<PAGE>   1
===============================================================================

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

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED JANUARY 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 0-12628
                       -------

                               CML GROUP, INC.
            ------------------------------------------------------
            (Exact Name of Registrant as Specified in its Charter)

         Delaware                                      04-2451745
-----------------------                   ------------------------------------
(State of Incorporation)                  (IRS Employer Identification Number)

524 Main Street, Acton, Massachusetts                      01720
-------------------------------------                   -----------
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code:     (978) 264-4155
                                                        --------------

                                 Not Applicable
               ---------------------------------------------------
               (Former name, former address and former fiscal year
                         if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
                                                   -----

Number of shares outstanding of each of the issuer's classes of common stock:
49,925,069 shares of common stock, $.10 par value, as of March 12, 1998.


===============================================================================
<PAGE>   2




                        CML GROUP, INC. AND SUBSIDIARIES

                                    Form 10-Q

                                      INDEX
 
                                                                            PAGE

Part I:  Financial Information

         Item 1:  Financial Statements

                  Consolidated Condensed Balance Sheets
                  as of January 31, 1998 and July 31, 1997                 3 - 4

                  Consolidated Condensed Statements of 
                  Operations for the three-month and six-month
                  periods ended January 31, 1998 and February 1, 1997          5

                  Consolidated Condensed Statements of Cash Flows
                  for the six-month periods ended January 31, 1998
                  and February 1, 1997                                         6

                  Notes to Consolidated Condensed Financial 
                  Statements                                              7 - 13

         Item 2:  Management's Discussion and Analysis of 
                  Financial Condition and Results of Operations          14 - 22

Part II: Other Information

         Item 1: Legal Proceedings                                            23

         Item 4: Submission of Matters to a Vote of Security Holders          23

         Item 6: Exhibits and Reports on Form 8-K                             24

         Signatures                                                           24

         Exhibit Index                                                        25

                                       2

<PAGE>   3



                          Part I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

                         CML GROUP, INC. & SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (In thousands)

                                    ASSETS
<TABLE>
<CAPTION>

                                     JANUARY 31, 1998          JULY 31, 1997
                                     ----------------          -------------
<S>                                         <C>                    <C>       
Current assets:
   Cash and cash equivalents                $     445              $   4,359
   Accounts receivable, net                    11,678                  8,151
   Inventories:
     Raw materials                              1,208                  1,971
     Work in process                            1,020                    836
     Finished goods                            37,767                 31,115
                                            ---------              ---------
       Total inventories                       39,995                 33,922
   Deferred income taxes                        2,202                  3,903
   Other current assets                         9,028                  8,479
                                            ---------              ---------
       Total current assets                    63,348                 58,814
                                            ---------              ---------
Property, plant and equipment, at cost:
   Land and buildings                          16,417                 19,404
   Machinery and equipment                     42,413                 45,257
   Leasehold improvements                      26,576                 30,020
                                            ---------              ---------
                                               85,406                 94,681
   Less accumulated depreciation              (48,694)               (46,223)
                                            ---------              ---------
                                               36,712                 48,458
                                            ---------              ---------
Goodwill                                        8,427                  8,546
Deferred income taxes                          13,388                 24,412
Other assets                                    5,668                  6,106
                                            ---------              ---------
                                            $ 127,543              $ 146,336
                                            ---------              ---------
</TABLE>






          See Notes to Consolidated Condensed Financial Statements.

                                       3

<PAGE>   4



                         CML GROUP, INC. & SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                     (In thousands except share information)

               LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>

                                     JANUARY 31, 1998          JULY 31, 1997
                                     ----------------          -------------
<S>                                         <C>                    <C>      
Current liabilities:
   Current portion of long-term debt        $      35              $      35
   Revolving line of credit                    16,200                     --
   Accounts payable                            19,246                 10,839
   Accrued compensation                         5,417                  4,339
   Accrued advertising                          4,502                  1,514
   Accrued insurance                            3,833                  4,544
   Accrued lease termination costs              2,433                  2,587
   Other accrued expenses                      37,171                 25,261
                                            ---------              ---------
   Total current liabilities                   88,837                 49,119
                                            ---------              ---------
Noncurrent liabilities:
   Long-term debt                                 234                    245
   Convertible subordinated debentures         41,593                 41,593
   Other noncurrent liabilities                 9,614                  9,651
                                            ---------              ---------
   Total noncurrent liabilities                51,441                 51,489
                                            ---------              ---------
Stockholders' equity (deficiency):
   Common stock, par value $.10 per share
     Authorized - 120,000,000 shares
     Issued - 52,772,482 shares and
       52,738,268 shares                        5,277                  5,274
   Additional paid-in capital                  80,438                 80,654
   Accumulated deficit                        (62,345)                (3,642)
                                            ---------              ---------
                                               23,370                 82,286
   Less treasury stock, at cost, 2,865,428
   shares and 2,901,401 shares                (36,105)               (36,558)
                                            ---------              ---------
                                              (12,735)                45,728
                                            ---------              ---------
                                            $ 127,543              $ 146,336
                                            ---------              ---------
</TABLE>





            See Notes to Consolidated Condensed Financial Statements.

                                       4

<PAGE>   5




                         CML GROUP, INC. & SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                        (In thousands except share data)

For the periods ended January 31, 1998
and February 1, 1997

<TABLE>
<CAPTION>

                                                      THREE MONTHS                      SIX MONTHS
                                                      ------------                      ----------
                                                 1998             1997             1998             1997
                                                 ----             ----             ----             ----
<S>                                           <C>              <C>              <C>              <C>       
Net sales                                      $ 109,491        $ 115,381        $ 167,061        $ 182,339
                                               ---------        ---------        ---------        ---------
Less costs and expenses:
    Cost of goods sold                            58,220           52,207           89,361           81,578
    Selling, general and administrative           64,423           69,424          110,537          128,047
        expenses
    Impairment charges                             2,877              497            2,877              497
    Restructuring charges                          8,533               --            8,533               --
    Interest expense                               1,153              295            2,111              756
                                               ---------        ---------        ---------        ---------
                                                 135,206          122,423          213,419          210,878
                                               ---------        ---------        ---------        ---------
Loss from operations before income taxes         (25,715)          (7,042)         (46,358)         (28,539)
Income tax provision (benefit)                    19,364           (1,857)          12,345           (9,703)
                                               ---------        ---------        ---------        ---------
Net loss                                       ($ 45,079)       ($  5,185)       ($ 58,703)       ($ 18,836)
                                               ---------        ---------        ---------        ---------
Loss per share:
    Basic                                         ($0.90)          ($0.10)          ($1.17)          ($0.38)
                                                  ------           ------           ------           ------
    Diluted                                       ($0.90)          ($0.10)          ($1.17)          ($0.38)
                                                  ------           ------           ------           ------
Weighted average number of shares
outstanding                                   50,002,846       49,915,109       49,979,042       49,863,660
</TABLE>


            See Notes to Consolidated Condensed Financial Statements.

                                       5

<PAGE>   6




                         CML GROUP, INC. & SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                               FOR THE SIX MONTHS ENDED
                                                               ------------------------
                                                         JANUARY 31, 1998       FEBRUARY 1, 1997
                                                         ----------------       ----------------
<S>                                                             <C>                    <C>      
Cash flows from operating activities:
   Net loss                                                     ($58,703)              ($18,836)
                                                                 -------                -------
   Adjustments to reconcile net loss to net cash
     provided by operating activities:
       Impairment charges                                          2,877                    497
       Restructuring charges                                       8,533                     --
       Depreciation and amortization                               7,307                  7,059
       Loss on disposal of property, plant and equipment              79                    875
       Decrease in working capital items                           9,939                 36,592
       (Increase) decrease in other assets                        11,111                 (6,155)
       Decrease in other noncurrent liabilities                      (37)                   (21)
                                                                 -------                -------
   Total adjustments                                              39,809                 38,847
                                                                 -------                -------
   Net cash provided by (used in) operating activities           (18,894)                20,011
                                                                 -------                -------
Cash flows from investing activities:
   Additions to property, plant and equipment                     (2,138)                (2,975)
   Net proceeds from the sale of businesses                          768                  3,913
   Reductions in notes receivable                                     42                     37
                                                                 -------                -------
   Net cash provided by (used in) investing activities            (1,328)                   975
                                                                 -------                -------
Cash flows from financing activities:
   Decrease in long-term debt                                        (11)                    (9)
   Increase in revolving line of credit                           16,200                     --
   Dividends paid                                                     --                   (497) 
   Exercise of stock options                                         119                    281
                                                                  -------                -------
   Net cash provided by (used in) financing activities            16,308                   (225)
                                                                 -------                -------
Net increase (decrease) in cash and cash equivalents
 during the period                                                (3,914)                20,761
Cash and cash equivalents at the beginning of the period           4,359                 17,673
                                                                 -------                -------
Cash and cash equivalents at the end of the period              $    445               $ 38,434
                                                                 -------                -------
</TABLE>


            See Notes to Consolidated Condensed Financial Statements.

                                       6

<PAGE>   7




                         CML GROUP, INC. & SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1

The accompanying Consolidated Condensed Financial Statements and Notes should be
read in conjunction with the consolidated financial statements contained in the
Annual Report on Form 10-K of CML Group, Inc. (the "Company"). In the opinion of
the Company's management, the accompanying Consolidated Condensed Financial 
Statements include all adjustments necessary for a fair presentation of the 
results of the interim periods presented and all such adjustments are of a 
normal recurring nature, except for the adjustments discussed in Note 3. The
retail industry is seasonal in nature and the results of operations for the 
interim periods presented may not be indicative of the results for a full year.

The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies as of the date of the consolidated financial 
statements and the reported amount of revenues and expenses during the period.
Actual results could differ from those estimates.

The Company's fiscal year ends on July 31; references to fiscal 1998 and fiscal
1997 refer to the fiscal year ending July 31, 1998 and fiscal year ended 
July 31, 1997, respectively. Certain fiscal 1997 amounts have been reclassified
to conform to the fiscal 1998 presentation.

Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," is effective for the Company beginning in fiscal 1999.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997 but is not required to be applied to interim financial
statements in the initial year of application. Adoption of these statements is
not expected to have a material effect on the consolidated financial statements.

The Company adopted SFAS No. 128,"Earnings per Share," effective for the
quarter ended January 31, 1998.  Accordingly, the Company was required to
restate prior-period earnings per share data presented.  Implementation of SFAS
No. 128 had no effect on previously reported earnings per share information.

                                       7

<PAGE>   8

NOTE 2 - MANAGEMENT'S PLAN

The Company incurred a net loss of $45.1 million, including an income tax
provision of $19.4 million, and a net loss of $58.7 million, including an income
tax provision of $12.3 million, in the second quarter and first six months of
fiscal 1998, respectively. In fiscal 1997, the Company incurred a net loss of
$5.2 million in the second quarter and $18.8 million during the first six
months. The losses during the second quarter and first six months of both
fiscal years were primarily due to operating losses at NordicTrack.

In fiscal 1998, NordicTrack's operating losses were primarily the result of 
significantly lower sales of aerobic exercise products, including cross-country
skiers, non-motorized treadmills and abdominal exercisers, and the slower than
anticipated ramp-up in sales of the new line of elliptical products, which were
partially offset by lower operating costs. In addition, during the second
quarter of fiscal 1998, NordicTrack announced plans to shut down its internal
manufacturing and distribution activities and to outsource those activities to
third-party vendors. NordicTrack also announced plans to exit the direct
response and catalog businesses. As a result of these decisions, NordicTrack
recorded  restructuring and asset impairment charges totaling $11.4 million.
See Note 3  for information concerning NordicTrack's reorganization. Smith &
Hawken's  results were affected by the seasonal nature of its business, with
the second quarter showing improvement over the first quarter.

During the second quarter of fiscal 1998, the Company's Board of Directors
announced a comprehensive review of the Company's strategic alternatives
including possible sale, recapitalization and/or joint venture opportunities
for the Company and/or its two operating subsidiaries. To the extent that the
Company continues to own and operate NordicTrack, it will be required to expend
substantial resources to fund NordicTrack's operations until NordicTrack
attains breakeven financial performance or is sold. There can be no assurance,
however, that the Company will be able to identify a prospective purchaser for
NordicTrack or that a sale on favorable terms can be arranged within a
reasonable period of time.

The Company's financial performance during the second half of fiscal 1998 and
in the future will depend upon its ability to purchase goods and services on
credit, to meet its obligations as they become due, to borrow funds under its
revolving credit agreement and to successfully implement the restructuring plan
at NordicTrack. To obtain the funds necessary to support its operations, the
Company may be required to sell assets or to effect public or private financing
transactions or both. No assurance can be given, however, that the Company
will be able to raise the required funds on favorable terms or on any terms,
and, if it fails to do so, the Company may either be sold or seek protection
under the insolvency laws.

The Company is subject to contingent liabilities discussed in Note 6.

                                      8

<PAGE>   9



NOTE 3 - NORDICTRACK REORGANIZATION

During the second quarter of fiscal 1998, NordicTrack announced plans to
strategically reposition its operations by outsourcing its manufacturing and
distribution activities and closing its Glencoe, Minnesota production facility;
exiting or outsourcing its direct response and catalog businesses; and closing
underperforming stores. As a result of these strategic initiatives, NordicTrack
recorded non-recurring restructuring charges of $8.5 million for severance,
plant shutdown and other costs and $2.7 million of asset impairment charges in
compliance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Impaired assets included tooling used to manufacture cross-country skiers
and non-motorized treadmills in Glencoe, Minnesota and retail store fixed
assets. Tooling costs were written off in their entirety. Store fixed asset
write-downs were measured based on a comparison of the assets' net book value to
the net present value of the stores' estimated future net cash flows.
Separately, an inventory write-down of $1.1 million was included in cost of
goods sold and $2.0 million was accrued for lease termination and other costs
related to the reorganization plan.

NOTE 4 - LONG-TERM DEBT

Consolidated long-term debt is summarized as follows:

                                             (in thousands)
                                  ------------------------------------
                                  JANUARY 31, 1998       JULY 31, 1997
                                  ----------------       -------------
Note payable                                  $223                $233
Obligations under capital leases                46                  47
                                              ----                ----
                                               269                 280
Less current portion                           (35)                (35)
                                              ----                ----
Long-term debt                                $234                $245
                                              ====                ====

                                       9


<PAGE>   10

On March 11, 1998, the Company's revolving credit agreement was amended to,
among other things, (i) increase the total amount that the Company's
subsidiaries may borrow from $40.0 million to $50.0 million, (ii) increase the
maximum overadvance amount from $15.0 million to up to $35.0 million, and (iii)
extend the period during which overadvances are permitted to be outstanding.
The amended agreement which matures July 10, 1998, provides that advances which
do not constitute overadvances under the agreement bear interest at 3.0% above
the lenders' "Base Rate" which approximates the lenders' prime rate.
Overadvances under the agreement bear interest at 4.0% above the lenders' Base
Rate.  In connection with the financing, the Company issued the lenders
warrants to purchase 1,621,741 shares of the Company's Common Stock at a
nominal exercise price.  Advances under the Company's revolving line of credit
are classified as current liabilities in the accompanying Consolidated
Condensed Balance Sheets.

NOTE 5 - EARNINGS PER SHARE DISCLOSURES

The net losses and the number of shares included in the calculations of the
Company's basic and diluted net losses per share shown on the Consolidated
Condensed Statements of Operations are the same. Certain securities that could
potentially dilute basic earnings per share in the future were not included in
the computations of diluted net losses per share because to do so would have
been antidilutive for the periods presented. These securities include the
Company's convertible subordinated debentures, the warrants which were issued 
after January 31, 1998 in connection with the amendment of the Company's credit
facility, and stock options.

NOTE 6 - CONTINGENCIES

      LITIGATION

      NordicTrack is named as the defendant in a Consolidated Class Action
Complaint ("Consolidated Complaint") filed on September 25, 1996 in the United
States District Court for the Southern District of New York and subsequently
transferred to the United States District Court for the District of Minnesota on
January 30, 1997. The named plaintiffs, Elissa Crespi and John Lucien Ware, Jr.,
allege in the Consolidated Complaint that NordicTrack made false and misleading
claims in its advertising concerning the weight loss of persons using its ski
exercisers by misrepresenting and failing to disclose material findings of
weight loss studies conducted by or on behalf of NordicTrack. The named
plaintiffs assert claims of common law fraud, fraudulent concealment, negligent
misrepresentation and omission, breach of express and implied warranties, and
violation of Section 349 of the State of New York General Business Law. The
named plaintiffs also seek to represent a class allegedly consisting of all
persons in the United States who purchased a NordicTrack ski exerciser during
the period from November 15, 1993 to April 10, 1996, excluding NordicTrack and
its employees. On September 2, 1997, the named plaintiffs filed a motion to
remand the case to state court in New York, which NordicTrack opposed. The
parties have reached an agreement-in-principle concerning the general terms and
conditions of a class action settlement of the case which has been memorialized
in a Memorandum of Understanding filed with the Minnesota Court. The parties are

                                       10

<PAGE>   11



presently in the process of negotiating an acceptable written settlement 
agreement and other documents relating to the proposed settlement. On 
January 8, 1998, the United States District Court for the District of Minnesota
remanded the case to the Supreme Court for the State of New York for 
consideration of whether the proposed settlement should be approved and a final
judgment and order entered thereon. Management believes the contemplated 
settlement will not have a material adverse impact on the Company's business,
financial condition and  results of operations. The Company can give no 
assurance at this time that the parties will be successful in negotiating a 
mutually acceptable written settlement agreement or that the proposed settlement
will ultimately receive court approval.

      NordicTrack is the defendant in a lawsuit in the United States District
Court for the District of Minnesota which commenced on August 12, 1996. In this
action, the plaintiff, Precise Exercise Equipment ("Precise"), alleges that
NordicTrack misappropriated trade secrets regarding Precise's abdominal exercise
product and further breached a non-competition agreement. Discovery is ongoing
and must be completed in August 1998 to meet the Court imposed schedule. While
NordicTrack is vigorously defending against the allegations and believes it has
meritorious defenses to Precise's claims, at this stage of the lawsuit the
Company is unable to determine the likelihood and possible impact on the
Company's business, financial condition and results of operations of an 
unfavorable outcome.

      In a complaint dated September 30, 1997, filed by Precor Incorporated
("Precor") in the United States District Court for the Western District of
Washington in Seattle, Precor alleges that the manufacture, offering for sale
and sale by NordicTrack of its exercisers marketed under the Ellipse(TM)
trademark infringe a United States patent which Precor has licensed from the
inventor, Larry Miller (the "Miller Patent"). The technology used in
NordicTrack's Ellipse(TM) exerciser is licensed by NordicTrack from a third
party, and the Company believes that NordicTrack's products do not infringe the
Miller Patent. In February 1998, Precor amended the complaint to add 
infringement claims against a major wholesale customer of NordicTrack's, and the
licenser of NordicTrack's technology. The complaint is scheduled for mediation 
in September 1998 and for trial in February 1999. While NordicTrack believes it
has meritorious defenses to the complaint and intends to vigorously defend 
against the allegations, this lawsuit is in its earliest stages and the Company
is unable to determine the likelihood and possible impact on the Company's 
business, financial condition and results of operations of an unfavorable 
outcome.

      The Company is involved in various other legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome of
such other legal proceedings will not have a material adverse impact on the
Company's business, financial condition and results of operations.

                                       11

<PAGE>   12



      ENVIRONMENTAL MATTERS

      On June 3, 1991, the Company received from the United States Environmental
Protection Agency ("EPA") a Special Notice Letter containing a formal demand on
the Company as a Potentially Responsible Party ("PRP") for reimbursement of the
costs incurred and expected to be incurred in response to environmental problems
at a so-called "Superfund" site in Conway, New Hampshire. The EPA originally
estimated the costs of remedial action and future maintenance and monitoring
programs at the site at about $7.3 million. The Superfund site includes a vacant
parcel of land owned by a subsidiary of the Company as well as adjoining
property owned by a third party. No manufacturing or other activities involving
hazardous substances have ever been conducted by the Company or its affiliates
on the Superfund site in Conway. The environmental problems affecting the land
resulted from activities by the owners of the adjoining parcel. Representatives
of the Company have engaged in discussions with the EPA regarding responsibility
for the environmental problems and the costs of cleanup. The owners of the
adjoining parcel are bankrupt. The EPA commenced cleanup activities at the site
in July 1992.

      The EPA expended approximately $1.4 million for the removal phase of the
site cleanup, which has now been completed. The EPA had estimated that the
removal costs would exceed $3.0 million, but only a small portion of the solid
waste removed from the site was ultimately identified as hazardous waste.
Therefore, the EPA's actual response costs for the removal phase were less than
it originally estimated. The EPA implemented the groundwater phase of the
cleanup, which the EPA originally estimated would cost approximately $4.0
million.

      The Company believes that the EPA's estimated cost for cleanup, including
the proposed remedial actions, is excessive and involves unnecessary actions. In
addition, a portion of the proposed remedial cost involves cleanup of the
adjoining property that is not owned by the Company or any of its affiliates.
Therefore, the Company believes it is not responsible for that portion of the
cleanup costs. The Company has reserves and insurance coverage (from its primary
insurer) for environmental liabilities at the site in the amount of
approximately $2.3 million. The Company also believes that it is entitled to
additional insurance from its excess insurance carriers. However, if excess
liability coverage is not available to the Company and the ultimate liability
substantially exceeds the primary insurance amount and reserves, the liability
would have a material adverse effect upon the Company's business, financial
condition and results of operations for the period in which the resolution of
the claim occurs.

      In June 1992, the EPA notified the Company that it may be liable for the
release of hazardous substances by the Company's former Boston Whaler subsidiary
at a hazardous waste treatment and storage facility in Southington, Connecticut.
The EPA has calculated the Company's volumetric contribution at less than
two-tenths of one percent. Because complete cleanup cost estimates for the site
are not yet available, an accurate assessment of the Company's likely range of
liability cannot be made. Accordingly, the impact on the Company's business,
financial condition and results of operations is not presently determinable.

                                       12

<PAGE>   13



      TAX MATTERS

     The Internal Revenue Service ("IRS") has been engaged in an examination of
the Company's tax returns for the fiscal years 1987 through 1991. The IRS has
issued a "30-day letter" to the Company proposing certain adjustments which, if
sustained, would result in a tax deficiency for the years under examination. The
adjustments proposed by the IRS primarily relate to: (i) the disallowance of
deductions taken by the Company with respect to incentive compensation payments
of $43.0 million made to the former owners of NordicTrack (acquired in June
1986) pursuant to their employment contracts; and (ii) incentive compensation
payments made to the former owners of Britches of Georgetowne (acquired in
August 1983 and sold in April 1996) pursuant to the terms of an earnout
agreement and the valuation of certain assets acquired in connection with the
acquisition of Britches of Georgetowne in the amount of $9.2 million. The net
federal tax due relating to the proposed adjustments approximates $15.9 million.
Interest on the proposed deficiencies approximates $20.2 million as of January
31, 1998.

     The incentive compensation payments to the former owners of NordicTrack
were attributable to substantial increases in NordicTrack's sales and profits
during the years under examination. The Company believes that the tax deductions
taken were valid and in accordance with the Internal Revenue Code and intends to
vigorously oppose the proposed adjustments. However, at this stage no assurance
can be given of a favorable outcome on these matters. If the IRS proposed
adjustments are sustained, any back taxes owed and associated interest would
have a material adverse effect on the Company's consolidated operating results
for the period in which such issues are finally resolved and would also have a
material adverse effect on the Company's consolidated financial condition.

      As of January 31, 1998, the Company had net deferred tax assets of $15.6
million after recording a valuation reserve of $19.4 million during the second
quarter of fiscal 1998, resulting in a total tax provision of $12.3 million for
the first six months of fiscal 1998. The Company believes that it will generate
sufficient future taxable income, either through operations or the sale of
assets, to realize the remaining net deferred tax assets prior to expiration of
any net operating losses. Net operating losses currently may be carried forward
for up to 15 taxable years. There can be no assurance, however, that the Company
will generate any specific level of earnings or that it will be able to realize
any particular level of its net deferred tax assets in future periods. If the
Company is unable to generate sufficient taxable income in the future through
operating results or the sale of assets, increases in the tax valuation
allowance will be required, resulting in additional charges to earnings.

                                       13

<PAGE>   14




Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

INTRODUCTION

This Quarterly Report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements. There are a number of factors
that could cause the Company's actual results to differ materially from those
indicated by such forward-looking statements. These factors include, without
limitation, those set forth below under the caption "Certain Factors that May
Affect Future Results."

The Company operates in two industry segments, NordicTrack and Smith & Hawken.
NordicTrack designs, sources, manufactures and markets physical fitness and
exercise equipment and other health-related products through specialty stores
and kiosks operated by its wholly-owned subsidiary, Nordic Advantage and,
beginning in fiscal 1998, to wholesale customers. During the second quarter of
fiscal 1998, NordicTrack announced its intention to strategically transition the
company from a marketing strategy and operation, driven by direct response
advertising in print and on television, to one focused on its retail and
wholesale channels. NordicTrack will exit the direct response and catalog
businesses and pursue a partnership arrangement with a direct response marketing
company for its advertising. NordicTrack also announced plans to discontinue
in-house manufacturing. Smith & Hawken markets fine gardening tools, clothing,
furniture, plants and accessories through its catalogs and specialty retail
stores.

FINANCIAL CONDITION

On March 11, 1998, the Company announced it had amended its revolving credit
agreement to provide the Company and its subsidiaries with up to $50.0 million
of financing through July 10, 1998. The Company plans to use the funds for
general corporate purposes, including the execution of a restructuring plan
underway at NordicTrack and the expansion of Smith & Hawken.

Because of the substantial losses incurred in fiscal 1997 and the expected
continued losses in fiscal 1998 from NordicTrack's operations, the Company will
need to raise additional funds to continue its business at current operating
levels, including a restructured NordicTrack business. Accordingly, the Company
is engaged in discussions with its lenders to extend the existing $50.0 million
credit facility beyond its current July 10, 1998 expiration date and increase
its credit facility by an additional $25.0 million to $75.0 million. In
addition, the Company is currently seeking to sell its NordicTrack business. In
the event the Company is unable to obtain the funds needed to continue its
business operations in accordance with its fiscal 1998 business plan or is
unable to sell its NordicTrack business, the combination of potential continued
losses and the concern among the Company's customers about the Company's future
viability could force the Company to substantially curtail its business
operations or to seek protection under the insolvency laws.


                                       14

<PAGE>   15


The Company believes that internally generated funds, available funds under its
line of credit and proceeds from the sale of assets or securities or obtained
through public or private financing transactions will be sufficient to meet its
operating needs and anticipated capital expenditures through July 10 1998.

Stockholders' equity had a deficit balance of $12.7 million at January 31, 1998,
a decease of $58.5 million from July 31, 1997, primarily due to the net loss of
$58.7 million for the first six months of fiscal 1998. A working capital deficit
of $25.5 million existed at January 31, 1998 compared with working capital of
$9.7 million at July 31, 1997. The change in working capital was primarily due
to the use of excess cash and the revolving bank line of credit to finance
operations, asset impairment and restructuring charges recorded by NordicTrack,
and increases in accounts payable and accrued expenses, offset in part by higher
inventories and accounts receivable. Inventories at January 31, 1998 were $6.1
million higher than at July 31, 1997 primarily due to lower than expected sales
at NordicTrack. During the first six months of fiscal 1998, the Company invested
approximately $2.1 million in property, plant and equipment, or a decrease of
$0.9 million, compared with the $3.0 million spent during the first six months
of fiscal 1997. The Company had approximately $0.4 million of cash and cash
equivalents as of January 31, 1998 and $16.2 million of advances and $3.6
million of letters of credit outstanding under its senior revolving credit
facility.

In January 1998, the Company reported that expected revenues for the second
quarter of fiscal 1998 would be below expectations, principally due to lower
than anticipated sales from a slower than expected ramp-up of NordicTrack's new
elliptical product category, which adversely affected operating results, cash
flows and liquidity. The Company also announced that its Board of Directors
engaged Lehman Brothers, an investment banking firm, to assist in conducting a
comprehensive review of the Company's strategic alternatives including possible
sale, recapitalization, and/or joint venture opportunities for the Company
and/or its two operating divisions.

RESULTS OF OPERATIONS

For the second quarter of fiscal 1998, net sales decreased 5.1% to $109.5
million from $115.4 million in the second quarter of fiscal 1997 primarily due
to lower NordicTrack sales offset, in part, by higher sales at Smith & Hawken.
Sales for the first six months of fiscal 1998 were $167.1 million, a decrease of
8.4%, compared with $182.3 million of net sales for the first six months of
fiscal 1997.

The Company incurred a net loss of $45.1 million, or $0.90 per share, in the
second quarter of fiscal 1998 compared with a net loss of $5.2 million, or $0.10
per share, during the same period of fiscal 1997. For the first six months of
fiscal 1998, the Company reported a net loss of $58.7 million, or $1.17 per
share, compared with a net loss of $18.8 million, or $0.38 per share, in fiscal
1997. The increase in the net losses for the quarter and first six months was
primarily due to an income tax provision in the second quarter
of fiscal 1998, NordicTrack's restructuring and asset impairment charges
totaling $11.4 million and lower sales and gross margins at NordicTrack. 

                                       15

<PAGE>   16



Retail sales for the second quarter of fiscal 1998 decreased 2.5% to $67.4
million from $69.1 million in the second quarter of fiscal 1997 and retail sales
for the first six months of fiscal 1998 decreased 5.6% to $99.9 million from
$105.8 million in the first half of fiscal 1997. The retail sales declines were
primarily due to lower retail and comparable store sales at NordicTrack which
were partially offset by retail and comparable store sales increases at Smith &
Hawken.

Direct response and mail order sales decreased $8.7 million to $37.6 million in
the second quarter of fiscal 1998 and decreased $18.4 million to $58.1 million
during the first six months of fiscal 1998, compared with the similar periods of
fiscal 1997, primarily due to lower direct response sales at NordicTrack. Smith
& Hawken's mail order sales increased during the second quarter and first six
months of fiscal 1998 compared with the same periods of fiscal 1997.

Cost of goods sold as a percentage of net sales increased from 45.2% in the
second quarter of fiscal 1997 to 53.2% in the second quarter of fiscal 1998 and
from 44.7% in the first six months of fiscal 1997 to 53.5% in the first six
months of fiscal 1998, primarily due to higher cost of goods sold as a
percentage of sales at NordicTrack. Cost of goods sold as a percentage of sales
at Smith & Hawken increased during the first six months of fiscal 1998 but
decreased during the second quarter of fiscal 1998, compared with the same
periods of fiscal 1997. The increase in cost of goods sold as a percentage of
net sales at NordicTrack was primarily due to reduced margins on non-motorized
treadmills and abdominal products which experienced lower sales; higher sales of
lower-margined products, including motorized treadmills; the liquidation of
inventories of discontinued product lines; inefficiencies at the Glencoe,
Minnesota manufacturing plant resulting from capacity underutilization; the
write-down of inventories resulting from NordicTrack's decision to exit its
direct response and catalog operations; and discounts to suppliers related to
the wholesale distribution of NordicTrack's products. The effects of these
changes were partially offset by lower cost of goods sold as a percentage of net
sales from sales of cross-country skiers; UltraLift(TM), NordicTrack's
strength-training machine; and NordicTrack's new elliptical line of products
introduced in October 1997. The improvement in Smith & Hawken's second quarter
cost of goods sold as a percentage of net sales was primarily due to higher
margins generated in both the retail and catalog businesses.

Selling, general and administrative expenses decreased as a percentage of sales
from 60.2% in the second quarter of fiscal 1997 to 58.8% in the second quarter
of fiscal 1998. For the first six months of the year, selling, general and
administrative expenses as a percentage of sales declined from 70.2% in fiscal
1997 to 66.2% in fiscal 1998. The improvement resulted from lower advertising
costs at NordicTrack and better cost controls at NordicTrack and Smith & Hawken.

                                       16

<PAGE>   17



During the second quarter of fiscal 1998, NordicTrack announced that it will
focus on its retail and wholesale sales channels and that it plans to exit the
direct response and catalog businesses. NordicTrack also announced that it
would cease manufacturing and distribution activities at its Glencoe, Minnesota
facility. As a result, NordicTrack recorded asset impairment charges of $2.8
million and restructuring charges of $8.5 million to cover estimated costs to
strategically reposition its operations. NordicTrack immediately eliminated 51
full-time positions and 65 seasonal telemarketing positions. When manufacturing
operations cease at NordicTrack's Glencoe, Minnesota facility in May 1998, 217
factory positions will be phased out. An additional 70 positions will be
eliminated in September 1998 when the distribution function at this facility
ceases. NordicTrack expects to incur additional restructuring charges in the
second half of fiscal 1998 relating to the renegotiation and/or termination of
certain contracts relating to and benefiting the direct response and catalog
businesses.

The Company incurred net interest expense of $1.2 million, or 1.1% of net sales,
in the second quarter of fiscal 1998, compared with $0.3 million, or 0.3% of net
sales, in the second quarter of fiscal 1997. During the first six months of
fiscal 1998, net interest expense was $2.1 million, or 1.3% of net sales,
compared with $0.8 million, or 0.4% of net sales, in fiscal 1997.

The Company recorded an income tax provision of $19.4 million in the second
quarter of fiscal 1998 and an income tax benefit of $1.9 million in the second
quarter of fiscal 1997. The income tax provision in the second quarter of fiscal
1998 consisted of a reversal of the income tax benefit of $7.0 million recorded
in the first quarter of fiscal 1998 and the recording of a valuation reserve of
$12.3 million against existing net deferred tax assets. For the six month period
ended January 31, 1998, the Company recorded income tax expense of $12.3
million, which consisted of increasing the valuation allowance discussed above.
The income tax benefit recorded by the Company in the second quarter of fiscal
1997 represented the benefit it expected to realize upon utilization of tax loss
carryforwards. As of January 31, 1998, the Company had net deferred tax assets
of $15.6 million. The Company believes that it will generate sufficient future
taxable income, either through operations or the sale of assets, to realize the
net deferred tax assets prior to expiration of any net operating losses. Net
operating losses currently may be carried forward for up to 15 taxable years.
There can be no assurance, however, that the Company will generate any specific
level of earnings or that it will be able to realize any particular level of its
net deferred tax assets in future periods. If the Company is unable to generate
sufficient taxable income in the future through operating results or the sale of
assets, increases in the tax valuation allowance will be required, resulting in
a charge to earnings.

                                       17

<PAGE>   18



NordicTrack's sales decreased 11.9% to $82.7 million in the second quarter of
fiscal 1998, compared with $93.9 million for the second quarter of fiscal 1997,
and decreased 14.9% to $126.1 million during the first six months of fiscal
1998 compared with sales of $148.3 million during the first half of fiscal
1997. Approximately 66.9% and 62.7% of NordicTrack's net sales in the second
quarters of fiscal 1998 and fiscal 1997, respectively, were accounted for by
sales at its Nordic Advantage subsidiary, which operates retail stores and mall
kiosks. Nordic Advantage's sales decreased from $58.9 million in the second
quarter of fiscal 1997 to $55.4 million in the second quarter of fiscal 1998,
and from $88.7 million in the first half of fiscal 1997 to $80.2 million in the
first half of fiscal 1998. The decrease in Nordic Advantage's sales was
primarily due to declines in comparable store sales results and a decrease
in the number of mall-based stores and kiosks operating during these periods.
At the end of  January 1998, Nordic Advantage operated 113 retail stores and
122 mall kiosks compared with 129 retail stores and 148 mall kiosks open at the
end of January 1997. Comparable store sales at NordicTrack decreased 3.2% in
the second quarter and 8.3% during the first six months of fiscal 1998. Direct
response sales at NordicTrack decreased $12.2 million, or 34.8%, in the second
quarter of fiscal 1998 and $22.7 million, or 38.1%, during the first six months
of fiscal 1998. Wholesale sales at NordicTrack were $4.5 million in the second
quarter and $9.0 million during the first six months of fiscal 1998.
Cross-country skiers, AbWorks(TM), non-motorized treadmills, and rider products
experienced continued sales declines during the second quarter and first six
months of fiscal 1998. UltraLift(TM), NordicTrack's strength-training machine,
and motorized treadmills experienced sales increases during these periods.
Revenues at NordicTrack also were adversely affected by the slower than
anticipated ramp-up in sales of the recently introduced Ellipse(TM) in both the
retail and wholesale channels.

Smith & Hawken's sales increased $5.3 million, or 24.7%, to $26.7 million during
the second quarter and increased $6.9 million, or 20.2%, to $40.9 million in the
first six months of fiscal 1998 compared with the corresponding periods of
fiscal 1997. Retail sales increased $1.8 million, or 17.4%, to $12.0 million in
the second quarter of fiscal 1998, and increased $2.5 million, or 14.8%, to
$19.7 million in the first half of fiscal 1998. Comparable store sales increased
13.1% and 11.7% during the second quarter and first six months of fiscal 1998,
respectively. Smith & Hawken operated 25 stores at the end of January 1998
compared with 24 stores at the end January 1997. Mail order sales at Smith &
Hawken rose 31.4% to $14.7 million in the second quarter of fiscal 1998 and
increased 25.7% to $21.3 million in the first half of fiscal 1998, compared with
the corresponding periods of fiscal 1997.

                                       18

<PAGE>   19



CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report and presented elsewhere by management from time to time.

      Recent Operating Losses
      Because of the substantial losses incurred in fiscal 1997 and the expected
continued losses in fiscal 1998 from NordicTrack's operations, the Company will
need to raise additional funds to continue its business at current operating
levels, including a restructured NordicTrack business.  Accordingly, the Company
is engaged in discussions with its lenders to extend the existing $50.0 million
credit facility beyond its current July 10, 1998 expiration date and increase
its credit facility by an additional $25.0 million to $75.0 million. In
addition, the Company is currently seeking to sell its NordicTrack business. In
the event the Company is unable to obtain the funds needed to continue its
business operations in accordance with its fiscal 1998 business plan or is
unable to sell its NordicTrack business, the combination of potential continued
losses and the concern among the Company's customers about the Company's future
viability could force the Company to substantially curtail its business
operations or to seek protection under the insolvency laws. In addition, if the
Company continues to have net losses in the future, the Company may be unable to
realize the benefit of the net deferred tax assets discussed in Note 6 of Notes
to Consolidated Condensed Financial Statements which could result in a charge to
earnings.

      Available Funds
      The Company's future financial performance will also depend on its ability
to purchase goods and services on credit and to borrow funds under its revolving
credit agreement. If the Company is unable to purchase goods and services on
credit or the Company's lenders do not provide the Company with favorable credit
arrangements, the Company may need to seek additional funds from other parties.
There can be no assurance, however, that the Company would be able to obtain any
such third-party funding or obtain such funding on terms as favorable as those
offered by its current lenders. Also, in the event the Company elects to raise
additional funds through the sale of assets or securities or both, the Company
may not be able to complete such sales in a timely manner or on terms favorable
to the Company.

      Consumer Spending
      The success of the Company is influenced by a number of economic
conditions affecting disposable consumer income, such as employment levels,
business conditions, interest rates and taxation rates. Adverse changes in these
economic conditions may restrict consumer spending, thereby negatively affecting
the Company's results of operations. In addition, the Company's results of
operations could be adversely affected if consumer spending is lower than
anticipated.



                                       19

<PAGE>   20

      Competition
      The markets in which the Company is engaged are highly competitive.

      NordicTrack competes with several companies which design, manufacture and
distribute physical fitness and exercise equipment, have greater financial
resources and offer a greater selection of products. During the past several
years, NordicTrack's competitors have introduced several new and competitive
products at competitive prices which have adversely affected NordicTrack's
revenues and profits. The future success of NordicTrack depends in part upon its
ability to introduce new and competitive products successfully, on a timely
basis and at competitive prices. The failure of NordicTrack to successfully
compete with its competitors could materially adversely affect the Company's
business, financial condition and results of operations.


      Many of the competitors of Smith & Hawken are larger companies with
greater financial resources, a greater selection of merchandise and nationwide
distribution, including a large number and wide variety of specialty retail
stores, discount stores and department stores. Smith & Hawken also competes with
mail order catalogs that sell gardening-related merchandise and independent
garden stores and plant nurseries in towns and cities throughout the United
States. The failure of Smith & Hawken to successfully compete with these
companies could adversely affect the Company's business, financial condition and
results of operations.

      New Products
      Several new and enhanced products were introduced by the Company in fiscal
1997 and a new line of elliptical products was introduced by NordicTrack in the
first quarter of fiscal 1998. The Company's future financial performance will
depend on the continued market acceptance of the Company's existing products and
the successful development, introduction and customer acceptance of new and
enhanced products. If these products do not receive favorable market acceptance,
the Company's future operating results would be adversely affected. There can be
no assurance that the Company will be successful in developing new products and
marketing its existing or new products.

      New Management Team
      The Company has replaced the Chairman and Chief Executive Officer of CML
Group, Inc. and a number of key executives at NordicTrack. There can be no
assurance, however, that the new personnel will be able to successfully increase
revenues or reduce costs at the Company or NordicTrack in the future.

      Seasonality
      The Company's businesses are seasonal, with significant amounts of retail
sales in the second and third quarters of the Company's fiscal year. The Company
expects this seasonality to continue in the future. Because of this seasonality,
the Company's revenues and earnings have fluctuated and will continue to
fluctuate from quarter to quarter.

      Advertising and Marketing Programs
      The inability of the Company to periodically design and successfully
execute new and effective advertising and marketing programs could adversely
affect the Company's business, financial condition and results of operations.
During the second quarter of fiscal 1998, NordicTrack announced plans to exit
the direct response and catalog businesses, and pursue a partnership with a
direct response marketing company.  There can be no assurances that such a
partnership or its advertising efforts will be successful.



                                       20

<PAGE>   21
      Cost Reduction Programs
      In the first half of fiscal 1998 and during fiscal 1997, the Company was
able to significantly reduce its operating costs as net sales decreased. There
can be no assurance, however, that the Company will be able to further reduce
operating costs if sales decline in the future.

      In addition, postage expenses associated with mailing catalogs and
shipping charges associated with acquiring and distributing products and
merchandise to customers are significant factors in the operation of the
Company's businesses. Increases in postage or shipping costs, or disruptions in
delivery and shipping services, could adversely affect the Company's business,
financial condition and results of operations.


      Intellectual Property Rights
      The Company will continue to be subject to the risk of adverse claims and
litigation alleging infringement of intellectual property rights. There can be
no assurance that third parties will not assert infringement claims in the
future with respect to the Company's current or future products or that any such
claims will not require the Company to enter into royalty arrangements or result
in costly litigation. While the Company believes that it currently has all
licenses necessary to conduct its business, no assurance can be given that
additional licenses will not be required in the future. Furthermore, no
assurance can be given that, if any additional licenses are required, such
licenses could be obtained on commercially reasonable terms.

      Tax Matters
      The Internal Revenue Service ("IRS") has been engaged in an examination of
the Company's tax returns for the fiscal years 1987 through 1991. The IRS has
issued a "30-day letter" to the Company proposing certain adjustments which, if
sustained, would result in a tax deficiency for the years under examination. The
adjustments proposed by the IRS primarily relate to: (i) the disallowance of
deductions taken by the Company with respect to incentive compensation payments
of $43.0 million made to the former owners of NordicTrack (acquired in June
1986) pursuant to their employment contracts; and (ii) incentive compensation
payments made to the former owners of Britches of Georgetowne (acquired in
August 1983 and sold in April 1996) pursuant to the terms of an earnout
agreement and the valuation of certain assets acquired in connection with the
acquisition of Britches of Georgetowne in the amount of $9.2 million. The net
federal tax due relating to the proposed adjustments approximates $15.9 million.
Interest on the proposed deficiencies approximates $20.2 million as of January
31, 1998.

      The incentive compensation payments to the former owners of NordicTrack
were attributable to substantial increases in NordicTrack's sales and profits 
during the years under examination. The Company believes that the tax deductions
taken were valid and in accordance with the Internal Revenue Code and intends to
vigorously oppose the proposed adjustments. However, at this stage no assurance
can be given of a favorable outcome on these matters. If the IRS proposed
adjustments are sustained, any back taxes owed and associated interest would
have a material adverse effect on the Company's consolidated operating results
for the period in which such issues are finally resolved and would also have a
material adverse effect on the Company's consolidated financial condition.


                                       21

<PAGE>   22
     Year 2000 Software Issues
     The Company has reviewed the implications of year 2000 compliance and has 
taken steps designed to ensure that the Company's computer systems and
applications will manage dates beyond 1999. The Company believes that it has
allocated adequate resources for this purpose and that planned software
upgrades, which are underway and in the normal course of business, will
address the Company's internal year 2000 needs. However, there can be no
assurance that the systems of other parties upon which the Company's businesses
also rely will be converted on a timely basis. The Company's business, financial
condition and results of operations could be materially adversely affected by
the failure of its systems and applications or those operated by other parties
to properly operate or manage dates beyond 1999.

                                       22

<PAGE>   23




                           PART II: OTHER INFORMATION

Item 1:     Legal Proceedings.

            ENVIRONMENTAL MATTERS

            See Note 6 of Notes to Consolidated Condensed Financial Statements
            in Item 1 of Part I hereof, which is hereby incorporated by
            reference for information concerning environmental matters.

            LITIGATION

            See Note 6 of Notes to Consolidated Condensed Financial Statements
            in Item 1 of Part I hereof, which is hereby incorporated by
            reference for information concerning litigation.

            TAX MATTERS

            See Note 6 of Notes to Consolidated Condensed Financial Statements
            in Item 1 of Part I hereof, which is hereby incorporated by
            reference for information concerning tax matters.

Items 2-3:  None.

Item 4:     Submission of Matters to a Vote of Security Holders.

            The Company held its Annual Meeting of Stockholders on December 5,
            1997. At this meeting the stockholders of the Company elected
            Charles M. Leighton as a Class A Director (by votes of 43,534,807
            shares of Common Stock in favor and 2,264,497 shares of Common Stock
            withheld), Thomas H. Lenagh as a Class A Director (by votes of
            43,554,452 shares of Common Stock in favor and 2,244,852 shares of
            Common Stock withheld), Ralph F. Verni as a Class A Director (by
            votes of 43,570,713 shares of Common Stock in favor and 2,228,591
            shares of Common Stock withheld), and John A. C. Pound as a Class C
            Director (by votes of 43,560,975 shares of Common Stock in favor and
            2,238,329 shares of Common Stock withheld). Each of the newly
            elected Class A Directors is to serve for a term of three years. The
            newly elected Class C Director is to serve for a term of two years.
            The other directors of the Company whose terms of office as
            directors continued after the meeting are G. Robert Tod, Dr. Roy W.
            Menninger, Lauren M. Tyler, Howard H. Callaway, and Alison
            Taunton-Rigby.

            At the Annual Meeting, stockholders holding 43,034,828 shares of
            Common Stock voted to ratify the appointment of Deloitte & Touche
            LLP as the Company's independent auditors for the fiscal year ending
            July 31, 1998. Stockholders holding 148,877 shares of Common Stock
            voted against such ratification and stockholders holding 2,615,599
            shares of Common Stock abstained.

            Stockholders holding 34,989,990 shares of Common Stock voted to
            approve the transaction of such other business as may properly come
            before the Annual Meeting or adjournment thereof. Stockholders
            holding 8,048,704 shares of Common Stock voted against such proposal
            and 2,760,611 shares of Common Stock abstained.

Item 5:     None.
                                       23

<PAGE>   24


Item 6:     Exhibits and Reports on Form 8-K.

              (a) Exhibits - See Exhibit Index.

              (b) Reports on Form 8-K:

                  On January 27, 1998, the Company filed a Current Report on 
                  Form 8-K, dated January 26, 1998, announcing under Item 5
                  (Other Events) that its Board of Directors was conducting a
                  comprehensive review of the Company's strategic alternatives 
                  with the assistance of Lehman Brothers. The Form 8-K included,
                  as an exhibit, a copy of the Company's press release of the 
                  same date. In addition to announcing the comprehensive 
                  strategic review, the press release announced a number of 
                  organizational changes undertaken in conjunction with the 
                  review.

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.

                                       CML GROUP, INC.
                                       ---------------
                                       (Registrant)

Date:  MARCH 17, 1998                  /s/Paul J. Bailey
       --------------                  -----------------
                                       Paul J. Bailey
                                       Controller
                                       Principal Accounting Officer




                                       24

<PAGE>   25



                                  EXHIBIT INDEX

                                                                        PAGE NO.
 
27    --    Financial Data Schedule                                        26


                                       25