<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 30, 1999

                                       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)


<TABLE>
<CAPTION>
                       Washington                                          91-1464962
           -------------------------------                      ---------------------------------
<S>                                                             <C>
           (STATE OR OTHER JURISDICTION OF                      (IRS EMPLOYER IDENTIFICATION NO.)
            INCORPORATION OR ORGANIZATION)
</TABLE>


                              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 [ ]

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES [ ] NO [X]

<PAGE>   2

THE REGISTRANT HAD 7,069,098 SHARES OF COMMON STOCK, $0.01 PAR VALUE,
OUTSTANDING AT October 30, 1999.

                                       2
<PAGE>   3

                              GARDEN BOTANIKA, INC.

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                                      PAGE
                                                                                                      ----
<S>                                                                                                   <C>
PART I -- FINANCIAL INFORMATION ....................................................................    4

         ITEM 1 -- FINANCIAL STATEMENTS ............................................................    4

                  Balance Sheets ..................................................................    12

                  Statements of Operations ........................................................    13

                  Statements of Cash Flows ........................................................    14

                  Notes to Financial Statements ...................................................    15

         ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                         FINANCIAL CONDITION AND RESULTS OF
                         OPERATIONS ...............................................................     4

PART II -- OTHER INFORMATION ......................................................................     10

         ITEM 1 -- LEGAL PROCEEDINGS ..............................................................    10

         ITEM 2 -- CHANGES IN SECURITIES ..........................................................    10

         ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES ................................................    10

         ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS ............................    10

         ITEM 5 -- OTHER INFORMATION ..............................................................    10

         ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K ...............................................    10

                  Exhibit 11 -- Calculation of Earnings Per Common and
                  Common Equivalent Share .........................................................    17
</TABLE>

                                       3

<PAGE>   4

PART I -- FINANCIAL INFORMATION:

ITEM 1 -- FINANCIAL STATEMENTS -

     The unaudited balance sheet as of October 30, 1999, audited balance sheet
as of January 30, 1999 and unaudited statements of operations and cash flows of
Garden Botanika, Inc. (the "Company") for the nine-month periods ended October
30, 1999 and October 31, 1998 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 Company's Annual Report on Form
10-K/A dated June 1, 1999, which has previously been filed with the Securities
and Exchange Commission.

     Certain statements in this discussion constitute "forward-looking
statements" and involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company or
its industry to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, court or creditors' actions related to the
Company's bankruptcy filing; the Company's losses and lack of profitability to
date; fluctuations and/or declines in comparable store sales results;
competition; and the Company's ability to successfully implement changes in its
business strategies.

     On April 20, 1999 (the "Petition Date"), Garden Botanika filed a voluntary
petition for relief under Chapter 11, Title 11 of the United States Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the Western
District of Washington at Seattle, Washington (the "Bankruptcy Court"), Case No.
99-04464 (the "Chapter 11 Case"). The Company's financial statements have been
prepared on a going-concern basis, which contemplates continuity of operations,
realization of assets, liquidation of liabilities and commitments in the normal
course of business. The Chapter 11 Case, related circumstances and losses from
operations raise substantial doubt about the Company's ability to continue as a
going concern. The appropriateness of reporting on a going-concern basis is
dependent upon, among other things, confirmation of a plan of reorganization and
future profitable operations (see, below, "Liquidity and Capital Resources,"
Part II, Item 1--"Legal Proceedings" and Note 1 to "Notes to Financial
Statements"). Realization of the Company's assets and liquidation of its
liabilities at their recorded amounts are subject to significant uncertainty.
While under the protection of Chapter 11, the Company may sell or otherwise
dispose of assets, and liquidate or settle liabilities, for amounts other than
those reflected in the accompanying financial statements. The financial
statements do not include any adjustments relating to the recoverability of the
value of recorded asset amounts or the amounts and classification of liabilities
that might be necessary as a consequence of a plan of reorganization.

     The Company expects to seek the concurrence of its creditors to reorganize
under Chapter 11 and propose a reorganization plan that provides for emergence
from bankruptcy by or before 2001. Garden Botanika has had its exclusive right
to file a reorganization plan extended through February 28, 2000 (the "Exclusive
Period"), and the Bankruptcy Court may grant an additional request to extend the
Exclusive Period. There can be no assurance, however, that the creditors'
concurrence will be obtained, that Company will propose a plan in a timely
fashion or that, if requested, the Bankruptcy Court will grant an extension.
After expiration of the Exclusive Period with any extensions, creditors of the

                                       4
<PAGE>   5

Company and other parties-in-interest have the right to propose their own
reorganization plans. Although management expects to file a reorganization plan
that provides the means for satisfying claims and interests in the Company,
there can be no assurance that a plan will be proposed or that, if proposed, it
will be confirmed by the Bankruptcy Court or that, if confirmed, it will be
consummated. At this time, it is not possible to predict the outcome of the
Chapter 11 Case or its effects on the Company's business.

     The Company had 148 stores in operation at October 30, 1999 compared to 273
stores at October 31, 1998 and 252 stores at January 30, 1999. The average age
of the Company's stores at October 30, 1999 was 55 months.

     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 30, 1999 AND OCTOBER
31, 1998.

     Net Sales. Net sales for the third quarter of fiscal 1999 were $12.7
million, compared to net sales of $20.7 million for the comparable prior period,
a decrease of 38%. Store net sales decreased $8.2 million, or 42%, during the
quarter, primarily due to the decrease in the number of stores, combined with an
11% decrease in comparable store sales (sales for continuing stores open at
least one complete fiscal year). The 11% decrease in comparable store sales for
the quarter was the result of decreases of 6% in August, 11% in September and
16% in October. In the third quarter of fiscal 1998, comparable store sales
decreased 8%, consisting of decreases of 13% in August, 4% in September and 7%
in October.

     Partially offsetting the decreases described above, the Company recognized
revenue of $698,000 in the third quarter of fiscal 1999 from sales of annual
memberships in the Company's discount-based "Garden Club" customer loyalty
program, which membership sales are amortized over the course of a year, versus
$334,000 in the comparable prior period, when the program had been in place for
only five months. Combined mail order and Internet sales in the quarter ending
October 30, 1999 decreased $108,000, or 17%, from the comparable prior period.

     Gross Margin. The dollar amount of gross margin decreased $1.4 million, or
24%, from the third quarter of fiscal 1998, primarily as a result of the
decrease in the number of stores. As a percentage of net sales, gross margin,
which is net of buying and occupancy costs, was 35% in the third quarter of
fiscal 1999 versus 29% in the comparable prior period. This increase was
primarily due to the impact of the closure in the past twelve months of poorly
performing stores with lower average margins than the Company's continuing store
base.

     Operating Expenses.

     Stores and Catalog. The dollar amount of store and catalog expenses
decreased by $4.3 million, or 46%, from the comparable prior period, primarily
due to the decrease in the number of stores and reductions in advertising
expense. As a percentage of net sales, store and catalog expenses decreased to
39% from 45% in the third quarter of fiscal 1998, primarily due to the decrease
in advertising and the leveraging impact of the higher average sales of the
Company's continuing store base.

     General and Administrative. The dollar amount of general and administrative
expenses decreased by $738,000, or 30%, from the comparable prior period,
primarily reflecting the implementation in February of 1999 of reductions in the
Company's workforce. As a percentage

                                       5
<PAGE>   6

of net sales, general and administrative expenses increased to 14% from 12% in
the comparable prior period.

     Provision for Store Closing and Asset Impairment. During the fiscal quarter
ended October 30, 1999, the Company reviewed the asset values of its individual
stores and recorded a provision under FAS No. 121 in the amount of $2.2 million
for the potential impairment of the carrying value of the long lived assets on
49 of its operating locations.

     Operating Loss. For the reasons explained above, the Company's operating
loss decreased 23%, to $4.4 million from $5.8 million, in the respective
quarters. As a percentage of net sales, the third quarter operating loss
increased to 35% from 28% in the comparable prior period.

     Reorganization Charges. During the quarter ended October 30, 1999, the
Company incurred net costs of $246,000 relating to its Chapter 11 bankruptcy
proceedings consisting of legal and other professional fees.

     Income Tax Provision. Due to its pre-tax losses, the Company did not record
an income tax provision for the third quarter of either fiscal 1999 or fiscal
1998.

     Net Loss and Per Share Data. Due to the factors discussed above, the
Company's net loss during the third quarter of fiscal 1999 decreased 17% to $4.8
million, or $0.68 per share, from $5.8 million, or $0.82 per share, during the
third quarter of fiscal 1998.

     (b) COMPARISON OF THE NINE-MONTH PERIODS ENDED OCTOBER 30, 1999 AND OCTOBER
31, 1998.

     Net Sales. Net sales for the first nine months of fiscal 1999 were $44.1
million, compared to net sales of $63.2 million for the comparable prior period,
a decrease of 30%. Store net sales decreased $20.3 million, or 34%, during the
nine-month period, primarily due to the decrease in the number of stores,
combined with an 11% decrease in comparable store sales. In the first nine
months of fiscal 1998, comparable store sales declined 16%.

     Partially offsetting the decrease in store net sales, the Company
recognized revenue in the first nine months of fiscal 1999 of $2.2 million from
sales of annual memberships in the Company's discount-based "Garden Club"
customer loyalty program, versus $462,000 in the comparable prior period.
Combined mail order and Internet sales increased $84,000, or 5%, versus the
comparable prior period.

     Gross Margin. The dollar amount of gross margin decreased $2.0 million, or
12%, from the comparable prior period. As a percentage of net sales, gross
margin was 34% for the nine months ended October 30, 1999, versus 27% in the
comparable prior period. This increase was primarily due to (i) reduced
occupancy costs (primarily from reduced depreciation expense) in the first
quarter, as a result of property and equipment writedowns taken at January 30,
1999 for potential impairment of long lived assets at store locations that were
subsequently closed, and (ii) the impact of the closure of poorly performing
stores with lower average margins than the Company's continuing store base.

     Operating Expenses.

     Stores and Catalog. The dollar amount of store and catalog expenses
decreased by $9.1 million, or 34%, from the comparable prior period, primarily
as a result of the decrease in the number of stores and reductions in
advertising expense. As a percentage of net sales, store and catalog expenses
were 39% in the nine-month period ended October 30, 1999, versus 42% in the
comparable prior period.

                                       6
<PAGE>   7

     General and Administrative. The dollar amount of general and administrative
expenses decreased by $1.9 million, or 25%, from the comparable prior period,
primarily reflecting the implementation in February of 1999 of reductions in the
Company's workforce. As a percentage of net sales, general and administrative
expenses were 13% in the nine-month period ended October 30, 1999, versus 12% in
the comparable prior period.

     Provision for Store Closing and Asset Impairment. In the nine-month period
ending October 30, 1999, in connection with the Company's reorganization
efforts, the Company recorded a provision for store closures of $6.6 million to
cover the estimated lease termination expenses and other store exit costs
associated with the closure of 95 poorly performing locations and the rejection
of the underlying leases and a provision for impairment of the carrying value of
its long lived assets under FAS No. 121 in the amount of $2.2 million. This
amount was partially offset by the reduction of approximately $1.1 million in
deferred rent liability for the 95 rejected leases that had previously been
recorded on the Company's balance sheet. As a result, the additional net charge
recorded was $7.7 million. In the comparable prior period, the Company recorded
a provision for store closures of $3.6 million, which included the estimated
costs of asset write-offs as well as lease termination and other expenses for
stores planned to be closed in that fiscal year.

     Operating Loss. For the reasons explained above, the Company's operating
loss decreased 24%, from $21.0 million to $15.9 million, in the respective
nine-month periods. As a percentage of net sales, the operating loss was 36% in
the nine-month period ended October 30, 1999 versus 33% in the comparable prior
period.

     Reorganization Charges. During the nine months ended October 30, 1999, the
Company incurred certain costs relating to its Chapter 11 bankruptcy
proceedings. These costs included legal and other professional fees of
approximately $1.3 million and write-offs and related costs of approximately
$200,000 associated with the Company's early termination of its prior credit
facility with Foothill Capital Corporation. These costs were partially offset by
a net gain of $350,000 realized from the liquidation of inventory at 95 of the
Company's closed store locations.

     Income Tax Provision. Due to its pre-tax losses, the Company did not record
an income tax provision for the nine months of either fiscal 1999 or fiscal
1998.

     Net Loss and Per Share Data. For the reasons explained above, the Company's
net loss decreased 18% to $17.2 million, or $2.43 per share, during the first
nine months of fiscal 1999 from $20.9 million, or $2.97 per share, during the
comparable period of fiscal 1998. There were approximately 7.07 million weighted
average and common equivalent shares outstanding for both periods.

     YEAR 2000 READINESS --

     The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 technology failures. Software failures due to
processing errors potentially arising from calculations using the year 2000 date
are a known risk. The Company has substantially completed its assessment of the
risks to the availability and integrity of financial systems and the reliability
of operational systems. The Company is also communicating with vendors,
financial institutions and others with which it does business to coordinate Year
2000 conversion.

     Excluding in-house salaries, wages and benefits, the Company has spent
approximately $30,000 for the enhancement of operational and financial software
to achieve Year 2000 readiness, which the Company believes was necessary and
sufficient to complete this process. Due to some uncertainty inherent in the
issue of Year 2000 readiness, including uncertainty regarding the readiness of
suppliers, the Company cannot complete a comprehensive analysis of the most
likely

                                       7

<PAGE>   8

worst case Year 2000 scenario. However, the Company has been developing
contingency plans for Year 2000 related interruptions. These plans include
emergency backup and recovery procedures, manual processes, alternative systems
and work-around procedures. Contingency plans will be reviewed continually up
through the date change to Year 2000.

     LIQUIDITY AND CAPITAL RESOURCES --

     On April 23, 1999, in connection with the Chapter 11 Case, the Company
entered a Loan and Security Agreement (the "DIP Facility") with BankBoston
Retail Finance Inc. ("BankBoston"), which is intended to provide Garden Botanika
with the cash and liquidity to conduct its operations and pay for inventory
shipments at normal levels for its 148-store base during the course of the
Chapter 11 Case. The DIP Facility consists of a revolving line of credit in the
amount of $7.0 million, subject to a borrowing base calculated as the lesser of
70% of the Company's eligible inventory valued at cost or 80% of the net
liquidation value of the eligible inventory. Advances under the facility are
also subject to certain reserves, as defined in the DIP Facility. The facility
expires on the earlier of April 23, 2001 or on the Company's emergence from
bankruptcy. The Company's ability to borrow under the DIP Facility received the
final approval of the Bankruptcy Court on May 27, 1999.

     The DIP Facility, which is secured by the assets of the Company, bears
interest at BankBoston's prime lending rate plus one percent (1.0%). In
addition, the Company is obligated to pay a facility fee of $3,000 monthly and
an annual unused line fee of one quarter of one percent (0.25%) of the average
unused portion of the line. In order to access the DIP Facility, the Company is
required to maintain certain financial covenants, including minimum consolidated
earnings before interest, taxes, depreciation and amortization and limitations
on capital expenditures. The DIP facility also contains restrictive covenants
including, among other things, the maintenance of certain inventory levels,
limitations on the creation of additional indebtedness and a prohibition on the
payment of dividends. In order to meet its needs for holiday inventory, the
Company sought and was granted an over-advance of $750,000 in available credit
through November 15, 1999. This overadvance was utilized for two days in early
November. As of December 8, 1999, the Company had approximately $4.5 million in
outstanding borrowings under the DIP Facility, and excess availability was
approximately $2.0 million.

     On April 30, 1999, the Bankruptcy Court authorized the Company to reject
leases for 95 poorly performing stores, and the Company engaged the services of
a liquidator to sell inventory at the stores that were to be closed. The Company
paid occupancy costs during the liquidating period, but the liquidator assumed
all other operating expenses associated with the stores to be closed. All of the
95 stores were closed and the related liquidations were completed on or before
June 12, 1999. Following an accounting of the final sale of inventory, the
Company realized a net gain of $350,000 from the liquidation of its closed store
locations.

     The Company partially funded its net cash loss of $11.9 million (net loss
before depreciation and amortization) in the first nine months of fiscal 1999
and its increase in inventory levels of $2.3 million with existing cash of $3.2
million, borrowings under the line of credit of $4.5 million and with a net
increase of $6.7 million in accounts payable, accrued expenses and liabilities
subject to compromise.

     The Company believes that its cash balance at the end of the third quarter
of fiscal 1999, combined with its cash flow from operations and borrowings under
its DIP Facility, will be sufficient to satisfy its currently anticipated
working capital and capital expenditure requirements through fiscal 1999. The
Company remains, however, highly dependent upon the proceeds of holiday sales,
the level of which cannot now be determined. The Company's uses of capital for
the remainder of fiscal 1999 are expected to include working capital for
operating expenses and satisfaction of liabilities incurred subsequent to the
Petition Date, expenditures related to main-

                                       8
<PAGE>   9

taining its stores, interest payments on outstanding borrowings and costs
associated with the Chapter 11 Case. The Company's future working capital
requirements consist primarily of the purchase of inventory, which is expected
to be maintained at the level of $55,000 per store at cost, exclusive of the raw
materials and components held at the Company's manufacturing facility and at
suppliers. The Company's capital requirements, and its ability to obtain
continued financing, may vary significantly from those anticipated, however,
depending particularly on operating results and other factors, such as court or
creditors' actions related to the Company's bankruptcy filing. The Company's
long-term liquidity and the adequacy of the Company's capital resources cannot
be determined unless and until a plan of reorganization has been developed and
confirmed in connection with the Chapter 11 Case.

     As a debtor-in-possession, actions against the Company to collect
pre-petition indebtedness are stayed and certain contractual obligations may not
be enforced against the Company. With the approval of the Bankruptcy Court,
certain of these obligations may be paid prior to the confirmation of a
reorganization plan. To date, the Company has received approval to pay customary
obligations associated with the daily operations of its business, including the
timely payment of new inventory shipments, employee wages and other obligations.
The ultimate amount of, and settlement terms for, the Company's pre-petition
liabilities are subject to the approval of a plan of reorganization and,
accordingly, the timing and form of settlement are not presently determinable.

                                       9
<PAGE>   10

PART II -- OTHER INFORMATION:

ITEM 1 -- LEGAL PROCEEDINGS -

     On April 20, 1999, Garden Botanika filed a voluntary petition for relief
under the Bankruptcy Code, Chapter 11, Title 11 of the United States Code, with
the United States Bankruptcy Court for the Western District of Washington,
Seattle, Washington 98101, Case No. 99-04464. Under Section 362 of the
Bankruptcy Code, during the Chapter 11 Case, creditors and other parties in
interest are limited in their remedies and ability to recover claims against the
Company that arose before the commencement of the case. Similarly, although the
Company is authorized to operate its business and manage its properties as a
debtor-in-possession, it may not engage in transactions outside of the ordinary
course of business without complying with the notice and hearing provisions of
the Bankruptcy Code and obtaining Bankruptcy Court approval. See Item 1
"Business--Chapter 11 Filing," Item 3 "Legal Proceedings," and Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General" in the Company's Annual Report on Form 10K/A dated June 1,
1999.

         On May 27, 1999, the Company received the final approval of the
Bankruptcy Court to borrow under the DIP Facility, and on August 13, 1999, the
Bankruptcy Court granted the Company's request to extend through February 28,
2000 the Exclusive Period within which it has the exclusive right to file a plan
of reorganization.


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
1999.

                                       10
<PAGE>   11

SIGNATURES:

Pursuant to the requirements of the Securities 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


December 13, 1999                       /s/ Arlee J. Jensen
                                        ----------------------------------------
Date                                    Arlee J. Jensen
                                        President and Chief Executive Officer
                                        and Director (Principal Executive
                                        Officer)


December 13, 1999                       /s/ George W. Newman
                                        ----------------------------------------
Date                                    George W. Newman
                                        Vice President, Chief Financial Officer,
                                        Secretary and Director (Principal
                                        Financial and Accounting Officer)

                                       11
<PAGE>   12

                             GARDEN BOTANIKA, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                        (UNAUDITED)
                                                        OCTOBER 30,    JANUARY 30,
                                                            1999           1999
                                                        -----------    -----------
                                                         (amounts in thousands)
<S>                                                     <C>            <C>
                                     ASSETS

Current assets:
    Cash and cash equivalents                           $  1,022       $  4,295
    Inventories                                           17,741         16,204
    Deposits in merchandise                                  745
    Prepaid expenses:
      Rent                                                 1,009          1,580
      Other                                                1,306          1,338
                                                        --------       --------
        Total current assets                              21,823         23,417

Property and equipment:
    Leasehold improvements                                21,410         23,920
    Furniture and equipment                               11,050         11,244
    Equipment under capital lease                            261            261
                                                        --------       --------
                                                          32,721         35,425
    Less accumulated depreciation and amortization       (19,299)       (16,754)
                                                        --------       --------
      Net property and equipment                          13,422         18,671
                                                        --------       --------
        Total assets                                    $ 35,245       $ 42,088
                                                        ========       ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Note payable to bank                                $  4,560             --
    Checks drawn in excess of bank balances                1,020       $  1,522
    Accounts payable                                       3,038          9,436
    Reserve for store closing                                 41          1,327
    Accrued salaries, wages and benefits                   1,196          1,890
    Accrued sales tax                                        268            680
    Garden Club-deferred revenue                          1,020          1,607
    Other                                                  1,269          1,307
                                                        --------       --------
        Total current liabilities                         12,412         17,769

Liabilities subject to compromise                         16,576             --
Deferred rent and other                                    2,455          3,357
                                                        --------       --------
        Total liabilities                                 31,443         21,126

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                            98,678         98,633
    Accumulated deficit                                  (94,876)       (77,671)
                                                        --------       --------
        Total shareholders' equity                         3,802         20,962

        Total liabilities & shareholders'
          equity                                        $ 35,245       $ 42,088
                                                        ========       ========
</TABLE>

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

                                       12

<PAGE>   13

                              GARDEN BOTANIKA, INC.
                            STATEMENTS OF OPERATIONS

                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 (UNAUDITED)                  (UNAUDITED)
                                                                QUARTER ENDED              NINE MONTHS ENDED
                                                          -----------------------------------------------------
                                                          OCTOBER 30,   OCTOBER 31,    OCTOBER 30,     OCTOBER 31,
                                                             1999         1998             1999           1998
                                                          -----------   -----------    -----------     ----------
<S>                                                       <C>           <C>            <C>             <C>
Net sales                                                 $ 12,718       $ 20,669       $ 44,134       $ 63,237
Cost of sales (including buying and occupancy costs)         8,210         14,768         29,224         46,309
                                                          --------       --------       --------       --------
      Gross margin                                           4,508          5,901         14,910         16,928

Operating expenses:
    Stores and catalog                                       4,967          9,218         17,399         26,501
    General and administrative                               1,757          2,495          5,672          7,555
Provision for store closing and impairment losses            2,239              0          7,719          3,550
Preopening and facility relocation expenses                     --              0             --            350
                                                          --------       --------       --------       --------
      Operating loss                                        (4,455)        (5,812)       (15,880)       (21,028)

Interest income (expense), net                                 (88)             0           (147)            46
Reorganization charges                                        (246)            --         (1,178)            --
                                                          --------       --------       --------       --------
      Net loss                                            $ (4,789)      $ (5,812)      $(17,205)      $(20,982)
                                                          ========       ========       ========       ========

Net loss per share                                        $  (0.68)      $  (0.82)      $  (2.43)      $  (2.97)

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.

                                       13

<PAGE>   14

                              GARDEN BOTANIKA, INC.

                            STATEMENTS OF CASH FLOWS
                             (amounts in thousands)

<TABLE>
<CAPTION>
                                                                       (UNAUDITED)
                                                                    NINE MONTHS ENDED
                                                               --------------------------
                                                               OCTOBER 30,    OCTOBER 31,
                                                                  1999           1998
                                                               ----------     -----------
<S>                                                            <C>            <C>
Cash flows from operating activities:
   Net loss                                                     $(17,205)      $(20,982)
                                                                --------       --------
   Adjustments to reconcile net loss to net cash used by
        operating activities:
      Depreciation and amortization                                2,797          6,014
      Loss on retirement of property and equipment                   243            450
      Provision for store closures and impairment losses           2,239          3,174
      Changes in assets and liabilities:
        Inventories and deposits on merchandise                   (2,282)           916
        Prepaid rent  and other assets                               603         (1,996)
        Accounts payable, accrued expenses and liabilities
          subject to compromise                                    6,659          1,990
        Deferred rent and other                                     (902)           474
                                                                --------       --------
          Total adjustments                                        9,357         11,022
                                                                --------       --------
          Net cash used by operating activities                   (7,848)        (9,960)
                                                                --------       --------
Cash flows from investing activities:
   Additions to property and equipment                               (30)        (1,391)
                                                                --------       --------
          Net cash used by investing activities                      (30)        (1,391)
                                                                --------       --------
Cash flows from financing activities:
  Advances ( payments) on note payable to bank                     4,560          3,969
   Other, net                                                         45             45
                                                                --------       --------
        Net cash provided by financing activities                  4,605          4,014
                                                                --------       --------
(Decrease) increase in cash and cash equivalents                  (3,273)        (7,337)
Cash and cash equivalents, beginning of period                     4,295          8,594
                                                                --------       --------
Cash and cash equivalents, end of period                        $  1,022       $  1,257
                                                                ========       ========
</TABLE>

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

                                       14

<PAGE>   15

GARDEN BOTANIKA, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 30, 1999 (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 June 1, 1999, which
has previously been filed with the Securities and Exchange Commission.

On April 20, 1999, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code and is presently operating its
business as a debtor-in-possession subject to the jurisdiction of the United
States Bankruptcy Court for the Western District of Washington. The Company's
financial statements have been prepared on a going-concern basis, which
contemplates continuity of operations, realization of assets, liquidation of
liabilities and commitments in the normal course of business. The Chapter 11
case, related circumstances and the losses from operations raise substantial
doubt about the Company's ability to continue as a going concern. The
appropriateness of reporting on a going-concern basis is dependent upon, among
other things, confirmation of a plan of reorganization and future profitable
operations. Realization of its assets and liquidation of its liabilities at
their recorded amounts is subject to significant uncertainty. While under the
protection of Chapter 11, the Company may sell or otherwise dispose of assets,
and liquidate or settle liabilities, for amounts other than those reflected in
the accompanying financial statements. The financial statements do not include
any adjustments relating to the recoverability of the value of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
as a consequence of a plan of reorganization.

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 30, 1999 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, if any, 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, adverse weather
conditions, shifts in the timing of holidays, shifts in the timing of promotions
and catalog mailings and changes in the Company's product mix.

4. In fiscal 1998 the Company closed 29 stores and recorded a provision to close
an additional 24 stores in the amount of $7.3 million. Seven of these stores
were closed in the first quarter of fiscal 1999. At the conclusion of the 1998
holiday season, the Company reviewed the asset values of individual stores in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121. As
a result of that review, a charge of $20.1 million was recorded in fiscal 1998

                                       15
<PAGE>   16

to recognize potential impairment of long lived assets for 118 stores. During
the fiscal quarter ended October 30, 1999, the Company reviewed the asset values
of its individual stores and recorded a provision in the amount of $2.2 million
for the potential impairment of the carrying value of the long lived assets on
49 of its operating locations. These amounts reduced property and equipment.

On April 30, 1999, the Bankruptcy Court authorized the Company to reject leases
for 95 poorly performing stores. Seventeen of these stores had been identified
for closure in fiscal 1998 and were already included in the reserves for store
closings taken that year. In the three months ended May 1, 1999, an additional
net charge of $5.5 million was recorded to cover the estimated additional costs
for closure and lease termination expenses of 78 of the 95 stores. The carrying
value of the long lived assets of all 95 stores was substantially reduced as
impaired under SFAS No. 121 in the fourth quarter of fiscal 1998.

5. In the Chapter 11 case, substantially all unsecured liabilities as of the
petition date are subject to compromise or other treatment under a plan of
reorganization to be confirmed by the bankruptcy court after submission to any
required vote by the affected parties. For financial reporting purposes, those
liabilities and obligations whose treatment and satisfaction is dependent on the
outcome of the Chapter 11 case have been segregated and classified as
liabilities subject to compromise in the accompanying balance sheet. The
ultimate amount of and settlement terms for such liabilities are subject to an
approved plan of reorganization and are not presently determinable. Included in
liabilities subject to compromise as of October 30, 1999 are pre-petition
accounts payable of $9.7 million and estimated lease termination costs of $6.9
million.

                                       16