TABLE OF CONTENTS

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 
    SEPTEMBER 25, 2004       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                  
|    | 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 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)







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

Yes       ( X )       No      (
)



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

Yes       ( X )       No      (
)



As of November 1, 2004, there were 28,484,901 shares outstanding of the
Registrant's Common Stock (par value $.001 per share).



1

---







TABLE OF CONTENTS

|PART I.                |  | FINANCIAL
    INFORMATION                                                                                                                              | 
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|                       |  |                                                                                                                                                        | 
|Item 1.                |  | Financial Statements:                                                                                                                                  | 
|                       |  |                                                                                                                                                        | 
|                       |  | Consolidated Balance Sheets, September 25,
      2004 (unaudited) 
      and December 27, 2003                                                         | 
|                       |  |                                                                                                                                                        | 
|                       |  | Consolidated Statements of
      Operations (unaudited), 
      Three and Nine Months Ended September 25, 2004 and September 27, 2003                  | 
|                       |  |                                                                                                                                                        | 
|                       |  | Consolidated Statements of
      Comprehensive (Loss) Income (unaudited), 
      Three and Nine Months Ended September 25, 2004 and September 27, 2003 | 
|                       |  |                                                                                                                                                        | 
|                       |  | Consolidated Statements of Cash
      Flows (unaudited), 
      Nine Months Ended September 25, 2004 and September 27, 2003                            | 
|                       |  |                                                                                                                                                        | 
|                       |  | Notes to
      Consolidated Financial Statements (unaudited)                                                                                           | 
|                       |  |                                                                                                                                                        | 
|Item 2.                |  | Managements Discussion and Analysis of Financial Condition and Results of
    Operations                                                              | 
|                       |  |                                                                                                                                                        | 
|Item 3.                |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                             | 
|                       |  |                                                                                                                                                        | 
|Item 4.                |  | Controls and Procedures                                                                                                                                | 
|                       |  |                                                                                                                                                        | 
|                       |  |                                                                                                                                                        | 
|PART II.               |  | OTHER
      INFORMATION                                                                                                                                | 
|                       |  |                                                                                                                                                        | 
|Item 1.                |  | Legal Proceedings                                                                                                                                      | 
|                       |  |                                                                                                                                                        | 
|Item 2.                |  | Changes in Securities                                                                                                                                  | 
|                       |  |                                                                                                                                                        | 
|Item 3.                |  | Defaults
    Upon Senior Securities                                                                                                                    | 
|                       |  |                                                                                                                                                        | 
|Item 4.                |  | Submission
    of Matters to a Vote of Security Holders                                                                                                | 
|                       |  |                                                                                                                                                        | 
|Item 5.                |  | Other Information                                                                                                                                      | 
|                       |  |                                                                                                                                                        | 
|Item 6.                |  | Exhibits
    and Reports on Form 8-K                                                                                                                   | 
|                       |  |                                                                                                                                                        | 
|SIGNATURE AND EXHIBITS | 
|                       |  |                                                                                                                                                        | 
|                       |  | Signatures                                                                                                                                             | 
|                       |  |                                                                                                                                                        | 



2

---

PART
I.  FINANCIAL INFORMATION





Item
1.  Financial Statements





WILD OATS MARKETS, INC.

Consolidated Balance Sheets

(in thousands, except share data)

|                                         |                                   |                                                                                                                                   |                               |          | September 25, |          | December 27,
|---------------------------------------- | --------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | -------- | ------------- | -------- | ------------
|                                         |                                   |                                                                                                                                   |                               |          | 2004          |          | 2003        
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   |                               |          | (unaudited)   |          |             
|ASSETS                                   |                                   |                                                                                                                                   |                               |         
|                                         |                                   |                                                                                                                                   |                               |          |              
|                                         | Current assets:                   |                                                                                                                                   |                               |          |              
|                                         |                                   | Cash and cash equivalents                                                                                                         |                               | $ 28,068 |               | $ 17,400
|                                         |                                   | Short term investments                                                                                                            |                               | 26,299   |               | -       
|                                         |                                   | Inventories, net of reserves                                                                                                      |                               | 53,059   |               | 46,621  
|                                         |                                   | Accounts receivable, net of
    allowance for doubtful    accounts                                                                |                               | 2,701    |               | 4,038   
|                                         |                                   | Income tax receivable                                                                                                             |                               | 81       |               | 261     
|                                         |                                   | Prepaid expenses and other current
    assets                                                                                     |                               | 1,202    |               | 2,192   
|                                         |                                   | Deferred tax asset                                                                                                                |                               | 8,106    |               | 6,340   
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   | Total current assets          |          | 119,516       |          | 76,852      
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         | Property and equipment, net       |                                                                                                                                   | 151,659                       |          | 130,989      
|                                         | Goodwill, net                     |                                                                                                                                   | 106,084                       |          | 106,404      
|                                         | Other intangible assets, net      |                                                                                                                                   | 6,692                         |          | 6,976        
|                                         | Deposits and other assets         |                                                                                                                                   | 6,341                         |          | 2,932        
|                                         | Deferred tax asset                |                                                                                                                                   | 12,608                        |          | 12,438       
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   |                               |          | $ 402,900     |          | $ 336,591   
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   |                               |         
|LIABILITIES AND
    STOCKHOLDERS EQUITY |                                   |                                                                                                                                   |                               |         
|                                         |                                   |                                                                                                                                   |                               |          |              
|                                         | Current liabilities:              |                                                                                                                                   |                               |          |              
|                                         |                                   | Accounts payable                                                                                                                  |                               | $ 55,835 |               | $ 47,529
|                                         |                                   | Book overdraft                                                                                                                    |                               | 21,534   |               | 26,727  
|                                         |                                   | Accrued liabilities                                                                                                               |                               | 45,731   |               | 42,998  
|                                         |                                   | Current portion of capital leases                                                                                                 |                               | 27       |               | 14      
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   | Total current liabilities     |          | 123,127       |          | 117,268     
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         | Long-term debt and capital leases |                                                                                                                                   | 115,190                       |          | 30,179       
|                                         | Other long-term obligations       |                                                                                                                                   | 13,674                        |          | 14,058       
|                                         |                                   |                                                                                                                                   | Total liabilities             |          | 251,991       |          | 161,505     
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   | Commitments and contingencies |          |               |          |             
|                                         |                                   |                                                                                                                                   |                               |          |              
|                                         | Stockholders equity:             |                                                                                                                                   |                               |          |              
|                                         |                                   | Preferred stock, $0.001 par value;
    5,000,000 shares    authorized, no shares issued and outstanding                           |                               | -        |               | -       
|                                         |                                   | Common stock, $0.001 par value;
    60,000,000 shares    authorized, 30,462,534 and 30,063,421 shares
       issued, respectively |                               | 30       |               | 30      
|                                         |                                   | Treasury stock, at cost: 1,977,800
    shares as ofSeptember 25, 2004                                                             |                               | (24,999) |               | -       
|                                         |                                   | Additional paid-in capital                                                                                                        |                               | 221,878  |               | 217,400 
|                                         |                                   | Note receivable, related party                                                                                                    |                               | (11,262) |               | (10,815)
|                                         |                                   | Accumulated deficit                                                                                                               |                               | (35,122) |               | (31,777)
|                                         |                                   | Accumulated other comprehensive
    income                                                                                        |                               | 384      |               | 248     
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   | Total stockholders equity    |          | 150,909       |          | 175,086     
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   |                               |          | $ 402,900     |          | $ 336,591   
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             
|                                         |                                   |                                                                                                                                   |                               |          |               |          |             



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



3

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WILD OATS MARKETS, INC.

Consolidated Statements
of Operations

(in thousands, except per-share data) (unaudited)



|                                                                  |                                                              |                                   |          |           | THREE MONTHS ENDED |           | NINE MONTHS ENDED 
|----------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------- | -------- | --------- | ------------------ | --------- | ------------------
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|                                                                  |                                                              |                                   |          |           | Sept 25, 
    2004 |           | Sept 27, 
    2003
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|Sales                                                             |                                                              | $ 250,739                         |          | $ 237,028 |                    | $ 766,231 |                   
|Cost of goods sold and occupancy
    costs                        |                                                              | 181,864                           |          | 168,158   |                    | 547,070   |                   
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|Gross profit                                                      |                                                              | 68,875                            |          | 68,870    |                    | 219,161   |                   
|Operating expenses:                                               |                                                              |                                   |          |           |                    |           |                   
|                                                                  | Direct store expenses                                        |                                   | 57,898   |           | 53,114             |           | 171,212           
|                                                                  | Selling, general and
    administrative expenses             |                                   | 15,517   |           | 15,472             |           | 45,456            
|                                                                  | Loss on disposal of assets                                   |                                   | 192      |           | 661                |           | 170               
|                                                                  | Pre-opening expenses                                         |                                   | 1,399    |           | 616                |           | 3,500             
|                                                                  | Restructuring and asset impairment
    charges (income), net |                                   | 2,124    |           | 134                |           | 2,289             
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|                                                                  |                                                              | (Loss) income from operations     |          | (8,255)   |                    | (1,127)   |                   
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|                                                                  | Loss on early extinguishment of
    debt                     |                                   | -        |           | -                  |           | -                 
|                                                                  | Interest income                                              |                                   | 370      |           | 199                |           | 778               
|                                                                  | Interest expense                                             |                                   | (1,179)  |           | (484)              |           | (1,986)           
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|                                                                  |                                                              | (Loss) income before income taxes |          | (9,064)   |                    | (1,412)   |                   
|                                                                  | Income tax (benefit) expense                                 |                                   | (2,999)  |           | (551)              |           | (1,329)           
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|Net (loss) income                                                 |                                                              | $ (6,065)                         |          | $ (861)   |                    | $ (3,345) |                   
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|Net (loss) income per common
    share:                           |                                                              |                                   |          |           |                    |           |                   
|                                                                  | Basic                                                        |                                   | $ (0.21) |           | $ (0.03)           |           | $ (0.11)          
|                                                                  | Diluted                                                      |                                   | $ (0.21) |           | $ (0.03)           |           | $ (0.11)          
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|Weighted average common shares
    outstanding, basic             |                                                              | 28,458                            |          | 29,898    |                    | 29,480    |                   
|Dilutive effect of stock options
    and restricted stock units   |                                                              | -                                 |          | -         |                    | -         |                   
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|Weighted average common shares
    outstanding, assuming dilution |                                                              | 28,458                            |          | 29,898    |                    | 29,480    |                   
|                                                                  |                                                              |                                   |          |           |                    |           |                   
|                                                                  |                                                              |                                   |          |           |                    |           |                   





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



4

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WILD OATS MARKETS, INC.

Consolidated Statements of Comprehensive (Loss)Income

(in thousands) (unaudited)

|                                       |                                                                                                                           |           |     |         | THREE MONTHS
    ENDED |           | NINE MONTHS ENDED
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | --------- | --- | ------- | ---------------------- | --------- | -----------------
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|                                       |                                                                                                                           |           |     |         | Sept 25,               |           | Sept 27,         
|                                       |                                                                                                                           |           |     |         | 2004                   |           | 2003             
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|Net (loss) income                      |                                                                                                                           | $ (6,065) |     | $ (861) |                        | $ (3,345) |                  
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|Other comprehensive
    income (loss): |                                                                                                                           |           |     |         |                        |           |                  
|                                       | Foreign currency
    translation adjustments    arising during the period                                                 |           | 346 |         | 80                     |           | 127              
|                                       | Unrealized gain on
    available-for-sale    securities, net of tax of $5 and $5,
       respectively                     |           | 7   |         | -                      |           | 7                
|                                       | Recognition of hedge
    results to interest    expense during the period, net of tax of
       $51and $367, respectively |           | -   |         | 85                     |           | -                
|                                       | Change in market value
    of cash flow    hedge during the period, net of tax of
       $12                              |           | -   |         | -                      |           | -                
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|Other comprehensive
    income         |                                                                                                                           | 353       |     | 165     |                        | 134       |                  
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|Comprehensive (loss)
    income        |                                                                                                                           | $ (5,712) |     | $ (696) |                        | $ (3,211) |                  
|                                       |                                                                                                                           |           |     |         |                        |           |                  
|                                       |                                                                                                                           |           |     |         |                        |           |                  





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



5

---

WILD OATS MARKETS, INC.

Consolidated Statements
of Cash Flows

(in thousands) (unaudited)

|                                                                 |                                                                                          |                                                                       |                                                         |          | NINE MONTHS ENDED
|---------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------- | -------- | -----------------
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       |                                                         |          | Sept 25,         
|                                                                 |                                                                                          |                                                                       |                                                         |          | 2004             
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|CASH FLOWS FROM OPERATING
    ACTIVITIES                         |                                                                                          |                                                                       |                                                         |         
|                                                                 | Net (loss) income                                                                        |                                                                       | $ (3,345)                                               |          | $ 2,762          
|                                                                 | Adjustments to reconcile net
    income to net cash provided by operating    activities: |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          | Depreciation and amortization                                         |                                                         | 18,745   |                  
|                                                                 |                                                                                          | Loss on disposal of property and
    equipment                        |                                                         | 170      |                  
|                                                                 |                                                                                          | Deferred tax (benefit) expense                                        |                                                         | (1,927)  |                  
|                                                                 |                                                                                          | Non-cash restructuring and asset
    impairment expense (income), net |                                                         | 2,251    |                  
|                                                                 |                                                                                          | Income tax benefit of employee
    stock option exercises             |                                                         | 445      |                  
|                                                                 |                                                                                          | Other                                                                 |                                                         | (447)    |                  
|                                                                 | Change in assets and liabilities:                                                        |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          | Inventories, net                                                      |                                                         | (6,630)  |                  
|                                                                 |                                                                                          | Receivables, net, and other assets                                    |                                                         | 3,308    |                  
|                                                                 |                                                                                          | Accounts payable                                                      |                                                         | 10,930   |                  
|                                                                 |                                                                                          | Accrued liabilities                                                   |                                                         | 1,068    |                  
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       | Net cash provided by operating
    activities           |          | 24,568           
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|CASH FLOWS FROM INVESTING
    ACTIVITIES                         |                                                                                          |                                                                       |                                                         |         
|                                                                 | Capital expenditures                                                                     |                                                                       | (42,980)                                                |          | (22,070)         
|                                                                 | Purchase of short term investments                                                       |                                                                       | (26,287)                                                |          | -                
|                                                                 | Proceeds from sale of property and
    equipment                                         |                                                                       | 988                                                     |          | 326              
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       | Net cash used in investing
    activities               |          | (68,279)         
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|CASH FLOWS FROM FINANCING
    ACTIVITIES                         |                                                                                          |                                                                       |                                                         |         
|                                                                 | Net repayments under
    line-of-credit agreement                                        |                                                                       | (30,179)                                                |          | (6,700)          
|                                                                 | Net decrease in book overdraft                                                           |                                                                       | (5,215)                                                 |          | (489)            
|                                                                 | Repayments on long-term debt and
    capital leases                                      |                                                                       | (50)                                                    |          | (37,102)         
|                                                                 | Proceeds from long term debt                                                             |                                                                       | 115,150                                                 |          | 37,879           
|                                                                 | Purchase of treasury stock                                                               |                                                                       | (24,999)                                                |          | -                
|                                                                 | Payment of debt issuance costs                                                           |                                                                       | (3,866)                                                 |          | (721)            
|                                                                 | Proceeds from issuance of common
    stock, net                                          |                                                                       | 3,370                                                   |          | 2,455            
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       | Net cash provided by (used in)
    financing activities |          | 54,211           
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|Effect of exchange rate changes on cash                          |                                                                                          | 168                                                                   |                                                         | 64      
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|Net increase (decrease) in cash and cash
    equivalents         |                                                                                          | 10,668                                                                |                                                         | (156)   
|Cash and cash equivalents at beginning of
    period             |                                                                                          | 17,400                                                                |                                                         | 11,367  
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|Cash and cash equivalents at end of period                       |                                                                                          | $ 28,068                                                              |                                                         | $ 11,211
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|SUPPLEMENTAL DISCLOSURE OF
    NON-CASH INVESTING AND FINANCING: |                                                                                          |                                                                       |                                                        
|                                                                 | Equipment acquired through capital
    lease                                             |                                                                       | $        105                                            |          |                  
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  
|                                                                 |                                                                                          |                                                                       |                                                         |          |                  





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



6

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WILD OATS MARKETS, INC.

Notes
to Consolidated Financial Statements

(unaudited)



|1. | Nature of Operations and Basis of
    Presentation
|-- | --------------------------------------------------



Wild Oats Markets, Inc. ("Wild Oats" or the
"Company"), headquartered in Boulder, Colorado, owns and operates natural and
organic foods supermarkets in the United States and Canada. The Company also operates
bakeries, commissary kitchens and a distribution center that supply the 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.



The consolidated balance sheet as of September 25, 2004, the
consolidated statements of operations and comprehensive (loss) income for the three months
and nine months ended September 25, 2004 and September 27, 2003, as well as the
consolidated statements of cash flows for the nine months ended September 25, 2004 and
September 27, 2003 have been prepared without an audit. In the opinion of management, all
adjustments, consisting only of normal, recurring adjustments necessary for a fair
statement thereof, have been made.

The financial statements have been prepared by the Company in accordance
with the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to SEC regulations,
therefore, these consolidated financial statements should be read in conjunction with
financial statements and notes thereto included in the Company's 2003 Annual Report on
Form 10-K. The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses
and related disclosures of contingent assets and liabilities. Examples include accounting
for self-insurance reserves, restructuring charges and store closing costs, asset
impairment charges, goodwill, inventory valuation, and contingencies. Actual results may
differ from these estimates. The results of operations for interim periods presented are
not necessarily indicative of the operating results for the full year.



Certain prior period information has been reclassified to conform to the
current presentation.

The unaudited information included in the consolidated financial
statements for the three months and nine months ended September 25, 2004 and September 27,
2003 include the results of operations of the Company for the 13 weeks and 39 weeks then
ended.





|2. | Short-Term Investment Policy
|-- | ----------------------------





The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity computed under the
effective interest method. Such amortization is included in investment income. Realized
gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income. The cost of securities
sold is based on the specific identification method. Interest and dividends on securities
classified as available-for-sale are included in investment income.





|3. | Stock-Based Compensation
|-- | ------------------------



At September 25, 2004, the Company had six stock-based employee
compensation plans, which are described more fully in Note 9  Stock Plans and
Options in our fiscal 2003 Annual Report filed on Form 10-K for the period ended
December 27, 2003. These plans allow for awards of both stock options and restricted stock
units ("RSUs"). The Company accounts for those plans in accordance with the
intrinsic value based method in APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Some stock-based compensation expense is
reflected in net income for options issued at a discount and for RSUs issued 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 stock-based compensation expense is reflected in net income for these
grants. Also reflected in results of operations for the fiscal years to date ended
September 25, 2003, and September 27, 2004, respectively, is compensation expense of
$315,000 and $182,000, respectively, relating to the extension of the option exercise
period beyond Company-imposed blackout periods for previously granted stock options held
by retiring members of the Board of Directors.



7

---



As required by Financial Accounting Standards Board Statement Nos. 123, Accounting
for Stock-Based Compensation ("SFAS 123"),and 148, Accounting for
Stock-Based Compensation-Transition and Disclosure ("SFAS 148"), the
following table illustrates the effect on net income and earnings per share if stock-based
compensation costs were to be calculated based on the fair value of the options granted
and recognized ratably over the vesting period as prescribed in SFAS No. 123 (in
thousands):



|                               |                                                                                                                        |                             |       |           | THREE MONTHS ENDED |           | NINE MONTHS ENDED 
|------------------------------ | ---------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----- | --------- | ------------------ | --------- | ------------------
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        |                             |       |           | Sept 25, 
    2004 |           | Sept 27, 
    2003
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|Net (loss) income, as reported |                                                                                                                        | $ (6,065)                   |       | $ (861)   |                    | $ (3,345) |                   
|                               | Add: Stock-based compensation
    expense included in reported net income, net of tax                                  |                             | 78    |           | 24                 |           | 414               
|                               | Deduct: Total stock-based
    compensation expense determined under fair value based method for all awards, net of tax |                             | (286) |           | (727)              |           | (1,776)           
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        | Pro forma net income (loss) |       | $ (6,273) |                    | $ (1,564) |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               | Earnings (loss) per share:                                                                                             |                             |       |           |                    |           |                   
|                               |                                                                                                                        | Basic  as reported         |       | $ (0.21)  |                    | $ (0.03)  |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        | Basic  pro forma           |       | $ (0.22)  |                    | $ (0.05)  |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        | Diluted  as reported       |       | $ (0.21)  |                    | $ (0.03)  |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        | Diluted - pro forma         |       | $ (0.22)  |                    | $ (0.05)  |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   
|                               |                                                                                                                        |                             |       |           |                    |           |                   







In March 2004, the Financial Accounting Standards Board
("FASB") issued a proposed Statement, Share-Based Payment, which would be
an amendment to SFAS 123. This proposed standard would require share-based payments to
employees, including grants of employee stock options, to be recognized in the income
statement based on their fair values, and would eliminate the Company's ability to
continue accounting for share-based compensation transactions using the intrinsic method
in APB Opinion No. 25. The FASB expects to issue a final standard late in 2004, which
would be effective for the Company's third quarter of fiscal year 2005 reporting period.
Wild Oats has not yet determined to what degree this proposed standard will impact its
future earnings and earnings per share.





|4. | Property and Equipment
|-- | ----------------------



As a result of the significant store closings, remodels and resets, the
Company undertook a review of all fixtures and equipment in its stores in fiscal 2003,
including a physical inventory in conjunction with an asset tagging exercise. During the
first quarter of fiscal 2003, the Company substantially completed the review and recorded
a $1.5 million loss on disposal of fixtures and equipment that will no longer be used in
the stores. In the third quarter of fiscal 2003, a physical count of all office and
support facility capital assets was completed, and a $559,000 loss on disposal was
recorded.



8

---

|5. | Long Term Debt and Liquidity
|-- | ----------------------------



Contingent Convertible Senior Debentures. In June 2004, the
Company issued $115 million aggregate principal amount of its 3.25% Convertible Senior
Debentures due May 15, 2034 in a private placement. The debentures bear regular interest
at the annual rate of 3.25%, payable semiannually on May 15 and November 15 of each year
until May 15, 2011, after which date, no regular interest will be due. Commencing May 20,
2011 and ending November 14, 2011, and for any six-month period thereafter, contingent
interest will be due and payable in the amount of 0.25% of the average trading price of
the debentures during a specified period, if the average trading price of the debentures
equals or exceeds 125% of the principal amount of the debentures.



The debentures are callable and convertible into the Companys
common stock prior to maturity at the option of the holders under the following
circumstances: (1) during any calendar quarter commencing after June 30, 2004 and
before March 31, 2029, if the last reported sale price of our common stock is greater than
or equal to 130% of the conversion price of $17.70 per share; (2) at any time on or
after April 1, 2029 if the last reported sale price of our common stock on any date on or
after March 31, 2029 is greater than or equal to 130% of the conversion price;
(3) subject to certain limitations, during the five business-day period after any
five consecutive trading-day period in which the trading price per debenture for each day
of that period was less than 98% of the product of the conversion rate and the last
reported sale price of the Companys common stock; (4) if the Company calls the
debentures for redemption; (5) upon the occurrence of certain corporate transactions;
or (6) if the Company obtains credit ratings for the debentures, at any time when the
credit ratings assigned to the debentures are below specified levels. The debentures are
initially convertible into 56.5099 shares of the Companys common stock per $1,000
principal amount, which is equivalent to $17.70 per share, for total initial underlying
shares of 6,498,639. Upon conversion, the Company has the right to deliver, in lieu of
common stock, cash or any combination of cash and common stock. Pursuant to the
underwriting agreement and within 90 days of issuance, the Company intends to file a shelf
registration statement covering resales of the debentures and the common stock issuable
upon conversion thereof.



On or after May 20, 2011, the Company may redeem for cash some or all of
the debentures at any time and from time to time, for a price equal to 100% of the
principal amount of the debentures plus accrued and unpaid contingent interest, if any.
Holders have the right to require the Company to repurchase any or all debentures for
cash, at a repurchase price equal to 100% of the principal amount of the debentures, plus
accrued and unpaid interest on: (1) May 15, 2011, May 15, 2014, and May 15, 2024; and (2)
the occurrence of change in control (as defined in the debenture).



The debentures are unsecured and un-subordinated obligations, and rank
equal in priority with all of the Companys existing and future unsecured and
un-subordinated indebtedness and senior in right of payment to all of its subordinated
indebtedness. The debentures will effectively rank junior to any of the Companys
secured indebtedness and any of its indebtedness that is guaranteed by its subsidiaries.
Payment of principal and interest on the debentures will be structurally subordinated to
the liabilities of the Companys subsidiaries.



Total proceeds from the issuance were $115.2 million. The Company used
$25.0 million of the net proceeds to repurchase 1,977,800 outstanding shares of its common
stock, $31.2 million to pay the outstanding balance on its credit facility, and
approximately $3.6 million to pay related debt issuance costs.



Credit Facility.The Companys credit facility has a $95.0
million limit, and a three-year term with a one-year renewal option. Under the 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 credit facility, the Company has given its lenders
collateral in the form of cash, equipment and fixtures, inventory and other assets. The
Company has also granted leasehold mortgages in those leasehold interests previously
mortgaged to secure its former credit facility, although it has no obligation to provide a
security interest in any new leaseholds. There are various financial covenants included as
part of the original credit agreement which are as follows: (1) maximum allowable leverage
ratio, (2) minimum fixed charge coverage ratio, (3) maximum allowable annual capital
expenditures and (4) a minimum permitted stockholders equity balance. Amendments to
the credit agreement have been made during 2004 to (a) modify the adjusted leverage and
the fixed charge ratios, (b) increase the maximum interest rate, and (c) require the
Company to maintain through June 2005 minimum cash and cash equivalents balances (as
defined per the agreement) of $25 million, net of letters of credit and outstanding
borrowings under the credit facility, with the minimum required balances decreasing to $10
million beginning July 2005 and continuing through the remaining term of the agreement.



9

---

The interest rate on the facility is currently either prime plus 1.0% or
one-month LIBOR plus 2.75% 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 earnings before interest, taxes, depreciation, amortization and
rent ("EBITDAR") for the four fiscal quarter periods then ended, as calculated
on the Companys quarterly compliance certificate. Additionally, the Company is
charged a commitment fee on the unused portion of the line ranging from 0.625% to 0.75%
based on performance objectives as defined in the credit agreement. The outstanding
balance on the credit facility, other than for outstanding letters of credit, was repaid
in June 2004 from the proceeds of the private debt issuance. There is no outstanding
credit facility balance as of September 25, 2004. The balance outstanding, other than
outstanding letters of credit, on the credit facility as of December 27, 2003 was $30.2
million. As the Companys new store growth accelerates, it expects its cash
requirements for 2004 and 2005 will be primarily satisfied from the proceeds of the
private debenture issuance as well as cash generated from operations.



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





|6. | 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 prior credit facility, in
September 2000, the Company entered into a swap agreement to hedge the interest rate on
$30.0 million of its borrowings as of March 29, 2003. The swap agreement locked in a
one-month LIBOR rate of 6.7% and expired in August 2003. There was no obligation to renew
the swap under the current facility. No interest rate swap agreements are outstanding as
of September 25, 2004.



The Company does not have any derivative financial instruments as of
September 25, 2004 that meet the criteria of SFAS 133, as amended.





|7. | Earnings Per Share
|-- | ------------------



Earnings per share are calculated in accordance with the provisions of
SFAS No. 128, Earnings Per Share ("SFAS No. 128"). 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 anti-dilutive. Anti-dilutive stock options of 1,190,480 and 1,533,438 for the
three months and 614,830 and 1,219,048 for the nine months ended September 25, 2004 and
September 27, 2003, respectively, were not included in the earnings per share calculations.



The Emerging Issue Task Force ("the Task Force") of the
Financial Accounting Standards Board reached a conclusion on Issue No. 04-8, The Effect
of Contingently Convertible Debt on Diluted Earnings per Share. The Task Force has
concluded that contingently convertible debt should be included in diluted earnings per
share computations using the if-converted method regardless of whether any of the
conversion contingencies have been met, which would represent a significant change in
current accounting practice. If the Company had used the if-converted method in
calculating diluted earnings per share for the quarter and nine months ending September
25, 2004, the effect would be anti-dilutive.



10

---

|8. | Goodwill and Finite Lived Intangible Assets
|-- | -------------------------------------------



During the third quarter of 2004, no goodwill was recognized as a result
of acquisitions, no goodwill was impaired and no other changes in the carrying amount of
goodwill occurred.



Other intangible assets consist of the following (in thousands):



| |  |                               |  |             | September 25 |             | December 27,
| |  | ----------------------------- |  | ----------- | ------------ | ----------- | ------------
| |  |                               |  |             | 2004         |             | 2003        
| |  |                               |  |             |              |             |             
| |  |                               |  |            
| |  | Leasehold interests           |  | $
    8,905 |              | $
    9,045
| |  | Less accumulated amortization |  | (2,472)     |              | (2,240)    
| |  |                               |  |             |              |             |             
| |  |                               |  | 6,433       |              | 6,805      
| |  | Liquor licenses               |  | 259         |              | 171        
| |  |                               |  |             |              |             |             
| |  |                               |  | $
    6,692 |              | $
    6,976
| |  |                               |  |             |              |             |             
| |  |                               |  |             |              |            







Amortization expense related to finite lived intangible assets was
$113,000 and $121,000 for the three months and $364,000 and $362,000 for the nine months
ended September 25, 2004 and September 27, 2003, respectively. The estimated amortization
of finite lived intangible assets for each of the five fiscal years ending in fiscal 2008
is as follows (in thousands):





| | FISCAL 
    YEAR |  | AMORTIZATION EXPENSE | 
| | ---------------- |  | -------------------- | 
| |                  |  |                      | 
| |                  |  |                      | 
| | 2004             |  | $ 481                | 
| | 2005             |  | $ 491                | 
| | 2006             |  | $ 475                | 
| | 2007             |  | $ 471                | 
| | 2008             |  | $ 461                | 







|9. | Restructuring and Asset Impairment Charges
    (Income)
|-- | -------------------------------------------------------



During the third quarter of fiscal 2004, the Company recorded net
restructuring and asset impairment charges of $2,124,000 consisting of the following
components:



| | Change in estimate related to
    lease-related liabilities    for sites previously identified for closure or
    sale |                                                      | $ 348,000   | 
| | ---------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------- | 
| | Lease-related liability for
    sites closed during the    quarter                                                     |                                                      | 545,000     | 
| | Severance for employees
    terminated during the third    quarter of fiscal 2004                                      |                                                      | 614,000     | 
| | Accretion expense on lease
    related liabilities                                                                     |                                                      | 166,000     | 
| | Asset impairment charges                                                                                               |                                                      | 451,000     | 
| |                                                                                                                        |                                                      |             | 
| |                                                                                                                        | Total restructuring and asset
    impairment expense | $ 2,124,000 | 
| |                                                                                                                        |                                                      |             | 





11

---

Details of the significant components are as follows:

- Changes in estimate related to lease-related liabilities for sites
    previously identified for closure or sale ($348,000 of charges)  During the
    third quarter of 2004, the Company was notified that a subtenant in Ft. Collins, Colorado
    would not renew its sublease upon its expiration in December of 2004. The loss of the
    subtenant will require that the Company pay lease payments of $153,000, which had
    previously been paid by the sublessee. The Company incurred additional brokerage fees of
    $110,000 from a sublease agreement reached during second quarter 2004 for a vacant site in
    Missouri. The Company has also incurred additional interest and settlement costs of
    $85,000 related to litigation involving a Phoenix, Arizona location. Based on these
    changes in facts and circumstances and the related changes in estimates, the Company
    adjusted remaining lease-related liabilities previously recorded for these locations and
    recognized net restructuring loss of $348,000 during the third quarter of fiscal 2004.



- Lease-related liability for site(s) closed during the third quarter
    ($545,000 of restructuring expense) - During the third quarter of 2004, the Company
    closed a store in Colorado Springs, Colorado and in Vancouver, Washington as part of
    relocations to new sites.



- Severance for employees notified of termination in the third quarter
    of fiscal 2004 ($614,000 of restructuring expense)  During the third quarter of
    2004, 67 employees were notified of their involuntary termination in connection with the
    closure of two stores and as part of a restructuring plan to streamline the Companys
    operations. As of September 25, 2004, $250,000 in benefits had been paid to the employees.



- Accretion expense on lease-related liabilties ($166,000 of
    restructuring expense) - Accretion expense accrued during the third quarter on
    reserves for lease-related liabilities that have been calculated using the net present
    value of the minimum lease payments (net of sublease income) resulted in additional
    restructuring expense of $166,000.



In addition to the net restructuring expense described above, management
also identified during the third quarter of fiscal 2004 net asset impairment charges of
$451,000 in accordance with the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets for two stores held for use. Store assets
became impaired during the quarter because the projected cash flows of the stores were not
sufficient to fully recover the carrying value of the stores long-lived assets. The
Company believes the weak performance of the stores were caused by increased competition.
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 continually reevaluates its stores
performance to monitor the carrying value of its long-lived assets in comparison to
projected cash flows.



For the three fiscal quarters ending September 25, 2004, the Company
recorded net restructuring and asset impairment charges of $2,289,000 consisting of the
following components:



| | Change in estimate related to
    lease-related liabilities    for sites previously identified for closure or
    sale |                                                      | $ (338,000) | 
| | ---------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------- | 
| | Lease-related liability for site
    closed during the    quarter                                                      |                                                      | 585,000     | 
| | Severance for employees terminated
    during the    second quarter of fiscal 2004                                     |                                                      | 705,000     | 
| | Accretion expense on lease related
    liabilities                                                                     |                                                      | 369,000     | 
| | Asset impairment charges                                                                                               |                                                      | 968,000     | 
| |                                                                                                                        |                                                      |             | 
| |                                                                                                                        | Total restructuring and asset
    impairment expense | $ 2,289,000 | 
| |                                                                                                                        |                                                      |             | 



12

---

Details of the significant components are as follows:

- Changes in estimate related to lease-related liabilities for sites
    previously identified for closure or sale ($338,000 of restructuring income) 
    During the first quarter of 2004, the Company determined that additional time would be
    needed to dispose of certain lease obligations for vacant sites, resulting in
    restructuring expense of $236,000. During the second quarter, the Company recognized net
    restructuring income of $922,000, as a result of the following: the Company secured a
    viable subtenant for a vacant site, resulting in a reversal of $1.5 million of the net
    restructuring charge previously recorded; increased estimated reserve by $298,000 because
    information indicated the likelihood of receiving continued sublease income from a current
    subtenant was remote; and increased estimated reserves by $316,000 for additional time
    needed to dispose of lease obligations for three vacant sites. In the third quarter of
    fiscal 2004, the Company was notified of nonrenewal by a subtenant and will be obligated
    for rental payments of $153,000 per year and had other changes in estimates totalling
    $195,000.



- Lease-related liabilities for sites closed year to date through
    September 25, 2004 ($585,000 of restructuring expense) - During the year to date
    through September 25, 2004, the Company closed three stores and accrued for lease
    termination costs and remaining lease obligations.



- Severance for employees notified of termination ($705,000 of
    restructuring expense)  During the year to date period ended September 25, 2004,
    115 employees were notified of their involuntary termination in connection with four store
    closures and the Companys structural reorganization. As of September 25, 2004,
    $341,000 of the benefits had been paid to the employees.



- Accretion expense on lease-related liabilities ($369,000 of
    restructuring expense)- Accretion expense accrued during the thirty-nine weeks ended
    September 25, 2004 on reserves for lease-related liabilities that had been calculated
    using the net present value of the minimum lease payments (net of sublease income)
    resulted in additional restructuring expense of $369,000.



In addition to the net restructuring expense described above, for the
fiscal year to date ended September 25, 2004, the Company has recorded $968,000 in asset
impairment charges related to three stores held for use.



During the fiscal quarter and year to date ended September 25, 2004
respectively, we incurred $968,000 and $3,439,000, and for the fiscal quarter and year to
date ended September 27, 2003, respectively, $727,000 and $2.0 million of charges for
accelerated depreciation related to planned store closures. These costs are included in
the "Cost of Goods Sold and Occupying Costs" line of our Statements of
Operations.





13

---

The following table summarizes accruals related to the Companys
historic restructuring (in thousands):





|EXIT                      |  | 2001 AND |  | Q4     |  | Q3     |  | Q1   |  | Q2    |  | Q3     |  |          
|------------------------- |  | -------- |  | ------ |  | ------ |  | ---- |  | ----- |  | ------ |  | ---------
|PLANS                     |  | PRIOR    |  | 2002   |  | 2003   |  | 2004 |  | 2004  |  | 2004   |  | TOTAL    
|                         
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Balance:                  |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Dec 27, 2003              |  | $ 10,732 |  | $ 458  |  | $ 181  |  |      |  |       |  |        |  | $ 11,371 
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|New accruals:             |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Severance                 |  |          |  |        |  |        |  | $ 28 |  |       |  |        |  | 28       
|Lease-related liabilities |  | 200      |  | 36     |  |        |  |      |  |       |  |        |  | 236      
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Cash paid:                |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Severance                 |  |          |  | (13)   |  | (26)   |  | (15) |  |       |  |        |  | (54)     
|Lease-related liabilities |  | (246)    |  | (476)  |  | (35)   |  |      |  |       |  |        |  | (757)    
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Balance:                  |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|March 27, 2004            |  | $ 10,686 |  | $ 5    |  | $ 120  |  | $ 13 |  |       |  |        |  | $ 10,824 
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|New accruals:             |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Severance                 |  |          |  |        |  |        |  |      |  | $ 63  |  |        |  | 63       
|Lease-related liabilities |  | (1,088)  |  | 298    |  | 70     |  |      |  | 41    |  |        |  | (679)    
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Cash paid:                |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Severance                 |  |          |  | (5)    |  | (14)   |  | (13) |  | (52)  |  |        |  | (84)     
|Lease-related liabilities |  | (449)    |  | (27)   |  | (35)   |  |      |  |       |  |        |  | (511)    
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Balance:                  |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|June 26, 2004             |  | $ 9,149  |  | $ 271  |  | $ 141  |  | $ 0  |  | $ 52  |  |        |  | $ 9,613  
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|New accruals:             |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Severance                 |  |          |  |        |  |        |  |      |  |       |  | $ 614  |  | 614      
|Lease-related liabilities |  | 514      |  |        |  |        |  |      |  |       |  | 545    |  | 1,059    
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Cash paid:                |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Severance                 |  |          |  |        |  |        |  |      |  | (34)  |  | (251)  |  | (285)    
|Lease-related liabilities |  | (499)    |  | (34)   |  | (35)   |  |      |  | (8)   |  | (180)  |  | (756)    
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Balance:                  |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|Sep 25, 2004              |  | $ 9,1641 |  | $ 2371 |  | $ 1061 |  | $ 0  |  | $ 101 |  | $ 7282 |  | $ 10,2452
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          
|                          |  |          |  |        |  |        |  |      |  |       |  |        |  |          





|Note: | 1. The restructuring accrual balance
    consists of lease-related liabilities.                                               
|----- | ------------------------------------------------------------------------------------------------------------------------------
|      | 2. The restructuring accrual balance
    consists of lease-related liabilities and $364,000 for employee termination benefits.



As of September 25, 2004, the components of the accruals related to the
Companys restructuring activities are accrued liabilities of $3.3 million and other
long-term obligations of $6.9 million.



14

---

|10. | Income Taxes
|--- | ------------





The effective income tax rate of 28.4% for the nine months ended
September 25, 2004 differed from the federal statutory rate of 35.0% primarily due to the
expiration of certain charitable contribution carryforwards (-7.0%), state and foreign
taxes (2.2%), permanent items (-1.1%), and other provision adjustments (.5%). For the nine
months ended September 27, 2003, the difference between the effective rate of 39.0% and
the statutory rate of 35.0% related primarily to the effects of state and foreign taxes.



For the nine months ended September 25, 2004, the Company recorded $1.3
million of income tax benefit, as a result of loss before income taxes of $4.7 million
during the period. The Company has a $20.7 million net deferred tax asset, primarily as a
result of net operating loss carry-forwards, and temporary differences relating to
restructuring and asset impairment charges. The recoverability of the net deferred tax
asset is primarily dependent upon the Company generating sufficient taxable income in the
future. The Company has established a valuation allowances for certain state net operating
loss and charitable contribution carry-forwards which the Company believes will not result
in a future realizable tax benefit based upon projected taxable income during the
carry-forward period. Although realization of the remaining net deferred tax asset is not
assured, the Company has concluded that a valuation allowance is not required, as it is
more likely than not that the Company will be able to realize a tax benefit through the
generation of future taxable income. The Company's assessment is based upon projections,
which assume the Company will at least maintain its current store contribution margin, and
aggregate sales growth experienced over the past five years, which would generate
sufficient taxable income to realize the full amount of the deferred tax asset. The
Company believes that the sales, gross margin, store contribution margin, and selling,
general and administrative expenses assumptions in its financial projections are
reasonable and, more likely than not, attainable. The Company will continue to assess the
recoverability of the remaining net deferred tax asset, and to the extent it is determined
in the future that an additional valuation allowance is required, it will be recognized as
a charge to earnings at that time.



|11. | Change in Primary Distributor
|--- | -----------------------------





During the fourth quarter of 2003, the Company and Tree of Life, Inc.
("TOL") agreed to terminate their primary distribution relationship, and in
January 2004, the Company signed a five-year primary distribution agreement with United
National Foods, Inc. ("UNFI"). The transition to UNFI was fully completed in
March 2004. The agreement states that UNFI will pay the Company a conversion fee to cover
the direct costs of the transition to UNFI along with certain incentives, which are
payable over the period of the contract, subject to the Company meeting certain minimum
purchase requirements.





|12. | Related Party Transactions
|--- | --------------------------





The Company and Perry D. Odak, the Companys Chief Executive
Officer and President, and a director of the Board, entered into an employment agreement
in March 2001. As part of Mr. Odaks employment agreement, the Company agreed to
purchase his home in York, Pennsylvania if he was unable to sell it within a specific
period of time. In July 2001, the Company arranged for a relocation service to purchase
the home from Mr. Odak for $1.6 million. Despite substantial marketing efforts, the
relocation service was unable to sell the house for a reasonable price. In November 2002,
Mr. Odak offered to repurchase the house for the original $1.6 million he had received. At
December 28, 2002, Mr. Odak had remitted $1.35 million to the Company as partial
consideration to fund the purchase and the remaining consideration was 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.



Mark Retzloff, a member of the Companys Board of Directors, is the
President of Aurora Organic Dairy, which derives more than 5% of its revenues from the
production and sale of organic milk to the Company under the Companys private label.



15

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|13. | Contingencies
|--- | -------------





Wild Oats Markets Canada, Inc., as successor to Alfalfas Canada,
Inc., a Canadian subsidiary of the Company, is a defendant in Helen Fakhri and Ady
Aylon, as Representative Plaintiffs v. Alfalfas Canada, Inc., a class action
suit brought in the Supreme Court, British Columbia, Canada by representative plaintiffs
alleging to represent two classes of plaintiffs  those who contracted Hepatitis A
allegedly through the consumption of food purchased at a Capers Community Market in the
spring of 2002, and those who were inoculated against Hepatitis A as a result of news
alerts by Capers and the Vancouver Health Authority. In the fourth quarter of 2003, the
action was certified as a class action by the court. The Company filed an appeal and a
hearing was held in September 2004. The appeal was denied in October 2004. 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. Plaintiff claimed
$1.5 million for diminution of value of the shopping center plus accelerated rent, fees
and $360,000 in attorneys fees and costs. After trial in November 2001, the judge
awarded the plaintiff an aggregate $536,000 in damages and attorneys fees. The
Companys appeal of judgment was denied in the first quarter of fiscal 2004, and the
Company filed a motion for reconsideration, which was denied. The Company filed a petition
for review with the Arizona Supreme Court, which was denied. The Company recognized a
charge to restructuring expense during the fourth quarter of 2003 in the amount of
$705,000, including estimated attorneys fees and estimated interest accrued on the
judgment. That amount was increased by $85,000 in September 2004.



The Company continued its review of past administrative practices of its
401(k) retirement plan, and the results of the review were completed during the third
quarter of fiscal 2004. As a result, the Company filed a voluntary correction plan with
the Internal Revenue Service related to the 401(k) plan. Pursuant to the Companys
audit, the Company has determined that it is obligated to contribute an estimated $1.2
million inclusive of earnings, to correct certain past administrative practices dating
back to 1999, of which $1.0 million has been included in direct store expense and $0.2
million in selling, general and administrative expense.



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.



16

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Item 2.  Management's Discussion And Analysis Of Financial Condition
And Results Of Operations

This report on Form 10-Q 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,
execution and performance of new stores, relocations, remodels, sales and closures; the
timing and impact of and response to promotional and advertising campaigns; the impact of
competition; changes in product supply or suppliers; changes in management information
needs; changes in customer needs and expectations; governmental and regulatory actions;
general industry or business trends or events; changes in economic or business conditions
in general or affecting the natural foods industry in particular; and competition for and
the availability of sites for new stores and potential acquisition candidates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Cautionary
Statement Regarding Forward-Looking Statements."



Overview



Wild Oats Markets, Inc. is one of the largest natural foods supermarket
chains in North America. As of the date of this report, we operated 108 natural foods
stores in 24 states and British Columbia, Canada primarily under four names:



- Wild Oats Natural Marketplace (nationwide)
- Henrys Farmers Market (Southern California and Phoenix, Arizona)
- Sun Harvest Farms (Texas)
- Capers Community Market (British Columbia, Canada)





Executive Summary



In order to drive increased sales and customer traffic in our stores, we
are developing new marketing initiatives, including marketing outside of traditional
venues, to increase consumers understanding of our products and to build brand
awareness. We continue to expand our line of private label line of products, including the
Wild Oats(R)and the Henrys
Marketplace(R)branded products. We
are currently testing the sale of Wild Oats branded products through Peapod LLC, a leading
U.S. Internet grocer, in the Chicago metropolitan area, and are working with Stop &
Shop Supermarket Company LLC, the largest food retailer in the northeastern U.S., to test
a Wild Oats branded store-within-a-store concept in select test stores. We anticipate that
such test will commence in the first half of 2005.



As of the end of the third quarter of fiscal 2004, we had 106 stores
located in 24 states and Canada, as compared to 101 stores in 25 states and Canada at the
end of the third quarter of fiscal 2003.



| |                                    |  | TOTAL
    STORE COUNT
| | ---------------------------------- |  | ---------------------
| |                                    |  | Nine Months Ending   
| |                                    |  | September 27, 2003   
| |                                    |  |                      
| | Store count at beginning of period |  | 99                   
| | Stores opened                      |  | 5                    
| | Stores closed                      |  | (3)                  
| | Stores sold                        |  | -                    
| |                                    |  |                      
| |                                    |  |                      
| | Store count at end of period       |  | 101                  
| |                                    |  |                      
| |                                    |  |                      







In the third quarter of fiscal 2004, we opened three new stores, one in
metropolitan Cincinnati, Ohio and two in metropolitan Los Angeles, California, and closed
stores in Colorado Springs, Colorado and Vancouver, Washington as part of relocation to
new sites. After the close of the third quarter, we opened stores in Vancouver, Washington
and Carmel, Indiana. In fiscal 2004, through the date of this report, we have opened
eleven new stores, closed five stores (two of which were relocated to new stores and one
of which subsequently reopened in a different format) and sold one store. In fiscal 2004,
we have commenced remodeling and/or major resetting of 12 of our stores, one of which was
completed in the third quarter of fiscal 2004.



17

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Results of Operations



Our net loss for the third quarter of fiscal 2004 was $6.1 million, or
$0.21 per diluted share, compared with a net loss of $861,000, or $0.03 per diluted share,
in the same period in fiscal 2003. The following table sets forth, for the periods
indicated, certain selected income statement data expressed as a percentage of sales and
in dollars (in thousands - percentages may not add due to rounding):



| |                                                        |  |           | THREE MONTHS ENDED
| | ------------------------------------------------------ |  | --------- | ------------------
|
| |                                                        |  |           | Sep 25,           
| |                                                        |  |           | 2004              
| |                                                        |  |           |                   
| | Sales                                                  |  | $250,739  |                   
| | Cost of goods sold and occupancy
    costs             |  | 181,864   |                   
| |                                                        |  |           |                   
| | Gross profit                                           |  | 68,875    |                   
| | Direct store expenses                                  |  | 57,898    |                   
| | Selling, general and
    administrative    expenses    |  | 15,517    |                   
| | Loss on disposal of assets                             |  | 192       |                   
| | Pre-opening expenses                                   |  | 1,399     |                   
| | Restructuring and asset impairment
       charges, net |  | 2,124     |                   
| |                                                        |  |           |                   
| | Loss from operations                                   |  | (8,255)   |                   
| | Interest income                                        |  | 370       |                   
| | Interest expense                                       |  | (1,179)   |                   
| |                                                        |  |           |                   
| | Loss before income taxes                               |  | (9,064)   |                   
| | Income tax benefit                                     |  | (2,999)   |                   
| |                                                        |  |           |                   
| | Net loss                                               |  | $ (6,065) |                   
| |                                                        |  |           |                   
| |                                                        |  |           |                   







| |                                                                 |  |           | NINE MONTHS ENDED
| | --------------------------------------------------------------- |  | --------- | -----------------
|
| |                                                                 |  |           | Sep 25,          
| |                                                                 |  |           | 2004             
| |                                                                 |  |           |                  
| | Sales                                                           |  | $766,231  |                  
| | Cost of goods sold and occupancy
    costs                      |  | 547,070   |                  
| |                                                                 |  |           |                  
| | Gross profit                                                    |  | 219,161   |                  
| | Direct store expenses                                           |  | 171,212   |                  
| | Selling, general and
    administrative    expenses             |  | 45,456    |                  
| | Loss on disposal of assets                                      |  | 170       |                  
| | Pre-opening expenses                                            |  | 3,500     |                  
| | Restructuring and asset impairment
       (income) charges, net |  | 2,289     |                  
| |                                                                 |  |           |                  
| | (Loss) income from operations                                   |  | (3,466)   |                  
| |                                                                 |  |           |                  
| | Loss on early extinguishment of
    debt                        |  | -         |                  
| | Interest income                                                 |  | 778       |                  
| | Interest expense                                                |  | (1,986)   |                  
| |                                                                 |  |           |                  
| | Income (loss) before income taxes                               |  | (4,674)   |                  
| | Income tax expense (benefit)                                    |  | (1,329)   |                  
| |                                                                 |  |           |                  
| | Net income
    (loss)                                           |  | $ (3,345) |                  
| |                                                                 |  |           |                  
| |                                                                 |  |           |                  





18

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Sales. Net sales for the three and nine months ended September
25, 2004 increased 5.8% and 7.1%, respectively, as compared to the same periods in fiscal
2003. The quarter and year to date increases were primarily driven by three and nine
additional new stores in the quarter and year to date, respectively. Comparable store
basket size grew 3.5% and 4.7% for the fiscal quarter and year to date ended September 25,
2004 as compared to the same period last year, while customer traffic for the same periods
declined (4.1%) and (1.6%), respectively. Comparable store sales declined 0.61% for the
quarter, and increased 3.1% for the fiscal year to date as compared to the same periods
last year due to a combination of several factors, including continued aggressive
promotional activity by southern California conventional grocers seeking to regain lost
business and increased competition in selected areas. We deem sales of a new, relocated or
acquired stores comparable commencing in the thirteenth full month of operations.





Gross Profit. Gross profit consists of sales less cost of goods
sold and store occupancy costs. Occupancy costs include store related depreciation, rent
and utilities. As a percentage of sales, gross profit decreased to 27.5% and 28.6% in the
third quarter and year to date of fiscal 2004 from 29.1% and 29.5% in the same periods in
fiscal 2003, due primarily to selected price reductions to retain current customers, as
well as increased promotional activity in selected regions to attract new customers, the
combined impact of which is estimated at 130 basis points. Margins declined by 30 basis
points and 20 basis points for the quarter and year to date ended September 25, 2004, due
to the effect of newer stores (i.e., opened within the last 12 months) increasing as a
percentage of our total store base. New stores historically carry lower margins for some
period of time after opening due to higher shrink and heavy promotional activity. In
addition, gross profit as a percentage of sales declined 0.10% and 0.19%, respectively,
due to increases in accelerated depreciation. To a lesser extent, overall margins for the
quarter and year to date were negatively impacted by increases in fuel costs not fully
recovered through retail price increases.



Direct Store Expenses. Direct store expenses include the
following: payroll, taxes and benefits, store supplies and maintenance and other
store-specific contract cost. In addition, corrective payments under our 401(k) voluntary
correction plan are allocated, as benefits are, to the direct store expenses. As a
percentage of sales, direct store expenses increased to 23.1% and 22.3% in the fiscal
quarter and year to date ended September 25, 2004, from 22.4% and 21.6% in the same
periods last year. This was due to a number of factors, including higher than average
labor costs associated with new store openings in fiscal 2004 (which traditionally carry
higher payroll expense during the initial months of operation), increasing health care
costs and a $1.0 million expense for the voluntary compliance program being filed by the
Company related to its 401(k) retirement program.





Selling, General and Administrative Expenses. Selling, general
and administrative expenses include the following: corporate and regional administrative
support services, corporate-level purchasing and marketing and travel. Selling, general
and administrative expenses for the fiscal quarter and year to date ended September 25,
2004 and September 27, 2003 increased 0.3% and decreased 5.8%, respectively, as compared
to the same periods in fiscal 2003. Savings from our third quarter reorganization were
offset by increased marketing costs, and approximately $0.2 million in estimated
correction costs, and approximately $0.2 million in legal and consulting fees associated
with the preparation and filing of our voluntary correction of past administrative
practices related to our 401(k) retirement plan, as well as costs necessary to ensure our
compliance with the Sarbanes-Oxley Act of 2002. The year to date decrease relates
primarily to a shift in the timing of our marketing initiatives in 2004 as compared to
2003. The remaining decrease is a result of leveraging fixed costs against higher sales.





Loss (Gain) on Disposal of Assets. We recorded a $170,000 net
loss on disposal of assets for the nine months ended September 25, 2004 compared to a $2.0
million loss in the same period in fiscal 2003, due primarily to the completion of a
physical count of all store, office and support facility assets in fiscal 2003, which
resulted in a total write off of $1.2 million.





Pre-Opening Expenses. Pre-opening expenses include labor, rent,
advertising, utilities, supplies and certain other costs incurred prior to a stores
opening. Pre-opening expenses for the third quarter of fiscal 2004 increased to $1.4
million compared to $616,000 during the same period in fiscal 2003 due to the opening of
three new stores in the third quarter of fiscal 2004 and two additional new stores in the
beginning of the fourth quarter, compared to two during the third quarter last year. The
increase of 113.5% in pre-opening expenses for the nine months ended September 25, 2004
over the same period last year was due to the opening of nine stores in the first three
fiscal quarters of fiscal 2004, as compared to five in the same period in 2003.



19

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Restructuring and Asset Impairment Expense (Income). During the
third quarter of fiscal 2004, we recorded net restructuring and asset impairment expense
of $2,124,000. Details of the significant components are as follows:





Changes in estimate related to lease-related liabilities for sites
previously identified for closure or sale ($348,000 of restructuring charge) 
During the third quarter of fiscal 2004, we became aware that a subtenant in Ft. Collins,
Colorado has decided to not renew a sublease agreement as of the end of the year. Our loss
of the subtenant will require us to pay additional lease payments of $153,000, which had
previously beeen paid by the sublessee. We incurred additional brokerage fees of $110,000
for a sublease agreement reached during the second quarter of 2004 for a vacant site in
Missouri. We have also incurrred additional interest and settlement costs of $85,000 for
litigation related to a Phoenix, Arizona location. As a result, we recognized net
restructuring losses of $348,000 during the third quarter of fiscal 2004.





Lease-related liability for sites closed during the third quarter
($545,000 of restructuring expense) - During the third quarter of 2004, we closed two
stores, one in Colorado Springs, Colorado and one in Vancouver, Washington as part of
relocations to new sites.





Severance for employees notified of termination in the third quarter
of fiscal 2004 ($614,000 of restructuring expense)  During the third quarter, 67
employees were notified of their involuntary termination in conjunction with the closure
of stores in Colorado Springs, Colorado and Vancouver, Washington, ($114,000) and the
restructuring of the Companys divisional structure to a functional structure
($500,000).





Accretion expense on lease-related liabilties ($166,000 of
restructuring expense) - Accretion expense accrued during the quarter on reserves for
lease-related liabilities that have been calculated using the net present value of the
minimum lease payments (net of sublease income) resulted in additional restructuring
expense of $166,000.



In addition to the net restructuring income described above, management
also identified during the third quarter of fiscal 2004 net asset impairment charges of
$451,000 in accordance with the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets for two stores held for use. Store assets
became impaired during the quarter because the projected cash flows of the store were not
sufficient to fully recover the carrying value of the stores long-lived assets, and,
therefore, recorded an asset impairment charge. We believe the weak performance of the
store was caused by increased competition. In determining whether an impairment exists, we
estimate the stores future cash flows on an undiscounted basis, and if the cash
flows are not sufficient to recover the carrying value, then we use 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. We believe the weak performance of the
store was caused by increased competition. We continually reevaluate our stores
performance to monitor the carrying value of its long-lived assets in comparison to
projected cash flows.





Restructuring and Asset Impairment Expense (Income). For the
fiscal year to date through September 25, 2004, we recorded net restructuring and asset
impairment charges of $2,289,000. Details of the significant components are as follows:





Changes in estimate related to lease-related liabilities for sites
previously identified for closure or sale ($338,000 of restructuring income)
During the first quarter, we determined that additional time would be needed to
dispose of certain lease obligations for vacant sites, resulting in restructuring expense
of $236,000. During the second quarter of fiscal 2004, we recognized net restructuring
income of $922,000, as a result of the following: We secured a viable subtenant for a
vacant site, resulting in a reversal of $1.5 million of the net restructuring charge
previously recorded; increased estimated reserve by $298,000 because information relating
to a previously subleased site indicated the likelihood of receiving continued sublease
income from a current subtenant was remote; and increased estimated reserves by $316,000
for additional time needed to dispose of lease obligations for three vacant sites. Whereas
in the third quarter, we lost a subtenant and are obligated for rental payments of
$153,000 and had changes in estimates totalling $195,000.



20

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Newly identified lease-related liabilities for sites closed during
year to date through September 25, 2004 ($585,000 of restructuring charges) - During
the year to date through September 25, 2004, we closed stores in Colorado, Oregon and
Washington.





Severance for employees notified of termination ($705,000 of
restructuring expense)  During the first, second and third quarters of 2004,
respectively, 26, 22 and 67 employees were notified of their involuntary termination in
conjunction with the closure of several stores and the reorganization of the
Companys operations to a functional structure.





Accretion expense on lease-related liabilities ($369,000 of
restructuring expense)- Accretion expense accrued during the thirty-nine weeks ended
September 25, 2004 on reserves for lease-related liabilities that have been calculated
using the net present value of the minimum lease payments (net of sublease income)
resulted in restructuring expense of $369,000.





Loss on Early Extinguishment of Debt. During 2003, we had a loss
on early extinguishment of debt of $186,000. There has been no other such activity during
fiscal 2004.





Interest Income. Interest income increased to $370,000 and
$778,000 for the fiscal quarter and year to date ended September 25, 2004 from $199,000
and $554,000 for the fiscal quarter and year to date ended September 27, 2003,
respectively. The increases for the quarter and year to date are due to increased cash on
hand from the second quarter 2004 debenture offering, together with increased yields from
our purchase of short-term investments.





Interest Expense. Interest expense for the fiscal quarter ended
September 25, 2004 increased 144% to $1.2 million from $484,000 in the same period in
fiscal 2003, as a direct result of the issuance of $115 million in 3.25% senior
subordinated debentures in June 2004, offset by interest savings from the repayment of
outstanding borrowings under the credit facility. Interest expense for the fiscal year to
date period ended September 25, 2004 decreased $300,000 to $2.0 million from $2.3 million
as compared to the same period in fiscal 2003, due to lower average borrowings under our
credit of facility as well as the expiration of the interest rate swap in August 2003,
which increased interest expense for the fiscal year to date ended September 27, 2003 by
$980,000. These savings were offset by the additional interest expense payable on the
debentures issued in June 2004.





Income Tax Expense.For the fiscal quarter ended September 25,
2004, we recorded $3.0 million of income tax benefit, as a result of losses before income
taxes of $9.1 million during the period. Income tax benefit for the fiscal year to date
ended September 25, 2004 is $1.3 million as a result of losses before taxes of $4.7
million during the same period. The effective tax for the fiscal quarter and year to date
ended September 25, 2004 was adversely impacted by an estimated 7.0% by the expiration of
certain charitable contribution carryforwards. See "Managements Discussion
and Analysis of Financial Conditions and Results of Operations  Liquidity and
Capital Resources"below.





Critical Accounting Policies and Estimates. Our discussion and
analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. 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.



21

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



- Goodwill valuation
- Asset impairment charges
- Restructuring charges and store closing costs
- Inventory valuation and reserves
- Self-insurance reserves



We believe the following critical accounting policies affect our most
significant judgments and estimates used in the preparation of our consolidated financial
statements. There have been no changes during the third quarter of 2004 in application of
these policies:





Goodwill.Goodwill consists of the excess cost of acquired
companies over the sum of the fair market value of their underlying tangible assets
acquired and liabilities assumed. In accordance with SFAS No. 142, "Goodwill and
Other Intangible Assets", goodwill is reviewed for impairment annually at a reporting
unit level, or more frequently if certain indicators of impairment exist. The Company has
one reporting unit at the enterprise level to which it allocates goodwill. The Company
estimates fair value utilizing a combination of three different methods, consisting of
market capitalization, discounted future cash flows, and EBITDA multiples, and compares it
to the carrying value of the enterprise for purposes of identifying potential impairment.



The annual review for impairment relies heavily on our ability to
accurately project future cash flows, which in itself, requires the extensive use of
accounting judgment and financial assumptions and estimates. These projections can be
affected by many items that are inter-dependent on one another and are outside of our
control and ability to predict except at the time of evaluation, such as changes in the
economy, trends effecting the natural and organic food industry, and changing competitive
pressures. Application of alternative assumptions such as evaluating for impairment at a
level of the organization other than enterprise could produce significantly different
results.





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



Our review for impairment relies heavily on our ability to accurately
project future cash flows related to our stores and support facilities. Our cash flow
projections look several years into the future and include assumptions about sales growth
and cost trends that could be significantly impacted by changes in the local and national
economy, trends in the natural and organic food industry, local competitive pressures, as
well as the effectiveness of various operational initiatives underway in our stores.





Restructuring and Store Closure Costs.The Company reserves for
the present value of lease related costs associated with store and support facility
closures, relocations, and sales when the store or facility is closed. The calculation of
the lease related liabilities involves applying a discount rate to the estimation of our
remaining lease obligations, taxes and common area maintenance, net of future estimated
subtenant income. The lease liabilities usually are paid over the lease terms associated
with the closed stores, which have had remaining terms ranging from one month to 25 years.
Store closing liabilities are reviewed each reporting period to ensure that the amounts
recorded reasonably reflect the Companys future obligations associated with closed
stores and facilities based on the most current information available. Adjustments to
existing lease related liabilities are primarily a result of changes in the expected
timing or amount of subtenant income, and are made in the period in which the change in
facts and circumstances, as well as their related impacts, become known and estimatable.
Lease related closure costs and associated severance costs are made in accordance with
SFAS 146 "Accounting for Costs Associated with Exit of Disposal Activities."
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.



22

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In evaluating the reserves for lease related liabilities, management
considers a number of variables that would affect the marketability of the space such as
recent demand for similar space in the market area, the number of potential subtenants
expressing interest, specific characteristics of the property, any limitations in the use
of the space imposed by the landlord, as well as the creditworthiness of actual
subtenants. The above factors are continuously reevaluated and have a significant impact
on managements assumptions used in estimating the timing and amount of any subtenant
income, and thus the amount of required reserves.





Inventory.Our inventory is stated at the lower of cost or market
on a first-in, first-out basis using the retail method of accounting to determine cost of
sales and inventory for approximately 80% of inventories and using the item cost method
for highly perishable products representing approximately 20% of inventories in our
stores. Under the retail inventory method, the valuation of inventories at cost and the
resulting gross margins are determined by applying a cost-to-retail ratio for various
categories of similar items to the retail value of inventories. Inherent in the retail
inventory method calculations are certain management judgments and estimates, including
shrinkage, which could significantly impact the ending inventory valuation at cost as well
as the resulting gross margins. Physical inventory counts are taken at each location to
ensure that the amounts reflected in the consolidated financial statements are properly
stated as of the end of each reporting period.



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





Self-Insurance. We use a combination of stop-loss insurance and
are self-insured for losses relating to workers compensation claims, general
liability and employee medical and dental benefits. We have purchased stop-loss coverage
in order to limit exposure to any significant claim or levels of claims that would be
catastrophic to our Company. Self-insured losses are accrued based upon estimates of the
aggregate uninsured claims incurred using certain actuarial assumptions followed in the
insurance industry which are based on our industrys experience as well as the
Companys historical claims experience. While we believe that the assumptions and
methodology used are appropriate, the estimated accruals for these liabilities could be
significantly affected if actual loss development and payment patterns vary significantly
from the assumptions and historical trends utilized.





Remainder of 2004.Comparable store sales for fiscal 2004 are
expected to be in the range of 1.0% to 1.5%, with quarterly comparable store sales (4.0%)
to (5.0%) in the fourth quarter of fiscal 2004, as we compare to results during the fourth
quarter 2003 grocery store strike in Southern California which impacted 23 of our stores.
Gross profit margins for the fourth quarter of fiscal 2004 and the fiscal year are
expected to be approximately 28.0%, driven by continued pricing and promotional activity.
We anticipate investing the savings generated from our third quarter reorganization in
increased advertising.







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. In
addition to these, we have also raised an additional $112.3 million, net of sales
commissions, in capital through the issuance of contingent convertible senior debentures
in a private placement in June 2004, as discussed below. Primary uses of cash have been
the financing of new store development, new store openings, relocations, remodels and
acquisitions and repayment of debt.



23

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Net cash generated by operating activities decreased to $24.6 million
during the first nine months of fiscal 2004, as compared to $26.2 million during the same
period in fiscal 2003. This decrease is due primarily to the net loss of $3.3 million
offset by non-cash increases to depreciation and amortization and restructuring charges
and decreases in losses on disposal of assets, deferred expenses and other non-cash items
that reconcile net income to cash, as well as increases to inventories over the same
period of last year. Other offsetting factors include a reduction in accounts receivable,
increases in accounts payable and accrued liabilities that out pace prior year.



Net cash used in investing activities of $68.3 million during the fiscal
year-to-date, 2004 was greater than the $21.7 million reported during the same period in
fiscal 2003, due to the significant increased investment in new stores and the investment
of excess cash from the debentures.



Net cash provided by financing activities was $54.2 million during the
fiscal year-to-date 2004 as compared to a $4.7 million use of cash during the same period
in fiscal 2003. The increase in cash flows from financing activities is the direct result
of the $115 million debenture offering completed in June 2004 as discussed below.



For the fiscal year to date ended September 25, 2004, we recorded $1.3
million of income tax benefit, as a result of income before loss taxes of $3.6 million
during the period. We have a $20.7 million net deferred tax asset, primarily as a result
of net operating loss carryforwards and temporary differences relating to restructuring
and asset impairment charges. The recoverability of the remaining net deferred tax asset
is primarily dependent upon our generation of sufficient taxable income in the future. We
have established a valuation allowance for certain state net operating loss carryforwards,
which we believe will not result in a future realizable tax benefit based upon projected
taxable income in those states during the carry forward period. Although realization of
the remaining net deferred tax asset is not assured, we have concluded that a valuation
allowance is not required, as it is more likely than not that we will be able to realize a
tax benefit through the generation of future taxable income. Our assessment is based upon
projections that assume we will at least maintain its current store contribution margin,
and aggregate sales growth experienced over the past five years, which would generate
sufficient 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 its financial projections are reasonable and, more
likely than not, attainable. We will continue to assess the recoverability of the
remaining net deferred tax asset, and to the extent it is determined in the future that an
additional valuation allowance is required, it will be recognized as a charge to earnings
at that time.





Contingent Convertible Senior Debentures. In June 2004, we issued
$115 million aggregate principal amount of 3.25% Convertible Senior Debentures due May 15,
2034 in a private placement. Of the $115.2 million in total proceeds, we used $25.0
million to repurchase 1,977,800 shares of our common stock, $31.2 million to repay the
outstanding balance on our credit facility, (other than for outstanding letters of credit)
and approximately $3.6 million to pay related debt issuance costs. We intend to use the
remaining proceeds to accelerate our store growth plans and for general corporate
purposes.



The debentures bear interest at the annual rate of 3.25%, payable
semiannually on May 15 and November 15 of each year until May 15, 2011, after which date
no regular interest will be due. During the period commencing May 20, 2011 and ending
November 14, 2011, if the average trading price of the debentures for the last five
trading-days immediately preceding May 20, 2011, equals 125% or more or the principal
amount of the debenture, and thereafter for a six-month period if the average trading
price during the five trading-days prior to the period equals or exceeds 125%, we will pay
contingent interest of 0.25% of the average trading price of the debentures during the
five-day trading period.

The debentures are callable and convertible into our common stock prior
to maturity at the option of the holders under the following circumstances: (1) during any
calendar quarter commencing after June 30, 2004 and before March 31, 2029, if the last
reported sale price of our common stock is greater than or equal to 130% of the conversion
price of $17.70 per share; (2) at any time on or after April 1, 2029 if the last reported
sale price of our common stock on any date on or after March 31, 2029 is greater than or
equal to 130% of the conversion price; (3) subject to certain limitations, during the
five-business day period after any five consecutive trading-day period in which the
trading price per debenture for each



24

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day of that period was less than 98% of the product of the conversion
rate and the last reported sale price of our common stock; (4) if we call the debentures
for redemption; (5) upon the occurrence of certain corporate transactions; or (6) if we
obtain credit ratings for the debentures, at any time when the credit ratings assigned to
the debentures are below specified levels. The debentures are initially convertible into
56.5099 shares of our common stock per $1,000 principal amount, which is equivalent to
$17.70 per share, for a total initial conversion into 6,498,639 shares. Upon conversion,
we have the right to deliver, in lieu of common stock, cash or any combination of cash and
common stock. Pursuant to the underwriting agreement and within 90 days of issuance, we
intend to file a shelf registration statement covering resales of the debentures and the
common stock issuable upon conversion thereof.



On or after May 20, 2011, we may redeem for cash some or all of the
debentures at any time and from time to time, for a price equal to 100% of the principal
amount of the debentures plus accrued and unpaid contingent interest, if any. Holders have
the right to require the Company to repurchase any or all debentures for cash, at a
repurchase price equal to 100% of the principal amount of the debentures, plus accrued and
unpaid interest on: (1) May 15, 2011, May 15, 2014, and May 15, 2024; and (2) the
occurrence of change in control (as defined in the debenture).



The debentures are unsecured and unsubordinated obligations, and rank
equal in priority with all of our existing and future unsecured and unsubordinated
indebtedness and senior in right of payment to all of our subordinated indebtedness.



The debentures will effectively rank junior to any of our secured
indebtedness and any of our indebtedness that is guaranteed by our subsidiaries. Payment
of principal and interest on the debentures will be structurally subordinated to the
liabilities of our subsidiaries.





Credit Facility.Our credit facility has a $95 million limit and
has a three-year term with a one-year renewal option. Under the 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 credit 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 a security interest in any new
leaseholds. In connection with the private debt offering in June 2004, the credit facility
was amended in the second quarter to, among other things, (1) increase the maximum
allowable leverage ratio, (2) permit the repurchase of the Companys common stock,
within specified limits, (3) increase the annual limits on capital expenditures and new
leases, (4) raise the limit on the value of acquisitions and divestitures the Company can
make without the consent of the lending group, and (5) increase the maximum percentage
rate to either prime plus 0.1% or one month LIBOR plus 2.5%. The credit agreement was
subsequently amended in August 2004 to further increase the maximum allowable leverage
ratio. The amendment requires that the Company maintain a minimum cash balance, net of
letters of credit and outstanding borrowings under the credit facility, of $25 million
through the end of the second quarter of fiscal 2005. Effective November 4, 2004, the
credit facility was further amended to (a) amend the definition of certain of the ratios,
(b) increase the adjusted leverage and decrease the fixed charge ratios, (c) increase the
pricing of borrowings under the facility, (d) extend the covenant on minimum cash balances
through the maturity date and decrease the minimum cash balances required to $10 million
beginning in July 2005, and (e) amend covenants on capital expenditures, new leases,
acquisitions and stock buy-backs.

As amended, the interest rate on the facility is currently either prime
plus 1.0% or one-month LIBOR plus 2.75% 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 based on performance objectives as
defined in the credit agreement. The outstanding balance on the credit facility was repaid
in June 2004 from the proceeds of the private debenture issuance. There were no
outstanding borrowings under the credit facility, and three letters of credit outstanding
totaling $7.3 million as of September 25, 2004. The balance outstanding on the credit
facility as of September 27, 2003 was $37.3 million. As our new store growth accelerates,
we expect that our cash requirements for 2004 and through the third quarter of fiscal 2005
will be primarily satisfied from the proceeds of the private debenture issuance as well as
cash generated from operations, and thereafter from cash generated from operations and
borrowings under the credit facility.



25

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Capital Expenditures. We spent approximately $13.5 million during
the third quarter and $43.0 million during the first nine months of fiscal 2004 for new
store construction, remodels and other capital expenditures. Our average capital
expenditures to open a leased store, including leasehold improvements, equipment and
fixtures, have ranged from approximately $2.0 million to $5.0 million historically,
excluding inventory costs and initial operating losses. We anticipate that the average
capital expenditures to open a natural foods supermarket format store will be $2.1 million
to $3.9 million in the future; however, our ability to negotiate turnkey leases in the
future will result in substantially lower capital expenditure per store, in return for a
slightly higher rent rate over the lease term. Our average capital expenditures to open a
farmers market format store are estimated at $1.6 million to $3.0 million in the
future. Delays in opening new stores may result in increased capital expenditures and
increased pre-opening costs for the site, as well as lower than planned sales for the
Company.



Based upon the current level of operations, we believe that cash flows
from operations and other sources available such as cash from our debentures and available
line of credit will be adequate to meet anticipated requirements for working capital,
capital expenditures, interest payments and future debenture payments in the foreseeable
future. However, there can be no assurance that the business will continue to generate
cash flows from operations at current levels or that we will be able to maintain our
ability to borrow under the line of credit.







Cautionary Statement Regarding Forward-Looking Statements



This Report on Form 10-Q 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 2004, our expectations for comparable store sales; 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 3.  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.



26

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As previously noted, outstanding borrowings on the credit facility were
paid with the proceeds of the debenture issuance in June 2004. However, should we begin
drawing on the credit facility for additional capital, our exposure to interest rate
changes would be primarily related to our variable rate debt issued under our credit
facility. The total commitment available is $95.0 million under a revolving line of
credit, with a three-year term expiring February 25, 2006. The interest rate on the credit
facility is currently either prime plus 1.0% or one-month LIBOR plus 2.75%, 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 would be affected by interest rate
fluctuations.



In September 2000, as required by our former credit facility, we 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 June 28, 2003, the notional
principal amount of the interest rate swap agreement was $30.0 million, and expired in
August 2003. There is no obligation to renew the swap under the refinanced facility. The
notional amount is the amount used for the calculation of interest payments that are
exchanged over the life of the swap transaction on the amortized principal balance.





Item 4. Controls and
Procedures



Evaluation of Disclosure Controls and Procedures.We maintain a
system of controls and procedures designed to provide reasonable assurance as to the
reliability of the financial statements and other disclosures included in this report, as
well as to safeguard assets from unauthorized use or disposition. We evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as
defined in the Exchange Act Rule 13a-15(e) under supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, as of the
end of the period covered by this report. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures
are effective in timely alerting them to material information required to be included in
our periodic Securities and Exchange Commission filings.





Changes in Internal Control Over Financial Reporting. During the
fiscal quarter ended September 25, 2004, there have been no changes in our internal
control over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.





27

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Part
II.  OTHER INFORMATION



Item 1.  Legal
Proceedings

Wild Oats Markets Canada, Inc., as successor to Alfalfas Canada,
Inc., a Canadian subsidiary of the Company, is a defendant in Helen Fakhri and Ady
Aylon, as Representative Plaintiffs v. Alfalfas Canada, Inc., a class action
suit brought in the Supreme Court, British Columbia, Canada by representative plaintiffs
alleging to represent two classes of plaintiffs  those who contracted Hepatitis A
allegedly through the consumption of food purchased at a Capers Community Market in the
spring of 2002, and those who were inoculated against Hepatitis A as a result of news
alerts by Capers and the Vancouver Health Authority. In the fourth quarter of 2003, the
action was certified as a class action by the court. The Company filed an appeal and a
hearing was held in September 2004. The appeal was denied in October 2004. 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. Plaintiff claimed
$1.5 million for diminution of value of the shopping center plus accelerated rent, fees
and $360,000 in attorneys fees and costs. After trial in November 2001, the judge
awarded the plaintiff an aggregate $536,000 in damages and attorneys fees. The
Companys appeal of judgment was denied in the first quarter of fiscal 2004, and the
Company filed a motion for reconsideration, which was denied. The Company filed a petition
for review with the Arizona Supreme Court, which was denied. The Company recognized a
charge to restructuring expense during the fourth quarter of 2003 in the amount of
$705,000, including estimated attorneys fees and estimated interest accrued on the
judgment. That amount was increased by $85,000 in September 2004.



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







Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchase
of Equity Securities.

None.





Item 3.  Defaults Upon Senior
Securities

None.





Item 4.  Submission of Matters
to a Vote of Security Holders

None.





Item
5.  Other Information

The Company granted restricted stock units ("RSUs"), each
exchangeable for one share of common stock of the Company, to David Gallitano, as monthly
compensation for service as Chairman of the Audit Committee, on August 31, 2004, in the
amount of 108 RSUs, on September 30, 2004, in the amount of 110 RSUs and on October 29,
2004, in the amount of 157 RSUs. Board members Brian Devine, Stacey Bell, David
Chamberlain, David Gallitano, Mark Retzloff and John Shields each received a grant of 552
RSUs as compensation for their attendance at the November 3, 2004 meeting of the
Companys Board of Directors. Board members receive a grant of RSUs for attendance at
each Board meeting, with the number determinable based on the Board meeting fee divided by
the closing price of the Companys common stock on the day of the meeting. All of the
RSUs are granted under the Wild Oats Markets, Inc. 1996 Equity Incentive Plan. The RSUs
and the circumstances under which they are granted as compensation to members of the
Companys Board of Directors are described in detail under the caption
"Compensation of Directors" in our Definitive Proxy Statement in connection with
the Annual Meeting of stockholders held on May 6, 2004, filed with the Commission on March
18, 2004. Additional disclosure concerning the grant of RSUs is contained in "Notes
to Consolidated Financial Statements  Note 3 Stock Based Compensation."The
form of Restricted Stock Unit Agreement used to evidence such grants is attached as
Exhibit 10.1 hereto.



28

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Item 6.  Exhibits

|                                      | Exhibit Number | Description                                                                                                                                                                                                                                                                                                                          
|------------------------------------- | -------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                      |                |                                                                                                                                                                                                                                                                                                                                      
|                                      | 10.1#+         | Form of Restricted Stock Unit
    Agreement used to evidence Restricted Stock Units granted under the Wild Oats Markets,
    Inc. 1996 Equity Incentive Plan                                                                                                                                                                         
|                                      | 10.2+          | Third Amendment to Second Amended
    and Restated Credit Agreement, dated as of November 4, 2004, by and among Wild Oats
    Markets, Inc., the lenders identified therein and Wells Fargo Bank, National Association,
    as administrative agent. Portions have been omitted pursuant to a request for confidential
    treatment.
|                                      | 31.1+          | CEO Certification under Section
    302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                
|                                      | 31.2+          | CFO Certification under Section
    302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                
|                                      | 32.1+          | CEO Certification under Section
    906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                
|                                      | 32.2+          | CFO Certification under Section
    906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                
|                                      |                |                                                                                                                                                                                                                                                                                                                                      
|                                     
|#    Management
    Compensation Plan
|+    Included herewith.              



29

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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 1st day of November 2004.



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