TABLE OF CONTENTS



UNITED STATES



SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549





FORM 10-K



(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 27, 2003

OR

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



Commission file number 0-21577





WILD OATS MARKETS, INC.(Exact name of registrant as specified in its charter)



Delaware
    84-1100630(State or other
    jurisdiction of
    (I.R.S. Employer
    Identification Number)Incorporation or
    organization)






3375 Mitchell Lane
Boulder, Colorado 80301(Address of principal executive offices, including zip code)



(303) 440-5220(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act:





Title of Each Class



Common Stock, $.001 par value



Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K:

Yes       ( X )       No       (
   )

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 is an accelerated filer
(as defined in Exchange Act Rule 12b-2):

Yes       ( X )       No       (
   )



The aggregate market value of the voting common stock held by
non-affiliates was $310,522,421, as computed by reference to the price at which the common
stock was sold as reported by NASDAQ National Market, as of the last business day of the
Registrants most recently completed second fiscal quarter and the total number of
shares of common stock outstanding as of March 1, 2004 held by non-affiliates.



As of March 1, 2004, the total number of shares outstanding of the
Registrants common stock, $.001 par value, was 3,231,749 shares.







DOCUMENTS INCORPORATED BY REFERENCE



Portions of the definitive Proxy Statement for the Registrants
Annual Meeting of Stockholders to be held on May 6, 2004, have been incorporated by
reference into Part III of this report.



TABLE OF CONTENTS

|PART I.   |  |                                                                                                      |   
|--------- |  | ---------------------------------------------------------------------------------------------------- | --
|          |  |                                                                                                      |   
|Item 1.   |  | Business                                                                                             | 3 
|          |  |                                                                                                      |   
|Item 2.   |  | Properties                                                                                           | 11
|          |  |                                                                                                      |   
|Item 3.   |  | Legal Proceedings                                                                                    | 13
|          |  |                                                                                                      |   
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                  | 13
|          |  |                                                                                                      |   
|          |  |                                                                                                      |   
|PART II.  |  |                                                                                                      |   
|          |  |                                                                                                      |   
|Item 5.   |  | Market for Registrants Common Equity and
      Related Stockholder Matters                          | 14
|          |  |                                                                                                      |   
|Item 6.   |  | Selected Financial Data                                                                              | 15
|          |  |                                                                                                      |   
|Item 7.   |  | Managements Discussion and Analysis of
      Financial Condition and Results of Operations          | 16
|          |  |                                                                                                      |   
|Item 7A.  |  | Quantitative and Qualitative Disclosures About
      Market Risk                                     | 34
|          |  |                                                                                                      |   
|Item 8.   |  | Financial Statements and Supplementary Data                                                          | 35
|          |  |                                                                                                      |   
|Item 9.   |  | Changes In and Disagreements With Accountants on
      Accounting and Financial Disclosure           | 76
|          |  |                                                                                                      |   
|Item 9A.  |  | Controls and Procedures                                                                              | 76
|          |  |                                                                                                      |   
|PART III. |  |                                                                                                      |   
|          |  |                                                                                                      |   
|Item 10.  |  | Directors and Executive Officers of the Registrant                                                   | 77
|          |  |                                                                                                      |   
|Item 11.  |  | Executive Compensation                                                                               | 77
|          |  |                                                                                                      |   
|Item 12.  |  | Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters | 77
|          |  |                                                                                                      |   
|Item 13.  |  | Certain Relationships and Related Transactions                                                       | 77
|          |  |                                                                                                      |   
|Item 14.  |  | Principal Accountant Fees and Services                                                               | 77
|          |  |                                                                                                      |   
|PART IV.  |  |                                                                                                      |   
|          |  |                                                                                                      |   
|Item 15.  |  | Exhibits, Financial Statements, Financial Statements
      Schedules and Reports on Form 8-K         | 78
|          |  |                                                                                                      |   



PART I.



Item 1.

BUSINESS



Who are we:



Wild Oats Markets, Inc. ("Wild Oats") is one of the largest
natural foods supermarket chains in North America. As of March 1, 2004, we operated 102
natural foods stores in 24 states and British Columbia, Canada under several names,
including:



- Wild Oats Natural Marketplace (nationwide)

- Henrys Marketplace (San Diego and Orange County, CA)

- Sun Harvest Farms (Texas)

- Capers Community Market (British Columbia, Canada)



We are dedicated to providing a broad selection of high-quality
natural, organic and gourmet foods, environmentally friendly household products and the
most extensive selection of natural vitamins, supplements, herbal and homeopathic remedies
and body care products at competitive prices, in an inviting and educational store
environment that emphasizes customer service. Our stores feature natural alternatives for
virtually every product category found in conventional supermarkets. Wild Oats
provides its customers with a one-stop, full-service shopping alternative to both
conventional supermarkets and traditional health food stores, with an emphasis on great
tasting fresh foods, education and information on wellness issues. Our comprehensive
selection of natural and organic products appeals to health-conscious shoppers while
offering virtually every product category found in a conventional supermarket, including
dry grocery, produce, meat, poultry, seafood, dairy, frozen, prepared foods, bakery,
vitamins and supplements, health and body care, and household items. Our unique
positioning, coupled with industry data that states that the natural products industry
currently comprises less than 5% of the total grocery industry, offers significant
potential for us to continue to expand our customer base.





A Recap of 2003



Wild Oats sales grew from $919.1 million in 2002 to a record
$969.2 million in fiscal 2003, an overall sales growth of 5.4%. Our improvements in sales
resulted from the addition of eight new stores, nationwide increases in comparable store
sales resulting from a number of successful operational, merchandising and marketing
initiatives, and the positive impact of an extensive strike at conventional grocery stores
in southern California beginning in October 2003.



Fiscal 2003 was a year in which many of the initiatives commenced in
2001 and 2002 were refined and fully implemented. These initiatives included:

- Consolidation of brand names through the renaming of our Natures(R)stores in the northwest to Wild Oats Natural
      Marketplace(R).
- Completion of our SKU rationalization program and implementation of a centralized
      authorized product list.
- Refinement of our brand identity as a leader in the natural and organic products
      industry and as a resource for information and education for our customers.
- Redesign and relaunch of our new lines of private label products.
- Refinement of our prototype floor plans for both our natural foods supermarket and
      farmers market formats, and the construction of eight new stores using those prototypes.



We continue to focus on growth through new store development in areas
where we already had a market presence. In 2003, we opened eight new stores: Henrys
Marketplace stores in Chino Hills and Costa Mesa, California; and Wild Oats stores in
Littleton, Colorado; Louisville and Lexington, Kentucky; Portland, Maine; Franklin,
Tennessee and Salt Lake City, Utah. Of these new stores, four were in existing markets,
one was a relocation and three were in new markets. We also closed four under-performing
stores: in Tucson, Arizona; Irvine and Los Angeles, California; and Nashville, Tennessee
(which store was relocated to a larger facility). During 2004 through the date of this
report, we opened one additional store in Colorado Springs, Colorado, closed one store in
Phoenix, Arizona and sold one store in New York, New York. As a result, as of March 1,
2004, we had 102 stores located in 24 states and Canada, as compared to 99 stores in 23
states and Canada as of the end of fiscal 2002. A summary of store openings, acquisitions,
closures and sales is as follows:

| |                                        |  | TOTAL STORE
    COUNT
| | -------------------------------------- |  | ---------------------
| |                                        |  |                      
| |                                        |  |                      
| |                                        |  |                      
| |                                        |  |                      
| |                                        |  |                      
| | Store count at beginning of
    period |  |                      
| | Stores opened                          |  |                      
| | Stores acquired*                       |  |                      
| | Stores closed                          |  |                      
| | Stores sold                            |  |                      
| |                                        |  |                      
| | Store count at end of
    period       |  |                      
| |                                        |  |                      

*Includes 24 stores added through two pooling-of-interest transactions
in 1999

> 

Wild Oats was in the forefront in fiscal 2003 in addressing national
concerns regarding the safety of our food chain and health and wellness issues raised by
our daily lifestyles. Food safety concerns arising from the discovery of the first U.S.
case of Bovine Spongiform Encephalopathy (BSE), commonly known as "Mad Cow"
disease, and published reports of PCBs in farmed salmon, as well as continued concerns
about the use of antibiotics and growth hormones in livestock and pesticide residues on
fruits and vegetables, focused consumer awareness on natural and organic foods as a safer
alternative to conventional products. In response, Wild Oats promoted its "worry-free
beef"  100% vegetarian fed, to reduce the risk of BSE, and like all of our
meats, raised without added hormones or antibiotics. We also introduced an exclusive line
of PCB free Irish salmon, and as always, offered our customers a bountiful selection of
organic fresh and frozen fruits and vegetables with no pesticide residues. Increases in
public awareness of obesity and in Type II diabetes and other diseases linked to obesity
and nutrition, raised the consumers awareness of wellness, and in response, Wild
Oats removed products containing hydrogenated or "trans fats" from its shelves.
The growing popularity of various diets, such as low carbohydrate diets, and consumer
demand for specialty products to address dietary restrictions arising from medical
conditions, such as gluten-free products, increased consumer interest in the nutritional
content of food, and Wild Oats responded by creating new signage and shopping guides to
identify lower carbohydrate and gluten-free products.



Natural products industry

Retail sales of natural products have grown from $7.6 billion in 1994
to $17.4 billion in fiscal 2002, a compound growth rate of 10.9%, and total sales of
natural products (including over the internet, by practitioners, by multi-level marketers
and through mail order) reached $36.4 billion in fiscal 2002, a 7% increase over the prior
year (Natural Foods Merchandiser, June 2003). Sales growth in the traditional
grocery industry has remained relatively flat over the same period. We believe that this
growth reflects a broadening of the natural products consumer base, which is being
propelled by several factors, including healthier eating patterns, increasing concern
regarding food purity and safety, and greater environmental awareness. While natural
products generally have higher costs of production and correspondingly higher retail
prices, we believe that more of the population now attributes added value to high-quality
natural products and is willing to pay a premium for such products, although overall
industry growth may slow slightly due to the softening economy. Despite the increase in
natural foods sales within conventional supermarkets, we believe that conventional
supermarkets still lack the total shopping experience that natural foods stores offer.



Operating strategy

Our objective is to become the grocery store of choice both for natural
foods shoppers and quality-conscious consumers in each of our markets by emphasizing the
following key elements of our operating strategy:

Destination format. Our stores are one-stop, full-service
supermarkets for customers seeking high-quality natural and gourmet foods and related
products. Our prototype stores range from 26,000 to 32,000 square feet, and offer a wide
range of stock-keeping units of natural foods products in virtually every product category
found in a conventional supermarket. Our stores carry a much broader selection of natural
and gourmet foods and related products than those offered by typical independent natural
foods stores or conventional supermarkets.

Highest standards in the industry. We seek to offer the highest
quality products throughout our merchandise categories, and emphasize unique products and
brands not typically found in conventional supermarkets. We believe our product standards
are the highest in the industry. We routinely conduct quality assurance checks of our
manufacturers facilities to verify compliance with our standards. Each of our stores
tailors its product mix to meet the preference of its local market, and where cost of
goods and distribution logistics allow, source produce from local organic growers. We also
operate regional commissary kitchens and bakeries that provide our stores with fresh
bakery items and an unique assortment of prepared foods for the quality- and
health-conscious consumer.

Educational and entertaining store environment. Each store strives
to create a fun, friendly and educational environment that makes grocery shopping
enjoyable, encouraging shoppers to spend more time in the store and to purchase new
products. In order to enhance our customers understanding of natural foods and how
to prepare them, we train our store staff to educate customers as to the benefits and
quality of our products and prominently feature educational brochures, newsletters, and
in-store demonstrations and product samplings, as well as an in-store consumer information
department. Computer kiosks offer access to our website and informational databases on
health issues. Many stores offer cafe seating areas, and espresso and fresh juice bars,
all of which emphasize the comfortable, relaxed nature of the shopping experience. We
believe our knowledgeable store staff and high ratio of store staff to customers results
in significantly higher levels of customer service.

Extensive community involvement. We seek to engender customer
loyalty by demonstrating our high degree of commitment to the local communities in which
we operate. Each store makes significant monetary and in-kind contributions to local
not-for-profit organizations through programs such as "5% Days," where a store
may, once each calendar quarter, donate 5% of its net sales from one day to a local
not-for-profit group, and a "Charity Work Benefit" where we pay employees for
time spent volunteering for local charities. We also offer eScripTMwhich
allows customers to donate to the charity or school of their choice. In 2003, we
introduced Natureworks PCA, a compostable deli container made from corn in an effort to
minimize the impact of our stores on the environment.

Multiple store formats. We operate in one operating segment, retail
grocery, with two store formats: natural foods supermarkets, which emphasize natural and
organic products and high-quality service; and farmers market stores, which emphasize
fresh produce, natural living products and price value. While each format has the same
core demographic customer profile, differing demographic appeals of each of the formats
allows us to operate successfully in a diverse set of markets, enabling us to reach a
broader customer base, increase our market penetration and have greater flexibility with
real estate selection.

Competitive pricing. We seek to offer products at prices that are
competitive with those of other natural foods stores and conventional markets. Our
"Wild Buy" program offers a large weekly selection of unadvertised, in store
specials, while our flyer continues to offer aggressive advertised specials on items our
customers want most. We believe these pricing programs broaden our consumer appeal and
encourage our customers to fulfill more of their shopping needs at our stores.

Educated Staff. To ensure a high level of customer service, our
staff is trained in product knowledge, customer service and selling techniques. We believe
our new training programs have increased staff retention and improved customer
satisfaction. Our newest prototypes emphasize education of and information for our
customers, and our staff training programs are being modified to ensure that staff can
answer health, wellness and product questions, or have the tools to research and respond
to customer requests.



Growth strategy

Our growth strategy is to increase total year-over-year sales and
income through:

- Improved guest service and store execution
- Opening of new stores
- Increased consumer awareness of Wild Oats as a brand and a destination
- Introduction of new products, including private label lines

We intend to continue our expansion strategy by increasing penetration
in existing markets and expanding into new regions that we believe are currently
underserved by natural foods retailers. While we believe that most of our store expansion
will result from new store openings, we may continue to evaluate acquisition opportunities
in both existing and new markets.

We currently have leases and letters of intent signed for 30 new stores
to be opened or relocated in the remainder of fiscal 2004 or fiscal 2005. The proposed
sites are in Arizona; California; Colorado; Florida; Indiana; Nebraska; Nevada; Ohio;
Oregon; and Utah. These include locations for both our Wild Oats Natural Marketplace and
Henrys Marketplace stores. In 2004, we plan to open 15 new stores, including several
in metropolitan Phoenix, Arizona; several in metropolitan San Diego and Los Angeles,
California; Colorado Springs (already open) and Superior, Colorado; Indiana; Nebraska;
Ohio; metropolitan Portland, Oregon, and Salt Lake City, Utah.

Changes in store base. In fiscal 2003, we opened eight new stores.
We closed four under-performing stores: Irvine and Los Angeles, California, one in Tucson,
Arizona, and one in Nashville, Tennessee, which was relocated to a larger building. Of the
closed stores, one lease has been terminated through agreement with the landlord, two have
been sublet to other tenants and one currently remains vacant. As of the date of this
report, we also have sold one 2,500 square foot store that did not fit our format in New
York, New York.

Our new prototype design for our Wild Oats natural foods supermarket
format stores was unveiled in our new store in Long Beach, California in April of 2002,
and features an expanded produce department, a relocated natural living department with
lower shelving, softer flooring and reading, areas to encourage customers to take
advantage of the health and nutrition literature available; liquid and dry bulk goods in
the same merchandising area; an expanded deli area redesigned to focus the staffs
attention on the customer, even when working on food preparation; and a warm and inviting
new decor. In fiscal 2003 all our new Wild Oats stores were built according to this
prototype, and we also opened the first two of our new farmers market prototype stores in
Costa Mesa and Chino Hills, California. Our new farmers market prototype features a larger
square footage, and expanded deli, meat/seafood and bakery departments. On average, stores
built according to our new prototypes perform better upon opening than prior store models.

Year-over-year comparable store sales growth. Comparable store
sales (we deemed sales of a store comparable commencing in the 13th full month
of operations) increased 2.4% in fiscal 2003, as compared to 5.2% increase in fiscal 2002,
primarily due to improved store execution resulting in increased sales nationwide, as well
as increased store sales due to the conventional grocery store strike in southern
California in 20 of our stores in the comparable base.



Products

Overview. We offer our customers a broad selection of unique,
high-quality products that are natural alternatives to those found in conventional
supermarkets. We generally do not offer well-known national conventional brands and focus
instead on a comprehensive selection of natural branded products within each category.
Although the core merchandise assortment is similar at each of our stores, individual
stores adapt the product mix to reflect local and regional preferences. Our stores source
produce from local organic growers whenever possible and typically offer a variety of
local products unique to the region. In addition, in certain markets, our stores may offer
more prepared foods, gourmet and ethnic items, as well as feature more value-added
services such as gift baskets, catering and home delivery, while in other markets, a store
may focus more on bulk foods, produce and staple grocery items. We regularly introduce new
high-quality and locally grown products in our merchandise selection to minimize overlap
with products carried by conventional supermarkets.

We continue to evaluate our product selection based not just on taste
and price, but also in relation to our mission and values, which emphasize accountability
and giving back to our communities as two key values of our business. In keeping with our
mission and values, in fiscal 2003, we completed Fair Trade purchasing agreements for
coffee and bananas, which ensures a fair price for these products to our foreign growers
to support higher standard of living. We removed products containing hydrogenated oils
from our stores and added new and informative signage regarding food safety in our seafood
and meat departments. In the first quarter of fiscal 2003, we removed all products
containing ephedra, which was later banned by the FDA in 2004 for safety reason.

We intend to continue to expand and enhance our prepared foods,
value-added items (such as marinated or stuffed meats and seafood) and in-store cafe
environment. We believe that consumers are increasingly seeking convenient, healthy,
"ready-to-eat" meals and that by increasing our commitment to this category we
can provide an added service to our customers, broaden our customer base and further
differentiate our stores from conventional supermarkets and traditional natural foods
stores.

A continued inability in 2003 to realize projected supply chain
efficiencies resulted in some distribution disruptions during fiscal 2003, and did not
allow us to take advantage of certain leveraged buying opportunities. In the fourth
quarter, we announced that we would be switching our primary distribution relationship to
United Natural Foods, Inc. ("UNFI"), and we are currently in that transition,
which is expected to be substantially completed in the first quarter of 2004.

Quality standards. Our objective is to offer products that taste
great and meet the following standards:

- Foods free of preservatives, artificial colors, synthetic additives and added hormones
- Locally and organically grown produce and regional products, whenever possible
- Personal care and household items that are not tested on animals

We continually evaluate new and existing products and vendors. We also
track controversial and innovative industry issues to keep our customers well-informed
about product trends. Before a new product can be approved for purchase by the stores, our
Standards Department reviews the product for compliance with the following, amongst other
criteria:

- No added hormones, antibiotics or animal by-products in feed.
- No artificial colorings, flavorings or additives.
- Use of environmentally and socially responsible practices.

In fiscal 2003, in our Wild Oats stores, we introduced an exclusive
line of Irish farmed salmon without the PCB contamination issues of some farmed salmon.
Our beef products are never fed animal by-products, to eliminate the concern of potential
infection with BSE or "Mad Cow" disease.

Private label. The natural foods industry is highly fragmented and
characterized by many small independent vendors. As a result, we believe that our
customers do not have strong loyalty to particular brands of natural foods products. In
contrast to conventional supermarkets whose private label products are intended to be
low-cost alternatives to name-brand products, we developed our "Wild Oats

Pricing. In general, natural and gourmet foods and related products
have higher costs of production and correspondingly higher retail prices than conventional
grocery items. Our pricing strategy has been to maintain prices that are at or below those
of our natural foods competitors while educating our customers about the higher quality
and added value of our products to differentiate them from conventional products. Like
most conventional supermarkets, we regularly feature dozens of sale items, and we use an
advertising flyer program featuring a broad selection of sale items from all departments.
Our flyers feature strong sale pricing on selected perishable products, as well as
advertised sales on a broad selection of grocery, frozen foods, vitamins, supplements and
body care products. In-store unadvertised "Wild Buys" add variety and encourage
frequent shopping trips by our customers. Sale items are promoted through a variety of
media, including direct mail, newspapers and in-store flyers. We regularly monitor the
prices at natural foods and conventional supermarket competitors to ensure our prices
remain competitive.



Company culture and store operations

Company culture. Our culture is embodied in our mission statement:



"Wild Oats was founded on the vision of enhancing the lives of our
customers and

our people with products and education that support health and
well-being.



Wild Oats is committed to providing the highest quality, fresh and
natural food,

and health and wellness products in vibrant stores with people who are

friendly, eager and ready to educate.



At Wild Oats, we sell food that remembers its roots."



Our values of service, integrity, quality, giving back to our
communities, increasing value for our stakeholders (which include our stockholders, our
employees and our communities) and accountability were adopted to support our mission
statement. As part of our values, we believe that knowledgeable, satisfied and motivated
staff members have a positive impact on store performance and overall profitability. We
have implemented product knowledge training programs for certain departments to ensure
that staff receive consistent training on issues affecting the products they sell. We will
continue to focus on customer service in the coming years, with training for existing
staff as well as new employees. In fiscal 2003, we continued to enhance our staff level
training with structured programs, built a strong network of certified trainers in each
store, improved our training for new store openings and introduced classes on selling
skills. Additionally, we focused attention on our store leadership and delivered training
to managers in many key areas.

Management and employees. Our stores are organized into five
geographic regions, each of which has a regional director who is responsible for the store
operations within his or her region and who reports to our senior management. The regional
directors are responsible for, and frequently visit, their cluster of stores to monitor
financial performance and ensure adherence to our operating standards. We maintain a staff
of corporate level department specialists including natural living, food service, produce
and floral, meat/poultry/seafood and grocery merchandising directors who manage
centralized buying programs and formulate store-level merchandising, pricing and staff
training to ensure company-wide adherence to product standards and store concept service
expectations.

Staff members at the store and regional levels participate in incentive
plans that tie compensation awards to the achievement of specified store-level or
region-wide sales, profitability and other performance criteria. We also seek to foster
enthusiasm and dedication in our staff members through comprehensive benefits packages,
including health and disability insurance, an employee stock purchase plan and an
employer-matching 401(k) plan.



Purchasing and distribution

We have centralized merchandising departments for each major product
category. These departments set product standards, approve products and negotiate volume
purchase discount arrangements with distributors and vendors. The wholesale segment of the
natural foods industry provides a large and growing array of product choices across the
full range of grocery product categories. In 2001, we announced that we signed a new
primary distribution arrangement with Tree of Life, Inc. ("TOL"). Unfortunately,
the parties were never able to take advantage of the operational and purchasing synergies
offered by that arrangement, and in the fourth quarter of fiscal 2003, we announced that
the parties would be terminating the relationship and that Wild Oats would be converting a
secondary contract with UNFI to a primary relationship. We entered into a new primary
distribution agreement with UNFI in January of 2004.  The distribution arrangement
commences effective April 1, 2004 and has a five-year term. Either party may terminate the
agreement for defaults by the other party of certain provisions of the agreement. Under
the terms of the new agreement, we are obligated to purchase a majority of certain
specified categories of goods for sale in our U.S. stores from UNFI, except in certain
defined circumstances when such purchasing obligation is excused. We believe UNFI has
sufficient warehouse capacity and distribution technology to service our existing stores'
distribution needs for natural foods and products as well as the needs of new stores in
the future. We will receive, as part of the new agreement, a transition fee payable over
the term of the agreement and subject to the Company meeting certain minimum purchase
requirements, to offset a portion of the transition costs incurred during the transition
of our primary distribution relationship to UNFI. These costs include, but are not limited
to, the cost of retagging store shelves, modification of product inventory, disposal of
discontinued products, resetting of products on store shelves and training of store
personnel in new procedures.  We have since entered into a secondary contract with
TOL. In the first quarter of 2004, we began the process of transitioning from TOL to UNFI,
and expect that the process will be substantially completed by the end of the first
quarter of 2004. To date, the transition has not resulted in any unusual or unexpected
disruptions in product supply.

We currently operate two warehouse facilities in Riverside, California
and in San Antonio, Texas, which receive and distribute purchases of produce and grocery
items that cannot currently be delivered cost effectively directly to the stores by
outside vendors. In February 2004, we brought on-line a new, state-of-the-art 241,000
square foot perishable goods Distribution Center ("DC") to service our stores
located in the western United States. We believe this facility will improve the quality
and freshness of the perishable products we sell in our stores by providing the
appropriate ambient temperature from arrival at our docks to loading on outgoing trucks.
As we enter new markets, we will evaluate the need for additional warehouse and
distribution facilities.

We operate commissary kitchens in Phoenix, Arizona; Denver, Colorado;
Portland, Oregon and Vancouver, British Columbia, Canada. These facilities produce deli
food, take-out food, bakery products and certain private label items for sale in our
stores. Each kitchen can make deliveries to stores within a certain radius of the
facility. We will evaluate the need for new commissary kitchens as we expand into new
markets. For stores outside the delivery area of our commisary kitchens, the food service
department produces their own goods from standard recipes.



Marketing

We recognize the importance of building brand awareness within our
trade areas and advertise in traditional media outlets such as radio, newspapers, outdoor
and direct mail to gain new customer trial and repeat business. During the second half of
fiscal 2003, we reduced the frequency of advertising flyer inserts for our natural foods
supermarket format to bi-weekly (from weekly) and redeployed these efforts into other
consumer communication vehicles. During the second half of fiscal 2003, we shifted our
distribution strategy to target consumers based on demographic information, distributing
less often to a smaller, but more targeted group. We anticipate continuing this program in
fiscal 2004. Our farmers market format stores primarily use flyers and "weekly
specials" advertising to generate consumer interest and drive customer traffic.

We also focus on in-store consumer education through the use of a
variety of media, including in-store flyers, informational brochures and signage that
promote the depth of our merchandise selection, benefits of natural products and
competitive prices. When we first enter a new market, we execute an intense marketing and
public relations campaign to build awareness of our new store and its selection of natural
products. After the initial campaign, this advertising is supplemented by the marketing
strategies described above, as the same are tailored to the unique circumstances of the
new store. Our public relations department promotes the Company and its achievements,
manages a consistent flow of internal and external communications and assists in educating
consumers about our position on issues of importance, such as genetically modified foods
and the use of antibiotics in livestock production. This group also plans and implements
media coverage and community events as part of our grand opening celebrations at our new
stores.

Advertising costs net of vendor reimbursement for stores averaged 1.5%
of sales in fiscal 2003. We offset a certain amount of such costs through a promotional
program with our vendors, which allows for different degrees of promotional participation
by the vendor in our weekly flyers. Advertising costs net of vendor reimbursement for
stores averaged 1.4% of sales in fiscal 2002.



Management information systems

Our management information systems have been designed to provide
detailed store-level financial data, including sales, gross margin, payroll and store
contribution, to regional directors and store directors and to our headquarters on a
timely basis. We determined that our ability to control costs would be increased by
capital improvements in technology and software. In fiscal 2003, we made substantial
investments in information systems, and implemented a number of information management
initiatives intended to make us more competitive in the marketplace, including the
following:

- An enterprise-wide financial planning, sales forecasting and budgeting tool for multiple
      scenarios, levels of detail, and what-if analysis;
- An in-store signage and shelf tag printing system controlled by our home office. The
      system provides better accuracy of POS signage and shelf labels, more efficient
      production, and a more consistent look of signage from store to store; and
- A scale hosting system, which enables us to control space pricing, product descriptions,
      ingredients, cooking instructions and other printed material on weighed items.

In fiscal 2003, we commenced implementation of a back-door
replenishment program, a structured and integrated technology-based process for product
ordering, vendor electronic data interchange (EDI), vendor replenishment and store
back-door receiving and accounting. The back-door replenishment program will improve
verification of the accuracy of deliveries and increase the efficiency of our warehouse
and in-store receiving departments, as well as provide more control over inventory costs,
and quantity and overstock. We expect to complete the implementation of this program in
the natural foods supermarket format stores in the third quarter of fiscal 2004.

> In fiscal 2004, we intend to commence implementation of :

- Automated Labor Scheduling system to forecast employee schedules based on holidays,
      special events, high sales periods, employee availability and employee status;
- Time and Attendance system for managing and controlling labor costs at all locations;
      and
- Warehouse Management System for our new distribution warehouse in Riverside, California.
      This also includes a suite of applications for electronic ordering and receiving of
      product, invoice matching and integration to our financial accounting system.



Competition

Our competitors currently include other independent and multi-unit
natural foods supermarkets, smaller traditional natural foods stores, conventional
supermarkets and specialty grocery stores. While certain conventional supermarkets,
smaller traditional natural foods stores and small specialty stores do not offer as
complete a range of products as we do, they compete with us in one or more product
categories. In recent years, several of the larger conventional grocers have added or
expanded specialty sections in their stores devoted specifically to natural and organic
foods and body care products, and have expanded their offerings of vitamins and
supplements. We believe that these specialty sections do not offer the customer service,
product selection and depth of product knowledge that we offer in our stores.

A number of other natural foods supermarkets offer a range of natural
foods products similar to those offered in our stores. We believe that the principal
competitive factors in the natural foods industry include customer service, quality and
variety of selection, store location and convenience, price and store atmosphere. We
directly compete with one gourmet and natural foods competitor in California, Colorado,
Florida, Illinois, Massachusetts, New Mexico and Texas (a total of 75% of our current
total sales are in these markets). We believe our natural foods supermarket concept is
differentiated from that of our primary competitor through our higher product standards
and more competitive pricing. Our physical stores are smaller in size, and less expensive
to build, which gives us access to markets that may not have the diversity believed
necessary to support large box stores. We do not believe we have any competitors for our
farmers market format stores.



Employees

As of March 1, 2004, we employed approximately 4,900 full-time
individuals and 3,400 part-time individuals. Approximately 7,957 of our employees are
engaged at the store-level and 374 are devoted to regional and administrative corporate
activities. We believe that we maintain a good relationship with our employees. However,
based on our past history of union organizing activity, we anticipate that in the future
one or more of our stores may be the subject of attempted organizational campaigns by
labor unions representing grocery industry workers.

In fiscal 2003, we modified certain features of our benefits plans and
introduced additional plans to provide our employees with a broad range of competitive
benefits. All of our store employees participated in an incentive program that provides
periodic payments based on achieving certain store-level performance targets and
operations standards. Our eligibility rules were expanded to open health and welfare
programs to approximately 2,000 more employees. Preventive and prescription coverage was
also expanded under our medical and dental programs with an emphasis on
"wellness". Life insurance and disability programs were expanded to include
coverage for part-time employees.



Available information

Our Corporate Internet website is http://www.wildoatsinc.com,
("Internet Website"), where we make available, free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports, as soon as reasonably practicable after we electronically
file or furnish such materials to the SEC. These reports are also maintained by the SEC on
their website at http://www.sec.gov. Additionally, the public may read and copy any
materials the Company files with the SEC at the SECs Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Information on the Public Reference Room may
be obtained by calling the SEC at 1-800-SEC-0330. The Charter of the Board of
Directors Nominating Committee and our Code of Ethics are also posted on our
Internet Website. We will post on our Internet Website any waivers, granted to the
principal executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions, that relate to any element of the Code
of Ethics enumerated in Item 406(b) of Regulation S-K.



Item 2.

PROPERTIES

We currently lease approximately 54,000 square feet for our corporate
headquarters in Boulder, Colorado. The lease has one and one-half years remaining on the
term, with one three-year renewal option.

We lease all of our currently operating stores. We currently have
letters of intent or leases signed for 30 sites projected to be opened in the remainder of
fiscal 2004 and fiscal 2005, including 16 Henrys farmers market format store sites
in Arizona and California, and 14 Wild Oats natural foods supermarket format stores. We
currently anticipate opening 15 new stores in 2004, including several in metropolitan
Phoenix, Arizona; several in metropolitan San Diego and Los Angeles, California; Colorado
Springs and Superior, Colorado; metropolitan Portland, Oregon, and Salt Lake City, Utah.
Our leases typically provide for a 10- to 15-year base term and generally have several
renewal periods. The rental payments are generally fixed base rates, although many of our
older leases called for payment of minimum base rent with additional rent calculated on a
percentage of sales over a certain break point. All of the leases are accounted for as
operating leases. The majority of leases signed in fiscal 2003, and beyond, were, or will
be, negotiated on a turnkey basis, which substantially reduces our capital expenditures,
with modest increases in long-term rent.



Store locations

The following map and store list show, as of March 1, 2004, the natural
foods grocery stores that Wild Oats operates in each state and Canadian province and the
cities in which our stores are located.

map.gif (77526 bytes)

|Arizona:                  | Phoenix, Scottsdale, Tucson (2)                                                                                                                    
|------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Arkansas:                 | Little Rock                                                                                                                                        
|California:               | Chino Hills, Costa Mesa, Escondido, Hemet,
    Laguna Beach, Laguna Niguel, Long Beach, Pasadena, San Diego (11), Santa Monica (2), Yorba
    Linda
|Colorado:                 | Boulder (3), Colorado Springs (2), Denver (8),
    Fort Collins                                                                                    
|Connecticut:              | West Hartford, Westport                                                                                                                            
|Florida:                  | Fort Lauderdale, Melbourne, Miami, Miami
    Beach, West Palm Beach                                                                                
|Illinois:                 | Evanston, Hinsdale                                                                                                                                 
|Indiana                   | Indianapolis                                                                                                                                       
|Kansas                    | Kansas City (2)                                                                                                                                    
|Kentucky                  | Lexington, Louisville                                                                                                                              
|Massachusetts             | Boston (3)                                                                                                                                         
|Maine                     | Portland                                                                                                                                           
|Missouri                  | Kansas City, St. Louis                                                                                                                             
|Nebraska                  | Omaha                                                                                                                                              
|Nevada                    | Las Vegas (2), Reno                                                                                                                                
|New Jersey:               | Princeton                                                                                                                                          
|New Mexico:               | Albuquerque (3), Santa Fe                                                                                                                          
|Ohio:                     | Cincinnati, Cleveland, Upper Arlington                                                                                                             
|Oklahoma:                 | Tulsa                                                                                                                                              
|Oregon:                   | Bend, Eugene (2), Portland (7)                                                                                                                     
|Tennessee:                | Franklin, Memphis, Nashville                                                                                                                       
|Texas:                    | Austin (2), Corpus Christi, El Paso, McAllen,
    San Antonio (3)                                                                                  
|Utah:                     | Park City, Salt Lake City (2)                                                                                                                      
|Washington:               | Vancouver                                                                                                                                          
|British Columbia, Canada: | Vancouver (2), West Vancouver                                                                                                                      



Support Facilities:

We have three office facilities separate from stores: two in Colorado and one in
California, from which regional and home office support are provided. We have four
commissary kitchens, one free standing kitchen in Portland, Oregon and three commissary
facilities as part of three stores in Arizona, Colorado and British Columbia, Canada. We
also have two distribution warehouses, one in California and one in Texas.



Item 3.

LEGAL PROCEEDINGS

Wild Oats Markets Canada, Inc., as successor to Alfalfa's Canada, Inc., a Canadian
subsidiary of the Company, is a defendant in Helen Fakhri and Ady Aylon, as Representative
Plaintiffs v. Alfalfa's Canada, Inc., a class action suit brought in the Supreme Court,
British Columbia, Canada by representative plaintiffs alleging to represent two classes of
plaintiffs - those who contracted Hepatitis A allegedly through the consumption of food
purchased at a Capers Community Market in the spring of 2002, and those who were
inoculated against Hepatitis A as a result of news alerts by Capers and the Vancouver
Health Authority. In the fourth quarter of 2003, the action was certified as a class
action by the court. The Company is appealing that ruling. The Company intends to
vigorously defend both class certification and the suit itself. The Company is not able to
estimate the potential outcome of the suit at this time.

In April 2000, the Company was named as defendant in S/H -Ahwatukee, LLC and YP-
Ahwatukee LLC v. Wild Oats Markets, Inc., Superior Court of Arizona, Maricopa County, by a
landlord alleging Wild Oats breached a continuous operations clause arising from the
closure of a Phoenix, Arizona store. The landlord dismissed the same suit, filed in 1999,
without prejudice in 1999, after the Company presented a possible acceptable subtenant,
but subsequently rejected the subtenant. Plaintiff claimed $1.5 million for diminution of
value of the shopping center plus accelerated rent, fees and $360,000 in attorneys' fees
and costs. After trial in November 2001, the judge awarded the plaintiff an aggregate
$536,000 in damages and attorneys' fees. The Company's appeal of judgment was denied in
the first quarter of fiscal 2004, and the Company has filed a motion for reconsideration.
The Company plans to seek certification of the decision to the Arizona Supreme Court. The
Company has recognized a charge to restructuring expense during the fourth quarter of 2003
in the amount of $705,000, including estimated attorney's fees and estimated interest
accrued on the judgment.

In October 2000, the Company was named as defendant in 3601 Group Inc. v. Wild Oats
Northwest, Inc., Wild Oats, Inc. and Wild Oats Markets, Inc., a suit filed in Superior
Court for King County, Washington, by a property owner who claims that Alfalfa's Inc., our
predecessor on interest, breached a lease in 1995 related to certain property in Seattle,
Washington. After trial in fiscal 2002, a jury awarded $0 in damages to the plaintiffs,
and the Company was subsequently awarded $190,000 in attorneys' fees. The plaintiff
appealed and the matter has been remanded to the trial court.

In September 2002, the Company filed suit against Michael Gilliland and Elizabeth Cook,
former officers and directors and greater than 5% stockholders of the Company, together
with two individuals and three limited liability corporations, for a temporary restraining
order and damages related to a breach of Mr. Gilliland's noncompetition covenant,
contained in his 1996 employment agreement, arising from the opening of a competitive
grocery store in New Mexico. The lawsuit is captioned Wild Oats Markets, Inc. v. Michael
C. Gilliland, Elizabeth C. Cook, Mark R. Clapp; Patrick Gilliland, Westside Farmer's
Market LLC, Westside Liquors LLC and Milagro Cafe LLC. Mr. Gilliland and Ms. Cook have
counterclaimed, claiming that Ms. Cook was entitled to severance payments, and that both
were undercompensated in the receipt of option grants. After a hearing, the court issued a
temporary restraining order against Mr. Gilliland, prohibiting him from engaging in the
operation of the competing grocery store. The temporary restraining order was subsequently
vacated at the Company's request and the Company dropped its claims for injunctive relief
as it did not believe the injunctive relief granted made any material difference in Mr.
Gilliland's behavior. The Company discontinued severance payments made to Mr. Gilliland
based on his material breach of his employment contract. The Company continues to pursue
its suit for damages. A related suit was filed against Mr. Gilliland and his brother,
Patrick Gilliland, for misappropriation of trade secrets and insider trading related to
Patrick Gilliland's postings on a financial chat board that he was receiving and trading
upon confidential information of the Company. The Company has filed a motion to have the
two suits consolidated in Boulder County District Court in March 2004.

The Company also is named as defendant in various actions and
proceedings arising in the normal course of business. In all of these cases, the Company
is denying the allegations and is vigorously defending against them and, in some cases,
has filed counterclaims. Although the eventual outcome of the various lawsuits cannot be
predicted, it is managements opinion that these lawsuits will not result in
liabilities that would materially affect the Companys consolidated results of
operations, financial position, or cash flows.



Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.



PART II.



Item 5.

MARKET FOR REGISTRANTS COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

The Companys common stock is traded on the NASDAQ National Market
under the symbol "OATS".



The following are the quarterly high and low sales prices for each
quarter of the past two years:



| |                     |  | HIGH   |  | LOW    | 
| | ------------------- |  | ------ |  | ------ | 
| |                     |  |        |  |        | 
| | First Quarter 2002  |  | 10.160 |  | 7.900  | 
| | Second Quarter 2002 |  | 16.250 |  | 8.600  | 
| | Third Quarter 2002  |  | 14.109 |  | 8.350  | 
| | Fourth Quarter 2002 |  | 12.960 |  | 8.310  | 
| |                     |  |        |  |        | 
| | First Quarter 2003  |  | 10.750 |  | 7.120  | 
| | Second Quarter 2003 |  | 11.970 |  | 9.190  | 
| | Third Quarter 2003  |  | 12.700 |  | 9.750  | 
| | Fourth Quarter 2003 |  | 12.290 |  | 10.000 | 



As of March 1, 2004, Wild Oats common stock was held by 571
stockholders of record. No cash dividends have been declared previously on our common
stock, and we do not anticipate declaring a cash dividend in the near future. Our Second
Amended and Restated Credit Agreement for our credit facility contains restrictions on the
payment of cash dividends without lender consent for so long as amounts remain unpaid
under the facility.



Item 6.

SELECTED FINANCIAL DATA

(in thousands, except per-share amounts and number of stores)



The following data for the fiscal years ended December 27, 2003,
December 28, 2002, December 29, 2001, December 30, 2000, and January 1, 2000 are derived
from the consolidated financial statements of the Company. The following data should be
read in conjunction with the Companys consolidated financial statements, related
notes thereto and other financial information included elsewhere in this report on Form
10-K.

|FISCAL YEAR                                                                          |  | 2003          |  | 2002             |  | 2001          |  | 2000          |  | 1999         
|------------------------------------------------------------------------------------ |  | ------------- |  | ---------------- |  | ------------- |  | ------------- |  | -------------
|                                                                                    
|STATEMENT OF OPERATIONS
    DATA:                                                    |  |               |  |                  |  |               |  |               |  |              
|Sales                                                                                |  | $
    969,204 |  | $
    919,130    |  | $
    893,179 |  | $
    838,131 |  | $
    721,091
|Cost of goods sold and occupancy costs                                               |  | 683,592       |  | 644,862          |  | 634,631       |  | 581,980       |  | 499,627      
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Gross profit                                                                         |  | 285,612       |  | 274,268          |  | 258,548       |  | 256,151       |  | 221,464      
|Direct store expenses                                                                |  | 208,908       |  | 198,379          |  | 207,898       |  | 187,085       |  | 154,055      
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Store contribution                                                                   |  | 76,704        |  | 75,889           |  | 50,650        |  | 69,066        |  | 67,409       
|Selling, general and administrative expenses                                         |  | 64,659        |  | 55,186           |  | 53,131        |  | 36,687        |  | 29,739       
|Loss (gain) on disposal of assets, net                                               |  | 2,087         |  | 21               |  | 477           |  | (306)         |  | 14           
|Pre-opening expenses                                                                 |  | 2,890         |  | 1,897            |  | 1,562         |  | 3,289         |  | 2,767        
|Restructuring and asset impairment charges (income), net                             |  | (892)         |  | (832)            |  | 54,906        |  | 42,066        |  | 12,642       
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Income (loss) from operations                                                        |  | 7,960         |  | 19,617           |  | (59,426)      |  | (12,670)      |  | 22,247       
|Loss on investment                                                                   |  | -             |  | -                |  | 228           |  | 2,060         |  | -            
|Loss on early extinguishment of debt                                                 |  | 186           |  | -                |  | -             |  | -             |  | -            
|Interest expense, net                                                                |  | 1,881         |  | 7,975            |  | 9,447         |  | 8,850         |  | 4,280        
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Income (loss) before income taxes                                                    |  | 5,893         |  | 11,642           |  | (69,101)      |  | (23,580)      |  | 17,967       
|Income tax expense (benefit)                                                         |  | 2,302         |  | 4,733            |  | (25,189)      |  | (8,559)       |  | 5,198        
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Net income (loss) before cumulative effect of change in accounting
        principle |  | 3,591         |  | 6,909            |  | (43,912)      |  | (15,021)      |  | 12,769       
|Cumulative effect of change in accounting principle, net of tax (1)                  |  |               |  |                  |  |               |  |               |  | 281          
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Net income (loss)                                                                    |  | $ 3,591       |  | $ 6,909          |  | $ (43,912)    |  | $ (15,021)    |  | $ 12,488     
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Basic net income (loss) per common share                                             |  | $ 0.12        |  | $ 
         0.26 |  | $ (1.80)      |  | $ (0.65)      |  | $ 0.55       
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Weighted average number of common shares outstanding                                 |  | 29,851        |  | 26,481           |  | 24,424        |  | 23,090        |  | 22,806       
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Diluted net income (loss) per common share                                           |  | $ 0.12        |  | $ 
        0.26  |  | $ (1.80)      |  | $ (0.65)      |  | $ 0.53       
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Weighted average number of common shares outstanding                                 |  | 30,258        |  | 27,082           |  | 24,424        |  | 23,090        |  | 23,467       
|                                                                                     |  |               |  |                  |  |               |  |               |  |              
|Number of stores at end of period                                                    |  | 103           |  | 99               |  | 107           |  | 106           |  | 110          
|BALANCE SHEET DATA:                                                                  |  |               |  |                  |  |               |  |               |  |              
|Working capital deficit                                                              |  | $ (40,416)    |  | $ (27,550)       |  | $ (26,490)    |  | $ (16,102)    |  | $ (20,971)   
|Total assets                                                                         |  | $
    336,591 |  | $
    323,585    |  | $
    353,426 |  | $
    372,632 |  | $
    350,629
|Long-term debt (including capitalized leases)                                        |  | $ 30,179      |  | $ 43,075         |  | $
    112,291 |  | $
    116,839 |  | $ 80,328     
|Stockholders equity                                                                 |  | $
    175,086 |  | $
    166,902    |  | $
    107,015 |  | $
    151,564 |  | $
    165,387



(1)  In fiscal 1999 the Company recorded $281,000 in
expenses associated with a cumulative effect of a change in accounting principle.



Item 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report on Form 10-K contains certain forward-looking statements
regarding our future results of operations and performance. Important factors that could
cause differences in results of operations include, but are not limited to, the timing and
execution of new store openings, relocations, remodels, sales and closures; the timing and
impact of promotional and advertising campaigns; the impact of competition; changes in
product supply or suppliers; changes in management information needs; changes in customer
needs and expectations; governmental and regulatory actions; general industry or business
trends or events; changes in economic or business conditions in general or affecting the
natural foods industry in particular; and competition for and the availability of sites
for new stores and potential acquisition candidates. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Cautionary Statement
Regarding Forward-Looking Statements."



Overview

Wild Oats Markets, Inc. is one of the largest natural food supermarket
chains in North America, with 102 stores in 24 states and British Columbia, Canada, as of
March 1, 2004. We have always differentiated our stores and our products from our
competitors by our uncompromising commitment to natural and organic products and to our
customers education in the areas of health and wellness. In fiscal 2003, we
implemented a number of new strategies to promote our areas of differentiation in the
consumers mind, including:

- Refinement of our brand identity as a leader in the natural and organic products
      industry
- Investment in new store signage and merchanding to improve consumer understanding of
      recent issues surrounding food safety and the integral role of nutrition and diet in
      overall wellbeing
- Continued training of staff to ensure detailed product knowledge, an ability to assist
      consumers with health and wellness issues
- Re-engineering of key departments in our stores
- Creation of a body of in-store consumer education materials through a variety of media
- Active sampling and demonstration programs
- Creation of new private label product lines.

Our identification as a leading retailer of the broadest selection of
natural and organic products is the foundation of our differentiation from our
competition. Along with providing great tasting products in a welcoming and invigorating
store environment, we view consumer education as one important key to attracting and
retaining loyal customers and increasing basket size. We have introduced new strategies to
communicate information on certain food safety concerns and dietary trends, such as our
product signage that our beef comes from exclusively grain-fed cattle and our introduction
of "Are You Counting Carbs" signage and merchandising in the first quarter of
2004. We have implemented new training programs to enhance consumer service. In 2003, we
commenced the re-engineering of our vitamin, supplement and body care department (to be
reintroduced as our "Holistic Health" department), including a full redesign of
fixtures, lighting, flooring, navigational signage and custom product displays. As part of
that re-engineering, we have designed advanced training programs in product knowledge and
selling techniques for our Holistic Health staff, along with department-oriented incentive
programs, and we are updating and expanding our consumer education materials ranging from
product-specific and issue-related brochures to educational videos and access to computer
research tools on health and wellness. This newly re-engineered Holistic Health department
will be introduced in mid-2004. In 2003, we introduced active sampling of products from
our perishables departments and private label lines, which expanded our existing
vendor-sponsored demonstration programs as a way to introduce our customers to our new
products and encourage shopping of all departments of our stores. We continue to expand
our private label product lines with the introduction of unique products from around the
world, including two new, custom-created lines of vitamins, minerals and supplements. In
2004, we will be re-engineering our deli departments to enhance product offerings,
including our "grab and go" and entree offerings, offer seasonal menus, increase
informational signage and improve overall customer service.

Our revenues are primarily derived from the retail sale of products at
our stores. Internally, we look to a variety of indicators to evaluate our periodic
financial performance, including: comparable store sales; sales per square foot; average
basket size; customer count; inventory turns (i.e., how quickly inventory is sold);
percentage of total sales by department; department margins; and staff productivity. In
fiscal 2003, we continued to focus on increasing comparable store sales results, basket
size and customer count through improvements in store-level customer service, execution
and presentation, as well as regional and national promotion of Wild Oats Natural
Marketplace and Henrys Marketplace as brand identities. In the fourth quarter of
fiscal 2003, comparable stores customer traffic increased 4.8% and the average
transaction per customer increased 4.9%, while average basket size in the fourth quarter
of fiscal 2003 was $21.23, compared to $20.04 in the fourth quarter of fiscal 2002.
Average weekly store sales increased 9.7% and sales per square foot increased 10% in the
fourth quarter of fiscal 2003, as compared to the same period in fiscal 2002.

Major initiatives implemented and completed during fiscal 2003 and
aimed at our targeted areas of improvement included:

- Increased staff training and revised incentive programs
- Resetting of merchandise according to item movement and customer preference
- Refreshing of stores environments through remodels and the installation of new
      decor packages
- Improved store-level informational and sale signage
- Investment in labor scheduling programs to ensure proper staffing levels at all times
- Inventory reduction programs to ensure shelf space for new products
- Shift to centralized buying, pricing and scale hosting to ensure consistency chainwide,
      and refocus store staff energies on customer service

We built brand awareness in 2003 through a number of methods,
including: the re-engineering of our existing private label product lines and the
introduction of 140 new private label products; consumer education campaigns regarding a
number of issues key to the natural products industry, including trans fats; genetically
modified organisms and the sustainability of certain seafood; brand-specific education and
advertising on issues of concern to all consumers, including the safety of our meat and
seafood in light of "Mad Cow" disease and concerns over contaminants in
farm-raised fish, and the availability in our stores of products for specific diet
regimes, such as gluten-free diets and lower carbohydrate diets.

We believe all these programs, together with overall operational
improvements, resulted in increased store sales, customer count and average transaction
size nationwide in fiscal 2003. Strikes by grocery store workers in conventional grocery
stores in Missouri in mid-2003 and in southern California commencing in October 2003 and
continuing through February 2004 resulted in increased sales and customer counts in our 17
Henrys Market and five Wild Oats Natural Marketplace stores in those regions. We
expect that in southern California, like our experience in Missouri after that strike
ended, we will retain some increased business in the 22 affected stores. It is possible
that in 2004, other conventional grocery store strikes in other areas of the country may
occur as area labor contracts expire and negotiations stall over issues of pay and health
care costs. We have developed strategies to service conventional customers during labor
strikes, including modification of some product mix and increased customer service, with
the goal of customer retention.

Store format and new store growth. We operate in one retail grocery operating
segment with two store formats: the natural foods supermarket, under the Wild Oats Natural
Marketplace name nationwide and Capers Community Market in Canada; and the farmers market
formats, under Henrys Marketplace in southern California and Sun Harvest in Texas.
Both formats emphasize natural and organic products with a wide selection of products in a
full-service environment. The formats share a core demographic customer profile. Many of
the support services to the stores are provided centrally from our Boulder, Colorado
location. All of our stores, regardless of format, purchase from the same primary
distributor based on centralized negotiations, merchandising and marketing strategies.
Perishables for all of our stores in the western United States are supplied by our new
distribution facility.  Distinguishing characteristics of the formats are:



|CHARACTERISTICS OF FORMAT
    TYPES                                                                         
|------------------------------------------------------------------------------------------------------------
|                                                                                                            
|Natural Foods Supermarket Format                                                                            
|                                                                                                            
|Full range of products,
    with perishables emphasis                                                       
|All organic and natural
    products                                                                        
|20,000 to 35,000 square
    feet in size                                                                    
|Suburban and regional
    locations                                                                         
|Target shopper is
    interested in health and wellness, customer service and an upscale shopping experience



In 2001 and 2002, we focused on redesigning both of our store format
prototypes to increase the navigability of the stores, emphasize certain departments and
expand perishable departments. The following table shows the new prototype store openings
in fiscal 2003 and through March 1, 2004 by brand and format:



|STORE OPENINGS BY BRAND
    AND FORMAT FOR FISCAL 2003 AND THROUGH
    MARCH 1, 2004
|------------------------------------------------------------------------------------
|                                                                                    
|Wild Oats Natural Marketplace                                                       
|                                                                                    
|Portland, Maine                                                                     
|Louisville, Kentucky                                                                
|Lexington, Kentucky                                                                 
|Franklin, Tennessee
    (relocation)                                                
|SW Denver, Colorado                                                                 
|Park City, Utah                                                                     
|Colorado Springs, Colorado                                                          



At December 27, 2003, we had 103 stores located in 25 states and
Canada, as compared to 99 stores in 23 states and Canada as of the end of fiscal 2002, and
107 stores in 23 states and Canada as of the end of fiscal 2001. A summary of store
openings, acquisitions, closures and sales is as follows:



| |                                        |  | TOTAL STORE
    COUNT  | 
| | -------------------------------------- |  | ---------------------- | 
| |                                        |  | Fiscal Year
    Ending | 
| |                                        |  |                        | 
| |                                        |  | 2002                   | 
| |                                        |  |                        | 
| | Store count at beginning of
    period |  | 107                    | 
| | Stores opened                          |  | 1                      | 
| | Stores closed                          |  | (5)                    | 
| | Stores sold                            |  | (4)                    | 
| |                                        |  |                        | 
| | Store count at end of
    period       |  | 99                     | 
| |                                        |  |                        | 



As has been our practice in the past, we will continue to evaluate the
profitability, strategic positioning, impact of potential competition, and sales growth
potential of all of our stores on an ongoing basis. We may, from time to time, make
decisions regarding closures, disposals, relocations or remodels in accordance with such
evaluations. In fiscal 2003 and through the date of this report, we have closed five
under-performing stores in Tucson and Phoenix, Arizona; Irvine and Los Angeles,
California; and Nashville, Tennessee; and sold one store which did not fit our real estate
strategy or formats in New York, New York. Of the closed stores, one lease has terminated,
two locations have been sublet and one is being remodeled for opening as a farmers market
format store. We have also consolidated the operations of two warehouse facilities into
our new Riverside, California distribution center. In first half of 2004, we plan to close
the third warehouse facility as a part of the consolidations.

We are continuing to execute on our real estate strategy, which is
focused on adding stores in those existing markets with proven past performance, and in
locations in those markets that are defensible from a competitive standpoint, as well as
adding selected new markets on a strategic basis. We have identified strategic markets for
expansion of our farmers market format outside of southern California and will be opening
the first of the new farmers market stores in Arizona in 2004. To the date of this report
we have signed leases or letters of intent for 30 new sites opening in fiscal 2004 and
fiscal 2005, including 15 Wild Oats locations selected for the excellence of the projects,
the position in new segments of existing markets (Indiana, Nebraska and Ohio) or in
strategic new markets and their defensibility from competitive attack, and 18 Henrys
Marketplace locations in easily accessible and highly visible locations in densely
populated metropolitan Los Angeles and San Diego, California and our newest expansion
market for Henrys in metropolitan Phoenix, Arizona. We anticipate opening 15 new
stores in fiscal 2004 in the following stateslocations: metropolitan Phoenix, Arizona;
metropolitan San Diego and Los Angeles, California; Colorado Springs (already open) and
Superior, Colorado; Indiana; Nebraska; Ohio; metropolitan Portland, Oregon and Salt Lake
City, Utah.

We currently have an inventory of 11 vacant sites comprising closed
store and office locations and excess unoccupied space acquired during acquisitions or
other leasing transactions, for which we have rent obligations; appropriate accruals have
been made for such obligations. In fiscal 2003, we sublet or negotiated the termination of
six excess properties from our inventory of vacant sites, and we added four store sites
that were closed in fiscal 2003 to our inventory, of which two have been sublet. We are
actively seeking subtenants or assignees for the spaces, although many of the sites are
difficult to sublease or assign because of unusual site characteristics, surpluses of
vacant retail space in the markets in which the sites are located, or because the
remaining lease terms are relatively short.

In February of 2003, we completed a refinancing of $75.0 million with a
group of banks led by the lead bank in our former credit facility. In December of 2003, we
expanded the existing facility under its terms by $20 million and added one new lender. As
of the end of fiscal 2003, we had $30.2 million in total borrowings outstanding under the
credit facility - $12.9 million less than was outstanding at the end of fiscal 2002. See "Managements
Discussion and Analysis of Financial Condition and Results of Operations  Liquidity
and Capital Resources." The expansion of the credit facility, together with cash
generated from operations, ensures that we have sufficient capital resources to fund our
projected new store growth over the next several years.

Comparable store sales results. Sales of a store are deemed to be
comparable commencing in the thirteenth full month of operations for new, relocated and
acquired stores. A variety of factors affect our comparable store sales results,
including, among others:

- General economic conditions

- The opening of stores by us or by our competitors in markets where we have existing
      stores

- The relative proportion of new or relocated stores to mature stores

- The timing of advertising and promotional events

- Store remodels

- Store closures

- Our ability to capitalize on distribution efficiencies and execute operating plans

- Changes in consumer preferences for natural foods and products

- Availability of produce and other seasonal merchandise

- Labor unrest in area grocery stores.

Past increases in comparable store sales may not be indicative of
future performance. The farmers market format stores, which depend heavily on produce
sales, are more susceptible to sales fluctuations resulting from the availability and
pricing of certain produce items.

Comparable store sales chain-wide increased by 2.4% in fiscal 2003, as
compared to 5.2% in fiscal 2002. Due to nationwide operational improvements and marketing
strategies which were evidenced by a strengthening of comparable store sales in all
markets in which we operate, and the continuing southern California conventional grocery
store strikes already mentioned, comparable store sales for the fourth quarter of fiscal
2003 increased to 9.9%, as compared to 0.8% in the third quarter of fiscal 2003, and 2.9%
in the fourth quarter of fiscal 2002. Without the fourth quarter increase in comparable
store sales attributable to the positive impact of the southern California grocery store
strike on 22 of our stores, estimated comp store sales for the fourth quarter of fiscal
2003 would have been 2.2%.

Pre-opening expenses. Pre-opening expenses include labor, rent,
advertising, utilities, supplies and certain other costs incurred prior to a stores
opening. The amount per store may vary depending on whether the store is the first to be
opened in a market or is part of a cluster of stores in that market. As a result of
increased marketing and training costs, our pre-opening expenses have increased to
$300,000 to $400,000 per natural foods supermarket store, and $250,000 to $350,000 per
farmers market store, depending on whether the store is the first in a geographic area,
the date of rent commencement negotiated under the lease, and the extent of grand opening
advertising and staff training activities.

Restructuring and Asset Impairment Activity. During fiscal 2003,
due to changes in facts and circumstances as well as certain decisions made by management
relating to our operations, estimates of prior restructuring and asset impairment charges
were revised, resulting in net restructuring and asset impairment expense/(income) of
$855,000, $134,000, ($145,000), and ($1,736,000), for the fourth, third, second, and first
quarters of fiscal 2003, respectively.



Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.

On an ongoing basis, we evaluate the continued appropriateness of our
accounting policies and resulting estimates, including those related to:

- Goodwill valuation
- Asset impairment charges
- Restructuring charges and store closing costs
- Inventory valuation and reserves
- Self-insurance reserves
- Reserves for contingencies and litigation

We believe the following critical accounting policies affect our most
significant judgments and estimates used in the preparation of our consolidated financial
statements:

Goodwill. Goodwill consists of the excess cost of acquired
companies over the sum of the fair market value of their underlying tangible and
identifible intangible assets acquired and liabilities assumed. Prior to 2002, goodwill
was recorded at the store-level, and amortized over 40 years. With adoption of Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets", we record goodwill at the enterprise level. It is no longer amortized but is
tested for impairment annually, or more frequently if certain indicators of impairment
exist. Our annual evaluation for impairment requires management to exercise a high degree
of judgment in developing assumptions and fair value estimates used in the calculation,
which have the potential of significantly impacting the results.

Impairment of Long-Lived Assets. We monitor the carrying value of
our long-lived assets, including finite-lived intangible assets, for potential impairment
whenever changes in circumstances indicate a potential for impairment may exist. The
triggering events for evaluations of finite lived intangible assets include a significant
decrease in the market value of an asset, acquisition and construction costs in excess of
budget, or current store operating losses combined with a history of losses or a
projection of continuing losses. If an impairment is identified, based on undiscounted
future cash flows, management compares the assets future cash flows, discounted to
present value using a risk-adjusted discount rate, to its current carrying value and
records a provision for impairment as appropriate. With respect to equipment and leasehold
improvements associated with closed stores, the value of these assets is adjusted to
reflect recoverable values estimated based on our previous efforts to dispose of similar
assets, with consideration for current economic conditions.

Restructuring and Asset Impairment Costs. We plan to complete store
closures or sales within a one-year period following the commitment date. Costs related to
store closures and sales are reflected in the income statement as "Restructuring and
Asset Impairment Charges." For stores we intend to sell, we actively market the
stores to potential buyers. Stores held for disposal are reduced to their estimated net
realizable value. Prior to 2003, when we commited to close a store, a lease-related
liability was recorded for the present value of the estimated remaining non-cancelable
lease payments after the anticipated closing date, net of estimated subtenant income, or
for estimated lease settlement costs. In addition, we recorded a liability for costs to be
incurred after the store closing which are required under leases or local ordinances for
site preservation during the period before lease termination. The value of equipment and
leasehold improvements related to a closed store was reduced to reflect recoverable values
based on our previous efforts to dispose of similar assets and current economic
conditions. In accordance with the new requirements of SFAS No. 146 (See "Notes to
Consolidated Financial Statements  Note 1  Organization and Summary of
Significant Accounting Policies -New Accounting Pronouncements"for a discussion
of SFAS No. 146), as of fiscal 2003, we recognized such lease related costs at the time of
the actual store closing. As of the date of the commitment to close or relocate a store,
depreciation of store assets is accelerated over the remaining months of operation as
necessary in order to bring their net carrying cost down to net realizable value as of the
date of closure

Severance costs incurred in connection with store closings are recorded
when the employees have been identified and notified of the termination benefits to be
made to the employees.

Lease-related liabilities and the recoverability of assets to be
disposed of are reviewed quarterly, and changes in previous estimates are reflected in
operations. Significant cash payments associated with closed stores relate to ongoing
payments of rent, common area maintenance, insurance charges, and real property taxes as
required under continuing lease obligations.

Inventories. Store inventories are valued principally at the lower
of cost or market, with cost primarily determined under the retail method on a first-in,
first-out (FIFO) basis. FIFO cost is determined using the retail method for approximately
80% of inventories and using the item cost method for highly perishable products
representing approximately 20% of inventories. Under the retail inventory method, the
valuation of inventories at cost and the resulting gross margins are determined by
applying a cost-to-retail ratio for various categories of similar items to the retail
value of inventories. Inherent in the retail inventory method calculations are certain
management judgments and estimates, including shrinkage, which could impact the ending
inventory valuation at cost as well as the resulting gross margins.

We maintain allowances for excess or unsaleable inventory as a
percentage of its gross inventory balance based on historical experience and assumptions
about market conditions. If actual market conditions are less favorable than those
projected by management, or if we expand our forward buying of inventory, which will
increase our inventory levels, then additional inventory write-downs may be required.

Self-Insurance. We are self-insured for certain losses relating to
workers compensation claims, general liability and employee medical and dental
benefits. We have purchased stop-loss coverage in order to limit its exposure to any
significant levels of claims. Self-insured losses are accrued based upon our estimates of
the aggregate uninsured claims incurred using certain actuarial assumptions followed in
the insurance industry and our historical experiences. A high degree of management
judgment is required in developing these estimates and assumptions, which have the
potential for significantly impacting the required reserve amounts.

Contingencies and Litigation. We maintain reserves for
contingencies and litigation based on managements best estimates of potential
liability in the event of a judgment against us, possible settlement costs, as well as
existing facts and circumstances. Future adverse changes related to current contingencies
and litigation could necessitate additional reserves in the future.

New Accounting Pronouncements. In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest Entities, An
Interpretation of ARB 51 ("FIN 46") which was subsequently revised in
December 2003 (FIN 46R) The primary objectives of FIN 46R are to provide guidance on the
identification of entities for which control is achieved through means other than through
voting rights ("variable interest entities" or "VIEs") and how to
determine when and which business enterprise should consolidate the VIE (the "primary
beneficiary"). This new model for consolidation applies to an entity which either (1)
the equity investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entitys activities without
receiving additional subordinated financial support from other parties. In addition, FIN
46R requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. As of December 27,
2003, the Company was not a party to a VIE; therefore, FIN 46R did not have a material
effect on the Companys financial position or results of operations.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued on July 30, 2002. SFAS No. 146 will require companies to
recognize costs associated with exit or disposal activities when they occur rather than at
the date of a commitment to an exit or disposal plan. SFAS No. 146 became effective for
the Company on January 1, 2003, and did not have a material impact on the Companys
financial position or results of operations.

On August 15, 2001, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations which requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 will be
effective for financial statements issued for fiscal years beginning after June 30, 2002.
Under SFAS No. 143, an entity shall recognize the cumulative effect of the adoption of
SFAS No. 143 as a change in accounting principle. SFAS No. 143 did not have a material
effect on the Companys financial position or results of operations.

The FASBs Emerging Issues Task Force ("EITF") issued
EITF No. 02-16, Accounting By a Customer (Including a Reseller) for Cash Consideration
Received From a Vendor, addressed the accounting treatment for vendor allowances. The
adoption of EITF Issue No. 02-16 in fiscal 2003 did not have a material impact on the
Companys financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments and hedging
activities, resulting primarily from decisions reached by the FASB Derivatives
Implementation Group subsequent to the original issuance of SFAS No. 133. This Statement
is generally effective prospectively for contracts and hedging relationships entered into
after June 30, 2003. The Company has not entered into any such agreements since the
effective date; therefore, the adoption of SFAS No. 149 has had no impact on the Company.

In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments With Characteristics of both Liabilities and Equity."
This Statement establishes standards for an issuer to classify and measure certain
financial instruments with characteristics of both liabilities and equity. It requires an
issuer to classify a financial instrument with certain characteristics as a liability, or
an asset in some circumstances. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Restatement is not permitted. The Company
currently has no financial instruments falling within the scope of this Statement;
therefore, the adoption of SFAS No. 150 has had no impact on the Company.

In November 2003, the FASBs Emerging Issue Task Force (EITF)
reached a consensus on EITF No. 03-10, Application of Issue No. 02-16 by Resellers to
Sales Incentives Offered to Consumers by Manufacturers.The consensus required that
consideration received by a reseller from a vendor that is a reimbursement by the vendor
for honoring the vendors sales incentives offered directly to consumers (such as
coupons) be recorded as revenue rather than as a reduction of cost of goods sold. The
Company has historically accounted for such reimbursements in accordance with EITF 02-16,
therefore its adoption will have no impact on the Companys financial position or
results of operations.



Factors Impacting Results of Operations

Our results of operations have been and will continue to be affected
by, among other things:

- The number, timing and mix of store openings, acquisitions, relocations, remodels or
      closings
- Fluctuations in quarterly results of operations
- Impact of merchandising and marketing initiatives on store performance
- Economic conditions
- Construction adjacent to operating stores
- Costs associated with store closings and relocations
- Competition
- Labor issues
- Loss of key management
- Government regulations
- Changes in and performance by suppliers, distributors and manufacturers
- Unavailability of product
- Volatility in our stock price.

New stores build their sales volumes and refine their merchandise
selection gradually and, as a result, generally have lower gross margins and higher
operating expenses as a percentage of sales than more mature stores. New stores opened
prior to 2002 experienced operating losses for the first 12 to 18 months of operation, in
accordance with historical trends; stores opened based on our new real estate strategy and
using the prototype floor plans in fiscal 2002 and fiscal 2003, based on our rates
throughout the year, are projected to incur operating losses for six to 12 months.

We substantially completed the remodeling or remerchandising of 20 of
our older stores in fiscal 2003. We plan to complete significant remodels to an additional
four stores in fiscal 2004, and to remerchandise a number of stores. Remodels and
remerchandising typically cause short-term disruption in sales volume and related
increases in certain expenses as a percentage of sales, such as payroll. We cannot predict
whether sales disruptions and the related impact on earnings may be greater than projected
in future remodeled or remerchandised stores.

The construction or acquisition of new stores, remodeling of existing
stores, as well as completion of capital purchases of new technology systems required for
efficient operation of our business require substantial capital expenditures. In the past,
cash generated from operations, bank debt and equity financing proceeds has funded our
capital expenditures. These sources of capital may not be available to us in the future.
In addition, our new credit agreement contains limitations on our ability to make capital
expenditures that may constrain future growth without additional equity financing. See
"Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources."

Our quarterly results of operations may differ materially from quarter
to quarter for a variety of reasons, including the timing and success of new store
openings, overall store performance, changes in the economy, seasonality and the timing of
holidays, significant increases or decreases in prices for or availability of goods and
services, competitive pressure and labor disturbances, shrink and spoilage, fluctuations
in profit margins for discontinued items, as well as other factors mentioned in this
section.

Downturns in general economic conditions in communities, states,
regions or the nation as a whole can affect our results of operations. While purchases of
food generally do not decrease in a slower economy, consumers may choose less expensive
alternative sources for food purchases. In addition, downturns in the economy make the
disposition of excess properties, for which we continue to pay rent and other carrying
costs, substantially more difficult as the markets become saturated with vacant space and
market rents decrease below our contractual rent obligations.

Construction on roads and in parking lots and shopping center common
areas adjacent to our operating stores is an ongoing and unpredictable variable in the
operation of our stores. Such activity historically has negatively impacted our results of
operations by reducing customer traffic and lowering sales volumes.

As mentioned previously, we compete with both natural foods and
conventional grocers. As competition in certain markets intensifies, our results of
operations may be negatively impacted through loss of sales, reduction in margin from
competitive price modifications, and disruptions in our employee base.

From time to time, unions will attempt to organize employees or
portions of the employee base at stores or our distribution or manufacturing facilities.
Responses to organization attempts require substantial management and employee time and
are disruptive to operations. In addition, from time to time certain of our stores may be
subject to informational picketing, which can discourage customer traffic and lower sales
volumes. Our ability to attract, hire and retain qualified employees at store and
home-office levels is critical to our continued success.

Our future direction and success is dependent in large part on the
continued services of certain key executive officers. Loss of any key officer may have an
adverse affect on current operations and future growth programs.

We are subject to a myriad of local, state and federal regulations
governing the operation of our stores and support facilities, including licensing laws
governing the sale of particular categories of products, health and sanitation laws, laws
governing the manufacture, labeling and importation of private label products, labor laws
controlling wages, benefits and employment conditions of our employees and advertising
regulations governing the manner in which we may advertise products we sell. Consumer and
regulatory concerns regarding food safety issues, new technology or competitive pressures
may trigger modifications in existing laws and the implementation of new laws governing
components of our business operations. Such modifications can have a material impact on
our sales volume, costs of goods and direct store expenses. Modification of such laws may
also impact the vendors and manufacturers who provide goods and services to us, raising
the cost of such items or decreasing their availability. In addition, from time to time we
are audited by various governmental agencies for compliance with existing laws, and we
could be subject to fines or operational modifications as a result of noncompliance.

In October of 2003, we announced that due to the parties
inability to leverage the buying synergies and reach the supply chain efficiencies
expected from our primary distribution arrangement with Tree of Life, Inc., the parties
had reached agreement to terminate our arrangement. We also announced at that time that we
would be exercising a right to convert an existing secondary distribution with UNFI to a
primary distribution relationship. In January of 2004, we executed a new five-year primary
distribution agreement with UNFI, and we have commenced the process of transititioning our
primary ordering to UNFI. We expect that the transition will be substantially completed by
the end of the first quarter of 2004; however, delays in the transition process or
difficulties in completing the transition may impact sales and operating results.

From time to time, we may experience product shortages due to the
impact of adverse weather conditions, such as drought or flood, or disruptions in the
supply chain from product shortages, transportation disruptions or other conditions. Our
current transition to a new primary distributor in the first quarter of fiscal 2004 may
result in product shortages or delivery disruptions. Product shortages may result in a
material impact to our sales volume, cost of goods or customer counts.

Our stock price has been and continues to be fairly volatile. Our stock
price is affected by our quarterly and year-end results, results of our major competitors
and suppliers, general market and economic conditions and publicity about our competitors,
our vendors, our industry or us. Volatility in our stock price may affect our future
ability to renegotiate our existing credit agreement or enter into a new borrowing
relationship, or affect our ability to obtain new store sites on favorable economic terms.



Results of Operations

Our net income for fiscal 2003 was $ 3.6 million, or $ 0.12 per diluted
share, compared with a net income of $6.9 million, or $0.26 per diluted share, in fiscal
2002. The following table sets forth, for the periods indicated, certain selected income
statement data expressed as a percentage of sales:



| | FISCAL YEAR                                             |  | 2003   |  | 2002   |  | 2001   | 
| | ------------------------------------------------------- |  | ------ |  | ------ |  | ------ | 
|
| | Sales                                                   |  | 100.0% |  | 100.0% |  | 100.0% | 
| | Cost of goods sold and occupancy costs                  |  | 70.5   |  | 70.2   |  | 71.1   | 
| |                                                         |  |        |  |        |  |        | 
| | Gross profit                                            |  | 29.5   |  | 29.8   |  | 28.9   | 
| | Direct store expenses                                   |  | 21.6   |  | 21.6   |  | 23.3   | 
| |                                                         |  |        |  |        |  |        | 
| | Store contribution                                      |  | 7.9    |  | 8.2    |  | 5.6    | 
| | Selling, general and administrative
    expenses        |  | 6.7    |  | 6.0    |  | 5.9    | 
| | Loss on disposal of assets, net                         |  | 0.2    |  |        |  |        | 
| | Pre-opening expenses                                    |  | 0.3    |  | 0.2    |  | 0.2    | 
| | Restructuring and asset impairment charges
    (income) |  | (0.1)  |  | (0.1)  |  | 6.1    | 
| |                                                         |  |        |  |        |  |        | 
| | Income (loss) from operations                           |  | 0.8    |  | 2.1    |  | (6.6)  | 
| | Interest income                                         |  | 0.1    |  | 0.1    |  | 0.1    | 
| | Interest expense                                        |  | (0.3)  |  | (0.9)  |  | (1.2)  | 
| |                                                         |  |        |  |        |  |        | 
| | Income (loss) before income taxes                       |  | 0.6    |  | 1.3    |  | (7.7)  | 
| | Income tax expense (benefit)                            |  | 0.2    |  | 0.5    |  | (2.8)  | 
| |                                                         |  |        |  |        |  |        | 
| | Net income (loss)                                       |  | 0.4%   |  | 0.8%   |  | (4.9)% | 
| |                                                         |  |        |  |        |  |        | 
| |                                                         |  |        |  |        |  |        | 



The following table sets forth, for the periods indicated, certain
selected income statement data in dollars (in thousands):

| | FISCAL YEAR                                                  |  | 2003     |  | 2002     |  | 2001     | 
| | ------------------------------------------------------------ |  | -------- |  | -------- |  | -------- | 
| |                                                             
| | Sales                                                        |  | $969,204 |  | $919,130 |  | $893,179 | 
| | Gross profit                                                 |  | 285,612  |  | 274,268  |  | 258,548  | 
| | Direct store expenses                                        |  | 208,908  |  | 198,379  |  | 207,898  | 
| | Selling, general and administrative
    expenses             |  | 64,659   |  | 55,186   |  | 53,131   | 
| | Pre-opening expenses                                         |  | 2,890    |  | 1,897    |  | 1,562    | 
| | Restructuring and asset impairment charges
    (income), net |  | (892)    |  | (832)    |  | 54,906   | 
| | Interest income                                              |  | 780      |  | 778      |  | 990      | 
| | Interest expense                                             |  | (2,661)  |  | (8,753)  |  | (10,437) | 
| | Income tax expense (benefit)                                 |  | 2,302    |  | 4,733    |  | (25,189) | 
| | Net income (loss)                                            |  | 3,591    |  | 6,909    |  | (43,912) | 



Year over Year Comparisons of Certain Selected Income Statement Data

The following narrative compares those selected income statement data with material
changes from year to year.

Sales. Net sales for the fiscal year ended December 27, 2003, were
$969.2 million, an increase of 5.4%, compared with $919.1 million in fiscal 2002.
Increases were attributable to the addition of eight new stores in fiscal 2003, despite
the closure of four stores during the fiscal year, as we ended the year with total square
footage of 2.2 million square feet, which is an increase of 6.6% compared with 2.1 million
square feet at the end of 2002, as well as increased store sales at 22 stores positively
impacted by labor strikes California during fiscal 2003.

We generated $253.9 million in net sales in the fourth quarter of
fiscal 2003, a 14.5% increase from $221.8 million in last years fourth quarter.
Comparable store sales for the fourth quarter of fiscal 2003 were 9.9%, as compared to
2.9% in the same quarter of 2002. The increase in sales in the fourth quarter of fiscal
2003 can be attributed, in part, to the benefit of the southern California conventional
grocery strike, without which, estimated comparable store sales in the fourth quarter were
2.2%, despite continued supply chain issues. Net sales in fiscal 2003 were impacted by a
number of factors, including the disruption caused by our SKU reduction program, extensive
resets and remodels, the impact of road construction on the ability to easily access a
number of our stores in the first half of fiscal 2003 and our inability to leverage
certain expected supply chain efficiencies throughout 2003. We expect sales to increase at
a slightly faster rate in fiscal 2004, due to operational improvements nationwide, the
projected opening of up to 15 new stores in fiscal 2004, improvements in supply chain
efficiencies upon completion of our new distributor transition at the end of the first
quarter, as well as continued strong sales in the first two months of fiscal 2004 in the
22 southern California stores positively impacted by the conventional grocery store
strike.

Sales for the fiscal year ended December 28, 2002 were $919.1 million,
an increase of 2.9% as compared to fiscal 2001. The increase was primarily due to the
opening of one new store in the second quarter of fiscal 2002, operational improvements
implemented throughout fiscal 2002, as well as the rollout in the first half of fiscal
2002 of our new marketing and merchandising program in 30 of our natural foods supermarket
format stores.

Gross Profit. Gross profit for the fiscal year ended December 27,
2003 increased 4.1% as compared to fiscal 2002, while gross profit margins declined
slightly to 29.5%, compared with 29.8% in fiscal 2002, largely due to $4.1 million in
accelerated depreciation for the planned closure or relocation of distribution centers,
warehouses and stores, along with certain supply chain issues and planned inventory
reduction. We anticipate that gross profit margins will improve slightly in fiscal 2004,
due to improvement in supply chain, the expansion of our private label lines and the ramp
up of our new perishables distribution center in California.

Gross profit margins for the fiscal year ended December 28, 2002,
increased to 29.8% from 28.9% in fiscal 2001 due to more disciplined pricing strategies, a
new category management structure, vendor consolidation and the substantial completion of
our SKU rationalization program.

Direct Store Expenses. Direct store expenses for the fiscal year
ended December 27, 2003, remained constant as a percent of sales in fiscal 2003 as
compared to fiscal 2002. Direct store expenses increased as a result of the addition of
eight new stores and an overall increase in sales and customer traffic. We anticipate that
we will see decreases in direct store expenses as a percent of sales in fiscal 2004 and
beyond as a result of the rollout in fiscal 2004 of labor scheduling programs to maximize
labor efficiencies and reduce overstaffing. On an absolute basis, we expect direct store
expenses to increase in fiscal 2004 with the addition of a projected 15 new stores.

Direct store expenses for the fiscal year ended December 28, 2002,
decreased to 21.6% from 23.3% in 2001, as a result of better expense management at
store-level, as well as the centralization of certain non-retail contracts for items such
as supplies, maintenance, in-store music, linens and other service contracts

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the fiscal year ended December 27, 2003, increased 17.2% as
compared to fiscal 2002. The increases are attributable to costs to improve information
systems, headcount increases to continue to build infrastructure to support new store
growth plans, as well as costs incurred to audit and amend certain of our benefit plans.
Many of these expenditures will not be repeated in 2004, and

we anticipate that the benefit plans audit will be concluded during the
second fiscal quarter of 2004. We expect that selling, general and administrative expenses
will remain flat in absolute dollars and decrease slightly as a percentage of sales in
fiscal 2004.

Selling, general and administrative expenses for the fiscal year ended
December 28, 2002, increased 3.8% as compared to fiscal 2001. The increases in fiscal 2002
over fiscal 2001 are attributable to investments in information systems to support
centralized purchasing and pricing, store-level signage production and a new data
warehouse, as well as increases in advertising and merchandising expenses related to the
implementation of our marketing and merchandising program and expenses for expanded
infrastructure at our headquarters to support new store growth and centralized purchasing
and pricing.

Loss on Disposal of Assets. As a result of the significant store
closings, remodels and resets, the Company undertook a review of all fixtures and
equipment in its stores, offices, and support facilities, including a physical inventory
in conjunction with an asset tagging exercise. The Company completed the review and
recorded in fiscal 2003 a $2.1 million loss on disposal of fixtures and equipment. Loss on
disposal amounts for prior years relate to assets disposed of in the normal course of
business and have been relatively immaterial.

Pre-Opening Expenses. Pre-opening expenses for the fiscal year
ended December 27, 2003, increased 52.3% as compared to fiscal 2002, primarily as a result
of the increase in new store openings in fiscal 2003 as compared to fiscal 2002. As part
of increased marketing and training efforts, we anticipate that pre-opening expenses will
average $350,000 per new store across both formats, and pre-opening expenses will increase
in absolute dollars in fiscal 2004 as we open 15 new stores, compared to eight new store
openings in 2003.

Pre-opening expenses for the fiscal year ended December 28, 2002,
increased 21.4% as compared to fiscal 2001 but remained constant as a percentage of sales.
The increase in pre-opening expenses was attributable to an overall increase in
advertising and marketing expenditures per store.

Restructuring and Asset Impairment Charges (Income)  Fiscal 2003.
Restructuring and asset impairment income in fiscal 2003 was $892,000, as compared to
$832,000 in fiscal 2002, and expense in fiscal 2001 of $54.9 million. The table on the
following page summarizes the components of restructuring and asset impairment charges and
income for fiscal years 2003, 2002, and 2001, respectively, by quarter (in thousands):

|                                                                                                                                                               | Fiscal 2001 |             | Fiscal 2002 |          | Fiscal 2003
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ----------- | ----------- | -------- | -----------
|                                                                                                                                                               |             |             |             |          |            
|Components of Charge                                                                                                                                           | 2nd
    QTR | 3rd
    QTR | 4th
    QTR | Total    |            
|                                                                                                                                                               |             |             |             |          |            
|Insurance proceeds received for impaired
    assets previously written off                                                                                     |             |             |             |          |            
|                                                                                                                                                               |             |             |             |          |            
|Gain on sale of assets                                                                                                                                         |             |             |             |          |            
|                                                                                                                                                               |             |             |             |          |            
|Change in estimate related to fixed asset
    impairment                                                                                                       | $ 1,498     |             | $(1,645)    | $ (147)  |            
|                                                                                                                                                               |             |             |             |          |            
|Change in estimate related to lease-related
    liabilities for sites previously identified for closure or sale                                                | 15,923      |             | (11,188)    | 4,735    |            
|                                                                                                                                                               |             |             |             |          |            
|Change in estimate related to lease-related
    liabilities for sites previously identified for closure that were closed or disposed of
    during the quarter |             |             |             |          |            
|                                                                                                                                                               |             |             |             |          |            
|Lease-related liabilities for stores
    identified to be closed or sold during the period                                                                     | 10,228      | $ 108       | 3,700       | 14,036   |            
|                                                                                                                                                               |             |             |             |          |            
|Severance for employees                                                                                                                                        | 2,511       |             | 155         | 2,666    |            
|                                                                                                                                                               |             |             |             |          |            
|Fixed asset impairments                                                                                                                                        | 24,673      | 668         | 8,275       | 33,616   |            
|                                                                                                                                                               |             |             |             |          |            
|TOTAL                                                                                                                                                          | $ 54,833    | $ 776       | $ (703)     | $ 54,906 |            
|                                                                                                                                                               |             |             |             |          |            



During the fourth quarter of fiscal 2003, we recorded restructuring and
asset impairment expense of $855,000. Details of the significant components are as
follows:

- Change in estimate for a site previously identified for closure that was closed during
      the fourth quarter ($150,000 of restructuring income).



- Insurance settlement received for impaired assets previously written off ($250,000 in
      asset impairment income).

- Severance for employees notified of termination during the fourth quarter ($115,000
      restructuring expense).



During the third quarter of fiscal 2003, we recorded a restructuring
and asset impairment charge of $134,000. Details of the significant components are as
follows:

- Lease-related liabilty for site closed during the third quarter of fiscal 2003 ($70,000
      of restructuring expense).

- Changes in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($612,000 of restructuring income).

- Asset Impairment ($676,000 of asset impairment charges).

During the second quarter of fiscal 2003, we recorded restructuring
income of $145,000. Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale that were closed, sold or disposed of during the second quarter of
      fiscal 2003 ($2,195,000 of restructuring income).

- Severance for employees terminated in the second quarter of fiscal 2003 ($117,000 of
      restructuring expense).

- Changes in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($1,933,000 of restructuring expense).



During the first quarter of fiscal 2003, we recorded restructuring income of
$1,736,000. Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale that were closed, sold or disposed of during the first quarter of
      fiscal 2003 ($441,000 of restructuring income).

- Changes in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($1,295,000 of restructuring income).



A summary of restructuring activity by store count is as follows:

| |                                                                            | RESTRUCTURING
    STORE COUNT
| | -------------------------------------------------------------------------- | -----------------------------
| |                                                                            |                              
| |                                                                            | Fiscal Year
    Ending       
| |                                                                            | 2001                         
| |                                                                            |                              
| | Stores remaining at
    commencement of period                             | 9                            
| | Stores identified in fiscal
    2001 for closure or sale                   | 6                            
| | Stores identified in fiscal
    2002 for closure or sale                   |                              
| | Stores identified in fiscal 2003 for closure,
    relocation or conversion |                              
| | Support facilities
    identified in fiscal 2003 for closure/relocation    |                              
| | Identified stores closed or
    abandoned                                  | (3)                          
| | Identified stores sold                                                     | (2)                          
| | Identified support
    facilities closed                                   |                              
| | Reversal of stores
    identified for closure or sale                      | (4)                          
| |                                                                            |                              
| | Identified stores and
    support facilities remaining at period end       | 6                            
| |                                                                            |                              



As of December 27, 2003, four of the stores identified in fiscal 2001
for closure or sale were closed or abandoned and the remaining two stores were removed
from our closure or sale list due to changes in facts and circumstances. Of those stores
identified in fiscal 2002, all have been sold or closed as of December 27, 2003. Of the
five stores and four support facilities identified in fiscal 2003 for closure, relocation,
sale, or conversion, one has been relocated as of December 27, 2003, one was sold in
January, 2004, four were closed in the first quarter of 2004, two will be closed or
relocated during fiscal 2004, and the one store remaining will be closed in fiscal 2005.

Management will decide to close or relocate stores in circumstances
where the existing store is under-performing and/or a more desirable location in the same
market becomes available. Warehouses and support facilities will be closed, consolidated,
or relocated when opportunities arise to reduce overall costs of operations in these
facilities, and therefore improve gross profit margins and overall cash flows. We
anticipate that we will close up to five additional stores and three warehouses in 2004,
all but one of which will be closed upon the expiration of their respective lease terms.
Two of the five anticipated store closures involve relocations to other sites. As of the
date of this report, we have consolidated the operation of two warehouse facilities into
our new Riverside, California distribution center. In the first half of 2004, we plan to
close the third warehouse facility as a part of the consolidation. We expect the closure
and/or relocation of these stores and warehouses to ultimately result in improved store
contributions and cash flows for the Company in the long term. The short term cash flow
effects of these closures and/or relocations usually involve some severance costs which,
for these 2004 closures, we expect to be minimal as we anticipate that a majority of the
employees will accept positions at relocated stores and warehouses or other positions
within the Company. Costs for removal of furniture, fixtures, and inventory for these
closures are expected to be minimal. The expected non-cash impact on operating results in
2004 due to accelerated depreciation of assets in stores and facilities targeted for
closure is expected to be approximately $3.9 million.

Restructuring and Asset Impairment Charges  Fiscal 2002 and
Fiscal 2001. Total restructuring and asset impairment expense/(income) recorded in
fiscal 2002 and 2001 was ($832,000) and $54.9 million, respectively. See "Notes to
Consolidated Financial Statements  Note 12 - Restructuring and Asset Impairment
Charges" for details of the significant components of the expense (income).

Interest Income. Interest income for the fiscal year ended December
27, 2003, remained relatively constant as compared to fiscal 2002. Interest income for the
fiscal year ended December 28, 2002, decreased 21.4% as compared to fiscal 2001. The
decrease was attributable to lower interest rates and reduced levels of invested cash.

Interest Expense. Interest expense for the fiscal year ended
December 27, 2003, decreased 69.6% as compared to fiscal 2002, due to an overall decrease
in borrowings under our new credit facility, a substantial decrease in our overall
borrowing rate under the new credit facility and the expiration in August 2003 of an
interest rate swap agreement required by our prior credit facility. Under our Second
Amended and Restated Credit Facility, effective February 26, 2003, interest rates
decreased from LIBOR plus 5.25% (the rate under our prior credit facility through February
25, 2003) to LIBOR plus 2.25%. We project that interest expense will decrease
substantially in fiscal 2004 over fiscal 2003, as a result of the reduction in overall
borrowings and the decrease in interest rates resulting from our new credit facility.

Interest expense for the fiscal year ended December 28, 2002, decreased
16.1% as compared to fiscal 2001, due to higher average borrowings in fiscal 2001 and
higher swap-related interest rates on the term portion of the credit facility in fiscal
2001.

Income Tax Expense (Benefit). The effective tax rate for the fiscal
year ended December 27, 2003 was 39.1% as compared to 40.7% for fiscal 2002 and 36.5% for
fiscal 2001. The effective tax rate in 2002 was higher relative to 2003 and 2001 due to
the fact that in 2002, the rate was adversely impacted by our inability to utilize foreign
tax credits due to net operating losses. In addition, the write-off of certain deferred
tax assets having no future taxable benefit negatively impacted the effective tax rate for
2003 by 1.8 percentage points.

As of December 27, 2003, we had a net deferred tax asset of $18.8
million. The

For the fiscal year ended December 28, 2002, we recorded a $4.7 million
income tax expense. For the fiscal year ended December 29, 2001, we recorded a $25.2
million income tax benefit, primarily as a result of the loss before taxes of $69.1
million during the period.

Net Income. In fiscal 2003, we generated net income of $3.6
million, or $0.12 per diluted share, compared with net income of $6.9 million or $0.26 per
diluted shares in 2002. Supply chain issues were a primary contributor to our decline in
net income in the second half of 2003. We are currently in the process of transitioning
our primary distribution business to UNFI. Commencing in the first quarter of fiscal 2004,
we began the process of transitioning our perishables distribuition in the western region
of the country to our new, state-of-the-art distribution center. As part of that
transistion, we consolidated two older distribution facilities into the new perishables
distribution center, and anticipate the consolidation of a third warehouse facility in the
first half of fiscal 2004 in southern California. Disruptions in the transitions mentioned
above may impact net income. Both the distributor and warehouse transitions will be
completed by the end of the first half of fiscal 2004.

Net income in fiscal 2002 was $6.9 million, or $0.26 per diluted share, as compared to
a net loss in fiscal 2001 of $43.9 million, or ($1.80) per diluted share. Net income in
fiscal 2002 benefited from decreases in direct store expenses and interest expense. In
fiscal 2001, net income was negatively impacted by the recordation of a $54.9 million
restructuring and asset impairment charge in the second quarter resulting from a
comprehensive review conducted by our new chief executive officer of the business and
strategic repositioning efforts of the Company. Net income for fiscal 2001 also was
negatively impacted by substantial increases in selling, general and administrative
expenses incurred for consulting and professional fees resulting from a comprehensive
review of our business and strategic position, severance costs for senior executives and
other costs and fees, including advertising and marketing expenses related to the
implementation of a major marketing initiative. See "Notes to Consolidated Financial
Statements - Note 12 - Restructuring and Asset Impairment Charges" for details of the
significant components of the 2001 charge.



Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements to disclose.



Liquidity and Capital Resources

Our primary sources of capital have been cash flow from operations
(which includes trade payables), bank indebtedness, and the sale of equity securities.
Primary uses of cash have been the financing of new store development, new store openings,
relocations, remodels, replacement capital expenditures and acquisitions and repayment of
debt.

Net cash provided by operating activities was $43.8 million during
fiscal 2003 as compared to $34.7 million during fiscal 2002. Increases in cash from
operating activities during this period were attributable to overall improvements in
working capital levels primarily due in large part to inventory reductions in our existing
store base (exclusive of new store inventory). Accounts payable balances as of December
27, 2003 increased to $47.5 million from $34.8 million as of December 28, 2002. This
increase was primarily attributable to an increase in construction related payables at the
end of 2003, longer average vendor payment terms, and increased sales volume in the fourth
quarter of 2003. Additional paid time off benefits offered to employees starting in 2003,
as well as a normal increase in workers compensation self insurance reserves resulted in
an overall increase in accrued liabilities of $5.1 million as of the fiscal year ended
2003 as compared to fiscal year ended 2002.

Net cash used in investing activities was $31.4 million during fiscal
2003 as compared to $13.4 million during fiscal 2002. The increase is due to an increase
in capital expenditures for eight new stores constructed in fiscal 2003.

Net cash used in financing activities was $6.5 million during fiscal
2003 as compared to net cash provided of $28.8 million during fiscal 2002. The change
reflects the net proceeds from an equity offering completed in fiscal 2002, net of
reductions in our outstanding balance on our credit facility.

We have a net deferred tax asset of $18.8 million on our balance sheet,
primarily as a result of the $54.9 million of restructuring and asset impairment charges
recorded during fiscal 2001. The net deferred tax asset will reduce cash required for
payment of federal and state income taxes, as we believe we will generate sufficient
taxable income for realization of the asset in the future.

The following is a summary of our lease and debt obligations,
construction commitments and outstanding letters of credit as of December 27, 2003:



SUMMARY OF OBLIGATIONS AND COMMERCIAL COMMITMENTS

(in thousands)

| |                                        | PAYMENTS DUE
    BY PERIOD
| | -------------------------------------- | --------------------------
| |                                        | Total                     
| |                                        |                           
| | Contractual Obligations:               |                           
| | Long-term debt                         | $ 30,179                  
| | Capital lease obligations              | 14                        
| | Operating leases                       | 385,405                   
| | Construction commitments               | 6,605                     
| |                                        |                           
| | Total contractual cash
    obligations | $422,203                  
| |                                        |                           



| |                                   | AMOUNT OF
    COMMITMENT EXPIRATION PER PERIOD
| | --------------------------------- | ----------------------------------------------
| |                                   |                                               
| |                                   | Total                                         
| |                                   |                                               
| | Other Commercial
    Commitments: |                                               
| | Letters of credit                 | $ 7,312                                       
| |                                   |                                               
| | Total commercial commitments     



Refinancing and Expansion of Credit Facility. In February of 2003,
we completed the refinancing of our credit facility with Wells Fargo Bank N.A., our former
administrative agent, again acting as lead bank and administrative agent. Our new facility
initially had a $75.0 million limit, which was increased to $95.0 million in December with
the addition of one new bank to the lending group, and has a three year term with a
one-year renewal option. Management believes this facility is adequate for our borrowing
needs. Under the new facility, we have the option to increase the total facility to $135.0
million through the addition of new lenders and through the agreement of the current
lending group to increase their total commitments.

As part of the new facility, we have given our lenders collateral in
the form of cash, equipment and fixtures, inventory and other assets. We have also granted
leasehold mortgages in those leasehold interests previously mortgaged to secure our former
credit facility, although we have no obligation to provide an interest in any new
leaseholds. The new facility contains limitations on capital expenditures and the signing
of new leases, although we believe such limitations will not restrict our previously
announced growth plans of 15 to 20 stores in fiscal 2004 and 20 to 25 stores in fiscal
2005. The interest rate on the facility is currently either prime plus 1.0% or one-month
LIBOR plus 2.25%, at our election, and the rates modify depending on the ratio of average
total funded debt, as defined under the credit facility, plus six times rent expense, to
EBITDAR for the four fiscal quarter periods then ended, as calculated on our quarterly
compliance certificate. Additionally, we are charged a commitment fee on the unused
portion of the line ranging from 0.25% to 0.5% based on performance objectives as defined
in the credit agreement. We believe that cash generated from operations and available
under our credit facility will be sufficient to meet our capital expenditure requirements
for the next several years..

We anticipate that we will continue to comply with the monthly and
quarterly financial covenants in the credit agreement. In the event that business
conditions worsen, management has identified contingency actions to enable us to remain in
compliance with the financial covenants. Even if we remain in compliance with our monetary
covenants, a technical default could result due to a breach of the financial covenants. In
the absence of a waiver or amendment to such financial covenants, such non-compliance
would constitute a default under the credit agreement, and the lenders would be entitled
to accelerate the maturity of the indebtedness outstanding thereunder. In the event that
such non-compliance appears likely, or occurs, we will seek approval, as we have in the
past, from the lenders to renegotiate financial covenants and/or obtain waivers, as
required. However, there can be no assurance that future amendments or waivers will be
obtained.

In accordance with the requirements of our former credit facility and
our interest rate risk-management strategy, in September 2000 we entered into a swap
agreement to hedge the interest rate on $32.5 million of its borrowings. The swap
agreement locks in a one-month LIBOR rate of 6.7% and expired in August 2003. Under our
new facility, we are not obligated to enter into any such rate contracts; however, we may
choose to do so if we believe such to be appropriate and in line with our risk-management
strategy.

Capital Expenditures. We spent approximately $31.7 million during
fiscal 2003 for new store construction, development, remodels and other capital
expenditures. Our average capital expenditures to open a leased store, including leasehold
improvements, equipment and fixtures, have ranged from approximately $2.0 million to $5.0
million historically, excluding inventory costs and initial operating losses. In fiscal
2004, we expect to spend between $50 and $55 million in capital expenditures to construct
15 new stores and complete significant remodels on four additional stores. As part of our
reexamination of our operating strategies, we anticipate that the average capital
expenditures to open a natural foods supermarket format store will be $2.1 million to $3.9
million in the future; however, our ability to negotiate turnkey leases in the future will
result in a substantially lower capital expenditure per store, in return for a slightly
higher rent rate over the lease term. Our average capital expenditures to open a farmers
market format store are estimated at $1.6 million to $3.0 million in the future. Delays in
opening new stores may result in increased capital expenditures and increased pre-opening
costs for the site, as well as lower than planned sales for the Company.

The cost of initial inventory for a new store is approximately $300,000
to $600,000 depending on the store format; however, we obtain vendor financing for most of
this cost. Pre-opening costs for natural foods supermarket format stores in the future are
projected to be $300,000 to $400,000 per store, and pre-opening costs for farmers market
format stores are projected to be $250,000 to $350,000, as a result of increased
advertising and travel expenses for new stores. All pre-opening costs are expensed as
incurred. The amounts and timing of such pre-opening costs will depend upon the
availability of new store sites and other factors, including the location of the store and
whether it is in a new or existing market for us, the size of the store, and the required
build-out at the site. Costs to acquire future stores, if any, are impossible to predict
and could vary materially from the cost to open new stores. There can be no assurance that
actual capital expenditures will not exceed anticipated levels, although our amended
credit facility contains aggregate limits on the amounts of capital expenditures we may
make. We believe that cash generated from operations and available under our existing
credit facility will be sufficient to satisfy our budgeted cash requirements through
fiscal 2004. We believe that cash generated from operations and available
borrowings under our existing credit facility will be sufficient to satisfy our
capital needs to execute our store growth plans over the next three years.
  In the past, we have primarily used cash flows generated from operations,
improvements in working capital and equity proceeds to fund store growth
and have used any excess cash to reduce debt.  As our store development plan
accelerates, we expect that a greater proportion of our capital will funded through
borrowings on the line of credit than we have utilized in the past.  We will
continually evaluate other sources of capital and will seek those considered
appropriate for future acquisition or accelerated store growth opportunities.



Cautionary Statement Regarding Forward-Looking Statements

This Report on Form 10-K contains "forward-looking
statements," within the meaning of the Private Securities Litigation Reform Act of
1995, which involve known and unknown risks. Such forward-looking statements include
statements as to the Company plans to open, acquire or relocate additional stores; the
anticipated performance of such stores; the impact of competition and current economic
uncertainty; the sufficiency of funds to satisfy our cash requirements through the
remainder of fiscal 2004, the Companys expectations for comparable store sales; the
impact of changes resulting from the Companys merchandising, advertising and pricing
programs; the expected completion of the Companys switch to a new primary
distributor; expected pre-opening expenses, capital expenditures and expected store
closures; and other statements containing words such as "believes,"
"anticipates," "estimates," "expects," "may,"
"intends" and words of similar import or statements of management's opinion.
These forward-looking statements and assumptions involve known and unknown risks,
uncertainties and other factors that may cause the Companys actual results, market
performance or achievements to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Important factors
that could cause differences in results of operations include, but are not limited to, the
timing and execution of new store openings, relocations, remodels, sales and closures; the
impact of competition; delays in the transition to our primary distributor or changes in
product supply or suppliers and supplier performance levels; changes in management
information needs; changes in customer needs and expectations; governmental and regulatory
actions; general industry or business trends or events; changes in economic or business
conditions in general or affecting the natural foods industry in particular; and
competition for and the availability of sites for new stores and potential acquisition
candidates. The Company undertakes no obligation to update any forward-looking statements
in order to reflect events or circumstances that may arise after the date of this Report.



Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

In the normal course of business, the Company is exposed to
fluctuations in interest rates and the value of foreign currency. The Company employs
various financial instruments to manage certain exposures when practical.

The Company is exposed to foreign currency exchange risk. The Company
owns and operates three natural foods supermarkets and a commissary kitchen in British
Columbia, Canada. The commissary supports the three Canadian stores and does not
independently generate sales revenue. Sales made from the Canadian stores are made in
exchange for Canadian dollars. To the extent that those revenues are repatriated to the
United States, the amounts repatriated are subject to the exchange rate fluctuations
between the two currencies. The Company does not hedge against this risk because of the
small amounts of funds at risk.

The Company's exposure to interest rate changes is primarily related to
its variable rate debt issued under its credit facility. In 2003, the Company refinanced
the credit facility and reduced the total commitment available to a $95.0 million
revolving line of credit, with a three-year term expiring February 25, 2006. The interest
rate on the amended facility is currently either prime plus 1.0% or one-month LIBOR plus
2.25%, at our election, and the rates modify depending on the ratio of average total
funded debt, as defined under the credit facility, plus six times rent expense, to EBITDAR
for the four fiscal quarter periods then ended, as calculated on our quarterly compliance
certificate. Because the interest rate on the facility is variable, based upon the prime
rate or LIBOR, the Company's interest expense and net income are affected by interest rate
fluctuations. If interest rates were to increase or decrease by 100 basis points, the
result, based upon the existing outstanding non-hedged variable rate debt as of December
27, 2003, would be an annual increase or decrease of approximately $302,000 in interest
expense and a corresponding decrease or increase of approximately $184,000 in the
Companys net income after taxes.

In September 2000, as required by the Companys former credit
facility, the Company entered into an interest rate swap to hedge its exposure on variable
rate debt positions. Variable rates were predominantly linked to LIBOR as determined by
one-month intervals. The interest rate provided by the swap fixed one-month LIBOR at 6.7%.
%. At December 28, 2002, the notional principal amount of the interest rate swap agreement
was $32.5 million, and expired in August 2003. There is no obligation to renew the swap
under the refinanced facility. The notional amount is the amount used for the calculation
of interest payments that are exchanged over the life of the swap transaction on the
amortized principal balance. In fiscal 2003 through its expiration in August of 2003, the
loss of $613,000, net of taxes, was reclassified into earnings from other comprehensive
income for this cash flow hedge.



---

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|INDEX
    TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | PAGE                                                                                                                 
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------
|                                                         |                                                                                                                      
|                                                         | Report of Management                                                                                                 
|                                                         |                                                                                                                      
|                                                         | Report of Independent Auditors                                                                                       
|                                                         |                                                                                                                      
|                                                         | Consolidated Statements
      of Operations for the Fiscal Years 2003, 2002 and 2001                                 
|                                                         |                                                                                                                      
|                                                         | Consolidated
      Statements of Comprehensive Income (Loss) for the Fiscal Years 2003, 2002 and 2001                
|                                                         |                                                                                                                      
|                                                         | Consolidated Balance Sheets for
      the Fiscal Years Ended 2003 and 2002                                           
|                                                         |                                                                                                                      
|                                                         | Consolidated
      Statements of Changes in Stockholders Equity for the Fiscal Years Ended 2003, 2002
      and 2001
|                                                         |                                                                                                                      
|                                                         | Consolidated Statements
      of Cash Flows for the Fiscal Years Ended 2003, 2002 and 2001                           
|                                                         |                                                                                                                      
|                                                         | Notes to
      Consolidated Financial Statements                                                                     



---

REPORT OF MANAGEMENT

We are responsible for the preparation and integrity of the
consolidated financial statements and all related information appearing in our Annual
Report. The consolidated financial statements and notes were prepared in conformity with
generally accepted accounting principles appropriate in the circumstances and,
accordingly, include certain amounts based on our best judgments and estimates of current
conditions and circumstances.

Management maintains a system of accounting and other controls to
provide reasonable assurance that assets are safeguarded against loss from unauthorized
use or disposition and that accounting records are reliable for preparing financial
statements. Even an effective internal control system, no matter how well designed, has
inherent limitations, including the possibility of circumvention or overriding of
controls, and therefore can provide only reasonable assurance with respect to financial
statement presentation. The system of accounting and other controls is modified in
response to changes in business conditions and operations and recommendations made by the
independent accountants.

The Audit Committee of the Board of Directors, which is composed of
directors who are not employees, meets periodically with management and the independent
accountants to review the manner in which these groups are performing their
responsibilities and to carry out the Audit Committees oversight role with respect
to auditing, internal controls and financial reporting matters. The Audit Committee
reviews with the independent accountants the scope and results of the audit. The
independent accountants periodically meet privately with the Audit Committee and have
access to its individual members.

We engaged PricewaterhouseCoopers LLP, independent accountants, to
audit the consolidated financial statements in accordance with generally accepted auditing
standards, which include consideration of the internal control structure. The opinion of
the independent accountants, based upon their audits of the consolidated financial
statements, is contained in this Annual Report.



| | 
| | 

|Perry D. Odak                             | Edward F. Dunlap       
|----------------------------------------- | -----------------------
|Chief Executive Officer and
    President | Chief Financial Officer
|March 11, 2004                            | March 11, 2004         



---

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Wild Oats Markets, Inc.

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial position of
Wild Oats Markets, Inc. and its subsidiaries (the "Company") at December 27,
2003 and December 28, 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 27, 2003 in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our responsibility is
to express an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

As discussed in Note 1 to the consolidated financial statements,
effective December 30, 2001, the Company changed its method of accounting for goodwill and
other intangible assets.





PricewaterhouseCoopers LLP

Denver, Colorado

March 8, 2004



WILD OATS MARKETS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|FISCAL YEAR                                                            |  | 2003      |  | 2002      |  | 2001      
|---------------------------------------------------------------------- |  | --------- |  | --------- |  | ----------
|                                                                      
|Sales                                                                  |  | $ 969,204 |  | $ 919,130 |  | $ 893,179 
|Cost of goods sold and occupancy costs                                 |  | 683,592   |  | 644,862   |  | 634,631   
|                                                                       |  |           |  |           |  |           
|Gross profit                                                           |  | 285,612   |  | 274,268   |  | 258,548   
|Operating expenses:                                                    |  |           |  |           |  |           
|Direct store expenses                                                  |  | 208,908   |  | 198,379   |  | 207,898   
|Selling, general and administrative expenses                           |  | 64,659    |  | 55,186    |  | 53,131    
|Loss on disposal of assets, net                                        |  | 2,087     |  | 21        |  | 477       
|Pre-opening expenses                                                   |  | 2,890     |  | 1,897     |  | 1,562     
|Restructuring and asset impairment charges (income), net               |  | (892)     |  | (832)     |  | 54,906    
|                                                                       |  |           |  |           |  |           
|Income (loss) from operations                                          |  | 7,960     |  | 19,617    |  | (59,426)  
|Loss on investment                                                     |  |           |  |           |  | (228)     
|Loss on early extinguishment of debt                                   |  | (186)     |  |           |  |           
|Interest income                                                        |  | 780       |  | 778       |  | 990       
|Interest expense                                                       |  | (2,661)   |  | (8,753)   |  | (10,437)  
|                                                                       |  |           |  |           |  |           
|Income (loss) before income taxes                                      |  | 5,893     |  | 11,642    |  | (69,101)  
|Income tax expense (benefit)                                           |  | 2,302     |  | 4,733     |  | (25,189)  
|                                                                       |  |           |  |           |  |           
|Net income (loss)                                                      |  | $ 3,591   |  | $ 6,909   |  | $ (43,912)
|                                                                       |  |           |  |           |  |           
|Net income (loss) per common share:                                    |  |           |  |           |  |           
|Basic                                                                  |  | $ 0.12    |  | $ 0.26    |  | $ (1.80)  
|Diluted                                                                |  | $ 0.12    |  | $ 0.26    |  | $ (1.80)  
|                                                                       |  |           |  |           |  |           
|Weighted average number of common shares outstanding                   |  | 29,851    |  | 26,481    |  | 24,424    
|                                                                       |  |           |  |           |  |           
|Weighted average number of common shares outstanding assuming dilution |  | 30,258    |  | 27,082    |  | 24,424    
|                                                                       |  |           |  |           |  |           



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

---

WILD OATS MARKETS, INC.

CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In thousands)



|FISCAL YEAR                                                                                                              |  | 2003    |  | 2002    |  | 2001      
|------------------------------------------------------------------------------------------------------------------------ |  | ------- |  | ------- |  | ----------
|                                                                                                                        
|Net income (loss)                                                                                                        |  | $ 3,591 |  | $ 6,909 |  | $ (43,912)
|                                                                                                                         |  |         |  |         |  |           
|Other comprehensive income (loss):                                                                                       |  |         |  |         |  |           
|                                                                                                                         |  |         |  |         |  |           
|Foreign currency translation adjustments arising during the period                                                       |  | 697     |  | (61)    |  | (530)     
|                                                                                                                         |  |         |  |         |  |           
|Cumulative effect of change in accounting principle (see Note 1),
      net of tax of $352                               |  |         |  |         |  | (586)     
|                                                                                                                         |  |         |  |         |  |           
|Recognition of hedge results to interest expense during the period, net
      of tax of $367, $705 and $435 respectively |  | 613     |  | 1,176   |  | 726       
|                                                                                                                         |  |         |  |         |  |           
|Change in market value of cash flow hedge during the period, net of tax
      of $12, $208 and $935, respectively        |  | (20)    |  | (348)   |  | (1,561)   
|                                                                                                                         |  |         |  |         |  |           
|Other comprehensive income (loss)                                                                                        |  | 1,290   |  | 767     |  | (1,951)   
|                                                                                                                         |  |         |  |         |  |           
|Comprehensive income (loss)                                                                                              |  | $ 4,881 |  | $ 7,676 |  | $ (45,863)
|                                                                                                                         |  |         |  |         |  |           



The accompanying notes are an integral part of the consolidated
financial statements.

---

WILD OATS MARKETS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)



|FISCAL YEAR ENDED                                                                                                                  | 2003          |  | 2002         
|---------------------------------------------------------------------------------------------------------------------------------- | ------------- |  | -------------
|                                                                                                                                  
|ASSETS                                                                                                                             |               |  |              
|                                                                                                                                   |               |  |              
|Current assets:                                                                                                                    |               |  |              
|Cash and cash equivalents                                                                                                          | $ 17,400      |  | $ 11,367     
|Inventories (net of reserves of $685 and $886, respectively)                                                                       | 46,621        |  | 47,175       
|Accounts receivable (net of allowance for doubtful accounts of $208 and
      $338, respectively)                                  | 4,038         |  | 2,524        
|Income tax receivable                                                                                                              | 261           |  | 250          
|Prepaid expenses and other current assets                                                                                          | 2,192         |  | 2,163        
|Deferred tax asset                                                                                                                 | 6,340         |  | 4,656        
|                                                                                                                                   |               |  |              
|Total current assets                                                                                                               | 76,852        |  | 68,135       
|                                                                                                                                   |               |  |              
|Property and equipment, net                                                                                                        | 130,989       |  | 122,359      
|Goodwill, net                                                                                                                      | 106,404       |  | 106,404      
|Other intangible assets, net                                                                                                       | 6,976         |  | 7,415        
|Deposits and other assets                                                                                                          | 2,932         |  | 3,622        
|Deferred tax asset                                                                                                                 | 12,438        |  | 15,650       
|                                                                                                                                   |               |  |              
|                                                                                                                                   | $
    336,591 |  | $
    323,585
|                                                                                                                                   |               |  |              
|                                                                                                                                   |               |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                               |               |  |              
|                                                                                                                                   |               |  |              
|Current liabilities:                                                                                                               |               |  |              
|Accounts payable                                                                                                                   | $ 47,529      |  | $ 34,819     
|Book overdraft                                                                                                                     | 26,727        |  | 22,777       
|Accrued liabilities                                                                                                                | 42,998        |  | 37,943       
|Current portion of debt and capital leases                                                                                         | 14            |  | 146          
|                                                                                                                                   |               |  |              
|Total current liabilities                                                                                                          | 117,268       |  | 95,685       
|                                                                                                                                   |               |  |              
|Long-term debt and capital leases                                                                                                  | 30,179        |  | 43,075       
|Other long-term obligations                                                                                                        | 14,058        |  | 17,923       
|                                                                                                                                   |               |  |              
|                                                                                                                                   | 161,505       |  | 156,683      
|                                                                                                                                   |               |  |              
|Commitments and contingencies (Notes 10 and
    11)                                                                                |               |  |              
|                                                                                                                                   |               |  |              
|Stockholders equity:                                                                                                              |               |  |              
|Preferred stock, $0.001 par value; 5,000,000 shares authorized; no
      shares issued and outstanding                             |               |  |              
|Common stock; $0.001 par value; 60,000,000 shares authorized; 30,063,421
      and 29,658,660 issued and outstanding, respectively | 30            |  | 30           
|Additional paid-in capital                                                                                                         | 217,400       |  | 213,482      
|Note receivable, related party                                                                                                     | (10,815)      |  | (10,200)     
|Accumulated deficit                                                                                                                | (31,777)      |  | (35,368)     
|Accumulated other comprehensive income (loss)                                                                                      | 248           |  | (1,042)      
|                                                                                                                                   |               |  |              
|Total stockholders equity                                                                                                         | 175,086       |  | 166,902      
|                                                                                                                                   |               |  |              
|                                                                                                                                   | $
    336,591 |  | $
    323,585
|                                                                                                                                   |               |  |              



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

---

WILD OATS MARKETS, INC.

CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(In thousands, except share and per-share amounts)

|                                                                                                | Common
    Stock | Addl
    Paid-In Capital | Note
    Receivable, Related  Party | Retained
    Earnings (Accumulated Deficit) | Accumulated
    Other Comp. Income (Loss) | Total
    Stockholders Equity
|----------------------------------------------------------------------------------------------- | ---------------- | ------------------------- | ----------------------------------- | ------------------------------------------- | ----------------------------------------- | ------------------------------
|                                                                                                |                 
|                                                                                                | Shares           |                           | Amount                             
|                                                                                                |                  |                           |                                     |                                             |                                           |                               
|BALANCE AT DECEMBER 30, 2000                                                                    | 23,147,103       |                           | $ 23                                | $ 149,764                                   |                                           | $ 1,635                       
|Stock issued in exchange for note receivable                                                    | 1,332,649        |                           | 1                                   | 9,286                                       | $ (9,274)                                 |                               
|Accrued interest on note receivable                                                             |                  |                           |                                     |                                             | (386)                                     |                               
|Issuance of common stock ($3.61 to $3.66 per share), net of issuance
      costs                | 152,405          |                           |                                     | 551                                         |                                           |                               
|Common stock options exercised ($3.13 to $9.06 per share), including
      related tax benefit  | 134,252          |                           | 1                                   | 1,135                                       |                                           |                               
|Net loss                                                                                        |                  |                           |                                     |                                             |                                           | (43,912)                      
|Foreign currency translation adjustment                                                         |                  |                           |                                     |                                             |                                           |                               
|Cumulative effect of change in accounting principle, net of tax                                 |                  |                           |                                     |                                             |                                           |                               
|Recognition of hedge results to interest expense during the period, net
      of tax            |                  |                           |                                     |                                             |                                           |                               
|Change in market value of cash flow hedge during the period, net of tax                         |                  |                           |                                     |                                             |                                           |                               
|                                                                                                |                  |                           |                                     |                                             |                                           |                               
|BALANCE AT DECEMBER 29, 2001                                                                    | 24,766,409       |                           | 25                                  | 160,736                                     | (9,660)                                   | (42,277)                      
|Accrued interest on note receivable                                                             |                  |                           |                                     |                                             | (540)                                     |                               
|Issuance of common stock ($7.91 to $11.50 per share), net of issuance
      costs               | 4,641,692        |                           | 4                                   | 50,327                                      |                                           |                               
|Common stock options exercised ($3.13 to $12.56 per share), including
      related tax benefit | 250,559          |                           | 1                                   | 2,419                                       |                                           |                               
|Net income                                                                                      |                  |                           |                                     |                                             |                                           | 6,909                         
|Foreign currency translation adjustment                                                         |                  |                           |                                     |                                             |                                           |                               
|Recognition of hedge results to interest expense during the period, net
      of tax            |                  |                           |                                     |                                             |                                           |                               
|Change in market value of cash flow hedge during the period, net of tax                         |                  |                           |                                     |                                             |                                           |                               
|                                                                                                |                  |                           |                                     |                                             |                                           |                               
|BALANCE AT DECEMBER 28, 2002                                                                    | 29,658,660       |                           | 30                                  | 213,482                                     | (10,200)                                  | (35,368)                      
|Accrued interest on note receivable                                                             |                  |                           |                                     |                                             | (615)                                     |                               
|Issuance of common stock ($8.77 to $9.11 per share), net of issuance
      costs                | 88,595           |                           |                                     | 1,186                                       |                                           |                               
|Common stock options exercised ($3.13 to $10.86 per share), including
      related tax benefit | 316,166          |                           |                                     | 2,732                                       |                                           |                               
|Net income                                                                                      |                  |                           |                                     |                                             |                                           | 3,591                         
|Foreign currency translation adjustment                                                         |                  |                           |                                     |                                             |                                           |                               
|Recognition of hedge results to interest expense during the period, net
      of tax            |                  |                           |                                     |                                             |                                           |                               
|Change in market value of cash flow hedge during the period, net of tax                         |                  |                           |                                     |                                             |                                           |                               
|                                                                                                |                  |                           |                                     |                                             |                                           |                               
|BALANCE AT DECEMBER 27, 2003                                                                    | 30,063,421       |                           | $ 30                                | $ 217,400                                   | $ (10,815)                                | $ (31,777)                    
|                                                                                                |                  |                           |                                     |                                             |                                           |                               



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

---

WILD OATS MARKETS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|FISCAL YEAR                                                                 | 2003     |  | 2002      |  | 2001      
|--------------------------------------------------------------------------- | -------- |  | --------- |  | ----------
|                                                                            |          |  |           |  |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |          |  |           |  |           
|                                                                            |          |  |           |  |           
|Net income (loss)                                                           | $ 3,591  |  | $ 6,909   |  | $ (43,912)
|                                                                            |          |  |           |  |           
|Adjustments to reconcile net income (loss) to
    net cash                  |          |  |           |  |           
|provided by operating activities:                                           |          |  |           |  |           
|Depreciation and amortization                                               | 23,710   |  | 21,335    |  | 26,284    
|Loss on disposal of property and equipment                                  | 2,087    |  | 21        |  | 477       
|Deferred tax expense (benefit)                                              | 1,503    |  | 4,056     |  | (22,509)  
|Non-cash restructuring and asset impairment charges (income),
        net   | (953)    |  | (701)     |  | 54,907    
|Other                                                                       | (110)    |  | (317)     |  | (52)      
|Change in assets and liabilities:                                           |          |  |           |  |           
|Inventories, net                                                            | 755      |  | 6,886     |  | 1,120     
|Receivables, net and other assets                                           | (1,173)  |  | 3,966     |  | 5,038     
|Accounts payable                                                            | 9,941    |  | (6,765)   |  | 2,481     
|Accrued liabilities and other liabilities                                   | 4,465    |  | (692)     |  | (1,972)   
|                                                                            |          |  |           |  |           
|Net cash provided by operating activities                                   | 43,816   |  | 34,698    |  | 21,862    
|                                                                            |          |  |           |  |           
|                                                                            |          |  |           |  |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |          |  |           |  |           
|                                                                            |          |  |           |  |           
|Capital expenditures                                                        | (31,731) |  | (13,678)  |  | (20,082)  
|Proceeds from sale of property and equipment                                | 346      |  | 229       |  | 146       
|                                                                            |          |  |           |  |           
|Net cash used in investing activities                                       | (31,385) |  | (13,449)  |  | (19,936)  
|                                                                            |          |  |           |  |           
|                                                                            |          |  |           |  |           
|CASH FLOWS FROM FINANCING
    ACTIVITIES:                                   |          |  |           |  |           
|                                                                            |          |  |           |  |           
|Net repayments under line of credit                                         | (13,800) |  | (69,200)  |  | (1,685)   
|Net increase in book overdraft                                              | 3,949    |  | 425       |  | 3,849     
|Proceeds from long term debt                                                | 37,879   |  |           |  | 2,000     
|Repayments on notes payable, long-term debt
    and capitalized    leases   | (37,107) |  | (10,798)  |  | (254)     
|Payment of debt issuance costs                                              | (721)    |  |           |  |           
|Proceeds from issuance of common stock, net                                 | 3,288    |  | 50,822    |  | 895       
|                                                                            |          |  |           |  |           
|Net cash (used in) provided by financing activities                         | (6,512)  |  | (28,751)  |  | 4,805     
|                                                                            |          |  |           |  |           
|Effect of exchange rates on cash                                            | 114      |  | 29        |  | (348)     
|                                                                            |          |  |           |  |           
|Net (decrease) increase in cash and cash
    equivalents                    | 6,033    |  | (7,473)   |  | 6,383     
|Cash and cash equivalents at beginning of year                              | 11,367   |  | 18,840    |  | 12,457    
|                                                                            |          |  |           |  |           
|Cash and cash equivalents at end of year                                    | $ 17,400 |  | $ 11,367  |  | $ 18,840  
|                                                                            |          |  |           |  |           
|                                                                            |          |  |           |  |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
    INFORMATION:                       |          |  |           |  |           
|                                                                            |          |  |           |  |           
|Cash paid for interest, net of amounts
    capitalized                      | $ 3,168  |  | $ 8,549   |  | $ 10,203  
|                                                                            |          |  |           |  |           
|Cash paid (received) for income taxes                                       | $ 67     |  | $ (3,473) |  | $ (7,241) 
|                                                                            |          |  |           |  |           
|                                                                            |          |  |           |  |           
|SUPPLEMENTAL DISCLOSURE OF NON-CASH
    INVESTING AND FINANCING ACTIVITIES: |          |  |           |  |           
|                                                                            |          |  |           |  |           
|Stock issued in exchange for note receivable                                |          |  |           |  | $ 9,274   
|                                                                            |          |  |           |  |           
|Stock issued in partial payment of note
    payable                         |          |  | $ 1,210   |  |           
|                                                                            |          |  |           |  |           
|Partial settlement of note payable against
    accounts receivable          |          |  | $ 200     |  |           
|                                                                            |          |  |           |  |           



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

---

WILD OATS MARKETS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

|1. | Organization and Summary
    of Significant Accounting Policies
|-- | ---------------------------------------------------------------

Organization. Wild Oats Markets, Inc. ("Wild Oats" or the
"Company"), headquartered in Boulder, Colorado, owns and operates natural and
organic foods supermarkets in the United States and Canada. The Company also operates
bakeries, commissary kitchens, and warehouses that supply the retail stores. The
Companys operations are concentrated in one market segment, grocery stores, and are
geographically concentrated in the western and central parts of the United States.

Basis of Presentation. Certain amounts in the prior years
financial statements have been reclassified to conform to the current year presentation.
These reclassifications have no impact on net income.

Principles of Consolidation. The Companys consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated.

Fiscal Year. The Company reports its financial results on a 52- or
53-week fiscal year ending on the Saturday closest to December 31. Fiscal years for the
consolidated financial statements included herein ended on December 27, 2003, December 28,
2002 and December 29, 2001. Fiscal 2003 , Fiscal 2002 and Fiscal 2001 were 52-week years.

Cash and Cash Equivalents. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash equivalents.
Financial instruments which potentially subject the Company to concentration of credit
risk consist principally of cash and temporary cash investments. At times, cash balances
held at financial institutions were in excess of Federal Deposit Insurance Corporation
insurance limits. The Company places its temporary cash investments with high-credit
quality financial institutions. The Company believes no significant concentration of
credit risk exists with respect to these cash investments.

Inventories. Store inventories are valued principally at the lower
of cost or market, with cost primarily determined under the retail method on a FIFO basis.
FIFO cost is determined using the retail method for approximately 80% of inventories and
using the item cost method for highly perishable products representing approximately 20%
of inventories. Under the retail inventory method, the valuation of inventories at cost
and the resulting gross margins are determined by applying a cost-to-retail ratio for
various categories of similar items to the retail value of inventories. Inherent in the
retail inventory method calculations are certain management judgments and estimates,
including shrinkage, which could impact the ending inventory valuation at cost as well as
the resulting gross margins. Certain other highly perishable inventories are valued
primarily at the lower of cost or market, with cost determined on a FIFO basis.

Property and Equipment. Property and equipment are recorded at cost
and shown net of accumulated depreciation. Depreciation is computed on a straight-line
basis over the estimated useful lives of machinery and equipment (three to 10 years).
Leasehold improvements are amortized on a straight-line basis over the shorter of the
useful life of the asset or the lease term. Eligible internal-use software development
costs incurred subsequent to the completion of the preliminary project state are
capitalized and amortized over the estimated useful life of the software which is 5 years.
Major renewals and improvements are capitalized, while maintenance and repairs are
expensed as incurred. Upon sale or retirement of assets, the cost and related accumulated
depreciation or amortization are eliminated from the respective accounts and any resulting
gains or losses are reflected in operations. Applicable interest charges incurred during
the construction of assets are capitalized as one of the elements of cost and are
amortized over the assets estimated useful lives. All internal direct costs
associated with store construction are capitalized. Site specific development costs are
capitalized. Development costs related to a potential site subsequently determined to be
unfeasible are expensed when the determination is made.

Goodwill. Goodwill consists of the excess cost of acquired
companies over the sum of the fair market value of their underlying tangible and
identifible intangible assets acquired and liabilities assumed. Prior to 2002, goodwill
was recorded at the store-level, and amortized over 40 years. With adoption of Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets", the Company allocates goodwill to one reporting unit. It is no
longer amortized but is tested for impairment annually, or more frequently if certain
indicators of impairment exist. The Companys annual evaluation for impairment was
made during the second quarter of 2003 and 2002, with the result being no impairment. This
evaluation requires management to exercise a high degree of judgment in developing
assumptions and fair value estimates used in the calculation, which have the potential of
significantly impacting the results.

Other Intangible Assets. Otherintangible assets consist
primarily of leasehold interests and liquor licenses. Amortization of leasehold interests
is computed on a straight-line basis over the lease term. Liquor licenses are not
amortized.

Debt Issuance Costs. Costs related to the issuance of debt are
capitalized and amortized to interest expense using the effective interest method over the
period the debt is outstanding.

Impairment of Long-Lived Assets. The Company monitors the carrying
value of its long-lived assets, including finite lived intangible assets, for potential
impairment whenever changes in circumstance indicate a potential for impairment may exist.
The triggering events for evaluations of finite lived intangible assets include a
significant decrease in the market value of an asset, acquisition and construction costs
in excess of budget, or current store operating losses combined with a history of losses
or a projection of continuing losses. If an impairment is identified, based on
undiscounted future cash flows, the Company compares the assets future cash flows,
discounted to present value using a risk-adjusted discount rate, to its current carrying
value and records a provision for impairment as appropriate. With respect to equipment and
leasehold improvements associated with closed stores, the value of these assets is
adjusted to reflect recoverable values estimated based on the Companys previous
efforts to dispose of similar assets, with consideration for current economic conditions.

Store Operating Leases. The Company is the lessee of land and
buildings under long-term operating leases, which include scheduled increases in minimum
rents. These scheduled rent increases are recognized on a straight-line basis over the
initial lease terms.

Restructuring and Asset Impairment Costs. The Company plans to
complete store closures or sales within a one-year period following the commitment date.
Costs related to store closures and sales are reflected in the income statement as
"Restructuring and Asset Impairment Charges." For stores the Company intends to
sell, the Company actively markets the stores to potential buyers. Stores held for
disposal are reduced to their estimated net realizable value. Prior to 2003, when the
Company commited to close a store, a lease-related liability was recorded for the present
value of the estimated remaining non-cancelable lease payments after the anticipated
closing date, net of estimated subtenant income, or for estimated lease settlement costs.
In addition, the Company recorded a liability for costs to be incurred after the store
closing which are required under leases or local ordinances for site preservation during
the period before lease termination. The value of equipment and leasehold improvements
related to a closed store was reduced to reflect recoverable values based on the
Companys previous efforts to dispose of similar assets and current economic
conditions. In accordance with the new requirements of SFAS No. 146 (see New Accounting
Pronouncements later in this note), as of fiscal 2003, the Company recognized such
lease related costs at the time of the actual store closing. As of the date of the
commitment to close or relocate a store, depreciation of store assets is accelerated over
the remaining months of operation as necessary in order to bring their net carrying cost
down to net realizable value as of the date of closure.

Severance costs incurred in connection with store closings are recorded
when the employees have been identified and notified of the termination benefits to be
made to the employees.

Lease-related liabilities and the recoverability of assets to be
disposed of are reviewed quarterly, and changes in previous estimates are reflected in
operations. Significant cash payments associated with closed stores relate to ongoing
payments of rent, common area maintenance, insurance charges, and real property taxes as
required under continuing lease obligations.

Pre-Opening Expenses. Pre-opening expenses are recognized as
incurred and typically include labor, rent, advertising, utilities, supplies and certain
other costs incurred prior to a stores opening.

Concentration of Risk. Based upon the current distribution
agreement (see Note 18 - Change in Primary Distributor), the Company plans to
purchase 30% or more of its cost of goods sold from its primary distributor, which during
2003 was Tree of Life, Inc. The Companys reliance on this supplier can be shifted,
over a period of time, to alternative sources of supply, should such changes be necessary.
However, if the Company could not obtain products from this supplier for factors beyond
its control, the Companys operations would be disrupted in the short term while
alternative sources of product were secured.

Revenue Recognition. Revenue for sales of the Companys
products is recognized at the point of sale to the retail customer. Returns are not
significant.  97% of the Company's sales are attributable to the United States, and
3% to Canada.

Cost of Goods Sold and Occupancy Costs. Cost of goods sold includes
all product and shipping costs associated with inventory sold during the period, net of
their related vendor rebates, credits, and promotional allowances, and occupancy costs. In
accordance with EITF 02-16, Accounting By a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor, payments from a vendor other than reimbursements
for specific services such as advertising, are accounted for as a reduction of the
inventory carrying cost and flow through cost of goods sold when the inventory is sold.

Advertising. Advertising is expensed as incurred. Advertising
expense was $14.5 million, $13.3 million and $9.3 million for fiscal 2003, fiscal 2002 and
fiscal 2001, respectively. These amounts are net of vendor reimbursements received for
advertising of $6.3 million, $5.3 million, and $2.6 million for fiscal years 2003, 2002
and 2001, respectively. Beginning in fiscal 2002, certain advertising expenses previously
recorded as direct store expenses were recorded as selling, general and administrative
expenses. For fiscal 2001, $4.3 million was reclassified on the Consolidated Statements of
Operations to conform to current year presentation.

Fair Value of Financial Instruments. The carrying amounts of the
Companys financial instruments, including cash and cash equivalents, short-term
trade receivables and payables, approximate their fair values due to the short-term nature
of the instruments. The fair value of the Companys long-term debt approximates its
carrying value due to the variable interest rate feature of the instrument.

Derivative Financial Instruments. Prior to August 1, 2003, the
Company used an interest rate swap to manage a portion of its interest costs and the risk
associated with changing interest rates. As interest rates changed, the differential paid
or received was recognized in interest expense of the related period. As of December 27,
2003, the Company had no derivative financial instruments.

Use of Estimates. The preparation of these financial statements in
conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates.

Foreign Currency Translation. The functional currency for the
Companys Canadian subsidiary is the Canadian dollar. Translation into U.S. dollars
is performed for assets and liabilities at the exchange rate as of the balance sheet date.
Income and expense accounts are translated at average exchange rates for the year.
Adjustments resulting from the translation are reflected as a separate component of other
comprehensive income. Translation adjustments are not tax-effected as they relate to
investments that are permanent in nature.

Self-Insurance. The Company is self-insured for certain losses
relating to workers compensation claims, general liability and employee medical and
dental benefits. The Company has purchased stop-loss coverage in order to limit its
exposure to any significant levels of claims. Self-insured losses are accrued based upon
the Companys estimates of the aggregate uninsured claims incurred using certain
actuarial assumptions followed in the insurance industry and the Companys historical
experiences. A high degree of management judgment is required in developing these
estimates and assumptions, which have the potential for significantly impacting the
required reserve amounts.

Earnings Per Share. Earnings per share are calculated in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings Per Share. SFAS No. 128 requires the Company to report both basic
earnings per share, which is based on the weighted-average number of common shares
outstanding, and diluted earnings per share, which is based on the weighted-average number
of common shares outstanding and all dilutive potential common shares outstanding, except
where the effect of their inclusion would be antidilutive (i.e., in a loss period).
Antidilutive stock options of 1,120,319, 933,935, and 2,006,215 for the fiscal years ended
December 27, 2003, December 28, 2002, and December 29, 2001, respectively, were not
included in the earnings per share calculations. A reconciliation of the basic and diluted
per-share computations is as follows (in thousands, except per-share data):

| | FISCAL YEAR                                                                |  | 2003    |  | 2002    |  | 2001     
| | -------------------------------------------------------------------------- |  | ------- |  | ------- |  | ---------
| |                                                                            |  |         |  |         |  |          
| | Basic and diluted
    earnings per common share computation:               |  |         |  |         |  |          
| |                                                                            |  |         |  |         |  |          
| | Net income (loss)                                                          |  | $ 3,591 |  | $ 6,909 |  | $(43,912)
| | Net income (loss) per
    common share:                                    |  |         |  |         |  |          
| | Basic                                                                      |  | $ 0.12  |  | $ 0.26  |  | $ (1.80) 
| | Diluted                                                                    |  | $ 0.12  |  | $ 0.26  |  | $ (1.80) 
| |                                                                            |  |         |  |         |  |          
| | Weighted average number of
    common shares outstanding                   |  | 29,851  |  | 26,481  |  | 24,424   
| | Incremental shares from
    assumed conversions:                           |  |         |  |         |  |          
| | Stock options                                                              |  | 407     |  | 601     |  |          
| |                                                                            |  |         |  |         |  |          
| | Weighted average number of
    common shares outstanding assuming dilution |  | 30,258  |  | 27,082  |  | 24,424   
| |                                                                            |  |         |  |         |  |          

Stock-Based Compensation. At December 27, 2003, the Company has
seven stock-based employee compensation plans, which are described more fully in Note 9
 Stock Plans and Options. The Company accounts for those plans in accordance
with the intrinsic value based method in APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. Some stock-based employee
compensation cost is reflected in net income for options issued at a discount as Board of
Directors compensation. All other options granted under the plans had an exercise price
equal to the market value of the underlying common stock on the date of grant, therefore
no other employee compensation cost is reflected in net income. The following table
illustrates the effect on net income and earnings per share if the company had applied the
fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

| | FISCAL YEAR                                                                                                                     | 2003    |  | 2002    |  | 2001      
| | ------------------------------------------------------------------------------------------------------------------------------- | ------- |  | ------- |  | ----------
| |                                                                                                                                 |         |  |         |  |           
| | Net income (loss), as
    reported                                                                                              | $ 3,591 |  | $ 6,909 |  | $ (43,912)
| | Add: Stock-based employee compensation expense
    included in reported net income, net of tax                                  | 205     |  | 133     |  | 67        
| | Deduct: Total stock-based employee
    compensation expense determined under fair value based method for all awards, net of tax | (2,587) |  | (2,128) |  | (2,528)   
| |                                                                                                                                 |         |  |         |  |           
| | Pro forma net income (loss)                                                                                                     | $ 1,209 |  | $ 4,914 |  | $ (46,373)
| |                                                                                                                                 |         |  |         |  |           
| |                                                                                                                                 |         |  |         |  |           
| | Earnings (loss) per share:                                                                                                      |         |  |         |  |           
| | Basic  as reported                                                                                                             | $ 0.12  |  | $ 0.26  |  | $ (1.80)  
| |                                                                                                                                 |         |  |         |  |           
| | Basic  pro forma                                                                                                               | $ 0.04  |  | $ 0.19  |  | $ (1.90)  
| |                                                                                                                                 |         |  |         |  |           
| |                                                                                                                                 |         |  |         |  |           
| | Diluted  as reported                                                                                                           | $ 0.12  |  | $ 0.26  |  | $ (1.80)  
| |                                                                                                                                 |         |  |         |  |           
| | Diluted  pro forma                                                                                                             | $ 0.04  |  | $ 0.18  |  | $ (1.90)  
| |                                                                                                                                 |         |  |         |  |           



Derivatives and Hedging Activities. In accordance with the
Companys interest rate risk-management strategy and as required by the terms of the
Companys credit facility at the time, in September 2000, the Company entered into a
swap agreement to hedge the interest rate on $32.5 million of its borrowings. The swap
agreement expired in August 2003.

The Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, on December 31, 2000. In accordance with the
transition provisions of SFAS No.133, as of December 31, 2000, the Company recorded a
net-of-tax cumulative loss adjustment to other comprehensive income totaling $586,000 that
relates to the fair value of the previously described cash flow hedging relationship.

On the date that the Company entered into the derivative contract, it
designated the derivative as a hedge of the variability of cash flows that are to be
received or paid in connection with a recognized asset or liability (a "cash
flow" hedge). The Company does not enter into derivative contracts for trading or
non-hedging purposes. The Companys swap agreement was designated as a cash flow
hedge and was recognized in the balance sheet at its fair value. Changes in the fair value
of the Companys cash flow hedge, to the extent that the hedge was highly effective,
was recorded in other comprehensive income, until earnings are affected by the variability
of cash flows of the hedged transaction through interest expense. Any hedge
ineffectiveness (which represents the amount by which the changes in the fair value of the
derivative exceed the variability in the cash flows being hedged) was recorded in current
period earnings.

The Company's policy is to formally document all relationships between
hedging instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair value, cash flow, or foreign currency hedges to
(1) specific assets and liabilities on the balance sheet or (2) specific firm commitments
or forecasted transactions. The Company also formally assesseses (both at the hedges
inception and on an ongoing basis) whether the derivatives that are used in hedging
transactions have been highly effective in offsetting changes in the cash flows of hedged
items and whether those derivatives may be expected to remain highly effective in future
periods. When it is determined that a derivative is not (or has ceased to be) highly
effective as a hedge, the Company discontinues hedge accounting prospectively, as
discussed below.

The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in the fair
value or cash flows of a hedged item (including hedged items such as firm commitments or
forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised;
(3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm
commitment no longer meets the definition of a firm commitment; or (5) management
determines that designating the derivative as a hedging instrument is no longer
appropriate.

New Accounting Pronouncements. In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest Entities, An
Interpretation of ARB 51 ("FIN 46") which was subsequently revised in
December 2003 (FIN 46R) The primary objectives of FIN 46R are to provide guidance on the
identification of entities for which control is achieved through means other than through
voting rights ("variable interest entities" or "VIEs") and how to
determine when and which business enterprise should consolidate the VIE (the "primary
beneficiary"). This new model for consolidation applies to an entity which either (1)
the equity investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entitys activities without
receiving additional subordinated financial support from other parties. In addition, FIN
46R requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. As of December 27,
2003, the Company was not a party to a VIE; therefore, FIN 46R did not have a material
effect on the Companys financial position or results of operations.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued on July 30, 2002. SFAS No. 146 will require companies to
recognize costs associated with exit or disposal activities when they occur rather than at
the date of a commitment to an exit or disposal plan. SFAS No. 146 became effective for
the Company on January 1, 2003, and did not have a material impact on the Companys
financial position or results of operations.

On August 15, 2001, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations which requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 will be
effective for financial statements issued for fiscal years beginning after June 30, 2002.
Under SFAS No. 143, an entity shall recognize the cumulative effect of the adoption of
SFAS No. 143 as a change in accounting principle. SFAS No. 143 did not have a material
effect on the Companys financial position or results of operations.

The FASBs Emerging Issues Task Force ("EITF") issued
EITF No. 02-16, Accounting By a Customer (Including a Reseller) for Cash Consideration
Received From a Vendor, addressed the accounting treatment for vendor allowances. The
adoption of EITF Issue No. 02-16 in fiscal 2003 did not have a material impact on the
Companys financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments and hedging
activities, resulting primarily from decisions reached by the FASB Derivatives
Implementation Group subsequent to the original issuance of SFAS No. 133. This Statement
is generally effective prospectively for contracts and hedging relationships entered into
after June 30, 2003. The Company has not entered into any such agreements since the
effective date; therefore, the adoption of SFAS No. 149 has had no impact on the Company.

In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments With Characteristics of both Liabilities and Equity."
This Statement establishes standards for an issuer to classify and measure certain
financial instruments with characteristics of both liabilities and equity. It requires an
issuer to classify a financial instrument with certain characteristics as a liability, or
an asset in some circumstances. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Restatement is not permitted. The Company
currently has no financial instruments falling within the scope of this Statement;
therefore, the adoption of SFAS No. 150 has had no impact on the Company.

In November 2003, the FASBs Emerging Issue Task Force (EITF)
reached a consensus on EITF No. 03-10, Application of Issue No. 02-16 by Resellers to
Sales Incentives Offered to Consumers by Manufacturers.The consensus required that
consideration received by a reseller from a vendor that is a reimbursement by the vendor
for honoring the vendors sales incentives offered directly to consumers (such as
coupons) be recorded as revenue rather than as a reduction of cost of goods sold. The
Company has historically accounted for such reimbursements in accordance with EITF No.
02-16, therefore its adoption will have no impact on the Companys financial position
or results of operations.



|2. | Debt Covenant Compliance
    and Liquidity
|-- | ------------------------------------------

In February of 2003, the Company completed the refinancing of its
credit facility with Wells Fargo Bank N.A. The Companys new facility has a $75.0
million limit, with a three-year term and a one-year renewal option. Under the new credit
facility, the Company has the option to increase the total facility to $135.0 million
through the addition of new lenders and through the agreement of the current lending group
to increase their total commitments. In December 2003, an additional lender was added to
the syndicate under the existing terms, increasing the credit facility limit to $95
million.

As part of the new credit facility, the Company gave the lenders
collateral in the form of cash, equipment and fixtures, inventory and other assets. The
Company has also granted a leasehold mortgage in those leasehold interests previously
mortgaged to secure our former credit facility, although it has no obligation to provide
an interest in any new leaseholds. The new credit facility contains limitations on capital
expenditures and the signing of new leases. The interest rate on the facility is currently
either prime plus 1.0% or one-month LIBOR plus 2.25%, at the Companys election, and
the rates modify depending on the ratio of average total funded debt, as defined under the
credit facility, plus six times rent expense, to EBITDAR for the four fiscal quarter
periods then ended, as calculated on our quarterly compliance certificate. The Company
believes that cash generated from operations and available under its credit facility will
be sufficient to meet its working capital and capital expenditure requirements in fiscal
2004.

The Company is currently in compliance with the monthly and quarterly
financial covenants in the credit agreement. In the event that business conditions worsen,
management has identified contingency actions to enable the Company to remain in
compliance with the financial covenants. Even if the Company remains in compliance with
its monetary covenants, a technical default could result due to a breach of the financial
covenants. In the absence of a waiver or amendment to such financial covenants, such
non-compliance would constitute a default under the credit agreement, and the lenders
would be entitled to accelerate the maturity of the indebtedness outstanding thereunder.
In the event that such non-compliance appears likely, or occurs, the Company will seek
approval, as it has in the past, from the lenders to renegotiate financial covenants
and/or obtain waivers, as required. However, there can be no assurance that future
amendments or waivers will be obtained.



|3. | Property and Equipment
|-- | ----------------------

Property and equipment consist of the following (in thousands):

| | FISCAL YEAR ENDED             |          | 2003          |          | 2002          | 
| | ----------------------------- | -------- | ------------- | -------- | ------------- | 
| |                               |          |               |          |               | 
| | Machinery and equipment       |          | $
    103,014 |          | $
    118,109 | 
| | Leasehold improvements        |          | 99,778        |          | 88,414        | 
| | Software                      |          | 3,390         |          | 3,206         | 
| | Construction in progress      |          | 16,880        |          | 8,317         | 
| |                               |          |               |          |               | 
| |                               |          | 223,062       |          | 218,046       | 
| | Less accumulated depreciation | (92,073) |               | (95,687) |              
| |                               |          |               |          |               | 
| |                               |          | $
    130,989 |          | $
    122,359 | 
| |                               |          |               |          |               | 

Depreciation expense related to property and equipment totaled
approximately $22.9 million, $20.4 million and $22.7 million in fiscal 2003, fiscal 2002
and fiscal 2001, respectively. Property and equipment includes approximately $439,000 of
interest capitalized during fiscal 2003, $129,000 during fiscal 2002 and $291,000 during
fiscal 2001. The amounts shown above include $77,000 of machinery and equipment which are
accounted for as capitalized leases and which have accumulated amortization of $68,000 at
December 27, 2003. As of December 28, 2002, there was $994,000 of machinery and equipment
accounted for as capitalized leases which had accumulated amortization of $681,000.
Increases in construction related accounts payable of $2.7 million and $425,000 for 2003
and 2002, respectively, are excluded from the statement of cash flows as non-cash items.

As a result of the significant store closings, remodels and resets, the
Company undertook a review of all fixtures and equipment in its stores, offices, and
support facilities, including a physical inventory in conjunction with an asset tagging
exercise. The Company completed the review and recorded a $2.1 million loss on disposal of
fixtures and equipment in fiscal 2003.



|4. | Goodwill and Other
    Intangible Assets
|-- | ----------------------------------------

Goodwill consists of the following (in thousands):

| | FISCAL YEAR ENDED             | 2003          |  | 2002          | 
| | ----------------------------- | ------------- |  | ------------- | 
| |                               |               |  |               | 
| | Goodwill                      | $
    117,394 |  | $
    117,394 | 
| | Less accumulated amortization | (10,990)      |  | (10,990)      | 
| |                               |               |  |               | 
| |                               | $
    106,404 |  | $
    106,404 | 
| |                               |               |  |               | 

Amortization expense related to goodwill was $0, $0 and $3.0 million in
fiscal 2003, fiscal 2002 and fiscal 2001, respectively.

Effective December 30, 2001, the Company implemented SFAS No. 142, Goodwill
and Other Intangible Assets. Among other things, SFAS No. 142 prohibits the
amortization of goodwill and indefinite-lived assets. Implementation of SFAS No. 142 in
fiscal 2001 would have resulted in a net loss of $42.0 million for the year and a loss per
share basic and diluted of $1.72, which represents a $1.9 million (net of tax) reduction
in the Companys reported net loss for 2001, or an $0.08 reduction in the net loss
per share.

Other intangible assets include the following (in thousands):

| | FISCAL YEAR ENDED             | 2003        |  | 2002        | 
| | ----------------------------- | ----------- |  | ----------- | 
| |                               |             |  |             | 
| | Leasehold interests           | $
    9,045 |  | $
    9,045 | 
| | Less accumulated amortization | (2,240)     |  | (1,724)     | 
| |                               |             |  |             | 
| | Leasehold interests, net      | 6,805       |  | 7,321       | 
| | Liquor licenses               | 171         |  | 94          | 
| |                               |             |  |             | 
| |                               | $
    6,976 |  | $
    7,415 | 
| |                               |             |  |             | 

Amortization expense related to finite lived intangible assets was
$519,000, $477,000 and $426,000 in fiscal 2003, fiscal 2002 and fiscal 2001, respectively.

The estimated amortization of finite lived intangible assets for each
of the five fiscal years ending in fiscal 2008 is as follows (in thousands):

| |             |  | Amortization | 
| | ----------- |  | ------------ | 
| | Fiscal Year |  | Expense      | 
| |             |  |              | 
| | 2004        |  | $ 487        | 
| | 2005        |  | $ 487        | 
| | 2006        |  | $ 471        | 
| | 2007        |  | $ 467        | 
| | 2008        |  | $ 457        | 



|5. | Accrued Liabilities
|-- | -------------------

Accrued liabilities consist of the following (in thousands):

| | FISCAL YEAR ENDED                   | 2003     |  | 2002     | 
| | ----------------------------------- | -------- |  | -------- | 
| |                                     |          |  |          | 
| | Wages and employee costs            | $ 26,114 |  | $ 19,795 | 
| | Sales and personal property taxes   | 4,397    |  | 2,719    | 
| | Real estate costs                   | 6,154    |  | 7,802    | 
| | Deferred charges and other accruals | 6,333    |  | 7,627    | 
| |                                     |          |  |          | 
| |                                     | $ 42,998 |  | $ 37,943 | 
| |                                     |          |  |          | 



|6. | Long Term Debt
|-- | --------------

Long-term debt and capital leases outstanding consists of the following
(in thousands):

| | FISCAL YEAR                                                                                                                                                                                                                                            |  | 2003     |  | 2002     | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------- |  | -------- | 
| |                                                                                                                                                                                                                                                        |  |          |  |          | 
| | Capital leases                                                                                                                                                                                                                                         |  | $ 14     |  | $ 162    | 
| |                                                                                                                                                                                                                                                        |  |          |  |          | 
| | Bank line of credit due February
    26, 2006, bearing interest at one month LIBOR plus 2.25% (3.375% at December 27, 2003)                                                                                                                            |  | 30,179   |  |          | 
| |                                                                                                                                                                                                                                                        |  |          |  |          | 
| | Bank line of credit due August 1,
    2003; bearing interest at prime plus 3.25% or one-month LIBOR plus 4.75% (11.4% on $3.7
    million, 6.2% on $8.3 million and 7.5% on $2.3 million on December 28, 2002);
    collateralized by corporate assets |  |          |  | 14,236   | 
| |                                                                                                                                                                                                                                                        |  |          |  |          | 
| | Bank term debt due August 1, 2003;
    bearing interest at one-month LIBOR plus 4.75% (11.4% on December 28, 2002);
    collateralized by corporate assets                                                                                             |  |          |  | 28,823   | 
| |                                                                                                                                                                                                                                                        |  |          |  |          | 
| |                                                                                                                                                                                                                                                        |  | 30,193   |  | 43,221   | 
| | Less current portion                                                                                                                                                                                                                                   |  | (14)     |  | (146)    | 
| |                                                                                                                                                                                                                                                        |  |          |  |          | 
| |                                                                                                                                                                                                                                                        |  | $ 30,179 |  | $ 43,075 | 
| |                                                                                                                                                                                                                                                        |  |          |  |          | 

The maturities of long-term debt and capital leases are as follows (in
thousands):

| |                    |  |              | 
| | ------------------ |  | ------------ | 
| | Fiscal Year Ending |  |              | 
| |                    |  |              | 
| | 2004               |  | $
    14     | 
| | 2005               |  |              | 
| | 2006               |  | 30,179       | 
| |                    |  |              | 
| |                    |  | $
    30,193 | 
| |                    |  |              | 

Through February 26, 2003, the Company had a $125.0 million credit
facility under which borrowing was limited to $115.0 million. The facility had two
separate lines of credit, a revolving line of up to $86.2 million and a term loan of up to
$28.8 million, each with a three-year term expiring on August 1, 2003. The interest rate
on the facility was initially either prime plus 2.25% or one-month LIBOR plus 3.75% at the
Companys election, and the rates increased by 0.5% starting January 1, 2002 and each
six months thereafter through January 2003. As of December 28, 2002, there was $14.3
million in borrowings under the revolving loan and $28.8 in borrowings under the term
loan. In February 2003, the Company refinanced its credit facility and reduced the total
amount of the facility to a revolving line of $75.0 million with a three-year term
expiring February 26, 2006, and a one-year renewal at the parties option. The amount
of the line was increased to $95 million effective December 12, 2003. The interest rate on
the facility is currently either prime plus 1.0% or one-month LIBOR plus 2.25% at the
Companys election, and the rates modify depending on the ratio of average total
funded debt, as defined under the credit facility, plus six times rent expense, to EBITDAR
for the four fiscal quarter periods then ended, as calculated on our quarterly compliance
certificate. Additionally, the Company is charged a commitment fee on the unused portion
of the line ranging from 0.25% to 0.5% based on performance objectives as defined in the
credit agreement. The line of credit has certain financial covenants, including
restrictions on the payment of dividends, and is collateralized by the Companys
cash, fixed assets, equipment and leasehold mortgages in certain of its leases. In
conjunction with the debt refinancing, the Company incurred a non-cash charge of
approximately $186,000 to write off the remaining unamortized debt issuance cost from its
prior credit facility and capitalized debt issuance costs of approximately $721,000 in the
first quarter of fiscal 2003, to be amortized over the life of the agreement using the
effective interest method. In addition, the Company had three letters of credit
outstanding as of December 27, 2003 that total $7.3 million and expire in August 2004
($6.0 million) and November 2004 ($1.3 million).

In September 2000, as required by the Company's former credit facility,
the Company entered into an interest rate swap to hedge its exposure on variable rate debt
positions. Variable rates were predominantly linked to LIBOR as determined by one-month
intervals. The interest rate provided by the swap fixed one-month LIBOR at 6.7%. At
December 28, 2002, the notional principal amount of the interest rate swap agreement was
$32.5 million, and expired in August 2003. There is no obligation to renew the swap under
the refinanced facility. The notional amount is the amount used for the calculation of
interest payments that are exchanged over the life of the swap transaction on the
amortized principal balance.  Pretax loss amounts reclassified into earnings from
other comprehensive income for this cash flow hedge was approximately $1.0 million, $1.9
million and $1.2 million for fiscal 2003, 2002 and 2001, respectively.



|7. | Income Taxes
|-- | ------------

Income (loss) before income taxes consists of the following (in
thousands):

| | FISCAL YEAR | 2003        |  | 2002         |  | 2001          
| | ----------- | ----------- |  | ------------ |  | --------------
| |             |             |  |              |  |               
| | Domestic    | $
    4,933 |  | $
    11,710 |  | $
    (69,370)
| | Foreign     | 960         |  | (68)         |  | 269           
| |             |             |  |              |  |               
| |             | $
    5,893 |  | $
    11,642 |  | $
    (69,101)
| |             |             |  |              |  |               

Income tax expense (benefit) consists of the following (in thousands):

| | FISCAL YEAR       | 2003        |  | 2002        |  | 2001          
| | ----------------- | ----------- |  | ----------- |  | --------------
| |                   |             |  |             |  |               
| | Current:          |             |  |             |  |               
| | Federal           | $
    294   |  |             |  | $
    (2,604) 
| | State and foreign | 505         |  | $
    677   |  | (69)          
| |                   |             |  |             |  |               
| |                   | 799         |  | 677         |  | (2,673)       
| | Deferred:         |             |  |             |  |               
| | Federal           | 1,016       |  | 4,455       |  | (21,025)      
| | State and foreign | 487         |  | (399)       |  | (1,491)       
| |                   |             |  |             |  |               
| |                   | 1,503       |  | 4,056       |  | (22,516)      
| |                   |             |  |             |  |               
| |                   | $
    2,302 |  | $
    4,733 |  | $
    (25,189)
| |                   |             |  |             |  |               
| |                   |             |  |             |  |               

The differences between the U.S. federal statutory income tax rate and
the Companys effective tax rate are as follows:

| | FISCAL YEAR                                                                                               | 2003  |  | 2002  |  | 2001   
| | --------------------------------------------------------------------------------------------------------- | ----- |  | ----- |  | -------
| |                                                                                                           |       |  |       |  |        
| |                                                                                                           |       |  |       |  |        
| | Statutory tax rate                                                                                        | 35.0% |  | 35.0% |  | (35.0)%
| | State income taxes (benefit), net of federal
      income tax (benefit) expense and valuation   allowance | 2.8   |  | 3.2   |  | (2.3)  
| | Tax effect of non-deductible goodwill                                                                     |       |  |       |  | 0.8    
| | Foreign income taxes                                                                                      |       |  | 3.1   |  |        
| | Expired tax attributes                                                                                    | 1.8   |  |       |  |        
| | Other, net                                                                                                | (0.5) |  | (0.6) |  |        
| |                                                                                                           |       |  |       |  |        
| | Effective tax rate                                                                                        | 39.1% |  | 40.7% |  | (36.5)%
| |                                                                                                           |       |  |       |  |        

The effective tax rate for the fiscal years ended December 27, 2003 was
39.1% as compared to 40.7% for fiscal 2002 and 36.5% for fiscal 2001. The effective tax
rate in 2002 was higher relative to 2003 and 2001 due to the fact that in 2002, the rate
was adversely impacted by our inability to utilize foreign tax credits due to net
operating losses. In addition, the writeoff of certain deferred tax assets having no
future taxable benefit negatively impacted the effective tax rate for 2003 by 1.8
percentage points.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows (in
thousands):

| | FISCAL YEAR                           | 2003           |  | 2002           | 
| | ------------------------------------- | -------------- |  | -------------- | 
| |                                       |                |  |                | 
| | Deferred tax assets:                  |                |  |                | 
| | Inventory-related                     | $
         248 |  | $
         332 | 
| | Vacation accrual                      | 2,657          |  | 2,506          | 
| | Real estate accruals                  | 4,497          |  | 6,768          | 
| | Net operating loss carry-forward      | 15,179         |  | 16,733         | 
| | Contribution and credit carry-forward | 1,910          |  | 1,455          | 
| | Mark-to-market swap accrual           |                |  | 355            | 
| | Workers Compensation                 | 1,501          |  |                | 
| | Other                                 | 580            |  | 145            | 
| | Valuation Allowance                   | (2,202)        |  | (1,766)        | 
| |                                       |                |  |                | 
| | Total deferred tax assets             | 24,370         |  | 26,528         | 
| |                                       |                |  |                | 
| | Deferred tax liabilities:             |                |  |                | 
| | Property-related                      | (5,592)        |  | (6,222)        | 
| |                                       |                |  |                | 
| | Total deferred tax liabilities        | (5,592)        |  | (6,222)        | 
| |                                       |                |  |                | 
| | Net deferred tax asset                | $
    18,778   |  | $
    20,306   | 
| |                                       |                |  |                | 
| | Financial statements:                 |                |  |                | 
| | Current deferred tax asset            | 6,340          |  | 4,656          | 
| | Non-current deferred tax asset        | 12,438         |  | 15,650         | 
| |                                       |                |  |                | 
| | Net deferred tax asset                | $
    18,778   |  | $
    20,306   | 
| |                                       |                |  |                | 



During fiscal 2003, fiscal 2002 and fiscal 2001, the Company recognized
$280,000, $479,000 and $102,000, respectively, as a tax benefit directly to additional
paid-in-capital related to non-compensatory stock plans.

As of December 27, 2003, the Company has net operating losses related
to the following tax jurisdictions and expiration periods that are available to offset
future taxable income: US federal income tax loss carryforwards of approximately $30.9
million beginning to expire in 2021; various state income tax loss carryforwards of
approximately $95.2 million beginning to expire in 2005; and foreign income tax loss
carryforwards of approximately $1.6 million beginning to expire in 2005.

The Company has established a valuation allowance for certain state net
operating loss carryforwards which the Company believes will not result in a future
realizable tax benefit based upon projected taxable income in those states during the
carry forward period. In 2003, the Company increased its valuation reserve by $436,000 to
reserve for additional state net operating loss carryforwards generated in certain states
during 2003. The Company has concluded that a valuation allowance is not required for the
remaining net operating loss carryforwards, as it is more likely than not that the Company
will be able to realize a tax benefit through the generation of future taxable income.



|8. | Capital Stock
|-- | -------------

In September 2002, the Company raised net proceeds of $48.3 million in
an offering of the Companys equity to provide additional liquidity. The Company
filed a registration statement on Form S-3 to register 3.25 million shares of the
Companys common stock in connection with such placement, in addition to 1.2 million
shares previously registered.



|9. | Stock Plans and Options
|-- | -----------------------

Employee Stock Purchase Plan. In August 1996, the Companys
board of directors approved and adopted an Employee Stock Purchase Plan ("Purchase
Plan") reserving 287,307 shares of common stock. The Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of the
Internal Revenue Code. Under the Purchase Plan, the board of directors may authorize
participation by eligible employees, including officers, in periodic offerings. The
offering period for any offering will be no more than 27 months. The board authorized an
offering commencing on the initial public offering date of October 22, 1996 and ending
June 30, 1997, and sequential six-month offerings thereafter.

Employees are eligible to participate in the currently authorized
offerings if they have been employed by the Company or an affiliate of the Company
incorporated in the United States for at least six months preceding October 22, 1996.
Employees can have up to 15% of their earnings withheld pursuant to the Purchase Plan and
applied on specified purchase dates (currently the last day of each authorized offering)
to the purchase of shares of common stock. The price of common stock purchased under the
Purchase Plan will be equal to 85% of the lower of the fair market value of the common
stock on the commencement date of each offering or the relevant purchase date. As of
December 27, 2003, there were approximately $417,000 of payroll deductions of which
$397,000 were used to purchase 42,413 shares of common stock on December 31, 2003.

The Board suspended participation in the Purchase Plan effective
January 29, 2001, when the available pool of shares was substantially exhausted. The
Company obtained shareholder approval in May 2001 to increase the pool of reserved stock
by 500,000 shares, and participation was resumed in June 2001.

1996 Equity Incentive Plan. The Companys Wild Oats Markets,
Inc. 1996 Equity Incentive Plan (the "1996 Plan") was adopted by the board of
directors in August 1996. As of December 27, 2003, 3,119,919 shares of common stock were
reserved for issuance under the 1996 Plan, and options for 672,720 shares were available
for grant. The 1996 Plan provides for the grant of incentive stock options to employees
(including officers and employee-directors) and nonqualified stock options, restricted
stock purchase awards and stock bonuses to employees and directors. The exercise price of
options granted under the 1996 Plan is determined by the board of directors, provided that
the exercise price for an incentive stock option cannot be less than 100% of the fair
market value of the common stock on the grant date and the exercise price for a
nonqualified stock option cannot be less than 85% of the fair market value of the common
stock on the grant date. Outstanding options generally vest over a period of four years
and generally expire 10 years from the grant date.

2001 NonOfficer/NonDirectorEquity Incentive Plan. In 2001 the
Company created the Wild Oats Markets, Inc. 2001 Nonofficer/Nondirector Equity Incentive
Plan , a nonqualified stock option plan (the "2001 Plan"). As of December 27,
2003, 426,330 shares of common stock were reserved for issuance under the 2001 Plan, and
options for 17,244 shares were available for grant. The 2001 Plan provides for the grant
of nonqualified stock options to employees of the Company who are not officers or
directors. The exercise price of options granted under the 2001 Plan is determined by the
board of directors, provided that the exercise price for a nonqualified stock option
cannot be less than 85% of the fair market value of the common stock on the grant date.
Outstanding options generally vest over four years and generally expire 10 years from the
grant date.

Individual Stock Option Plans. Currently a total of five individual
nonqualified stock option plans exist. These individual stock option plans were created
during 2001 and 2003 as inducements to certain executives to accept offers of employment
with the Company. The total amount of shares reserved for issuance and total options
granted under the five plans is 490,000 shares. Under each plan, the exercise price of the
stock options is determined by the board of directors, provided that the exercise price
cannot be less than 85% of fair market value of the common stock on the grant date.
Outstanding options vest over a four-year period with an expiration date 10 years from the
date of grant.

Fair Values. The fair value of the employees purchase rights
was estimated using the Black-Scholes model with the following weighted-average
assumptions:

| | FISCAL YEAR                           | 2003  |  | 2002  |  | 2001 
| | ------------------------------------- | ----- |  | ----- |  | -----
| |                                       |       |  |       |  |      
| | Estimated dividends                   | None  |  | None  |  | None 
| | Expected volatility                   | 75%   |  | 69%   |  | 52%  
| | Risk-free interest rate               | 1.0%  |  | 1.2%  |  | 1.8% 
| | Expected life (years)                 | 0.5   |  | 0.5   |  | 0.5  
| | Weighted-average fair value per share | $4.40 |  | $2.74 |  | $2.40



The fair value of each option grant under the Companys aggregated
incentive and nonqualified stock option plans is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average assumptions:

| | FISCAL YEAR                               | 2003  |  | 2002  |  | 2001 
| | ----------------------------------------- | ----- |  | ----- |  | -----
| |                                           |       |  |       |  |      
| | Estimated dividends                       | None  |  | None  |  | None 
| | Expected volatility                       | 75%   |  | 69%   |  | 52%  
| | Risk-free interest rate                   | 2.47% |  | 3.02% |  | 4.55%
| | Expected life (years)                     | 4.1   |  | 4.2   |  | 4.8  
| | Weighted-average fair value per
    share | $5.92 |  | $5.94 |  | $4.02



The fiscal 2003, fiscal 2002 and fiscal 2001 weighted-average grant
date per share fair values and weighted-average exercise prices of options granted equal
to and below market value on the date of grant are as follows:

| |                                       | Number
    of Options |  | Weighted Average Fair
    Value |  | Weighted Average Exercise
    Price
| | ------------------------------------- | --------------------- |  | ------------------------------- |  | -----------------------------------
| |                                       |                       |  |                                 |  |                                    
| | Options granted below market value    | 112,890               |  | $
    6.10                      |  | $
    8.79                         
| | Options granted equal to market value | 524,008               |  | $
    5.88                      |  | $
    10.25                        
| |                                       |                       |  |                                 |  |                                    
| | Total options granted fiscal 2003     | 636,898               |  | $
    5.92                      |  | $
    9.99                         
| |                                       |                       |  |                                 |  |                                    
| |                                       |                       |  |                                 |  |                                    
| | Options granted below market value    | 105,502               |  | $
    6.48                      |  | $
    9.35                         
| | Options granted equal to market value | 583,225               |  | $
    5.84                      |  | $
    10.67                        
| |                                       |                       |  |                                 |  |                                    
| | Total options granted fiscal 2002     | 688,727               |  | $
    5.94                      |  | $
    10.47                        
| |                                       |                       |  |                                 |  |                                    
| |                                       |                       |  |                                 |  |                                    
| | Options granted below market value    | 166,095               |  | $
    4.29                      |  | $
    6.86                         
| | Options granted equal to market value | 2,060,370             |  | $
    4.00                      |  | $
    8.13                         
| |                                       |                       |  |                                 |  |                                    
| | Total options granted fiscal 2001     | 2,226,465             |  | $
    4.02                      |  | $
    8.04                         
| |                                       |                       |  |                                 |  |                                    



A summary of the status of the Companys aggregated incentive and
nonqualified stock options plans as of the 2003, 2002 and 2001 fiscal year ends and
changes during the years ending on those dates is presented below:

| |                                     | Number of Options |  | Weighted Average Exercise
    Price | 
| | ----------------------------------- | ----------------- |  | ----------------------------------- | 
| |                                     |                   |  |                                     | 
| | Outstanding as of December 30, 2000 | 2,399,829         |  | $
    12.94                         | 
| |                                     |                   |  |                                     | 
| | Granted                             | 2,226,465         |  | $
    8.04                          | 
| | Forfeited                           | (1,136,109)       |  | $
    11.36                         | 
| | Exercised                           | (134,252)         |  | $
    6.57                          | 
| |                                     |                   |  |                                     | 
| | Outstanding as of December 29, 2001 | 3,355,933         |  | $
    10.36                         | 
| |                                     |                   |  |                                     | 
| | Granted                             | 688,727           |  | $
    10.47                         | 
| | Forfeited                           | (362,459)         |  | $
    11.90                         | 
| | Exercised                           | (250,765)         |  | $
    7.66                          | 
| |                                     |                   |  |                                     | 
| | Outstanding as of December 28, 2002 | 3,431,436         |  | $
    10.30                         | 
| |                                     |                   |  |                                     | 
| | Granted                             | 636,898           |  | $
    9.99                          | 
| | Forfeited                           | (405,883)         |  | $
    11.70                         | 
| | Exercised                           | (316,166)         |  | $
    7.90                          | 
| |                                     |                   |  |                                     | 
| | Outstanding as of December 27, 2003 | 3,346,285         |  | $
    10.30                         | 
| |                                     |                   |  |                                     | 



The following table summarizes information about incentive and
nonqualified stock options outstanding and exercisable at December 27, 2003:

|OPTIONS
    OUTSTANDING |  | OPTIONS
    EXERCISABLE
|----------------------- |  | -----------------------
|                        |  |                        
|                        |  |                        
|Range Of                |  |                        
|Exercise                |  | Number                 
|Prices                  |  | Outstanding            
|                        |  |                        
|$2.65  5.30            |  | 54,670                 
|$5.30  7.95            |  | 703,252                
|$7.95  10.60           |  | 1,546,668              
|$10.60 
    13.25      |  | 673,115                
|$13.25 
    15.90      |  | 39,572                 
|$15.90 
    18.55      |  | 132,830                
|$18.55 
    21.20      |  | 81,195                 
|$21.20 
    23.85      |  | 69,959                 
|$23.85 
    26.50      |  | 45,024                 
|                        |  |                        
|                        |  | 3,346,285              
|                        |  |                        



At December 27, 2003, 672,720 shares were available for future grant
under the Incentive Plan, and 17,244 shares were available for future grant under the
Nonqualified Plan. At December 27, 2003, December 28, 2002 and December 29, 2001, options
for 2,081,800, 1,581,424 and 1,011,008 shares with weighted average exercise prices of
$10.42, $10.79 and $12.07, respectively, were exercisable.



|10. | Litigation
|--- | ----------

Wild Oats Markets Canada, Inc., as successor to Alfalfas Canada,
Inc., a Canadian subsidiary of the Company, is a defendant in Helen Fakhri and Ady
Aylon, as Representative Plaintiffs v. Alfalfas Canada, Inc., a class action
suit brought in the Supreme Court, British Columbia, Canada by representative plaintiffs
alleging to represent two classes of plaintiffs  those who contracted Hepatitis A
allegedly through the consumption of food purchased at a Capers Community Market in the
spring of 2002, and those who were inoculated against Hepatitis A as a result of news
alerts by Capers and the Vancouver Health Authority. In the fourth quarter of 2003, the
action was certified as a class action by the court. The Company is appealing that ruling.
The Company intends to vigorously defend both class certification and the suit itself. The
Company is not able to estimate the potential outcome of the suit at this time.

In April 2000, the Company was named as defendant in S/H
Ahwatukee, LLC and YP- Ahwatukee LLC v. Wild Oats Markets, Inc., Superior Court
of Arizona, Maricopa County, by a landlord alleging Wild Oats breached a continuous
operations clause arising from the closure of a Phoenix, Arizona store. The landlord
dismissed the same suit, filed in 1999, without prejudice in 1999, after the Company
presented a possible acceptable subtenant, but subsequently rejected the subtenant.
Plaintiff claimed $1.5 million for diminution of value of the shopping center plus
accelerated rent, fees and $360,000 in attorneys fees and costs. After trial in
November 2001, the judge awarded the plaintiff an aggregate $536,000 in damages and
attorneys fees. The Companys appeal of judgment was denied in the first
quarter of fiscal 2004, and the Company has filed a motion for reconsideration. The
Company plans to seek certification of the decision to the Arizona Supreme Court. The
Company has recognized a charge to restructuring expense during the fourth quarter of 2003
in the amount of $705,000, including estimated attorneys fees and estimated interest
accrued on the judgment.

In October 2000, the Company was named as defendant in 3601 Group
Inc. v. Wild Oats Northwest, Inc., Wild Oats, Inc. and Wild Oats Markets, Inc., a suit
filed in Superior Court for King County, Washington, by a property owner who claims that
Alfalfas Inc., our predecessor on interest, breached a lease in 1995 related to
certain property in Seattle, Washington. After trial in fiscal 2002, a jury awarded $0 in
damages to the plaintiffs, and the Company was subsequently awarded $190,000 in
attorneys fees. The plaintiff appealed and the matter has been remanded to the trial
court.

In September 2002, the Company filed suit against Michael Gilliland and
Elizabeth Cook, former officers and directors and greater than 5% stockholders of the
Company, together with two individuals and three limited liability corporations, for a
temporary restraining order and damages related to a breach of Mr. Gillilands
noncompetition covenant, contained in his 1996 employment agreement, arising from the
opening of a competitive grocery store in New Mexico. The lawsuit is captioned Wild
Oats Markets, Inc. v. Michael C. Gilliland, Elizabeth C. Cook, Mark R. Clapp; Patrick
Gilliland, Westside Farmers Market LLC, Westside Liquors LLC and Milagro Cafe LLC.
Mr. Gilliland and Ms. Cook have counterclaimed, claiming that Ms. Cook was entitled to
severance payments, and that both were undercompensated in the receipt of option grants.
After a hearing, the court issued a temporary restraining order against Mr. Gilliland,
prohibiting him from engaging in the operation of the competing grocery store. The
temporary restraining order was subsequently vacated at the Companys request and the
Company dropped its claims for injunctive relief as it did not believe the injunctive
relief granted made any material difference in Mr. Gillilands behavior. The Company
discontinued severance payments made to Mr. Gilliland based on his material breach of his
employment contract. The Company continues to pursue its suit for damages. A related suit
was filed against Mr. Gilliland and his brother, Patrick Gilliland, for misappropriation
of trade secrets and insider trading related to Patrick Gillilands postings on a
financial chat board that he was receiving and trading upon confidential information of
the Company. The Company has filed a motion to have the two suits consolidated in Boulder
County District Court in March 2004.

The Company also is named as defendant in various actions and
proceedings arising in the normal course of business. In all of these cases, the Company
is denying the allegations and is vigorously defending against them and, in some cases,
has filed counterclaims. Although the eventual outcome of the various lawsuits cannot be
predicted, it is managements opinion that these lawsuits will not result in
liabilities that would materially affect the Companys consolidated results of
operations, financial position, or cash flows.



|11. | Commitments and
    Contingencies
|--- | ---------------------------------

The Company has numerous operating leases related to facilities and
store equipment. These leases generally contain renewal provisions at the option of the
Company. Total rental expense (consisting of minimum rent and contingent rent) under these
leases was $39.1 million, $37.2 million and $37.6 million during fiscal 2003, fiscal 2002
and fiscal 2001, respectively.

Future minimum lease payments under noncancelable operating leases as
of December 27, 2003 are summarized as follows (in thousands):

| | FISCAL YEAR                  |               |                | 
| | ---------------------------- | ------------- | -------------- | 
| |                              |               |                | 
| | 2004                         |               | $
      32,597 | 
| | 2005                         |               | 32,124         | 
| | 2006                         |               | 30,806         | 
| | 2007                         |               | 29,465         | 
| | 2008                         |               | 26,733         | 
| | Thereafter                   |               | 233,680        | 
| |                              |               |                | 
| | Total minimum lease payments | $
    385,405 |               
| |                              |               |               

Minimum rentals for operating leases do not include contingent rentals
that may become due under certain lease terms that provide that rentals may be increased
based on a percentage of sales. During fiscal 2003, fiscal 2002 and fiscal 2001, the
Company paid contingent rentals of $1,075,000, $949,000 and $734,000, respectively.

Included in the $385.4 million of minimum lease payments is $18.9
million, which is related to lease costs for closed stores. The Company is actively
working to defease these payments through assignments, subleases or terminations of the
lease obligations.

As of December 27, 2003, the Company had commitments under construction
contracts totaling $6.6 million. The Company is self-insured for certain losses relating
to workers compensation claims, general liability, and employee medical and dental
benefits. The Company has purchased stop-loss coverage in order to limit its exposure to
any significant levels of claims. Self-insured losses are accrued based upon the
Companys estimates of the aggregate uninsured claims incurred using certain
actuarial assumptions followed in the insurance industry and the Companys historical
experiences. If the Company experiences an increase in claims, if actuarial assumptions
are inaccurate, or insurance industry costs increase beyond current expectations, then
additional reserves may be required.



|12. | Restructuring and Asset
    Impairment Charges (Income)
|--- | -------------------------------------------------------



Fiscal 2003

During the fourth quarter of fiscal 2003, the Company recorded
restructuring and asset impairment expense of $855,000 consisting of the following
components:

| | Change in estimate related to
    lease-related liabilities for a site previously identified for closure that was closed
    during the fourth quarter of fiscal 2003 |  | $ (150,000)
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
| |                                                                                                                                                                       |  |            
| | Changes in
    estimate related to lease-related liabilities for sites previously identified for closure                                                              |  | 1,140,000  
| |                                                                                                                                                                       |  |            
| | Insurance
    settlement received for impaired assets previously written off                                                                                          |  | (250,000)  
| |                                                                                                                                                                       |  |            
| | Severance for employees notified
    of termination during thefourth quarter                                                                                          |  | 115,000    
| |                                                                                                                                                                       |  |            
| |                                                                                                                                                                       |  |            
| | Total restructuring and asset
    impairment expense                                                                                                                  |  | $ 855,000  
| |                                                                                                                                                                       |  |            

Details of the significant components are as follows:

- Change in estimate for a site previously identified for closure that was closed during
      the fourth quarter ($150,000 of restructuring income).

- Changes in estimate related to lease-related liabilities for sites previously
      identified for closure ($1,140,000 in restructuring expense).During the fourth
      quarter, the Company secured a viable subtenant for a location in Los Angeles, California
      resulting in restructuring income of $375,000. Also, during the quarter, the Company
      determined that additional time will be needed to dispose of certain lease obligations for
      vacant sites in Nashville, Tennessee and Pinecrest, Florida, resulting in restructuring
      expense of $213,000. Based on a current assessment of changing real estate market
      conditions in the area as well as undesirable site characteristics, during the quarter the
      Company determined the likelihood of disposing of its lease obligations related to certain
      space adjacent to a store in Fort Collins, Colorado was remote, and therefore
      restructuring expense of $597,000 was recorded to adjust the reserve balance to the net
      present value of the remaining lease payments. As discussed more fully in Note 10 -
      Litigation, in February 2004, the Superior Court of Arizona, Maricopa County upheld a
      judgment against the Company that arose from the closure of a Phoenix, Arizona store in
      1998 and as a result a $705,000 charge to restructuring expense was recorded. Based on
      these changes in facts and circumstances and the related changes in estimates, we adjusted
      or reversed the remaining lease-related liabilities previously recorded for these
      locations and recognized net restructuring expense of $1,140,000.

- Insurance settlement received for impaired assets previously written off ($250,000 in
      asset impairment income)

- Severance for employees notified of termination during the fourth quarter ($115,000
      restructuring expense).

During the third quarter of fiscal 2003, the Company recorded a
restructuring and asset impairment charge of $134,000 consisting of the following
components:

| | Lease-related liability for
    site closed during the third quarter of fiscal 2003                              |  | $ 70,000  | 
| | ---------------------------------------------------------------------------------------------------------------- |  | --------- | 
| |                                                                                                                  |  |           | 
| | Changes in estimate related
    to lease-related liabilities for sites previously identified for closure or sale |  | (612,000) | 
| |                                                                                                                  |  |           | 
| | Total restructuring income                                                                                       |  | (542,000) | 
| |                                                                                                                  |  |           | 
| | Asset impairment charges                                                                                         |  | 676,000   | 
| |                                                                                                                  |  |           | 
| | Total Restructuring and Asset
    Impairment Charge                                                              |  | $ 134,000 | 
| |                                                                                                                  |  |           | 



Details of the significant components are as follows:

- Lease-related liabilty for site closed during the third quarter of fiscal 2003 ($70,000
      of restructuring expense).

- Changes in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($612,000 of restructuring income)

In addition to the restructuring income described above, management
also identified asset impairment charges of $676,000 in accordance with the provisions of
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
for two stores held for use. These assets became impaired during the third quarter of
fiscal 2003 because the projected cash flows of each store at the time were not sufficient
to fully recover the carrying value of the stores long-lived assets. In determining
whether an impairment exists, the Company estimates the stores future cash flows on
an undiscounted basis, and if the cash flows are not sufficient to recover the carrying
value, then the Company uses a discounted cash flow based on a risk-adjusted discount
rate, to adjust its carrying value of the assets and records a provision for impairment as
appropriate. The Company believes the weak performance from the stores included in the
asset impairment charge was caused by depressed markets and increased competition. The
Company continually reevaluates its stores performance to monitor the carrying value
of its long-lived assets in comparison to projected cash flows.

During the second quarter of fiscal 2003, the Company recorded
restructuring income of $145,000 consisting of the following components:

| | Change in estimate related
    to lease-related liabilities for sites previously identified for closure or sale that were
    closed, sold or disposed of during the second quarter of fiscal 2003 |  | $ (2,195,000) | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | 
| |                                                                                                                                                                                                    |  |               | 
| | Severance for employees
    terminated during the second quarter of fiscal 2003                                                                                                                    |  | 117,000       | 
| |                                                                                                                                                                                                    |  |              
| | Change in estimate related
    to lease-related liabilities for sites previously identified for closure or sale                                                                                    |  | 1,933,000     | 
| |                                                                                                                                                                                                    |  |               | 
| | Total restructuring income                                                                                                                                                                         |  | $ (145,000)   | 
| |                                                                                                                                                                                                    |  |               | 



Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale that were closed, sold or disposed of during the second quarter of
      fiscal 2003 ($2,195,000 of restructuring income)

- Severance for employees terminated in the second quarter of fiscal 2003 ($117,000 of
      restructuring expense)

- Changes in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($1,933,000 of restructuring expense)

During the first quarter of fiscal 2003, the Company recorded
restructuring income of $1,736,000 consisting of the following components:

| | Change in estimate related
    to lease related liabilities for sites previously identified for closure or sale that were
    closed, sold or disposed of during the first quarter of fiscal 2003 |  | $ (441,000)   | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | 
| |                                                                                                                                                                                                   |  |               | 
| | Change in estimate related
    to lease-related liabilities for sites previously identified for closure or sale                                                                                   |  | (1,295,000)   | 
| |                                                                                                                                                                                                   |  |               | 
| | Total restructuring income                                                                                                                                                                        |  | $ (1,736,000) | 
| |                                                                                                                                                                                                   |  |               | 

Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale that were closed, sold or disposed of during the first quarter of
      fiscal 2003 ($441,000 of restructuring income)

- Changes in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($1,295,000 of restructuring income)



Fiscal 2002

During the fourth quarter of fiscal 2002, the Company recorded
restructuring and asset impairment income of $6,000 consisting of the following
components:

| | Gain on sale of assets during the fourth quarter of fiscal 2002                                                                                                  | $ (130,000) | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | 
| | Change in estimate related to lease-related
    liabilities for sites previously identified for closure or sale                                                  | (3,437,000) | 
| | Lease-related liabilities for three additional
    stores identified during the fourth quarter of fiscal 2002 to be closed or sold by the end
    of fiscal 2003 | 3,552,000   | 
| | Severance for employees terminated during the fourth quarter of fiscal
      2002                                                                                | 9,000       | 
| |                                                                                                                                                                  |             | 
| | Total restructuring and asset impairment income                                                                                                                  | $ (6,000)   | 
| |                                                                                                                                                                  |             | 



Details of the significant components are as follows:

- Gain on sale of assets during the fourth quarter of fiscal 2002 ($130,000 of asset
      disposal income)

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($3.4 million of restructuring income).

- Lease-related liabilities for three additional stores identified during the fourth
      quarter of fiscal 2002 to be closed or sold by the end of fiscal 2003 ($3.6 million of
      restructuring expense).

- Severance for employees terminated during the fourth quarter of fiscal 2002 ($9,000 of
      restructuring expense)

During the third quarter of fiscal 2002, the Company recorded
restructuring and asset impairment income of $174,000 consisting of the following
components:

| | Gain on sale of assets for a site sold during the third quarter of
      fiscal 2002                             | $ (85,000)  | 
| | ---------------------------------------------------------------------------------------------------------------- | ----------- | 
| | Change in estimate related to lease-related
    liabilities for sites previously identified for closure or sale  | (100,000)   | 
| | Fixed asset impairments for one additional
    store identified and closed in the third quarter of fiscal 2002   | 6,000       | 
| | Lease-related liabilities for one additional
    store identified and closed in the third quarter of fiscal 2002 | 5,000       | 
| |                                                                                                                  |             | 
| | Total restructuring and asset impairment income                                                                  | $ (174,000) | 
| |                                                                                                                  |             | 



Details of the significant components are as follows:

- Gain on sale of assets for a site sold during the third quarter of fiscal 2002 ($85,000
      of asset disposal income)

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($100,000 of restructuring income)

- Fixed asset impairments for one additional store identified and closed in the third
      quarter of fiscal 2002 ($6,000 of asset impairment expense)

- Lease-related liabilities for one additional store identified and closed in the third
      quarter of fiscal 2002 ($5,000 of restructuring expense)

During the second quarter of fiscal 2002, the Company recorded
restructuring and asset impairment expense of $0 consisting of the following components:

| | Fixed asset impairments for sites previously
    identified for closure or sale                                                                               | $ 35,000  | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | 
| | Change in estimate related to lease related
    liabilities for sites previously identified for closure or sale                                               | (678,000) | 
| | Fixed asset impairments for one additional
    store identified in the second quarter of fiscal 2002 to be closed during the third
    quarter of fiscal 2002 | 131,000   | 
| | Fixed asset impairments for store construction
    project discontinuation                                                                                    | 370,000   | 
| | Severance for employees terminated during the
    second quarter of fiscal 2002                                                                               | 142,000   | 
| |                                                                                                                                                               |           | 
| | Total restructuring and asset
    impairment charge                                                                                                           | $
    -   | 
| |                                                                                                                                                               |           | 

Details of the significant components are as follows:

- Fixed asset impairments for sites previously identified for closure or sale ($35,000 of
      asset impairment expense)

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale ($678,000 of restructuring income)

- Fixed asset impairments for one additional store identified in the second quarter of
      fiscal 2002 to be closed during the third quarter of fiscal 2002 ($131,000 of asset
      impairment expense)

- Fixed asset impairments for store construction project discontinuation ($370,000 of
      asset impairment expense)

- Severance for employees terminated during the second quarter of fiscal 2002 ($142,000 of
      restructuring expense)

During the first quarter of fiscal 2002, the Company recorded
restructuring and asset impairment income of $652,000 consisting of the following
components:

| | Change in estimate related to lease-related
    liabilities for sites previously identified for closure or sale that were closed, sold or
    disposed of during the first quarter of fiscal 2002 | $ (761,000) | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | 
| | Gain on sale of assets for a site sold
    during the first quarter of fiscal 2002                                                                                                                | (253,000)   | 
| | Change in estimate related to lease-related
    liabilities for sites previously identified for closure or sale                                                                                   | 93,000      | 
| | Severance for employees terminated during
    the first quarter of fiscal 2002                                                                                                                    | 269,000     | 
| |                                                                                                                                                                                                   |             | 
| | Total restructuring and asset
    impairment income                                                                                                                                               | $ (652,000) | 
| |                                                                                                                                                                                                   |             | 

Details of the significant components are as follows:

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale that were closed, sold or disposed of during the first quarter of
      fiscal 2002 ($761,000 of restructuring income)

- Gain on sale of assets for a site sold during the first quarter of fiscal 2002 ($253,000
      of asset disposal income)

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure ($93,000 of restructuring expense)

- Severance for employees terminated during the first quarter of fiscal 2002 ($269,000 of
      restructuring expense)



Fiscal 2001

As a result of hiring a new chief executive officer just prior to the
beginning of the second quarter of fiscal 2001 and a comprehensive review conducted by the
new chief executive officer of the business and strategic repositioning efforts of the
Company during the second quarter of fiscal 2001, management identified and committed to a
restructuring plan during the second quarter of fiscal 2001 and recorded a restructuring
and asset impairment charge of $54.9 million (such asset impairments were recorded in
accordance with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and
for Assets to be Disposed of). The significant components of the charge are as
follows:

| | Change in estimate related to fixed asset
    impairments for previously identified sites held for disposal                                                              |  | $ 1.5
    million  | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | 
| | Change in estimate related to lease-related
    liabilities for previously identified sites for closure                                                                  |  | 15.9
    million   | 
| | Fixed asset impairments for three
    additional stores identified in the second quarter of fiscal 2001 to be abandoned, closed,
    or sold by the end of fiscal 2001   |  | 1.8
    million    | 
| | Lease-related settlements for three
    additional stores identified in the second quarter of fiscal 2001 to be abandoned, closed,
    or sold by the end of fiscal 2001 |  | (0.4
    million)  | 
| | Fixed asset impairments for subleased
    properties identified during the second quarter of fiscal 2001                                                                 |  | 1.7
    million    | 
| | Lease-related liabilities for subleased
    properties identified during the second quarter of fiscal 2001                                                               |  | 10.0
    million   | 
| | Fixed asset impairments for regional and
    departmental office closures and consolidations during the second quarter of fiscal 2001                                    |  | 3.0
    million    | 
| | Fixed asset impairments for store
    construction project discontinuation                                                                                               |  | 2.3
    million    | 
| | Lease-related liabilities for store construction project discontinuation                                                                                                 |  | 0.6
    million    | 
| | Severance for employees terminated during the second quarter of fiscal
      2001                                                                                        |  | 2.5
    million    | 
| |                                                                                                                                                                          |  |                    | 
| | Total                                                                                                                                                                    |  | $ 38.9
    million | 
| |                                                                                                                                                                          |  |                    | 

Details of the significant components of the charge are as follows:

- Change in estimate related to fixed asset impairments for previously identified sites
      held for disposal ($1.5 million)

- Change in estimate related to lease-related liabilities for previously identified sites
      for closure ($15.9 million).

- Fixed asset impairments for three additional stores identified in the second quarter of
      fiscal 2001 to be abandoned, closed, or sold by the end of fiscal 2001 ($1.8 million)

- Fixed asset impairments for subleased properties identified during the second quarter of
      fiscal 2001 ($1.7 million)

- Lease-related liabilities for subleased properties identified during the second quarter
      of fiscal 2001 ($10.0 million).

- Fixed asset impairments for regional and departmental office closures and consolidations
      during the second quarter of fiscal 2001 ($3.0 million)

- Fixed asset impairments for store construction project discontinuation ($2.3 million)

- Severance for employees terminated during the second quarter of fiscal 2001 ($2.5
      million).

In addition to the $38.9 million of restructuring charges described
above, management has also identified asset impairment charges of $15.9 million in
accordance with the provisions of SFAS No. 121 related to five stores held for use. The
assets became impaired in the second quarter of fiscal 2001 because the projected future
cash flows of each store at that time were not sufficient to fully recover the carrying
value of the stores long-lived assets. In determining whether an impairment exists,
the Company estimates the stores future cash flows on an undiscounted basis, and if
the cash flows are not sufficient to recover the carrying value, then the Company uses a
discounted cash flow based on a risk-adjusted discount rate, to adjust its carrying value
of the assets and records a provision for impairment as appropriate. The Company believes
the weak performance from the stores included in the asset impairment charge was caused by
significant budget overruns in construction (one store), poor site location (two stores)
or insufficient advertising in new regional markets (two stores). The Company continually
reevaluates its stores performance to monitor the carrying value of its long-lived
assets in comparison to projected cash flows. Elements that could contribute to impairment
of long-lived assets include new competition, overruns in construction costs, or poor
operating results caused by a variety of factors, including improper site selection,
insufficient advertising, or changes in local, regional or national economies. There is no
assurance that in the future, additional long-lived assets will not be deemed impaired.

After a comprehensive review of its support facilities was completed by
management during the third quarter of fiscal 2001, the Company determined that the
operations of certain support facilities should be eliminated. As a result, in the third
quarter of fiscal 2001, the Company recorded a restructuring and asset impairment charge
of $776,000 resulting primarily from the closure of three support facilities: a bakery in
Tucson, Arizona, and two commissary kitchens in Los Angeles, California and Santa Fe, New
Mexico.

During the fourth quarter of fiscal 2001, the Company recorded
restructuring income of $5.7 million consisting of the following components:

| | Change in estimate related to lease-related
    liabilities for sites previously identified for closure or sale that were closed, sold or
    disposed of during the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002 | $ (10.1
    million)
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------
| | Change in estimate related to fixed asset
    impairments for four stores previously identified for closure or sale                                                                                                                     | (1.6
    million)   
| | Change in estimate related to lease-related
    liabilities for four stores previously identified for closure or sale                                                                                                                   | (1.1
    million)   
| | Fixed asset impairments for three
    additional stores and one support facility identified during the fourth quarter of fiscal
    2001                                                                                                | 3.3
    million     
| | Lease-related liabilities for three
    additional stores and one support facility identified during the fourth quarter of fiscal
    2001                                                                                              | 3.6
    million     
| | Severance for employees terminated during
    the fourth quarter of fiscal 2001                                                                                                                                                         | 0.2
    million     
| |                                                                                                                                                                                                                                         |                     
| | Total restructuring income                                                                                                                                                                                                              | $ (5.7
    million) 
| |                                                                                                                                                                                                                                         |                     

- Change in estimate related to lease-related liabilities for sites previously identified
      for closure or sale that were closed, sold or disposed of during the fourth quarter of
      fiscal 2001 and the first quarter of fiscal 2002 ($10.1 million of restructuring income).

- Change in estimate related to fixed asset impairments for four stores previously
      identified for closure or sale ($1.6 million of restructuring income).

- Change in estimate related to lease-related liabilities for four stores previously
      identified for closure or sale ($1.1 million of restructuring income).

- Fixed asset impairments for three additional stores and one support facility identified
      in the fourth quarter of fiscal 2001 to be closed or sold by the second quarter of fiscal
      2002 ($3.3 million of restructuring expense).

> During the fourth quarter of fiscal 2001, the Company also decided to
>     abandon construction of a new store in Kansas City, Missouri, due to location and
>     parking-related issues. Assets in this charge included abandoned construction in progress
>     (primarily leasehold improvements). The Company determined that it could not recover the
>     carrying value of these fixed assets and therefore recognized an impairment charge and
>     disposed of the assets during the fourth quarter of fiscal 2001.

- Lease-related liabilities for three additional stores and one support facility
      identified during the fourth quarter of fiscal 2001 to be closed or sold by the second
      quarter of fiscal 2002 ($3.6 million of restructuring expense)

> During the fourth quarter of fiscal 2001, the Company also decided to
>     abandon construction of a new store in Kansas City, Missouri, due to location and
>     parking-related issues. The Company terminated the lease obligation for $155,000 during
>     the fourth quarter of fiscal 2001.

- Severance for employees terminated during the fourth quarter of fiscal 2001 ($0.2
      million). During the fourth quarter of fiscal 2001, 33 employees were terminated in
      conjunction with the closure of four support facilities during the fourth quarter of
      fiscal 2001. The employees were notified of their involuntary termination during the
      fourth quarter of fiscal 2001. As of December 27, 2003, all $155,000 of the involuntary
      termination benefits had been paid to terminated employees.

In addition to the restructuring charges described above, management
also identified asset impairment charges of $5.0 million in accordance with the provisions
of SFAS No. 121 related to four stores held for use. These assets became impaired in the
fourth quarter of fiscal 2001 because the projected future cash flows of each store at
that time were not sufficient to fully recover the carrying value of the stores
long-lived assets. In determining whether an impairment exists, the Company estimates the
stores future cash flows on an undiscounted basis, and if the cash flows are not
sufficient to recover carrying value, then the Company uses a discounted cash flow based
on a risk-adjusted discount rate, to adjust its carrying value of the assets and records a
provision for impairment as appropriate. The Company believes the weak performance from
the stores included in the asset impairment charge were caused by poor site location (two
stores) or insufficient advertising in new regional markets (two stores).

Sales and store contribution to profit (sales less cost of goods sold,
occupancy costs, and direct store expenses) for the fiscal years ended December 27, 2003,
December 28, 2002 and December 29, 2001 for stores that were held for disposal are as
follows (unaudited, in thousands):

| | FISCAL YEAR                  | 2003     |  | 2002     |  | 2001    
| | ---------------------------- | -------- |  | -------- |  | --------
| |                              |          |  |          |  |         
| | Sales                        | $10,562  |  | $24,229  |  | $35,171 
| |                              |          |  |          |  |         
| | Store contribution to profit | $(1,899) |  | $(1,576) |  | $(1,979)

The effect of suspending depreciation for assets held for disposal was
$0 for fiscal 2003 and approximately $34,000 and $913,000 for the fiscal years ended
December 28, 2002 and December 29, 2001, respectively.



Restructuring Activity By Store Count

A summary of restructuring activity by store count is as follows:

| |                                                                                   | RESTRUCTURING
    STORE COUNT
| | --------------------------------------------------------------------------------- | -----------------------------
| |                                                                                   |                              
| |                                                                                   | Fiscal
    Year Ending       
| |                                                                                   |                              
| |                                                                                   | 2001                         
| |                                                                                   |                              
| | Stores remaining at commencement of period                                        | 9                            
| | Stores identified in fiscal 2001
    for closure or sale                          | 6                            
| | Stores identified in fiscal 2002
    for closure or sale                          |                              
| | Stores identified in fiscal 2003 for closure,
    relocation, sale, or conversion |                              
| | Support facilities identified in fiscal
    2003 for closure or relocation        |                              
| | Identified stores closed or abandoned                                             | (3)                          
| | Identified stores sold                                                            | (2)                          
| | Reversal of stores identified for closure
    or sale                             | (4)                          
| |                                                                                   |                              
| | Identified stores remaining at period end                                         | 6                            
| |                                                                                   |                              

As of December 27, 2003, four of the stores identified in fiscal 2001
for closure or sale were closed or abandoned and the remaining two stores were removed
from the Companys closure or sale list due to changes in facts and circumstances. Of
those stores identified in fiscal 2002, all have been sold or closed as of December 27,
2003. Of the five stores and four support facilities identified in fiscal 2003 for
closure, relocation, sale, or conversion, one has been relocated as of December 27, 2003,
one was sold in January, 2004, four were closed in the first quarter of 2004, two will be
closed or relocated during the remainder of fiscal 2004, and the one store remaining will
be closed in fiscal 2005.

The following table summarizes accruals related to the Companys
restructuring activities during fiscal 2003, fiscal 2002 and fiscal 2001 (in thousands):

|                                              | 2000     |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |          | 
|--------------------------------------------- | -------- | -------- |  | ---- |  | ------- |  | ----- |  | ----- |  | ---- |  | ------- |  | ------ | ---- | -------- | 
|                                              | And      | Q2       |  | Q3   |  | Q4      |  | Q4    |  | Q3    |  | Q3   |  | Q4      |  | Q3     | Q4   |         
|EXIT PLANS                                    | Prior    | 2001     |  | 2001 |  | 2001    |  | 2002  |  | 2002  |  | 2002 |  | 2002    |  | 2003   | 2003 | TOTAL   
|                                              |          |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |         
|BALANCE, 12-30-2000                           | $ 9,879  |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      | $ 9,879 
|New accruals:                                 |          |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |         
|Severance                                     |          | $ 2,511  |  |      |  | $ 155   |  |       |  |       |  |      |  |         |  |        |      | 2,666   
|Lease-related
    liabilities                 | 5,076    | 10,458   |  | $108 |  | 3,822   |  |       |  |       |  |      |  |         |  |        |      | 19,464  
|Cash paid  severance                         |          | (2,375)  |  |      |  | (98)    |  |       |  |       |  |      |  |         |  |        |      | (2,473) 
|Cash paid  lease-related
    liabilities     | (6,731)  | (492)    |  | (21) |  |         |  |       |  |       |  |      |  |         |  |        |      | (7,244) 
|Stock options in lieu of cash                 | (43)     |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      | (43)    
|Cash received  lease-related
    liabilities | 800      |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      | 800     
|                                              |          |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |         
|BALANCE, 12-29-2001                           | $ 8,981  | $10,102  |  | $ 87 |  | $3,879  |  |       |  |       |  |      |  |         |  |        |      | $ 23,049
|New accruals:                                 |          |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |         
|Severance                                     |          |          |  |      |  |         |  | $ 269 |  | $ 142 |  |      |  | $ 9     |  |        |      | 420     
|Lease-related
    liabilities                 | (1,453)  | (3,053)  |  | (19) |  | (243)   |  |       |  |       |  | $ 5  |  | 3,552   |  |        |      | (1,211) 
|Cash paid  severance                         |          | (133)    |  |      |  | (57)    |  | (269) |  | (142) |  |      |  | (9)     |  |        |      | (610)   
|Cash paid  lease-related
    liabilities     | (2,726)  | (884)    |  | (68) |  | (735)   |  |       |  |       |  | (5)  |  |         |  |        |      | (4,418) 
|Note receivable in lieu of cash               | 375      |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      | 375     
|Cash received  lease-related
    liabilities | 459      |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      | 459     
|                                              |          |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |         
|BALANCE, 12-28-2002                           | $ 5,636  | $ 6,032  |  | $    |  | $2,844  |  | $ -   |  | $ -   |  | $ -  |  | $3,552  |  |        |      | $ 18,064
|New accruals:                                 |          |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |         
|Severance                                     | -        | -        |  | -    |  | -       |  |       |  |       |  |      |  | 166     |  | $ 40   | $ 26 | 232     
|Lease-related
    liabilities                 | 1,593    | (166)    |  | -    |  | (894)   |  |       |  |       |  |      |  | (2,896) |  | 188    |      | (2,175) 
|Cash paid  severance                         | -        | (1)      |  | -    |  | -       |  |       |  |       |  |      |  | (147)   |  | -      | (26) | (174)   
|Cash paid - lease-related
    liabilities     | (1,446)  | (916)    |  | -    |  | (1,950) |  |       |  |       |  |      |  | (217)   |  | (47)   |      | (4,576) 
|                                              |          |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |         
|BALANCE, 12-27-2003                           | $ 5,7831 | $ 4,9491 |  | $-   |  | $
    - |  |       |  |       |  |      |  | $ 4582  |  | $ 1813 | $-   | $ 11,371
|                                              |          |          |  |      |  |         |  |       |  |       |  |      |  |         |  |        |      |         

1

2

3

As of December 27, 2003, the components of the accruals related to the
Companys restructuring activities are accrued liabilities ($2.8 million) and other
long-term obligations ($8.5 million).



|13. | 401(k) Plan
|--- | -----------

The Company maintains a tax-qualified employee savings and retirement
plan (the "401(k) Plan") covering the Company's employees. Pursuant to the
401(k) Plan, eligible employees may elect to reduce their current compensation by up to
the lesser of 15% of their annual compensation or the statutorily prescribed annual limit
($12,000 in fiscal 2003) and have the amount of such reduction contributed to the 401(k)
Plan. Employees over age 50 may also contribute an additional $2,000 "catch-up"
contribution. The 401(k) Plan provides for additional matching contributions to the 401(k)
Plan by the Company in an amount determined by the Company prior to the end of each plan
year. Total Company contributions during fiscal 2003, fiscal 2002 and fiscal 2001 were
approximately $1.3 million, $1.2 million and $1.1 million, respectively. The trustees of
the 401(k) Plan, at the direction of each participant, invest the assets of the 401(k)
Plan in designated investment options. The 401(k) Plan is intended to qualify under
Section 401 of the Internal Revenue Code.

In January 2002, the Company was notified by its 401(k) trustee,
Advisors Trust Company, that effective April 1, 2002, the trustee would no longer provide
trustee services for 401(k) plans. The Company selected a new plan administrator and a new
trustee after extensive research and interviews. In the fourth quarter of fiscal 2002, the
Company was notified by its new plan administrator that it was selling its business
without the Companys consent (as required by the then-current contract). The Company
elected to terminate its contract and selected Milliman USA as its new plan administrator.
The plan accounts were transferred to Milliman and Company employees were notified that
they would be unable to make withdrawals from or change the investment designations of
their accounts until the transfer was completed. The transfer was completed in January
2003. In fiscal 2003, the Company completed an audit of one of the recordkeeping practices
of one of its past plan administrators. The Company also amended its 401(k) Plan in fiscal
2003 to modify the eligiblity requirements. In 2003, the Company commenced an audit of
401(k) Plan and expects the results of such audit by the end of the second fiscal quarter
of 2004.



|14. | Stockholder Rights Plan
|--- | -----------------------

The Company has a stockholder rights plan having both
"flip-in" and "flip-over" provisions. Stockholders of record as of May
22, 1998 received the right ("Right") to purchase a fractional share of
preferred stock at a purchase price of $145 for each share of common stock held. In
addition, until the Rights become exercisable as described below and in certain limited
circumstances thereafter, the Company will issue one Right for each share of common stock
issued after May 22, 1998. For the "flip-in provision," the Rights would become
exercisable only if a person or group acquires beneficial ownership of 15% (the
"Threshold Percentage") or more of the outstanding common stock. Holdings of
certain existing affiliates of the Company are excluded from the Threshold Percentage. In
that event, all holders of Rights other than the person or group who acquired the
Threshold Percentage would be entitled to purchase shares of common stock at a substantial
discount to the then-current market price. This right to purchase common stock at a
discount would be triggered as of a specified number of days following the passing of the
Threshold Percentage. For the "flip-over" provision, if the Company was acquired
in a merger or other business combination or transaction, the holders of such Rights would
be entitled to purchase shares of the acquirors common stock at a substantial
discount. In February 2002, the rights plan was amended to remove certain provisions
related to continuing control of modification and operation of the rights plan by certain
directors.



|15. | Deferred Compensation
    Plan
|--- | ------------------------------

Effective fiscal 1999, the Company maintains a nonqualified Deferred
Compensation Plan (the "DCP") for certain members of management. Eligible
employees may contribute a portion of base salary or bonuses to the plan annually. The DCP
provides for additional matching contributions by the Company in an amount determined by
the Company prior to the end of each plan year. Total Company matching contributions to
the DCP during fiscal 2003, 2002 and fiscal 2001 were approximately $84,000, $39,000 and
$26,000, respectively.



|16. | Quarterly Information
    (Unaudited)
|--- | -------------------------------------

The following interim financial information presents the fiscal 2003
and fiscal 2002 consolidated results of operations on a quarterly basis (in thousands,
except per-share amounts):

| |                                                | QUARTER ENDED     
| | ---------------------------------------------- | ------------------
| |                                                |                   
| |                                                | March 29,
    2003
| |                                                |                   
| | Statement of Operations Data:                  |                   
| | Sales                                          | $ 235,987         
| | Gross profit                                   | $ 70,859          
| | Net income (loss)                              | $ 1,440           
| |                                                |                   
| | Basic net income (loss) per common share       | $ 0.05            
| |                                                |                   
| | Diluted net income (loss) per
    common share | $
    0.05        
| |                                                |                   
| |                                                |                   

| |                                     | QUARTER ENDED     
| | ----------------------------------- | ------------------
| |                                     |                   
| |                                     | March 30,
    2002
| |                                     |                   
| | Statement of Operations Data:       |                   
| | Sales                               | $ 233,013         
| | Gross profit                        | $ 67,643          
| | Net income                          | $ 668             
| |                                     |                   
| | Basic net income per common share   | $ 0.03            
| |                                     |                   
| | Diluted net income per common share | $ 0.03            
| |                                     |                   



|17. | Related Party
    Transactions
|--- | ------------------------------

Elizabeth C. Cook and Michael C. Gilliland, former executive officers
and directors of the Company, each own a one-third interest in Pretty Good Groceries, Inc.
("PGG"), which in the past operated two grocery stores, and currently operates
one store in Boulder, Colorado. Through January 2002, PGG purchased certain items through
the Companys volume purchase discount programs with its distributors, and also
purchased items from the Companys commissaries and warehouses at cost. The Company
had a receivable of approximately $80,000 at December 29, 2001 related to the purchases by
PGG of goods from the Company or its suppliers. At December 29, 2001, the Company also had
a receivable for certain personal expenses of Mr. Gilliland and Ms. Cook, the amount of
which was in dispute. All receivables related to these items were paid as part of the
March 2002 settlement of litigation described below.

Ms. Cook and Mr. Gilliland are trustees of Wild Oats Community
Foundation ("Foundation"), a non-profit organization formed by Ms. Cook and Mr.
Gilliland to provide health-related services. During fiscal 1998 and fiscal 1999, the
Foundation entered into sublease arrangements with the Company for space adjacent to three
of the Companys stores leased by the Company. In fiscal 2001, the sublease
obligations between the Foundation and the Company were terminated, and other subtenants
were placed in two of the three wellness center locations. The third primary lease for
space sublet by the Foundation expired by its own terms. The Company had a small
receivable related to subtenant rent due from the Foundation, which was paid as part of
the March 2002 settlement of the litigation described below.

In May 1998, PGG II, a limited liability company two-thirds owned by
Mr. Gilliland and Ms. Cook purchased a small under-performing store in Boulder, Colorado
from the Company. PGG II paid the wholesale cost of the inventory in the store at time of
transfer. PGG II disputed whether there was consideration due for equipment transferred to
PGG II as part of the original purchase transaction, and in March of 2002 the parties
reached a settlement on the value of the equipment as part of the settlement of the
litigation described below.

In January 2001, the Company borrowed $2.0 million from Ms. Cook and
Mr. Gilliland. The loan was evidenced by a demand note that bears interest at 9.0% per
annum and default rate interest at 15% per annum. Mr. Gilliland and Ms. Cook filed suit
against the Company in January 2002 for payment of the note after demand was made but
payment was not received. In March 2002 the parties settled the litigation through
execution of a settlement agreement under which the plaintiffs agreed to a $200,000 offset
against the principal balance of the loan in settlement of certain identified receivables
alleged to be due to the Company, and the Company agreed to repayment of the balance of
the loan, together with interest at 9% per annum, over a five-month period from cash and
proceeds of equity securities.

In fiscal 2000, the Company recorded a note receivable in the amount of
approximately $75,000 from Bacchus Beverage Corporation, an entity owned by Patrick
Gilliland, Mr. Gillilands brother, which was a subtenant in excess space located
adjacent to one of the Companys stores. In March 2002, the Company agreed to
extinguish the remaining balance on the note in exchange for a $35,000 cash payment

In May 2002, the Companys Board of Directors amended the
employment agreement of Perry D. Odak, the Companys CEO and President, to extend
through December 2002 the period during which the issuance by the Company of additional
securities as part of an equity financing would entitle Mr. Odak to receive up to 300,000
stock options exercisable for the Companys common stock. In March 2002, Mr. Odak was
issued options to purchase 5,856 shares of common stock under a provision of his
employment agreement that provided for the maintenance of his 5% equity position in the
event of a capital-raising transaction, based upon the issuance of 111,269 shares of
common stock, the resale of which was registered on Form S-3 filed in April 2002. The
stock was issued pursuant to the terms of a settlement agreement between the Company and
former directors and co-founders Michael Gilliland and Elizabeth Cook. In August 2002, the
Companys Board of Directors approved a third amendment to Mr. Odaks employment
agreement, pursuant to which up to 70,000 of the stock options to which Mr. Odak would be
entitled under his employment agreement as a result of the closing of a capital-raising
transaction could be granted to other employees of the Company designated by Mr. Odak. The
options would only be granted upon the closing of the capital-raising transaction, have a
10-year term, vest over four years and have an exercise price equal to the closing price
of the Companys stock on the date the capital-raising transaction was concluded. An
equal number of options would be granted simultaneously to Mr. Odak, provided that the
options granted to Mr. Odak would only be exercisable as the options granted to other
employees terminated (as opposed to expired) without exercise.

As a result of the completion of an equity offering of 4.45 million
shares of the Companys common stock in September 2002, the Company issued options
exercisable for 164,211 shares of the Companys stock to Mr. Odak pursuant to the
terms of his employment agreement. An additional 70,000 options, to which Mr. Odak would
have been entitled under his employment agreement, were issued to executives of the
Company designated by Mr. Odak. The Company also issued an additional 70,000 options to
Mr. Odak, provided that the options granted to Mr. Odak are only exercisable as the
options granted to the designated executives under the third amendment to Mr. Odaks
employment agreement terminate (as opposed to expire) without exercise. The Company also
made a matching grant of 70,000 additional options from the Companys 1996 Equity
Incentive Plan to the same executives. The Company may incur quarterly compensation
expense, based on any increase in the then-current stock price over the exercise price, as
a result of the issuance of the initial 70,000 options (as opposed to the Companys
matching grant of 70,000 additional options) to the designated executives and Mr. Odak.

In March 2001, Perry D. Odak, the Companys Chief Executive
Officer and President, and a director of the Board, purchased 1,332,649 shares of Common
Stock for $6.969 per share for an aggregate purchase price of $9.28 million. Mr. Odak paid
$13,326 in cash and executed a full recourse, five-year promissory note for the balance of
$9,273,905 to the Company, with interest accruing at 5.5% per annum, compounding
semiannually.

As part of Mr. Odaks employment agreement, the Company agreed to
purchase his home in York, Pennsylvania if he was unable to sell it within a specific
period of time. In July 2001, the Company arranged for a relocation service to purchase
the home from Mr. Odak for $1.6 million. Despite substantial marketing efforts, the
relocation service was unable to sell the house for a reasonable price. In November 2002,
Mr. Odak offered to repurchase the house for the original $1.6 million he had received. At
December 28, 2002, Mr. Odak had remitted $1.35 million to the Company as partial
consideration to fund the purchase and the remaining funds were funded by Mr. Odaks
fiscal 2002 bonus of $250,000 to which he was contractually entitled. On March 6, 2003,
the Company remitted the $1.6 million to the relocation service.

In September 2002, the Company filed suit against Michael Gilliland and
Elizabeth Cook, former officers and directors and greater than 5% stockholders of the
Company, together with two individuals and three limited liability corporations, for a
temporary restraining order and damages related to a breach of Mr. Gillilands
non-competition covenant, contained in his 1996 employment agreement, arising from the
opening of a competitive grocery store in New Mexico. The lawsuit is captioned Wild
Oats Markets, Inc. v. Michael C. Gilliland, Elizabeth C. Cook, Mark R. Clapp; Patrick
Gilliland, Westside Farmers Market LLC, Westside Liquors LLC and Milagro Cafe LLC.
Mr. Gilliland and Ms. Cook have counterclaimed, claiming that Ms. Cook was entitled to
severance payments, and that both were under-compensated in the receipt of option grants.
After a hearing, the court issued a temporary restraining order against Mr. Gilliland,
prohibiting him from engaging in the operation of the competing grocery store. The
temporary restraining order was subsequently vacated at the Companys request and the
Company dropped its claims for injunctive relief as it did not believe the injunctive
relief granted made any material difference in Mr. Gillilands behavior. The Company
discontinued severance payments made to Mr. Gilliland based on his material breach of his
employment contract. The Company continues to pursue its suit for damages. A date for
trial of the remaining claims has not been set. A related suit was filed against Mr.
Gilliland and his brother, Patrick Gilliland, for misappropriation of trade secrets and
insider trading related to patrick Gillilands postings on a financial chat board
that he was receiving and trading upon confidential information of the Company.

Mark R. Retzloff is a current member of the Companys Board of
Directors, and sits on its Real Estate Committee. Mr. Retzloff is Chairman of Rudis
Bakery, Inc., which derives more than 5% of its total revenues from sales of bread
products to the Company.



|18. | Change in Primary
    Distributor
|--- | ---------------------------------

During fiscal 2002, the Company changed its primary distributor from
UNFI to Tree of Life, Inc. ("TOL"). A transition fee is referenced in the
Companys June 2002 distribution agreement with TOL. In the second, third and fourth
quarters of fiscal 2002, the Company used a portion of the transition fee to offset the
transition costs incurred during the transition of the Companys primary distribution
relationship to TOL. These costs include, but are not limited to, the cost of retagging
store shelves, modification of product inventory, disposal of discontinued products,
resetting of products on store shelves and training of store personnel in new procedures,
and legal and consulting expenses. The portion of the transition support fee used to
defray transition expenses incurred had no material impact on the Companys results
of operations for the twelve months ended December 28, 2002.

During the fourth quarter of 2003, the Company and TOL agreed to
terminate their primary distribution relationship, and in January 2004, the Company signed
a five year primary distribution agreement with UNFI. The transition to UNFI is expected
to be fully completed by no later than April 1, 2004. The agreement states that UNFI will
pay the Company a conversion fee to cover the costs of the transition to UNFI, which is
payable over the period of the contract, subject to the Company meeting certain minimum
purchase requirements.



Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

On January 30, 2004, PricewaterhouseCoopers LLP declined to stand for
reelection as the independent accountants of the Company. The reports of
PricewaterhouseCoopers LLP on the financial statements for the past two fiscal years
contained no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principle. In connection with its audits for
the two most recent fiscal years and through January 30, 2004, there have been no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure, or audit scope or procedure, which
disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP would have
caused them to make reference thereto in their report on the financial statements for such
years. During the two most recent fiscal years and through the date of this Report, there
have been no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)). The
Company requested and PricewaterhouseCoopers LLP furnished a letter addressed to the SEC
stating that it agrees with the above statements. A copy of such letter, dated February 6,
2004, was filed as Exhibit 16 to the Report dated January 30, 2004 on Form 8-K, reported
under Item 4, "Changes in Registrants Accountants".



Item 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. We maintain a
system of controls and procedures designed to provide reasonable assurance as to the
reliability of the financial statements and other disclosures included in this report, as
well as to safeguard assets from unauthorized use or disposition. We evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as
defined in the Exchange Act Rule 13a-14 under supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, as of the
end of the period covered by this report based. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information required to be
included in our periodic Securities and Exchange Commission filings.

Changes in Internal Control Over Financial Reporting. During the
fiscal year ended December 27, 2003, there have been no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.



PART III.

Item 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information included under the captions "Election of
Directors" and "Executive Compensation-Management-Executive Officers" in
our definitive Proxy Statement in connection with the Annual Meeting of stockholders to be
held May 6, 2004, to be filed with the Commission on or before April 1, 2004, is
incorporated herein by reference.



Item 11.

EXECUTIVE COMPENSATION

The information included under the caption "Executive
Compensation" in our definitive Proxy Statement in connection with the Annual Meeting
of stockholders to be held May 6, 2004, to be filed with the Commission on or before April
1, 2004, is incorporated herein by reference.



Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information included under the caption "Security Ownership of
Certain Beneficial Owners and Management" and "Equity Compensation Plan
Information" in our definitive Proxy Statement in connection with the Annual Meeting
of stockholders to be held May 6, 2004, to be filed with the Commission on or before April
1, 2004, is incorporated herein by reference.



Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information included under the caption "Directors and
Executive Officers - Certain Transactions" in our definitive Proxy Statement in
connection with the Annual Meeting of stockholders to be held May 6, 2004, to be filed
with the Commission on or before April 1, 2004, is incorporated herein by reference.



Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information included under the caption "Principal Accountant
Fees and Services" in our definitive Proxy Statement in connection with the Annual
Meeting of stockholders to be held May 6, 2004, to be filed with the Commission on or
before April 1, 2004, is incorporated herein by reference.



PART IV.



Item 15.

EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT

SCHEDULES AND REPORTS ON FORM 8-K

|(a) | Financial Statements and
    Financial Statement Schedule. The following are filed as a part of this Report on Form
    10-K:   
|--- | --------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                 
|    | (1)                                                                                                                             
|    |                                                                                                                                 
|    |                                                                                                                                 
|    |                                                                                                                                 
|    |                                                                                                                                 
|    |                                                                                                                                 
|    |                                                                                                                                 
|    | (2)                                                                                                                             
|    |                                                                                                                                 
|(b) | Reports on Form 8-K. The
    Company filed the following reports on Form 8-K during fiscal 2003:                                
|    |                                                                                                                                 
|    | (1)                                                                                                                             
|    | (2)                                                                                                                             
|    | (3)                                                                                                                             
|    | (4)                                                                                                                             
|    | (5)                                                                                                                             
|    | (6)                                                                                                                             
|    | (7)                                                                                                                             
|(c) | Exhibits. The following
    exhibits to this Form 10-K are filed pursuant to the requirements of Item 601 of
    Regulation S-K:
|    |                                                                                                                                 
|    | Exhibit                                                                                                                         
|    | Number                                                                                                                          
|    |                                                                                                                                 
|    | 3(i).1.(a)**                                                                                                                    
|    | 3(i).1.(b)**                                                                                                                    
|    | 3(i).1.(c)**                                                                                                                    
|    | 3(ii).1**                                                                                                                       
|    | 4.1**                                                                                                                           
|    | 4.2**                                                                                                                           
|    | 4.3**                                                                                                                           
|    | 4.4**                                                                                                                           
|    | 10.1**                                                                                                                          





| | Exhibit  |                                                                                                                                  
| | -------- | ---------------------------------------------------------------------------------------------------------------------------------
| | Number   | Description of Document                                                                                                          
| |          |                                                                                                                                  
| | 10.2#**  | 1996 Equity
    Incentive Plan, including forms of Options granted to employees and non-employee directors
    thereunder. (3)   
| | 10.3#**  | Amendment to
    1996 Equity Incentive Plan. (4)                                                                                 
| | 10.4#**  | Second
    Amendment to 1996 Equity Incentive Plan. (5)                                                                          
| | 10.5#**  | 1996
    Employee Stock Purchase Plan. (3)                                                                                       
| | 10.6#**  | Amendment
    to 1996 Employee Stock Purchase Plan. (5)                                                                          
| | 10.7#**  | 1993 Stock
    Option Plan. (3)                                                                                                  
| | 10.8#**  | 1991 Stock
    Option Plan. (3)                                                                                                  
| | 10.9#**  | Employee
    Stock Ownership Plan. (3)                                                                                           
| | 10.10#** | Wild
    Oats Markets, Inc. Deferred Compensation Plan. (6)                                                                      
| | 10.11#** | Employment
    Agreement dated March 6, 2001 between Perry D. Odak and the Registrant. (7)                                       
| | 10.12#** | Amendment
    to Employment Agreement dated March 6, 2001 between Perry D. Odak and the Registrant.
    (5)                      
| | 10.13#** | Stock
    Purchase Agreement dated March 6, 2001 between Perry D. Odak and the Registrant. (7)                                   
| | 10.14#** | Stephen
    Kaczynski Equity Incentive Plan. (8)                                                                                 
| | 10.15#** | Employment
    Agreement dated April 24, 2001 between Stephen A. Kaczynski and the Registrant. (8)                               
| | 10.16#** | Employment
    Agreement dated May 21, 2001 between Bruce Bowman and the Registrant. (8)                                         
| | 10.17#** | Amendment
    to Employment Agreement dated May 21, 2001 between Bruce Bowman and the Registrant.
    (5)                        
| | 10.18#** | Bruce
    Bowman Equity Incentive Plan. (8)                                                                                      
| | 10.19#** | David
    Clark Equity Incentive Plan. (11)                                                                                      
| | 10.20#** | Edward
    F. Dunlap Equity Incentive Plan. (5)                                                                                  
| | 10.21#+  | Gary Rawlings Equity
    Incentive Plan.                                                                                         
| | 10.22#** | Employment
    Agreement dated December 17, 2001 between Edward F. Dunlap and the Registrant.(5)                                 
| | 10.23#** | Severance
    Agreement dated November 7, 2002 between Bruce Bowman and the Registrant.                                          
| | 10.24#** | Severance
    Agreement dated November 7, 2002 between Freya Brier and the Registrant.                                           
| | 10.25#** | Severance
    Agreement dated November 7, 2002 between Edward Dunlap and the Registrant.                                         
| | 10.26#** | Severance
    Agreement dated November 7, 2002 between Stephen Kaczynski and the Registrant.                                     
| | 10.27#** | Severance
    Agreement dated November 7, 2002 between Peter Williams and the Registrant. (12)                                   
| | 10.28#+  | Severance
    Agreement dated June 2, 2003 between David B. Clark and the Registrant.(11)                                        
| | 10.29**  | Wild
    Oats Markets, Inc. 2001 Nonofficer/Nondirector Equity Incentive Plan. (5)                                               
| | 10.30**  | Amended and
    Restated Stockholders Agreement among the Registrant and certain parties named therein
    dated August 1996. (3)
| | 10.31**  | Registration
    Rights Agreement between the Registrant and certain parties named therein dated July 12,
    1996. (3)          
| | 10.32#** | Second
    Amendment to Employment Agreement between Wild Oats Markets, Inc. and Perry D. Odak, dated
    June 19, 2002. (9)     
| | 10.33#** | Third
    Amendment to Employment Agreement between Wild Oats Markets, Inc. and Perry D. Odak, dated
    August 7, 2002. (9)     
| | 10.34**  | Assignment
    of Kaczynski Employment Agreement, dated June 29, 2002, between Registrant and Sparky,
    Inc.(9)                





| | Exhibit |                                                                                                                                                                                                                                                                                          
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Number  | Description of Document                                                                                                                                                                                                                                                                  
| |         |                                                                                                                                                                                                                                                                                          
| | 10.35** | Assignment
    of Dunlap Employment Agreement, dated June 29, 2002, between Registrant and Wild Oats
    Financial, Inc. (9)                                                                                                                                                             
| | 10.36** | Second
    Amended and Restated Credit Agreement dated as of February 26, 2003, among Registrant, the
    lenders named therein and Wells Fargo Bank National Association, as Administrative Agent.
    Portions have been omitted pursuant to a request for confidential treatment. (12)
| | 10.37+  | Joinder Agreement
    dated as of December 12, 2003, among Bank of America, N.A., to the Second Amended and
    Restated Credit Agreement among Registrant, the lenders named therein and Wells Fargo Bank
    National Association, Registrant and Wells Fargo.                         
| | 10.38+  | Agreement for
    Distribution of Product between Wild Oats Markets, Inc. and United Natural Foods, Inc.
    dated January 9, 2004. Portions have been omitted pursuant to a request for confidential
    treatment.                                                                     
| | 10.39+  | Memorandum of
    Understanding between Tree of Life, Inc. and Wild Oats Markets, Inc. dated November 19,
    2003.  Portions have been omitted pursuant to a request for confidential treament.                                                                                         
| | 21.1+   | List of subsidiaries.                                                                                                                                                                                                                                                                    
| | 23+     | Consent of
    PricewaterhouseCoopers LLP, independent auditors.                                                                                                                                                                                                                         
| | 31.1+   | CEO Certification
    under Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                    
| | 31.2+   | CEO Certification
    under Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                    
| | 32.1+   | CEO Certification
    under Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                    
| | 32.2+   | CEO Certification
    under Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                    



_________________________________________

|#    | Management Compensation Plan.                                                                                                                                                             
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**   | Previously filed.                                                                                                                                                                         
|+    | Included herewith.                                                                                                                                                                        
|(1)  | Incorporated by reference from the
    Registrants Form 10-K
    for the year ended December 28, 1996 (File No. 0-21577).                                                                
|(2)  | Incorporated by reference from the
    Registrants Amendment
    No. 2 to the Registration Statement on Form S-3 filed with the Commission on November 10,
    1999 (File No. 333-88011).
|(3)  | Incorporated by reference from the
    Registrants Registration
    Statement on Form S-1 (File No. 333-11261) filed on August 30, 1996.                                                 
|(4)  | Incorporated by reference from the
    Registrants Registration
    Statement on Form S-8 (File No. 333-66347) filed on October 30, 1998.                                                
|(5)  | Incorporated by reference from the
    Registrants Form 10-K
    for the year ended December 28, 1996 (File No. 0-21577).                                                                
|(6)  | Incorporated by reference from the
    Registrants Amendment
    No. 2 to the Registration Statement on Form S-3 filed with the Commission on November 10,
    1999 (File No. 333-88011).
|(7)  | Incorporated by reference from the
    Registrants Registration
    Statement on Form S-1 (File No. 333-11261) filed on August 30, 1996.                                                 
|(8)  | Incorporated by reference from the
    Registrants Registration
    Statement on Form S-8 (File No. 333-66347) filed on October 30, 1998.                                                
|(9)  | Incorporated by reference from the
    Registrants Form
    10-Q for the period ended June 29, 2002 (File No. 0-21577).                                                                  
|(10) | Incorporated by reference from the
    Registrants Form 8-K
    filed on May 5, 1998 (File No. 0-21577).                                                                                 
|(11) | Incorporated by reference from the Registrants Form 10-Q for the period
    ended June 28, 2003 (File No. 0-21577).                                                                      
|(12) | Incorporated
    by reference from the Registrants Form 10-K for the year ended December 28, 2002
    (File No. 0-21577).                                                                







SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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.



|                     | Wild Oats Markets, Inc.                      
|-------------------- | ---------------------------------------------
|                     | (Registrant)                                 
|                     |                                              
|                     |                                              
|Date: March 11, 2004 | By: /s/ Edward F. Dunlap                     
|                     | Edward F. Dunlap                             
|                     | Executive Officer and Chief Financial Officer
|                     | (Principal Financial and Accounting Officer) 







Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.





|SIGNATURE                         | TITLE                    | DATE          
|--------------------------------- | ------------------------ | --------------
|                                  |                          |               
|/s/ Perry D. Odak                 | Chief Executive Officer, | March 8, 2004 
|                                  | President and Director   |               
|                                  |                          |               
|/s/ Edward F. Dunlap              | Chief Financial Officer  | March 11, 2004
|                                  |                          |               
|/s/ John A. Shields               | Chairman                 | March 5, 2004 
|                                  |                          |               
|/s/ David M. Chamberlain          | Vice Chairman            | March 5, 2004 
|                                  |                          |               
|/s/ Stacey Bell                   | Director                 | March 8, 2004 
|                                  |                          |               
|/s/ Brian K. Devine               | Director                 | March 4, 2004 
|                                  |                          |               
|/s/ David Gallitano               | Director                 | March 5, 2004 
|                                  |                          |               
|/s/ Mark A. Retzloff              | Director                 | March 8, 2004 
|                                  |                          |               
|/s/ Ann-Marie
    Austin-Stephens | Director                 | March 9, 2004