans in fiscal 1998 call for the closing of some of its
most unprofitable stores, in addition to the eight stores that have already been
closed. In the prior year, the Company had reserved $1.89 million for estimated
asset write-offs and $1.31 million for closing expenses associated with the
Company's extracting itself from lease obligations. In the second quarter of
fiscal 1998, the Company reserved an additional $3.17 million for estimated
asset write-offs and an additional $375,000 for closing expenses. As of October
31, 1998, eight stores have been closed and the related closing expenses have
been charged against this reserve. The remaining liability for store closing
expenses as of October 31, 1998 is $1.37 million. Further assessment of the
future profitability of stores may result in additional provisions for store
closings and impairment of long-lived assets. Store closings in addition to
those already planned may occur following the holiday season depending upon
sales, the costs of store closings and the availability of funds to finance such
closings.

5. The terms of the Company's $10.00 million credit facility dated as of April
29, 1998 and amended on August 12, 1998 with Foothill Capital Corporation
("Foothill") provides interest at prime plus two percent. Credit is generally
available as the lesser of (a) a variable percentage ranging from 55% to 65% of
eligible finished goods inventory, or (b) 80% of the inventory liquidation
value, as determined by an appraisal, less any reserves. As of October 31, 1998,
approximately $3.86 million was outstanding under the Foothill credit facility.
As of October 31, 1998 the Company was in compliance with all provisions and
covenants under the credit agreement.



                                       13