<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, DC 20549

                                   FORM 10-Q

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

                For the quarterly period ended October 31, 1998

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

      For the transition period from             to

                         Commission File No:000-22679

                            WORLD OF SCIENCE, INC.

            (Exact name of Registrant as specified in this charter)
                                        
                NEW YORK                                      16-0963838

      (State or other jurisdiction of incorporation         (IRS Employer
       or organization)                                      Identification No.)
     
           900 Jefferson Road, Building 4, Rochester, New York 14623

              (Address of principal executive offices) (Zip code)

       Registrant's telephone number, including area code:  (716)475-0100

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                     YES   x                 NO

Common stock outstanding as of November 30, 1998:  4,761,155 shares of common
stock.

                                       1
<PAGE>
 
                             WORLD OF SCIENCE, INC.

                                     INDEX
                                                                   Page Number

PART I.  FINANCIAL INFORMATION

ITEM 1.  Financial Statements (Unaudited)

         Condensed Statements of Operations.................................3
 
         Condensed Balance Sheets...........................................4
 
         Condensed Statements of Cash Flows.................................5
 
         Notes to Condensed Financial Statements............................6-7

ITEM 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations..........................................8-13

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk - None

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings - None

ITEM 2.  Changes in Securities and Use of Proceeds - None

ITEM 3.  Defaults Upon Senior Securities - None

ITEM 4.  Submission of Matters to a Vote of Security Holders - None

ITEM 5.  Other Information - None

ITEM 6.  Exhibits and Reports on Form 8-K...................................13

         SIGNATURE..........................................................14

                                       2
<PAGE>
 
                             WORLD OF SCIENCE, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                      NINE MONTHS ENDED 
                                                                ------------------                      -----------------
                                                      OCTOBER 31,              NOVEMBER 1,        OCTOBER 31,           NOVEMBER 1,
                                                          1998                     1997               1998                  1997
                                                    -------------            -------------      -------------         -------------
<S>                                               <C>                     <C>                <C>                   <C>
NET SALES                                           $      10,594            $       8,209      $      27,051         $      23,782
                                             
COST OF SALES AND OCCUPANCY EXPENSES                        8,281                    6,759             21,698                18,996
                                                    -------------            -------------      -------------         -------------
 GROSS PROFIT                                               2,313                    1,450              5,353                 4,786
                                             
SELLING, GENERAL & ADMINISTRATIVE EXPENSES   
                                                            4,440                    3,777             11,260                 9,927
                                                    -------------            -------------      -------------         -------------
  OPERATING LOSS                                           (2,127)                  (2,327)            (5,907)               (5,141)
                                             
INTEREST INCOME (EXPENSE), NET                               (173)                     (70)              (161)                 (191)
                                                    -------------            -------------      -------------         -------------
LOSS BEFORE INCOME TAXES                                   (2,300)                  (2,397)            (6,068)               (5,332)
                                             
INCOME TAX BENEFIT                                            916                      982              2,428                 2,186
                                                    -------------            -------------      -------------         -------------
NET LOSS                                            $      (1,384)           $      (1,415)     $      (3,640)        $      (3,146)
                                                    =============            =============      =============         =============
                                             
NET LOSS PER SHARE (BASIC)                          $       (0.28)           $       (0.28)     $       (0.73)        $       (0.76)
                                                    =============            =============      =============         =============
                                             
NET LOSS PER SHARE (DILUTED)                        $       (0.28)           $       (0.28)     $       (0.73)        $       (0.76)
                                                    =============            =============      =============         =============
                                             
WEIGHTED AVERAGE SHARES (BASIC)                             4,868                    5,064              5,009                 4,122
WEIGHTED AVERAGE SHARES (DILUTED)                           4,868                    5,064              5,009                 4,122
</TABLE>

            See accompanying notes to condensed financial statements

                                       3
<PAGE>
 
                             WORLD OF SCIENCE, INC.
                            CONDENSED BALANCE SHEETS
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

                                  (UNAUDITED)
                                        
<TABLE>
<CAPTION>
                                                                             OCTOBER 31,        JANUARY 31,       NOVEMBER 1,
                                                                                 1998              1998              1997
                                                                           -------------      -------------     -------------
<S>                                                                       <C>               <C>               <C>
CURRENT ASSETS:
   CASH AND CASH EQUIVALENTS                                               $          88      $       6,742     $          83
   ACCOUNTS RECEIVABLE                                                               272                113               429
   INVENTORIES                                                                    20,083             10,404            18,186
   PREPAID EXPENSES AND OTHER CURRENT ASSETS                                       1,003                533               768
   TAXES RECEIVABLE                                                                2,482                                2,234
   DEFERRED INCOME TAXES                                                             551                551               368
                                                                           -------------      -------------     -------------
TOTAL CURRENT ASSETS                                                              24,479             18,343            22,068
 
PROPERTY, EQUIPMENT AND
   LEASEHOLD IMPROVEMENTS, NET                                                     8,760              6,431             6,103
 
DEFERRED INCOME TAXES                                                                658                658               540
                                                                           -------------      -------------     ------------- 
 
TOTAL ASSETS                                                               $      33,897      $      25,432     $      28,711
                                                                           =============      =============     =============
 
CURRENT LIABILITIES:
   LINE OF CREDIT                                                          $      11,960      $                 $       7,590
   CURRENT INSTALLMENTS OF LONG TERM DEBT                                             14                 69                73
   CURRENT INSTALLMENTS OF OBLIGATIONS
       UNDER CAPITAL LEASES                                                          112                166               110
   ACCOUNTS PAYABLE                                                                3,179              1,320             3,351
   ACCRUED EXPENSES                                                                  977                570               725
   INCOME TAXES PAYABLE                                                                               1,400
                                                                           -------------      -------------     -------------
TOTAL CURRENT LIABILITIES                                                         16,242              3,525            11,849
 
LONG TERM DEBT, EXCLUDING CURRENT INSTALLMENTS                                                                             13
OBLIGATIONS UNDER CAPITAL LEASES, EXCLUDING
   CURRENT INSTALLMENTS                                                              108                176                54
ACCRUED OCCUPANCY EXPENSE                                                            885                779               749
                                                                           -------------      -------------     ------------- 
 
TOTAL LIABILITIES                                                                 17,235              4,480            12,665
                                                                           -------------      -------------     -------------
STOCKHOLDERS' EQUITY:
   PREFERRED STOCK, $.01 PAR VALUE
     AUTHORIZED 5,000,000 SHARES;
     NO SHARES ISSUED AND OUTSTANDING
   COMMON STOCK, $.01 PAR VALUE
     AUTHORIZED 10,000,000 SHARES;
     ISSUED 5,079,955 SHARES AT 10/31/98,
         1/31/98, AND  11/1/97                                                        51                 51                51
   ADDITIONAL PAID-IN CAPITAL                                                     11,398             11,398            11,398
   RETAINED EARNINGS                                                               5,863              9,503             4,597
                                                                           -------------      -------------     ------------- 
       TOTAL CAPITAL AND RETAINED EARNINGS                                        17,312             20,952            16,046
       TREASURY STOCK (318,800 SHARES) AT COST                                      (650)
                                                                           -------------      -------------     -------------
TOTAL STOCKHOLDERS' EQUITY                                                        16,662             20,952            16,046
                                                                           -------------      -------------     ------------- 
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $      33,897      $      25,432     $      28,711
                                                                           =============      =============     =============
</TABLE>

            See accompanying notes to condensed financial statements

                                       4
<PAGE>
 
                             WORLD OF SCIENCE, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

                                  (UNAUDITED)
                                        
<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                                 OCTOBER 31,      NOVEMBER 1,        OCTOBER 31,      NOVEMBER 1,
                                                                    1998             1997               1998             1997
                                                                -----------     -------------        -----------      -----------
<S>                                                          <C>              <C>                 <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   NET LOSS                                                     $   (1,384)     $      (1,415)     $      (3,640)     $  (3,146)
   ADJUSTMENTS TO RECONCILE NET LOSS TO                                                                                 
      NET CASH USED IN OPERATING ACTIVITIES:                                                                            
      DEPRECIATION AND AMORTIZATION                                    431                344              1,143            961
      CHANGE IN ASSETS AND LIABILITIES:                                                                                 
         (INCREASE) DECREASE IN:                                                                                        
              ACCOUNTS RECEIVABLE                                      275               (140)              (159)          (374)
              INVENTORIES                                           (5,614)            (7,006)            (9,679)       (11,259)
              PREPAID EXPENSES AND OTHER                                                                                
                  CURRENTS ASSETS                                       59                (60)              (470)          (382)
              TAXES RECEIVABLE                                        (967)            (1,019)            (2,482)        (2,234)
         (DECREASE) INCREASE IN:                                                                                        
              ACCOUNTS PAYABLE                                         262                277              1,859          1,782
              ACCRUED EXPENSES                                         440                270                407             (3)
              INCOME TAXES PAYABLE                                                                        (1,400)        (1,464)
              ACCRUED OCCUPANCY EXPENSE                                 35                 30                106             86
                                                                -----------     -------------        -----------      -----------
      NET CASH USED IN OPERATING ACTIVITIES:                        (6,463)            (8,719)           (14,315)       (16,033)
                                                                -----------     -------------        -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES--                                                                                  
   CAPITAL EXPENDITURES, NET                                          (945)              (732)            (3,472)        (2,072)
                                                                -----------     -------------        -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                   
   NET PROCEEDS FROM ISSUANCE OF COMMON STOCK                                             241                             8,712
   PURCHASE OF TREASURY STOCK                                         (650)                                 (650)       
   PROCEEDS FROM ADVANCES ON LINE OF CREDIT                          8,135              7,590             11,960         13,590
   PROCEEDS FROM ISSUANCE OF LONG-TERM DEBT                                                                                 845
   PRINCIPAL PAYMENTS ON LINE OF CREDIT                                                                                  (6,000)
   PRINCIPAL PAYMENTS ON LONG-TERM DEBT                                (18)               (12)               (55)          (897)
   PRINCIPAL PAYMENTS ON CAPITAL LEASES                                (44)               (26)              (122)           (76)
                                                                -----------     -------------        -----------      -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                            7,423              7,793             11,133         16,174
                                                                -----------     -------------        -----------      -----------
                                                                
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                    15             (1,658)            (6,654)        (1,931)
                                                                                                                        
CASH AND CASH EQUIVALENTS:                                                                                              
   BEGINNING OF PERIOD                                                  73              1,741              6,742          2,014
                                                                -----------     -------------        -----------      -----------
   END OF PERIOD                                                $       88      $          83      $          88      $      83
                                                                ===========     =============        ===========      ===========
                                                                                                                        
CASH PAID DURING PERIOD FOR:                                                                                            
   INTEREST                                                     $      173      $          72      $         228      $     201
   INCOME TAXES                                                 $       54      $          48      $       1,457      $   1,512
                                                                ===========     =============        ===========      ===========

</TABLE>

            See accompanying notes to condensed financial statements

                                       5
<PAGE>
 
                             WORLD OF SCIENCE, INC.

                    NOTES TO  CONDENSED FINANCIAL STATEMENTS

                                   UNAUDITED

NOTE 1. - Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.  However, in the opinion of management, all
adjustments (which consist primarily of normal recurring accruals) have been
made to present fairly the financial position and operating results for the
unaudited periods.  This financial information should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Form 10-K as most recently filed with the Securities and Exchange
Commission.

Due to the seasonal nature of the Company's business, results for the third
quarter and first nine months of fiscal 1998 are not necessarily indicative of
the results to be expected for the full fiscal year ending January 30, 1999.

NOTE 2. - Impact of New Accounting Standards

During the first quarter of 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income.  SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements.  Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources.  The adoption of this
standard did not have any material effect on the financial condition or results
of operations of the Company.

During the first quarter of 1998, the Company also adopted the provisions of
SFAS No. 131, Disclosures About Segments of the Enterprise and Related
Information.  SFAS No. 131 requires disclosure of segments of a company's
business based upon how a company is organized for making operating decisions
and assessing performance.  Adoption of this statement will not have an impact
on the financial condition or results of operations of the Company.

In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits.  This Statement revised disclosures
about pensions and other postretirement  benefit plans.  It does not change the
measurement of recognition of those plans.  It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminate certain disclosures.  SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997.  As the Company does not provide
a pension or other postretirement benefits to employees this statement does not
impact the financial statements.

                                       6
<PAGE>
 
In April 1998, The Accounting Standards Executive Committee issued Statement of
Position 98-5 (SOP), Reporting on the Costs of Start-Up Activities.  The
statement provides guidance on the financial reporting of start-up costs and
organization costs.  It requires costs of start-up activities and organization
costs to be expensed as incurred.  The SOP is effective for financial statements
for fiscal years beginning after December 15, 1998.  Earlier application is
encouraged in fiscal years for which annual financial statements previously have
not been issued.  Initial application of this SOP should be reported as the
cumulative effect of changes in accounting principle.  The Company currently
expenses all costs associated with the opening of new stores in the period
incurred, with the exception of leasehold improvements and fixtures which are
capitalized.  Adoption of this statement will not have a material impact on the
financial condition or results of operations of the Company.


NOTE 3.  Forward Looking Information

This report contains forward looking statements regarding, among other matters,
the Company's future strategy, store opening plans, merchandising strategy and
growth.  The forward looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Act of 1995.  Forward looking
statements address matters which are subject to a number of risks and
uncertainties.  In addition to the general risks associated with the operation
of specialty retail stores in a highly competitive environment, the success of
the Company will depend on a variety of factors, such as consumer spending which
is dependent on economic conditions affecting disposable consumer income such as
employment, business conditions, interest rates, and taxation.  The Company's
continued growth also depends upon the demand for its products, which in turn is
dependent upon various factors, such as the introduction and acceptance of new
products and the continued popularity of existing products, as well as the
timely supply of all merchandise.  Reference is made to the Company's filings
with the Securities and Exchange Commission for further discussion of risks and
uncertainties regarding the Company's business.

                                       7
<PAGE>
 
PART I.  FINANCIAL INFORMATION

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

RESULTS OF OPERATIONS

General

The Company operated 70 permanent stores and 90 seasonal stores as of October
31, 1998 as compared to 55 permanent stores and 95 seasonal stores as of
November 1, 1997.  Three permanent stores were opened in the third quarter of
fiscal 1998 as compared to three new permanent stores opened in the third
quarter of fiscal 1997.  The Company had a net increase of 34 seasonal stores in
the third quarter of fiscal 1998 as compared to net increase of 21 seasonal
stores in the third quarter of fiscal 1997.

The Company's sales have been favorably impacted over the past nine months by
the popularity of particular plush products.  For the third quarter of fiscal
1998 plush sales accounted for 30.3% of total sales as compared to 6.0% in the
third quarter of fiscal 1997.  For the first nine months of fiscal 1998 plush
sales accounted for 22.1% of total sales as compared to 6.4% in the first nine
months of fiscal 1997.  The impact on the third quarter of fiscal 1998 was
significantly greater due to a special one-time purchase of fast selling plush
items which had a positive effect on both sales and operating results.

Comparison of Three Months Ended October 31, 1998 to Three Months Ended November
1, 1997.

Sales.   Sales increased to $10.6 million from $8.2 million, or 29.1%.  Of the
$2.4 million increase in sales: $1.4 million was attributable to sales of three
new permanent stores opened during the third quarter of fiscal 1998 and the net
increase in sales of 24 new permanent stores not in operation as of the
beginning of the prior year, and $994,000 was attributable to increased
comparable store sales.  These factors were partially offset by seasonal store
sales declining $4,000.  Comparable permanent store sales increased 26.0% for
the thirteen-week period ended October 31, 1998.

Cost of Sales and Occupancy Expenses.   Cost of sales and occupancy expenses,
which include distribution center costs and other expenses associated with
acquiring inventory, increased to $8.3 million from $6.8 million, an increase of
22.5%.  As a percentage of sales, it decreased to 78.2% from 82.3%.  The dollar
increase was due to increased store occupancy expenses from more permanent
stores in operation in the third quarter of fiscal 1998 and increased cost of
sales due to higher sales.  The decrease as a percentage of sales of 4.1% was
attributable to a 2.0% decrease in distribution center costs and a 1.4% decrease
in occupancy expenses caused primarily by the increase in sales volume.  Cost of
product sold decreased 0.7%.

Selling, General and Administrative Expenses.   Selling, general and
administrative expenses increased to $4.4 million from $3.8 million, an increase
of 17.6%.  Selling, general and administrative expenses increased to support
higher sales levels and an increased number of permanent stores.  As a
percentage of sales, it decreased to 41.9% from 46.0%, primarily as a result of
the increase in third quarter sales.

                                       8
<PAGE>
 
Interest Expense, Net.  Net Interest expense increased to $173,000 in the third
quarter of fiscal 1998 from $70,000 in the third quarter of fiscal 1997.  This
fluctuation is primarily a result of investment of proceeds from the Company's
initial public offering in July, 1997.

Net Loss.   Net loss was relatively unchanged at $1.4 million, or 13.1% of
sales, in the third quarter of fiscal 1998 from $1.4 million, or 17.2% of sales,
in the third quarter of fiscal 1997.

Comparison of Nine Months Ended October 31, 1998 to Nine Months Ended November
1, 1997.

Sales.   Sales increased to $27.1 million from $23.8 million, or 13.7%.  Of the
$3.3 million increase in sales: $3.4 million was attributable to sales of 15 new
permanent stores opened during the first nine months of fiscal 1998 and the net
increase in sales of twelve new permanent stores not in operation as of the
beginning of the prior year, and $1.3 million was attributable to increased
comparable store sales.  These factors were partially offset by seasonal store
sales declining $1.4 million due to the operation of fewer seasonal stores.
Comparable permanent store sales increased 10.6% for the nine month period ended
October 31, 1998.

Cost of Sales and Occupancy Expenses.   Cost of sales and occupancy expenses,
which include distribution center costs and other expenses associated with
acquiring inventory, increased to $21.7 million from $19.0 million, an increase
of 14.2%.  As a percentage of sales, it increased to 80.2% from 79.9%.  The
dollar increase was due to increased store occupancy expenses from more
permanent stores in operation in the first nine months of fiscal 1998, and
increased cost of sales due to higher sales.  The increase as a percentage of
sales of 0.3% was attributable to a 0.8% increase in occupancy expenses which
offset a decrease on cost of product sold of 0.5%.

Selling, General and Administrative Expenses.  Selling, general and
administrative expenses increased to $11.3 million from $9.9 million, an
increase of 13.4%.  Selling, general and administrative expenses increased to
support higher sales levels and an increased number of permanent stores.  As a
percentage of sales, it decreased minimally to 41.6% form 41.7%.

Interest Expense, Net.   Net interest expense amounted to $161,000 in the first
nine months of fiscal 1998, as compared to a net interest expense of $191,000 in
the first nine months of fiscal 1997.  This fluctuation is primarily a result of
investment of proceeds from the Company's initial public offering in July, 1997.

Net Loss.   Net loss increased to $3.6 million, or 13.5% of sales, in the first
nine months of fiscal 1998 from $3.1 million or 13.2% of sales, in the first
nine months of fiscal 1997.

Seasonality

The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's sales and all of its net
income have been realized during the months of November and December, and levels
of sales and net income have generally been substantially lower from January
through October, resulting in losses in the first three fiscal quarters.

                                       9
<PAGE>
 
In preparation for its holiday selling season, the Company significantly
increases inventories and related indebtedness, hires an increased number of
temporary employees in its stores and distribution center, and incurs costs in
setting up seasonal store locations.  If, for any reason, the Company's sales
were to be substantially below seasonal norms during the months of November and
December, or if the Company could not hire a sufficient number of qualified
employees during the peak periods, the Company's business, financial condition
and results of operations would be adversely affected. Quarterly results are
also affected by the timing of new store openings and the amount of revenue
contributed by permanent and seasonal stores.

Liquidity and Capital Resources

The primary sources of the Company's cash for working capital and capital
expenditures have been net cash flows from operating activities, capital lease
financings and bank borrowings.  Seasonal working capital needs have been met
through short-term borrowings under a revolving line of credit.  In July 1997,
the Company completed an initial public offering which provided net proceeds of
$8.7 million.

The Company's primary capital requirements and working capital needs are related
to capital expenditures for new stores, purchase and upgrade of management
information systems and the purchase of inventory to meet seasonal needs,
particularly inventory for the holiday selling season.  Cash flow used in
operations amounted to $6.5 million in the third quarter of fiscal 1998 as
compared to $8.7 million in the third quarter of fiscal 1997 due to a smaller
third quarter net loss, slower build-up of inventories and other working capital
items.  Cash flow utilized by operations decreased to $14.3 million in the first
nine months of fiscal 1998 from $16.0 million in the first nine months of 1997
despite a greater net loss, due to a slower build-up of inventories and other
working capital items in the first nine months of fiscal 1998.

The Company has a revolving line of credit for inventory financing, secured by
the Company's inventory.  Under this line, the Company may borrow up to the
lesser of $16.0 million, or 40% to 70% of the Company's inventory book value
depending on the time of year.  The line expires on February 28, 2000 and bears
interest at the bank's prime rate.  The credit agreement for this line of credit
prohibits the payment of cash dividends or purchase or redemption of the
Company's capital stock in excess of $300,000 in the aggregate in any fiscal
year.  As of October 31, 1998, there was $12.0 million outstanding under this
line of credit, against total borrowing capacity of $14.1 million based on 70%
of the Company's inventory book value.  Primarily as a result of the holiday
selling season, the Company experiences significant seasonal fluctuations in its
financing needs.

The Company also has an available line of credit for up to $2.0 million for
multiple term loans to be used for leasehold improvements and equipment.  Under
this line, the Company has a term loan with a principal balance of $14,000 at
October 31, 1998.  The loan is payable in monthly installments over a term of
five years with interest payable at 7.4%, matures on December 1, 1998 and is
secured by the Company's equipment.  As of October 31, 1998, outstanding capital
lease obligations and total term debt amounted to $234,000, of which $220,000
represented capital lease obligations.  The capital lease obligations have terms
expiring in fiscal 2001.

Capital expenditures in the first nine months of fiscal 1998, net of landlord
build-out allowances, amounted to $3.5 million as compared to $2.1 million in
the first nine months of fiscal 1997.  The increase resulted from the
construction of 15 additional permanent store locations in the first nine months
of fiscal 1998.

                                       10
<PAGE>
 
In April 1998, the Company's Board of Directors authorized a stock repurchase
program of up to $650,000 of the Company's common stock.  The shares may be
repurchased, from time to time for period of up to 24 months, through open
market purchases and privately negotiated transactions, subject to the
availability of shares and other market and financial conditions.  In
conjunction with the stock repurchase program, the Company received approval
under its credit agreement to acquire up to $650,000 of the Company's common
stock.  The Company repurchased 318,800 shares in the third quarter of fiscal
1998 for $650,000.

Management believes that operating cash flow, borrowings under the Company's
existing credit facilities and cash on hand will be sufficient to finance the
Company's proposed expansion of its store base and to satisfy any other capital
requirements for the next 12 months.

Year 2000 Matters

The Year 2000 Issue

Many existing computer programs utilized globally use only two digits to
identify a year in the date field.  These programs, if not corrected, could fail
or create erroneous results after  the century date changes on January 1, 2000
or when otherwise dealing with dates later than December 31, 1999.  This "Year
2000" issue is believed to affect virtually all companies and organizations,
including the Company.

The Company relies on computer-based technology and utilizes a variety of third-
party hardware and software.  The Company's retail functions, such as
merchandise procurement and distribution, inventory management, point of sale
systems and credit card account servicing exclusively use third party software.
The Company's administrative functions, such as accounting, payroll and human
resource management also exclusively use third-party software.  Third parties
with whom the Company has commercial relationships, including merchandise
vendors, banks, telecommunications services, and utilities are also highly
reliant on computer-based technology.

The Company has been in the process of resolving all significant Year 2000
issues since 1996.  Since almost all the Company's information systems software
is licensed software from established software vendors, resolution is being
accomplished by means of upgrading existing software to versions which are Year
2000 compliant.  At present, the Company expects to be fully Year 2000 compliant
with its own internal systems by the summer of 1999.  All of the Company's
computer hardware is already Year 2000 compliant.

The Company's Compliance Program

Third Party Information Technology Systems

The Company has instituted a strategy of identifying and addressing Year 2000
issues affecting third-party information technology systems used by the Company
which includes contacting all third-party providers of computer hardware and
software to secure appropriate  representations to the effect that such hardware
or software is or will timely be Year 2000 compliant.  The Company has received
Year 2000 compliant versions of almost all third party software and is currently
engaged in developing contingency plans as to third-party software used by the
Company in respect of which the Company has not received adequate assurance of
compliance to date.

                                       11
<PAGE>
 
Non-Information Technology (IT) Systems

The Company has undertaken a review of its non-IT Systems and is in the process
of implementing a remediation program in respect of such systems that are within
the control of the Company.  The Company expects to complete this remediation
effort by June 30, 1999.  In addition, the Company's centralized real estate
department will be communicating to the developers, landlords and property
managers of substantially all of the Company's properties. The Company's
expectation that the systems utilized in the management and operation of such
properties which are not within the Company's control are or will timely be Year
2000 compliant.

Non-Information Technology (IT) Vendors and Suppliers

The Company procures its merchandise for resale and supplies for operational
purposes from a vast network of vendors located both within and outside the
United States.  As a part of its contingency planning effort, the Company has
commenced making inquires as to the Year 2000 readiness of selected vendors in
order to identify any significant exposures that may exist and establish
alternate sources or strategies where necessary.

Costs

Since the cost of resolving the Year 2000 issue is included in most cases,
through existing software maintenance contracts, the incremental cost to the
Company is minimal and not material.

Risks Associated with Year 2000 Issues

The Company's Year 2000 compliance program is directed primarily towards
ensuring that the Company will be able to continue to perform three critical
functions: (i)  effect sales,  (ii)  order, receive and distribute merchandise,
and  (iii)  pay its employees and vendors.  It is difficult, if not impossible,
to assess with any degree of accuracy the impact on any of these three areas of
the failure of one or more aspects of the Company's compliance program.

The novelty and complexity of the issues presented and the proposed solutions
therefor and the Company's dependence on the technical skills of employees and
independent contractors and on the representations and preparedness of third
parties are among the factors that could cause the Company's efforts to be less
than fully effective.

Moreover, Year 2000 issues present a number of risks that are beyond the
Company's reasonable control, such as the failure of utility companies to
deliver electricity, the failure of telecommunications companies to provide
voice and data services, the failure of financial institutions to process
transactions and transfer funds, the failure of vendors to deliver merchandise
or perform services required by the Company and the collateral effects on the
Company of the effects of Year 2000 issues on the economy in general or on the
Company's business partners and customers in particular.  Although the Company
believes that its Year 2000 compliance program is designed to appropriately
identify and address those Year 2000 issues that are subject to the Company's
reasonable control, there can be no assurance that the Company's efforts in this
regard will be fully effective or that Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition or results of
operations.  While the Company expects to be fully compliant with the Year 2000
with its own systems well in advance of the Year 2000, a material financial risk
could result if the Company's vendors are unable to resolve such processing
issues in a timely manner.

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<PAGE>
 
Contingency Plans

The Company is in the process of accessing the readiness of all relevant parties
associated with its Year 2000 compliance program, and determining the risks
associated with Year 2000 non-compliance upon its operations.  As the Company
gathers and analyzes the necessary information to make the proper assessment, a
contingency plan will be formulated to handle any foreseen potential problems
which may result.  The Company will also formulate a back-up emergency plan of
action in case of any unforeseen problems which may occur on January 1, 2000.
These plans are expected to be in place by June 30, 1999.




PART II.  OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

A.  EXHIBITS

Exhibit 11 Computation of Per Share Net Loss

Exhibit 27 Financial Data Schedule

B.  REPORTS ON FORM 8-K

No reports on Form 8-K were filed with the Securities and Exchange Commission
during the third quarter of fiscal 1998.

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<PAGE>
 
                                   SIGNATURE

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.

Dated:  December 11, 1998
                           WORLD OF SCIENCE, INC.
                                (Registrant)
                          
                          
                           /s/Charles A. Callahan
                          
                          
                          
                           Charles A. Callahan
                           Vice President of Finance
                           Chief Financial Officer and Assistant Secretary
                           (Signed on behalf of the registrant and as Principal
                           Accounting and Financial Officer)

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