<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 JULY 29, 2000

                                       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)


<TABLE>
<S>                                         <C>
             Washington                               91-1464962
             ----------                               ----------
  (STATE OR OTHER JURISDICTION OF           (IRS EMPLOYER IDENTIFICATION NO.)
   INCORPORATION OR ORGANIZATION)
</TABLE>



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


                                 (425) 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 _

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES _ NO X -

THE REGISTRANT HAD 7,069,098 SHARES OF COMMON STOCK, $0.01 PAR VALUE,
OUTSTANDING AT JULY 29, 2000.
<PAGE>   2

                              GARDEN BOTANIKA, INC.

                               INDEX TO FORM 10-Q


<TABLE>
<CAPTION>
                                                                                 PAGE
                                                                                 ----
<S>                                                                              <C>
PART I - FINANCIAL INFORMATION                                                     3
                              ---------------------------------------------------

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

               Balance Sheets                                                     11
                             ----------------------------------------------------

               Statements of Operations                                           12
                                       ------------------------------------------

               Statements of Cash Flows                                           13
                                       ------------------------------------------

               Notes to Financial Statements                                      14
                                            -------------------------------------


        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                                  9
                                                ---------------------------------

        ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS              9
                                                                    -------------

        ITEM 5 - OTHER INFORMATION                                                9
                                  -----------------------------------------------

        ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                                 9
                                                 --------------------------------

               Exhibit 27.1 - Financial Data Schedule
                                                     ----------------------------
</TABLE>



                                       2
<PAGE>   3

PART I - FINANCIAL INFORMATION:


ITEM 1 - FINANCIAL STATEMENTS -

       The unaudited balance sheet as of July 29, 2000, audited balance sheet as
of January 29, 2000 and unaudited statements of operations and cash flows of
Garden Botanika, Inc. (the "Company") for the six-month periods ended July 29,
2000 and July 31, 1999 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 Annual Report on Form
10-K dated April 28, 2000, which has previously been filed with the Securities
and Exchange Commission.

       Certain statements in this discussion constitute "forward-looking
statements" and involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company or
its industry to be materially different from any future results, performance or
achievements expressed or implied by such forward looking statements. Such
factors include, among other things, court actions related to the Company's
bankruptcy filing; the Company's losses and lack of profitability to date;
fluctuations and/or declines in comparable store sales results; competition; and
the Company's ability to successfully implement changes in its business
strategies.

       On April 20, 1999 (the "Petition Date"), Garden Botanika filed a
voluntary petition for relief under Chapter 11, Title 11 of the United States
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
Western District of Washington at Seattle, Washington (the "Bankruptcy Court"),
Case No. 99-04464 (the "Chapter 11 Case"). The Company's financial statements
have been prepared on a going-concern basis, which contemplates continuity of
operations, realization of assets, liquidation of liabilities and commitments in
the normal course of business. The Chapter 11 Case, related circumstances and
the losses from operations raise substantial doubt about the Company's ability
to continue as a going concern. The appropriateness of reporting on a
going-concern basis is dependent upon, among other things, confirmation of a
plan of reorganization and future profitable operations (see "Liquidity and
Capital Resources," "Legal Proceedings" and Note 1 to "Notes to Financial
Statements"). Realization of the Company's assets and liquidation of its
liabilities at their recorded amounts is subject to significant uncertainty.
While under the protection of Chapter 11, the Company may sell or otherwise
dispose of assets, and liquidate or settle liabilities, for amounts other than
those reflected in the accompanying financial statements. The financial
statements do not include any adjustments relating to the recoverability of the
value of recorded asset amounts or the amounts and classification of liabilities
that might be necessary as a consequence of a plan of reorganization. Because of
the seasonality of its mall-based business, the Company has historically
experienced net losses in the first three quarters of each fiscal year and
expects that this pattern will continue in fiscal 2000.

       The Company expects to reorganize under Chapter 11 and propose a
reorganization plan that provides for emergence from bankruptcy at an
appropriate time. Following the grant by the Bankruptcy Court of its request,
Garden Botanika and its Creditors' Committee have been given the exclusive right
to file a reorganization plan through March 1, 2001 on a joint basis (the
"Exclusive Period"), provided that, if the Company were to file a non-consensual
plan during the Exclusive Period, the Company's Creditors' Committee would have
the right to file a competing plan. The Bankruptcy Court may also grant a
further request to extend the Exclusive Period. There can be no assurance,
however, that the Company will propose a plan in a timely fashion or that, if
re-



                                       3
<PAGE>   4

quested, the Bankruptcy Court will grant a further extension. After expiration
of the Exclusive Period with any extensions, creditors of the Company and other
parties-in-interest have the right to propose their own reorganization plans.
Although management expects to file a reorganization plan that provides the
means for satisfying claims and interests in the Company, there can be no
assurance that a plan will be proposed or that, if proposed, it will be
confirmed by the Bankruptcy Court or that, if confirmed, it will be consummated.
At this time, it is not possible to predict the outcome of the Chapter 11 Case
or its effects on the Company's business.

       The Company had 109 stores in operation at July 29, 2000 compared to 149
stores at July 31, 1999 and 148 stores at January 29, 2000. The average age of
the Company's stores at July 29, 2000 was 67 months.

       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 JULY 29, 2000 AND JULY 31,
1999.

       Net Sales. Net sales for the second quarter of fiscal 2000 were $10.0
million, compared to net sales of $13.5 million for the comparable prior period,
a decrease of 26%. Store net sales decreased $3.3 million, or 28%, during the
quarter, primarily due to the decrease in the number of stores, combined with an
11% decrease in comparable store sales (sales for continuing stores open at
least one complete fiscal year). The 11% decrease in comparable store sales for
the quarter was driven by decreases of 15% in May, 7% in June and 11% in July.
In the second quarter of fiscal 1999, comparable store sales decreased 9%,
consisting of decreases of 8% in May, 11% in June and 9% in July. These
decreases included a decrease in revenue recorded on the sale of annual
memberships in the Company's discount-based customer loyalty program. Membership
sales are amortized over the course of twelve months, and the recorded revenue
in the second quarter of fiscal year 2000 was $580,000 consisting primarily of
new membership sales of $422,000, compared to recorded revenue in the comparable
period of the prior year of $753,000, consisting primarily of new membership
sales of $591,000. The Company's combined mail order and Internet sales
increased $45,000, or 7%, versus the comparable prior period. During the second
quarter of fiscal 2000, the Company recorded sales at wholesale in the amount of
$171,000. There were no sales at wholesale in the second quarter of fiscal 1999.

       Gross Margin. Gross margin decreased as a percentage of net sales from
35% in the second quarter of fiscal 1999 to 34% in the second quarter of fiscal
2000. This decrease primarily reflects the leveraging impact of fixed occupancy
costs against lower average store volumes. The dollar amount of gross margin
decreased by $1.2 million, or 26%, primarily as a result of the decrease in
customer transactions due to the closure of stores.

       Operating Expenses.

       Stores and Catalog. Store and catalog expenses, including distribution,
decreased by $979,000, or 21%, from the comparable prior period, primarily as a
result of the decrease in the number of stores and reductions in advertising
expense. As a percentage of net sales, store and catalog expenses increased to
37% in the second quarter of fiscal 2000, from 35% in the second quarter of
fiscal 1999.

       General and Administrative. The dollar amount of general and
administrative expenses decreased by $227,000, or 13%, from the comparable prior
period. As a percentage of net sales, general and administrative expenses were
15% in the second quarter of fiscal 2000 and 13% in the comparable prior period.



                                       4
<PAGE>   5

       Operating Loss. For the reasons explained above, the Company's operating
loss increased by $27,000 or 2%, to $1.8 million as compared to the second
quarter of fiscal 1999. As a percentage of net sales, the second quarter
operating loss increased to 18% from 13% in the comparable prior period.

       Interest Income (Expense), Net. Net interest expense during the second
quarter of fiscal 2000 was $5,000, compared to net interest expense of $16,000
during the comparable prior period.

       Reorganization Charges. During the quarter ended July 29, 2000, the
Company incurred certain costs relating to the Chapter 11 bankruptcy
proceedings. These costs include legal and other professional fees for the
second quarter in the amount of approximately $202,000, compared to
approximately $132,000 in the prior fiscal quarter.

       Income Tax Provision. Due to its pre-tax losses, the Company did not
record an income tax provision for the second quarter of either fiscal 2000 or
fiscal 1999.

       Net Loss and Per Share Data. The Company's net loss increased $86,000 or
4% from $1.9 million, or $0.27 per share, during the second quarter of fiscal
1999 to $2.0 million, or $0.29 per share, during the second quarter of fiscal
2000. The dollar increase in net loss was due to the factors discussed above.

       (b) COMPARISON OF THE SIX-MONTH PERIODS ENDED JULY 29, 2000 AND JULY 31,
1999.

       Net Sales. Net sales for the six-month period ended July 29, 2000 were
$21.0 million, compared to net sales of $31.4 million for the comparable prior
period, a decrease of 33%. Store net sales decreased $10.5 million, or 38%,
during the six months, primarily due to the decrease in the number of stores,
combined with a 10% decrease in comparable store sales (sales for continuing
stores open at least one complete fiscal year). In the first six months of
fiscal 1999, comparable store sales decreased 11%. These decreases also included
a decrease in revenue recorded on the sale of annual memberships in the
Company's discount-based customer loyalty program. Membership sales are
amortized over the course of twelve months, and the recorded revenue in the
first six months of fiscal year 2000 was $1.2 million consisting primarily of
new membership sales of $869,000, compared to recorded revenue in the comparable
period of the prior year of $1.5 million, consisting primarily of new membership
sales of $1.2 million. The Company's combined mail order and Internet sales
decreased $203,000, or 15%, versus the comparable prior period, based primarily
on a planned reduction in the circulation of mailings in the first quarter of
fiscal 2000. During the first half of fiscal 2000, the Company recorded sales at
wholesale in the amount of $1.2 million primarily to the online retailer
drugstore.com. There were no sales at wholesale in the first half of fiscal
1999.

       Gross Margin. Gross margin improved as a percentage of net sales from 33%
in the first six months of fiscal 1999 to 35% in the first six months of fiscal
2000. This increase primarily reflects the impact of the closure of poorly
performing stores with lower average margins than the Company's store base at
the period end. The dollar amount of gross margin decreased by $2.9 million, or
29%, primarily as a result of the decrease in customer transactions due to the
closure of stores.

       Operating Expenses.

              Stores and Catalog. Store and catalog expenses, including
distribution, decreased by $5.0 million, or 40%, from the comparable prior
period, primarily as a result of the decrease in the number of stores and
reductions in advertising expense. As a percentage of net sales, store and
catalog expenses decreased to 36% from 40% in the first six months of fiscal
1999, primarily due to the leveraging impact of the higher average sales of the
Company's continuing store base, the reductions in advertising and the lower
operating expense of sales at wholesale.



                                       5
<PAGE>   6

              General and Administrative. General and administrative expenses
decreased by $908,000, or 23%, from the comparable prior period, primarily
reflecting the corporate expense reductions implemented primarily in the first
quarter of fiscal 1999 through reductions in the Company's workforce. As a
percentage of net sales, general and administrative expenses were 14% in the
first six months of fiscal 2000 and 12% in the comparable prior period.

              Provision for Store Closing. During the first six months of fiscal
1999, the Company recorded a provision for store closure of $6.6 million to
cover the estimated lease termination and other store exit costs associated with
the closure of 95 poorly performing retail store locations and the rejection of
leases in connection with the Company's reorganization plans. This amount was
offset by approximately $1.1 million in deferred rent liability for the 95
rejected leases that had previously been recorded on the balance sheet. During
the first six months of fiscal 2000, the Company closed 39 stores. Substantially
all costs associated with these closings were provided prior to the first
quarter of fiscal 2000.

       Operating Loss. For the reasons explained above, the Company's operating
loss decreased 73%, from $11.4 million to $3.1 million, in the respective
six-month periods. As a percentage of net sales, the first half operating loss
decreased to 15% from 36% in the comparable prior period.

       Interest Income (Expense), Net. Net interest income during the first six
months of fiscal 2000 was $31,000, or 0.2% of net sales, compared to net
interest expense of $59,000, or 0.2% of net sales, during the comparable prior
period.

       Reorganization Charges. During the six months ended July 29, 2000, the
Company incurred certain costs relating to the Chapter 11 bankruptcy
proceedings. These costs include legal and other professional fees through the
end of the first half of fiscal 2000 in the amount of approximately $577,000,
compared to approximately $932,000 in the prior fiscal period.

       Income Tax Provision. Due to its pre-tax losses, the Company did not
record an income tax provision for the first six months of either fiscal 2000 or
fiscal 1999.

       Net Loss and Per Share Data. The Company's net loss decreased 71% from
$12.4 million, or $1.76 per share, during the first six months of fiscal 1999 to
$3.6 million, or $0.51 per share, during the six months of fiscal 2000. The
absolute dollar decrease in net loss was due to the factors discussed above.

       LIQUIDITY AND CAPITAL RESOURCES -

       On April 23, 1999, the Company entered a Loan and Security Agreement (the
"DIP Facility") with BankBoston Retail Finance Inc., which has since been
succeeded by Fleet Retail Finance Inc. ("Fleet"). The DIP Facility is intended
to provide Garden Botanika with the cash and liquidity to conduct its operations
and pay for inventory during the course of the Chapter 11 Case. The DIP
Facility, which was amended in the first quarter of fiscal 2000, consists of a
revolving line of credit in the amount of $7.0 million, subject to a borrowing
base calculated as the lesser of 70% of eligible inventory or 80% of the net
liquidation value, except that, for the period from September 15 to December 15,
the borrowing base is calculated as 90% of eligible inventory. A cash set-aside
for the benefit of creditors of approximately $1.6 million is also a part of the
borrowing base. The facility expires on the earlier of April 23, 2001 or the
Company's emergence from bankruptcy. The DIP Facility, which is secured by the
assets of the Company, bears interest at Fleet's prime lending rate plus one
percent (1.0%). In addition, the Company is obligated to pay a facility fee of
$3,000 monthly and an annual unused line fee of one quarter of one percent
(0.25%) of the average unused portion of the line. The Company is required to
maintain certain financial covenants, including covenants relating to earnings
and limitations on losses that vary from month to month. The DIP Facility also
contains restrictive covenants including, among other things, the mainte-



                                       6
<PAGE>   7

nance of inventory levels, limitations on the creation of additional
indebtedness and a prohibition on the payment of dividends. Excess availability
under the DIP Facility as of September 8, 2000 was $1.8 million. As of September
8, 2000, the Company had borrowed $2.7 million under the DIP Facility.

       The Company funded its net cash loss of $2.1 million (net loss before
depreciation and amortization) in the first six months of fiscal 2000 primarily
with existing cash of $2.4 million. While the Company did not access the DIP
Facility during the second quarter of fiscal 2000, it did so in the third
quarter of the year to build inventory in preparation for the holiday season and
fund current operations.

       The Company believes that its cash balance at the end of the second
quarter of fiscal 2000, combined with its cash flow from operations and
borrowings under its DIP Facility, will be sufficient to satisfy its currently
anticipated working capital and capital expenditure requirements through fiscal
2000. The Company's uses of capital for the remainder of fiscal 2000 are
expected to include working capital for operating expenses and satisfaction of
liabilities incurred subsequent to the Petition Date, expenditures related to
maintaining its stores, interest payments on outstanding borrowings and costs
associated with the Chapter 11 Case. The Company's future working capital
requirements consist primarily of the purchase of inventory, which is expected
to be maintained at the level of $55,000 per store, which is in addition to the
raw materials and components held at the Company's manufacturing facility and at
suppliers. The Company's capital requirements, and its ability to obtain
financing, may vary significantly from those anticipated, however, depending
particularly on operating results and other factors. The Company's long-term
liquidity and the adequacy of the Company's capital resources cannot be
determined until a plan of reorganization has been developed and confirmed in
connection with the Chapter 11 Case.

       As a debtor-in-possession, actions against the Company to collect
pre-petition indebtedness are stayed and certain contractual obligations may not
be enforced against the Company. With the approval of the Bankruptcy Court,
certain of these obligations may be paid prior to the confirmation of a
reorganization plan. To date, the Company has received approval to pay customary
obligations associated with the daily operations of its business, including the
timely payment of new inventory shipments, employee wages and other obligations.
The ultimate amount of, and settlement terms for, the Company's pre-petition
liabilities are subject to the approval of a plan of reorganization and,
accordingly, the timing and form of settlement are not presently determinable.



                                       7
<PAGE>   8

PART II - OTHER INFORMATION:


ITEM 1 - LEGAL PROCEEDINGS -

     On April 20, 1999, Garden Botanika filed a voluntary petition for relief
under the Bankruptcy Code, Chapter 11, Title 11 of the United States Code, with
the United States Bankruptcy Court for the Western District of Washington,
Seattle, Washington 98101, Case No. 99-04464. Under Section 362 of the
Bankruptcy Code, during the Chapter 11 Case, creditors and other parties in
interest may not, without Bankruptcy Court approval: (i) commence or continue
judicial, administrative or other proceedings against the Company that were or
could have been commenced prior to commencement of the Chapter 11 Case, or
recover a claim that arose prior to commencement of the case; (ii) enforce any
pre-petition judgments against the Company; (iii) take any action to obtain
possession of or exercise control over property of the Company or its estate;
(iv) create, perfect or enforce any lien against the property of the Company;
(v) collect, assess or recover claims against the Company that arose before the
commencement of the case; or (vi) set off any debt owing to the Company that
arose prior to the commencement of the case against a claim of such creditor or
party in interest against the Company that arose before the commencement of the
case.

     Although the Company is authorized to operate its business and manage its
properties as a debtor-in-possession, it may not engage in transactions outside
of the ordinary course of business without complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Bankruptcy Court approval. As a
debtor-in-possession, the Company has the right, subject to Bankruptcy Court
approval and certain other limitations, to assume or reject executory,
pre-petition contracts and unexpired leases. Any damages resulting from
rejection are treated as general unsecured claims in the reorganization case,
subject to certain limitations under the Bankruptcy Code.

     Under the Bankruptcy Code, as a general matter, a creditor's claim is
treated as secured only to the extent of the value of such creditor's
collateral, and the balance of such creditor's claim is treated as unsecured.
Generally, unsecured and undersecured debt does not accrue interest after the
Petition Date. Pre-petition claims that were contingent or unliquidated at the
commencement of the Chapter 11 Case are generally allowable against the Company
in amounts to be fixed by the Bankruptcy Court or otherwise agreed upon. These
claims, including without limitation those which arise in connection with the
rejection of executory contracts and leases, are expected to be substantial. The
Company has established certain reserves approximating what the Company believes
will be its liability under some of these claims.

       Inherent in a successful plan of reorganization is a capital structure
which permits the Company to generate sufficient cash flow after reorganization
to meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time, it is not
possible to predict the outcome of the Chapter 11 Case, in general, or the
effects of the Chapter 11 Case on the business of the Company or on the
interests of creditors.

ITEM 2 - CHANGES IN SECURITIES -

       None



                                       8
<PAGE>   9

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) Exhibits:

<TABLE>
<CAPTION>
      EXHIBIT
      NUMBER      DESCRIPTION
      -------     -----------
<S>               <C>
        27.1      Financial Data Schedule

        (b)       Reports on Form 8-K:
</TABLE>

       No reports on Form 8-K were filed during the second quarter of fiscal
2000.



                                       9
<PAGE>   10

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


September 11, 2000                /s/ William L. Lawrence, Jr.
------------------                ----------------------------------------------
Date                              William L. Lawrence, Jr.
                                  President and Chief Executive Officer
                                  (Principal Executive, Financial and Accounting
                                  Officer)



                                       10
<PAGE>   11

                              GARDEN BOTANIKA, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                       (UNAUDITED)
                                                                          29-Jul         29-Jan
                                                                           2000           2000
                                                                       -----------      --------
                                                                          (amounts in thousands)
<S>                                                                    <C>              <C>
                                     ASSETS
Current assets:
   Cash and cash equivalents                                             $    680       $  2,480
   Inventory liquidation receivable                                           650          2,382
   Inventories                                                              9,303          9,585
   Prepaid expenses:
     Rent                                                                     746            731
     Other                                                                  1,226          1,081
                                                                         --------       --------
       Total current assets                                                12,605         16,259

Property and equipment:
   Leasehold improvements                                                  19,450         19,450
   Furniture and equipment                                                  9,061          8,948
   Equipment under capital lease                                              261            261
                                                                         --------       --------
                                                                           28,772         28,659
   Less accumulated depreciation and amortization                         (17,525)       (16,041)
                                                                         --------       --------
     Net property and equipment                                            11,247         12,618

                                                                         --------       --------
       Total assets                                                      $ 23,852       $ 28,877
                                                                         ========       ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                      $  1,759       $  2,182
   Cash Overdraft                                                             799             --
   Reserve for store closing                                                  112            547
   Accrued salaries, wages and benefits                                       641          1,113
   Accrued sales tax                                                          214            496
   Garden Club- deferred revenue                                              941          1,263
   Other                                                                      158            517
                                                                         --------       --------
       Total current liabilities                                            4,624          6,118

Liabilities subject to compromise                                          18,390         18,390
Deferred rent and other                                                     1,692          1,632
                                                                         --------       --------
       Total liabilities                                                   24,706         26,140

Commitments Shareholders' (deficit) equity:
   Preferred Stock, $.01 par value;
     10,000,000 shares authorized; none issued and outstanding                 --             --
   Common  Stock, $.01 par value;
     36,092,374 shares authorized; 7,069,098 issued and outstanding        98,723         98,693
   Accumulated deficit                                                    (99,577)       (95,956)
                                                                         --------       --------
       Total shareholders' (deficit) equity                                  (854)         2,737

                                                                         --------       --------
       Total liabilities & shareholders' (deficit)equity                 $ 23,852       $ 28,877
                                                                         ========       ========
</TABLE>


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



                                       11
<PAGE>   12

                              GARDEN BOTANIKA, INC.
                            STATEMENTS OF OPERATIONS
                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                (UNAUDITED)                   (UNAUDITED)
                                                               QUARTER ENDED               SIX MONTHS ENDED
                                                          -----------------------       -----------------------
                                                           29-JUL         31-JUL         29-JUL         31-JUL
                                                            2000           1999           2000           1999
                                                          --------       --------       --------       --------
<S>                                                       <C>            <C>            <C>            <C>
Net sales                                                 $ 10,037       $ 13,477       $ 20,983       $ 31,416
Cost of sales (including buying and occupancy costs)         6,582          8,789         13,573         21,014
                                                          --------       --------       --------       --------
     Gross margin                                            3,455          4,688          7,410         10,402

Operating expenses:
   Stores and catalog                                        3,737          4,716          7,479         12,432
   General and administrative                                1,535          1,762          3,007          3,915
Provision for store closing                                     --             --             --          5,480
                                                          --------       --------       --------       --------
     Operating loss                                         (1,817)        (1,790)        (3,076)       (11,425)

Interest income (expense), net                                  (5)           (16)            31            (59)
Reorganization charges                                        (202)          (132)          (577)          (932)
                                                          --------       --------       --------       --------
     Net loss                                             $ (2,024)      $ (1,938)      $ (3,622)      $(12,416)
                                                          ========       ========       ========       ========


Net loss per share                                        $  (0.29)      $  (0.27)      $  (0.51)      $  (1.76)

Weighted average common and common equivalent shares         7,069          7,069          7,069          7,069
</TABLE>


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



                                       12
<PAGE>   13

                              GARDEN BOTANIKA, INC.
                            STATEMENTS OF CASH FLOWS
                             (amounts in thousands)


<TABLE>
<CAPTION>
                                                                                           (UNAUDITED)
                                                                                        SIX MONTHS ENDED
                                                                                     -----------------------
                                                                                      29-JUL         31-JUL
                                                                                       2000           1999
                                                                                     --------       --------
<S>                                                                                  <C>            <C>
Cash flows from operating activities:
   Net loss                                                                          $ (3,622)      $(12,416)
                                                                                     --------       --------
   Adjustments to reconcile net loss to net cash used by operating activities:
     Depreciation and amortization                                                      1,487          1,874
     Loss on retirement of property and equipment                                                        243
     Changes in assets and liabilities:
       Inventories                                                                        282          2,024
       Inventory liquidation receivable                                                 1,732             --
       Prepaid rent  and other assets                                                    (160)           606
       Accounts payable, accrued expenses and liabilities subject to compromise        (1,494)         5,416
       Deferred rent and other                                                             91           (996)
                                                                                     --------       --------
        Total adjustments                                                               1,938          9,167
                                                                                     --------       --------
        Net cash used by operating activities                                          (1,684)        (3,249)
                                                                                     --------       --------

Cash flows from investing activities:
   Additions to property and equipment                                                   (116)            --
                                                                                     --------       --------
        Net cash used by investing activities                                            (116)            --
                                                                                     --------       --------


(Decrease) increase in cash and cash equivalents                                       (1,800)        (3,249)
Cash and cash equivalents, beginning of period                                          2,480          4,295
                                                                                     --------       --------

Cash and cash equivalents, end of period                                             $    680       $  1,046
                                                                                     ========       ========
</TABLE>


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



                                       13
<PAGE>   14

GARDEN BOTANIKA, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 29, 2000 (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 Annual Report on Form 10-K dated April 28, 2000, which
has previously been filed with the Securities and Exchange Commission.

On April 20, 1999, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code and is presently operating its
business as a debtor-in-possession subject to the jurisdiction of the United
States Bankruptcy Court for the Western District of Washington. The Company's
financial statements have been prepared on a going-concern basis, which
contemplates continuity of operations, realization of assets, liquidation of
liabilities and commitments in the normal course of business. The Chapter 11
case, related circumstances and the losses from operations raise substantial
doubt about the Company's ability to continue as a going concern. The
appropriateness of reporting on a going-concern basis is dependent upon, among
other things, confirmation of a plan of reorganization and future profitable
operations. Realization of its assets and liquidation of its liabilities at
their recorded amounts is subject to significant uncertainty. While under the
protection of Chapter 11, the Company may sell or otherwise dispose of assets,
and liquidate or settle liabilities, for amounts other than those reflected in
the accompanying financial statements. The financial statements do not include
any adjustments relating to the recoverability of the value of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
as a consequence of a plan of reorganization.

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. In the calculation of weighted average common and common equivalent
shares, nonqualified stock options and warrants to purchase common stock are
considered common stock equivalents. Such options and warrants are converted
using the treasury stock method, which assumes that the shares issuable upon
exercise of the options or warrants were outstanding for the full period. In
accordance with generally accepted accounting principles, no common stock
equivalents are shown for the second quarter of either fiscal 2000 or 1999, as
their effect would have been anti-dilutive.

<TABLE>
<CAPTION>
                                                                                               (UNAUDITED)
                                                                                              QUARTER ENDED
                                                                                         (amounts in thousands,
                                                                                         except per share data)
                                                                                        -----------------------
                                                                                         29-JUL         31-JUL
                                                                                          2000           1999
                                                                                        --------       --------
<S>                                                                                     <C>            <C>
PRIMARY:
    Earnings -
         Net earnings (loss) applicable to common and common equivalent shares          $ (2,024)      $ (1,938)
                                                                                        ========       ========

    Shares -
         Weighted average common shares outstanding                                        7,069          7,069
         Net effect of stock options, based on treasury stock method using average
            market price (1)                                                                  --             --

                                                                                        --------       --------
  Weighted average common and common equivalent shares                                     7,069          7,069
                                                                                        ========       ========

 Primary earnings (loss) per common and common equivalent share                         $  (0.29)      $  (0.27)
                                                                                        ========       ========
</TABLE>

FULLY DILUTED:
    Fully diluted earnings (loss) per share is not presented, as there were no
    potentially dilutive securities.

4. The results of operations for the six months ended July 29, 2000 are not
necessarily indicative of the results to be expected for the full fiscal year.
In each of the past three fiscal years, 37% to 39% 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
others, increases or decreases in comparable store sales, adverse weather
conditions, shifts in the timing of holidays, shifts in the timing of promotions
and catalog mailings and changes in the Company's product mix.

5. In fiscal 1999, the Company closed 104 stores and recorded a provision for
closing an additional 39 stores in the amount of $8.4 million The provision
consisted of $2.7 million to cover estimated asset writeoffs, $7.7 million for
lease termination and other closure expenses offset by a credit of $2.0 million
as a reduction of the deferred rent liability for stores closed and to be
closed. All 39 of the additional stores identified for closure were closed in
the first quarter of fiscal 2000. As of July 29, 2000, the Company has a
liability for lease termination costs on the stores identified above in the
amount of $8.7 million recorded as liabilities subject to compromise on the



                                       14
<PAGE>   15

balance sheet. The carrying value of the long-lived assets of the 104 stores
closed in fiscal year 1999 was reduced under SFAS No. 121 in the fourth quarter
of fiscal 1998 as impaired.

6. In the Chapter 11 case, substantially all unsecured liabilities as of the
petition date are subject to compromise or other treatment under a plan of
reorganization to be confirmed by the bankruptcy court after submission to any
required vote by the affected parties. For financial reporting purposes, those
liabilities and obligations whose treatment and satisfaction are dependent on
the outcome of the Chapter 11 case have been segregated and classified as
liabilities subject to compromise in the accompanying balance sheet. The
ultimate amount of and settlement terms for such liabilities are subject to an
approved plan of reorganization and are not presently determinable. Included in
liabilities subject to compromise as of July 29, 2000 are pre-petition accounts
payable of $9.7 million and estimated lease termination costs of $8.7 million.



                                       15