<PAGE>
 
                       COMPANY:  WORLD OF SCIENCE, INC.
                                 TICKER:  WOSI
                                 EXCHANGE:  NMS

                                FORM-TYPE:  10-Q

                         DOCUMENT DATE:  August 1, 1998
                        FILING DATE:  September 15, 1998

-------------------------------------------------------------------------------
                                        
                       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 August 1, 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)
<TABLE> 
<CAPTION>                                         
                NEW YORK                                                    16-0963838
<S>                                                            <C> 
   (State or other jurisdiction of  incorporation                 (IRS Employer Identification No.)
    or organization)                                     
</TABLE> 
     

           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 August 31, 1998:  4,769,955 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..........................................8-11

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................12

ITEM 5.  Other Information - None

ITEM 6.  Exhibits and Reports on Form 8-K...................................12

         SIGNATURE..........................................................13

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

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                     ------------------                    ----------------
                                                             AUGUST 1,              AUGUST 2,        AUGUST 1,           AUGUST 2,
                                                                1998                   1997             1998                1997
                                                           -----------            -----------      -----------         -----------
 
<S>                                                      <C>                   <C>              <C>                 <C>
NET SALES                                                  $     8,594            $     8,287      $    16,457         $    15,573
 
COST OF SALES AND OCCUPANCY EXPENSES                             7,080                  6,507           13,417              12,237
                                                           -----------            -----------      -----------         ----------- 
 GROSS PROFIT                                                    1,514                  1,780            3,040               3,336
 
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
                                                                 3,447                  3,149            6,820               6,149
                                                           -----------            -----------      -----------         ----------- 
 
                      OPERATING LOSS                            (1,933)                (1,369)          (3,780)             (2,813)
 
INTEREST INCOME (EXPENSE), NET                                     (37)                   (97)              12                (122)
                                                           -----------            -----------      -----------         ----------- 
 
LOSS BEFORE INCOME TAXES                                        (1,970)                (1,466)          (3,768)             (2,935)
 
INCOME TAX BENEFIT                                                 793                    602            1,512               1,204
                                                           -----------            -----------      -----------         ----------- 
 
NET LOSS                                                   $    (1,177)           $      (864)     $    (2,256)        $    (1,731)
                                                           ===========            ============     ===========         ===========
 
NET LOSS PER SHARE (BASIC)                                 $     (0.23)           $     (0.22)     $     (0.44)        $     (0.47)
                                                           ===========            ============     ===========         ===========
 
NET LOSS PER SHARE (DILUTED)                               $     (0.23)           $     (0.22)     $     (0.44)        $     (0.47)
                                                           ===========            ============     ===========         ===========
 
WEIGHTED AVERAGE SHARES (BASIC)                                  5,080                  3,880            5,080               3,652
WEIGHTED AVERAGE SHARES (DILUTED)                                5,080                  3,880            5,080               3,652
</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>
                                                                             AUGUST 1,       JANUARY 31,       AUGUST 2,
                                                                               1998             1998             1997
                                                                           -----------     -------------     -----------
<S>                                                                    <C>               <C>              <C>
CURRENT ASSETS:
   CASH AND CASH EQUIVALENTS                                               $        73     $       6,742     $     1,741
   ACCOUNTS RECEIVABLE                                                             547               113             289
   INVENTORIES                                                                  14,469            10,404          11,180
   PREPAID EXPENSES AND OTHER CURRENT ASSETS                                     1,062               533             708
   TAXES RECEIVABLE                                                              1,515                             1,215
   DEFERRED INCOME TAXES                                                           551               551             368
                                                                           -----------     -------------     ----------- 
 
TOTAL CURRENT ASSETS                                                            18,217            18,343          15,501
PROPERTY, EQUIPMENT AND
   LEASEHOLD IMPROVEMENTS, NET                                                   8,246             6,431           5,707
 
DEFERRED INCOME TAXES                                                              658               658             540
                                                                           -----------     -------------     ----------- 
 
TOTAL ASSETS                                                               $    27,121     $      25,432     $    21,748
                                                                           ===========     =============     ===========
CURRENT LIABILITIES:
   LINE OF CREDIT                                                          $     3,825     $                 $
   CURRENT INSTALLMENTS OF LONG TERM DEBT                                           32                69              72
   CURRENT INSTALLMENTS OF OBLIGATIONS
       UNDER CAPITAL LEASES                                                        148               166             104
   ACCOUNTS PAYABLE                                                              2,917             1,320           3,074
   ACCRUED EXPENSES                                                                537               570             455
   INCOME TAXES PAYABLE                                                                            1,400
                                                                           -----------     -------------     ----------- 
 
TOTAL CURRENT LIABILITIES                                                        7,459             3,525           3,705
 
LONG TERM DEBT, EXCLUDING CURRENT INSTALLMENTS                                                                        26
OBLIGATIONS UNDER CAPITAL LEASES, EXCLUDING
   CURRENT INSTALLMENTS                                                            116               176              78
ACCRUED OCCUPANCY EXPENSE                                                          850               779             719
                                                                           -----------     -------------     ----------- 
 
TOTAL LIABILITIES                                                                8,425             4,480           4,528
                                                                           -----------     -------------     -----------
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 AND OUTSTANDING 5,079,955 SHARES                                        51                51              50
         AT 8/1/98 AND 1/31/98, AND 5,022,955 SHARES AT 8/2/97
   ADDITIONAL PAID-IN CAPITAL                                                   11,398            11,398          11,158
   RETAINED EARNINGS                                                             7,247             9,503           6,012
                                                                           -----------     -------------     ----------- 
 
TOTAL STOCKHOLDERS' EQUITY                                                      18,696            20,952          17,220
                                                                           -----------     -------------     ----------- 
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $    27,121     $      25,432     $    21,748
                                                                           ===========     =============     ===========
</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                    SIX MONTHS ENDED
                                                             ------------------                    ----------------
                                                            AUGUST 1,       AUGUST 2,        AUGUST 1,              AUGUST 2,
                                                               1998            1997             1998                   1997
                                                          -----------     -----------      -----------            -----------
<S>                                                    <C>              <C>              <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                     
   NET LOSS                                               $    (1,177)    $      (864)     $    (2,256)           $    (1,731)
   ADJUSTMENTS TO RECONCILE NET LOSS TO                                   
      NET CASH USED IN OPERATING ACTIVITIES:                              
      DEPRECIATION AND AMORTIZATION                               387             322              712                    617
      CHANGE IN ASSETS AND LIABILITIES:                                   
         (INCREASE) DECREASE IN:                                          
              ACCOUNTS RECEIVABLE                                (335)            (60)            (434)                  (234)
              INVENTORIES                                      (2,805)         (1,870)          (4,065)                (4,253)
              PREPAID EXPENSES AND OTHER                                  
                  CURRENTS ASSETS                                (363)            (72)            (529)                  (322)
              TAXES RECEIVABLE                                   (796)           (613)          (1,515)                (1,215)
         (DECREASE) INCREASE IN:                                          
              ACCOUNTS PAYABLE                                  1,049             812            1,597                  1,505
              ACCRUED EXPENSES                                   (103)           (125)             (33)                  (273)
              INCOME TAXES PAYABLE                                (88)            (90)          (1,400)                (1,464)
              ACCRUED OCCUPANCY EXPENSE                            37              29               71                     56
                                                            -----------      ---------         ----------           ----------
      NET CASH USED IN OPERATING ACTIVITIES:                   (4,194)         (2,531)          (7,852)                (7,314)
                                                            -----------      ---------         ----------           ----------
                                                                          
CASH FLOWS FROM INVESTING ACTIVITIES--                                    
   CAPITAL EXPENDITURES, NET                                   (1,381)           (884)          (2,527)                (1,340)
                                                            -----------      ---------         ----------           ----------
                                                                          
CASH FLOWS FROM FINANCING ACTIVITIES:                                     
   NET PROCEEDS FROM ISSUANCE OF COMMON STOCK                                   8,471                                   8,471
   PROCEEDS FROM ADVANCES ON LINE OF CREDIT                     3,825           3,335            3,825                  6,000
   PROCEEDS FROM ISSUANCE OF LONG-TERM DEBT                                       175                                     845
   PRINCIPAL PAYMENTS ON LINE OF CREDIT                                        (6,000)                                 (6,000)
   PRINCIPAL PAYMENTS ON LONG-TERM DEBT                           (13)           (863)             (37)                  (885)
   PRINCIPAL PAYMENTS ON CAPITAL LEASES                           (44)            (25)             (78)                   (50)
                                                            -----------      ---------         ----------           ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES                       3,768           5,093            3,710                  8,381
                                                            -----------      ---------         ----------           ----------
                                                                          
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS           (1,807)          1,678           (6,669)                  (273)
                                                                          
CASH AND CASH EQUIVALENTS:                                                
   BEGINNING OF PERIOD                                          1,880              63            6,742                  2,014
                                                          -----------       ---------          -------            ------------
   END OF PERIOD                                          $        73       $   1,741          $    73            $     1,741
                                                          ===========       =========          =======            =============
                                                                          
CASH PAID DURING PERIOD FOR:                                              
   INTEREST                                               $        42       $      99          $    55            $       129
   INCOME TAXES                                           $        91       $      90          $ 1,403            $     1,464
                                                          ===========       =========          =======            =============
</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 second
quarter and first six 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 67 permanent stores and 56 seasonal stores as of August 1,
1998 as compared to 52 permanent stores and 74 seasonal stores as of August 2,
1997.  Eight new permanent stores were opened and one permanent store closed in
the second quarter of fiscal 1998 as compared to four new permanent stores
opened in the second quarter of fiscal 1997.  The Company had a net decrease of
one seasonal store in the second quarter of fiscal 1998 as compared to a net
increase of nine seasonal stores in the second quarter of fiscal 1997.

The Company's sales have been favorably impacted over the past six months by the
popularity of particular plush products.  For the second quarter of fiscal 1998
plush sales accounted for 14.0% of total sales as compared to 6.2% in the second
quarter of fiscal 1997.  For the first six months of fiscal 1998 plush sales
accounted for 16.8% of total sales as compared to 6.6% in the first six months
of fiscal 1997.  The impact on the third quarter of fiscal 1998 will be
significantly greater due to a special one-time purchase of fast selling plush
items which will have a positive effect on both sales and operating results.

Comparison of Three Months Ended August 1, 1998 to Three Months Ended August 2,
1997.

Sales.   Sales increased to $8.6 million from $8.3 million, or 3.7%.  Of the
$300,000 increase in sales: $1.2 million was attributable to sales of eight new
permanent stores opened during the second quarter of fiscal 1998 and the net
increase in sales of sixteen new permanent stores not in operation as of the
beginning of the prior year, and $21,000 was attributable to increased
comparable store sales.  These factors were partially offset by seasonal store
sales declining $869,000 due to lower average seasonal store sales and the
operation of fewer seasonal stores.  Comparable permanent store sales increased
0.5% for the thirteen-week period ended August 1, 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 $7.1 million from $6.5 million, an increase of
8.8%.  As a percentage of sales, it increased to 82.4% from 78.5%. The dollar
increase was due to increased store occupancy expenses from more permanent
stores in operation in the second quarter of fiscal 1998 and increased cost of
sales due to higher sales.  The increase as a percentage of sales of 3.9% was
attributable to a 0.4% increase in distribution center costs associated with the
move to a new distribution facility in May of 1997, and a 3.5% increase in
occupancy expenses caused by a decrease in average seasonal store sales.  Cost
of product sold remained the same.

                                       8
<PAGE>
 
Selling, General, and Administrative Expenses.   Selling, general, and
administrative expenses increased to $3.4 million from $3.1 million, an increase
of 9.5%. Selling, general, and administrative expenses increased to support
higher sales levels and an increased number of permanent stores. As a percentage
of sales, it increased to 40.1% from 38.0%, primarily as a result of a decrease
in average seasonal store sales.

Interest Expense, Net.  Net interest expense decreased to $37,000 in the second
quarter of fiscal 1998 from $97,000 in the second 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 increased to $1.2 million, or 13.7% of sales, in the second
quarter of fiscal 1998 from $864,000, or 10.4% of sales, in the second quarter
of fiscal 1997.

Comparison of Six Months Ended August 1, 1998 to Six Months Ended August 2, 1997

Sales.   Sales increased to $16.5 million from $15.6 million, or 5.7%.  Of the
$900,000 increase in sales:  $2.0 million was attributable to sales of twelve
new permanent stores opened during the first six 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 $306,000 was attributable to increased
comparable store sales.  These factors were partially offset by seasonal store
sales declining $1.4 million due to lower average seasonal store sales and the
operation of fewer seasonal stores.  Comparable permanent store sales increased
3.6% for the six month period ended August 1, 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 $13.4 million from $12.2 million, an increase
of 9.6%.  As a percentage of sales, it increased to 81.5% from 78.6%.  The
dollar increase was due to increased store occupancy expenses from more
permanent stores in operation in the first six months of fiscal 1998, and
increased cost of sales due to higher sales.  The increase as a percentage of
sales of 2.9% was attributable to a 0.5% increase in distribution center costs
associated with the move to a new distribution facility in May of 1997, and a
2.6% increase in occupancy expenses caused by a decrease in average seasonal
store sales. Cost of product sold decreased 0.2%.

Selling, General, and Administrative Expenses.   Selling, general and
administrative expenses increased to $6.8 million from $6.1 million, an increase
of 10.9%.  Selling, general, and administrative expenses increased to support
higher sales levels and an increased number of permanent stores.  As a
percentage of sales, it increased to 41.4% from 39.5%, primarily as a result of
a decrease in average seasonal stores sales.

Interest Income (Expense), Net.   Net interest income (expense) amounted to net
interest income of $12,000 in the first six months of fiscal 1998, as compared
to net interest expense of $122,000 in the first six 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 $2.3 million, or 13.7% of sales, in the first
six months of fiscal 1998 from $1.7 million or 11.1% of sales, in the first six
months of fiscal 1997.

                                       9
<PAGE>
 
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.  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 $4.2 million in the second quarter of fiscal 1998 as
compared to $2.5 million in the second quarter of fiscal 1997 due to a greater
second quarter net loss, increased levels of inventories and other working
capital items.  Cash flow utilized by operations increased to $7.9 million in
the first six months of fiscal 1998 from $7.3 million in the first six months of
1997 due to a greater net loss, increased levels of inventories and other
working capital items in the first six 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 August 1, 1998, there was $3.8 million outstanding under this line
of credit, against total borrowing capacity of $5.8 million based on 40% 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.

                                       10
<PAGE>
 
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 $32,000 at
August 1, 1998.  The loan is payable in monthly installments over a term of five
years with interest payable at 7.4%, matures on November 1, 1998 and is secured
by the Company's equipment.  As of August 1, 1998, outstanding capital lease
obligations and total term debt amounted to $296,000, of which $264,000
represented capital lease obligations.  The capital lease obligations have terms
expiring in fiscal 2001.

Capital expenditures in the first six months of fiscal 1998, net of landlord
build-out allowances, amounted to $2.5 million as compared to $1.3 million in
the first six months of fiscal 1997.  The increase resulted from the
construction of 12 additional permanent store locations in the first six months
of fiscal 1998.

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 310,000 shares in August, 1998 for $632,000.

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.

Other Matters

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 spring of 1999.  All of the Company's
computer hardware is already year 2000 compliant.

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.

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.  The risk however, will be minimized by the fact that initial
year 2000 issues will occur at the beginning of a calendar year which is a slow
period in the Company's operations.

                                       11
<PAGE>
 
The Company is in the process of accessing the readiness of its vendors, and
determining the risks associated with year 2000 non-compliance upon its
operations. At this point the Company is not certain as to whether such non-
compliance will have a material effect of the Company's results of operations,
liquidity and financial condition. In anticipation of such an event the company
will be gathering and analyzing the necessary information to make the proper
assessment and determine a plan of action to handle any foreseen potential
problems which may result.

PART II.  OTHER INFORMATION

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

The Company held its Annual Meeting of Stockholders on June 9, 1998.  Of the
total of 5,079,955 shares of common stock outstanding and eligible to vote at
the meeting, the holders of 4,777,742 shares executed and delivered valid
proxies or ballots to the meeting which were duly voted thereat.

The 4,777,742 shares of common stock represented by proxies or ballots at the
meeting were voted as follows in accordance with instructions contained therein:
 
         (A)    Election of Directors:
               ----------------------
 
         Nominee                     For                   Withheld Authority
         -------                     ---                   ------------------
 
         David T. Della Penta        4,732,127             45,615

         (B)  Proposal to Elect KPMG Peat Marwick LLP as Auditors:
              --------------------------------------------------- 
 
              For                    Against           Abstain
              ---                    -------           -------
 
              4,768,992              3,650             5,100
 


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 second 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:  September 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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