<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q

                                 [ODWALLA LOGO]


(Mark One)

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


For the quarterly period ended May 29, 1999


                                       OR


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


For the transition period from ________________ to ________________


Commission file number 0-23036


                                  ODWALLA, INC.
             (Exact name of registrant as specified in its charter)


               California                                  77-0096788
  -----------------------------------               ------------------------
    (State or other jurisdiction of                     (I.R.S. Employer
     incorporation or organization)                    Identification No.)


                  120 Stone Pine Road, Half Moon Bay, CA 94019
              (Address and zip code of principal executive offices)
                                 (650) 726-1888
                         (Registrant's telephone number)


              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check [X] 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:


          Common Stock, no par value               5,126,763 shares
                    (Class)                  (Outstanding at July 2, 1999)



<PAGE>   2

                                                                  [ODWALLA LOGO]



                                  ODWALLA, INC.

                                    FORM 10-Q
                   FOR THE QUARTERLY PERIOD ENDED MAY 29, 1999


                                      INDEX



<TABLE>
<CAPTION>
                                                                                           PAGE
                                                                                           ----
<S>               <C>                                                                        <C>
PART I.  FINANCIAL INFORMATION

     Item 1.      Financial Statements

                  Consolidated Balance Sheets as of August 29, 1998
                  and May 29, 1999....................................................        3

                  Consolidated Statements of Operations for the thirteen week
                  and thirty-nine week periods ended May 30, 1998
                  and May 29, 1999....................................................        4

                  Consolidated Statements of Cash Flows for the thirty-nine weeks
                  ended May 30, 1998 and May 29, 1999.................................        5

                  Notes to Consolidated Financial Statements..........................        6


     Item 2.      Management's Discussion and Analysis of Financial Condition
                  and Results of Operations...........................................        9

     Item 3.      Quantitative and Qualitative Disclosures About Market Risk..........       20


Part II.  Other Information

     Item 1.      Legal Proceedings...................................................       21

     Item 6.      Exhibits and Reports on Form 8-K....................................       22
</TABLE>








                                       2
<PAGE>   3

                                                                  [ODWALLA LOGO]



PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                                  ODWALLA, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                                       AUGUST 29,        MAY 29,
                                                                                             1998           1999
                                                                                       ----------       --------
<S>                                                                                      <C>            <C>
Current assets
     Cash and cash equivalents                                                           $  3,191       $  4,124
     Short-term investments                                                                    --          5,035
     Trade accounts receivable, less allowance for doubtful
         accounts of $588 and $634                                                          5,491          6,280
     Inventories                                                                            3,044          3,326
     Prepaid expenses and other current assets                                                796          1,162
     Deferred tax assets                                                                    1,164          1,314
                                                                                         --------       --------
            Total current assets                                                           13,686         21,241
                                                                                         --------       --------
Plant, property and equipment, net                                                         13,135         12,262
                                                                                         --------       --------
Other assets
     Excess of cost over net assets acquired, net                                           1,225          1,145
     Covenants not to compete, net                                                            606            524
     Deferred tax assets                                                                      366            505
     Other                                                                                    332            292
                                                                                         --------       --------
            Total other assets                                                              2,529          2,466
                                                                                         --------       --------
Total assets                                                                             $ 29,350       $ 35,969
                                                                                         ========       ========
Current liabilities
     Accounts payable                                                                    $  5,339       $  6,540
     Accrued payroll and related items                                                      1,091          1,458
     Line of credit                                                                         2,044          2,810
     Other accruals                                                                         2,963          1,868
     Current maturities of capital lease obligations                                          159             27
     Current maturities of long-term debt                                                     421            172
                                                                                         --------       --------
            Total current liabilities                                                      12,017         12,875
Long-term debt, less current maturities                                                       888            674
                                                                                         --------       --------
Total liabilities                                                                          12,905         13,549
                                                                                         --------       --------
Shareholders' equity
     Preferred stock, no par value, shares authorized, 5,000,000; shares issued and
         outstanding, 1,000,000 in 1999                                                        --          7,300
     Common stock, no par value, shares authorized, 15,000,000; shares
         issued and outstanding, 5,061,000 and 5,127,000                                   29,499         29,749
     Accumulated deficit                                                                  (13,054)       (14,629)
                                                                                         --------       --------
Total shareholders' equity                                                                 16,445         22,420
                                                                                         --------       --------
Total liabilities and shareholders' equity                                               $ 29,350       $ 35,969
                                                                                         ========       ========
</TABLE>


           See accompanying notes to consolidated financial statements





                                       3
<PAGE>   4

                                                                  [ODWALLA LOGO]



                                  ODWALLA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                            THIRTEEN WEEKS ENDED        THIRTY-NINE WEEKS ENDED
                                          -----------------------       -----------------------
                                           MAY 30,        MAY 29,        MAY 30,        MAY 29,
                                              1998           1999           1998           1999
                                          --------       --------       --------       --------
<S>                                       <C>            <C>            <C>            <C>
Net sales                                 $ 15,446       $ 19,124       $ 43,788       $ 50,798

Cost of sales                                7,472         10,076         21,826         26,721
                                          --------       --------       --------       --------
    Gross profit                             7,974          9,048         21,962         24,077
                                          --------       --------       --------       --------

Operating expenses
    Sales and distribution                   5,346          6,455         15,137         17,635
    Marketing                                  692            806          2,047          2,375
    General and administrative               1,717          2,089          5,032          5,743
                                          --------       --------       --------       --------
            Total operating expenses         7,755          9,350         22,216         25,753
                                          --------       --------       --------       --------

Income (loss) from operations                  219           (302)          (254)        (1,676)

Other income (expense)
    Interest expense, net                      (46)           (23)          (157)          (167)
    Other                                       (8)            (3)            60             (9)
                                          --------       --------       --------       --------
Income (loss) before income taxes              165           (328)          (351)        (1,852)

Income tax (expense) benefit                   (25)            49             42            277
                                          --------       --------       --------       --------
Net income (loss)                         $    140       $   (279)      $   (309)      $ (1,575)
                                          ========       ========       ========       ========

Net income (loss) per common share,
    basic and diluted                     $   0.03       $  (0.05)      $  (0.06)      $  (0.31)
                                          ========       ========       ========       ========

Weighted average common shares
   outstanding                               5,047          5,104          5,043          5,077
                                          ========       ========       ========       ========
</TABLE>


           See accompanying notes to consolidated financial statements





                                       4
<PAGE>   5

                                                                  [ODWALLA LOGO]



                                  ODWALLA, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                     THIRTY-NINE
                                                                     WEEKS ENDED
                                                                ---------------------
                                                                MAY 30,       MAY 29,
                                                                   1998          1999
                                                                -------       -------
<S>                                                             <C>           <C>
Cash flows from operating activities
   Net loss                                                     $  (309)      $(1,575)
   Adjustments to reconcile net loss to net
      cash provided by (used in) operating activities:
         Depreciation and amortization                            1,721         1,747
         Deferred taxes                                              (9)         (290)
         Gain (loss) from disposal of assets                        (80)            2
         Changes in assets and liabilities:
            Trade accounts receivable                              (801)         (788)
            Inventories                                           1,198          (283)
            Refundable income taxes                                 660            --
            Prepaid expenses and other current assets               (27)         (366)
            Other noncurrent assets                                  21            36
            Accounts payable                                       (721)        1,202
            Accrued payroll and related items                       102           367
            Other accruals                                       (1,098)       (1,095)
                                                                -------       -------
Net cash provided by (used in) operating activities                 657        (1,043)
                                                                -------       -------

Cash flows from investing activities
   Capital expenditures                                            (672)       (1,135)
   Proceeds from sale of assets                                     106           426
   Proceeds from (purchase of) short-term investments, net        1,008        (5,035)
                                                                -------       -------
Net cash provided by (used in) investing activities                 442        (5,744)
                                                                -------       -------

Cash flows from financing activities
   Principal payments under long-term debt                          (98)         (457)
   Net borrowings under line of credit                                4           766
   Payments of obligations under capital leases                    (155)         (139)
   Sale of preferred stock                                           --         7,300
   Sale of common stock                                             136           250
                                                                -------       -------
Net cash provided by (used in) financing activities                (113)        7,720
                                                                -------       -------

Net increase in cash and cash equivalents                           986           933

Cash and cash equivalents, beginning of period                    2,217         3,191
                                                                -------       -------

Cash and cash equivalents, end of period                        $ 3,203       $ 4,124
                                                                =======       =======
</TABLE>


           See accompanying notes to consolidated financial statements





                                       5
<PAGE>   6

                                  ODWALLA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   SUMMARY OF ACCOUNTING POLICIES AND BASIS OF PRESENTATION

     Basis of Presentation. The accompanying consolidated balance sheet of
Odwalla, Inc. and its subsidiary ("Odwalla" or "Company") at May 29, 1999 and
the related consolidated statements of operations and of cash flows for the
thirteen and thirty-nine week periods ended for each of May 30, 1998 and May 29,
1999 have not been audited by independent accountants. However, in management's
opinion, they include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position and the
results of operations for the periods presented. The statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosure normally
included in financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The operating results for the interim periods are not necessarily
indicative of results to be expected for an entire year. The aforementioned
statements should be read in conjunction with the consolidated financial
statements for the year ended August 29, 1998 appearing in Odwalla's 1998 Annual
Report on Form 10-K.

2.   CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

     We consider all investments with an initial maturity of three months or
less at the date of purchase to be cash equivalents. Both cash equivalents and
short term investments are considered available-for-sale securities and are
reported at amortized cost, which approximates fair value. The following
schedule summarizes the estimated fair value of our cash, cash equivalents and
short-term investments (in thousands):

<TABLE>
<CAPTION>
                                                    August 29,      May 29,
                                                          1998         1999
                                                    ----------      -------
     <S>                                                <C>          <C>
     Cash and cash equivalents:
        Cash                                            $1,092       $  309
        Money market funds                               2,099        3,815
                                                        ------       ------
                                                        $3,191       $4,124
                                                        ======       ======

     Short-term investments
        U.S. Government and Agency securities                        $1,501
        Corporate obligations                                         3,534
                                                                     ------
                                                        $   --       $5,035
                                                        ======       ======
</TABLE>

3.   INVENTORIES

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                    August 29,      May 29,
                                                          1998         1999
                                                    ----------      -------
            <S>                                         <C>          <C>
            Raw materials                               $1,755       $2,211
            Packaging supplies and other                   708          186
            Finished product                               581          929
                                                        ------       ------
            Total                                       $3,044       $3,326
                                                        ======       ======
</TABLE>





                                       6
<PAGE>   7

                                  ODWALLA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



4.   PLANT, PROPERTY AND EQUIPMENT

       Plant, property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                       August 29,        May 29,
                                                             1998           1999
                                                       ----------       --------
     <S>                                                 <C>            <C>
     Land                                                $  1,046       $    618
     Buildings and building improvements                    7,205          7,220
     Leasehold improvements                                 2,490          1,266
     Machinery and equipment                                7,054          7,515
     Vehicles                                                 538            558
     Other                                                  3,179          3,532
                                                         --------       --------
                                                           21,512         20,709
     Less accumulated depreciation and amortization        (8,377)        (8,447)
                                                         --------       --------

     Plant, property and equipment, net                  $ 13,135       $ 12,262
                                                         ========       ========
</TABLE>

5.   EARNINGS PER COMMON SHARE

     Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon the exercise of stock options, preferred
shares and warrants under the treasury stock method. We had no dilutive common
equivalent shares during any of the periods presented due to the reported net
loss.

6.   RECLASSIFICATION

     To conform with new classifications in our fiscal 1999 financial statement
presentation, we reclassified certain fiscal 1998 expenses. The main
reclassification was an increase ($153,000 for the quarter ended May 30, 1998
and $384,000 for the thirty-nine weeks ended May 30, 1998) in fiscal 1998 sales
and distribution costs and a corresponding decrease in general and
administrative expenses.







                                       7
<PAGE>   8

                                  ODWALLA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



7.   PREFERRED STOCK

     On January 7, 1999, we signed an agreement with Catterton-Simon Partners
III, L.P. ("Catterton-Simon"), a Delaware limited partnership, to sell 1,000,000
shares of Odwalla Series A Preferred Stock ("Series A Stock") at $8.00 per
share. The Series A Stock will receive an 8% annual dividend which is payable in
either cash or additional Series A Stock, at our election. The dividend is
payable semi-annually. All Series A Stock is convertible on a one-for-one basis
into Odwalla common stock (a) upon a request by Catterton-Simon at any time
after July 6, 1999, and (b) automatically upon the earlier of (i) an acquisition
of Odwalla by another company, either for cash or publicly traded stock, at a
price in excess of $12.00 per share, (ii) the average trading price of Odwalla
common stock exceeding $12.00 per share for 20 consecutive trading days, or
(iii) January 7, 2002. Holders of Series A Stock are entitled to preferential
payment, in the event of any liquidation of Odwalla, in an amount equal to the
greater of $8.00 per share, plus any accrued but unpaid dividend, or the amount
due each holder of common stock. Catterton-Simon also received a warrant to
purchase 75,000 shares of Odwalla common stock at $10.00 per share. The warrant
expires in seven years. This transaction was funded and closed in February 1999.

     We also paid fees and issued a warrant to our financial advisor in
connection with this transaction. The warrant is for 24,806 shares of common
stock at an exercise price approximating $6.45 per share and expires in five
years. Total costs of the transaction approximate $700,000, including the
financial advisor fees other than the warrant described above, reimbursement of
certain costs of Catterton-Simon and other transaction costs.

     On June 14, 1999, our Board of Directors declared a stock dividend of
33,333 Series A Preferred Stock shares for the Series A stockholder. The
dividend is payable June 30, 1999.






















                                       8

<PAGE>   9

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

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

         This Form 10-Q includes "forward-looking" statements about future
financial results, future business changes and other events that haven't yet
occurred. For example, statements like we "expect," we "anticipate" or we
"believe" are forward-looking statements. Investors should be aware that actual
results may differ materially from our current expectations. We will not
necessarily update the information in this Form 10-Q if any forward-looking
statement later turns out to be inaccurate. Details about risks that could
affect various aspects of our business are discussed throughout this Form 10-Q,
particularly in the section below titled "Other factors affecting Odwalla's
business." Investors should read all of these risks carefully. Investors should
also refer to Odwalla's Form 10-K for the year ended August 29, 1998, including
our financial statements and related notes included in that Form 10-K, and other
documents that we file from time to time with the Securities and Exchange
Commission in conjunction with the following discussion and analysis.


OVERVIEW

         Odwalla's business is to provide easy access to great tasting
nourishment. We are the leading branded fresh juice and beverage company in the
country, serving selected markets in the western, mid-west and mid-Atlantic
regions of the United States. Odwalla's complete product line consists of more
than 25 fresh-squeezed and nutritionally fortified juices and smoothies
(including single-flavor and blended fruit and vegetable based juice products),
all-natural meal replacement and non-dairy shakes, natural spring water and
all-natural wholesome food bars.

         We seek to be the leading nourishment company in our markets by leading
the industry in beverage and other food knowledge, optimizing quality through
sourcing and production, controlling product access and distribution from
production through retail, creating artful presentation, growing through
geographic and product line expansion, leveraging our information systems,
interacting with consumers and living our vision.

         Except for our 100% fresh squeezed citrus line, all juices are
minimally processed, and some are produced on a seasonal basis. We believe our
product line appeals to many consumers due to the superior taste of fresh and
minimally processed beverages and the greater nutritional value compared to
juice from concentrate or with artificial flavors. Our products are currently
sold in Arizona, California, Colorado, Georgia, Illinois, Maryland, Michigan,
Minnesota, Nevada, New Mexico, Oregon, Pennsylvania, Texas, Utah, Virginia,
Washington state, the Washington, D.C. area and Wisconsin.

         Odwalla's sourcing procedures and production methods enable us to
create products with high nutritional and flavor quality. The distribution of
our products through both our own and other direct-store-delivery ("DSD")
systems allows us to control product quality and presentation, as well as to
develop relationships with trade partners. We sell and distribute our products
to almost 3,000 retail locations, including supermarkets, specialty retailers,
natural food stores, warehouse outlets, convenience stores and food service
operators through our DSD system.

         Odwalla is committed to certain values -- nourishing consumers,
shareholders and other stakeholder groups; environmental awareness; and support
for the communities we serve. We believe that our products reflect these values.






                                       9
<PAGE>   10

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

PRODUCT RECALL

         On October 30, 1996, Odwalla was notified by the State of Washington
Environmental Health Services of an epidemiological link between several cases
of E. coli O157:H7 and Odwalla's apple juice products. We immediately
implemented a recall (the "Recall") of all Odwalla products containing apple
juice. We experienced a significant decline in sales immediately following the
Recall and we were not able to immediately and significantly modify certain
on-going production, distribution and other costs.

         Twenty-two personal injury claims and legal proceedings have been filed
against Odwalla seeking monetary damages and other relief relating to the
Recall. There was also one legal proceeding alleging fraudulent business acts
and practices relating to the recall products. Nineteen of these claims and
proceedings have been settled. Settlement of the nineteen personal injury legal
proceedings and other Recall damage claims was covered under our insurance
policy. At this time, we are unable to determine the potential liability from
the remaining legal proceedings and claims. We believe our insurance coverage is
adequate to cover such claims and legal proceedings, but the ultimate outcome of
any litigation is uncertain and we cannot be certain that insurance coverage
will be adequate. Litigation can also have an adverse impact on a company,
regardless of the outcome, due to defense costs, diversion of management
resources and other factors.

         Odwalla maintains insurance coverage for product recall, product
adulteration, lost income and other business risks. We submitted a claim to our
insurance carriers for product recall costs and for business losses incurred due
to the Recall. The insurance company denied substantially all of our claim and,
on May 21, 1999, we filed a lawsuit against the insurance company to seek
recovery on our business interruption insurance claim filed as a result of the
Recall. The amount and timing of proceeds, if any, from the claim and any future
insurance claims cannot be presently determined.

RESULTS OF OPERATIONS

         The following table presents, as a percentage of net sales, certain
statements of operations data for the thirteen and thirty-nine week periods
ended for each of May 30, 1998 and May 29, 1999. These operating results are not
necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
                                                                             THIRTY-NINE
                                              THIRTEEN WEEKS ENDED           WEEKS ENDED
                                              --------------------      --------------------
                                              MAY 30,      MAY 29,      MAY 30,      MAY 29,
                                                 1998         1999         1998         1999
                                              -------      -------      -------      -------
<S>                                             <C>          <C>          <C>          <C>
Net sales                                       100.0%       100.0%       100.0%       100.0%
Cost of sales                                    48.4         52.7         49.8         52.6
                                                -----        -----        -----        -----
Gross margin                                     51.6         47.3         50.2         47.4
Operating expenses
   Sales and distribution                        34.6         33.8         34.6         34.7
   Marketing                                      4.5          4.2          4.7          4.7
   General and administrative                    11.1         10.9         11.5         11.3
                                                -----        -----        -----        -----
Income (loss) from operations                     1.4         (1.6)        (0.6)        (3.3)
Interest and other income (expense), net         (0.4)        (0.1)        (0.2)        (0.3)
Income tax (expense) benefit                     (0.1)         0.2          0.1          0.5
                                                -----        -----        -----        -----
Net income (loss)                                 0.9%        (1.5)%       (0.7)%       (3.1)%
                                                =====        =====        =====        =====
</TABLE>










                                       10
<PAGE>   11

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

THIRTEEN WEEKS ENDED MAY 29, 1999 AND MAY 30, 1998

         NET SALES. Net sales for the third quarter of fiscal 1999 increased
23.8% to $19.1 million compared to $15.4 million in the third quarter of fiscal
1998. Our sales growth rate this quarter was about the same for both our DSD and
our distributor business. Total sales in our newest markets, which include the
Midwest, Mid-Atlantic and Atlanta markets, were about 6% of total sales and
represent a significant percentage increase from the third quarter of fiscal
1998 as we had just begun selling in some of the newer markets at that time. We
also entered a new market, Atlanta, in the third quarter this year. Because we
sell product to distributors at a wholesale price lower than the price to retail
trade partners, our increased use of distributors will not produce the same net
sales growth that would occur if the same number of products were sold to retail
trade partners. Our food bar business, which was introduced at the very end of
fiscal 1998, was also an important factor this quarter. Bar sales rose 60% from
the second quarter of this year, although food bar sales represented less than
5% of our net sales.

         COST OF SALES. Cost of sales increased to $10.1 million in the third
quarter of fiscal 1999 compared to $7.5 million for the same period during
fiscal 1998. Gross margin as a percentage of net sales was 47.3% in the third
quarter of fiscal 1999, a decrease from 51.6% in the third quarter of fiscal
1998.

         In late December, the San Joaquin Valley in central California
experienced a citrus freeze that seriously damaged the navel orange crop. Other
parts of California were also affected, but to a significantly lesser extent.
The freeze also impacted the California Valencia orange crop and other citrus.
The immediate affect of the freeze was to increase the price of the fresh citrus
we purchase. We also experienced poorer citrus yields and some delay in fruit
maturity. We were also more reliant on citrus sources farther from our
production facility than in prior years, which caused an increase in freight
cost. Gross margin decreased primarily due to (a) unfavorable pricing and yield
for ingredients, primarily citrus, and (b) increases in labor, due to poorer
yields, and co-packing costs. The continued use of third party distributors also
negatively affected gross margins.

         As a result of the citrus freeze, we are now more dependent upon
alternative and more expensive sources of fresh supply than in prior years. We
will continue to use our extensive network of grower contacts to obtain a
continual supply of fresh ingredients. The affect on orange and other ingredient
costs to Odwalla is not yet fully determined, but we may continue to experience
higher orange costs in the fourth quarter of this fiscal year and possibly into
the first quarter of fiscal 2000. The overall freeze impact may cause an
operating loss for fiscal 1999; the impact beyond fiscal 1999 is not yet
determinable.

         SALES AND DISTRIBUTION. Sales and distribution expenses were $6.5
million in the third quarter of fiscal 1999 compared to $5.3 million in the
third quarter of fiscal 1998, and decreased as a percentage of net sales to
33.8% from 34.6% last year. The decrease, as a percentage of net sales, results
from increased sales volume supported by a more fixed cost operations structure,
offset by increased national and regional labor costs and an increase in our
expansion efforts compared to last year. Future decisions regarding growth and
expansion consistent with long-term strategic objectives may increase sales and
distribution costs as a percentage of net sales as compared to their pre-Recall
levels. In both the sales and cost of sales discussions above, we mentioned the
impact that the expanded use of third party distributors would have on each line
item. We continue to look for efficiencies in this part of our business.
However, expansion into markets serviced by our DSD system, such as the
Washington, D.C. area, will require an investment for some initial period.

         Expenses will also be affected as we seek to find the proper mix
between third party distributors and our own DSD system in a given market. The
perishable nature of most of our products and our stringent service standards
can make it difficult to find appropriate distributors in some markets.





                                       11
<PAGE>   12

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

         MARKETING. Marketing expenses increased to $806,000 in the third
quarter of fiscal 1999 compared to $692,000 in the third quarter of fiscal 1998.
Most of the change from last year results from increased product tastings, both
in retail locations and at community events, consultants and product research
and development. We expect marketing expenses to increase in both dollars and as
a percentage of net sales.

         GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased to $2.1 million in the third quarter of fiscal 1999 from $1.7 million
in the third quarter of fiscal 1998, and decreased as a percentage of net sales
to 10.9% from 11.1% last year. The change was primarily due to an increase in
payroll and related costs, including recruiting fees, as we filled several
positions that were open or not approved in fiscal 1998, and an increase in
collection costs for specific accounts. We don't expect general and
administrative costs for the remainder of fiscal 1999 to increase significantly
in absolute dollars when compared to the prior year. However, there can be no
assurance that general and administrative costs will not increase significantly
in absolute dollars. We will continue to invest in infrastructure, particularly
in information systems and research and development, to allow for sustainable
growth.

         INTEREST AND OTHER EXPENSE. Odwalla had net interest and other expense
of $26,000 in the third quarter of fiscal 1999 compared to $54,000 in the third
quarter last year. The net interest expense resulted primarily from borrowings
under the line of credit and other existing debt for each quarter. Although
we've invested the net proceeds of the Series A Stock offering funded in
February 1999, as disclosed in the financial statement footnotes, we continued
to incur interest expense primarily due to minimum borrowing requirements under
our existing line of credit agreement and the imputed interest impact of the
fiscal 1998 settlement with the U.S. Government relating to a federal grand jury
investigation of the Recall incident and related issues.

         INCOME TAX BENEFIT. The $49,000 income tax benefit for the third
quarter of 1999 resulted from the tax benefit associated with the loss following
the Recall. In the third quarter of fiscal 1998, we recorded a $25,000 income
tax expense. The 15% effective tax rate in both 1999 and 1998 varies from the
federal statutory tax rate primarily due to the effect of establishing a
deferred tax asset valuation allowance. We recorded a valuation allowance for a
portion of the net deferred tax asset due to uncertainty as to the ultimate
realization of such assets. We will continue to assess the valuation allowance
as additional information regarding the impact of the Recall on our future
profitability is available.

THIRTY-NINE WEEKS ENDED MAY 29, 1999 AND MAY 30, 1998

         NET SALES. Net sales for the first thirty-nine weeks of fiscal 1999
increased 16% to $50.8 million compared to $43.8 million in the first
thirty-nine weeks of fiscal 1998. Most of the sales growth was generated in our
existing markets, which were those open at the beginning of fiscal 1998, and the
growth rate was about the same for DSD business as for our distributor business.
In our newest markets, where our sales level was minimal in the first
thirty-nine weeks of fiscal 1998, most of the sales volume increase was from our
own DSD business. We entered a new market, Atlanta, in the third quarter this
year. We implemented a price increase (less than 5%) on many of our beverage
products in February 1999 as a result of the citrus freeze in December 1998. Our
food bar business, which was introduced at the very end of fiscal 1998, was also
an important factor during this thirty-nine week period, although food bar sales
represented less than 5% of our net sales.

         COST OF SALES. Cost of sales increased to $26.7 million in the first
thirty-nine weeks of fiscal 1999 compared to $21.8 million for the same period
during fiscal 1998. Gross margin as a percentage of net sales was 47.4% in the
first thirty-nine weeks of fiscal 1999, a decrease from 50.2% when compared to
the first thirty-nine weeks of fiscal 1998.

         In the first quarter of fiscal 1999, we had a higher gross margin
compared to the prior quarter that was significantly influenced by favorable
pricing and yield for fruit and other beverage ingredients. As noted






                                       12
<PAGE>   13

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

above, this trend was significantly reversed in the second and third quarter due
to (a) unfavorable pricing and yield for ingredients, primarily citrus, and (b)
increases in labor, due to poorer yields. On a fiscal 1999 year-to-date basis,
we also experienced an increase in co-packing costs and some impact of
introductory margins on new products. These factors resulted in an overall
decrease on year-to-date gross margin. As discussed above, the continued use of
third party distributors also negatively impacts gross margin.

         As a result of the citrus freeze, we are now more dependent upon
alternative and more expensive sources of fresh supply than in prior years. We
will continue to use our extensive network of grower contacts to obtain a
continual supply of fresh ingredients. The affect on orange and other ingredient
costs to Odwalla is not yet fully determined, but we may experience higher
orange costs in the fourth quarter of this fiscal year and possibly into the
first quarter of fiscal 2000. The overall freeze impact may cause an operating
loss for fiscal 1999; the impact beyond fiscal 1999 is not yet determinable.

         SALES AND DISTRIBUTION. Sales and distribution expenses were $17.6
million in the first thirty-nine weeks of fiscal 1999 compared to $15.1 million
in the first thirty-nine weeks of fiscal 1998, and increased as a percentage of
net sales to 34.7% from 34.6% last year. In the first quarter of fiscal 1999,
sales and distribution expenses were 36.3% of net sales compared to 34.3% in the
first quarter of fiscal 1998 which resulted from expansion efforts and an
increase in both sales and operations support that had been in place for a
higher sales volume than we achieved in the first quarter. In both the second
and third quarter of this year, we experienced an increased sales volume
supported by a more fixed cost operations structure, offset to some extent by
increased labor costs and an increase in our expansion efforts compared to last
year. The higher than expected costs in the first quarter of fiscal 1999, as a
percentage of net sales, were not offset by benefits from second and third
quarter results.

         In both the sales and cost of sales discussions above, we mentioned the
impact that the expanded use of third party distributors could have on each line
item. We continue to look for efficiencies in this part of our business.
However, expansion into markets serviced by our DSD system will require an
investment for some initial period. Expenses will also be affected as we seek to
find the proper mix between third party distributors and our DSD system in a
given market. The perishable nature of most of our products and our stringent
service standards can make it difficult to find appropriate distributors in some
markets.

         MARKETING. Marketing expenses increased to $2.4 million in the first
thirty-nine weeks of fiscal 1999 compared to $2.0 million in the first
thirty-nine weeks of fiscal 1998. Most of the change from last year results from
increased product tastings, both in retail locations and at community events,
consultants and product research and development, and in consumer and other
communications. We expect marketing expenses to increase in both dollars and as
a percentage of net sales.

         GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased to $5.7 million in the first thirty-nine weeks of fiscal 1999 from
$5.0 million in the first thirty-nine weeks of fiscal 1998, and decreased as a
percentage of net sales to 11.3% from 11.5% last year. The change was primarily
due to an increase in payroll as several open positions were not filled until
later in fiscal 1998 or in fiscal 1999. We don't expect general and
administrative costs for the remainder of fiscal 1999 to increase significantly
in absolute dollars when compared to the prior year. However, there can be no
assurance that general and administrative costs will not increase significantly
in absolute dollars. We will continue to invest in infrastructure, particularly
in information systems and research and development, to provide for sustainable
growth.

         INTEREST AND OTHER EXPENSE. Odwalla had net interest and other expense
of $176,000 in the first thirty-nine weeks of fiscal 1999 compared to net other
interest and other expense of $97,000 in the first thirty-nine weeks last year.
The net interest expense resulted primarily from borrowings under the line of
credit and other existing debt. In the same period of last year, net interest
and other expense was offset by an $80,000 gain from an equipment sale.






                                       13
<PAGE>   14

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

         INCOME TAX BENEFIT. The $277,000 and $42,000 income tax benefit for the
first thirty-nine weeks of 1999 and 1998 resulted from the tax benefit
associated with the loss following the Recall. The 15% effective tax rate in
1999 and the 12% effective tax benefit rate in 1998 varies from the federal
statutory tax rate primarily due to the effect of establishing a deferred tax
asset valuation allowance. We recorded a valuation allowance for a portion of
the net deferred tax asset due to uncertainty as to the ultimate realization of
such assets. We will continue to assess the valuation allowance as additional
information regarding the impact of the Recall on our future profitability is
available.

LIQUIDITY AND CAPITAL RESOURCES

         At May 29, 1999, we had working capital of $8.4 million compared to
working capital of $1.7 million at August 29, 1998. The increase resulted
primarily from cash provided by the sale of Series A Preferred Stock, described
below, offset by capital asset purchases and normal debt payments. At May 29,
1999, we had cash and cash equivalents and short-term investments of $9.2
million, compared to $3.2 million at August 29, 1998.

         Net cash used in operating activities in the first thirty-nine weeks of
fiscal 1999 was $1.0 million. This consisted of the net loss plus depreciation
and amortization and the increase in accounts payable and accrued payroll,
offset by an increase in accounts receivable, inventories and prepaid expenses
and a decrease in other accrued expenses. Net cash used in investing activities
in the first thirty-nine weeks of fiscal 1999 was $5.7 million, consisting
primarily of short-term investments following the preferred stock sale and
capital expenditures for production equipment at the Dinuba plant and, to a
lesser extent, computer equipment. Net cash provided by financing activities in
the first thirty-nine weeks of fiscal 1999 was $7.7 million, consisting of net
proceeds from the preferred stock sale offset by scheduled debt and capital
lease payments. In the third quarter, we also sold a vacant real estate parcel
in Half Moon Bay in exchange for the remaining mortgage on that property and
cash. No gain or loss was recorded from the sale, although a provision of the
sales agreement may provide a small gain during the remainder of calendar 1999.

         We've used, and expect to continue to use, both operating and capital
lease financing to obtain coolers used in selling our products, computer and
communication equipment, and production assets, primarily equipment. During the
third quarter of fiscal 1999, we signed a $1.5 million lease line for equipment
at our Dinuba production facility. We expect to fully utilize the line by the
end of September 1999. We are currently discussing additional lease lines with
several companies, although we haven't completed a transaction with a leasing
company and there can be no assurance that we will finalize the proposed
transaction. If we don't obtain adequate lease or other financing, our ability
to obtain needed equipment may negatively affect our operations.

         On January 7, 1999, we signed an agreement with Catterton-Simon
Partners III, L.P. ("Catterton-Simon"), a Delaware limited partnership, to sell
1,000,000 shares of Odwalla Series A Preferred Stock ("Series A Stock") at $8.00
per share. The Series A Stock will receive an 8% annual dividend which is
payable in either cash or additional Series A Stock, at our election. The
dividend is payable semi-annually. All Series A Stock is convertible on a
one-for-one basis into Odwalla common stock (a) upon a request by
Catterton-Simon at any time after July 6, 1999, and (b) automatically upon the
earlier of (i) an acquisition of Odwalla by another company, either for cash or
publicly traded stock, at a price in excess of $12.00 per share, (ii) the
average trading price of Odwalla common stock exceeding $12.00 per share for 20
consecutive trading days, or (iii) January 7, 2002. Holders of Series A Stock
are entitled to preferential payment, in the event of any liquidation of
Odwalla, in an amount equal to the greater of $8.00 per share, plus any accrued
but unpaid dividend, or the amount due each holder of common stock.
Catterton-Simon also received a warrant to purchase 75,000 shares of Odwalla
common stock at $10.00 per share. The warrant expires in seven years. This
transaction was funded and closed in February 1999. We also paid fees and issued
a warrant to our financial advisor in connection with this transaction. This
warrant is for 24,806 shares of common stock at an






                                       14
<PAGE>   15

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

exercise price approximating $6.45 per share and expires in five years. Total
costs of the transaction approximate $700,000, including the financial advisor
fees other than the warrant described above, reimbursement of certain costs of
Catterton-Simon and other transaction costs. On June 14, 1999, the Board of
Directors declared a stock dividend of 33,333 Series A Preferred Stock shares
for Series A stockholder. The dividend is payable June 30, 1999.

         Based upon information currently available, we believe that our
existing cash and cash equivalents and our current and anticipated borrowing
capability will be adequate to meet our obligations as they become due in the
next twelve months.

YEAR 2000

         Many existing computer systems use only the last two digits to identify
a year. Consequently, as the year 2000 approaches, many systems do not yet
recognize the difference in a year that begins with "20" instead of "19." This,
as well as other date related processing issues, may cause systems to fail or
malfunction unless corrected.

         We are continuing our steps to identify and address our internal Year
2000 issues and expect to complete this process by the end of August 1999, the
end of our fiscal year. Our team, which has executive sponsorship, consists of
both internal and external personnel. We have reviewed certain systems,
including information systems, handheld computer systems, production systems and
non-information systems such as phones. We have modified certain systems and
have scheduled modifications on other systems. We are now beginning to address
the readiness of key third parties with which we have relationships, including
suppliers and distributors. We expect to have this process completed by the end
of September 1999. While we may obtain assurances from third parties regarding
their Year 2000 readiness, we do not have any plans to otherwise assess their
readiness and do not expect to perform such an assessment.

         While Year 2000 costs incurred to date have not been material, we will
incur additional costs as we complete our readiness. We don't believe that the
additional costs will be material, but we have not completed our assessment and
can't offer assurance regarding the additional costs. We believe we are
dedicating adequate resources toward attaining Year 2000 readiness, but there is
no assurance that we will be successful in our efforts to address all Year 2000
issues. As with all companies, we also rely on other more widely used entities
such as government agencies, public utilities and other external forces common
to business and industry. Consequently, if such entities were to experience Year
2000 failures, this could disrupt our ability to conduct ongoing operations.

         We have not developed a contingency plan in the event we experience
potential failures. We intend to assess the need for contingency plans, but
can't offer any assurance that we will successfully develop such plans for areas
that might result in significant exposure.

         The above discussion regarding costs, risks and estimated completion
dates for the Year 2000 is based on our best estimates given information that is
currently available, and is subject to change. As we continue to study this
issue, we may discover that actual results will differ materially from the
estimates noted above.







                                       15
<PAGE>   16

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

OTHER FACTORS AFFECTING ODWALLA'S BUSINESS

         PRODUCTS, DISTRIBUTION AND TRADE PARTNERS. Our current product line
consists of single-flavor and blended fruit- and vegetable-based juice products,
meal replacement beverages, wholesome food bars and natural spring water. Except
for our 100% fresh squeezed citrus line, all juices are minimally processed,
with some produced on a seasonal basis. We strive for consistent
"day-of-production" quality in all our products. We establish shelf life
standards for each product to maintain the flavor and nutritional integrity that
consumers associate with freshly produced fruit and vegetable beverages. Our
policy is to have all products removed from trade partners' shelves on or before
their Odwalla-established expiration date. In addition, because of our "day of
production" quality standards, products reflect the seasonal changes in fruit
varieties in color and taste. Our production methods are designed to minimize
the effect of processing on the fruit juice extracted. Our entire product line
varies due to a significant component of seasonal ingredients, seasonal product
usage, and the addition and deletion of products.

          At most DSD accounts, we are responsible to stock, order and
merchandise our products at the point of sale, and we issue credits to the trade
partner for unsold product. This full service relationship allows us to avoid
paying slotting fees for shelf space as well as other handling fees and to
maintain control over our product merchandising at the point of sale. We provide
a lesser degree of service to certain trade partners who are responsible for
stocking, ordering and merchandising Odwalla products. These trade partners
don't receive credit for unsold products. We also distribute our products
through third party distributors. Although we have used distributors to some
extent for several years, primarily in geographic regions outside of our then
base geographic markets and to comply with certain trade partner requests, we
began actively exploring this channel at the very end of fiscal 1997. This
distribution channel, with merchandising support provided by our employees,
provides an opportunity to expand product distribution, increase DSD efficiency,
and still maintain relationships with trade partners. We began using third party
distributors primarily in our newer geographic markets in fiscal 1998, including
Chicago, Detroit, Minneapolis, Philadelphia and, most recently, the Atlanta
area. We sell directly to the third party distributors and they generally don't
receive credit for unsold product.

         RAW MATERIALS. Producing and selling our minimally processed products
entails special requirements in ingredient sourcing, production, distribution
and sales in order to preserve and maximize the products freshness and flavor
quality. We source and select fruits and vegetables to meet a variety of
established criteria, including overall quality, flavor profile, variety,
ripeness and other factors. Processing of the fruit and vegetables is performed
in a manner to capture and preserve various qualities of fresh flavors and
consistency. Odwalla has focused on each of these elements in an effort to
achieve our goal of providing the safest, best tasting and most nutritious
beverage and other products for consumers.

         Odwalla buys ingredients according to stringent specifications. Fruits
and vegetables, in particular, are purchased year-round or seasonally depending
on the type of produce. Because various types of fruit and vegetable crops are
harvested at different times of the year, we obtain and produce different juices
on a seasonal basis. Most of our fruits and vegetables are purchased in the open
market on a negotiated basis. Historically, oranges, apples and carrots are the
largest volume commodities we purchase. We have developed an extensive network
of ingredient sourcing relationships over the years and rely on this network and
new sources for the ingredients we need. We farm a small orange ranch in a part
of California to have access to local fresh fruit in the early winter months.
Recently, we began purchasing organic oats as a significant ingredient in our
food bars. All of these key ingredients are subject to volatility in supply,
price and quality that could materially and adversely affect our business and
results of operations. We are subject to the same issues with our other
ingredients as well. We also source a number of fruits, such as tropical fruits,
from foreign suppliers in the form of frozen fruit puree.







                                       16
<PAGE>   17

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

         As with most agricultural products, the supply and price of raw
materials we use can be affected by a number of factors beyond our control, such
as frost, drought, flood, hurricane and other natural disasters. Weather
conditions, economic factors affecting growing decisions, various plant diseases
and pests will affect the condition and size of the crop. For example, the El
Nino conditions and other weather patterns in the winter of 1997-1998 caused
temporary shortages of certain tropical products. Additionally, weather
conditions reduced the Florida projected orange harvest for the 1998-1999
season. The La Nina weather pattern in the western part of North and Central
America in the 1998-1999 winter season had an adverse effect on the prices and
availability of fruits and vegetables, in addition to the impact of the citrus
freeze during December 1998 previously discussed. All of these adverse weather
conditions could negatively affect our business and results of operations.

         RISKS ASSOCIATED WITH PERISHABLE PRODUCTS. Except for natural spring
water, meal replacement beverages and food bars, Odwalla's products are fresh,
flash pasteurized or heat treated and don't contain any preservatives. They have
a limited shelf life because of this. In order to maintain our
"day-of-production" quality standards, we further restrict the shelf life of
products through early expiration dates. The restricted shelf life means that we
don't have any significant finished goods inventory and our operating results
are highly dependent on our ability to accurately forecast near term sales in
order to adjust fresh fruit and vegetable sourcing and production. We've
historically experienced difficulties in accurately forecasting product demands
and expect that challenge to continue. When we don't accurately forecast product
demand, we are either unable to meet higher than anticipated demand or we
produce excess inventory that cannot be profitably sold. In addition, most of
our trade partners have the right to return any products that are not sold by
their expiration date. Our inability to meet higher than anticipated demand or
excess production or significant amounts of product returns on any of our
products could have a material negative effect on our business and results of
operations.

         COST SENSITIVITY. Our profitability is highly sensitive to increases in
raw materials, labor and other operating costs. Unfavorable trends or
developments concerning factors such as inflation, raw material supply, labor
and employee benefit costs, including increases in hourly wage and minimum
unemployment tax rates, rent increases resulting from the rent escalation
provisions in our leases, and the availability of hourly employees may also
adversely affect our results. We've benefited in prior years from relatively
favorable inflation rates and part-time labor supplies in our principal market
areas in recent years. However, there is no assurance that these conditions will
continue or that we will have the ability to control costs in the future.

         DEPENDENCE ON ONE OR A FEW MAJOR TRADE PARTNERS. Safeway, Inc.
("Safeway") is our largest single account and accounted for 13% of our fiscal
1998 sales. We spend considerable time to maintain a good relationship with
Safeway and other significant accounts, but we can't offer any assurance that
sales to significant accounts will not decrease or that these trade partners
will not choose to replace our products with those of competitors. The loss of
Safeway or other significant accounts or any significant decrease in the volume
of products purchased by their customers in the future would materially and
adversely affect our business and results of operations. Continuity of trade
partner relationships is important, and events that impact our trade partners,
such as labor disputes, may have an adverse impact on our results of operations.

         COMPETITION. In a broad sense, our beverages compete with all beverages
available to consumers and our food bars compete with all food bars currently
available. The natural foods market is highly competitive. It includes national,
regional and local producers and distributors; many of them have greater
resources than we do, and many of them have shelf stable products that can be
distributed with significantly less cost. We believe our niche is easily
accessed nourishing beverages in the super premium juice, emerging meal
replacement beverage, all-natural food bar and bottled water categories. We
believe our direct competition in this market niche is currently from
nationally, regionally and locally focused juice producers, certain of which are
owned by major beverage producers, nationally branded meal replacement beverage
producers, food and energy bar companies and premium bottled waters. Our direct
competitors in the juice






                                       17
<PAGE>   18

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

business are national brands, including Just Squeezed, Tropicana, Minute Maid
and Nantucket Nectars. Our juice products compete with regional brands,
including Naked Juice (owned by Chiquita Brands International, Inc.
("Chiquita")) in Southern California and Colorado, Fresh Samantha's in the
Northeast, Mid-Atlantic and Southeast sections of the United States and Fantasia
in the Chicago and other Midwest market areas. Juice and smoothie bars,
including Jamba Juice are also competitors. In addition, a number of major
supermarkets and other retail outlets squeeze and market their own brand of
fresh juices that compete with the Company's products. A decision by Chiquita or
any other large company to focus on Odwalla's existing markets or target markets
could have a material adverse effect on our business and results of operations.
In late 1998, we began the introduction of food bars. Our food bar products
compete with several more established companies,, including PowerBar, Balance
Bar or Clif Bar. While we believe that we compete favorably with our competitors
on factors, including quality, nutritional integrity, food safety,
merchandising, service, sales and distribution, multiple flavor categories,
brand name recognition and loyalty, our products are typically sold at prices
higher than most other competing beverage and bar products. Significant
competitive pressure from these or other companies could negatively impact our
sales and results of operations.

         PRODUCT LIABILITY. Because our 100% fresh-squeezed citrus products and
certain other citrus-based products are not pasteurized or chemically treated,
they are highly perishable and contain certain naturally occurring
microorganisms. In addition to the Recall (see "Part II, Item 1. Legal
Proceedings" on page 21) associated with the E. coli O157:H7 bacteria in 1996,
from time to time we receive complaints from consumers regarding ill effects
allegedly caused by our products. These past claims haven't resulted in any
material liability to date, but there can be no assurance that we won't have
future claims or that any claims associated with the Recall or earlier periods
in 1996 will not result in adverse publicity or monetary damages, either of
which could materially and adversely affect our business and results of
operations. We currently maintain $52,000,000 in product liability insurance,
which may not be sufficient to cover the cost of defense or related damages in
the event of a significant product liability claim.

         ORCHARD PRODUCTION. Historically, we've depended upon the fruit
produced from the trees of large orchards. These trees may become damaged,
diseased or destroyed as a result of windstorms, pests or fungal disease.
Additionally, there are types of controllable fungal diseases that can affect
fruit production although not fatal to the trees themselves. These types of
fungal diseases are generally controllable with fungicides. However, we can't be
sure that such control measures will continue to be effective. Any decrease in
the supply of fresh fruit as a result of windstorms, pests or fungal disease
could have a material adverse effect on our business and results of operations.

         GEOGRAPHIC CONCENTRATION. Our wholesale accounts and retail trade
partners have their largest concentration in Northern California, with most
located in the metropolitan areas surrounding the San Francisco Bay. Due to this
concentration, natural occurrences, economic downturns and other conditions
affecting Northern California may adversely affect our business and results of
operations.

         CONCENTRATION OF PRODUCTION CAPACITY. Virtually all of our juice
production capacity is located at our Dinuba, California facility. Because we
maintain minimal finished goods inventory as part of our "day-of-production"
production system, we could be unable to continue to produce fresh beverages in
the event that production at or transportation from Dinuba were interrupted by
fire, earthquakes, floods or other natural disasters, work stoppages, regulatory
actions or other causes. Such an interruption would materially and adversely
affect our business and results of operations. Separate companies produce our
meal replacement beverages, water and food bars.






                                       18
<PAGE>   19

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

         LACK OF DIVERSIFICATION. Odwalla's business is vertically integrated
and centered around essentially one product, fresh beverages, sold primarily
through our DSD system. Although we've added meal replacement beverages, water
and food bars and are using more third party distributors, the risks associated
with focus on essentially one product are exemplified by the material adverse
effect on our business and results of operations that resulted from the Recall
in October 1996. Any significant decrease in the consumption of beverages
generally or specifically with respect to our products would have an adverse
effect on our business and results of operations.

         RISKS RELATED TO EXPANSION. Continued growth depends in part upon our
ability to expand into new geographic areas, either through internal growth or
by acquisition. Following the 1996 Recall, management attention was primarily
focused on restoring production and sales in our then-existing markets and
dealing with legal and other company issues. This diverted our plans for
expansion, for the most part, until fiscal 1998. There can be no assurance that
we will expand into new geographic areas or continue to invest in newer markets
or if such expansion or investment is undertaken that it will be successful or
that such expansion can be accomplished on a profitable basis. Demands on
management and working capital costs associated with the Recall as well as the
perishability of our products and current reliance on the personnel-intensive
direct-store-delivery system may limit the ability, or increase the cost of,
expansion into new regions. Furthermore, perceptions of the Recall and consumer
tastes vary by region and there can be no assurance that consumers located in
other regions will be receptive to our products.

         We've expanded into certain new markets, such as the Pacific Northwest
and Colorado, through acquisitions of local juice manufacturers. Acquisitions
involve a number of special risks, including the diversion of management's
resources, issues related to the assimilation of the operations and personnel of
the acquired businesses, potential adverse effects on operating results and
amortization of acquired intangible assets. In addition, gross margins may be
negatively affected to the extent that gross margins on acquired product lines
are lower than Odwalla's average gross margins. If we seek and find attractive
acquisition candidates, we may not be able to complete the transaction on
acceptable terms, to successfully integrate the acquisition into our operations,
or to assure that the acquisition won't have an adverse impact on our
operations.

         Any plans to invest in new markets or to consider acquisitions may
cause us to seek additional financing that may be dilutive to current investors
or result in a higher debt-to-equity ratio than would otherwise be the case. Any
financing we obtain may not be on terms favorable to us, even if it is
available.

         GOVERNMENT REGULATION. The production and sales of beverages are
subject to the rules and regulations of various federal, state and local food
and health agencies, including the U.S. Food and Drug Administration ("FDA"). On
September 8, 1998, the FDA regulations for fresh apple juice went into effect.
The regulations for fresh-squeezed citrus juices are scheduled to go into effect
in July 1999. The FDA's guidelines for fresh juice require producers to achieve
at least a 5-log reduction in potential pathogens (99.999% barrier).
Pasteurization is one way for juice producers to meet the requirement. We
currently Flash Pasteurize our apple juice and are in compliance with the FDA
regulations. For juice producers who choose not to use pasteurization, the FDA
has mandated either a HACCP plan that achieves the required 5-log reduction or a
warning label on the bottle to alert consumers of the presence of unprocessed
produce. Because all products produced in our Dinuba, California production
facility are manufactured under a HACCP plan with validated critical control
points, we are already in compliance with the new FDA regulations and will not
need to use warning labels on unpasteurized juice products. For our 100%
fresh-squeezed citrus juices (orange, grapefruit, tangerine, lemon and lime),
we've designed a process that has been scientifically validated to achieve the
FDA-required 5-log reduction without pasteurizing. Because our process meets the
FDA's new requirements, and our own quality assurance standards, Odwalla
continues to offer our 100% fresh-squeezed, unpasteurized citrus juice without a
warning label. We don't anticipate significant additional costs to comply with
current FDA regulations. However, should the FDA's







                                       19
<PAGE>   20

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

regulations change to require us to meet additional requirements, our business
and results of operations may be negatively affected by the increased costs of
compliance.

         VOLATILITY OF STOCK PRICE. Odwalla's common stock price has, at certain
times, experienced significant price volatility. Announcements of developments
related to our business, fluctuations in operating results, failure to meet
securities analysts' expectations, general conditions in the fruit and vegetable
industries and the worldwide economy, announcements of innovations, new products
or product enhancements by us or our competitors, fluctuations in the level of
cooperative development funding, acquisitions, changes in governmental
regulations, developments in patents or other intellectual property rights and
changes in our relationships with trade partners and suppliers could cause the
price of our common stock to fluctuate substantially. In addition, in recent
years the stock market in general, and the market for small capitalization
stocks in particular, has experienced extreme price fluctuations which have
often been unrelated to the operating performance of affected companies. Such
fluctuations could adversely affect the market price of our common stock.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         INTEREST RATE RISK. It is our policy not to enter into derivative
financial instruments. We do not currently have any significant foreign currency
exposure since we do not transact business in foreign currencies. Due to this,
we did not have significant overall currency exposure at May 29, 1999.

         FOREIGN CURRENCY RATE RISK. As almost all of our sales and expenses are
denominated in U.S. Dollars, we have experienced only insignificant foreign
exchange gains and losses to date, and we do not expect to incur significant
gains and losses in fiscal 1999. We do not engage in foreign currency hedging
activities.




















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<PAGE>   21

PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS.

         The following personal injury claims and legal proceedings seeking
monetary damages and other relief relating to the Recall are pending against
Odwalla, as discussed in Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations":

         1.   The McGregor Case: A personal injury lawsuit filed in Santa Clara
              County Superior Court, San Jose, California on June 2, 1997 and
              served on June 16, 1997. The case is set for trial in January
              2000.

         2.   The Jackson Case: A personal injury lawsuit filed in King County
              Superior Court, Seattle, Washington, and served on or about June
              8, 1998. The case is set for trial on October 25, 1999.

         3.   The Nixon Case: A personal injury lawsuit filed in Sacramento
              County Municipal Court, Sacramento, California on August 15, 1997.
              There is no trial date set.

         The Company has two additional proceedings allegedly arising out of
product consumption prior to the Recall:

         1.   The Lane Case: A personal injury lawsuit filed in King County
              Superior Court, Seattle, Washington, and served on or about April
              26, 1999. The case was removed to the United States District Court
              in Seattle on May 25, 1999. The case does not have a trial date
              set.

         2.   The Shields Case: A personal injury lawsuit filed in King County
              Superior Court, Seattle, Washington, and served on or about July
              1, 1999. The case is set for trial in November 2000.

         The following personal injury claims and legal proceedings have been
settled:

         1.   The Sawchuk Case: A personal injury lawsuit filed in the United
              States District Court for the Northern District of California and
              served on or about October 10, 1997. The case was settled on April
              7, 1999 subject to final court approval.

         2.   The Fujita Case: A personal injury lawsuit filed in Alameda
              Superior Court. The case was settled in April 1999.

         We maintained commercial general liability insurance totaling
$27,000,000 during the period including the Recall. We have notified our
insurance carrier of these events. At this time, we are unable to determine the
potential liability from the remaining legal proceedings and claims. The Recall
related legal proceedings settled to date were covered under our commercial
general liability insurance policy and did not result in any additional costs to
us.

         On May 21, 1999, Odwalla filed a lawsuit in United States District
Court for the Eastern District of California in Fresno, California, against New
Hampshire Insurance Company to seek recovery on our business interruption
insurance claim filed as a result of the Recall. The case does not have a trial
date set.

         We are subject to other legal proceedings and claims that arise in the
course of our business. We currently believe that the ultimate amount of
liability, if any, for any pending actions (either alone or combined) will not
materially affect our financial position, results of operations or liquidity.
However, the ultimate outcome of any litigation is uncertain, and unfavorable
outcomes could have a material negative impact.






                                       21
<PAGE>   22

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          A.   EXHIBITS

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER      DESCRIPTION
          -------     -----------
           <S>        <C>
            3.1       Amended and Restated Bylaws, dated as of February 1, 1999.

           27.1       Financial Data Schedule
</TABLE>


         B.   REPORTS ON FORM 8-K

         The Company did not file any reports on Form 8-K during the quarter
ended May 29, 1999.





















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<PAGE>   23


                                    SIGNATURE


         Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                        ODWALLA, INC.
                                        (Registrant)




Date:  July 9, 1999                     By:  /s/  D. STEPHEN C. WILLIAMSON
                                           -------------------------------------
                                             D. Stephen C. Williamson
                                             Chief Executive Officer
                                             (Principal Executive Officer)



Date:  July 9, 1999                     By:  /s/  JAMES R. STEICHEN
                                           -------------------------------------
                                             James R. Steichen
                                             Chief Financial Officer
                                             (Principal Financial and
                                             Accounting Officer)





















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