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 28, 2002

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 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 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:
(   )



Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2):

Yes       ( X )       No       (
  )



As of June 28, 2002, the aggregate market value of the voting common
stock held by non-affiliates (as defined by the regulations of the Securities and Exchange
Commission) of the Registrant was $16.10, based upon the closing sale price of such stock
on such date as reported on the NASDAQ National Market.



As of March 3, 2003, the total number of shares outstanding of the
Registrants common stock, $.001 par value, was 29,705,475 shares.







DOCUMENTS INCORPORATED BY REFERENCE



Portions of the definitive Proxy Statement for the Registrants
Annual Meeting of Stockholders to be held on May 5, 2003, have been incorporated by
reference into Part III of this report.









TABLE OF CONTENTS

|PART I.        |  |                                                                                                      |   
|-------------- |  | ---------------------------------------------------------------------------------------------------- | --
|               |  |                                                                                                      |   
|Item 1.        |  | Business                                                                                             | 3 
|               |  |                                                                                                      |   
|Item 2.        |  | Properties                                                                                           | 12
|               |  |                                                                                                      |   
|Item 3.        |  | Legal Proceedings                                                                                    | 14
|               |  |                                                                                                      |   
|Item 4.        |  | Submission
      of Matters to a Vote of Security Holders                                            | 14
|               |  |                                                                                                      |   
|               |  |                                                                                                      |   
|PART II.       |  |                                                                                                      |   
|               |  |                                                                                                      |   
|Item 5.        |  | Market for
      Registrants Common Equity and Related Stockholder Matters                          | 15
|               |  |                                                                                                      |   
|Item 6.        |  | Selected Financial Data                                                                              | 16
|               |  |                                                                                                      |   
|Item 7.        |  | Managements Discussion and
      Analysis of Financial Condition and Results of Operations          | 17
|               |  |                                                                                                      |   
|Item 7A.       |  | Quantitative and
      Qualitative Disclosures About Market Risk                                     | 35
|               |  |                                                                                                      |   
|Item 8.        |  | Financial
      Statements and Supplementary Data                                                    | 36
|               |  |                                                                                                      |   
|Item 9.        |  | Changes In and
      Disagreements With Accountants on Accounting and Financial Disclosure           | 76
|               |  |                                                                                                      |   
|               |  |                                                                                                      |   
|PART III.      |  |                                                                                                      |   
|               |  |                                                                                                      |   
|Item 10.       |  | Directors
      and Executive Officers of the Registrant                                             | 76
|               |  |                                                                                                      |   
|Item 11.       |  | Executive Compensation                                                                               | 76
|               |  |                                                                                                      |   
|Item 12.       |  | Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 76
|               |  |                                                                                                      |   
|Item 13.       |  | Certain
      Relationships and Related Transactions                                                 | 76
|               |  |                                                                                                      |   
|Item 14.       |  | Controls and Procedures                                                                              | 76
|               |  |                                                                                                      |   
|               |  |                                                                                                      |   
|PART IV.       |  |                                                                                                      |   
|               |  |                                                                                                      |   
|Item 15.       |  | Exhibits, Financial
      Statements, Financial Statements Schedules and Reports on Form 8-K         | 77
|               |  |                                                                                                      |   
|               |  |                                                                                                      |   
|CERTIFICATIONS | 
|               |  |                                                                                                      |   
|               |  | Certifications in Accordance with
      Section 302 of the Sarbanes-Oxley Act of 2002                | 81
|               |  |                                                                                                      |   
|               |  | Certifications in Accordance with
      Section 906 of the Sarbanes-Oxley Act of 2002                | 83



PART I.





Item 1.

BUSINESS



Introduction

Wild Oats Markets, Inc. ("Wild Oats") is one of the largest
natural foods supermarket chains in North America. As of March 3, 2003, we operated 102
natural foods stores in 25 states and British Columbia, Canada under several names,
including:

- Wild Oats Natural Marketplace (nationwide)
- Henrys Marketplace (San Diego and Orange County, CA)
- Natures - A Wild Oats Market (metropolitan Portland, OR)
- 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
complete line 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 a differentiated concept that appeals to a broader,
more mainstream customer base than the traditional natural foods store. Our comprehensive
selection of natural and organic products appeals to health-conscious shoppers while we
also offer virtually every product category found in a conventional supermarket, including
grocery, produce, meat, poultry, seafood, dairy, frozen, food service, 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 comprises less than 5%
of the total grocery industry, offers significant potential for us to continue to expand
our customer base.

Wild Oats sales grew from $893.2 million during fiscal 2001
to $919.1 million in 2002, an increase of 2.9%, even though we closed nine underperforming
stores in 2002. Our improvements in sales, despite a significant decrease in overall store
count, resulted largely from improvements in marketing, including the completion of the
rollout of our national flyer program, in merchandising and operations improvements in our
stores, as well as the opening of our first prototype Wild Oats Natural Marketplace store
in Long Beach, California.

We added 1, 4, 13, 25 and 16 new and acquired stores to our store base
in fiscal years 2002, 2001, 2000, 1999 and 1998, respectively. We also added 24 stores to
our store base in 1999 through the completion of two pooling-of-interest transactions. As
a result of our aggressive growth over the last five years, we have increased our
penetration of existing markets, entered new geographic markets and created a stronger
platform for future growth. We believe our growth has resulted in operating efficiencies
created by:

- warehousing, distribution and administrative economies of scale
- improved volume purchasing discounts
- coordinated merchandising and marketing strategies



At the end of fiscal 2002, we had 99 stores located in 23 states and
Canada, as compared to 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    | 
| |                                        |  | 2001                  | 
| |                                        |  |                       | 
| | Store count at beginning
    of period |  | 106                   | 
| | Stores opened                          |  | 4                     | 
| | Stores closed                          |  | (1)                   | 
| | Stores sold                            |  | (2)                   | 
| |                                        |  |                       | 
| | Store count at end of
    period       |  | 107     
    ===      | 



As part of the strategic repositioning announced by the Company in the
second and fourth quarters of fiscal 2000, the Company identified 22 natural foods stores
for closure or sale due to weak performance. In fiscal 2000, we closed ten and sold three
of those identified stores. In the second quarter of fiscal 2001, as part of additional
evaluation of the Companys operations by new management, we identified an additional
three stores for closure in fiscal 2001; in the fourth quarter of fiscal 2001, we extended
our evaluation and identified an additional three stores for closure in fiscal 2001 and
fiscal 2002. In fiscal 2002, we identified an additional six stores for closure or sale,
including two small vitamin stores. In fiscal 2002, the Company closed five of the
identified stores, terminated its lease-related obligations as to one of the closed
locations and sold four of the identified stores, including one small vitamin store. Two
of the stores were sold in related transactions. Due to a change in estimates related to
changes in facts and circumstances during the fourth quarter of fiscal 2001, we decided to
continue to operate four stores previously identified for closure or sale. As of March 1,
2003, 20 of the 22 stores identified in fiscal 2000 for closure or sale have been closed
or sold and the remaining two stores have been removed from our closure or sale list due
to changes in facts and circumstances. Of those stores identified in fiscal 2001, four
have been closed or abandoned and the remaining two stores have been removed from our
closure or sale list due to changes in facts and circumstances. Of those stores identified
in fiscal 2002, three have been sold or closed, and three remain to be closed or sold. A
summary of restructuring activity by store count is as follows:



|                                                         |  | RESTRUCTURING
    STORE COUNT
|-------------------------------------------------------- |  | -----------------------------
|                                                         |  |                              
|                                                         |  |                              
|                                                         |  | Fiscal Year Ending           
|                                                         |  | 2000                         
|                                                         |  |                              
|Stores remaining at
    commencement of period           |  |                              
|Stores identified in
    fiscal 2000 for closure or sale |  | 22                           
|Stores identified in
    fiscal 2001 for closure or sale |  |                              
|Stores identified in
    fiscal 2002 for closure or sale |  |                              
|Identified stores closed
    or abandoned                |  | (10)                         
|Identified stores sold                                   |  | (3)                          
|Reversal of stores
    identified for closure or sale    |  |                              
|Identified stores
    remaining at period end            |  | 9      
    ==               



Total store count, as well as the number of stores identified for
closure or sale and stores closed or sold, include two small vitamin stores previously
operated by us in El Paso, Texas.



Natural products industry

Retail sales of natural products have grown from $7.6 billion in 1994
to $16.24 billion in fiscal 2001, an 11.45% compound annual growth rate, and total sales
of natural products (including over the internet, by practitioners, by multi-level
marketers and through mail order) reached $34.0 billion in fiscal 2001 (Natural Foods
Merchandiser, June 2002). 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. The increase in the availability of natural products in
conventional supermarkets, whose sales of natural products increased by 5.5% in fiscal
2001, demonstrates the increase in consumer acceptance of natural products. 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. Many natural foods stores develop a more personal relationship with
increased interaction between store staff and customers than that of conventional
supermarkets. Conventional supermarkets may also have less appeal for natural foods
shoppers because they are largely dependent on commercial brand names, resulting in a more
limited selection of natural products from which to choose. In addition, conventional
supermarkets may not be able to match our pricing in many categories because of the
greater volume purchase discounts we receive on natural products. As a result, while
conventional supermarkets may carry a limited selection of natural foods products, they do
not duplicate the inventory of our natural foods stores, which carry a more comprehensive
selection of natural products sourced from a large number of independent vendors.



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. In most of our stores, we offer between 12,000 and 35,000 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.

High-quality, unique products. We seek to offer the highest quality
products throughout our merchandise categories and emphasize unique products and brands
not typically found in conventional supermarkets. 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, sourcing produce from local organic growers. We also operate regional
commissary kitchens and bakeries that provide our stores with fresh bakery items and a
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, as well as an in-store consumer information department. In 2003
we will be implementing a new "active sampling" program to emphasize certain
perishable products in our stores and to encourage customers to try new products. In
addition, many stores offer cafe seating areas, espresso and fresh juice bars and in-store
massage therapists, 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 than in a
conventional supermarket.

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 working for local charities. In 2002, we added a new charitable option for
customers called eScrip(R), which administers a wholly electronic charitable giving
program. Under the eScrip program, Wild Oats will donate a sliding percentage of the
customers purchases to a customers selected charity when the customer uses a
credit card registered with eScrip to purchase at Wild Oats.

Multiple store formats. We operate 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. Our two store formats enable us to customize our stores to specific site
characteristics and to meet the unique needs of a variety of markets. We believe that this
multiple store format strategy allows us to operate successfully in a diverse set of
markets, enabling us to reach a broader customer base and to increase our market
penetration.

Competitive pricing. We seek to offer products at prices that are
competitive with those of other natural foods stores and conventional markets. In fiscal
2001 and throughout fiscal 2002, we introduced a new merchandising and marketing program
in our natural foods supermarket format stores, and as part of such program reduced
everyday prices on up to 2,500 items per store and implemented a weekly flyer program,
with an expanded selection of sale items and emphasis on our perishable departments
(meat/seafood, produce, prepared foods and dairy). We believe these pricing programs
broaden our consumer appeal and encourage our customers to fill more of their shopping
needs at our stores.

Motivated staff. We have developed a unique culture by encouraging
active participation and communication among all staff members, advocating store-level
participation in a variety of marketing, merchandising and operating decisions and
rewarding staff based upon the achievement of targeted store-level sales, profitability
and other financial performance criteria. In addition, we seek to hire individuals
dedicated to the concept of natural foods and a healthy lifestyle. We believe that these
practices translate into a satisfied and motivated staff and a high level of customer
service.



Growth strategy

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

- improved guest service and store execution
- opening of new stores
- increased consumer awareness of Wild Oats

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 18 new stores
to be opened or relocated in the remainder of fiscal 2003 or fiscal 2004. The proposed
sites are in metropolitan Los Angeles (six) and Palm Springs, California; Denver and
Colorado Springs, Colorado; Indianapolis, Indiana; Lexington, Kentucky; Omaha, Nebraska;
Cincinnati, Ohio; metropolitan Nashville, Tennessee; and metropolitan Salt Lake City, Utah
(three).

Changes in store base. In fiscal 2002, we opened one new store in
Long Beach, California. We closed three underperforming natural foods stores in Boca
Raton, Florida; Chesterfield, Missouri; and Cleveland, Ohio; we closed one store in Serra
Mesa, California when the lease expired, and we negotiated the early termination of the
lease for one small vitamin store in El Paso, Texas. We sold four stores: two in Berkeley
and Sunnyvale, California to the purchaser of two other northern California stores in
2001; one in Victoria, British Columbia, Canada; and one small vitamin store in El Paso,
Texas. In fiscal 2001, we opened four new stores, closed one underperforming natural foods
stores and sold two stores in related transactions.

In fiscal 2001, we stopped construction on several stores then in
design, in order to incorporate consumer research and feedback into a prototype design for
our natural foods supermarket format stores. The new prototype, unveiled in our new store
in Long Beach, California in April of 2002, 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 staffs attention on the customer, even when working on food
preparation; and a warm and inviting new decor.

Year-over-year comparable store sales growth. Comparable store
sales (sales of a store we deemed comparable commencing in the 13th full month
of operations) increased 5.2% in fiscal 2002, as compared to a 4.0% increase for fiscal
2001, primarily due to operational improvements and the completion of the implementation
of our comprehensive marketing program for our natural foods supermarket format stores. We
also have remerchandised a significant number of our natural foods supermarket format
stores to emphasize perishables and reset certain product categories according to item
movement. We made a commitment in fiscal 2001 to improve customer service through
aggressive training programs for new and existing employees, rolled out several new
programs in fiscal 2002, and will continue and expand this commitment in fiscal 2003 and
beyond.

In fiscal 2003, we will continue to refine our merchandising and
marketing programs to reach a broader group of potential customers, to strengthen our
awareness amongst our communities as a place to shop for natural, organic and
gourmet/specialty foods, to build charitable giving programs that are meaningful to our
communities and to bring excitement and entertainment into our stores. These programs will
include an expansion of our "grass roots" marketing programs, targeting direct
mail, active sampling programs and other initiatives currently being prepared for
implementation.



Products

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 food
service, 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. In fiscal 2003, we plan to add up to 1,500 new
stock-keeping units, or "SKUs," of natural, organic and gourmet products in each
of our stores.

In fiscal 2002, we completed an SKU rationalization program pursuant to
which we phased out a large number of SKUs of slower-moving products from our stores to
make room for new items and faster moving products. We attribute a certain amount of the
decrease in customer traffic experienced in the fourth quarter of fiscal 2002 to the
disruptions caused by out-of-stocks of products created by the SKU rationalization program
as well as disruptions resulting from the Companys switch to Tree of Life, Inc. as
its new primary distributor.

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 us from conventional supermarkets and traditional natural foods stores.

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

- free of preservatives, artificial colors, chemical additives and added hormones
- organically grown, whenever possible
- minimally processed
- not tested on animals

We continually evaluate new products, quality issues and controversial
ingredients. Before new product can be placed on our approved product list for purchase by
the stores, our standards committee reviews each new product for compliance with the
following, amongst other criteria:

- rBGH (recombinant bovine growth hormone) free
- GMO ("genetically modified organism") free
- cruelty-free

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(R)"
private label program in order to build brand loyalty to specific products based on our
relationship with our customers and our reputation as a natural foods authority. Through
this program, we have successfully introduced a number of high-quality, unique private
label products, such as cereals, breads, salad dressings, vitamins, chips, salsa,
pretzels, cookies, juices, pasta, pasta sauces, oils, frozen products such as pizza and
veggie burgers, and pet foods. In fiscal 2000, we introduced a new line of "Wild
Oats(R)" imported and organic goods. In fiscal 2001, we expanded this private label
line with the introduction of baking mixes, imported peppers, capers, pickles and
cherries, canned tomatoes, preserves, tuna, cookies and teas. In fiscal 2003, we intend to
roll out a new private label strategy that will include a new brand name and look for our
private label products. We intend to continue to eliminate slow-moving private label
product and to expand our private label product offerings on a selected basis.

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. As part
of the merchandising and marketing programs introduced in fiscal 2001, we reduced prices
on a large number of products throughout participating stores. After analysis of results
from those stores implementing our merchandising and marketing program in fiscal 2001, and
additional customer research, we determined that some pricing reductions on certain items
were overly aggressive, resulting in greater margin erosion without corresponding customer
recognition and item movement, and we implemented a modest price increase on selected
products. Like most conventional supermarkets, we regularly feature dozens of sale items,
and we implemented a weekly 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." (TM)

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. In
fiscal 2001, we implemented aggressive new training programs, with an emphasis on customer
service, for all new employees. In fiscal 2002, we 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.

Management and employees. Our stores are organized into 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.

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. On June 14, 2002, we entered into a new primary
distribution agreement with Tree of Life, Inc. ("Tree of Life") as distributor.
The distribution arrangement commenced effective September 1, 2002, the date upon which
our existing primary distribution contract with United Natural Foods, Inc. expired. The
new agreement has no specified term, although either party can terminate the agreement
after three years upon 120 days prior written notice to the other party. Either
party also 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 90% of our total cost of goods from specified categories of goods for sale in our
U.S. stores from Tree of Life, except in certain defined circumstances when such
percentage-purchasing obligation is excused. We believe Tree of Life 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 received, as part of the new agreement, a transition fee to offset the
transition costs incurred during the transition of our primary distribution relationship
to Tree of Life. 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. A portion of the transition support fee received was used in each
of the second, third and fourth quarters to defray transition expenses incurred. As part
of the agreement with Tree of Life, we prepared an approved product list from which our
stores may order. We also took this opportunity to eliminate from our approved products
list certain slow-moving products and products that do not meet our quality and product
standards.

In fiscal 1999, we entered into a supply agreement with Nutricia
(formerly GNP), under which Nutricia manufactured for us certain private label vitamins
and supplements. We terminated the agreement in fiscal 2002 and negotiated a buyout of all
remaining inventory. We have no supply contracts with the majority of our smaller vendors,
who could discontinue selling to us at any time. Although we believe that we could develop
alternative sources of supply, any such termination may create a short-term disruption in
store-level merchandise selection.

Most products are delivered directly to our stores by vendors and
distributors. We currently operate three warehouse facilities in Los Angeles and San
Diego, California and 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. We maintain a small fleet of local delivery vans. 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, as well as a bakery in San
Diego, California. 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 hundred-mile radius of the facility. We will evaluate the need for new
commissary kitchens as we expand into new markets.



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. As part of our marketing
strategy, we have increased our use of direct mail and newspaper inserts to increase our
market exposure to a broader base of customers. Our farmers market format stores primarily
use flyers and "weekly specials" advertising to generate consumer interest and
increase customer traffic. In fiscal 2001, we introduced eight-page weekly flyers for a
select group of our natural foods supermarket format stores, with a significant number of
weekly specials and an expanded flyer distribution. In fiscal 2002, this program was
introduced in the majority of our natural foods supermarket format stores. We are
formulating additional marketing strategies for fiscal 2003, and may modify the flyer
program as other marketing strategies are implemented.

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. 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.

Our advertising costs prior to the implementation of the expanded
marketing program historically were 1.5% of sales. Advertising costs for stores on
the expanded marketing program on average have increased to 2.0% of sales. We offset a
certain amount of such costs through a promotional program with our vendors, which allows
for different degrees of promotional participation in our weekly flyers.



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 2002, we implemented a number
of information management initiatives intended to make us more competitive in the
marketplace, including the following:

- centralized pricing for the majority of our items in all of our natural foods
    supermarket format stores and item movement tracking in all of our stores (exclusive of
    our Canadian stores). The farmers market format stores host their own pricing structure,
    although we currently are examining hosting all pricing for all stores centrally;
- a data warehouse that allows us to perform rapid analyses of disparate data relating to
    financial performance, item movement, comparable store sales results, customer traffic and
    other data generated by our operations;
- a promotion management system that links our item information database to our marketing
    and merchandising systems to facilitate the approval and creation of marketing and
    merchandising flyers. This enables us to create our flyers more quickly by minimizing
    printing modifications from flyer to flyer, and increases the accuracy of graphic and text
    descriptions of items. This program allows us to map and manage shelf space from store to
    store to ensure consistency of item placement and track item movement to allow us to
    determine appropriate shelf inventory of various SKUs of product;
- in-store signage and shelf tag printing controlled by our home office departments;
- scale hosting to standardize pricing by weight, product descriptions, cooking
    instructions and other printed material on weighed items; and
- a front end auditing program that tracks cashier activity and identify anomalies in cash
    handling, enables us to identify cashier training issues and improper cash handling
    procedures.

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, 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. We expect to receive the benefits of complete implementation of
this program in the natural foods supermarket format stores in the third quarter of fiscal
2004. In fiscal 2003, we intend to commence implementation of an improved labor scheduling
program that should increase the accuracy of our labor needs forecast.



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. Some feature a "store-within-a-store" concept where the fixtures,
lighting and flooring in the natural foods and products section are modified to provide a
different, more upscale ambiance, such as that provided in our stores. 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
believe that our primary natural foods competitor is Whole Foods Market, Inc., a company
based in Texas, with whom we currently compete directly in California, Colorado, Florida,
Illinois, Massachusetts, New Mexico and Texas (a total of 70% of our current markets). We
believe our natural foods supermarket concept is differentiated from Whole Foods 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 true competitors for our farmers market format stores.



Employees

As of March 3, 2003, we employed approximately 6,557 full-time
individuals and 1,554 part-time individuals. Approximately 7,721 of our employees are
engaged at the store-level and 390 are devoted to regional administrative and corporate
activities. We believe that we maintain a good relationship with our employees. 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, and that
from time to time certain of our stores may be picketed by local labor unions relating to
area wage and benefit standards. Four of our stores (including two Henrys stores in
metropolitan San Diego, California) are currently being picketed relating to area
standards.

In fiscal 2002, 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 also participate in an incentive program that
provides periodic payments based on achieving certain store-level performance targets and
operations standards.



Available Information

Our internet website is http://www.wildoats.com, where we make
available, free of charge on our website, 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.



Item 2.

PROPERTIES



We currently lease approximately 54,000 square feet for our corporate
headquarters in Boulder, Colorado. The lease has three 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 18 sites projected to be opened in the remainder of
fiscal 2003 and fiscal 2004, including seven farmers market format store sites in southern
California, and eleven natural foods supermarket format store sites in Colorado, Indiana,
Kentucky, Nebraska, Ohio, Tennessee and 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 2002, fiscal 2003 and beyond is 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 3, 2003, the natural foods grocery
stores that Wild Oats operates in each state and Canadian province and the cities in which
our stores are located:







|ArizonaPhoenix (2)
    Scottsdale
    Tucson (3)Arkansas 
    Little Rock
    California Costa Mesa
    Escondido
    Hemet
    Irvine
    Laguna Beach 
    Laguna Niguel
    Long Beach
    Los Angeles 
    Pasadena 
    San Diego (11)
    Santa Monica (2)
    Yorba Linda
    Colorado Boulder (3) 
    Colorado Springs 
    Denver (7) 
    Fort Collins | ConnecticutWest Hartford
    WestportFlorida Fort Lauderdale 
    Melbourne
    Miami 
    Miami Beach
    West Palm Beach
    Illinois Evanston
    Hinsdale
    Indiana 
    Indianapolis
    Kansas Kansas City (2)
    KentuckyLouisville
    MassachusettsBoston (3)
    MainePortland | MissouriKansas City 
    St. LouisNebraska
    Omaha
    Nevada Las Vegas (2)
    Reno
    New Jersey 
    Princeton
    New Mexico Albuquerque (3) 
    Santa Fe
    New York 
    New York City
    OhioCincinnatiCleveland
    Upper Arlington
    OklahomaTulsa | OregonBend
    Eugene (2) 
    Portland (7)Tennessee Memphis 
    Nashville (2)
    TexasAustin (2)
    Corpus Christi 
    El Paso 
    McAllen
    San Antonio (3)
    Utah Salt Lake City (2)
    Washington 
    Vancouver
    British Columbia, Canada Vancouver (2) 
    West Vancouver
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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. 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 $326,000 in damages and $210,000 in attorneys fees. We have
appealed the judgment. Execution on the judgment is stayed pending the outcome of the
appeal by the Companys payment to the Superior Court of $625,000 (an amount equal to
the amount of the judgment and the parties agreed estimate of accrued interest
thereon). A hearing on the appeal has been requested and will be scheduled by the
Appellate Court.

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, a jury awarded $0 in damages to the
plaintiffs, and the Company was subsequently awarded $190,000 in attorneys fees. The
plaintiff filed for bankruptcy and the Company is currently pursuing our claim as a
secured creditor.

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 date for
trial of the remaining claims has not been set.

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 2001  |  | 9.563  |  | 4.125 | 
| | Second Quarter 2001 |  | 11.800 |  | 6.125 | 
| | Third Quarter 2001  |  | 11.970 |  | 7.120 | 
| | Fourth Quarter 2001 |  | 11.330 |  | 6.900 | 
| |                     |  |        |  |       | 
| | 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 | 



As of March 3, 2003, Wild Oats common stock was held by 627
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 $75.0 million 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 28, 2002,
December 29, 2001, December 30, 2000, January 1, 2000; and January 2, 1999 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                                                                      |  | 2002               |  | 2001                   |  | 2000                  |  | 1999                 |  | 1998                
|------------------------------------------------------------------------------------ |  | ------------------ |  | ---------------------- |  | --------------------- |  | -------------------- |  | --------------------
|                                                                                     |  |                    |  |                        |  |                       |  |                      |  |                     
|STATEMENT
    OF OPERATIONS DATA:                                                    |  |                    |  |                        |  |                       |  |                      |  |                     
|Sales                                                                                |  | $
    919,130      |  | $
    893,179          |  | $
    838,131         |  | $
    721,091        |  | $
    530,726       
|Cost of goods sold and occupancy costs                                               |  | 644,862            |  | 634,631                |  | 581,980               |  | 499,627              |  | 369,475             
|Gross profit                                                                         |  | 274,268            |  | 258,548                |  | 256,151               |  | 221,464              |  | 161,251             
|Direct store expenses                                                                |  | 198,386            |  | 208,318                |  | 187,265               |  | 154,069              |  | 112,093             
|Store contribution                                                                   |  | 75,882             |  | 50,230                 |  | 68,886                |  | 67,395               |  | 49,158              
|Selling, general and administrative expenses                                         |  | 55,200             |  | 53,188                 |  | 36,201                |  | 29,739               |  | 21,027              
|Pre-opening expenses                                                                 |  | 1,897              |  | 1,562                  |  | 3,289                 |  | 2,767                |  | 3,449               
|Restructuring and asset impairment charges                                           |  | (832)              |  | 54,906                 |  | 42,066                |  | 12,642               |  | 393                 
|Income (loss) from operations                                                        |  | 19,617             |  | (59,426)               |  | (12,670)              |  | 22,247               |  | 24,289              
|Loss on investment                                                                   |  |                    |  | 228                    |  | 2,060                 |  |                      |  |                     
|Interest expense, net                                                                |  | 7,975              |  | 9,447                  |  | 8,850                 |  | 4,280                |  | 28                  
|Income (loss) before income taxes                                                    |  | 11,642             |  | (69,101)               |  | (23,580)              |  | 17,967               |  | 24,261              
|Income tax expense (benefit)                                                         |  | 4,733              |  | (25,189)               |  | (8,559)               |  | 5,198                |  | 7,822               
|Net income (loss) before cumulative effect of change in accounting
        principle |  | 6,909              |  | (43,912)               |  | (15,021)              |  | 12,769               |  | 16,439              
|Cumulative effect of change in accounting principle, net of tax (1)                  |  |                    |  |                        |  |                       |  | 281                  |  |                     
|Net income (loss)                                                                    |  | $ 6,909 
    ===== |  | $ (43,912)
    ======= |  | $ (15,021)
    ====== |  | $ 12,488 
    ====== |  | $ 16,439 
    ======
|Basic net income (loss) per common share                                             |  | $ 0.26 
    ====   |  | $      (1.80)
    ==== |  | $ (0.65)
    ====     |  | $ 0.55 
    ====     |  | $ 0.73 
    ====    
|Weighted average number of common shares outstanding                                 |  | 26,481 
    =====  |  | 24,424 
    =====      |  | 23,090 
    =====     |  | 22,806 
    =====    |  | 22,440 
    =====   
|Diluted net income (loss) per common share                                           |  | $ 0.26 
    ====   |  | $     (1.80)
    ====  |  | $ (0.65)
    ====     |  | $ 0.53 
    ====     |  | $ 0.71 
    ====    
|Weighted average number of common shares outstanding                                 |  | 27,082 
    =====  |  | 24,424 
    =====      |  | 23,090 
    =====     |  | 23,467 
    =====    |  | 23,079 
    =====   
|Number of stores at end of period                                                    |  | 99                 |  | 107                    |  | 106                   |  | 110                  |  | 82                  
|BALANCE
    SHEET DATA:                                                              |  |                    |  |                        |  |                       |  |                      |  |                     
|Working capital (deficit)                                                            |  | $ (27,550)         |  | $ (26,490)             |  | $ (16,102)            |  | $ (20,971)           |  | $ (5,281)           
|Total assets                                                                         |  | $
    323,585      |  | $
    353,426          |  | $
    372,632         |  | $
    350,629        |  | $
    217,320       
|Long-term debt (including capitalized leases)                                        |  | $ 43,075           |  | $ 112,291              |  | $ 116,839             |  | $ 80,328             |  | $ 2,675             
|Stockholders equity                                                                 |  | $
    166,902      |  | $
    107,015          |  | $
    151,564         |  | $
    165,387        |  | $
    152,608       

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

Marketing and Merchandising Initiatives and Operational Improvements.
In fiscal 2000 and early fiscal 2001, the Company posted net losses, comparable sales and
customer counts were flat to negative, and the Company had no strategy for reversing the
negative trends. The Company also was in default under its $125.0 million credit facility
and required additional capital to expand its store base. In March of 2001, Perry Odak was
hired as our CEO and President, and throughout fiscal 2001, the majority of the
Companys management was replaced with executives with extensive and successful
backgrounds in retail sales, operations, merchandising, marketing and finance. This new
management team recognized that we had major operational issues to correct in order to
reverse the then-current negative trends, including but not limited to:

- poorly integrated acquisitions
- underperforming real estate and no growth strategy
- weak infrastructure
- huge numbers of SKUs and vendors on file
- pricing inconsistencies across the store base
- lack of operational controls
- large percentage of out-of-stocks
- ineffective marketing and merchandising strategies

In the third quarter of fiscal 2001, we began to address these issues,
with the testing of an aggressive new merchandising and marketing strategy that was rolled
out in the fourth quarter of fiscal 2001 and throughout fiscal 2002. In fiscal 2002, we
focused on building operational controls, reducing our SKU count through a SKU
rationalization program, implementing centralized buying and pricing, and creating a
comprehensive and defensible real estate strategy. We also entered into a new primary
distribution agreement with Tree of Life, Inc. ("TOL") and in the third and
fourth quarters of fiscal 2002, switched to TOL as primary distributor for all U.S.
stores. In September of 2002, we completed an equity offering that resulted in net
proceeds of $48.3 million for use in expansion plans.

In the fourth quarter of fiscal 2002, we implemented centralized scale
hosting to bring consistency and control to the pricing of our perishable products. We
also began executing on our real estate strategy, and to the date of this report have
signed leases or letters of intent for 18 new sites opening in fiscal 2003 and fiscal
2004, including eleven Wild Oats locations selected for the excellence of the projects,
the position in new segments of existing markets and their defensibility from competitive
attack, and seven Henrys Marketplace locations in easily accessible and highly
visible locations in densely populated metropolitan Los Angeles.

Throughout fiscal 2002, we continued to focus on improving the customer
experience through new product demonstration programs, staff training on customer service
and product knowledge, and resetting and remerchandising a significant number of our older
stores. The shift to centralized buying and pricing refocused store staff energies on
customer service.

We believe all these programs contributed to overall operational
improvements that increased store sales, customer count and average transaction size in
fiscal 2002. The sheer magnitude of the changes we implemented in fiscal 2002, coupled
with disruptions in product supply caused by our SKU rationalization program and primary
distributor switch, and a continued slow economy, contributed to declines in customer
counts and comparable store sales in the fourth quarter of fiscal 2002, although per
customer basket size increased in the fourth quarter. Road construction adjacent to a
number of our stores also contributed, in part, to a 70 basis point decline in comparable
store sales.

Store format. We operate two store formats: the natural foods
supermarket and farmers market formats. The natural foods supermarket format store,
operated under the Wild Oats(R) Natural Marketplace and Natures(R) - A Wild Oats
Market tradenames, is generally 20,000 to 35,000 gross square feet, and the farmers market
store, operated under the Henrys Marketplace(R) and Sun Harvest(TM)> tradenames,
is generally 15,000 to 25,000 gross square feet. Our profitability has been and will
continue to be affected by the mix of natural foods supermarkets and farmers market stores
opened, acquired or relocated and whether stores are being opened in markets where we have
an existing presence. In fiscal 2001 and the first half of fiscal 2002, we redesigned the
natural foods supermarket format store layout and design. In April 2002, we opened the
first of our redesigned natural foods supermarket format stores in Long Beach, California,
with subsequent new store openings using the prototype design in Portland, Maine and
Louisville, Kentucky in the first quarter of fiscal 2003. We have also redesigned the
prototype for our farmers market store format, and opened our first prototype store in
Costa Mesa, California in the first quarter of fiscal 2003. We also plan to expand the
farmers market store format as our second, parallel store format. We believe this format,
which is primarily located in metropolitan San Diego, California and Texas, appeals to a
more value-conscious customer. This format has historically produced higher comparable
store sales results than the natural foods supermarket format stores, although margins are
lower. The format also appears to perform better in the face of new competition, whether
from conventional or natural foods supermarket competitors. We currently have seven signed
letters of intent or leases for farmers market format stores slated to open in fiscal 2003
and fiscal 2004.

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 effectively execute our operating plans
- changes in consumer preferences for natural foods products
- availability of produce and other seasonal merchandise.

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. Road construction adjacent to our operating stores, as
well as construction within the common areas of the shopping centers in which we operate,
may also affect customer traffic and comparable store sales results.

As a result of marketing and merchandising initiatives, operational
improvements, and the closure of nine weaker stores, comparable store sales chain-wide
increased by 5.2% in fiscal 2002, as compared to 4.0% in fiscal 2001. Due to the
disruptions already mentioned, however, comparable store sales for the fourth quarter of
fiscal 2002 declined to 2.9%, as compared to 5.6% in the third quarter of fiscal 2002,
5.2% in the second quarter of fiscal 2002, 7.3% in the first quarter of fiscal 2002, 5.7%
in the fourth quarter of fiscal 2001, 5.5% in the third quarter of fiscal 2001, 3.9% in
the second quarter of fiscal 2001, and 1.0% in the first quarter of fiscal 2001. There can
be no assurance that comparable store sales for any particular period will not decrease in
the future.

Store openings, closings, sales, remodels, relocations and acquisitions.
In fiscal 2002, we opened one new store in Long Beach, California. We closed three natural
foods supermarket stores in Boca Raton, Florida; Chesterfield, Missouri; and Cleveland,
Ohio; one farmers market store in Serra Mesa, California when the lease expired; as well
as one small vitamin store in El Paso, Texas. During fiscal 2002, we sold natural foods
supermarket stores in Berkeley and Sunnyvale, California (two stores) in related
transactions, and Victoria, British Columbia, Canada, as well as one small vitamin store
in El Paso, Texas.

At December 28, 2002, we had 99 stores located in 23 states and Canada,
as compared to 107 stores in 23 states and Canada as of the end of fiscal 2001, and 106
stores in 22 states and Canada as of the end of fiscal 2000. A summary of store openings,
acquisitions, closures and sales is as follows:

| |                                        |  | TOTAL
    STORE COUNT  | 
| | -------------------------------------- |  | ---------------------- | 
| |                                        |  | Fiscal
    Year Ending | 
| |                                        |  | 2001                   | 
| |                                        |  |                        | 
| | Store count at beginning
    of period |  | 106                    | 
| | Stores opened                          |  | 4                      | 
| | Stores closed                          |  | (1)                    | 
| | Stores sold                            |  | (2)                    | 
| |                                        |  |                        | 
| | Store count at end of
    period       |  | 107     
    ===       | 

We currently have an inventory of 13 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 2002, we sublet, assigned or negotiated the
termination of 9 excess properties from an inventory of vacant sites, the lease for one
site on the inventory list expired and we added two former store sites, closed in fiscal
2002, to our inventory. 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 September 2002, we concluded an offering of 4.45 million shares of
our common stock for total gross proceeds of $51.2 million. In February of 2003, we
completed a refinancing of $75.0 million under our existing credit facility with a group
of banks led by the lead bank in our former credit facility. The proceeds from the equity
offering and the funds available under the credit facility will be used to finance
proposed growth of ten to 13 new stores in fiscal 2003, 15 to 20 stores in fiscal 2004 and
20 to 25 stores in fiscal 2005. See "Managements Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources."

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.

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. We expect our
pre-opening expenses will increase to $400,000 to $500,000 per natural foods supermarket
store, and $200,000 to $300,000 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 the fourth
quarter of fiscal 2002, management made certain decisions relating to our operations that
changed estimates of prior restructuring and asset impairment charges and resulted in net
restructuring and asset impairment income of $6,000. During the third quarter of fiscal
2002, management made certain decisions relating to our operations that changed estimates
of prior restructuring and asset impairment charges and resulted in net restructuring and
asset impairment income of $174,000. During the second quarter of fiscal 2002, management
made certain decisions relating to our operations that changed estimates of prior
restructuring and asset impairment charges and resulted in net restructuring and asset
impairment expense of $0. During the first quarter of fiscal 2002, management made certain
decisions relating to our operations that also changed estimates of prior restructuring
and asset impairment charges and resulted in restructuring and asset impairment income of
$652,000. See "Notes to Consolidated Financial Statements - Note 13 -
Restructuring and Asset Impairment Charges."

Critical Accounting Policies and Estimates. Our discussion and
analysis of the Companys 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
- allowance for bad debt
- 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 and Other Intangible Assets. Effective December 30, 2001,
the Company implemented SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 142 was issued in July 2001, supersedes Accounting Principles Bulletin No. 17, Intangible
Assets, and is effective for fiscal years beginning after December 15, 2001. SFAS No.
142 primarily addresses the accounting for goodwill and intangible assets subsequent to
their initial recognition. SFAS No. 142 (1) prohibits the amortization of goodwill and
indefinite-lived intangible assets, (2) requires testing of goodwill and indefinite-lived
intangible assets on an annual basis for impairment (and more frequently if the occurrence
of an event or circumstance indicates an impairment), (3) requires that reporting units be
identified for the purpose of assessing potential future impairments of goodwill and (4)
removes the 40-year limitation on the amortization period of intangible assets that have
finite lives.

We monitor the carrying value of our long-lived assets, including
intangible assets, for potential impairment at the store level. Goodwill, previously
recognized at the store level, is now recorded at the enterprise level and monitored
accordingly. The Company anticipates an annual decrease in amortization of goodwill of
approximately $3.0 million and a corresponding annual increase to net income of $1.8
million. The Company will test goodwill for impairment annually in the second quarter of
each fiscal year or more frequently if the occurrence of an event or circumstance
indicates potential impairment.

The triggering events for such evaluations include a significant
decrease in the market value of an asset, acquisition and construction costs in excess of
budget, or current period losses combined with a history of losses or a projection of
continuing losses. See "Notes to Consolidated Financial Statements - Note 1 -
Organization and Summary of Significant Accounting Policies, Goodwill and Other Intangible
Assets." The Company records an asset impairment charge when an impairment is
identified. Future adverse changes in asset market values or store operating results could
result in an inability to recover the carrying value of the assets, thereby requiring an
asset impairment charge in the future. See "Notes to Consolidated Financial
Statements - Note 13 - Restructuring and Asset Impairment Charges", for an
additional discussion of our policies regarding the calculation of asset impairments.

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. For stores the Company intends to close, a lease-related liability is
recorded for the present value of the estimated remaining noncancelable lease payments
after the anticipated closing date, net of estimated subtenant income, or for estimated
lease settlement costs. In addition, the Company records 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 is reduced to reflect recoverable values
based on the Companys previous efforts to dispose of similar assets and current
economic conditions. 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.

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 is effective for the
Company on January 1, 2003 and management believes it will have no material effect on the
Companys historical financial results.

The Company maintains allowances for bad debt for estimated losses
resulting from the inability of third parties to make required payments or ship product
upon which credits are due. If the financial condition of such third parties were to
deteriorate, resulting in an impairment of their ability to make payments or provide
credits, additional allowances may be required.

The Company maintains 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 the Company expands its forward buying of inventory, which
will increase its inventory levels, then additional inventory write-downs may be required.

The Company is self-insured for certain losses relating to
workers compensation claims and employee medical and dental benefits. The Company
has purchased stop-loss coverage to limit its exposure to any significant levels of
claims. Self-insured losses are accrued based upon the Companys estimates of the
aggregate insured 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 if
insurance industry costs increase beyond current expectations, then additional reserves
may be required.

The Company maintains reserves for contingencies and litigation based
on managements best estimates of potential liability in the event of a judgment
against the Company, and 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.

During the second quarter ended June 29, 2002, the Company adopted the
provisions of SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other things,
rescinds SFAS No. 4, which required that gains and losses from extinguishment of debt be
classified as an extraordinary item, net of related income tax effects. SFAS No. 145 is to
be applied in fiscal years beginning after May 15, 2002 and encourages early application
of the rescission of SFAS No. 4. During the twelve months ended December 28, 2002, and
December 29, 2001, there were no gains or losses on early extinguishment of debt. In
connection with the refinancing of our credit facility, the Company will incur a non-cash
charge to write off the remaining unamortized debt issuance cost in the first quarter of
fiscal 2003 of approximately $186,000.



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
- competition
- labor issues
- loss of key management
- government regulations
- changes in and performance by suppliers, distributors and manufacturers
- unavailability of product
- aggregate results of a store fixture and equipment inventory project
- 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. We anticipate that
the new stores opened in fiscal years 2002 and 2003 will experience operating losses for
the first six to 12 months of operation, in accordance with historical trends; however,
given the continued weakening of the U.S. economy, operating losses may be extended for
additional periods of time.

We substantially completed the remodeling of five of our older stores
in fiscal 2002, and remerchandised a number of our stores in the second, third and fourth
quarters of fiscal 2002, with the goal of eliminating slower-selling products, reducing
excess SKU counts in certain categories of products, and giving greater emphasis to
produce, meat and seafood and grocery departments. We plan to remodel an additional 25
stores in fiscal 2003. 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 in time or volume 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.

We have implemented merchandising and marketing initiatives in certain
of our natural foods supermarket format stores in fiscal 2002. There can be no assurances
that these or any future programs will be successful in fiscal 2003 in those stores, nor
that the cost of future program rollouts will be at or below the costs incurred in fiscal
2002.

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 the Company continues 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. In October
2002, the National Organic Standards, a comprehensive program of regulations governing the
growing, production, handling and sale of goods labeled as "organic," was fully
implemented. 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.

Based upon our current distribution agreement, the Company plans to
purchase 30.0% of our total goods from TOL. There is no assurance that we may not
experience significant disruption in our operations through shortages of goods and
services. Any significant disruption in the supply of goods could have a material impact
on our overall sales volume and cost of goods. Inability of Tree of Life to fully fill
orders by our stores may result in lower sales and loss of customers.

We received a transition fee as a part of our June 2002 distribution
agreement with TOL. We are using the transition fee to offset the transition costs
incurred during the transition of our 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. A portion of the transition fee received was used to defray transition expenses
incurred in the second, third and fourth quarters and had no material impact on the
results of operations for the twelve months ended December 28, 2002.

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.
Product shortages may result in a material impact to our sales volume, cost of goods or
customer counts.

We are currently completing an inventory of all fixtures and equipment
in our stores. If the results of such inventory are materially less than the assets
currently shown on our balance sheet, such results may negatively impact the value of
assets on our balance sheet as well as results of operations.

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 2002 was $6.9 million, or $0.26 per diluted
share, compared with a net loss of $43.9 million, or $1.80 per diluted share, in fiscal
2001. The following table sets forth, for the periods indicated, certain selected income
statement data expressed as a percentage of sales:



|FISCAL YEAR ENDED                                       |  | 2002              |  | 2001               |  | 2000             
|------------------------------------------------------- |  | ----------------- |  | ------------------ |  | -----------------
|                                                        |  |                   |  |                    |  |                  
|Sales                                                   |  | 100.0%            |  | 100.0%             |  | 100.0%           
|Cost of goods sold and occupancy costs                  |  | 70.2              |  | 71.1               |  | 69.4             
|Gross profit                                            |  | 29.8              |  | 28.9               |  | 30.6             
|Direct store expenses                                   |  | 21.6              |  | 23.3               |  | 22.4             
|Store contribution                                      |  | 8.2               |  | 5.6                |  | 8.2              
|Selling, general and administrative expenses            |  | 6.0               |  | 5.9                |  | 4.3              
|Pre-opening expenses                                    |  | 0.2               |  | 0.2                |  | 0.4              
|Restructuring and asset impairment charges
    (income) |  | (0.1)             |  | 6.1                |  | 5.0              
|Income (loss) from operations                           |  | 2.1               |  | (6.6)              |  | (1.5)            
|Loss on investment                                      |  |                   |  | (0.0)              |  | (0.3)            
|Interest income                                         |  | 0.1               |  | 0.1                |  | 0.0              
|Interest expense                                        |  | (0.9)             |  | (1.2)              |  | (1.0)            
|Income (loss) before income taxes                       |  | 1.3               |  | (7.7)              |  | (2.8)            
|Income tax expense (benefit)                            |  | 0.5               |  | (2.8)              |  | (1.0)            
|Net income (loss)                                       |  | 0.8%     
    === |  | (4.9)%    
    === |  | (1.8)%   
    ===



Fiscal 2002 Compared to Fiscal 2001

Sales. Sales for the fiscal year ended December 28, 2002, increased
2.9% to $919.1 million from $893.2 million in 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. Comparable store sales increased 5.2% for fiscal 2002, as
compared to an increase of 4.0% for fiscal 2001. Some of the comparable store sales
increases are attributable to the continued strong performance of the farmers market
format stores. We expect sales to increase at a slightly faster rate in fiscal 2003, due
to the proposed opening of up to 13 new stores, three of which were opened in the first
quarter of fiscal 2003, and the majority of which will open in the third quarter of fiscal
2003.

Gross Profit. Gross profit for the fiscal year ended December 28,
2002, increased 6.1 % to $274.3 million from $258.5 million in fiscal 2001. As a
percentage of sales, gross profit increased to 29.8% in fiscal 2002 from 28.9% in fiscal
2001 due to more disciplined pricing strategies, a new category management structure,
vendor consolidation and the completion of our SKU rationalization program, which
eliminated large numbers of slow-moving items from our stores to make room for new,
higher-margin or faster-moving items.

Direct Store Expenses. Direct store expenses for the fiscal year
ended December 28, 2002, decreased 4.8% to $198.4 million from $208.3 million in fiscal
2001. As a percentage of sales, direct store expenses decreased to 21.6% in fiscal 2002
from 23.3% in fiscal 2001. Direct store expenses decreased 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, as well as maintenance, in-store music, linens and other
service contracts. We anticipate that we will see increases in fiscal 2003 and beyond in
the area of employee-related insurance and general liability insurance costs. On an
absolute basis, we expect direct store expenses to increase with the addition of new
stores, but on a percentage-of-sales basis to be consistent with fiscal 2002.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the fiscal year ended December 28, 2002, increased 3.8% to
$55.2 million from $53.2 million in fiscal 2001. The increases 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 the Companys headquarters to
support new store growth and centralized purchasing and pricing.As a percentage of
sales, selling, general and administrative expenses increased to 6.0% in fiscal 2002 from
5.9% in fiscal 2001. As part of the Companys fiscal 2003 evolution of our marketing
strategies, we expect to spend additional funds on marketing at the local and community
level, as well as a slight increase in corporate and regional support staffs to support
the opening of the new stores in the second half of fiscal 2003. As a result of these
increased expenditures, we expect that selling, general and administrative expenses will
increase in fiscal 2003 over fiscal 2002 levels in both absolute and percentage terms.

Pre-Opening Expenses. Pre-opening expenses for the fiscal year
ended December 28, 2002, increased 21.4% to $1.9 million from $1.6 million in fiscal 2001.
As a percentage of sales, pre-opening expenses remained constant at 0.2% for fiscal 2002
compared to fiscal 2001. As part of the Companys increase in marketing efforts, we
anticipate that pre-opening expenses for new natural foods supermarket stores will
increase from an estimated $250,000 historically to an estimated $400,000 per new store,
and those of the farmers market format will increase from $150,000 historically to an
estimated $250,000 in the future.

Interest Income. Interest income for the fiscal year ended December
28, 2002, decreased 21.4% to $778,000 from $1.0 million in 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 28, 2002, decreased 16.1% to $8.8 million from $10.4 million in 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. Under our Second Amended and Restated
Credit Facility, effective February 26, 2003 interest rates have decreased from LIBOR plus
5.25% (the rate under our prior credit facility through February 25, 2003) to LIBOR plus
2.25%. We expect interest expense to remain flat or decrease slightly as total borrowings
increase throughout fiscal 2003 but at a substantially lower interest rate than paid in
fiscal 2002. Due to the current state of the U.S. economy, management believes that the
variable interest rates will remain constant during the next six to 12 months. See "Managements
Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources"below.

Restructuring and Asset Impairment Charges. As part of the
strategic repositioning announced in the second and fourth quarters of fiscal 2000, we
identified 22 natural foods stores for closure or sale due to weak performance. In fiscal
2000, we closed 10 and sold three of those identified stores. In the second quarter of
fiscal 2001, as part of additional evaluation of the Companys operations by new
management, we identified an additional three stores for closure in fiscal 2001; in the
fourth quarter of fiscal 2001, we extended our evaluation and identified an additional
three stores for closure in fiscal 2001 and fiscal 2002. In fiscal 2002, we identified six
additional stores for closure or sale, for a total of 34 stores identified for closure or
sale in fiscal 2000, fiscal 2001 and fiscal 2002. Through the date of this report, we have
closed 18 of the 34 identified stores, and sold nine stores, four in related transactions.
Due to a change in estimates related to changes in facts and circumstances during the
fourth quarter of fiscal 2001, we decided to continue to operate four stores previously
identified for closure or sale. We have three remaining stores previously identified and
remaining to be closed or sold.

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

|                                                         |  | RESTRUCTURING
    STORE COUNT
|-------------------------------------------------------- |  | -----------------------------
|                                                         |  | Fiscal
    Year Ending       
|                                                         |  | 2000                         
|                                                         |  |                              
|Stores remaining at
    commencement of period           |  |                              
|Stores identified in
    fiscal 2000 for closure or sale |  | 22                           
|Stores identified in
    fiscal 2001 for closure or sale |  |                              
|Stores identified in
    fiscal 2002 for closure or sale |  |                              
|Identified stores closed
    or abandoned                |  | (10)                         
|Identified stores sold                                   |  | (3)                          
|Reversal of stores
    identified for closure or sale    |  |                              
|Identified stores
    remaining at period end            |  | 9                            



Restructuring and Asset Impairment Charges - Fiscal 2002 and Fiscal
2001. The following tables summarize the components of restructuring and asset
impairment charges and income for fiscal 2002 and fiscal 2001, respectively, by quarter
(in thousands):

|                                                                                                                  |  | FISCAL 2002     
|----------------------------------------------------------------------------------------------------------------- |  | ----------------
|                                                                                                                  |  |                 
|Components of Charge                                                                                              |  | 1st
    Quarter 
|Gain on sale of assets                                                                                            |  | $ (253)         
|Change in estimate related to lease-related liabilities for sites
      previously identified for closure or sale |  | (668)           
|Lease-related liabilities for stores identified to be closed or sold                                              |  |                 
|Severance for employees                                                                                           |  | 269             
|Fixed asset impairments                                                                                           |  |                 
|                                                                                                                  |  |                 
|TOTAL                                                                                                             |  | $ (652)
    ====







|                                                                                                                   |  | FISCAL
    2001    
|------------------------------------------------------------------------------------------------------------------ |  | -------------------
|                                                                                                                   |  |                    
|Components of
    Charge                                                                                           |  | 2nd
    Quarter    
|                                                                                                                   |  |                    
|Fixed asset impairment                                                                                             |  | $ 24,673           
|Change in estimate related to fixed asset impairment                                                               |  | 1,498              
|Lease-related liabilities for sites identified to be sold or closed                                                |  | 10,228             
|Change in estimates related to lease-related liabilities for sites
      previously identified for closure or sale |  | 15,923             
|Severance for employees                                                                                            |  | 2,511              
|                                                                                                                   |  |                    
|TOTAL                                                                                                              |  | $ 54,833 
    =====



The following details the significant components of restructuring and
asset impairment charges and income for fiscal 2002 by quarter:

During the fourth quarter of fiscal 2002, the Company recorded
restructuring and asset impairment income of $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). During the fourth quarter of fiscal 2002, the Company sold a liquor
    license for a closed location in Mission Viejo, California for a higher price than
    originally estimated. Additionally, the Company received an insurance settlement for a
    claim relating to the location in Madison, New Jersey, where the assets had previously
    been written off. Therefore, the Company recognized asset disposal income of $130,000
    during the fourth quarter of fiscal 2002.

- Change in estimate related to lease-related liabilities for sites previously
    identified for closure or sale ($3.4 million of restructuring income). During the
    fourth quarter of fiscal 2002, the Company negotiated the early termination of leases in
    West Hollywood, California and San Antonio, Texas. The Company also secured viable
    subtenants for locations in Vancouver, Washington and Boulder, Colorado. Additional
    information received in fiscal 2002 resulted in a revision in the total rent allocated to
    one vacant location in Albuquerque, New Mexico, previously included within a restructuring
    charge; therefore, the Company revised the estimate for future lease obligations. Based on
    these changes in facts and circumstances and the related changes in estimates, the Company
    adjusted or reversed the remaining lease-related liabilities previously recorded for these
    locations and therefore recognized restructuring income of $3.4 million during the fourth
    quarter of fiscal 2002.

- 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). During the fourth quarter, the Company decided to close or
    sell three additional locations due to lower than anticipated operational performance. The
    lease-related liabilities for these locations represent the Companys estimate to
    dispose of these lease obligations based on current disposition efforts, and is
    attributable to deteriorating real estate markets in certain regions, existing lease
    obligations at above-market rates, and unattractive site characteristics. The charge for
    exit costs assumes, based on the Companys current results of disposition efforts,
    that the Company will be successful in disposing of these long-term lease obligations
    within the next five years. Facts and circumstances can change in the future with respect
    to the above attributes affecting the ultimate resolution of these exit costs. The Company
    will make appropriate adjustments to the restructuring liabilities contemporaneous with
    the change in facts and circumstances.

- Severance for employees terminated during the fourth quarter of fiscal 2002 ($9,000
    of restructuring expense). During the fourth quarter of fiscal 2002, two employees
    were terminated with the sale of one Vitamin Expo location during the fourth quarter of
    fiscal 2002. The employees were notified of their involuntary termination during the
    fourth quarter of fiscal 2002. As of December 28, 2002, all $9,000 of involuntary
    termination benefits had been paid to terminated employees.

During the third quarter of fiscal 2002, the Company recorded
restructuring and asset impairment income of $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). During the third quarter of fiscal 2002, the
    Company sold a closed kitchen facility in Santa Fe, New Mexico for a higher price than
    originally estimated. Therefore, the Company recognized asset disposal income of $85,000
    during the third quarter of fiscal 2002.

- 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 less than $1,000. 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. 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).

Restructuring and Asset Impairment Charges - Fiscal 2001. A total
of $54.9 million of restructuring and asset impairment charges were taken in 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 our business and strategic repositioning efforts during
the second quarter of fiscal 2001, we identified and committed to a restructuring plan
during the second quarter of fiscal 2001 and recorded a restructuring and asset impairment
charge of $54.8 million (such asset impairments were recorded in accordance with SFAS 121,
Accounting for the Impairment of Long-lived Assets and for Assets to be Disposed of).
See "Notes to Consolidated Financial Statements - Note 13 - Restructuring and
Asset Impairment Charges"for details of the significant components of the
charge.

Restructuring Accruals. The material changes in the liability
balances of each significant type of exit cost included in the restructuring charges in
the second and fourth quarters of fiscal 2000 were related to changes in estimates for
lease defeasance costs and for the net realizable value of fixed assets. The changes in
estimates during the second quarter of fiscal 2001 for lease defeasance costs in the
restructuring charges during the second and fourth quarters of fiscal 2000 resulted from
the economic downturn during fiscal 2001, which has made it more difficult to find
sublease tenants and settle lease terminations with landlords (particularly in the case of
leases with above-market rents). In the second quarter of fiscal 2001, we received updated
estimates from various external sources (i.e., landlords and real estate brokers) of the
costs to exit certain lease obligations. Due to the economic downturn that worsened during
the second quarter of fiscal 2001, we revised our estimates of the costs associated with
subleasing properties or settling lease terminations with landlords. Due to changes in
facts and circumstances during the fourth quarter of fiscal 2001, we determined that four
stores previously identified as sites held for disposal would continue to operate in their
existing locations. Three of the stores were expected to be closed in conjunction with the
Companys opening of new stores in the respective trade areas; however, during the
fourth quarter of fiscal 2001, the Company decided to abandon the new store sites and
continue to operate the existing stores. With regard to the fourth store, management
decided in the fourth quarter of fiscal 2001 to continue to operate the store in its
existing location after completing a competitive analysis of the market area and a
reevaluation of the operations of the store in the fourth quarter of fiscal 2001, which
showed that the store was achieving acceptable performance levels and demonstrating
positive performance trends following the implementation of our marketing program late in
the third quarter of fiscal 2001. As a result, we reversed the restructuring accruals
previously recorded for the long-term lease obligations related to these four stores.

The material cash outlays associated with the Companys exit plans
are primarily for lease-related obligations. As of December 28, 2002, the components of
the accruals related to the Companys restructuring activities are accrued
liabilities ($4.5 million) and other long-term obligations ($13.6 million). As of December
28, 2002, $3.1 million of involuntary termination benefits accrued during fiscal 2002 and
fiscal 2001 had been paid to terminated employees.

Income Tax Expense (Benefit). The effective tax rate for the fiscal
year ended December 28, 2002 was 40.7% as compared to 36.5% for fiscal 2001. The increase
primarily relates to limitations on the Companys ability to utilize foreign tax
credits due to net operating losses. The remainder of the change is attributable to an
increase in state franchise taxes.

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. The recoverability of the net deferred tax asset is primarily
dependent upon the Company generating sufficient taxable income in the future. Although
realization of the net deferred tax asset is not assured, we believe it is more likely
than not that the Company will generate sufficient taxable income in the future to realize
the full amount of the deferred tax asset. Our assessment is based on projections that
assume that the Company can maintain its current store contribution margin. Furthermore,
we expect to maintain the sales growth experienced over the past five years that would
generate additional taxable income. The primary uncertainty related to the realization of
the deferred tax asset is the Companys ability to achieve its four-year business
plan and generate future taxable income to realize the full amount of the deferred tax
asset. We believe that the sales, gross margin, store contribution margin, and selling,
general and administrative expenses assumptions in our four-year business plan are
reasonable and, more likely than not, attainable. We will continue to assess the
recoverability of the net deferred tax asset and to the extent it is determined in the
future that a valuation allowance is required, it will be recognized as a charge to
earnings at that time.



Fiscal 2001 Compared to Fiscal 2000

Sales. Sales for the fiscal year ended December 29, 2001, increased
6.6% to $893.2 million from $838.1 million in fiscal 2000. The increase was primarily due
to the opening of four new stores in the first quarter of fiscal 2001, as well as the
inclusion of the 16 stores opened or acquired in fiscal 2000, offset by three stores
closed or sold in fiscal 2001 and 20 stores closed or sold in fiscal 2000. Higher
comparable store sales from existing stores contributed slightly more than half of the
fiscal 2001 sales increase, with new stores contributing the balance. Comparable store
sales increased 4.0% for fiscal 2001, as compared to a 2.6% decrease for fiscal 2000. Some
of the comparable store sales increases are attributable to the phased roll-out of a
number of strategic initiatives as part of the our aggressive merchandising and marketing
program, which are projected to increase overall sales gradually in those regions in which
the initiatives are implemented, through increased advertising, more frequent advertised
specials and modified pricing.

Gross Profit. Gross profit for the fiscal year ended December 29,
2001, increased 0.9% to $258.5 million from $256.2 million in fiscal 2000. The smaller
percentage increase in gross profit is due primarily to lower merchandise margins
resulting from the implementation of pricing reductions as part of the merchandising and
marketing program, as well as a shift in the sales mix between store formats. As a
percentage of sales, gross profit decreased to 28.9% in fiscal 2001 from 30.6% in fiscal
2000 due primarily to lower merchandise margins resulting from the implementation of the
merchandising and marketing program, as well as a shift in the sales mix between store
formats, increases in inventory reserves for slow-moving goods, lower margins on certain
categories of productssold in the stores, higher utilities expenses and
higher-than-expected coupon activity during the fourth quarter of fiscal 2001.

Direct Store Expenses. Direct store expenses for the fiscal year
ended December 29, 2001, increased 11.3% to $212.6 million from $191.0 million in fiscal
2000. As a percentage of sales, direct store expenses increased to 23.8% in fiscal 2001
from 22.8% in fiscal 2000. The increases are primarily due to increased payroll associated
with an increase in the number of stores in operation, enhanced customer service efforts,
additional benefit days due to a change in vacation policy in fiscal 2001, increased
health and dental, workers compensation, and general liability insurance costs
related to general market conditions, and an increase in repairs and maintenance costs.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the fiscal year ended December 29, 2001, increased 50.4% to
$48.9 million from $32.5 million in fiscal 2000. The increases are attributable to
consulting and professional fees resulting from the comprehensive review of our business
and strategic position ($1.7 million), severance costs for former senior executives ($1.3
million), recruiting and relocation costs ($500,000), and expenses associated with the
October 2001 amendment to our $125.0 million credit facility ($300,000), as well as
increases in advertising and merchandising expenses related to the implementation of the
marketing and merchandising initiatives program and expenses for expanded infrastructure
at the Companys headquarters to support the new advertising, merchandising and
pricing initiatives.As a percentage of sales, selling, general and administrative
expenses increased to 5.4% in fiscal 2001 from 3.9% in fiscal 2000.

Pre-Opening Expenses. Pre-opening expenses for the fiscal year
ended December 29, 2001, decreased 52.5% to $1.6 million from $3.3 million in fiscal 2000.
As a percentage of sales, pre-opening expenses decreased to 0.2% in fiscal 2001 from 0.4%
in fiscal 2000, due to the opening of four new stores in fiscal 2001 as compared to the
opening of 14 new and relocated stores in fiscal 2000.

Interest Expense, Net. Net interest expense for the fiscal year
ended December 29, 2001, increased 6.7% to $9.4 million from $8.9 million in fiscal 2000,
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. As part of the October 2001
amendment to our prior credit facility, the interest rate on the facility was amended to
either prime plus 2.25% or one-month LIBOR plus 3.75%, at our election, and the rates
increase by 0.5% starting January 1, 2002 and each six months thereafter through January
1, 2003.

Restructuring and Asset Impairment Charges - Fiscal 2000. The
following tables summarize the components of restructuring and asset impairment charges
and income for fiscal 2001 and fiscal 2000, respectively, by quarter (in thousands):

|                                                                                                                   |  | FISCAL
    2001    
|------------------------------------------------------------------------------------------------------------------ |  | -------------------
|                                                                                                                   |  |                    
|Components of
    Charge                                                                                           |  | 2nd
    Quarter    
|                                                                                                                   |  |                    
|Fixed asset impairment                                                                                             |  | $ 24,673           
|Change in estimate related to fixed asset impairment                                                               |  | 1,498              
|Lease-related liabilities for sites identified to be sold or closed                                                |  | 10,228             
|Change in estimates related to lease-related liabilities for sites
      previously identified for closure or sale |  | 15,923             
|Severance for employees                                                                                            |  | 2,511              
|                                                                                                                   |  |                    
|TOTAL                                                                                                              |  | $ 54,833 
    =====



|                                                                                                         |  | FISCAL
    2000    
|-------------------------------------------------------------------------------------------------------- |  | -------------------
|                                                                                                         |  |                    
|Components of
    Charge                                                                                 |  | 2nd
    Quarter    
|                                                                                                         |  |                    
|Fixed asset impairment                                                                                   |  | $ 13,408           
|Change in estimate related to fixed asset impairment                                                     |  | 1,928              
|Lease-related liabilities for sites identified to be sold or closed                                      |  | 2,724              
|Change in estimates related to lease-related liabilities for sites
      identified to be sold or closed |  | 2,406              
|Severance for employees                                                                                  |  | 175                
|                                                                                                         |  |                    
|TOTAL                                                                                                    |  | $ 20,641 
    =====



A total of $42.1 million in restructuring and asset impairment charges
were taken in fiscal 2000. See "Notes to Consolidated Financial Statements - Note
13 - Restructuring and Asset Impairment Charges"for details of the significant
components of restructuring and asset impairment charges for fiscal 2001 and fiscal 2000,
by quarter.

Restructuring and Asset Impairment Charges - Fiscal 2000. During
the second quarter of fiscal 2000, we made certain decisions relating to the strategic
repositioning of the Companys operations, which resulted in a restructuring and
asset impairment charge of $20.6 million. These decisions included the closure of three
natural foods stores during the second quarter of fiscal 2000 ($4.7 million); the planned
sale or closure of seven stores during the remainder of fiscal 2000 ($9.9 million); exit
costs of previously closed or abandoned sites ($5.6 million); and the discontinuance of
e-commerce activities ($400,000). The $5.6 million charge related to changes in estimates
for previously closed or abandoned sites. The significant components of the $5.6 million
charge were (a) $3.6 million of additional lease-related liabilities, and (b) $2.0 million
of fixed asset impairments for 15 previously closed stores. Components of the
restructuring and asset impairment charge consist of impairment of fixed ($8.9 million)
and intangible assets ($6.4 million); and non-cancelable lease obligations and liabilities
($5.3 million). Substantially all of the restructuring charges are non-cash expenses when
initially recorded.

During the fourth quarter of fiscal 2000, we expanded the strategic
repositioning and, as a part of such expansion, decided to close or sell 12
underperforming stores. This decision resulted in an additional restructuring and asset
impairment charge of $21.4 million. This restructuring charge consists primarily of costs
associated with the abandonment of fixed ($13.6 million) and intangible assets ($1.7
million) and non-cancelable lease obligations and lease-related liabilities ($6.1
million). Substantially all of the restructuring charges are non-cash expenses. See "Notes
to Consolidated Financial Statements - Note 13 - Restructuring and Asset Impairment
Charges

Restructuring Accruals. The material changes in the liability
balances of each significant type of exit cost included in the restructuring charges in
the second and fourth quarters of fiscal 2000 were related to changes in estimates for
lease defeasance costs and for the net realizable value of fixed assets. The changes in
estimates during the second quarter of fiscal 2001 for lease defeasance costs in the
restructuring charges during the second and fourth quarters of fiscal 2000 resulted from
the economic downturn during fiscal 2001, which has made it more difficult to find
sublease tenants and settle lease terminations with landlords (particularly in the case of
leases with above-market rents). In the second quarter of fiscal 2001, we received updated
estimates from various external sources (i.e., landlords and real estate brokers) of the
costs to exit certain lease obligations. Due to the economic downturn that worsened during
the second quarter of fiscal 2001, we revised our estimates of the costs associated with
subleasing properties or settling lease terminations with landlords. Due to changes in
facts and circumstances during the fourth quarter of fiscal 2001, we determined that four
stores previously identified as sites held for disposal would continue to operate in their
existing locations. Three of the stores were expected to be closed in conjunction with the
Companys opening of new stores in the respective trade areas; however, during the
fourth quarter of fiscal 2001, the Company decided to abandon the new store sites and
continue to operate the existing stores. With regard to the fourth store, management
decided in the fourth quarter of fiscal 2001 to continue to operate the store in its
existing location after completing a competitive analysis of the market area and a
reevaluation of the operations of the store in the fourth quarter of fiscal 2001, which
showed that the store was achieving acceptable performance levels and demonstrating
positive performance trends following the implementation of our aggressive merchandising
and marketing program late in the third quarter of fiscal 2001. As a result, we reversed
the restructuring accruals previously recorded for the long-term lease obligations related
to these four stores.

The material cash outlays associated with the Companys exit plans
are primarily for lease-related obligations. As of December 29, 2001, the components of
the accruals related to the Companys restructuring activities are accrued
liabilities ($6.6 million) and other long-term obligations ($16.4 million). Employee
severance benefits are another cash outlay that will be paid out during the next five
months. As of December 29, 2001, $2.4 million of the $2.5 million of involuntary
termination benefits accrued during the second quarter of fiscal 2001 had been paid to
terminated employees. The employee severance benefits relate to the termination of
employment of 104 of our 9,000 employees.

Income Tax Benefit. 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. The recoverability of the net deferred tax asset
is primarily dependent upon the Company generating sufficient taxable income in the
future.



Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements to disclose as
required by Item 303(a)(4) of Regulation S-K.



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 $36.2 million during
fiscal 2002 as compared to $25.7 million during fiscal 2001. Cash from operating
activities increased during this period primarily due to pre-tax income, partially offset
by changes in working capital items. We have not required significant external financing
to support inventory requirements at our existing and new stores because we have been able
to rely on vendor financing for most of the inventory costs, and we anticipate that vendor
financing will continue to be available for new store openings.

Net cash used in investing activities was $14.5 million during fiscal
2002 as compared to $19.9 million during fiscal 2001. The decrease is due to a reduction
in capital expenditures for the construction of new stores (fewer stores and lower cost
per store).

Net cash used in financing activities was $29.2 million during fiscal
2002 as compared to net cash provided of $1.0 million during fiscal 2001. The change
reflects lower incremental borrowings under our credit facility.

We have a net deferred tax asset of $20.3 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 28, 2002:



SUMMARY OF OBLIGATIONS AND COMMERCIAL COMMITMENTS(in thousands)

|                                   |  | PAYMENTS DUE
    BY PERIOD
|---------------------------------- |  | --------------------------
|                                   |  |                           
|                                   |  | Total                     
|Contractual
    Obligations:       |  |                           
|Long-term debt                     |  | $ 43,059                  
|Capital lease obligations          |  | 162                       
|Operating leases                   |  | 364,075                   
|Construction commitments           |  | 854                       
|Total contractual cash obligations |  | $ 408,150 
    ======     



|                                  |  | AMOUNT OF
    COMMITMENT EXPIRATION PER PERIOD
|--------------------------------- |  | ----------------------------------------------
|                                  |  |                                               
|                                  |  | Total                                         
|Other Commercial
    Commitments: |  |                                               
|Letters of credit                 |  | $ 4,089                                       
|Total commercial commitments      |  | $ 4,089 
    ====                             



Refinancing of Credit Facility. Our former credit facility had two
separate lines of credit, a revolving line and a term loan facility, both expiring August
1, 2003. As of December 28, 2002, there were $14.3 in borrowings under the revolving line,
and $28.8 in borrowings outstanding under the term loan. Interest at December 28, 2002
primarily accrued at a rate of LIBOR plus 4.75%, or 11.35% per annum after adjusting for
the impact of the swap agreement required by our 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 has a $75.0 million limit, which we
believe to be adequate for our current borrowing needs, with a three-year term with a
one-year renewal option. 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 10 to 13 stores in fiscal 2003, 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 in fiscal 2003.

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 the Company 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.

We maintain an interest rate risk-management strategy, which was
required by our former credit facility terms, that uses derivative instruments to minimize
significant, unanticipated earnings fluctuations that may arise from volatility in
interest rates. The Companys specific goals are to (1) manage interest rate
sensitivity by modifying the repricing or maturity characteristics of some of its debt and
(2) lower (where possible) the cost of its borrowed funds. In accordance with the
Companys interest rate risk-management strategy, and in accordance with the
requirements of our former credit facility, the Company 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 expires 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 $14.8 million during
fiscal 2002 for new store construction, development, remodels and other capital
expenditures, exclusive of acquisitions. Capital expenditures originally planned for
certain of the stores rescheduled to open in fiscal 2002 were incurred commencing in the
fourth quarter of fiscal 2001. 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. 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 $2.5
million to $4.0 million in the future, partly because of our decision to reduce the size
or simplify the format of our food service department in new stores, as well as our
decision not to increase store size in the majority of geographic areas; 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 $1.5 million to $2.0 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 $800,000 depending on the store format; however, we obtain vendor financing for most of
this cost. Pre-opening costs currently are approximately $250,000 to $350,000 per store
and are expensed as incurred. Pre-opening costs for natural foods supermarket format
stores in the future are projected to increase from $250,000 to $400,000 per store, and
pre-opening costs for farmers market format stores are projected to increase from $150,000
to $250,000, as a result of increased advertising for new stores. 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 2003.



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's 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 the Company's cash requirements through
the remainder of fiscal 2003, our expectations for comparable store sales; the impact of
changes resulting from our merchandising, advertising and pricing programs; levels of
cannibalization; expected pre-opening expenses and capital expenditures; 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 actual results, market performance or achievements of the Company 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; 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. As of December 28, 2002, there
was $43.1 million in borrowings outstanding under our former credit facility. The interest
rate under the former credit facility at December 28, 2002 was either prime plus 3.25% or
one-month LIBOR plus 4.75%, at our election. Because the interest rate on the former
facility was variable, the Company's interest expense and net income were affected by
interest rate fluctuations. If interest rates were to increase or decrease by 100 basis
points, the result under the former facility, based upon the existing outstanding
non-hedged variable rate debt as of December 28, 2002, would be an annual increase or
decrease of approximately $106,000 in interest expense and a corresponding decrease or
increase of approximately $63,000 in the Company's net income after taxes.

On February 26, 2003, the Company refinanced the credit facility and
reduced the total commitment available to a $75.0 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 March 6, 2003, would be an
annual increase or decrease of approximately $74,000 in interest expense and a
corresponding decrease or increase of approximately $45,000 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 are 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, expiring 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 2002, the loss, net of taxes, included in other
comprehensive loss for this cash flow hedge was approximately $1.2 million.



Item 8.

FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA



|INDEX
    TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | PAGE                                                                                                           
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------
|                                                         |                                                                                                                
|                                                         | Report of Management                                                                                           
|                                                         |                                                                                                                
|                                                         | Report of Independent Accountants                                                                              
|                                                         |                                                                                                                
|                                                         | Consolidated Statements of Operations for the Fiscal Years 2002, 2001
      and 2000                           
|                                                         |                                                                                                                
|                                                         | Consolidated Statements of Comprehensive Income (Loss) for the Fiscal
      Years 2002, 2001 and 2000          
|                                                         |                                                                                                                
|                                                         | Consolidated Balance Sheets for the Fiscal Years Ended 2002 and 2001                                           
|                                                         |                                                                                                                
|                                                         | Consolidated Statements of Changes in Stockholders Equity for the
      Fiscal Years Ended 2002, 2001 and 2000
|                                                         |                                                                                                                
|                                                         | Consolidated Statements of Cash Flows for the Fiscal Years Ended 2002,
      2001 and 2000                     
|                                                         |                                                                                                                
|                                                         | 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 25, 2003                            | March 25, 2003         









REPORT OF INDEPENDENT
ACCOUNTANTS



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 28,
2002 and December 29, 2001, and the results of their operations and their cash flows for
each of the three years in the period ended December 28, 2002 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

February 25, 2003



WILD OATS MARKETS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per-share amounts)

|FISCAL YEAR                                                            |  | 2002               |  | 2001                   |  | 2000                  
|---------------------------------------------------------------------- |  | ------------------ |  | ---------------------- |  | ----------------------
|                                                                      
|Sales                                                                  |  | $ 919,130          |  | $ 893,179              |  | $ 838,131             
|Cost of goods sold and occupancy costs                                 |  | 644,862            |  | 634,631                |  | 581,980               
|Gross profit                                                           |  | 274,268            |  | 258,548                |  | 256,151               
|Operating expenses:                                                    |  |                    |  |                        |  |                       
|Direct store expenses                                                  |  | 198,386            |  | 208,318                |  | 187,265               
|Selling, general and administrative expenses                           |  | 55,200             |  | 53,188                 |  | 36,201                
|Pre-opening expenses                                                   |  | 1,897              |  | 1,562                  |  | 3,289                 
|Restructuring and asset impairment charges (income)                    |  | (832)              |  | 54,906                 |  | 42,066                
|Income (loss) from operations                                          |  | 19,617             |  | (59,426)               |  | (12,670)              
|Loss on investment                                                     |  |                    |  | (228)                  |  | (2,060)               
|Interest income                                                        |  | 778                |  | 990                    |  | 117                   
|Interest expense                                                       |  | (8,753)            |  | (10,437)               |  | (8,967)               
|Income (loss) before income taxes                                      |  | 11,642             |  | (69,101)               |  | (23,580)              
|Income tax expense (benefit)                                           |  | 4,733              |  | (25,189)               |  | (8,559)               
|Net income (loss)                                                      |  | $ 6,909 
    ===== |  | $ (43,912)
    ======= |  | $ (15,021)
    =======
|                                                                       |  |                    |  |                        |  |                       
|Net income (loss) per common share:                                    |  |                    |  |                        |  |                       
|Basic                                                                  |  | $ 0.26             |  | $ (1.80)               |  | $ (0.65)              
|Diluted                                                                |  | $ 0.26             |  | $ (1.80)               |  | $ (0.65)              
|                                                                       |  |                    |  |                        |  |                       
|Weighted average number of common shares outstanding                   |  | 26,481 
    =====  |  | 24,424 
    =====      |  | 23,090 
    =====     
|Weighted average number of common shares outstanding assuming dilution |  | 27,082 
    =====  |  | 24,424 
    =====      |  | 23,090 
    =====     



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                                                                                                         |  | 2002               |  | 2001                   |  | 2000                 
|------------------------------------------------------------------------------------------------------------------- |  | ------------------ |  | ---------------------- |  | ---------------------
|                                                                                                                   
|Net income (loss)                                                                                                   |  | $ 6,909            |  | $ (43,912)             |  | $ (15,021)           
|                                                                                                                    |  |                    |  |                        |  |                      
|                                                                                                                    |  |                    |  |                        |  |                      
|Other comprehensive income (loss):                                                                                  |  |                    |  |                        |  |                      
|                                                                                                                    |  |                    |  |                        |  |                      
|Foreign currency translation adjustments arising during the period                                                  |  | (61)               |  | (530)                  |  | (259)                
|                                                                                                                    |  |                    |  |                        |  |                      
|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 $705 and $435, respectively |  | 1,176              |  | 726                    |  |                      
|                                                                                                                    |  |                    |  |                        |  |                      
|Change in market value of cash flow hedge during the period, net of tax
      of $208 and $935, respectively        |  | (348)              |  | (1,561)                |  |                      
|                                                                                                                    |  |                    |  |                        |  |                      
|                                                                                                                    |  |                    |  |                        |  |                      
|Other comprehensive income (loss)                                                                                   |  | 767                |  | (1,951)                |  | (259)                
|                                                                                                                    |  |                    |  |                        |  |                      
|                                                                                                                    |  |                    |  |                        |  |                      
|Comprehensive income (loss)                                                                                         |  | $ 7,676 
    ===== |  | $ (45,863)
    ======= |  | $ (15,280)
    ======



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                                                                                                                    | 2002                                       |  | 2001                                      
|------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ |  | ------------------------------------------
|                                                                                                                                    
|ASSETS                                                                                                                               |                                            |  |                                           
|                                                                                                                                     |                                            |  |                                           
|Current assets:                                                                                                                      |                                            |  |                                           
|Cash and cash equivalents                                                                                                            | $
    11,367                               |  | $
    18,840                              
|Inventories (net of reserves of $886 and $2,667, respectively)                                                                       | 47,175                                     |  | 54,058                                    
|Accounts receivable (net of allowance for doubtful accounts of $338 and
        $1,070, respectively)                                | 2,524                                      |  | 2,906                                     
|Income tax receivable                                                                                                                | 250                                        |  | 4,186                                     
|Prepaid expenses and other current assets                                                                                            | 2,163                                      |  | 2,858                                     
|Deferred tax asset                                                                                                                   | 4,656                                      |  | 5,378                                     
|Total current assets                                                                                                                 | 68,135                                     |  | 88,226                                    
|                                                                                                                                     |                                            |  |                                           
|Property, plant and equipment, net                                                                                                   | 122,359                                    |  | 128,922                                   
|Goodwill, net                                                                                                                        | 106,404                                    |  | 106,404                                   
|Other intangible assets, net                                                                                                         | 7,415                                      |  | 7,892                                     
|Deposits and other assets                                                                                                            | 3,622                                      |  | 2,992                                     
|Deferred tax asset                                                                                                                   | 15,650                                     |  | 18,990                                    
|                                                                                                                                     | $
    323,585             
         ====== |  | $
    353,426             
         ======
|                                                                                                                                     |                                            |  |                                           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                 |                                            |  |                                           
|                                                                                                                                     |                                            |  |                                           
|Current liabilities:                                                                                                                 |                                            |  |                                           
|Accounts payable                                                                                                                     | $
    34,819                               |  | $
    39,796                              
|Book overdraft                                                                                                                       | 22,777                                     |  | 23,056                                    
|Accrued liabilities                                                                                                                  | 37,943                                     |  | 39,526                                    
|Current portion of debt and capital leases                                                                                           | 146                                        |  | 12,338                                    
|Total current liabilities                                                                                                            | 95,685                                     |  | 114,716                                   
|                                                                                                                                     |                                            |  |                                           
|Long-term debt and capital leases                                                                                                    | 43,075                                     |  | 112,291                                   
|Other long-term obligations                                                                                                          | 17,923                                     |  | 19,404                                    
|                                                                                                                                     | 156,683                                    |  | 246,411                                   
|Commitments and contingencies (Notes 11 and
    12)                                                                                  |                                            |  |                                           
|                                                                                                                                     |                                            |  |                                           
|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; 29,658,660
        and 24,766,409 issued and outstanding, respectively | 30                                         |  | 25                                        
|Additional paid-in capital                                                                                                           | 213,482                                    |  | 160,736                                   
|Note receivable, related party                                                                                                       | (10,200)                                   |  | (9,660)                                   
|Accumulated deficit                                                                                                                  | (35,368)                                   |  | (42,277)                                  
|Accumulated other comprehensive loss                                                                                                 | (1,042)                                    |  | (1,809)                                   
|Total stockholders equity                                                                                                           | 166,902                                    |  | 107,015                                   
|                                                                                                                                     | $
    323,585             
         ====== |  | $
    353,426             
         ======

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         |  |               |                               |                                           |                                                
|----------------------------------------------------------------------------------------------- | ------------------------ |  | ------------- | ----------------------------- | ----------------------------------------- | -----------------------------------------------
|                                                                                                | Shares                   |  | Amount        | Addl
    Paid-In
    Capital | Note Receivable,
    Related 
      Party | Retained
    Earnings (Accumulated
    Deficit)
|                                                                                                |                          |  |               |                               |                                           |                                                
|BALANCE AT JANUARY 1, 2000                                                                      | 22,992,437               |  | $ 23          | $
    148,307                 |                                           | $ 16,656                                       
|Issuance of common stock ($10.68 per share), net of issuance costs                              | 67,889                   |  |               | 802                           |                                           |                                                
|Common stock options exercised ($3.13 to $18.00 per share), including
      related tax benefit | 86,777                   |  |               | 655                           |                                           |                                                
|Net loss                                                                                        |                          |  |               |                               |                                           | (15,021)                                       
|                                                                                                |                          |  |               |                               |                                           |                                                
|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)
    ========                        

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                                                                 | 2002                 |  | 2001                 |  | 2000                
|--------------------------------------------------------------------------- | -------------------- |  | -------------------- |  | --------------------
|                                                                            |                      |  |                      |  |                     
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |                      |  |                      |  |                     
|                                                                            |                      |  |                      |  |                     
|Net income (loss)                                                           | $ 6,909              |  | $ (43,912)           |  | $ (15,021)          
|                                                                            |                      |  |                      |  |                     
|Adjustments to reconcile net income (loss) to net cash                      |                      |  |                      |  |                     
|provided by operating activities:                                           |                      |  |                      |  |                     
|Depreciation and amortization                                               | 21,335               |  | 26,284               |  | 25,742              
|Loss (gain) on disposal of property and equipment                           | 21                   |  | 477                  |  | (306)               
|Deferred tax expense (benefit)                                              | 3,577                |  | (22,619)             |  | (694)               
|Income tax benefit from employee exercise of stock options                  | 479                  |  | 110                  |  | 284                 
|Restructuring and asset impairment charges (income)                         | (701)                |  | 54,907               |  | 42,066              
|Loss on investment                                                          |                      |  | 228                  |  | 2,060               
|Other                                                                       | (317)                |  | (280)                |  | 104                 
|                                                                            |                      |  |                      |  |                     
|Change in assets and liabilities, net of acquisitions:                      |                      |  |                      |  |                     
|Inventories, net                                                            | 6,886                |  | 1,120                |  | (5,048)             
|Receivables, net and other assets                                           | 3,966                |  | 5,038                |  | (11,719)            
|Accounts payable                                                            | (5,267)              |  | 6,330                |  | 8,542               
|Accrued liabilities and other liabilities                                   | (692)                |  | (1,972)              |  | (5,001)             
|                                                                            |                      |  |                      |  |                     
|Net cash provided by operating activities                                   | 36,196               |  | 25,711               |  | 41,009              
|                                                                            |                      |  |                      |  |                     
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |                      |  |                      |  |                     
|                                                                            |                      |  |                      |  |                     
|Capital expenditures                                                        | (14,751)             |  | (20,082)             |  | (60,584)            
|Acquisitions, net of cash acquired                                          |                      |  |                      |  | (16,791)            
|Proceeds from sale of property and equipment                                | 229                  |  | 146                  |  | 4,585               
|Long-term investment                                                        |                      |  |                      |  | (38)                
|                                                                            |                      |  |                      |  |                     
|Net cash used in investing activities                                       | (14,522)             |  | (19,936)             |  | (72,828)            
|                                                                            |                      |  |                      |  |                     
|CASH FLOWS FROM FINANCING
    ACTIVITIES:                                   |                      |  |                      |  |                     
|                                                                            |                      |  |                      |  |                     
|Proceeds (repayments) on line of credit, net                                | (69,200)             |  | (1,685)              |  | 28,751              
|Proceeds from note payable                                                  |                      |  | 2,000                |  |                     
|Payments on notes payable, long-term debt and capitalized leases            | (10,798)             |  | (254)                |  | (7,489)             
|Proceeds from issuance of common stock, net                                 | 50,822               |  | 895                  |  | 1,069               
|                                                                            |                      |  |                      |  |                     
|Net cash (used in) provided by financing activities                         | (29,176)             |  | 956                  |  | 22,331              
|                                                                            |                      |  |                      |  |                     
|Effect of exchange rates on cash                                            | 29                   |  | (348)                |  | 68                  
|Net (decrease) increase in cash and cash equivalents                        | (7,473)              |  | 6,383                |  | (9,420)             
|Cash and cash equivalents at beginning of year                              | 18,840               |  | 12,457               |  | 21,877              
|Cash and cash equivalents at end of year                                    | $ 11,367 
    ====== |  | $ 18,840 
    ====== |  | $ 12,457 
    ======
|                                                                            |                      |  |                      |  |                     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
    INFORMATION:                       |                      |  |                      |  |                     
|                                                                            |                      |  |                      |  |                     
|Cash paid for interest                                                      | $ 8,549 
    ======  |  | $ 10,203 
    ====== |  | $ 9,715 
    ====== 
|Cash paid (received) for income taxes                                       | $ (3,473)
    ====== |  | $ (7,241)
    ====== |  | $ 4,503 
    ====== 
|                                                                            |                      |  |                      |  |                     
|SUPPLEMENTAL DISCLOSURE OF NON-CASH
    INVESTING AND FINANCING ACTIVITIES: |                      |  |                      |  |                     
|                                                                            |                      |  |                      |  |                     
|Stock received in exchange for services                                     |                      |  |                      |  | $ 750 
    ======   
|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 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 intercompany 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 28, 2002, December 29,
2001 and December 30, 2000. Fiscal 2002, fiscal 2001 and fiscal 2000 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 first-in-,
first-out basis. Certain other highly perishable inventories are valued primarily at the
lower of cost or market, with cost determined on a first-in, first-out basis.

Property, Plant and Equipment. Property, plant 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
ten years). Depreciation is computed on a straight-line basis over the estimated useful
lives of buildings (30 years). Leasehold improvements are amortized on a straight-line
basis over the shorter of the useful life of the asset or the lease term. 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.

Intangible Assets. Intangible assets consist primarily of goodwill
and leasehold interests and are shown net of accumulated amortization. Amortization of
leasehold interests is computed on a straight-line basis over the lease term. As of
December 30, 2001, goodwill is no longer amortized. See "New Accounting
Pronouncements: Goodwill and Intangible Assets"below in this footnote and "Note
5 - Goodwill and Finite Long-Lived Assets."

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 intangible assets, for potential impairment at
the store level. Goodwill, previously recognized at the store level, is now recorded at
the enterprise level and monitored accordingly, and tested for impairment annually. 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 period 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.

Store Closing 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. For stores the Company intends to close, a lease-related
liability is recorded for the present value of the estimated remaining noncancelable lease
payments after the anticipated closing date, net of estimated subtenant income, or for
estimated lease settlement costs. In addition, the Company records 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 is reduced to reflect recoverable
values based on the Companys previous efforts to dispose of similar assets and
current economic conditions. Beginning in fiscal 2003, the Company will recognize such
costs at the time of the actual closing, in accordance with the new requirements of SFAS
146 (see New Accounting Pronouncements later in this note).

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, the Company plans to purchase 30.0% of its cost of goods sold from one vendor.
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.

Advertising. Advertising is expensed as incurred. Advertising
expense was $13.3 million, $9.3 million and $6.8 million for fiscal 2002, fiscal 2001 and
fiscal 2000, respectively. During fiscal 2002, certain advertising expenses previously
recorded as direct store expenses were recorded as selling, general and administrative
expenses. For fiscal 2001 and fiscal 2000, respectively, $4.3 million and $3.7 million
were 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. The Company uses an interest rate
swap to manage a portion of its interest costs and the risk associated with changing
interest rates. As interest rates change, the differential paid or received is recognized
in interest expense of the related period.

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.

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 933,935, 2,006,215, and 1,480,827 for the fiscal years ended
December 28, 2002, December 29, 2001 and December 30, 2000, 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                                                            | 2002                              |  | 2001                              |  | 2000                             
|---------------------------------------------------------------------- | --------------------------------- |  | --------------------------------- |  | ---------------------------------
|                                                                      
|Basic and diluted earnings per 
    Common share computation:          |                                   |  |                                   |  |                                  
|Net income (loss)                                                      | $
    6,909                       |  | $
    (43,912)                    |  | $
    (15,021)                   
|Net income (loss) per common share:                                    |                                   |  |                                   |  |                                  
|Basic                                                                  | $
    0.26                        |  | $
    (1.80)                      |  | $
    (0.65)                     
|Diluted                                                                | $
    0.26                        |  | $
    (1.80)                      |  | $
    (0.65)                     
|                                                                       |                                   |  |                                   |  |                                  
|Weighted average number of common shares outstanding                   | 26,481                            |  | 24,424                            |  | 23,090                           
|Incremental shares from assumed conversions:                           |                                   |  |                                   |  |                                  
|Stock options                                                          | 601                               |  |                                   |  |                                  
|Weighted average number of common shares outstanding assuming dilution | 27,082           
         ====== |  | 24,424           
         ====== |  | 23,090           
         ======

Stock-Based Compensation. At December 28, 2002, the Company has six
stock-based employee compensation plans, which are described more fully in Note 10 -
Stock Plans and Options. The Company accounts for those plans under the recognition
and measurement principles of 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                                                                                                                       | 2002                               |  | 2001                                     |  | 2000                                    
|--------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- |  | ---------------------------------------- |  | ----------------------------------------
|                                                                                                                                 
|Net income (loss), as reported                                                                                                    | $
    6,909                        |  | $
    (43,912)                           |  | $
    (15,021)                          
|Add: Stock-based employee compensation expense included in reported net
      income, net of tax                                  | 133                                |  | 67                                       |  | 69                                      
|Deduct: Total stock-based employee compensation expense determined under
      fair value based method for all awards, net of tax | (2,128)                            |  | (2,528)                                  |  | (3,748)                                 
|Pro forma net income (loss)                                                                                                       | $ 4,914           
         ====== |  | $
    (46,373)          
         ====== |  | $
    (18,700)          
         ======
|                                                                                                                                  |                                    |  |                                          |  |                                         
|Earnings per share:                                                                                                               |                                    |  |                                          |  |                                         
|Basic - as reported                                                                                                               | $ 0.26           
         ======  |  | $
    (1.80)          
         ======   |  | $
    (0.65)          
         ======  
|Basic - pro forma                                                                                                                 | $ 0.19           
         ======  |  | $
    (1.90)          
         ======   |  | $
    (0.81)          
         ======  
|                                                                                                                                  |                                    |  |                                          |  |                                         
|Diluted - as reported                                                                                                             | $ 0.26           
         ======  |  | $
    (1.80)          
         ======   |  | $
    (0.65)          
         ======  
|Diluted - pro forma                                                                                                               | $ 0.18           
         ======  |  | $
    (1.90)          
         ======   |  | $
    (0.81)          
         ======  

New Accounting Pronouncements: In December 2002, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure ("SFAS 148"). The statement amends SFAS 123 to
provide alternative methods of transition for voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS 148 improves the
prominence and clarity of the pro forma disclosures required by SFAS 123 by prescribing a
specific tabular format and by requiring disclosure in the "Summary of Significant
Accounting Policies" or its equivalent. In addition, SFAS 148 improves the timeliness
of those disclosures by requiring their inclusion in financial reports for interim
periods. SFAS 148 is effective for financial statements for fiscal years ending after
December 15, 2002. Adoption of the provisions of this statement for fiscal 2002 resulted
in moving a portion of the information concerning the Companys stock-based employee
compensation to Organization and Summary of Significant Accounting Policies.

The FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities, An Interpretation of ARB 51 ("FIN 46"). The
primary objectives of FIN 46 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 46 requires that both
the primary beneficiary and all other enterprises with a significant variable interest in
a VIE make additional disclosures. As of December 28, 2002, the Company was not party to a
VIE; therefore, management believes FIN 46 will not have a material effect on the Company.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others ("FIN 45"). FIN 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for
years ending after December 15, 2002. As of December 28, 2002, the Company had no such
guarantees and management believes FIN 45 will not have a material effect on the Company.

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 is effective for the
Company on January 1, 2003 and management believes it will have no material effect on the
Companys historical financial results.

During the second quarter ended June 29, 2002, the Company adopted the
provisions of SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other things,
rescinds SFAS No. 4, which required that gains and losses from extinguishment of debt be
classified as an extraordinary item, net of related income tax effects. SFAS No. 145 is to
be applied in fiscal years beginning after May 15, 2002 and encourages early application
of the rescission of SFAS No. 4. During the twelve months ended December 28, 2002, and
December 29, 2001, there were no gains or losses on early extinguishment of debt. In
connection with the refinancing of our credit facility, the Company will incur a non-cash
charge to write off the remaining unamortized debt issuance cost in the first quarter of
fiscal 2003 of approximately $186,000.

On August 15, 2001, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations ("SFAS 143"), 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 143 will be effective for financial statements issued for fiscal years
beginning after June 30, 2002. Under SFAS 143, an entity shall recognize the cumulative
effect of the adoption of SFAS 143 as a change in accounting principle. Management
believes that SFAS 143 will not have a material effect on the Company.

Goodwill and Other Intangible Assets. Effective December 30, 2001,
the Company implemented SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 142 was issued in July 2001, supersedes Accounting Principles Bulletin No. 17, Intangible
Assets, and is effective for fiscal years beginning after December 15, 2001. SFAS No.
142 primarily addresses the accounting for goodwill and intangible assets subsequent to
their initial recognition. SFAS No. 142 (1) prohibits the amortization of goodwill and
indefinite-lived intangible assets, (2) requires testing of goodwill and indefinite-lived
intangible assets on an annual basis for impairment (and more frequently if the occurrence
of an event or circumstance indicates an impairment), (3) requires that reporting units be
identified for the purpose of assessing potential future impairments of goodwill and (4)
removes the 40-year limitation on the amortization period of intangible assets that have
finite lives.

In conjunction with its purchase acquisitions, the Company historically
recorded goodwill at the store level; however, based on the Companys consolidation
of its brands to increase synergy and awareness, the Company changed its goodwill
accounting policy upon the adoption of SFAS No. 142 and accordingly assigned the carrying
value of its goodwill to one reporting unit at the enterprise level to recognize goodwill
for the brand, as opposed to the past practice of recording goodwill at the store level.
During the second quarter of fiscal 2002, the Company completed the impairment test
prescribed by SFAS No. 142 and concluded that no impairment of goodwill existed as of
December 30, 2001. The Company anticipates an annual decrease in amortization of goodwill
of approximately $3.0 million and a corresponding annual increase to net income of $1.8
million. The Company will test goodwill for impairment annually in the second quarter of
each fiscal year or more frequently if the occurrence of an event or circumstance
indicates potential impairment.

Also, upon implementation of SFAS No. 142, the Company identified
finite lived intangible assets related to leasehold interests resulting from store lease
agreements with a carrying value of approximately $7.9 million at December 30, 2001. The
Company determined that there is no indication of impairment of these assets and that the
average 20-year life assigned to these assets is appropriate. Going forward, the Company
will test these intangibles for impairment annually or more frequently if the occurrence
of an event or circumstance indicates impairment.

The amortization of intangibles expense (net of tax) is as follows (in
thousands):

|                                     |  | Twelve Months Ended
|------------------------------------ |  | -------------------
|                                     |  |                    
|                                     |  | Dec 28, 2002       
|                                     |  |                    
|Goodwill amortization                |  | $ ---              
|Leasehold interests
    amortization |  | $ 283              



The following table illustrates net income (loss) and earnings per
share, exclusive of goodwill amortization expense in the prior periods (in thousands):

|                                                 |  | Twelve Months Ended
|------------------------------------------------ |  | -------------------
|                                                 |  |                    
|                                                 |  | Dec 28, 2002       
|                                                 |  |                    
|Reported net income
    (loss)                   |  | $ 6,909            
|Goodwill amortization,
    net of tax            |  |                    
|Adjusted net income
    (loss)                   |  | $ 6,909======      
|                                                 |  |                    
|EARNINGS PER SHARE -                             |  |                    
|BASIC
    AND DILUTED                            |  |                    
|Reported net income
    (loss) per share         |  | $ 0.26             
|Goodwill amortization,
    net of tax, per share |  |                    
|Adjusted net income
    (loss) per share         |  | $ 0.26 
    ====   



During fiscal 2002, fiscal 2001 and fiscal 2000, finite lived
intangible assets amortization expense (excluding goodwill) was $477,000, $426,000 and
$498,000, respectively. The estimated amortization of finite lived intangible assets for
each of the five fiscal years ending in fiscal 2007 is as follows (in thousands):



| |             |  |                      | 
| | ----------- |  | -------------------- | 
| | Fiscal Year |  | Amortization Expense | 
| | 2003        |  | $
    479            | 
| | 2004        |  | $
    482            | 
| | 2005        |  | $
    482            | 
| | 2006        |  | $
    466            | 
| | 2007        |  | $
    462            | 



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, the Company has 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% effective as of February 26, 2003 and expires in August 2003. The fair
value of the swap at December 28, 2002 was ($948,000), which has been recorded in the
accompanying balance sheet in accrued liabilities.

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 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.
Based upon current interest rates, approximately $1.7 million of the interest rate hedging
loss currently in other comprehensive income is expected to flow through interest expense
during the next 12 months.

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. Currently, the Companys swap agreement is designated as a cash
flow hedge and is 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 is highly
effective, are 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) is recorded in current
period earnings.

The Company formally documents 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 assesses (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.

When hedge accounting is discontinued due to the Companys
determination that the derivative no longer qualifies as an effective cash flow hedge, the
Company will continue to carry the derivative on the balance sheet at its fair value but
cease to adjust the hedged asset or liability for changes in fair value. When hedge
accounting is discontinued because the hedged item no longer meets the definition of a
firm commitment, the Company will continue to carry the derivative on the balance sheet at
its fair value, removing from the balance sheet any asset or liability that was recorded
to recognize the firm commitment and recording it as a gain or loss in current period
earnings. When the Company discontinues hedge accounting because it is no longer probable
that the forecasted transaction will occur in the originally expected period, the gain or
loss on the derivative remains in accumulated other comprehensive income and is
reclassified into earnings when the forecasted transaction affects earnings. However, if
it is probable that a forecasted transaction will not occur by the end of the originally
specified time period or within an additional two-month period of time thereafter, the
gains and losses that were accumulated in other comprehensive income will be recognized
immediately in earnings. In all situations in which hedge accounting is discontinued and
the derivative remains outstanding, the Company will carry the derivative at its fair
value on the balance sheet, recognizing changes in the fair value in current-period
earnings.



|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 with 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.

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 capital expenditure requirements in fiscal 2003.

The Company anticipates that it will 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 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. | Business Combinations
|-- | ---------------------

Fiscal 2000

In May 2000, the Company acquired the assets and operations of two
operating natural foods supermarkets located in southern California, for a purchase price
of $13.7 million in cash. The acquisition was accounted for using the purchase method and
the excess of cost over the fair value of the assets acquired of $12.9 million was
allocated to goodwill, which is being amortized on a straight-line basis over 40 years.
The Company made no acquisitions in fiscal 2001 or fiscal 2002.

The following unaudited pro forma combined results of operations of the
Company and the acquired businesses discussed above have been prepared as if the
transactions occurred as of the beginning of the period presented (in thousands)
(unaudited):

| | FISCAL YEAR                     |  | 2000          |  | 
| | ------------------------------- |  | ------------- |  | 
| |                                 |  |               |  | 
| | Sales                           |  | $
    846,017 |  | 
| | Net income (loss)               |  | (14,469)      |  | 
| | Basic income (loss) per share   |  | (0.63)        |  | 
| | Diluted income (loss) per share |  | (0.63)        |  | 

The unaudited pro forma results above are not necessarily
representative of the actual results that would have occurred or may occur in the future,
if the transactions had been in effect on the dates indicated. The pre-acquisition
historical results of the acquired businesses discussed above are not reflected in the
Companys historical financial statements.



|4. | Property, Plant and
    Equipment
|-- | ---------------------------------

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

|FISCAL YEAR                   |  | 2002                                  |  | 2001                                  |  | 
|----------------------------- |  | ------------------------------------- |  | ------------------------------------- |  | 
|                              |  |                                       |  |                                       |  | 
|Machinery and equipment       |  | $
    121,315                         |  | $
    122,169                         |  | 
|Leasehold improvements        |  | 88,414                                |  | 87,185                                |  | 
|Land and building             |  | ---                                   |  | 127                                   |  | 
|Construction in progress      |  | 8,317                                 |  | 1,253                                 |  | 
|                              |  | 218,046                               |  | 210,734                               |  | 
|Less accumulated depreciation |  | (95,687)                              |  | (81,812)                              |  | 
|                              |  | $
    122,359            
    ======= |  | $
    128,922            
    ======= |  | 



Depreciation expense related to property, plant and equipment totaled
approximately $20.4 million, $22.7 million and $22.5 million in fiscal 2002, fiscal 2001
and fiscal 2000, respectively. Property, plant and equipment includes approximately
$129,000 of interest capitalized during fiscal 2002, $291,000 during fiscal 2001 and
$890,000 during fiscal 2000. The amounts shown above include $994,000 of machinery and
equipment which are accounted for as capitalized leases and which have accumulated
amortization of $681,000 at December 28, 2002. There were $994,000 of machinery and
equipment accounted for as capitalized leases as of December 29, 2001, with accumulated
amortization of $412,000.



|5. | Goodwill and Finite
    Lived Intangible Assets
|-- | -----------------------------------------------

Goodwill consists of the following (in thousands):

|FISCAL YEAR                   |  | 2002                                 |  | 2001                                 |  | 
|----------------------------- |  | ------------------------------------ |  | ------------------------------------ |  | 
|                              |  |                                      |  |                                      |  | 
|Goodwill                      |  | $
    117,394                        |  | $
    117,394                        |  | 
|Less accumulated amortization |  | (10,990)                             |  | (10,990)                             |  | 
|                              |  | $
    106,404           
    ======= |  | $
    106,404           
    ======= |  | 



Amortization expense related to goodwill was $0, $3.0 million and $3.1
million in fiscal 2002, fiscal 2001 and fiscal 2000, respectively.

Finite lived intangible assets consist of the following (in thousands):

|FISCAL YEAR                           |  | 2002                             |  | 2001                              |  | 
|------------------------------------- |  | -------------------------------- |  | --------------------------------- |  | 
|                                      |  |                                  |  |                                   |  | 
|Leasehold interests                   |  | $
    9,035                      |  | $
    9,035                       |  | 
|Liquor licenses and other intangibles |  | 104                              |  | 104                               |  | 
|                                      |  | 9,139                            |  | 9,139                             |  | 
|Less accumulated amortization         |  | (1,724)                          |  | (1,247)                           |  | 
|                                      |  | $
    7,415           
    ===== |  | $
    7,892            
    ===== |  | 



Amortization expense related to finite lived intangible assets was
$447,000, $426,000 and $498,000 in fiscal 2002, fiscal 2001 and fiscal 2000, respectively.



|6. | Accrued Liabilities
|-- | -------------------

Accrued liabilities consist of the following (in thousands):

|FISCAL YEAR                         |  | 2002                                |  | 2001                                |  | 
|----------------------------------- |  | ----------------------------------- |  | ----------------------------------- |  | 
|                                    |  |                                     |  |                                     |  | 
|Wages and employee costs            |  | $
    19,795                        |  | $
    20,087                        |  | 
|Sales and personal property taxes   |  | 2,719                               |  | 2,822                               |  | 
|Real estate costs                   |  | 7,802                               |  | 9,689                               |  | 
|Deferred charges and other accruals |  | 7,627                               |  | 6,928                               |  | 
|                                    |  | $
    37,943            
    ====== |  | $
    39,526            
    ====== |  | 





|7. | Notes Payable and Long
    Term Debt
|-- | ------------------------------------

Notes payable and long-term debt outstanding consists of the following
(in thousands):

|FISCAL YEAR ENDED                                                                                                                                                                                                                                                                                           | 2002                 |  | 2001                 | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- |  | -------------------- | 
|                                                                                                                                                                                                                                                                                                            |                     
|Capitalized leases                                                                                                                                                                                                                                                                                          | $ 162                |  | $ 370                | 
|Note payable to related party; 9% interest
    rate per annum; unsecured                                                                                                                                                                                                                                    |                      |  | 2,000                | 
|Bank line of credit due August 1, 2003; bearing interest at one-month
      LIBOR plus 3.75% (10.4% on $3.7 million and 5.9% on $79.8 million on December 29, 2001);
      collateralized by corporate assets                                                                                               |                      |  | 83,436               | 
|Bank term debt due August 1, 2003; bearing interest at one-month LIBOR
      plus 3.75% (10.4% on December 29, 2001); collateralized by corporate assets                                                                                                                                                    |                      |  | 38,823               | 
|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 (See discussion
      of new credit facility below.) | 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 (See
      discussion of new credit facility below.)                                                                                               | 28,823               |  |                      | 
|                                                                                                                                                                                                                                                                                                            | 43,221               |  | 124,629              | 
|Less current portion                                                                                                                                                                                                                                                                                        | (146)                |  | (12,338)             | 
|                                                                                                                                                                                                                                                                                                            | $ 43,075 
    ====== |  | $ 112,291
    ====== | 



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

| | FISCAL YEAR ENDING |  |                                | 
| | ------------------ |  | ------------------------------ | 
| | 2003               |  | $
    146                      | 
| | 2004               |  | 16                             | 
| | 2005               |  | ---                            | 
| | 2006               |  | 43,059                         | 
| |                    |  | $
    43,221     
       ===== | 



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 25, 2006, and a one-year renewal at the parties option. 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 capitalized debt issuance
costs of approximately $720,000 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
has four letters of credit outstanding as of December 28, 2002 that total $4.1 million and
expire in January 2003 ($30,000), August 2003 ($3.1 million) and November 2003 ($1.0
million).

In September 2000, the Company entered into an interest rate swap to
hedge our exposure on variable rate debt positions. Variable rates are predominantly
linked to LIBOR as determined by one-month intervals. The interest rate provided by the
swap on variable rate debt is 6.7% effective February 26, 2003. At December 28, 2002, the
notional principal amount of the interest rate swap agreement was $32.5 million, expiring
in August 2003. 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 2000, the loss included in other comprehensive loss for this
cash flow hedge was approximately $12,000. In fiscal 2001, the loss included in other
comprehensive loss for this cash flow hedge was approximately $1.2 million. In fiscal
2002, the loss included in other comprehensive income for this cash flow hedge was
approximately $1.9 million.



|8. | Income Taxes
|-- | ------------

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

|FISCAL YEAR |  | 2002                                |  | 2001                                 |  | 2000                                
|----------- |  | ----------------------------------- |  | ------------------------------------ |  | ------------------------------------
|           
|Domestic    |  | $
    11,710                        |  | $
    (69,370)                       |  | $
    (24,358)                      
|Foreign     |  | (68)                                |  | 269                                  |  | 778                                 
|            |  | $
    11,642            
    ====== |  | $
    (69,101)           
    ====== |  | $
    (23,580)           
    ======



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

|FISCAL YEAR       |  | 2002                              |  | 2001                                  |  | 2000                              
|----------------- |  | --------------------------------- |  | ------------------------------------- |  | ----------------------------------
|                 
|Current:          |  |                                   |  |                                       |  |                                   
|Federal           |  | $
    ---                         |  | $
    (2,604)                         |  | $
    (7,690)                     
|State and foreign |  | 677                               |  | (69)                                  |  | (454)                             
|                  |  | 677                               |  | (2,673)                               |  | (8,144)                           
|                  |  |                                   |  |                                       |  |                                   
|Deferred:         |  |                                   |  |                                       |  |                                   
|Federal           |  | 4,455                             |  | (21,025)                              |  | (373)                             
|State and foreign |  | (399)                             |  | (1,491)                               |  | (42)                              
|                  |  | 4,056                             |  | (22,516)                              |  | (415)                             
|                  |  | $
    4,733           
    ====== |  | $
    (25,189)           
    ======= |  | $
    (8,559)          
    ======



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

|FISCAL YEAR                                                                     |  | 2002                       |  | 2001                              |  | 2000                             
|------------------------------------------------------------------------------- |  | -------------------------- |  | --------------------------------- |  | ---------------------------------
|                                                                               
|Statutory tax rate                                                              |  | 35.0%                      |  | (35.0)%                           |  | (35.0)%                          
|State income taxes (benefit), net of federal income tax (benefit)
      expense |  | 3.2                        |  | (2.3)                             |  | (2.4)                            
|Tax effect of non-deductible goodwill                                           |  | 0.0                        |  | 0.8                               |  | 2.5                              
|Foreign income taxes                                                            |  | 3.1                        |  |                                   |  |                                  
|Other, net                                                                      |  | (0.6)                      |  | (0.0)                             |  | (1.4)                            
|Effective tax rate                                                              |  | 40.7%            
    ==== |  | (36.5)%
                
    ==== |  | (36.3)%
                
    ====

The increase in the Companys effective tax rate primarily relates
to limitations on the Companys ability to utilize foreign tax credits due to net
operating losses. The remainder of the change is attributable to an increase in state
franchise taxes.

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                          |  | 2002                          |  | 2001                          |  | 
|------------------------------------ |  | ----------------------------- |  | ----------------------------- |  | 
|                                     |  |                              
|Deferred tax assets:                 |  |                               |  |                               |  | 
|Inventory-related                    |  | 332                           |  | 911                           |  | 
|Vacation accrual                     |  | 2,506                         |  | 2,335                         |  | 
|Real estate accruals                 |  | 6,768                         |  | 13,023                        |  | 
|Net operating loss carryforward      |  | 14,967                        |  | 9,267                         |  | 
|Contribution and credit carryforward |  | 1,455                         |  | 802                           |  | 
|Mark-to-market swap accrual          |  | 355                           |  | 852                           |  | 
|Other                                |  | 145                           |  | 512                           |  | 
|Total deferred tax assets            |  | 26,528                        |  | 27,702                        |  | 
|Deferred tax liabilities:            |  |                               |  |                               |  | 
|Property-related                     |  | (6,222)                       |  | (3,334)                       |  | 
|Total deferred tax liabilities       |  | (6,222)                       |  | (3,334)                       |  | 
|Net deferred tax asset               |  | 20,306            
    =====  |  | 24,368            
    =====  |  | 
|                                     |  |                               |  |                               |  | 
|Financial statements:                |  |                               |  |                               |  | 
|Current deferred tax asset           |  | 4,656                         |  | 5,378                         |  | 
|Non-current deferred tax asset       |  | 15,650                        |  | 18,990                        |  | 
|Net deferred tax asset               |  | 20,306            
    ====== |  | 24,368            
    ====== |  | 

During fiscal 2002, fiscal 2001 and fiscal 2000, the Company recognized
$479,000, $102,000 and $293,000, respectively, as a tax benefit directly to additional
paid-in-capital related to noncompensatory stock plans.

At December 28, 2002 and December 29, 2001, the Company had a net
operating loss carryforward of $38.0 million and $24.7 million, respectively, which begin
to expire in 2021, and are available to offset future taxable income. Management has
concluded that a valuation allowance is not required as it is more likely than not that
the Company will be able to realize the benefit of the net operating loss carryforward
through the generation of future taxable income.



|9. | 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.



|10. | 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") covering an aggregate of 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 28, 2002, there were approximately $377,000 of payroll deductions of which
$376,000 were used to purchase 42,927 shares of common stock on December 31, 2002.

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 stock by 500,000
shares, and participation was resumed in June 2001.

Equity Incentive Plan. The Companys Wild Oats Markets, Inc.
1996 Equity Incentive Plan (the "Incentive Plan") was adopted by the board of
directors in August 1996. The Incentive 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 Incentive 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 five years and generally expire ten years from the grant date.

Nonqualified Stock Option Plan. In 2001 the Company created the
Wild Oats Markets, Inc. 2001 Nonofficer/Nondirector Equity Incentive Plan (the
"Nonqualified Plan"). As of December 28, 2002, 486,000 shares of common stock
were reserved for issuance under the Nonqualified Plan. The Nonqualified 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 Nonqualified 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 a period of five years and generally
expire ten years from the grant date.

Individual Stock Option Plans. The Company also created four
nonqualified stock option plans, two in May and one in each of September and December of
2001, as inducements to certain executives to accept offers of employment with the
Company. The total amount of options available for grant and granted under the four plans
is 410,000 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                           |  | 2002  |  | 2001  |  | 2000 
|------------------------------------- |  | ----- |  | ----- |  | -----
|                                      |  |       |  |       |  |      
|Estimated dividends                   |  | None  |  | None  |  | None 
|Expected volatility                   |  | 69%   |  | 52%   |  | 68%  
|Risk-free interest rate               |  | 1.2%  |  | 1.8%  |  | 4.8% 
|Expected life (years)                 |  | 0.5   |  | 0.5   |  | 0.5  
|Weighted-average fair value per share |  | $2.74 |  | $2.40 |  | $1.16



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                           |  | 2002  |  | 2001  |  | 2000 
|------------------------------------- |  | ----- |  | ----- |  | -----
|                                      |  |       |  |       |  |      
|Estimated dividends                   |  | None  |  | None  |  | None 
|Expected volatility                   |  | 69%   |  | 52%   |  | 68%  
|Risk-free interest rate               |  | 3.02% |  | 4.55% |  | 5.75%
|Expected life (years)                 |  | 4.2   |  | 4.8   |  | 7.0  
|Weighted-average fair value per share |  | $5.94 |  | $4.02 |  | $6.46

The fiscal 2002, fiscal 2001 and fiscal 2000 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:

|                                      |  | Numberof Shares                    |  | Weighted AverageFair Value         |  | Weighted
    Average ExercisePrice  
|------------------------------------- |  | ---------------------------------- |  | ---------------------------------- |  | ------------------------------------
|                                      |  |                                    |  |                                    |  |                                     
|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              
    ====== 
|                                      |  |                                    |  |                                    |  |                                     
|Options granted below market value    |  | 190,591                            |  | $
    7.09                         |  | $
    9.34                          
|Options granted equal to market value |  | 691,241                            |  | $ 6.29                             |  | $ 10.32                             
|Total options granted fiscal 2000     |  | 881,832            
    ======     |  | $
    6.46             
    ====   |  | $
    10.13              
    ===== 



A summary of the status of the Companys aggregated incentive and
nonqualified stock options plans as of the 2002, 2001 and 2000 fiscal year ends and
changes during the years ending on those dates is presented below:

|                                    |  | Number ofShares                  |  | Weighted
    AverageExercise Price |  | 
|----------------------------------- |  | -------------------------------- |  | ---------------------------------- |  | 
|                                    |  |                                  |  |                                    |  | 
|Outstanding as of January 1, 2000   |  | 1,808,208                        |  | $
    14.68                        |  | 
|                                    |  |                                  |  |                                    |  | 
|Granted                             |  | 881,832                          |  | $
    10.13                        |  | 
|Forfeited                           |  | (203,434)                        |  | $
    18.53                        |  | 
|Exercised                           |  | (86,777)                         |  | $ 7.55                             |  | 
|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            
    ====== |  | 



The following table summarizes information about incentive and
nonqualified stock options outstanding and exercisable at December 28, 2002:

|OPTIONS
    OUTSTANDING      |  | OPTIONS
    EXERCISABLE      
|---------------------------- |  | -----------------------------
|                             |  |                              
|Range Of Exercise
    Prices |  | Number Outstanding           
|                             |  |                              
|$2.65 - 5.30                 |  | 65,322                       
|$5.30 - 7.95                 |  | 986,606                      
|$7.95 - 10.60                |  | 1,379,371                    
|$10.60 - 13.25               |  | 524,375                      
|$13.25 - 15.90               |  | 45,476                       
|$15.90 - 18.55               |  | 181,695                      
|$18.55 - 21.20               |  | 105,567                      
|$21.20 - 23.85               |  | 84,040                       
|$23.85 - 26.50               |  | 58,984                       
|                             |  | 3,431,436       
    ========

At December 28, 2002, 795,238 shares were available for future grant
under the Incentive Plan, and 3,870 shares were available for future grant under the
Nonqualified Plan. At December 28, 2002, December 29, 2001 and December 30, 2000, options
for 1,581,424, 1,011,008 and 975,708 shares with weighted average exercise prices of
$10.79, $12.07 and $11.66, respectively, were exercisable.



|11. | 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. 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 $326,000 in damages and $210,000 in attorneys fees. The
Company has appealed the judgment. Execution on the judgment is stayed pending the outcome
of the appeal by the Companys payment to the Superior Court of $625,000 (an amount
equal to the amount of the judgment and the parties agreed estimate of accrued
interest thereon). A hearing on the appeal has been requested and will be scheduled by the
Appellate Court.

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, a jury awarded $0 in damages to the
plaintiffs, and the Company was subsequently awarded $190,000 in attorneys fees. The
plaintiff filed for bankruptcy and the Company is currently pursuing our claim as a
secured creditor.

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 mterial 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.

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.



|12. | Commitments
|--- | -----------

The Company has numerous operating leases related to facilities
occupied 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 $37.2 million, $37.6 million and $34.5 million during fiscal
2002, fiscal 2001and fiscal 2000, respectively.

Future minimum lease payments under noncancelable operating leases as
of December 28, 2002 are summarized as follows (in thousands):

| | FISCAL YEAR                  |  |                          | 
| | ---------------------------- |  | ------------------------ | 
| |                              |  |                          | 
| | 2003                         |  | $
    30,154             | 
| | 2004                         |  | 29,102                   | 
| | 2005                         |  | 28,340                   | 
| | 2006                         |  | 26,777                   | 
| | 2007                         |  | 25,304                   | 
| | Thereafter                   |  | 224,398                  | 
| | Total minimum lease payments |  | $ 364,075    
    ====== | 

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 2002, fiscal 2001 and fiscal 2000, the
Company paid contingent rentals of $949,000, $734,000 and $445,000, respectively.

Included in the $364.1 million of minimum lease payments is $18.4
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 28, 2002, the Company had commitments under construction
contracts totaling $854,000.



|13. | Restructuring and Asset
    Impairment Charges
|--- | ----------------------------------------------

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                                                                                                             | $ 0 
    === | 



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 has recorded a
restructuring and asset impairment charge of $54.8 million (such asset impairments were
recorded in accordance with SFAS 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 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 were 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 28, 2002, all $155,000 of the involuntary
    termination benefits had been paid to terminated employees.



Sales and store contribution to profit (sales less cost of goods sold,
occupancy costs, and direct store expenses) for the fiscal year ended December 28, 2002,
December 29, 2001 and December 30, 2000 for stores that were held for disposal are as
follows (unaudited, in thousands):

|FISCAL YEAR                  |  | 2002          |  | 2001          |  | 2000        
|---------------------------- |  | ------------- |  | ------------- |  | ------------
|                             |  |               |  |               |  |             
|Sales                        |  | $
    24,229  |  | $
    35,171  |  | $
    95,242
|                             |  |               |  |               |  |             
|Store contribution to profit |  | $
    (1,576) |  | $
    (1,979) |  | $
    146   
|                             |  |               |  |               |  |             



The effect of suspending depreciation for assets held for disposal was
approximately $34,000, $913,000 and $1.7 million for the fiscal years ended December 28,
2002, December 29, 2001 and December 30, 2000, respectively.

The carrying value of those assets held for disposal as of December 28,
2002, December 29, 2001 and December 30, 2000 was approximately $0, $125,000 and $509,000,
respectively.

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 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).



Fiscal 2000

During the second quarter of fiscal 2000, the Companys management
made certain decisions relating to the strategic repositioning of the Companys
operations which resulted in a restructuring and asset impairment charge of $20.6 million.
These decisions included the closure of three natural foods stores during the second
quarter of fiscal 2000 ($4.7 million); the planned sale or closure of seven stores during
the remainder of fiscal 2000 ($9.9 million); exit costs of previously closed or abandoned
sites ($5.6 million); and the discontinuance of e-commerce activities ($400,000). The $5.6
million charge related to changes in estimates for previously closed or abandoned sites.
The significant components of the $5.6 million charge were (a) $3.6 million of additional
lease-related liabilities, and (b) $2.0 million of fixed asset impairments for 15
previously closed stores. Components of the restructuring and asset impairment charge
consist of impairment of fixed ($8.9 million) and intangible assets ($6.4 million); and
noncancelable lease obligations and liabilities ($5.3 million). Substantially all of the
restructuring charges are non-cash expenses when initially recorded.

During the fourth quarter of fiscal 2000, the Company expanded its
strategic repositioning and, as a part of such expansion, decided to close or sell twelve
under performing stores. This decision resulted in an additional restructuring and asset
impairment charge of $21.4 million. This restructuring charge consists primarily of costs
associated with the abandonment of fixed ($13.6 million) and intangible assets ($1.7
million) and noncancelable lease obligations and lease-related liabilities ($6.1 million).
Substantially all of the restructuring charges are non-cash expenses when initially
recorded.

The assets written off as part of the second and fourth quarter fiscal
2000 charges consist of the following:

| | Goodwill impairment           |  | $ 8,041,000               | 
| | ----------------------------- |  | ------------------------- | 
| | Leasehold interest impairment |  | 2,537,000                 | 
| | Fixed asset impairment        |  | 20,030,000                | 
| | Total                         |  | $ 30,608,000
    ======== | 



As part of the strategic repositioning announced by the Company in the
second and fourth quarters of fiscal 2000, the Company identified 22 natural foods stores
for closure or sale due to weak performance. In fiscal 2000, the Company closed ten and
sold three of those identified stores. In the second quarter of fiscal 2001, as part of
additional evaluation of the Companys operations by new management, the Company
identified an additional three stores for closure in fiscal 2001; in the fourth quarter of
fiscal 2001, the Company extended its evaluation and identified an additional three stores
for closure in fiscal 2001 and fiscal 2002. In fiscal 2002, the Company identified an
additional six stores for closure or sale, including two small vitamin stores. In fiscal
2002, the Company closed five of the identified stores, terminated its lease-related
obligations as to one of the closed locations and sold four of the identified stores,
including one small vitamin store. Two of the stores were sold in related transactions.
Due to a change in estimates related to changes in facts and circumstances during the
fourth quarter of fiscal 2001, the Company decided to continue to operate four stores
previously identified for closure or sale. As of December 28, 2002, 20 of the 22 stores
identified in fiscal 2000 for closure or sale have been closed or sold and the remaining
two stores have been removed from the Companys closure or sale list due to changes
in facts and circumstances. Of those stores identified in fiscal 2001, four have been
closed or abandoned and the remaining two stores have been removed from the Companys
closure or sale list due to changes in facts and circumstances. Of those stores identified
in fiscal 2002, three have been sold or closed, and three remain to be closed or sold. A
summary of restructuring activity by store count is as follows:

|                                                         |  | RESTRUCTURING
    STORE COUNT
|-------------------------------------------------------- |  | -----------------------------
|                                                         |  | Fiscal
    Year Ending       
|                                                         |  | 2000                         
|Stores remaining at
    commencement of period           |  |                              
|Stores identified in fiscal
    2000 for closure or sale |  | 22                           
|Stores identified in fiscal
    2001 for closure or sale |  |                              
|Stores identified in fiscal
    2002 for closure or sale |  |                              
|Identified stores closed or
    abandoned                |  | (10)                         
|Identified stores sold                                   |  | (3)                          
|Reversal of stores
    identified for closure or sale    |  |                              
|Identified stores remaining
    at period end            |  | 9      
    ==               



The following table summarizes accruals related to the Companys
restructuring activities during fiscal 2002, fiscal 2001 and fiscal 2000 (in thousands):

|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|---------------------------------------------- | ----------------- |  | ----------------- |  | ----------------- |  | ------------------ |  | ------------- |  | ----------------- |  | -------------- |  | -------------- |  | ------------- |  | ----------------- |  | ------------------
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|EXIT PLANS                                     | 1999 And Prior    |  | Q2 2000           |  | Q4 2000           |  | Q2 2001            |  | Q3 2001       |  | Q4 2001           |  | Q1 2002        |  | Q2 2002        |  | Q3 2002       |  | Q4 2002           |  | TOTAL             
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|BALANCE, JAN 1, 2000                           | $ 1,868           |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  | $ 1,868           
|New accruals:                                  |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|Lease-related
    liabilities                  | 1,987             |  | $ 3,142           |  | $ 6,041           |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  | 11,170            
|Cash paid - lease-related                      |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|Liabilities                                    | (1,744)           |  | (967)             |  | (448)             |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  | (3,159)           
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|BALANCE, DEC 30, 2000                          | $ 2,111           |  | $ 2,175           |  | $ 5,593           |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  | $ 9,879           
|New accruals:                                  |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|Severance                                      |                   |  |                   |  |                   |  | $ 2,511            |  |               |  | $ 155             |  |                |  |                |  |               |  |                   |  | 2,666             
|Lease-related
    liabilities                  | 3,261             |  | 2,242             |  | (427)             |  | 10,458             |  | $ 108         |  | 3,822             |  |                |  |                |  |               |  |                   |  | 19,464            
|Cash paid - severance                          |                   |  |                   |  |                   |  | (2,375)            |  |               |  | (98)              |  |                |  |                |  |               |  |                   |  | (2,473)           
|Cash paid - lease-related                      |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|Liabilities                                    | (2,914)           |  | (1,955)           |  | (1,862)           |  | (492)              |  | (21)          |  |                   |  |                |  |                |  |               |  |                   |  | (7,244)           
|Stock options in lieu of cash                  |                   |  |                   |  | (43)              |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  | (43)              
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|Cash received -
    lease- related liabilities |                   |  |                   |  | 800               |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  | 800               
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|BALANCE, DEC 29, 2001                          | $ 2,458           |  | $ 2,462           |  | $ 4,061           |  | $ 10,102           |  | $ 87          |  | $ 3,879           |  |                |  |                |  |               |  |                   |  | $ 23,049          
|New accruals:                                  |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|Severance                                      |                   |  |                   |  |                   |  |                    |  |               |  |                   |  | $ 269          |  | $ 142          |  |               |  | $ 9               |  | 420               
|Lease-related
    liabilities                  | (180)             |  | (905)             |  | (368)             |  | (3,053)            |  | (19)          |  | (243)             |  |                |  |                |  | $ 5           |  | 3,552             |  | (1,211)           
|Cash paid - severance                          |                   |  |                   |  |                   |  | (133)              |  |               |  | (57)              |  | (269)          |  | (142)          |  |               |  | (9)               |  | (610)             
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|Cash paid -
       lease-related liabilities   | (989)             |  | (395)             |  | (1,342)           |  | (884)              |  | (68)          |  | (735)             |  |                |  |                |  | (5)           |  |                   |  | (4,418)           
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|Note receivable in
    lieu 
        of cash   | 375               |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  | 375               
|Cash received - lease-                         |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|related
    liabilities                        | 459               |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  | 459               
|                                               |                   |  |                   |  |                   |  |                    |  |               |  |                   |  |                |  |                |  |               |  |                   |  |                   
|                                               | *                 |  | *                 |  | *                 |  | *                  |  |               |  | *                 |  |                |  |                |  |               |  | *                 |  |                   
|BALANCE, DEC 28, 2002                          | $ 2,123
    ===== |  | $ 1,162
    ===== |  | $ 2,351
    ===== |  | $ 6,032 
    ===== |  | $ -
    ===== |  | $ 2,844
    ===== |  | $ - 
    ===== |  | $ - 
    ===== |  | $ -
    ===== |  | $ 3,552
    ===== |  | $ 18,064
    =====

> 

*     The restructuring accrual
  balance consists of lease-related liabilities.

As of December 28, 2002, the components of the accruals related to the
Companys restructuring activities are accrued liabilities ($4.5 million) and other
long-term obligations ($13.6 million).



|14. | 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
($10,500 in fiscal 2002) and have the amount of such reduction contributed to the 401(k)
Plan. 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 2002, fiscal 2001 and fiscal 2000 were
approximately $1.2 million, $1.1 million and $1.0 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 have been transferred to Milliman and Company employees have been
notified that they will be unable to make withdrawals from or change the investment
designations of their accounts until the transfer, that is estimated to be completed prior
to the end of the first quarter of fiscal 2003, has been completed.



|15. | 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.



|16. | 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 2002, fiscal 2001 and fiscal 2000 were approximately $39,000,
$26,000 and $75,000, respectively.



|17. | Quarterly Information
    (Unaudited)
|--- | -------------------------------------

The following interim financial information presents the fiscal 2002
and fiscal 2001 consolidated results of operations on a quarterly basis (in thousands,
except per-share amounts):

|                                     |  | 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:   |  |                          
|Basic income per common share        |  | $ 0.03          
    ====
|                                     |  |                          
|Diluted net income per common share: |  |                          
|Diluted income per common share      |  | $ 0.03         
    ==== 





|                                   |  | QUARTER ENDED              
|---------------------------------- |  | ---------------------------
|                                   |  |                            
|                                   |  | March 31,
    2001         
|                                   |  |                            
|Statement of Operations Data:      |  |                            
|Sales                              |  | $
    219,499              
|Gross profit                       |  | $
    66,409               
|Net loss                           |  | $ (118)                    
|                                   |  |                            
|Basic net loss per common share:   |  |                            
|Basic loss per common share        |  | $ (0.00)        
    ====  
|                                   |  |                            
|Diluted net loss per common share: |  |                            
|Diluted loss per common share      |  | $ (0.00)          
    ====



|18. | 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 underperforming 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. See "Notes to Consolidated Financial Statements - Note
11 - Litigation."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 $1.3 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
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 mterial 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.



|19. | Distributor Contract
|--- | --------------------

A transition fee is referenced in the Companys June 2002
distribution agreement with the Tree of Life, Inc. ("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.





Item 9.

CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

None reported.





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 5, 2003, to be filed with the Commission on or before April 1, 2003, 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 5, 2003, to be filed with the Commission on or before April
1, 2003, 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 5, 2003, to be filed with the Commission on or before April
1, 2003, 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 5, 2003, to be filed
with the Commission on or before April 1, 2003, is incorporated herein by reference.





Item 14.

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, within 90 days prior to the filing date of this
report. 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. No significant changes were made to our internal controls
or in the other factors that could significantly affect these controls subsequent to the
date of their evaluation. The design of any system of controls and procedures is based in
part upon certain assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.



PART IV.

Item 15.

EXHIBITS, FINANCIAL STATEMENTS,
FINANCIAL STATEMENT 
SCHEDULES AND REPORTS ON FORM 8-K



|(a) | Financial Statements and
    Financial Statement Schedules. 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 2001:                                
|    |                                                                                                                                 
|    | (1)                                                                                                                             
|    | (2)                                                                                                                             
|    | (3)                                                                                                                             
|    |                                                                                                                                 
|(c) | Exhibits. The following
    exhibits to this Form 10-K are filed pursuant to the requirements of Item 501 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#** | Terry
    Maloy Equity Incentive Plan. (5)                                                                                       
| | 10.20#** | Edward
    F. Dunlap Equity Incentive Plan. (5)                                                                                  
| | 10.21#** | Employment
    Agreement dated December 17, 2001 between Edward F. Dunlap and the Registrant.(5)                                 
| | 10.22#+  | Severance
    Agreement dated November 7, 2002 between Bruce Bowman and the Registrant.                                          
| | 10.23#+  | Severance
    Agreement dated November 7, 2002 between Freya Brier and the Registrant.                                           
| | 10.24#+  | Severance
    Agreement dated November 7, 2002 between Edward Dunlap and the Registrant.                                         
| | 10.25#+  | Severance
    Agreement dated November 7, 2002 between Stephen Kaczynski and the Registrant.                                     
| | 10.26#+  | Severance
    Agreement dated November 7, 2002 between Terry Maloy and the Registrant.                                           
| | 10.27#+  | Severance
    Agreement dated November 7, 2002 between Peter Williams and the Registrant.                                        
| | 10.28**  | Wild
    Oats Markets, Inc. 2001 Nonofficer/Nondirector Equity Incentive Plan. (5)                                               
| | 10.29**  | Amended and
    Restated Stockholders Agreement among the Registrant and certain parties named therein
    dated August 1996. (3)
| | 10.30**  | Registration
    Rights Agreement between the Registrant and certain parties named therein dated July 12,
    1996. (3)          
| | 10.31#** | Second
    Amendment to Employment Agreement between Wild Oats Markets, Inc. and Perry D. Odak, dated
    June 19, 2002. (9)     
| | 10.32#** | Third
    Amendment to Employment Agreement between Wild Oats Markets, Inc. and Perry D. Odak, dated
    August 7, 2002. (9)     
| | 10.33**  | Assignment
    of Kaczynski Employment Agreement, dated June 29, 2002, between Registrant and Sparky,
    Inc.(9)                





| | Exhibit |                                                                                                                                                                                                                                                                                       
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Number  | Description of Document                                                                                                                                                                                                                                                               
| |         |                                                                                                                                                                                                                                                                                       
| | 10.34** | Assignment
    of Dunlap Employment Agreement, dated June 29, 2002, between Registrant and Wild Oats
    Financial, Inc. (9)                                                                                                                                                          
| | 10.35+  | Second
    Amended and Restated Credit Agreement dated as of February 26, 2002, 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.
| | 21.1+   | List of
    subsidiaries.                                                                                                                                                                                                                                                             
| | 23+     | Consent of
    PricewaterhouseCoopers LLP, independent accountants.                                                                                                                                                                                                                   



_________________________________________

|#    | 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 29, 2001 (File No. 0-21577), filed on March 27, 2002.                                       
|(6)  | Incorporated by reference from the
    Registrants Form
    10-K for the year ended January 1, 2000 (File No. 0-21577).                                                                  
|(7)  | Incorporated by reference from the
    Registrants Form
    10-Q for the period ended March 31, 2001 (File No. 0-21577).                                                                 
|(8)  | Incorporated by reference from the
    Registrants Form
    10-Q for the period ended June 30, 2001 (File No. 0-21577).                                                                  
|(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).                                                                                 







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 25, 2003 | 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,
    President and Director | March 24, 2003
|                         |                                                     |               
|/s/ Edward F. Dunlap     | Chief Financial Officer                             | March 25, 2003
|                         |                                                     |               
|/s/ John A. Shields      | Chairman                                            | March 17, 2003
|                         |                                                     |               
|/s/ David M. Chamberlain | Vice Chairman                                       | March 24, 2003
|                         |                                                     |               
|/s/ Stacey Bell          | Director                                            | March 25, 2003
|                         |                                                     |               
|/s/ Brian K. Devine      | Director                                            | March 24, 2003
|                         |                                                     |               
|/s/ David Gallitano      | Director                                            | March 17, 2003
|                         |                                                     |               
|/s/ James B. McElwee     | Director                                            | March 18, 2003
|                         |                                                     |               
|/s/ Mark Retzloff        | Director                                            | March 25, 2003











Certification of CEO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002





|   | I, Perry D.
    Odak, Chief Executive Officer of Wild Oats Markets, Inc., certify that:                                                                                                                                                                                                                                                                                                            
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|1. | I have reviewed
    this annual report on Form 10-K of Wild Oats Markets, Inc. (the "Registrant");                                                                                                                                                                                                                                                                                                 
|  
|2. | Based on my
    knowledge, this annual report does not contain any untrue statement of a material fact or
    omit to state a material fact necessary to make the statements made, in light of the
    circumstances under which such statements were made, not misleading with respect to the
    period covered by this annual report;                                                           
|  
|3. | Based on my
    knowledge, the financial statements, and other financial information included in this
    annual report, fairly present in all material respects the financial condition, results of
    operations and cash flows of the Registrant as of, and for the periods presented in this
    annual report;                                                                               
|  
|4. | The
    Registrants other certifying officers and I are responsible for establishing and
    maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
    and 15d-14) for the Registrant and have:                                                                                                                                                                 
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|5. | The
    Registrants other certifying officers and I have disclosed, based on our most recent
    evaluation, to the Registrants auditors and the audit committee of Registrants
    board of directors (or persons performing the equivalent functions):                                                                                                                                        
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|6. | The
    Registrants other certifying officers and I have indicated in this annual report
    whether there were significant changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of our most recent
    evaluation, including any corrective actions with regard to significant deficiencies and
    material weaknesses.
|  
|   | Date: March 24,
    2003                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                    
|   | /s/ Perry D.
    Odak
    Perry D. Odak, Chief Executive Officer                                                                                                                                                                                                                                                                                                                                   







Certification of CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002



|   | I, Edward
    Dunlap, Chief Financial Officer of Wild Oats Markets, Inc., certify that:                                                                                                                                                                                                                                                                                                            
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|1. | I have reviewed
    this annual report on Form 10-K of Wild Oats Markets, Inc. (the "Registrant");                                                                                                                                                                                                                                                                                                 
|  
|2. | Based on my
    knowledge, this annual report does not contain any untrue statement of a material fact or
    omit to state a material fact necessary to make the statements made, in light of the
    circumstances under which such statements were made, not misleading with respect to the
    period covered by this annual report;                                                           
|  
|3. | Based on my
    knowledge, the financial statements, and other financial information included in this
    annual report, fairly present in all material respects the financial condition, results of
    operations and cash flows of the Registrant as of, and for the periods presented in this
    annual report;                                                                               
|  
|4. | The
    Registrants other certifying officers and I are responsible for establishing and
    maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
    and 15d-14) for the Registrant and have:                                                                                                                                                                 
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|5. | The
    Registrants other certifying officers and I have disclosed, based on our most recent
    evaluation, to the Registrants auditors and the audit committee of Registrants
    board of directors (or persons performing the equivalent functions):                                                                                                                                        
|  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|6. | The
    Registrants other certifying officers and I have indicated in this annual report
    whether there were significant changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of our most recent
    evaluation, including any corrective actions with regard to significant deficiencies and
    material weaknesses.
|  
|   | Date: March 25,
    2003                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                    
|   | /s/ Edward F.
    Dunlap
    Edward F. Dunlap, Chief Financial Officer