<PAGE>
                                          
                                          
                         SECURITIES AND EXCHANGE COMMISSION

                               WASHINGTON, DC  20549

                                     FORM 10-Q      

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

                     For the quarterly period ended MAY 2, 1998

( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     
                        Commission File Number 0-20035


                                          
                               NATURAL WONDERS, INC.
               (Exact name of Registrant as specified in its charter)

          DELAWARE                                     77-0141610
(State or other jurisdiction of              (IRS Employer Identification No.)
incorporation or organization)                         

                 4209 TECHNOLOGY DRIVE, FREMONT, CALIFORNIA  94538
                      (Address of principal executive offices)
                                     (Zip code)

                                    510-252-9600
                (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       
                   -----              -----



Common stock outstanding as of May 30, 1998:  8,058,659 shares of common stock.

                                          
                                          
                                      1 of 12
                                          
                                          
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                               NATURAL WONDERS, INC.
                                       INDEX


<TABLE>

<CAPTION>
                                                                   Page
                                                                  Number

PART I.   FINANCIAL INFORMATION

<S>       <C>                                                       <C>
ITEM 1.   Financial Statements (Unaudited)

          Condensed Statements of Operations                        3
          Quarters ended May 2, 1998 and May 3, 1997

          Condensed Balance Sheets                                  4
          May 2, 1998, January 31, 1998 and May 3, 1997

          Condensed Statements of Cash Flows                        5
          Three months ended May 2, 1998 and May 3, 1997

          Notes to Condensed Financial Statements                   6-7

ITEM 2.   Management's Discussion and Analysis of                   8-11
          Financial Condition and Results of Operations

PART II.  OTHER INFORMATION                                           

ITEM 1.   Legal Proceedings                                         11

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                          11

          SIGNATURE                                                 12

</TABLE>

                                      2 of 12


<PAGE>




                 NATURAL WONDERS, INC.
            CONDENSED STATEMENTS OF OPERATIONS
        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                      (UNAUDITED)


<TABLE>
<CAPTION>

                                                           QUARTER ENDED
                                               ------------------------------------
                                                   MAY 2,                  MAY 3,
                                                   1998                    1997
                                                  -------                 -------

<S>                                           <C>                     <C> 
Net sales                                       $  23,265               $  22,236 
Cost of goods sold and
    store occupancy expenses                       19,438                  16,419 
                                                  -------                 -------
      Gross margin                                  3,827                   5,817 
Selling, general & administrative expenses         11,048                   9,173 
                                                  -------                 -------
      Operating loss                               (7,221)                 (3,356)


Interest expense                                       70                     156 
Interest income and other, net                        (27)                    (70)
                                                  -------                 -------
      Loss before taxes                            (7,264)                 (3,442)
Income tax benefit                                 (2,688)                 (1,343)
                                                  -------                 -------
      Net loss                                  $  (4,576)              $  (2,099)
                                                  -------                 -------
                                                  -------                 -------


Net loss per share, basic & diluted:            $   (0.57)              $   (0.26)



Shares used in computing per share amounts,
    basic and diluted:                              8,072                   7,988 

</TABLE>
                         See notes to financial statements

                                           3 of 12

<PAGE>


                NATURAL WONDERS, INC.
               CONDENSED BALANCE SHEETS
          (IN THOUSANDS, EXCEPT SHARE DATA)
                     (UNAUDITED)


<TABLE>
<CAPTION>


                                                           MAY 2,            JANUARY 31,          MAY 3,
                                                           1998                1998                1997 
                                                       ------------        ------------        ------------

                          ASSETS

<S>                                                   <C>                  <C>                 <C>
Current Assets:
   Cash and cash equivalents                          $       3,247        $      6,351        $      3,471 
   Short-term investments                                     3,002              13,400              13,000 
   Merchandise inventories                                   27,072              23,184              23,098 
   Prepaid expenses and other current assets                  7,798               5,332               6,374 
                                                       ------------        ------------        ------------
          Total current assets                               41,119              48,267              45,943 
Property and Equipment:
   Leasehold improvements                                    29,510              28,818              26,037 
   Property and equipment under capital lease                 4,993               4,993              13,181 
   Furniture, fixtures and equipment                         28,287              27,232              14,564 
                                                       ------------        ------------        ------------
                                                             62,790              61,043              53,782 
   Less accumulated depreciation and amortization           (33,760)            (32,200)            (27,871)
                                                       ------------        ------------        ------------
                                                             29,030              28,843              25,911 
Other Assets                                                  2,216               2,227               1,778 
                                                       ------------        ------------        ------------
Total Assets                                          $      72,365        $     79,337        $     73,632 
                                                       ------------        ------------        ------------
                                                       ------------        ------------        ------------



       LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities:
   Trade accounts payable                             $       8,423        $      7,997        $      6,876 
   Accrued compensation and related costs                     2,184               2,825               1,961 
   Accrued liabilities                                        4,119               3,636               2,629 
   Income taxes payable                                         312               1,857                 198 
   Current portion of capital lease obligations                 755                 866               1,603 
   Current portion of long-term debt                          1,235               1,405               1,547 
                                                       ------------        ------------        ------------
       Total current liabilities                             17,028              18,586              14,814 
Capital Lease Obligations                                       271                 461               1,019 
Long-Term Debt                                                  211                 683               1,769 
Deferred Rent                                                 3,723               3,805               3,971 
Commitments and Contingencies
Stockholders' Equity:
   Common stock, par value $.0001; authorized
   17,000,000 shares; issued
   8,155,709, 8,072,109 and 7,987,514 shares                      1                   1                   1 
   Capital in excess of par value                            34,746              34,528              34,252 
   Retained earnings                                         16,697              21,273              17,806 
                                                       ------------        ------------        ------------
                                                             51,444              55,802              52,059 

   Less: Treasury stock at cost:  67,800 shares                 312 


       Total stockholders' equity                            51,132              55,802              52,059 
                                                       ------------        ------------        ------------
Total Liabilities and Stockholders' Equity            $      72,365        $     79,337        $     73,632 
                                                       ------------        ------------        ------------
                                                       ------------        ------------        ------------
</TABLE>

          See notes to financial statements

                                              4 of 12


<PAGE>

                      NATURAL WONDERS, INC.
                CONDENSED STATEMENTS OF CASH FLOWS
                      (DOLLARS IN THOUSANDS)
                           (UNAUDITED)

<TABLE>
<CAPTION>


                                                                                THREE MONTHS ENDED
                                                                         -------------------------------
                                                                          MAY 2, 1998        MAY 3, 1997
                                                                         ------------        -----------

<S>                                                                       <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net Loss                                                              $    (4,576)      $     (2,099)
    Adjustments to reconcile net loss to
    net cash used in operating activities:
      Depreciation and amortization                                             1,683              1,542 
      Loss on sale of asset                                                       183 
      Change in operating assets and liabilities:
         Merchandise inventories                                               (3,888)            (2,569)
         Prepaid expenses and other assets                                     (2,455)            (2,183)
         Trade accounts payable                                                   426              1,701 
         Accrued compensation and related costs                                  (641)              (562)
         Accrued liabilities                                                      483                 29 
         Income tax payable                                                    (1,545)            (2,044)
         Deferred rent                                                            (82)               (52)
                                                                         ------------        -----------
  Net cash used in operating activities                                       (10,412)            (6,237)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments on capital lease obligations                               (301)            (1,687)
   Principal payments on long-term debt                                          (642)
   Purchase of treasury stock                                                    (312)
   Exercise of stock options and warrants                                         218                  2 
                                                                         ------------        -----------
   Net cash used in financing activities                                       (1,037)            (1,685)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of short-term investments                                         (6,902)            (3,200)
   Sales of short-term investments                                             17,300              8,100 
   Purchases of property and equipment                                         (2,053)            (1,174)
                                                                         ------------        -----------
  Net cash provided by investing activities                                     8,345              3,726 

NET DECREASE IN CASH AND CASH EQUIVALENTS                                      (3,104)            (4,196)

CASH AND CASH EQUIVALENTS:
   Beginning of year                                                            6,351              7,667 
                                                                         ------------        -----------
   End of period                                                          $     3,247       $      3,471 
                                                                         ------------        -----------
                                                                         ------------        -----------


CASH PAID DURING PERIOD:
   Interest                                                               $        76        $       157 
   Income taxes                                                           $     1,545        $     1,862 


</TABLE>

                                See notes to financial statements

                                               5 of 12

<PAGE>

                       NATURAL WONDERS, INC.
                       ---------------------

NOTES TO FINANCIAL STATEMENTS

1.   The financial statements are unaudited and reflect all adjustments
     (consisting only of normal recurring adjustments) which, in the opinion of
     management, are necessary for a fair presentation of the financial position
     and operating results for the interim periods.  The results of operations
     for the quarter ended May 2, 1998 are not necessarily indicative of the
     results to be expected for the entire fiscal year ending January 30, 1999.

     This financial information should be read in conjunction with the audited
     financial statements and notes thereto included in the Company's 1997
     Annual Report to Stockholders and Form 10-K for the fiscal year ended
     January 31, 1998 as filed with the Securities and Exchange Commission. 
     
2.   In June 1997, the Financial Accounting Standards Board issued Statements of
     Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
     which requires that an enterprise report, by major components and as a
     single total, the change in its net assets during the period from nonowner
     sources; and No. 131, "Disclosures about Segments of an Enterprise and
     Related Information" which establishes annual and interim reporting
     standards for an enterprise's operating segments and related disclosures
     about its products, services, geographic area, and major customers. 
     Adoption of these statements will not materially impact the Company's
     financial position, results of operations or cash flows.  Both statements
     are effective for fiscal years beginning after December 15, 1997, with
     earlier application permitted.

3.   Effective June 5, 1998, Natural Wonders, Inc. reached a negotiated
     settlement of the patent infringement claim disclosed in its annual report
     and Form 10K as of fiscal year end January 31, 1998. The claim involved the
     sale of product primarily in the company's fiscal years of 1996 and 1997
     ending January 28, 1997 and January 31, 1998 respectively. The current year
     impact of the settlement, including the cash settlement paid, legal
     expenses and reserves, net of amounts previously accrued, was approximately
     $525,000 or $0.04 per share.
     
4.   The Company has a credit facility agreement with a commercial bank, which
     includes a revolving line of credit for $12,000,000 which expires on June
     1, 1998. The line of credit is also available for the issuance of
     commercial and standby letters of credit up to $9,500,000 and $500,000
     respectively. The Company has the option of choosing interest payable at a
     rate based on LIBOR plus 1.5%, the bank's reference rate or a rate as
     quoted by the bank at the time of borrowing. The Company has a second
     credit facility with another commercial bank, which includes a revolving
     line of credit for $3,000,000 which expires on June 30, 1998. Commercial
     and standby letters of credit are also available up to $3,000,000. Both
     agreements contain restrictive covenants, which include achieving quarterly
     earnings/loss targets, maintaining certain financial ratios, and requiring
     bank consent for the payment of dividends. The Company was out of
     compliance with one of the banks as of May 2, 1998, and is in the process
     of renegotiating the terms of its lines. The Company believes it will be
     able to renew or replace such credit facilities on substantially similar
     terms.    


                                      6 of 12

<PAGE>


5.   In fiscal 1997 the Board of Directors of the Company authorized the
     repurchase of up to $2,000,000 of the Company's outstanding common stock.
     Beginning in February 1998, the Company began repurchasing stock and as of
     the end of the first quarter of fiscal 1998 had purchased 67,800 shares for
     a total of $312,000.


                                    7 of 12

<PAGE>


PART I.   FINANCIAL INFORMATION

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

RESULTS OF OPERATIONS
---------------------

GENERAL

     As of May 2, 1998, Natural Wonders operated 173 stores in 36 states
compared to 152 stores in 36 states as of May 3, 1997. In the first three months
of 1998, three new stores were opened and one store was closed as compared to
one new store opened in the first three months of fiscal 1997. 

SALES

     During the first quarter of 1998, sales increased 4.6% over the same period
in 1997. The increase was primarily due to new stores and to a full period of
sales generated from stores opened in 1997. Comparable store sales decreased
5.1% in the first quarter of 1998, as compared to the same period in 1997. The
decrease in the first quarter was primarily due to continued weakness in the
Discovery and Kids merchandizing areas.  

COST OF GOODS SOLD AND STORE OCCUPANCY EXPENSES

     Cost of goods sold and store occupancy expenses include distribution center
costs and other expenses associated with acquiring inventory.  As a percentage
of sales, these costs increased to  83.5% in the first quarter of 1998 from
73.8% in the first quarter of 1997.  The increase in costs as a percentage of
sales in the first quarter was primarily due to increased clearance and
promotional sales, store occupancy costs which increased as a percentage of
sales due to increased occupancy costs in new and acquired stores, and to the
impact of the reduction in comparable store sales on store occupancy fixed
expenses.
                                          
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses, (SG&A), are primarily
non-occupancy store expenses and corporate overhead. As a percentage of sales,
these costs increased to 47.5% in the first quarter of 1998 from 41.3% in the
first quarter of 1997. The increase in the costs as a percentage of sales in the
first quarter was primarily due to a legal settlement and costs, as well as
store payroll costs, which could not be fully leveraged with the decrease in
comparable store sales.

OPERATING INCOME

     As a result of the foregoing, the operating loss was $7,221,000 or 31.0% of
sales in the first quarter of 1998 versus $3,356,000 or 15.1% of sales in the
first quarter of 1997.  


                                8 of 12


<PAGE>


INTEREST AND OTHER, NET

     Interest and Other, Net decreased to 0.02% of sales in the first quarter of
1998 from 0.4 % of sales in the first quarter of 1997. The decrease was
primarily due to a decline in interest expense as a result of reduced average
borrowings. 

NET LOSS

     As a result of the foregoing, the net loss increased to $4,576,000 or 19.7%
of sales in the first quarter of 1998 from $2,099,000 or 9.4% of sales in the
first quarter of 1997.  

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     The Company's primary sources of capital in recent years have been net cash
flow from operations.  Seasonal working capital requirements have been met
through short-term bank borrowings.

     During the first three months of fiscal 1998, cash and cash equivalents
decreased $13,490,000. This was primarily due to seasonal operating losses,
(historically incurred in the first three fiscal quarters), an increase in
merchandise inventories and fixtures for new stores, the pay down of capital
lease and long-term debt obligations, and payments for new information systems
and income taxes. Additionally, in fiscal 1997 the Board of Directors of the
Company authorized the repurchase of up to $2,000,000 of the Company's
outstanding common stock. Beginning in February 1998, the Company began
repurchasing stock and as of the end of the first quarter of fiscal 1998 had
purchased 67,800 shares for a total of $312,000. Cash and cash equivalents were
positively impacted by the sale of short-term investments. 

     Compared to the first quarter in the prior year, cash decreased due to
higher seasonal operating losses and purchasing more inventory and equipment.
This was offset in part by higher accounts payable balances and sales of
short-term investments.

     During the remainder of 1998, the Company plans to open 6 new stores and,
during the holiday season, approximately 20 temporary store locations. The
Company anticipates that cash for the remainder of 1998 will primarily be used
for capital expenditures and merchandise inventory for new stores and temporary
locations, a new point-of-sale system for the stores, repayment of debt, and to
purchase inventory for the Company's existing stores, particularly prior to and
during the peak holiday selling season. 

     The Company has conducted a review of its computer systems to identify
those areas that could be affected by the Year 2000 issue.  The Company
presently believes, with the new merchandise and financial information system
placed in service in February 1998, the Year 2000 will not pose significant
operational problems.  The Company also believes that customers are not likely
to be affected by the Year 2000 issue.  There can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.  The
Company will utilize both internal and external resources to reprogram, or
replace, and test the software for the Year 2000 modifications.  The 
                                          
                                      9 of 12

<PAGE>


Company does not expect expenditures related to the Year 2000 issue to be
material and as such, costs associated with Year 2000 are not expected to have a
significant impact on the Company's results of operations, liquidity, or capital
resources.
     
     The Company has a credit facility agreement with a commercial bank, which
includes a revolving line of credit for $12,000,000 which expires on June 1,
1998. The line of credit is also available for the issuance of commercial and
standby letters of credit up to $9,500,000 and $500,000 respectively. The
Company has the option of choosing interest payable at a rate based on LIBOR
plus 1.5%, the bank's reference rate or a rate as quoted by the bank at the time
of borrowing. The Company has a second credit facility with another commercial
bank, which includes a revolving line of credit for $3,000,000 which expires on
June 30, 1998. Commercial and standby letters of credit are also available up to
$3,000,000. Both agreements contain restrictive covenants, which include
achieving quarterly earnings/loss targets, maintaining certain financial ratios,
and requiring bank consent for the payment of dividends. The Company was out of
compliance with one of the banks as of May 2, 1998, and is in the process of
renegotiating the terms of its lines. The Company believes it will be able to
renew or replace such credit facilities on substantially similar terms.

     The Company believes that current cash and short-term investments together
with its cash flow from operations, long-term debt and funds available under its
credit facility agreement will be sufficient to fund the Company's operations
for the next 12 months.

INFLATION AND SEASONALITY
-------------------------

     The Company does not believe that its operations have been materially
affected by inflation during the three recent fiscal years or in 1998 to date.
However, there is no assurance that its business will not be affected by
inflation in the future.

     The Company's business is subject to substantial seasonal variations in
demand. Historically, a significant portion of the Company's sales and
substantially all its net earnings have been realized during the fourth quarter
(which includes the November/December holiday season), and levels of sales and
net earnings have been significantly lower in the first three quarters, usually
resulting in losses in these quarters. If for any reason the Company's sales
were substantially below seasonal norms during the months of November and
December, the Company's annual results would be adversely affected. The
Company's quarterly results of operations may fluctuate significantly as a
result of comparable store sales levels, the timing of new store openings and
the amount of revenue contributed by new stores.

ACCOUNTING PRONOUNCEMENTS
-------------------------

In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from non-owner sources; and No.
131, "Disclosures about Segments of an Enterprise and Related Information" which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic area,
and major customers.  Adoption of these statements will not materially impact
the Company's financial position, results of operations or cash flows.  Both
statements are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
                                      10 of 12
<PAGE>
     
                                          
FUTURE RESULTS
--------------

     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.




PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

Effective June 5, 1998, Natural Wonders, Inc. reached a negotiated settlement of
the patent infringement claim disclosed in its annual report and Form 10K as of
fiscal year end January 31, 1998. The claim involved the sale of product
primarily in the company's fiscal years of 1996 and 1997 ending January 28, 1997
and January 31, 1998, respectively. The current year impact of the settlement,
including the cash settlement paid, legal expenses and reserves, net of amounts
previously accrued, was approximately $525,000 or $0.04 per share.

     
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     A.   EXHIBITS
          Exhibit 11.1   Computation of Per Share Loss
          Exhibit 27.1   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 first quarter of fiscal 1998.


                                  11 of 12


<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:  June 16, 1998
                              NATURAL WONDERS, INC.
                                 (Registrant)      



                              /s/ Peter G. Hanelt
                              ______________________________________
                              Peter G. Hanelt,
                                Acting Chief Executive Officer,
                              Chief Financial Officer 
                              (Signing on behalf of the registrant and
                              as Principal Accounting and Financial Officer)
                              
                              

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