<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q



(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR SECTION 15(D)OF THE SECURITIES
     EXCHANGE ACT  OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1997

                                       OR


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

      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
  incorporation or organization)                           Number)

                                 1645 BROADWAY
                            BOULDER, COLORADO 80302
          (Address of principal executive offices, including zip code)

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



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

  Yes  (X)          No  ( )

As of August 4, 1997, there were 7,041,813 shares outstanding of the
Registrant's Common Stock (par value $0.001 per share).
<PAGE>
 
                               TABLE OF CONTENTS


                                                                           PAGE

PART I.  FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
           Consolidated Balance Sheet
             June 28, 1997 (Unaudited) and December 28, 1996                3
 
           Consolidated Statement of Operations (Unaudited)
             Three and Six Months Ended June 28, 1997 and June 29, 1996     4

 
           Consolidated Statement of Cash Flows (Unaudited)
             Six Months Ended June 28, 1997 and June 29, 1996               5
 
           Notes to Consolidated Financial Statements (Unaudited)         6-7
 
Item 2. Management's Discussion and Analysis of
           Financial Condition and Results of Operations                 8-10
 
PART II. OTHER INFORMATION
 
Item 4. Submission of Matters to a Vote of Security Holders                11
 
Item 6. Exhibits and Reports on Form 8-K                                   11

SIGNATURES                                                                 11
 

                                       2
<PAGE>
 
PART I.    FINANCIAL INFORMATION

ITEM 1.  Financial Statements
 
                            WILD OATS MARKETS, INC.
                           Consolidated Balance Sheet
                       (In thousands, except share data)
 
                                                June 28,    December 28,
                                                  1997          1996
                                               (Unaudited)
Assets
Current assets:
  Cash and cash equivalents                      $  7,199       $ 16,404
  Accounts receivable (less allowance
     for doubtful accounts of $206 and
     $299, respectively)                              648            558
  Inventories                                      17,531         15,464
  Income tax receivable                               316            800
  Prepaid expenses and other current assets           209            319
  Deferred income taxes                             1,280          2,056
                                                 --------       --------
     Total current assets                          27,183         35,601
                                                 --------       --------
Property and equipment, net                        42,452         35,736
Intangible assets, net                             42,455         35,150
Deposits and other assets                             993            416
Deferred income taxes                                 154            154
                                                 --------       --------
                                                 $113,237       $107,057
                                                 ========       ========
 
Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable                               $ 16,932       $ 16,845
  Accrued liabilities                               9,844          8,664
  Notes payable                                                       50
  Current portion of long-term debt                    35            110
                                                 --------       --------
     Total current liabilities                     26,811         25,669
Long-term debt                                        476            971
Deferred income taxes                               1,213          1,157
Other liabilities                                   1,854          1,477
                                                 --------       --------
                                                   30,354         29,274
                                                 --------       --------
 
Stockholders' equity:
  Common stock: $.001 par value; 20,000,000
     shares authorized; 6,998,752 and
     6,875,514 issued and outstanding                   7              7
  Additional paid-in capital                       88,332         86,471
  Accumulated deficit                              (5,377)        (8,610)
  Foreign currency translation adjustment             (79)           (85)
                                                 --------       --------
     Total stockholders' equity                    82,883         77,783
                                                 --------       --------
                                                 $113,237       $107,057
                                                 ========       ========

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

                                       3
<PAGE>
 
                            WILD OATS MARKETS, INC.
                      Consolidated Statement of Operations
                     (In thousands, except per-share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
 
 
                                                  THREE MONTHS ENDED              SIX MONTHS ENDED
                                                  JUNE 28,  JUNE 29,           JUNE 28,      JUNE 29,
                                                    1997      1996               1997          1996
<S>                                               <C>       <C>                <C>           <C>
 
Sales                                              $76,677   $36,692           $146,405       $68,929
Cost of goods sold and occupancy costs              53,403    24,779            101,188        46,956
                                                   -------   -------           --------       -------
     Gross profit                                   23,274    11,913             45,217        21,973
Operating expenses:
  Direct store expenses                             17,646     9,059             33,671        16,836
  Selling, general and administrative expenses       2,878     1,529              6,089         2,871
  Pre-opening expenses                                           532                183           786
                                                   -------   -------           --------       -------
     Income from operations                          2,750       793              5,274         1,480
  Interest income (expense), net                        77      (309)               232          (584)
                                                   -------   -------           --------       -------
     Income before income taxes                      2,827       484              5,506           896
     Income tax expense                              1,150       229              2,273           395
                                                   -------   -------           --------       -------
 
Net income                                         $ 1,677   $   255           $  3,233       $   501
                                                   =======   =======           ========       =======
 
Net income per common share                          $0.24                        $0.46
                                                   =======                     ========
 
Pro forma net income per common share                          $0.07                            $0.13
                                                             =======                          =======
 
Weighted average number
  of common shares outstanding                       7,001                        7,040
                                                   =======                     ========
 
Pro forma weighted average number
  of common shares outstanding                                 3,886                            3,886
                                                             =======                          =======
 
</TABLE>

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

                                       4
<PAGE>
 
                            WILD OATS MARKETS, INC.
                      Consolidated Statement of Cash Flows
                                 (In thousands)
                                  (Unaudited)
 

                                                          Six Months Ended
                                                         June 28,   June 29,
                                                           1997       1996
 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                              $  3,233    $   501
Adjustments to reconcile net
 income to net cash provided
 by operating activities:
 Depreciation and amortization                             4,110      1,810
 Loss (gain) on disposal of property and equipment          (487)        59
 Deferred tax provision                                      833        322
 Deferred severance payment                                  476
 Change in assets and liabilities:
  Inventories                                                 40     (1,477)
  Receivables and other assets                                 7       (777)
  Accounts payable                                          (793)       619
  Accrued liabilities                                     (1,073)     1,245
                                                        --------    -------
   Net cash provided by operating activities               6,346      2,302
                                                        --------    -------
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                      (7,993)    (5,344)
Payment for purchase of acquired                             
 entities, net of cash acquired                           (8,892)      (500)
Proceeds from sales of property and equipment                566
                                                        --------    -------
 Net cash used by investing activities                   (16,319)    (5,844)
                                                        --------    -------
 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt                                          4,046
Payments on long-term debt                                (1,099)       (22)
Proceeds from issuance of common stock                     1,861         13
Purchase of treasury stock                                              (15)
                                                        --------    -------
 Net cash provided by financing activities                   762      4,022
                                                        --------    -------
 
Effect of exchange rate changes on cash                        6
                                                        --------    -------
Net increase (decrease) in cash and cash equivalents      (9,205)       480
Cash and cash equivalents at beginning of period          16,404      1,150
                                                        --------    -------
Cash and cash equivalents at end of period              $  7,199    $ 1,630
                                                        ========    =======
 
Supplemental disclosure of cash flow information:
  Cash paid for interest                                $     51    $   562
                                                        ========    =======
  Cash paid for income taxes                            $    929    $   405
                                                        ========    =======

Supplemental schedule of noncash investing and
  financing activities:
  Acquisition of property with seller-financed
   long-term debt                                       $    480
                                                        ========

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

                                       5
<PAGE>
 
                            WILD OATS MARKETS, INC.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.   ACCOUNTING POLICIES

     The consolidated balance sheet as of June 28, 1997, the consolidated
     statement of operations for the three and six months ended June 28, 1997
     and June 29, 1996, as well as the consolidated statement of cash flows for
     the six months ended June 28, 1997 and June 29, 1996 have been prepared
     without an audit. In the opinion of management, all adjustments, consisting
     only of normal, recurring adjustments necessary for a fair presentation
     thereof, have been made.

     Certain information and footnote disclosures normally included in financial
     statements prepared in accordance with generally accepted accounting
     principles have been condensed or omitted.  It is suggested that these
     consolidated financial statements be read in conjunction with financial
     statements and notes thereto included in the Company's 1996 Annual Report
     to Stockholders.  The results of operations for interim periods presented
     are not necessarily indicative of the operating results for the full year.
 
2.   BUSINESS COMBINATIONS

     In February and March 1997, in three separate transactions, the Company
     acquired the assets and assumed certain liabilities of six operating
     natural foods supermarkets:  two in south Florida, two in Eugene, Oregon
     and two in Memphis, Tennessee.  The purchase price for these acquisitions
     aggregated $9.9 million and consisted of $8.9 million in cash and 61,195
     shares of the Company's common stock valued at approximately $979,000.  The
     acquisitions were accounted for using the purchase method, and the excess
     of cost over the fair value of the assets acquired of $7.8 million was
     allocated to goodwill, which is being amortized on a straight-line basis
     over 40 years.

     On June 30, 1997, subsequent to the end of the second quarter, the Company
     acquired the assets of three operating natural foods supermarkets in
     Phoenix, Arizona for approximately $5.1 million in cash.  The acquisition
     will be accounted for using the purchase method and will be recorded in the
     third quarter of 1997.


3.   PRO FORMA NET INCOME PER SHARE

     Pro forma net income per common share is computed based on the weighted
     average number of common shares outstanding during the three and six months
     ended June 29, 1996 and gives effect to the reverse merger with Alfalfa's,
     Inc. as of January 1, 1996 and to certain adjustments described below.
     Common equivalent shares are not included in the per-share calculation
     where the effect of their inclusion would be antidilutive (i.e., in a loss
     period), except that, in conformity with SEC requirements, common shares
     and common share equivalents issued during the 12-month period prior to the
     filing of the Company's initial public offering have been included in the
     calculation as if they were outstanding for all periods using the treasury
     stock method.  Additionally, all outstanding shares of convertible
     preferred stock are assumed to have been converted to common stock at the
     time of their issuance.  The Company's historical capital structure is not
     indicative of its structure following the closing of its October 1996
     initial public offering, due to the automatic conversion of convertible
     preferred stock into common stock.  Accordingly, net income per common
     share has been presented on a pro forma basis only for the three and six
     months ended June 29, 1996.

4.   NET INCOME PER SHARE

     Net income per share of common stock is computed using the weighted average
     number of shares of common stock and common stock equivalents, consisting
     of stock options and warrants, outstanding during each period.  The
     dilutive effect of such common stock equivalents is computed using the
     treasury stock method.

     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards No. 128, Earnings per Share ("FAS 128"),
     which is required to be adopted by the Company at the end of 1997. At that
     time, the Company will be required to change the method currently used to
     compute earnings per share and to restate all prior periods. Under the new
     requirements for calculating primary earnings per share, the dilutive
     effect of stock options will be excluded. If the provisions of FAS 128 were
     adopted for the three and six months ended June 28, 1997, then the
     Company's pro forma basic earnings per share would have been $0.24 and
     $0.47, respectively.

                                       6
<PAGE>
 
5.  NONRECURRING ITEMS

     On May 2, 1997, S.M. Hassan, the former president of the Company,
     voluntarily terminated his employment. Pursuant to an employment agreement
     with the Company dated July 12, 1996, Mr. Hassan will receive severance of
     approximately $476,000 payable over the next three years. The Company
     accrued the full amount of this severance obligation in the second quarter
     of 1997.

     On June 26, 1997, the Company sold the land and building formerly occupied
     by its Lawrence, Kansas store for a net gain of $565,000.

                                       7
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Form 10-Q contains forward-looking statements within the context of Section
21E of the Securities Exchange Act of 1934, as amended.  Each and every forward-
looking statement involves a number of risks and uncertainties, including the
Risk Factors specifically delineated and described in the Company's 1996 Annual
Report to Stockholders and those Risk Factors that have been specifically
expanded or modified below.  The actual results that the Company achieves may
differ materially from any forward-looking statements due to such risks and
uncertainties.  Words such as "believes", "anticipates", "expects", "intends",
and similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements.  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.

Certain of the Risk Factors are hereby restated, modified and expanded in
accordance with the following section references that correlate to the
corresponding sections of the Company's 1996 Annual Report to Stockholders:

UNCERTAIN ABILITY TO EXECUTE GROWTH STRATEGY (AMENDED)

The Company's business has grown considerably in size and geographic scope,
increasing from six stores located primarily in Colorado in 1991, to its current
size of 50 stores (as of the date of this report on Form 10-Q) in eleven states
and Canada.  The Company acquired six stores and opened one store during the six
months ended June 28, 1997.  During 1996, the Company opened seven stores,
including one store originally scheduled to open in 1997, and acquired 13
stores.  Early in the third quarter of 1997, the Company acquired three stores
and anticipates opening as many as four additional new stores during 1997.  The
Company also anticipates that it may acquire one or more operating natural foods
grocery stores during the remainder of 1997.  The Company's ability to implement
its growth strategy depends to a significant degree upon its ability to open or
acquire stores in existing and new markets and to integrate and operate those
stores profitably.  While the Company plans to expand primarily through the
opening of new stores, it will continue to pursue acquisitions of natural foods
retailers where attractive opportunities exist.  The Company's growth strategy
is dependent upon a number of factors, including its ability to: (i) access
adequate capital resources; (ii) expand into regions where it has no operating
experience; (iii) identify markets that meet its site selection criteria; (iv)
locate suitable store sites and negotiate acceptable lease terms; (v) locate
acquisition targets and negotiate acceptable acquisition terms; (vi) hire, train
and integrate management and store employees; (vii) recruit, retain and train
regional pre-opening and support teams; and (viii) expand its distribution and
other operating systems.  In addition, the Company pursues a strategy of
clustering stores in each of its markets to increase overall sales, achieve
operating efficiencies and further penetrate markets.  In the past, when the
Company has opened a store in a market where it had an existing presence, the
Company has experienced a decline in the sales and operating results at certain
of its existing stores in these markets.  The Company intends to continue to
pursue its store clustering strategy and expects the sales and operating result
trends for other stores in an expanded market to continue to experience
temporary declines related to the clustering of stores.  Further, acquisitions
involve a number of additional risks, such as short-term negative effects on the
Company's reported operating results, diversion of management's attention,
unanticipated problems or legal liabilities, and the integration of potentially
dissimilar operations, some or all of which could have a material adverse effect
on the Company's business, results of operations and financial condition. There
can be no assurance that the Company will achieve its planned expansion in
existing markets, enter new markets, or operate or integrate its existing,
newly-opened or newly-acquired stores profitably.  If the Company fails to do
so, the Company's business, results of operations and financial condition will
be materially and adversely affected.  In addition, the Company's ability to
execute its growth strategy is partially dependent upon the demographic trends
and market conditions in the natural foods industry and any change in those
trends and conditions could adversely effect the Company's future growth rate.

COMPETITION (AMENDED)

The Company believes its primary competitor in the natural foods grocery store
market is Whole Foods Market, Inc. ("Whole Foods"), a publicly-traded company
based in Texas.  Whole Foods has announced that in January 1998 it will open a
39,000-square-foot store in Boulder, Colorado, the location of the Company's
headquarters and three of its stores.  Whole Foods' management also has
announced that it intends to seek additional store sites in other cities in
which the Company has stores.  If Whole Foods is successful in opening stores in
locations in which the Company has or intends to open stores, the Company's
sales and operating results at such stores may be materially adversely affected.

FLUCTUATIONS IN OPERATING RESULTS

The Company's results of operations may fluctuate significantly from period-to-
period as the result of a variety of factors, including: (i) the number, timing
and mix of store openings, acquisitions or closings; (ii) the ratio of stores
opened to stores acquired; (iii) the opening of stores by the Company or its
competitors in markets where the Company has existing stores; (iv) comparable
store sales results; and (v) the ratio of urban format to supermarket format
stores.  The Company incurs significant pre-opening expenses and new stores
typically experience an initial period of operating losses.  As a result, the
opening of a significant number of stores in a single period will have an
adverse effect on the Company's results of operations.  In addition, the
Company's store base is geographically concentrated, and shifts in economic or
demographic trends and consumer preferences in a particular market could have an
adverse effect on the Company's results of operations.  Further, a variety of
factors affect the Company's comparable store sales results, including, among
others, the relative proportion of new stores to mature stores, the opening of
stores by the Company or its competitors in markets where the Company has
existing stores, the timing of promotional events, the Company's ability to
execute its operating strategy effectively, changes in consumer preferences for
natural foods and general economic conditions.  Past increases in comparable
store sales may not be indicative of future operating performance.  Due to the
foregoing factors, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and that such comparisons
cannot be relied upon as indicators of future financial performance.

                                       8
<PAGE>
 
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain selected
income statement data expressed as a percentage of sales:
<TABLE>
<CAPTION>
 
                                                        THREE MONTHS ENDED           SIX MONTHS ENDED
                                                        JUNE 28,    JUNE 29,       JUNE 28,    JUNE 29,
                                                         1997         1996           1997       1996
<S>                                                     <C>         <C>            <C>         <C>
 
Sales                                                   100.0%      100.0%         100.0%      100.0%
Cost of goods sold and occupancy costs                   69.6        67.5           69.1        68.1
                                                        -----       -----          -----       -----
Gross margin                                             30.4        32.5           30.9        31.9
Direct store expenses                                    23.0        24.7           23.0        24.4
Selling, general and administrative expenses              3.8         4.2            4.2         4.2
Pre-opening expenses                                                  1.4            0.1         1.1
                                                        -----       -----          -----       -----
Income from operations                                    3.6         2.2            3.6         2.1
Interest income (expense), net                            0.1        (0.8)           0.2        (0.8)
                                                        -----       -----          -----       -----
Income before income taxes                                3.7         1.3            3.8         1.3
Income tax expense                                        1.5         0.6            1.6         0.6
                                                        -----       -----          -----       -----
Net income                                                2.2%        0.7%           2.2%        0.7%
                                                        =====       =====          =====       =====
</TABLE>

Store Openings and Acquisitions.  In the first quarter of 1997, the Company
acquired six stores: two in south Florida, two in Eugene, Oregon, and two in
Memphis, Tennessee.  The Company also opened a new store in Sacramento,
California.  Early in the third quarter of 1997, the Company acquired three
stores in Phoenix, Arizona.  The Company plans to open as many as four
additional stores in 1997.  The Company anticipates that it also may acquire one
or more operating natural foods grocery stores during the remainder of 1997. The
Company's results of operations have been and will continue to be affected by,
among other things, the number, timing and mix of store openings, acquisitions
or closings. 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.  The
Company anticipates that the new store opened in the first quarter of 1997 and
new stores opened later in 1997 will experience operating losses for the first
six to twelve months of operation, in accordance with historic trends.  Further,
acquired stores, while generally profitable as of acquisition date, generate
lower gross margins and store contribution margins than the Company average, due
to their substantially lower volume purchase discounts.  Over time, typically
six months, as the Company sells through the acquired inventories and implements
its volume purchase discounts, the Company expects that the gross margin and
store contribution margin of the acquired stores will approach the Company
average.  The Company anticipates that a high concentration of acquired stores,
such as in the first quarter of 1997, will have a temporary negative impact on
the Company's consolidated gross margin and store contribution margin.  The
Company will continue to evaluate the profitability of all its stores on an
ongoing basis and may, from time to time, make decisions regarding closures,
relocations or remodels in accordance with such evaluations.

SALES.  Sales for the three months ended June 28, 1997 increased 109.0% to $76.7
million from $36.7 million for the same period in 1996.  Sales for the six
months ended June 28, 1997 increased 112.4% to $146.4 million from $68.9 million
for the same period in 1996.  The increase was primarily due to the acquisition
of six stores and the opening of one new store in the first quarter of 1997, as
well as the inclusion of the 13 stores acquired and seven new stores opened in
1996.  Comparable store sales increased 1% for the second quarter of 1997 and 5%
for the six months then ended, based on both new and acquired stores that have
been operating longer than 12 months.  The comparable store sales increase for
the second quarter includes a comparison against significant sales increases in
the Company's Colorado and Vancouver, British Columbia store bases in the second
quarter of 1996 resulting from a strike at conventional supermarkets in those
regions.  Exclusive of the strike comparison, comparable stores sales increased
5% in the second quarter of 1997 and 7% for the six months then ended.

GROSS PROFIT. Gross profit for the three months ended June 28, 1997 increased
95.4% to $23.3 million from $11.9 million for the same period in 1996.  Gross
profit for the six months ended June 28, 1997 increased 105.8% to $45.2 million
from $22.0 million for the same period in 1996.  The increase in gross profit is
primarily attributable to the acquisition of six stores and the opening of one
new store during the first quarter of 1997, as well as the inclusion of the 13
stores acquired and seven new stores opened in 1996.  Gross profit as a
percentage of sales for the three months ended June 28, 1997 decreased to 30.4%
from 32.5% for the same period in 1996.  Gross profit as a percentage of sales
for the six months ended June 28, 1997 decreased to 30.9% from 31.9% for the
same period in 1996.  The decrease is attributable to lower initial gross
margins contributed by six stores acquired and one new store opened in the first
quarter of 1997, as well as pricing discounts related to the Company's expanded
product promotion program begun in the first quarter of 1997.  The Company
expects this lower gross margin trend to continue for the remainder of 1997.

DIRECT STORE EXPENSES.  Direct store expenses for the three months ended June
28, 1997 increased 94.8% to $17.6 million from $9.1 million for the same period
in 1996. Direct store expenses for the six months ended June 28, 1997 increased
100.0% to $33.7 million from $16.8 million for the same period in 1996.  The
increase in direct store expenses is attributable to the increase in the number
of stores operated by the Company.  Direct store expenses as a percentage of
sales for the three months ended June 28, 1997 decreased to 23.0% from 24.7% for
the same period in 1996.  Direct store expenses as a percentage of sales for the
six months ended June 28, 1997 decreased to 23.0% from 24.4% for the same period
in 1996. The decrease is due to the matured performance of the new stores opened
in 1996, as well as greater leverage of payroll and certain fixed costs over
higher sales volumes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses for the three months ended June 28, 1997 increased 88.2%
to $2.9 million from $1.5 million for the same period in 1996.  Selling, general
and administrative expenses for the six months ended June 28, 1997 increased
112.1% to $6.1 million from $2.9 million for the same period in 1996.  The
increase is the result of  the additional central and regional support staff and
infrastructure that the Company has added to support its increased number of
stores.  For the three months ended June 28, 1997, selling, general and
administrative expenses as a percentage of sales decreased to 3.8% from 4.2% for
the same period in 1996. The decrease is the result of the reduction of certain
marketing expenses as well as greater leverage of overhead expenses over higher
sales volumes.  For the six months ended June 28, 1997, selling, general and
administrative expenses as a percentage of sales remained constant at 4.2% as
compared to the same period in 1996.

                                       9
<PAGE>
 
PRE-OPENING EXPENSES.   There were no pre-opening expenses for the three months
ended June 28, 1997 as compared to $532,000 in the same period in 1996 as there
were no new stores opened in the second quarter of 1997 versus two new stores
opened in the same quarter of 1996. For the six months ended June 28, 1997, pre-
opening costs decreased 76.7% from the same period in 1996 due to the opening of
one new store in the first six months of 1997 versus three new stores in the
same period in 1996.

NET INTEREST INCOME (EXPENSE).  Net interest income for the three months ended
June 28, 1997 increased to $77,000 from $309,000 of net interest expense for the
same period in 1996. Net interest income for the six months ended June 28, 1997
increased to $232,000 from $584,000 of net interest expense for the same period
in 1996.  The change is attributable to the investment of the net proceeds from
the Company's initial public offering in October 1996 and to the repayment of
substantially all of the Company's long-term debt.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of capital have been cash flow from operations,
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 and acquisitions.

Net cash provided by operating activities was $6.3 million during the six months
ended June 28, 1997 and $2.3 million during the comparable period in 1996.  Cash
provided by operating activities increased during this period primarily as a
result of increases in net income before depreciation expense, offset by
decreases in trade payables due to accelerated payments on certain accounts to
take advantage of payment discounts.  The Company has not required significant
external financing to support inventory requirements at its existing and new
stores because it has been able to rely on vendor financing for most of the
inventory costs, and anticipates that vendor financing will continue to be
available for new store openings.

Net cash used by investing activities was $16.3 million during the six months
ended June 28, 1997 as compared to $5.8 million during the comparable period in
1996.  The increase is due to the acquisition of six stores and opening of one
new store during the first quarter of 1997, as well as the construction costs
incurred for new stores in development which are expected to open later in 1997
and in the first half of 1998.

Net cash provided by financing activities was $762,000 during the six months
ended June 28, 1997 and $4.0 million during the comparable period in 1996.   The
decrease results from the Company funding its growth with the proceeds of its
October 1996 initial public offering of common stock, rather than reliance on
bank debt.
 
On April 15, 1997, the Company increased its revolving line of credit to $40.0
million from $20.0 million.  The facility has a seven-year term and bears
interest, at the Company's option, at the prime rate or LIBOR plus 1.25%.  The
line of credit agreement includes certain financial and other covenants, as well
as restrictions on payments of dividends.  As of August 12, 1997, there was
approximately $1.0 million outstanding under this facility.

The Company anticipates that it will spend approximately $6.5 million during the
third quarter of 1997 for new store development, remodels and maintenance
capital expenditures and the acquisition of three stores in Phoenix, Arizona.
One new store opening is planned for the third quarter of 1997.  The Company's
average capital expenditures to open a store, including leasehold improvements,
equipment and fixtures, have ranged from approximately $1.0 million to $2.0
million over the past 24 months, excluding inventory costs and initial operating
losses.  The Company expects to increase the average size of its new stores and
increase the number of its new store openings over time, and is using a greater
proportion of new and custom equipment in its stores.  This may result in an
increase in the Company's average capital expenditures per new store as early as
the third and fourth quarters of 1997.  The cost of initial inventory for a new
store has historically been approximately $500,000; however, the Company relies
on vendor financing for most of this cost.  Pre-opening costs are approximately
$250,000 per store and are expensed when the new store opens.  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 the Company, 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.  As of June 30, 1997, the Company had used all of the
proceeds of its initial public offering.  If the Company should complete any
additional acquisitions in exchange for cash during 1997, such acquisitions
could be funded with borrowings under the Company's revolving credit facility.

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<PAGE>
 
PART II.  OTHER INFORMATION


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

At the Company's Annual Meeting of Stockholders, held on May 1, 1997, the
Company's stockholders elected the following directors for a three-year term:
Peter D. Behrendt, David M. Chamberlain, and Michael C. Gilliland.  The
directors were elected by the following number of votes:

 
                                     For     Withheld
                                  ---------  --------
 
          Peter D. Behrendt       5,442,948    39,328
          David M. Chamberlain    5,445,448    36,828
          Michael C. Gilliland    5,445,398    36,878
 

The remaining directors whose terms continue after the meeting date are:
Elizabeth C. Cook, David L. Ferguson, M. Laird Koldyke, James B. McElwee, and
John A. Shields.  The stockholders also ratified the appointment of Price
Waterhouse LLP as the Company's independent accountants for fiscal 1997 by a
vote of 5,471,422 for, 2,589 against and 8,265 abstained.  There were no broker
non-votes.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

  (a)  Exhibits

       EXHIBIT
       NUMBER        DESCRIPTION OF DOCUMENT
       -------       -----------------------

       3(i).1.(a)    Amended and Restated Certificate of Incorporation 
                     of Registrant.*
 
       3(i).1.(b)    Certificate of Correction to Amended and Restated 
                     Certificate of Incorporation of the Registrant.*

       3(ii).1       Amended and Restated By-Laws of Registrant.*

       4.1           Reference is Made to Exhibits 3(i).1 Through 3(ii).1.*

       4.2           Specimen Stock Certificate.*

       10.1          Credit Agreement between the Registrant and Bank One, 
                     Indiana, N.A. as Agent and Wells Fargo Bank (Colorado) 
                     National Association dated April 15, 1997.
 
       11.1          Statement Regarding Computation of Net Income Per Share 
                     and Pro Forma Net Income Per Share.

       27.1          Financial Data Schedule.


  *    Previously filed.
 

  (b)  Reports on Form 8-K. There were no reports on Form 8-K for the three-
       month period ended June 28, 1997.


 

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boulder, County of
Boulder, State of Colorado, on the 12th day of August, 1997

                          WILD OATS MARKETS, INC.

                          By  /s/  Mary Beth Lewis
                              --------------------
                                   Mary Beth Lewis
                                   Executive Officer, Treasurer and 
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)

                                       11