<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


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

         FOR THE QUARTERLY PERIOD ENDED November 2, 1996

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

         FOR THE TRANSITION PERIOD FROM ___________ TO ___________


                         COMMISSION FILE NUMBER 0-27920


                              Garden Botanika, Inc.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                     Washington                         91-1464962
         (STATE OR OTHER JURISDICTION OF     (IRS EMPLOYER IDENTIFICATION NO.)
          INCORPORATION OR ORGANIZATION)



                              8624 154th Avenue NE
                            Redmond, Washington 98052
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


                                 (206) 881-9603
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X]   NO [ ]


THE REGISTRANT HAD 7,067,449 SHARES OF COMMON STOCK, $0.01 PAR VALUE,
OUTSTANDING AT November 2, 1996.
<PAGE>   2
                              GARDEN BOTANIKA, INC.

                               INDEX TO FORM 10-Q


                                                                           PAGE
                                                                           ----

PART I - FINANCIAL INFORMATION ............................................  3

         ITEM 1 -        FINANCIAL STATEMENTS .............................  3

                  Balance Sheets .......................................... 10

                  Statements of Operations ................................ 11

                  Statements of Cash Flows ................................ 12

                  Notes to Financial Statements ........................... 13


         ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS ..............................................  3


PART II - OTHER INFORMATION ...............................................  8

         ITEM 1 - LEGAL PROCEEDINGS .......................................  8

         ITEM 2 - CHANGES IN SECURITIES ...................................  8

         ITEM 3 - DEFAULTS UPON SENIOR SECURITIES .........................  8

         ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS .....  8

         ITEM 5 - OTHER INFORMATION .......................................  8

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

                  Exhibit 11 - Calculation of Earnings Per Common and
                  Common Equivalent Share ................................. 15

                                       2
<PAGE>   3
PART I - FINANCIAL INFORMATION:


ITEM 1 - FINANCIAL STATEMENTS -

         The unaudited balance sheet as of November 2, 1996, audited balance
sheet as of February 3, 1996 and unaudited statements of operations and cash
flows of Garden Botanika, Inc. (the "Company") for the quarterly and nine-month
periods ended November 2, 1996 and October 28, 1995 are attached. Notes to the
unaudited financial statements are also attached.


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

         This discussion should be read in conjunction with the "Management's
Discussion and Analysis" section included in the Company's Prospectus dated May
22, 1996, contained in a Registration Statement on Form S-1 which has previously
been filed with the Securities and Exchange Commission.

         When used in this discussion and in the context of future events, the
words "expects," "anticipates," "plans," "believes" and similar expressions are
intended to identify forward looking statements. Such statements are subject to
certain risks and uncertainties that could cause actual results or trends to
differ materially from those projected. See the "Risk Factors" section of the
Company's Prospectus described above. Readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

         The results of operations for the quarterly and nine-month periods
ended November 2, 1996 are not necessarily indicative of the results to be
expected for the full fiscal year. Historically, 45% to 50% of the Company's
annual net sales and all of its profits, if any, have been realized during its
fourth fiscal quarter, particularly during the November and December holiday
selling period. The Company expects this pattern to continue during the current
fiscal year. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including, among other
things, the timing of new store openings, net sales contributed by new stores,
increases or decreases in comparable store sales, adverse weather conditions,
shifts in the timing of holidays and changes in the Company's product mix.
Primarily as a result of the increasing number of recently opened stores, new
product initiatives and slower growth in same store sales, the Company incurred
larger net losses in each of the first three quarters of fiscal 1996 as compared
to the comparable quarters of fiscal 1995.

         The Company had 230 stores in operation at November 2, 1996, compared
to 130 stores at October 28, 1995 and 152 stores at February 3, 1996. The
average age of the Company's stores at November 2, 1996 was 19 months. During
the third quarter, the Company opened its first three Color Studio stores, a
concept designed to significantly expand the products and services offered in
connection with its Natural Color Cosmetics product line. In testing this
concept, the Company currently plans to open 12 additional Color Studio stores
during the remainder of fiscal 1996.

                                       3
<PAGE>   4
         The Company reports on a 52/53-week year, consisting of four 13-week
quarters. The fiscal year ends on the Saturday nearest the end of January.

         RESULTS OF OPERATIONS -

         (A) COMPARISON OF THE QUARTERLY PERIODS ENDED NOVEMBER 2, 1996 AND
OCTOBER 28, 1995.

         Net Sales. Net sales for the third quarter of fiscal 1996 were
$17,681,000, compared to net sales of $10,671,000 for the comparable prior
period, an increase of 66%. Store net sales increased $6,558,000, or 66%, during
the quarter, primarily due to the increase in the number of stores. Comparable
store sales (sales for stores open at least 12 full fiscal months) increased 2%
in August and October, declined 3% in September and were flat for the quarter as
a whole. In the third quarter of fiscal 1995, comparable store sales increased
7%, consisting of increases of 9% in August, 5% in September and 6% in October.

         Catalog net sales increased $442,000, or 63%, versus the comparable
prior period. This increase was primarily attributable to a significant increase
in catalog circulation as the Company continued to prospect for new mail order
customers.

         In view of the significant number of new products introduced during the
first and second quarters of fiscal 1996, management believes the lack of
comparable store sales growth during the third quarter may reflect some tradeoff
of sales between existing and new product lines. In an effort to stimulate
growth in store sales, the Company announced, in October, plans to significantly
expand its direct mail program, with special emphasis on mailings intended to
stimulate sales in its newly and more recently opened stores. The first of these
expanded mailings began arriving in homes in late October; the performance of
the program will be monitored through the Christmas holiday season.

         Gross Margin. The dollar amount of gross margin increased $2,463,000,
or 59%, from the third quarter of fiscal 1995, reflecting the effect of the 66%
increase in net sales. As a percentage of net sales, gross margin, which is net
of buying and occupancy costs, was 37.5% versus 39.1% in the comparable prior
period. The 160 basis point decline in gross margin as a percentage of net sales
reflected primarily the effect of occupancy costs associated with the 144 new
stores opened during fiscal 1995 and the first nine months of fiscal 1996. The
effect of this increase was partially offset by higher product margin, which
management believes resulted principally from an improvement in initial markup
and shifts in product mix.

         Operating Expenses.

                Stores and Catalog. The dollar amount of store and catalog
expenses increased by $3,957,000, or 95%, from the comparable prior period,
primarily as a result of increases in the number of stores and in catalog
circulation. As a percentage of net sales, store and catalog expenses increased
from 39.1% to 46.0% reflecting the effects of planned increases in expenditures
to support new store openings and continued development of the Company's catalog
business, as well as the introduction, during October, of direct mail programs
to stimulate sales growth in newly and more recently opened stores. The increase
in store and catalog expenses as a percentage of net sales also reflected the
higher payroll and benefit rates (as a percentage of sales) typically associated
with newer, less productive stores.

                General and Administrative. The dollar amount of general and
administrative expenses increased by $637,000, or 40%, from the comparable prior
period, primarily reflecting


                                       4
<PAGE>   5
the effect of infrastructure additions made to support the Company's current and
planned expansion. As a percentage of net sales, general and administrative
expenses declined from 14.9% to 12.6%, with the 230 basis point change
reflecting improved expense leverage associated with sales growth.

         Preopening Expense. Preopening expense was $538,000, or 3.0% of net
sales, in the third quarter of fiscal 1996, during which the Company opened 44
stores and wrote off the unamortized balance of leasehold improvements at two
existing stores which will reopen in new and/or expanded locations during the
fourth quarter. In the comparable prior quarter, when the Company opened 26
stores, preopening expense was $338,000, or 3.2% of net sales.

         Operating Loss. For the reasons explained above, the Company's
operating loss increased 120%, from $1,935,000 to $4,267,000, in the respective
quarters. Expressed as a percentage of net sales, the third quarter operating
loss increased to 24.1% from 18.1% in the comparable prior period.

         Interest Income (Expense), Net. Net interest income during the third
quarter of fiscal 1996 was $487,000, or 2.8% of net sales, compared to net
interest expense of $51,000, or 0.5% of net sales, during the comparable prior
period. This change reflected the investment of proceeds from the Company's
fiscal 1996 initial public offering.

         Income Tax Provision. The Company did not record an income tax
provision for the third quarter of either fiscal 1996 or fiscal 1995 due to its
pre-tax losses.

         Net Loss and Per Share Data. The Company's net loss increased 90% from
$1,986,000, or $0.54 per share, during the third quarter of fiscal 1995 to
$3,780,000, or $0.53 per share, during the third quarter of fiscal 1996. The
increase in net loss was due to the factors discussed above. There were
7,067,000 weighted average Common and Common equivalent shares for the third
quarter of fiscal 1996, compared to 3,707,000 shares for the third quarter of
fiscal 1995, an increase of 91% attributable to the offering of the Company's
Series D Convertible Preferred Stock during fiscal 1995 and its initial public
offering of Common Stock during fiscal 1996. The Company's four series of
Preferred Stock were converted into Common Stock upon completion of its initial
public offering. For purposes of computing loss per share, the Preferred Stock
has been retroactively reclassified as Common Stock.


         (B) COMPARISON OF THE NINE-MONTH PERIODS ENDED NOVEMBER 2, 1996 AND
OCTOBER 28, 1995.

         Net Sales. Net sales for the first nine months of fiscal 1996 were
$51,245,000, compared to net sales of $30,341,000 for the comparable prior
period, an increase of 69%. Store net sales increased $18,274,000, or 65%,
during the period, primarily due to the increase in the number of stores
combined with a 4% increase in comparable store sales. In the first nine months
of fiscal 1995, comparable store sales increased 20%. Catalog net sales
increased $2,620,000, or 118%, versus the comparable prior period. This increase
was primarily attributable to a significant increase in catalog circulation as
the Company continued to prospect for new mail order customers.

         Gross Margin. The dollar amount of gross margin increased $8,006,000,
or 64%, from the first nine months of fiscal 1995, reflecting the effect of the
69% increase in net sales. As a percentage of net sales, gross margin was 39.9%
versus 41.1% in the comparable prior period.


                                       5
<PAGE>   6
The 120 basis point decline in gross margin as a percentage of net sales
reflected primarily the effect of occupancy costs associated with the 144 new
stores opened during fiscal 1995 and the first nine months of fiscal 1996. The
effect of this increase was partially offset by higher product margins, which
management believes resulted principally from an improvement in initial markup
and shifts in product mix.

         Operating Expenses.

                Stores and Catalog. The dollar amount of store and catalog
expenses increased by $10,732,000, or 95%, from the comparable prior period,
primarily as a result of increases in the number of stores and in catalog
circulation. As a percentage of net sales, store and catalog expenses increased
from 37.3% to 43.0%, reflecting primarily the effects of planned increases in
expenditures to support new store openings, new product introductions and
continued development of the Company's catalog business, as well as the expense
of an expanded direct mail program which began late in the third quarter. This
program is intended to stimulate sales growth in newly and more recently opened
stores.

                General and Administrative. The dollar amount of general and
administrative expenses increased by $2,062,000, or 48%, from the comparable
prior period, primarily reflecting the effect of infrastructure additions made
to support the Company's current and planned expansion. As a percentage of net
sales, general and administrative expenses declined from 14.2% to 12.4%, with
the 180 basis point change reflecting improved expense leverage associated with
sales growth.

         Preopening Expense. Preopening expense was $1,144,000, or 2.2% of net
sales, in the first nine months of fiscal 1996, during which the Company opened
78 stores and relocated and expanded its primary warehouse/distribution facility
and three of its existing stores. In the comparable prior period, when the
Company opened 44 stores, preopening expense was $581,000, or 1.9% of net sales.

         Operating Loss. For the reasons explained above, the Company's
operating loss increased 144%, from $3,718,000 to $9,069,000, in the respective
nine-month periods. Expressed as a percentage of net sales, the operating loss
increased to 17.7% from 12.3% in the comparable prior period.

         Interest Income (Expense), Net. Net interest income during the first
nine months of fiscal 1996 was $617,000, or 1.2% of net sales, compared to net
interest income of $69,000, or 0.2% of net sales, during the comparable prior
period. The dollar increase reflected the investment of proceeds from the
Company's fiscal 1996 initial public offering.

         Income Tax Provision. The Company did not record an income tax
provision for the first nine months of either fiscal 1996 or fiscal 1995 due to
its pre-tax losses.

         Net Loss and Per Share Data. The Company's net loss increased 132% from
$3,649,000, or $0.98 per share, during the first nine months of fiscal 1995 to
$8,452,000, or $1.45 per share, during the comparable 1996 period. The increase
in net loss was due to the factors discussed above. There were 5,839,000
weighted average Common and Common equivalent shares for the first three
quarters of fiscal 1996, compared to 3,707,000 shares for the comparable 1995
period, an increase of 58% attributable to the offering of the Company's Series
D Convertible Preferred Stock during fiscal 1995 and its initial public offering
of Common


                                       6
<PAGE>   7
Stock during fiscal 1996. The Company's four series of Preferred Stock were
converted into Common Stock upon completion of its initial public offering. For
purposes of computing loss per share, the Preferred Stock has been retroactively
reclassified as Common Stock.


         LIQUIDITY AND CAPITAL RESOURCES -

         The Company opened 78 stores during the first nine months of fiscal
1996, and currently expects to open approximately 22 additional stores by the
end of the fiscal year. The Company's previously disclosed plans to open
approximately 120 stores during fiscal 1997 will be reassessed at the conclusion
of the 1996 holiday season, and a decision regarding the number of new store
openings will be made in light of the Company's performance for fiscal 1996 as a
whole.

         All current stores are, and all presently planned stores are expected
to be, located in premises leased by the Company. The Company estimates that for
fiscal 1996, the cost to open a 1,250 square foot store of the current prototype
will average approximately $240,000, including leasehold improvements, inventory
and preopening expenses. This average may increase in the future to the extent
that the proportion of Color Studio stores to total stores opened increases
significantly. Color Studio stores are expected to be approximately one-third
larger than the current prototype and will require additional inventory.
Although the cost of the initial Color Studio stores has been higher, the
Company expects that, with value engineering, the normal per square foot cost of
these stores will be approximately the same as for its current prototype.

         The Company expects to finance the remainder of its fiscal 1996
expansion program and its fiscal 1997 expansion program through a combination of
proceeds from its initial public offering, cash flow from operations and bank
credit lines. The Company's capital requirements may vary significantly from
those anticipated, however, depending particularly upon such factors as
operating results, the number, type and timing of new store openings, store
development costs in the markets the Company enters and the extent of lessor
construction allowances received.

         The Company's balance sheet at November 2, 1996 reflected a $54,654,000
(116%) increase in total assets since the fiscal year began on February 4. The
principal components of this change were increases of $25,575,000 in cash and
cash equivalents resulting from the Company's May 1996 initial public offering,
$14,024,000 in net property and equipment relating to the 1996 store expansion
program and $9,723,000 in inventory relating to the increased number of stores,
growth in the product assortment and preparation for the 1996 holiday season.
The increase in total assets was accompanied by a reduction of $42,026,000 in
Preferred Stock and an increase of $98,273,000 in Common Stock, resulting from
the May 1996 initial public offering and the related conversion of Preferred
Stock to Common, and increases of $6,318,000 in current liabilities and
$8,452,000 in accumulated deficit, relating primarily to liabilities for
merchandise purchases and store construction, repayment of short-term bank debt
and operating losses for the first nine months of fiscal 1996.

                                       7
<PAGE>   8
PART II - OTHER INFORMATION:


ITEM 1 - LEGAL PROCEEDINGS -

         As previously reported in the Company's Form 10-Q for the quarterly
period ended August 3, 1996, on July 23, 1996, Garden Botanika was named as
defendant in a lawsuit filed by The Gap, Inc. in the United States District
Court for the Northern District of California, alleging trade dress infringement
and unfair competition in the design, marketing and sale of the Company's
Transparencies line of personal care products. The parties have agreed in
principle to settle this action. In accordance with the proposed settlement
agreement, Garden Botanika has, among other things, changed elements of its
merchandising and package design for the Transparencies line. The proposed
settlement does not require payment of monetary damages, and the Company does
not believe that the lawsuit or the proposed settlement has had or will have a
material adverse effect on its business.


ITEM 2 - CHANGES IN SECURITIES -

         None.


ITEM 3 - DEFAULTS UPON SENIOR SECURITIES -

         None


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

         None


ITEM 5 - OTHER INFORMATION -

         None


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

         (a) Exhibit 11 (Calculation of Earnings Per Common and Common
Equivalent Share) is attached.

         (b) Exhibit 27 (Financial Data Schedule)

         (c) No reports on Form 8-K were filed during the third quarter of
fiscal 1996.

                                       8
<PAGE>   9
                                  SIGNATURES:

Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



                                       GARDEN BOTANIKA, INC.
                                       ---------------------
                                       Registrant



December 3, 1996                       /s/ Michael W. Luce
----------------                       -------------------------------------
Date                                   Michael W. Luce
                                       President and Chief Executive Officer
                                       (Principal Executive Officer)



December 3, 1996                       /s/ Myron E. Kirkpatrick
----------------                       -------------------------------------
Date                                   Myron E. Kirkpatrick
                                       Vice President-Finance, Treasurer and
                                       Chief Financial Officer
                                       (Principal Financial and Accounting
                                        Officer)


                                       9
<PAGE>   10
                             GARDEN BOTANIKA, INC.
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                            (UNAUDITED)
                                                                            NOVEMBER 2,             FEBRUARY 3,
                                                                               1996                    1996
                                                                           -------------           -------------
<S>                                                                        <C>                     <C>
                                         ASSETS
Current assets:
   Cash and cash equivalents                                               $   9,377,199           $   1,308,533
   Short-term investments                                                     19,506,098                    --
   Inventories                                                                19,899,448              10,176,172
   Prepaid expenses:
      Rent                                                                     1,066,987                 795,287
      Other                                                                    1,657,883               1,307,787
   Receivable from lessors                                                     4,722,417               1,638,933
   Other                                                                         119,646                 346,360
                                                                           -------------           -------------
        Total current assets                                                  56,349,678              15,573,072

Property and equipment:
   Leasehold improvements                                                     45,687,034              31,362,255
   Furniture and equipment                                                     7,939,146               5,002,216
   Equipment under capital lease                                                 261,483                 261,483
                                                                           -------------           -------------
                                                                              53,887,663              36,625,954
   Less accumulated depreciation and amortization                             (8,688,330)             (5,450,792)
                                                                           -------------           -------------
      Net property and equipment                                              45,199,333              31,175,162

Other assets                                                                     241,382                 388,345
                                                                           -------------           -------------
        Total assets                                                       $ 101,790,393           $  47,136,579
                                                                           =============           =============

                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Checks drawn in excess of bank balances                                 $   5,530,983           $   3,615,854
   Note payable to bank                                                             --                 2,540,000
   Accounts payable                                                           10,727,222               5,137,668
   Accrued salaries, wages and benefits                                        1,789,942                 780,155
   Accrued sales tax                                                             374,673                 297,046
   Other                                                                         806,452                 540,497
                                                                           -------------           -------------
        Total current liabilities                                             19,229,272              12,911,220

Deferred rent and other                                                        1,650,350               1,109,280
                                                                           -------------           -------------
        Total liabilities                                                     20,879,622              14,020,500

Commitments
Shareholders' equity:
   Preferred Stock, $.01 par value;
      10,000,000 and 3,694,031 shares authorized; 0 and 3,694,031
      issued and outstanding                                                        --                42,026,441
   Common  Stock, $.01 par value;
      36,092,374 shares authorized; 7,067,449 and 268,546 issued
      and outstanding                                                         98,487,169                 214,271
   Accumulated deficit                                                       (17,576,398)             (9,124,633)
                                                                           -------------           -------------
        Total shareholders' equity                                            80,910,771              33,116,079

        Total liabilities & shareholders' equity                           $ 101,790,393           $  47,136,579
                                                                           =============           =============
</TABLE>

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


                                       10
<PAGE>   11
                              GARDEN BOTANIKA, INC.
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                          (UNAUDITED)
                                                              ---------------------------------------------------------------------
                                                                        QUARTER ENDED                       NINE MONTHS ENDED
                                                              -------------------------------       -------------------------------
                                                               NOVEMBER 2,        OCTOBER 28,        NOVEMBER 2,        OCTOBER 28,
                                                                  1996               1995               1996               1995
                                                              ------------       ------------       ------------       ------------

<S>                                                           <C>                <C>                <C>                <C>
Net sales                                                     $ 17,681,432       $ 10,671,151       $ 51,244,849       $ 30,341,457
Cost of sales (including buying and occupancy costs)            11,048,871          6,501,305         30,772,936         17,875,289
                                                              ------------       ------------       ------------       ------------
      Gross margin                                               6,632,561          4,169,846         20,471,913         12,466,168

Operating expenses:
   Stores and catalog                                            8,134,631          4,177,732         22,037,311         11,305,300
   General and administrative                                    2,226,522          1,589,082          6,359,610          4,297,782
Preopening expenses                                                538,362            338,423          1,144,204            580,731
                                                              ------------       ------------       ------------       ------------
      Operating loss                                            (4,266,954)        (1,935,391)        (9,069,212)        (3,717,645)

Interest income (expense), net                                     486,731            (50,878)           617,447             68,826
                                                              ------------       ------------       ------------       ------------
      Net loss                                                $ (3,780,223)      $ (1,986,269)      $ (8,451,765)      $ (3,648,819)
                                                              ============       ============       ============       ============


Net loss per share, giving effect to the conversion
   of all Preferred shares to Common                          $      (0.53)      $      (0.54)      $      (1.45)      $      (0.98)

Weighted average Common and Common
   equivalent shares                                             7,067,310          3,707,462          5,838,964          3,706,984
</TABLE>




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


                                       11
<PAGE>   12
                              GARDEN BOTANIKA, INC.
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                     (UNAUDITED)
                                                                                                   NINE MONTHS ENDED
                                                                                        -----------------------------------
                                                                                         NOVEMBER 2,            OCTOBER 28,
                                                                                            1996                   1995
                                                                                        ------------           ------------
<S>                                                                                     <C>                    <C>
Cash flows from operating activities:
   Net loss                                                                             $ (8,451,765)          $ (3,648,819)

   Adjustments to reconcile net loss to net cash used by operating activities:
      Depreciation and amortization                                                        3,492,766              2,111,690
      Loss on retirement of property and equipment                                           236,181                 61,717
      Changes in assets and liabilities:
        Inventories                                                                       (9,723,276)            (4,560,901)
        Prepaid rent  and other assets                                                    (3,331,603)              (581,967)
        Accounts payable and checks drawn in excess of bank balances                       7,504,683              3,833,605
        Accrued expenses                                                                   1,353,369               (225,353)
        Deferred rent and other                                                              541,070                361,535
                                                                                        ------------           ------------
          Total adjustments                                                                   73,190              1,000,326
          Net cash used by operating activities                                           (8,378,575)            (2,648,493)

Cash flows from investing activities:
   Purchase of short-term investments                                                    (19,506,098)                  --
   Additions to property and equipment                                                   (17,753,118)           (12,155,647)
                                                                                        ------------           ------------
          Net cash used by investing activities                                          (37,259,216)           (12,155,647)

Cash flows from financing activities:
   Sale of stock                                                                          56,191,189              9,920,081
   (Payments)/advances on note payable to bank, net                                       (2,540,000)             4,600,000
   Other                                                                                      55,268                 17,141
                                                                                        ------------           ------------
          Net cash provided by financing activities                                       53,706,457             14,537,222

Increase/(decrease) in cash and cash equivalents, net                                      8,068,666               (266,918)
Cash and cash equivalents, beginning of period                                             1,308,533              1,038,373
                                                                                        ------------           ------------

Cash and cash equivalents, end of period                                                $  9,377,199           $    771,455
                                                                                        ============           ============

Supplemental disclosures:
   Cash paid for interest                                                               $    302,307           $     27,561
   Cash paid for income taxes                                                                   --                     --
</TABLE>



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

                                       12
<PAGE>   13
GARDEN BOTANIKA, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 2, 1996 (UNAUDITED)


1. The accompanying unaudited financial statements include the accounts of
Garden Botanika, Inc. (the "Company"), a Washington corporation. These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to the rules and
regulations of the Securities and Exchange Commission. While these statements
reflect all normal recurring adjustments which are, in the opinion of
management, necessary for fair presentation of the results of the interim
period, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Prospectus dated May 22, 1996, contained in a
Registration Statement on Form S-1 which has previously been filed with the
Securities and Exchange Commission.


2. The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the amounts of revenues and expenses reported during the period. Actual
results could differ from those estimates.


3. The results of operations for the quarterly and nine-month periods ended
November 2, 1996 are not necessarily indicative of the results to be expected
for the full fiscal year. Historically, 45% to 50% of the Company's annual net
sales and all of its profits, if any, have been realized during its fourth
fiscal quarter, particularly during the November and December holiday selling
period. The Company expects this pattern to continue during the current fiscal
year. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including, among other
things, the timing of new store openings, net sales contributed by new stores,
increases or decreases in comparable store sales, adverse weather conditions,
shifts in the timing of holidays and changes in the Company's product mix.


4. During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation. The Company plans to continue to
measure the compensation cost of stock option plans using the intrinsic value
method prescribed by APB Opinion No. 25 and, starting in 1996, to make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting prescribed by SFAS No. 123 had been applied.


5. On October 14, 1996, the Company's Board of Directors authorized and the
Compensation Committee approved the granting of non-qualified options to
purchase 449,635 shares of Common Stock at $8.625 (the closing price of the
Company's Common Stock on that date) to approximately 130 officers and employees
of the Company in connection with annual performance reviews. These options,
which vest 25% per year over four years, were not granted under the terms of the
Company's 1992 Combined Incentive and Nonqualified Stock Option Plan (the "1992
Plan"). The Company intends to request shareholder approval of an amendment to
the 1992 Plan, increasing the number of authorized options and bringing the
October 1996 grants under its provisions.

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                                 Exhibit Index



Exhibit 11   (Calculation of Earnings Per Common and Common Equivalent Share)

















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