<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 MAY 3, 1997

                                       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:         (508) 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:
49,778,583 shares of common stock, $.10 par value, as of June 10, 1997.


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





<PAGE>   2



                        CML GROUP, INC. AND SUBSIDIARIES
                        --------------------------------

                                    Form 10-Q

<TABLE>

                                      Index
                                      -----
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                     <C>
Part I:      Financial Information

             Item 1:  Financial Statements

                      Consolidated Condensed Balance Sheets
                      as of May 3, 1997 and July 31, 1996                                3 - 4

                      Consolidated Condensed Statements of Operations
                      for the three-month and nine-month periods ended
                      May 3, 1997 and April 27, 1996                                         5

                      Consolidated Condensed Statements of Cash
                      Flows for the nine-month periods ended
                      May 3, 1997 and April 27, 1996                                         6

                      Notes to Consolidated Condensed Financial Statements              7 - 10

             Item 2:  Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                              11 - 15

Part II:     Other Information

             Item 1:  Legal Proceedings                                                     16
             
             Item 6:  Exhibits and Reports on Form 8-K                                      16

             Signatures                                                                     16

             Exhibit Index                                                                  17
</TABLE>

                                        2




<PAGE>   3



                         Part I: FINANCIAL INFORMATION

Item 1.  Financial Statements
         --------------------
<TABLE>

                         CML GROUP, INC. & SUBSIDIARIES
                      Consolidated Condensed Balance Sheets
                      -------------------------------------
                                 (In thousands)

                                     ASSETS

<CAPTION>

                                             May 3, 1997       July 31, 1996
                                             -----------       -------------

<S>                                            <C>               <C>      
Current assets:
    Cash and cash equivalents                  $ 22,422           $ 17,673
    Accounts receivable                           7,887             10,570
    Refundable income taxes                          81             53,874
    Prepaid income taxes                          6,043              6,102
    Inventories:
       Raw materials                              2,860              2,742
       Work in process                              978              1,875
       Finished goods                            33,906             25,817
                                               --------           --------
          Total inventories                      37,744             30,434
    Other current assets                         11,816             16,270
                                               --------           --------
          Total current assets                   85,993            134,923
                                               --------           --------
Property, plant and equipment, at cost:
     Land and buildings                          19,388             20,071
     Machinery and equipment                     45,042             43,739
     Leasehold improvements                      30,875             31,628
                                               --------           --------
                                                 95,305             95,438
     Less accumulated depreciation               44,755             37,279
                                               --------           --------
                                                 50,550             58,159
                                               --------           --------
Goodwill                                          8,605              8,782
Other assets                                     21,940             11,487
                                               --------           --------
                                               $167,088           $213,351
                                               ========           ========

</TABLE>


            See Notes to Consolidated Condensed Financial Statements.

                                        3


<PAGE>   4

<TABLE>


                         CML GROUP, INC. & SUBSIDIARIES
                      Consolidated Condensed Balance Sheets
                      -------------------------------------
                     (In thousands except share information)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<CAPTION>

                                                             May 3, 1997      July 31, 1996
                                                             -----------      -------------

<S>                                                             <C>             <C>     
Current liabilities:
    Current portion of long-term debt                           $     45        $     49
    Accounts payable                                              13,915          23,582
    Accrued compensation                                           3,857           6,385
    Accrued advertising                                            3,631           8,260
    Accrued insurance                                              4,737           5,706
    Accrued lease termination costs                                1,345           5,760
    Other accrued expenses                                        32,462          29,018
                                                                --------        --------
    Total current liabilities                                     59,992          78,760
                                                                --------        --------
Noncurrent liabilities:
    Long-term debt                                                   263             276
    Convertible subordinated debentures                           41,593          41,593
    Other noncurrent liabilities                                   6,889           6,925
                                                                --------        --------
    Total noncurrent liabilities                                  48,745          48,794
                                                                --------        --------
Stockholders' equity:
    Common stock, par value $.10 per share
       Authorized - 120,000,000 shares
       Issued - 52,824,646 shares and 52,623,704 shares            5,282           5,262
    Additional paid-in capital                                    80,867          81,082
    Retained earnings                                              9,131          37,066
                                                                --------        --------
                                                                  95,280         123,410
    Less treasury stock, at cost, 2,930,784 shares
    and 2,963,433 shares                                          36,929          37,613
                                                                --------        --------
                                                                  58,351          85,797
                                                                --------        --------
                                                                $167,088        $213,351
                                                                ========        ========
 
</TABLE>



            See Notes to Consolidated Condensed Financial Statements.


                                        4


<PAGE>   5



                         CML GROUP, INC. & SUBSIDIARIES
                 Consolidated Condensed Statements of Operations
                 -----------------------------------------------
           (In thousands except per share data and shares outstanding)
<TABLE>
<CAPTION>
For the periods ended May 3, 1997
and April 27, 1996

                                                                      Three Months                 Nine Months
                                                                      ------------                 -----------
                                                                    1997          1996          1997          1996
                                                                    ----          ----          ----          ----

<S>                                                               <C>           <C>           <C>           <C>     
Net sales                                                         $ 96,061      $138,341      $278,400      $469,753
                                                                  --------      --------      --------      -------- 

Less costs and expenses:
      Cost of goods sold                                            47,557        63,952       129,135       220,039
      Selling, general and administrative expenses                  61,102        98,882       189,646       318,659
      Loss on disposition of assets                                     --        30,824            --        30,824
      Interest expense                                                 436           520         1,192         2,093
                                                                  --------      --------      --------      -------- 
                                                                   109,095       194,178       319,973       571,615
                                                                  --------      --------      --------      -------- 
Loss from continuing operations before income 
      tax benefit                                                  (13,034)      (55,837)      (41,573)     (101,862)
Income tax benefit                                                  (4,432)      (19,592)      (14,135)      (36,161)
                                                                  --------      --------      --------      -------- 
Loss from continuing operations                                     (8,602)      (36,245)      (27,438)      (65,701)
                                                                  --------      --------      --------      -------- 
Provision for loss on disposal of discontinued 
     operations, net of income tax benefit                              --            --            --       (15,615)
                                                                  --------      --------      --------      -------- 
Net loss                                                          $ (8,602)     $(36,245)     $(27,438)     $(81,316)
                                                                  ========      ========      ========      ======== 

Loss per share:
      Loss from continuing operations:
           Primary                                                $  (0.17)     $  (0.74)     $  (0.55)     $  (1.33)
                                                                  ========      ========      ========      ======== 
           Fully diluted                                          $  (0.17)     $  (0.74)     $  (0.55)     $  (1.33)
                                                                  ========      ========      ========      ======== 
      Net loss:
           Primary                                                $  (0.17)     $  (0.74)     $  (0.55)     $  (1.65)
                                                                  ========      ========      ========      ======== 
           Fully diluted                                          $  (0.17)     $  (0.74)     $  (0.55)     $  (1.65)
                                                                  ========      ========      ========      ======== 

Weighted average number of shares outstanding                   49,987,949    49,470,085    50,080,122     49,600,446

</TABLE>



            See Notes to Consolidated Condensed Financial Statements.


                                        5


<PAGE>   6

<TABLE>


                         CML GROUP, INC. & SUBSIDIARIES
                 Consolidated Condensed Statements of Cash Flows
                 -----------------------------------------------
                                 (In thousands)


<CAPTION>
                                                                                For the Nine Months Ended
                                                                                -------------------------
                                                                              May 3, 1997      April 27, 1996
                                                                              -----------      --------------
<S>                                                                            <C>                 <C>      
Cash flows from operating activities:
    Net loss                                                                   $(27,438)           $(81,316)
                                                                               --------            --------
    Adjustments to reconcile net loss to net cash
       provided by operating activities:
          Provision for loss on disposition of assets                                --              30,824
          Provision for loss on disposal of discontinued operation                   --              24,023
          Depreciation and amortization                                          11,115              23,682
          Loss on disposal of property, plant and equipment                       1,169               3,831
          Decrease in working capital items                                      29,482              12,497
          (Increase) decrease in other assets                                   (10,751)              2,341
          Decrease in other noncurrent liabilities                                  (36)             (2,414)
                                                                               --------            --------
    Total adjustments                                                            30,979              94,784
                                                                               --------            --------
    Net cash provided by operating activities                                     3,541              13,468
                                                                               --------            --------
Cash flows from investing activities:
    Additions to property, plant and equipment                                   (3,924)            (18,987)
    Net proceeds from the sale of discontinued operation                          1,413              11,516
    Net proceeds from the sale of businesses held for sale                        3,913                  --
    Reductions in notes receivable                                                   39                  44
                                                                               --------            --------
    Net cash provided by (used in) investing activities                           1,441              (7,427)
                                                                               --------            --------
Cash flows from financing activities:
    Decrease in long-term debt                                                      (17)             (7,249)
    Dividends paid                                                                 (497)             (2,460)
    Exercise of stock options                                                       281                 101
    Acquisition of treasury stock                                                    --              (1,296)
                                                                               --------            --------
    Net cash used in financing activities                                          (233)            (10,904)
                                                                               --------            --------
Net increase (decrease) in cash and cash equivalents during the period            4,749              (4,863)
Cash and cash equivalents at the beginning of the period                         17,673               8,338
                                                                               --------            --------
Cash and cash equivalents at the end of the period                             $ 22,422            $  3,475
                                                                               ========            ========

</TABLE>


            See Notes to Consolidated Condensed Financial Statements.


                                        6


<PAGE>   7



                         CML GROUP, INC. & SUBSIDIARIES
              Notes to Consolidated Condensed Financial Statements
              ----------------------------------------------------
                                 (In thousands)

Note 1
------

The accompanying consolidated condensed financial statements and notes should be
read in conjunction with the financial statements contained in the Company's
Annual Report on Form 10-K. In the opinion of 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. 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 at 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.

Certain 1996 amounts have been reclassified to conform to the 1997 presentation.

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," is effective for the Company beginning in fiscal
1997. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages, but does not require, compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to its
stock-based compensation awards to employees.

The Financial Accounting Standards Board issued SFAS No. 128, "Earnings per
Share," in March 1997 which the Company will adopt in fiscal 1998. SFAS No. 128
would have had an immaterial effect on reported earnings per share if it had
been effective for the three- and nine-month periods ended May 3, 1997 and the
three- and nine-month periods ended April 27, 1996.

Note 2 - Divestitures of The Nature Company and Hear Music
----------------------------------------------------------

The Company decided to divest its Nature Company and Hear Music subsidiaries
during the third quarter of fiscal 1996. Included in the loss from continuing
operations for the third quarter of fiscal 1996 is a pre-tax charge of $30,824
to write down The Nature Company and Hear Music's net assets to estimated net
realizable value and to accrue estimated transaction costs. In June 1996, the
Company sold substantially all of the assets of The Nature Company for a cash
purchase price of $39,870 plus the assumption of certain liabilities. On October
23, 1996, the Company sold substantially all of the assets of Hear Music for
$371 in cash plus the assumption of certain liabilities.

                                        7




<PAGE>   8


<TABLE>

Note 3 - Long-term Debt
-----------------------

Consolidated long-term debt is summarized as follows:

<CAPTION>

                                            May 3, 1997       July 31, 1996
                                            -----------       -------------   
<S>                                             <C>               <C> 
Revolving credit loan                           $ --              $ --
Note payable                                     236               250
Obligations under capital leases                  72                75
                                                ----              ----   
                                                 308               325
Less current portion                              45                49
                                                ----              ----   
Long-term debt                                  $263              $276
                                                ====              ====   
</TABLE>


Note 4 - Contingencies
----------------------

         Litigation
         ----------

         NordicTrack is 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. The plaintiffs named in
the Consolidated Complaint, Elissa Crespi and John Lucien Ware, Jr., allege 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 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 New York General
Business Law. They 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 behalf of themselves and the alleged class, the plaintiffs
seek unspecified actual and punitive damages with interest, rescission,
attorneys' fees, costs, an order requiring NordicTrack to make corrective
disclosures, and the imposition of a constructive trust. In February 1997,
NordicTrack's motion was granted for transfer of venue to the United States
District Court for the District of Minnesota. The parties have commenced
discovery on the issue of class certification. While NordicTrack believes it has
meritorious defenses to the Consolidated Complaint and intends to vigorously
defend against the allegations, this lawsuit is in the early stages and the
Company is unable to determine the likelihood and possible impact on the
Company's financial condition or results of operations of an unfavorable
outcome.

         In August 1996, NordicTrack filed a declaratory judgment action against
Precise Exercise, Inc. ("Precise") in the United States District Court for the
District of Minnesota seeking a declaratory judgment to invalidate an agreement
between the parties. Thereafter, Precise filed an action against NordicTrack in
State Court in New Jersey alleging NordicTrack breached its contract with
Precise to market and distribute Precise's abdominal exercise product. On
November 25, 1996, the New Jersey Court granted NordicTrack's motion to transfer
that action to Minnesota. These actions were consolidated in the District of
Minnesota. While NordicTrack is vigorously pursuing its claim for declaratory
judgment and believes it has meritorious defenses to Precise's claims on the
contract, these lawsuits are in the discovery stage and the Company is 

                                        8


<PAGE>   9

unable to determine the likelihood and possible impact on the Company's
financial condition or results of operations of unfavorable outcomes.

         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 financial condition or results of operations.

         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 $7,276. 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 $1,415 for the removal phase of the site
cleanup, which has now been completed. The EPA had estimated that the removal
costs would exceed $3,000, 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 the EPA originally
estimated. The EPA has implemented the groundwater phase of the cleanup, which
the EPA originally estimated would cost approximately $4,020.

         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 $2,300. 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 operating results for
the period in which the resolution of the claim occurs and could have a material
adverse effect upon the Company's financial condition.

         In June 1992, the EPA notified the Company 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 


                                        9


<PAGE>   10

of liability cannot be made. Accordingly, the financial impact on the Company is
not presently determinable.

         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. Although
the Company has not received an official assessment notice, the IRS has
tentatively proposed certain adjustments which, if sustained by the IRS, 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 made to the
former owners of NordicTrack (acquired in June 1986) in the amount of $43,000;
and (ii) incentive compensation payments made to the former owners of Britches
of Georgetowne (acquired in August 1983 and sold in April 1996) and the
valuation of certain assets acquired in connection with the acquisition of
Britches of Georgetowne in the amount of $8,200.

         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 operating results for the period
in which such issues are finally resolved and would also have a material adverse
effect on the Company's financial condition.

         As of May 3, 1997, the Company had net deferred tax assets of $21,919
which reflects the net tax effects of: (i) temporary    differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax reporting purposes; and (ii) current year net
operating losses and prior year alternative minimum tax credits which may be
applied against future taxable income and taxes. SFAS No. 109, "Accounting for
Income Taxes," provides for the recognition of future tax benefits, such as net
operating loss carryforwards, to the extent that realization of such benefits   
are more likely than not. The Company believes that it is more likely than not
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. There can be no assurance, however,
that the Company will generate any specific level of earnings. 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.



                                       10


<PAGE>   11



Item 2.  Management's Discussion and Analysis of Financial Condition and
         --------------------------------------------------------------- 
         Results of Operations.
         ----------------------

Introduction
------------

The Company operates in two industry segments: the NordicTrack Segment and the
Smith & Hawken Segment. The Smith & Hawken Segment includes only Smith & Hawken
in fiscal 1997. Prior to fiscal 1997, the Smith & Hawken Segment was comprised 
of Smith & Hawken, The Nature Company and Hear Music.


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".

Financial Condition 
------------------- 

Stockholders' equity decreased by $27.4 million to $58.4 million from July 31,
1996 to May 3, 1997 primarily due to the net loss for the first nine months     
of fiscal 1997. The Company's working capital, excluding cash, at May 3, 1997
was $3.6 million compared to $38.5 million at July 31, 1996. The decrease in    
working capital was primarily attributable to a decrease in refundable income
taxes, partially offset by a decrease in accounts payable and an increase in
inventories. During the first nine months of fiscal 1997, the Company invested
approximately $3.9 million in property, plant and equipment. The Company had    
approximately $22.4 million of cash and cash equivalents as of May 3, 1997 and
had no loans outstanding under its $40 million senior revolving credit
agreement with two banks.

During fiscal 1997, the Company has been in violation of certain of the
covenants under its credit agreement, and there can be no assurance that the
Company's lenders will permit the Company to borrow funds on favorable terms in
the future. If the Company's lenders do not provide the Company with favorable
credit arrangements, the Company may need to seek additional funds from other
persons. 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 lenders. Also, in the event the Company elects to raise
additional funds through the sale of assets, the Company may not be able to
complete such sale in a timely manner or on terms favorable to the Company.

Results of Operations 
--------------------- 

During the third quarter of fiscal 1997, net sales decreased 30.6% to $96.1
million from $138.3 million in the third quarter of fiscal 1996 primarily due to
the divestitures of The Nature Company and Hear Music and lower NordicTrack
sales which were partially offset by higher sales at Smith & Hawken. The loss
from continuing operations for the third quarter of fiscal 1997 was $8.6 million
compared to a loss from continuing operations of $36.2 million for the same
period in fiscal 1996. The reduction in the loss from continuing operations was
primarily due to improved operating results at Smith & Hawken and the
divestitures of The Nature Company and Hear Music. The loss from continuing
operations for the third quarter of fiscal 1996 includes a $30.8 million pre-tax
charge to write down The Nature Company and Hear

                                       11


<PAGE>   12




Music's net assets to estimated net realizable value and to accrue estimated
transaction costs associated with their planned divestitures. The net assets of
The Nature Company were sold in June 1996. Hear Music's net assets were sold in
October 1996.

For the first nine months of fiscal 1997, net sales of the Company decreased
40.7% to $278.4 million from $469.8 million in the first nine months of fiscal
1996. The sales decrease was primarily attributable to the divestitures of The
Nature Company and Hear Music and lower sales at NordicTrack which were offset,
in part, by higher sales at Smith & Hawken. During the first nine months of
fiscal 1997, the loss from continuing operations was $27.4 million compared
with a loss of $65.7 million for the comparable period of fiscal 1996. The
reduction in the loss from continuing operations was primarily attributable to
the divestitures of The Nature Company and Hear Music, expense reductions at
NordicTrack and improved operating results at Smith & Hawken. The net loss      
reported by the Company for the first nine months of fiscal 1996 included a
$15.6 million loss from discontinued operations, net of an income tax benefit
of $8.4 million, related to the sale of Britches of Georgetowne. Britches of
Georgetowne was sold in April 1996.

Retail sales for the third quarter of fiscal 1997 decreased 40.1% to $55.8
million from $93.2 million in the third quarter of fiscal 1996. Retail sales for
the first nine months of fiscal 1997 decreased 50.9% to $161.6 million from
$329.3 million in the first nine months of fiscal 1996. The decrease in retail
sales was primarily due to the divestitures of The Nature Company and Hear Music
and lower retail sales at NordicTrack which were partially offset by higher
retail sales at Smith & Hawken.

Direct response and mail order sales decreased $4.9 million, or 10.9%, in the
third quarter of fiscal 1997 and $23.6 million, or 16.8%, during the first nine
months of fiscal 1997, compared with the similar periods of fiscal 1996. The
decline in direct response and mail order sales was primarily due to lower
direct response sales at NordicTrack and the divestiture of The Nature Company
which were offset, in part, by higher mail order sales at Smith & Hawken.

Cost of goods sold increased as a percentage of sales from 46.2% in the third
quarter of fiscal 1996 to 49.5% in the third quarter of fiscal 1997 primarily
due to NordicTrack's higher cost of goods sold as a percentage of sales. For
the first nine months of the year, cost of goods sold as a percentage of sales
decreased from 46.8% in fiscal 1996 to 46.4% in fiscal 1997 primarily due to
the sale of The Nature Company and Hear Music, offset in part by higher cost of
goods sold as a percentage of sales at NordicTrack and Smith & Hawken.
NordicTrack's cost of goods sold as a percentage of sales increased primarily
due to the sale of a higher proportion of outsourced products and products with 
royalty obligations, discounting on the NordicRider(TM) machine and higher
material costs for cross-country skiers. Smith & Hawken's cost of goods sold as
a percentage of sales increased during the first nine months of fiscal 1997
primarily due to higher planned markdowns which were offset, in part, by higher
initial markup on products.

Selling, general and administrative expenses decreased as a percentage of sales
from 71.5% in the third quarter of fiscal 1996 to 63.6% in the same period of
fiscal 1997. The third quarter improvement in selling, general and
administrative expenses as a percentage of sales was primarily due to expense
reductions relative to sales at NordicTrack and Smith & Hawken plus the
divestitures of The Nature Company and Hear Music. For the first nine months of
the year, selling, general and administrative expenses increased as a percentage
of sales from 67.8% in fiscal 1996 to 68.1% in fiscal 1997 primarily due to
fixed costs at NordicTrack's stores which experienced a decrease in comparable
store sales and to the sale of The Nature Company and Hear Music.

Interest expense was $0.5 million, or 0.4% of sales, in the third quarter of
fiscal 1996 compared with $0.4 million, or 0.5% of sales, in the third quarter
of fiscal 1997. For the first nine months of the year, interest expense of $2.1
million in fiscal 1996 and $1.2 million in fiscal 1997 represented 0.4% of
sales.

                                       12
<PAGE>   13

The Company's income tax benefit as a percentage of the pre-tax loss from
continuing operations was 34.0% during the third quarter and first nine months
of fiscal 1997 which compares with 35.1% and 35.5% for the third quarter and
first nine months of fiscal 1996, respectively.

During the third quarter of fiscal 1997, NordicTrack's total sales decreased
22.6% to $79.2 million from $102.3 million in the third quarter of fiscal 1996.
NordicTrack's sales during the first nine months of the year declined 28.2% to
$227.6 million in fiscal 1997 from $316.7 million in fiscal 1996. The sales
decline was primarily due to lower sales of cross-country skiers, non-motorized
treadmills and NordicRider(TM) which were offset, in part, by sales of  
AbWorks(TM), UltraLift(TM), motorized treadmills and LegShaper Plus(TM).
Approximately 59.5% and 59.7% of NordicTrack's total sales in the third quarter
and first nine months of 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 $63.2 million in the third
quarter of fiscal 1996 to $47.1 million in the similar quarter of fiscal 1997.
For the first nine months of the year, Nordic Advantage's sales decreased from
$201.8 million in fiscal 1996 to $135.8 million in fiscal 1997. The decrease in
retail sales was primarily due to decreases in comparable store sales of 14.2%
during the third quarter and 25.9% during the first nine months of fiscal 1997
and to the operation of fewer mall kiosks. At the end of the third quarter of
fiscal 1997, Nordic Advantage operated 126 retail stores and 87 mall kiosks
compared with 128 retail stores and 214 mall kiosks at the end of the third
quarter of fiscal 1996. Direct response sales decreased $7.0 million to $32.1
million in the third quarter of fiscal 1997 and $23.1 million to $91.8 million
in the first nine months of fiscal 1997 compared with the similar periods of
fiscal 1996.

The Smith & Hawken Segment's sales decreased $19.2 million, or 53.3%, to $16.8
million during the third quarter of fiscal 1997 and $102.2 million, or 66.8%,
to $50.8 million in the first nine months of fiscal 1997 compared with the
similar periods of fiscal 1996. The sales decline was primarily due to the sale
of The Nature Company and Hear Music which was partially offset by sales
increases at Smith & Hawken. Retail sales of the Smith & Hawken Segment
decreased $21.2 million, or 70.9%, to $8.7 million during the third quarter of
fiscal 1997. During the first nine months of fiscal 1997 retail sales decreased
$101.7 million, or 79.7%, to $25.8 million compared with the similar period of
fiscal 1996. The decline in retail sales was primarily due to the sale of The
Nature Company and Hear Music which was partially offset by increases in Smith  
& Hawken's retail sales of 25.3% and 32.4% during the third quarter and first   
nine months of fiscal 1997, respectively. Smith & Hawken's comparable store
sales increased by 13.4% and 9.9% for the third quarter and first nine months
of fiscal 1997, respectively. The Smith & Hawken Segment operated 25 Smith &
Hawken stores at the end of the third quarter of fiscal 1997. In the third
quarter of fiscal 1997, the Smith & Hawken Segment's mail order sales increased
$2.0 million to $8.1 million primarily due to higher mail order sales at Smith
& Hawken. For the first nine months of fiscal 1997, the Smith & Hawken
Segment's mail order sales declined $0.5 million to $25.0 million primarily due
to the sale of The Nature Company which was offset, in part, by higher mail
order sales at Smith & Hawken.

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 Results
      The Company has had net losses for each of fiscal 1995, fiscal 1996 and
the first three quarters of fiscal 1997, and there can be no assurance that the
Company will not continue to have

                                       13

<PAGE>   14



net losses in the future. Continued net losses would affect the Company's cash
position and could require the Company to reduce certain expenditures, including
without limitation expenditures for advertising and inventory, which would have
a material adverse effect on the Company's business, financial condition and
results of operations. 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
asset referred to in Note 4 of Notes to Consolidated Condensed Financial
Statements.

      Available Funds
      During fiscal 1997, the Company has been in violation of certain of the
covenants under its credit agreement, and there can be no assurance that the
Company's lenders will permit the Company to borrow funds on favorable terms in
the future. If the Company's lenders do not provide the Company with favorable
credit arrangements, the Company may need to seek additional funds from other
persons. 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 lenders. Also, in the event the Company elects to raise
additional funds through the sale of assets, the Company may not be able to
complete such sale 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.

      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. During the past several
years, NordicTrack's competitors have introduced several new and competitive
products at competitive prices which have adversely affected NordicTrack's
recent 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
financial condition of the Company.

      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 operating results.

      New Products
      Several new and enhanced products were introduced by the Company in fiscal
1996 and fiscal 1997. 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

                                       14


<PAGE>   15



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 replaced 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 NordicTrack in the future.

      Seasonality
      The Company's businesses are seasonal, with significant amounts of retail
sales in the second and third fiscal quarters. 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 Company's success in the markets in which it competes depends in part
upon the effectiveness of advertising and marketing programs of the Company and
the Company's ability to successfully manage its advertising in-house. In fiscal
1996, NordicTrack implemented a new advertising program which in large part was
ineffective. The inability of the Company to periodically design and
successfully execute new and effective advertising and marketing programs could
adversely affect the Company's operating results.

      Costs of Postage and Shipping
      Postage expenses associated with mailing catalogs and shipping charges
associated with distributing merchandise to customers are significant factors in
the operation of the Company's businesses. Increases in postage or shipping
costs could adversely affect the Company's operating results.

      Intellectual Property Rights
      The Company is 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.


                                       15


<PAGE>   16



                          PART II: OTHER INFORMATION

Item 1:     Legal Proceedings.

            Environmental Matters

            See Note 4 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 4 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 4 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 2-5:  None.

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

            (a) Exhibits - See Exhibit Index.

            (b) Reports on Form 8-K:
                None.


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:  June 17, 1997             /s/Paul J. Bailey
       -------------             -----------------
                                 Paul J. Bailey
                                 Controller
                                 Principal Accounting Officer


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<PAGE>   17



                                  EXHIBIT INDEX

                                                                       Page No.
                                                                       --------

11  --  Statement Regarding Computation of Earnings (Loss) Per Share     18

27  --  Financial Data Schedule                                          19


                                      17