Odwalla Inc – ‘10-Q’ for 6/2/01

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Quarterly Report   —   Form 10-Q
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        3rd Qtr. 10-Q                                         23    110K 

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10-Q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 2, 2001                                     

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 Identification No.)
incorporation or organization)                                                  

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                11,074,900 shares     
         (Class)                    (Outstanding at July 10, 2001)

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 ODWALLA, INC.

 FORM 10-Q
 FOR THE QUARTERLY PERIOD ENDED JUNE 2, 2001

 INDEX

                                                        [Enlarge/Download Table]

                                                                                   PAGE
                                                                                   ----
                                                                                       
PART I.  FINANCIAL INFORMATION                                                         

    Item 1.    Financial Statements                                                    

               Consolidated balance sheets as of September 2, 2000                     
               and June 2, 2001 ...................................................  3 

               Consolidated statements of operations for the thirteen and the          
               thirty-nine weeks ended May 27, 2000 and June 2, 2001 ..............  4 

               Consolidated statements of cash flows for the thirty-nine weeks         
               ended May 27, 2000 and June 2, 2001 ................................  5 

               Notes to consolidated financial statements .........................  6 

    Item 2.    Management's Discussion and Analysis of Financial Condition             
               and Results of Operations .......................................... 10 

    Item 3.    Quantitative and Qualitative Disclosures About Market Risk ......... 21 

PART II.  OTHER INFORMATION                                                            

    Item 1.    Legal Proceedings .................................................. 22 

    Item 6.    Exhibits and Reports on Form 8-K ................................... 22 

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                                                                  [ODWALLA LOGO]

PART I - FINANCIAL INFORMATION                                                  
ITEM 1.  FINANCIAL STATEMENTS                                                   

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

                                                        [Enlarge/Download Table]

                                                                       SEPTEMBER 2,   JUNE 2, 
                                                                          2000         2001   
                                                                       ------------  -------- 
                                                                                              
Current assets                                                                                
    Cash and cash equivalents                                           $  3,374     $  1,858 
    Short term investments                                                 2,018          506 
    Trade accounts receivable, less allowance for doubtful                                    
       accounts and product returns of $1,436 and $1,591                  11,599       14,112 
    Inventories                                                            6,705        5,987 
    Prepaid expenses and other current assets                              2,357        3,295 
    Deferred tax asset, current                                            2,265        2,582 
                                                                        --------     -------- 

          Total current assets                                            28,318       28,340 
                                                                        --------     -------- 

Plant, property and equipment, net                                        20,011       22,788 
                                                                        --------     -------- 

Other assets                                                                                  
    Intangible assets, net                                                35,091       33,279 
    Covenants not to compete, net                                            393          326 
    Deferred tax asset, non-current                                        4,864        4,535 
    Other noncurrent assets                                                  677          926 
                                                                        --------     -------- 
          Total other assets                                              41,025       39,066 
                                                                        --------     -------- 

          Total assets                                                  $ 89,354     $ 90,194 
                                                                        ========     ======== 

Current liabilities                                                                           
    Accounts payable                                                    $  9,139     $  7,235 
    Accrued payroll and related items                                      2,328        1,925 
    Line of credit                                                         1,950        1,950 
    Other accruals                                                         2,574        3,200 
    Income taxes payable                                                      24           -- 
    Current maturities of capital lease obligations                          372          825 
    Current maturities of long-term debt                                     219          216 
                                                                        --------     -------- 

          Total current liabilities                                       16,606       15,351 

Capital lease obligations, less current maturities                           735        1,390 
Long-term debt, less current maturities                                      390          276 
Deferred tax liability                                                    10,296        9,971 
Other                                                                        655        2,486 
                                                                        --------     -------- 

Total liabilities                                                         28,682       29,474 
                                                                        --------     -------- 

Shareholders' equity                                                                          
    Common stock, no par value, shares authorized, 15,000,000; shares                         
       issued and outstanding, 11,033,000 and 11,071,000                  72,948       73,165 
    Accumulated deficit                                                  (12,276)     (12,445)
                                                                        --------     -------- 

Total shareholders' equity                                                60,672       60,720 
                                                                        --------     -------- 

Total liabilities and shareholders' equity                              $ 89,354     $ 90,194 
                                                                        ========     ======== 

 See accompanying notes to consolidated financial statements

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                                                                  [ODWALLA LOGO]

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

                                                        [Enlarge/Download Table]

                                                     THIRTEEN WEEKS ENDED         THIRTY-NINE WEEKS ENDED   
                                                  ---------------------------   --------------------------- 
                                                   MAY 27,            JUNE 2,    MAY 27,            JUNE 2, 
                                                    2000               2001       2000               2001   
                                                  --------           --------   --------           -------- 
                                                                                                            
Net sales                                         $ 25,682           $ 34,540   $ 60,541           $ 97,675 

Cost of sales                                       12,688             16,731     31,228             46,549 
                                                  --------           --------   --------           -------- 

Gross profit                                        12,994             17,809     29,313             51,126 
                                                  --------           --------   --------           -------- 

Operating expenses                                                                                          
    Sales and distribution                           8,328             11,707     20,827             34,388 
    Marketing                                          726                849      1,858              2,826 
    General and administrative                       2,508              3,062      6,311              8,852 
    Amortization of intangible assets from Fresh                                                            
      Samantha acquisition                             130                577        130              1,731 
    Restructuring and other charges                     --                 --         --              3,490 
                                                  --------           --------   --------           -------- 

          Total operating expenses                  11,692             16,195     29,126             51,287 
                                                  --------           --------   --------           -------- 

    Income (loss) from operations                    1,302              1,614        187               (161)
Other (expense) income, net                                                                                 
    Proceeds from insurance settlement, net of                                                              
      legal fees                                     5,458                 --      5,458                 -- 
    Series A preferred stock inducement expense     (1,587)                --     (1,587)                -- 
    Interest expense, net                              (90)              (119)      (137)              (248)
    Other                                               35                 --         31                (49)
                                                  --------           --------   --------           -------- 

Income (loss) before income taxes                    5,118              1,495      3,952               (458)

Income tax benefit (expense)                        (1,006)              (630)      (831)               289 
                                                  --------           --------   --------           -------- 

Net income (loss)                                    4,112                865      3,121               (169)
                                                  --------           --------   --------           -------- 

Preferred stock dividend                              (142)                --       (568)                -- 
                                                  --------           --------   --------           -------- 

Net income (loss) applicable to common                                                                      
    shareholders                                  $  3,970           $    865   $  2,553           $   (169)
                                                  ========           ========   ========           ======== 

Basic net income (loss) applicable to                                                                       
    common shareholders per share                 $   0.59           $   0.08   $   0.45           $  (0.02)
                                                  ========           ========   ========           ======== 

Shares used in per share amounts                     6,710             11,068      5,654             11,050 
                                                  ========           ========   ========           ======== 

Diluted net income (loss) applicable to common                                                              
    shareholders per share                        $   0.58           $   0.08   $   0.45           $  (0.02)
                                                  ========           ========   ========           ======== 

Shares used in per share amounts                     6,796             11,390      5,704             11,050 
                                                  ========           ========   ========           ======== 

 See accompanying notes to consolidated financial statements

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                                                                  [ODWALLA LOGO]

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

                                                        [Enlarge/Download Table]

                                                                 THIRTY-NINE WEEKS ENDED   
                                                               --------------------------- 
                                                               MAY 27,             JUNE 2, 
                                                                2000                2001   
                                                               -------             ------- 
                                                                                           
Cash flows from operating activities                                                       
   Net income (loss)                                           $ 3,121             $  (169)
   Adjustments to reconcile net income (loss) to net cash                                  
     provided by operating activities:                                                     
        Depreciation and Amortization                            2,293               5,764 
        Deferred taxes                                             821                (313)
        Preferred stock inducement expense                       1,587                  -- 
        Changes in assets and liabilities:                                                 
          Trade accounts receivable                             (1,770)             (2,513)
          Inventories                                             (179)                718 
          Prepaid expenses and other current assets             (2,367)               (938)
          Other noncurrent assets                                 (130)               (273)
          Accounts payable                                      (2,168)             (1,904)
          Accrued payroll and related items                        691                (403)
          Other accruals                                          (536)                626 
          Income taxes payable                                      --                 (24)
          Other long-term liabilities                              523               1,831 
                                                               -------             ------- 
Net cash provided by operating activities                        1,886               2,402 
                                                               -------             ------- 

Cash flows from investing activities                                                       
   Capital expenditures                                         (3,852)             (5,560)
   Net cash costs of Fresh Samantha acquisition                 (1,100)                 -- 
   Proceeds from sale of short-term investments                  2,271               1,512 
                                                               -------             ------- 
Net cash used in investing activities                           (2,681)             (4,048)
                                                               -------             ------- 

Cash flows from financing activities                                                       
   Principal payments under long-term debt and capital leases     (209)                (87)
   Net payments under line of credit                              (369)                 -- 
   Payment of debt acquired from Fresh Samantha                 (3,827)                 -- 
   Issuance of common stock                                      6,002                 217 
                                                               -------             ------- 
Net cash provided by financing activities                        1,597                 130 
                                                               -------             ------- 

Net increase (decrease) in cash and cash equivalents               802              (1,516)

Cash and cash equivalents, beginning of period                   2,581               3,374 
                                                               -------             ------- 

Cash and cash equivalents, end of period                       $ 3,383             $ 1,858 
                                                               =======             ======= 

 See accompanying notes to consolidated financial statements

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 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 subsidiaries ("Odwalla" or "Company") at June 2, 2001 and 
the related consolidated statements of operations and of cash flows for the     
thirteen week and thirty-nine week periods ended for each of May 27, 2000 and   
June 2, 2001 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           
accompanying consolidated financial 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 accompanying       
consolidated financial statements should be read in conjunction with the        
consolidated financial statements for the year ended September 2, 2000 appearing
in Odwalla's 2000 Annual Report on Form 10-K.                                   

      The consolidated statement of operations includes the results of Fresh
Samantha, a wholly owned subsidiary, since its acquisition on May 2, 2000.      

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.                      

3.      INVENTORIES                                                             

Inventories consist of the following (in thousands):            

                                                                [Download Table]

                                      SEPTEMBER 2,        JUNE 2,
                                         2000              2001  
                                      ------------        -------
                                                                 
Raw materials                           $4,276            $3,132 
Packaging supplies and other               944             1,188 
Finished product                         1,485             1,667 
                                        ------            ------ 

                                        $6,705            $5,987 
                                        ======            ====== 

4.      PLANT, PROPERTY AND EQUIPMENT                                           

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

                                                                [Download Table]

                                                SEPTEMBER 2,   JUNE 2, 
                                                   2000         2001   
                                                ------------  -------- 
                                                                       
Land                                             $    618     $    618 
Buildings and building improvements                 7,244        7,634 
Leasehold improvements                              2,314        2,590 
Machinery and equipment                            14,018       17,414 
Vehicles                                              997        1,126 
Data processing equipment                           4,019        7,216 
Other                                               1,619          870 
                                                 --------     -------- 
                                                   30,829       37,468 
Less accumulated depreciation and amortization    (10,818)     (14,680)
                                                 --------     -------- 
                                                 $ 20,011     $ 22,788 
                                                 ========     ======== 

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

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 and warrants  
under the treasury stock method.                                                

       The following table shows the computation of basic and diluted earnings
per share, in thousands except per share data:                                  

                                                        [Enlarge/Download Table]

                                                THIRTEEN WEEKS ENDED       THIRTY-NINE WEEKS ENDED  
                                              -------------------------  -------------------------- 
                                              MAY 27,           JUNE 2,  MAY 27,            JUNE 2, 
                                               2000              2001     2000               2001   
                                              ------            -------  ------            -------- 
                                                                                                    
Basic:                                                                                              
  Weighted average common shares outstanding   6,710             11,068   5,654              11,050 
  Net income (loss)                           $4,112            $   865  $3,121            $   (169)
  Net income (loss) attributable to common                                                          
     shareholders                             $3,970            $   865  $2,553            $   (169)
  Per share amount, attributable to common                                                          
    shareholders                              $ 0.59            $  0.08  $ 0.45            $  (0.02)

Diluted:                                                                                            
  Weighted average common shares outstanding   6,710             11,068   5,654              11,050 
  Common equivalent shares                        86                322      50                  -- 
  Shares used in per share amounts             6,796             11,390   5,704              11,050 
  Net income (loss)                           $4,112            $   865  $3,121            $   (169)
  Net income (loss) attributable to common                                                          
    shareholders                              $3,970            $   865  $2,553            $   (169)
  Per share amount, attributable to common                                                          
    shareholders                              $ 0.58            $  0.08  $ 0.45            $  (0.02)

        We had no dilutive common equivalent shares during the thirty-nine weeks
ended June 2, 2001 due to the reported net loss.                                

       Holders of Series A Preferred Stock ("Series A Stock") were entitled to
receive an 8% annual dividend which was payable in either cash or additional    
Series A Stock, at our election. The dividend was payable semi-annually. For the
thirteen week and the thirty-nine week periods ended May 27, 2000, we adjusted  
net income by $142,000 and $568,000 to arrive at net income attributable to     
common shareholders. In connection with the purchase of Fresh Samantha in May   
2000, the Series A Stock was converted into common stock as of the effective    
date of the Fresh Samantha acquisition.                                         

6.      LINE OF CREDIT                                                          

    On July 12, 2001, Odwalla and Fresh Samantha entered into a Business
Loan Agreement providing up to $10.0 million of borrowing capability, including 
the ability to issue letters of credit up to a certain maximum amount.          
Borrowings are limited to 75% of eligible accounts receivable, which generally  
represent all trade accounts receivable less delinquent balances and other      
balances as defined in the Business Loan Agreement. Odwalla is also required to 
meet certain covenants, including maintenance of certain financial ratios       
including, fixed charge coverage, quick and leverage ratios and certain         
limitation on losses. The Business Loan Agreement also contains certain business
restrictions, including limitations on the ability to borrow additional funds,  
limitations on capital expenditures in excess of certain amounts, restrictions  
on the payment of cash dividends, purchase of Odwalla stock, ability to encumber
or sell Odwalla or Fresh Samantha assets, and limitations on other business     
transactions without prior approval from the lender.                            

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

Interest is payable monthly at the prime interest rate plus 0.0% to 0.5%        
depending on certain financial ratios. The initial rate is prime plus 0.25%. We 
may also select either a IBOR or LIBOR rate plus 2.75% to 3.5% depending on     
certain financial ratios. The Business Loan Agreement has a two-year term ending
in July 2003. Accounts receivable, inventories, intellectual property, other    
general and personal property of Odwalla and Fresh Samantha provide collateral  
under the Business Loan Agreement.                                              

   This facility replaced a prior credit facility. We had exceeded the
capital asset acquisition limitation and debt service coverage covenants in the 
prior credit facility. Because of the pending termination of the prior credit   
facility, we did not request and did not receive a waiver of the covenant       
violation. The unamortized costs of loan fees of approximately $160,000         
associated with the prior credit facility are expected to be written off in the 
fourth quarter of fiscal 2001.                                                  

7.      RESTRUCTURING AND OTHER CHARGES                                         

  Restructuring and other charges consist of the following items (in
thousands):                                                                     

                                                                [Download Table]
                                                                
Separation agreement and severance agreements            $ 1,230
Exit from Saco, Maine production facilities                2,260
                                                         -------

                                                         $ 3,490
                                                         =======

    Separation agreement and severance agreements. On December 14, 2000,
Odwalla announced that Doug Levin, Founder and CEO of Fresh Samantha, was       
leaving the company after helping to complete the successful merger of Odwalla  
and Fresh Samantha. In December 2000 and January 2001, management changes were  
implemented in our East Coast operations. As a result of these actions, we      
recorded a $1,230,000 charge to operations.                                     

 Exit from Saco, Maine production facilities. On January 11, 2001,
Odwalla announced the closure of the Fresh Samantha production facilities. The  
main components of the cost of this closure are as follows:                     

-       The closure includes the termination of approximately 60
          employees, primarily from the manufacturing operation, and
              estimated severance payments and related payments of $752,000.
           All employees were notified of their pending termination in
January 2001.                                   

-       The exit from the Saco facility results in excess leased
              facilities, excess transportation equipment, and certain other
              assets that will have no recoverable value due to the closure.
These items total $1,508,000.                   

        As of June 2, 2001, the liability for the above charges, net of expenses
applicable to the quarter ended June 2, 2001, are included in the following     
accounts (in thousands):                                                        

                                                                [Download Table]
                                                                
Other accruals                                           $ 1,401
Other long-term liabilities                                1,912

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

8.      OTHER (EXPENSE) INCOME, NET                                             

 Other (expense) income consisted of the following (in thousands):

                                                                [Download Table]

                    THIRTEEN WEEKS ENDED     THIRTY-NINE WEEKS ENDED  
                  ------------------------   ------------------------ 
                  MAY 27,           JUNE 2,  MAY 27,           JUNE 2,
                   2000              2001     2000              2001  
                  ------            ------   ------            ------ 
                                                                      
Interest income    $  35             $  13    $ 139             $ 183 
Interest expense    (125)             (132)    (276)             (431)
Other                 35                --       31               (49)
                   -----             -----    -----             ----- 

                   $ (55)            $(119)   $(106)            $(297)
                   =====             =====    =====             ===== 

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

CAUTION ABOUT FORWARD-LOOKING STATEMENTS                                        

      This Quarterly Report on 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 want," "we  
anticipate" or "we believe" are forward-looking statements. Investors should be 
aware that actual results may differ materially from our expressed 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 included throughout this  
Form 10-Q, including in this Item 2 under the heading "Other factors affecting  
Odwalla's business." Investors should read all of these risks carefully.        
Investors should pay particular attention to risks affecting the following      
areas: availability and pricing of raw materials (page 16); competition (page   
20); our dependence on significant trade partners (page 17); government         
regulations that may impact our business (page 17); the specific risk factors   
discussed on pages 16 to 21; legal proceedings (page 22). Investors should also 
refer to Odwalla's Annual Report on Form 10-K for the year ended September 2,   
2000 and our financial statements and related notes included in that Annual     
Report on 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 through the marketing and sale of beverage and food products. We are
the nation's leading branded super-premium beverage company, delivering great   
tasting nourishment coast to coast with the Odwalla and Samantha lines of more  
than 45 all natural juices, smoothies, dairy-free original and chocolate milk,  
dairy-free shakes, spring water and natural food bars. Our beverage product     
lines appeal to many consumers because of the superior taste and greater        
nutritional value of minimally processed beverages compared to juice from       
concentrate or with artificial flavors or to more highly processed non-dairy    
products. When we refer to "Odwalla," we mean Odwalla, Inc. and our wholly owned
subsidiary, Fresh Samantha, Inc. When we refer to "Samantha," we mean the       
branded products of Fresh Samantha, Inc.                                        

     Odwalla products are currently sold in over 30 states. Our nourishing
food bars are available in additional states and can also be purchased through  
our Web site at www.odwalla.com.                                                

      We completed our acquisition of Fresh Samantha on May 2, 2000, and the
financial information presented herein includes the operations of Fresh Samantha
since the acquisition date.                                                     

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

RESULTS OF OPERATIONS                                                           

   The following table presents, as a percentage of net sales, certain
statements of operations data for the thirteen week and thirty-nine week periods
ended for each of May 27, 2000 and June 2, 2001. These operating results are not
necessarily indicative of the results for any future period.                    

                                                        [Enlarge/Download Table]

                                             THIRTEEN WEEKS ENDED        THIRTY-NINE WEEKS ENDED   
                                          --------------------------   --------------------------  
                                          MAY 27,             JUNE 2,  MAY 27,             JUNE 2, 
                                           2000                2001     2000                2001   
                                          ------              ------   ------              ------  
                                                                                                   
Net sales                                  100.0%              100.0%   100.0%              100.0% 
Cost of sales                               49.4                48.4     51.6                47.7  
                                          ------              ------   ------              ------  
Gross margin                                50.6                51.6     48.4                52.3  
Operating expenses                                                                                 
  Sales and distribution                    32.4                33.9     34.4                35.2  
  Marketing                                  2.8                 2.5      3.1                 2.9  
  General and administrative                 9.8                 8.9     10.4                 9.1  
  Amortization of intangible assets from     0.5                 1.7      0.2                 1.8  
    Fresh Samantha acquisition                                                                     
  Restructuring and other charges             --                  --       --                 3.6  
                                          ------              ------   ------              ------  
Income (Loss) from operations                5.1                 4.6      0.3                (0.3) 
Insurance settlement                        21.2                  --      9.0                  --  
Series A stock inducement expense           (6.2)                 --     (2.6)                 --  
Interest and other income (expense), net    (0.2)               (0.3)    (0.2)               (0.3) 
Income tax benefit (expense)                (3.9)               (1.8)    (1.4)                0.3  
                                          ------              ------   ------              ------  
Net income (loss)                           16.0%                2.5%     5.1%               (0.3)%
                                          ======              ======   ======              ======  

       NET SALES. Net sales for the third quarter of fiscal 2001 increased 34%
to $34.5 million compared to $25.7 million in the third quarter of fiscal 2000. 
The sales growth this quarter was 4% on a pro forma basis if we were to include 
Samantha sales for the third quarter of fiscal 2000. A 10% increase in sales in 
our West Coast markets were offset by a decline in sales in our East Coast      
markets. Sales growth in our more established West Coast market was up 10% over 
the prior year quarter, although the sales growth rate declined significantly   
towards the end of the quarter. All West Coast regions experienced sales growth 
over the prior year. East Coast sales for the quarter declined 2% in the quarter
compared to last year. Our two largest East Coast markets caused this decline,  
as all other East Coast regions experienced sales growth over sales for the     
prior year quarter. Our sales growth rate this quarter was higher in our third  
party distributor business than our direct store delivery (DSD) business. Our   
rate of growth was higher in existing third party distributor markets, and we   
transitioned certain existing DSD markets to third party distributors where the 
market economics did not allow us to profitably operate a DSD business. 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. In addition, growth in large new accounts serviced by 
distributors, which we support with initial product return right programs, will 
have a negative impact on net sales, as it did in the third quarter of fiscal   
2001. With a few exceptions, the Samantha brand has not historically been sold  
through distributors. During the third quarter, we began to supplement the East 
Coast DSD system with distributors, which had a slightly negative impact on net 
sales growth percentages. Our food bar sales continue as an important component 
of our nourishment product lines, although food bar sales were less than 5% of  
total sales in both quarters.                                                   

        Net sales for the first thirty-nine weeks of fiscal 2001 increased 61.3%
to $97.7 million compared to $60.5 million for the same period last year. The   
sales growth for the first thirty-nine weeks was 12% on a pro forma basis if we 
were to include Samantha sales for the prior year. Sales growth for the first   
thirty-nine weeks of the year was slightly higher for our distributor business  
than for our DSD business for the factors noted above. Sales growth was         
strongest in our well established West Coast markets, although we also grew in  
our East Coast markets over the thirty-nine week period. Food bar sales         
increased about 44%                                                             

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

during the first thirty-nine weeks of fiscal 2001 compared to the same period in
the prior year due to increased geographic distribution and sales promotions.   
Food bar sales represented less than 5% of net sales for the thirty-nine week   
period.                                                                         

    COST OF SALES. Cost of sales increased to $16.7 million in the third
quarter of fiscal 2001 compared to $12.7 million for the same period during     
fiscal 2000. This increase was mainly due to the acquisition of Fresh Samantha. 
Gross margin as a percentage of net sales was 51.6% in the third quarter of     
fiscal 2001, an increase from 50.6% in the third quarter of fiscal 2000. For the
Odwalla brand, gross margin has improved due to better production efficiencies  
from our investment in equipment and production personnel during the past few   
years. These investments have improved our product yields on both processing and
packaging. In addition, we are experiencing the benefits of better purchasing   
decisions for the Odwalla brand and the Samantha brand. In the first quarter of 
fiscal 2001, we began processing internally some products that had previously   
been produced at a higher cost by a co-packer. We also experienced lower product
return rates in the third quarter of fiscal 2001 compared to the same period in 
fiscal 2000.                                                                    

Since the Fresh Samantha acquisition, we have had two production
facilities. The impact on cost of sales of the Fresh Samantha facility in Saco, 
Maine had a slight negative impact for the quarter. This was primarily due to   
the reliance on more expensive Florida fruit and the co-packing costs incurred  
for some Samantha products. At the end of the quarter, we began to see some     
productivity gains following the transitioned closure of the Saco facility. The 
higher sales growth of third party distributors also negatively affected gross  
margins during the quarter.                                                     

 During the first thirty-nine weeks of fiscal 2001, as compared to
corresponding periods during the preceding year, we experienced a return to more
favorable pricing and yield for ingredients, primarily citrus, for the Odwalla  
brand. In late December 1998, the San Joaquin Valley in central California      
experienced a citrus freeze that seriously damaged the navel orange crop. The   
freeze also impacted the California Valencia orange crop and other citrus, which
extended the impact throughout calendar year 1999 and into early calendar 2000. 
The immediate effect of the freeze was to increase the price of the fresh citrus
we purchased. We also experienced poorer citrus yields and some delay in fruit  
maturity. The freeze also caused us to be more reliant on citrus sources farther
from our production facility than in prior years, which caused an increase in   
freight cost.                                                                   

     In January 2001, we announced that we plan to cease production at the
facility in Saco, Maine in June 2001 and that we will construct a new production
facility in southern Florida to handle our East Coast production requirements.  
The Saco facility has been closed as scheduled, and we continue to develop our  
plans for construction of a new Florida production facility. See "Restructuring 
and other charges" below for additional information.                            

       Cost of sales for the first thirty-nine weeks of fiscal 2001 were $46.6
million compared to $31.2 million in the same period last year. Gross margin as 
a percentage of net sales was 52.3% for the first half of this year compared to 
48.4% in the prior year. Gross margin increased primarily due to (a) the better 
efficiencies in yields from the new bottling line and other investments in the  
Dinuba production facility, (b) better purchasing practices for key materials   
for both brands, and (c) the citrus freeze discussed above which impacted the   
fiscal 2000 margin negatively.                                                  

    SALES AND DISTRIBUTION. Sales and distribution expenses increased to
$11.7 million in the third quarter of fiscal 2001 compared to $8.3 million in   
the third quarter of fiscal 2000, and increased to 33.9% of net sales compared  
to 32.4% in the third quarter last year. The increase in absolute dollars is due
to the Fresh Samantha acquisition in May 2000, increased costs of utilizing a   
DSD system in some of our newer markets, some of which were previously serviced 
with third party distributors, and increased national and regional labor costs. 
The increase as a percentage of net sales compared to the third quarter of last 
year results from a greater percentage of East Coast sales than last year at a  
higher average distribution cost than our more established                      

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

West Coast markets, restructuring of the East Coast sales and distribution      
organization, and investment in our national sales organization.                

Future decisions regarding growth and expansion consistent with 
long-term strategic objectives may increase sales and distribution costs as a   
percentage of net sales. 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, and additional investments in the
East Coast sales and distribution organization may cause a short-term increase  
in costs as we standardize our national operations. Expenses will also continue 
to be affected as we seek to find the proper mix in a given market between our  
own DSD system and third party distributors. The perishable nature of most of   
our products and our stringent service standards can make it difficult to find  
appropriate distributors in some markets.                                       

  Sales and distribution expenses for the first thirty-nine weeks of
fiscal 2001 were $34.4 million or 35.2% of net sales compared to $20.8 million  
or 34.4% of net sales during the same period last year. These higher costs were 
primarily associated with our East Coast sales and distribution operations and  
national sales organization.                                                    

   MARKETING. Marketing expenses increased to $849,000 or 2.5 % of net
sales in the third quarter of fiscal 2001 compared to $726,000 or 2.8% of net   
sales in the third quarter of fiscal 2000. Most of the increase in expenses     
compared to the third quarter of last year is due to additional personnel       
associated with the Fresh Samantha acquisition. For the first thirty-nine weeks 
of fiscal 2001, marketing expenses were $2.8 million compared to $1.9 million in
the same period last year. The increased spending was primarily due to the      
Samantha acquisition.                                                           

        We expect marketing expenses to trend higher in absolute dollars for the
balance of 2001 as we continue to integrate the Odwalla and Samantha brands,    
increase marketing support for a larger sales organization, and hire a vice     
president of marketing.                                                         

GENERAL AND ADMINISTRATIVE. General and administrative expenses 
increased to $3.1 million in the third quarter of fiscal 2001 from $2.5 million 
in the third quarter of fiscal 2000, and decreased as a percentage of net sales 
to 8.9% from 9.8% last year. The change was due primarily to a general increase 
in expenses resulting from the Fresh Samantha acquisition and from              
infrastructure expenses, including a new financial software package and         
information systems that were operational at the beginning of fiscal 2001.      

For the first thirty-nine weeks of fiscal 2001, general and     
administrative expenses were $8.8 million or 9.1% of net sales compared to $6.3 
million or 10.4% of net sales in the first thirty-nine weeks of fiscal 2000.    
Most of the increase in absolute dollars was due to personnel related costs     
resulting from the Fresh Samantha acquisition and the infrastructure expenses   
noted above.                                                                    

  We expect general and administrative costs to increase in absolute
dollars for the balance of fiscal 2001, but not necessarily to increase as a    
percentage of net sales. We will also continue to invest in infrastructure for  
the duration of fiscal 2001 in hopes of allowing sustainable growth.            

      INTEREST AND OTHER EXPENSE. Odwalla had net interest and other expense
of $119,000 in the third quarter of fiscal 2001 compared to $55,000 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, including the
debt acquired with the Fresh Samantha acquisition.                              

       For the first thirty-nine weeks of fiscal 2001, we had net interest and
other expense of $297,000 compared to $106,000 in the prior year. The increase  
resulted from the debt acquired with the Fresh Samantha acquisition and new     
capital lease obligations.                                                      

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

   INCOME TAXES. The $630,000 income tax expense for the third quarter
represents a 42% effective tax rate, compared to the 20% rate applied in the    
third quarter last year. The $289,000 income tax benefit for the first          
thirty-nine weeks of 2001 represents a 63% effective tax rate. The Fresh        
Samantha acquisition was structured as a tax-free reorganization for income tax 
purposes. This resulted in intangible and other assets with a basis for         
accounting purposes, as the acquisition was recorded using purchase accounting, 
that does not exist for tax reporting purposes. Because the financial accounting
basis will result in future accounting amortization in excess of tax            
amortization, a deferred tax liability was established to account for the       
temporary portion of the difference. In accordance with SFAS 109, there remains 
a permanent difference between the financial accounting basis and the tax       
reporting basis of certain acquired assets. This and other permanent differences
will continue to impact the effective tax applied for financial reporting       
purposes under SFAS 109. We currently expect that our effective tax rate will be
63% for the remainder of fiscal 2001, although we will not be able to determine 
the actual rate until the conclusion of the fourth quarter.                     

        RESTRUCTURING AND OTHER CHARGES. On December 14, 2000, Odwalla announced
that Doug Levin, Founder and CEO of Fresh Samantha, was leaving the company     
after helping to complete the successful merger of Odwalla and Fresh Samantha.  
In December 2000 and January 2001, management changes were implemented in our   
East Coast operations. As a result of these actions, we recorded a $1,230,000   
charge to operations.                                                           

        On January 11, 2001, Odwalla announced the closure of the Fresh Samantha
production facilities. The main components of the cost of the Saco facility     
closure are as follows:                                                         

     -       Termination of approximately 60 employees, primarily from the
             manufacturing operation, and estimated severance payments and
related payments of $752,000.                   

      -       Excess leased facilities, excess transportation equipment, and
              certain other assets having no recoverable value, amounting to
an estimated aggregate value of $1,508,000.     

LIQUIDITY AND CAPITAL RESOURCES                                                 

    At June 2, 2001, we had working capital of $13.0 million compared to
working capital of $11.7 million at September 2, 2000. At June 2, 2001, we had  
cash and cash equivalents and short-term investments of $2.4 million, compared  
to $5.4 million at September 2, 2000. The decrease resulted primarily from cash 
provided by operating activities offset by cash used for capital asset          
purchases.                                                                      

        Net cash provided by operating activities in the first thirty-nine weeks
of fiscal 2001 was $2.4 million. This consisted of the net loss plus            
depreciation, amortization, and decreases in inventories, accounts payable and  
accrued payroll, offset by increases in accounts receivable, prepaid expenses,  
other current and non-current liabilities, and other non-current assets.        
Increases in accounts receivable are generally due to increased sales volume.   
The inventory decrease results primarily from a seasonal reduction in raw       
materials, partially offset by higher finished goods inventory due to increased 
sales volume, and higher packaging inventory associated with the transition of  
Samantha production to Dinuba at the end of the third quarter. The accounts     
payable decrease is primarily due to a reduction in liability associated with a 
new computer system implemented earlier in the fiscal year. Accrued expenses,   
both current and long-term, are higher due to the restructuring and other       
charges previously discussed.                                                   

       Net cash used in investing activities in the first thirty-nine weeks of
fiscal 2001 was $4.0 million. The decrease consisted primarily of capital       
expenditures for production equipment at the Dinuba plant, data processing and  
computer hardware and software as we continue our infrastructure investment, and
display coolers. This was partially offset by the sale of short-term            
investments.                                                                    

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

        Net cash provided by financing activities in the first thirty-nine weeks
of fiscal 2001 was $130,000. This consisted of the issuance of common stock     
partially offset by principal payments under long term-debt and capital leases. 

     We've used, and expect to continue to use, both operating and capital
lease financing to obtain refrigeration coolers used in selling our products,   
computer and communication equipment, and production assets, primarily          
equipment. If we don't obtain adequate lease or other financing, our inability  
to obtain needed equipment may negatively impact our operations. For the first  
thirty-nine weeks of fiscal 2001, we utilized significant cash to purchase      
equipment that we were unsuccessful in leasing at acceptable terms. At June 2,  
2001, we owed $2.2 million for capital lease obligations, primarily related to  
leasing of production equipment, computer equipment and vehicles. In fiscal     
2000, borrowings under our line of credit were at lower levels than in the prior
year and we recognized interest income from the invested proceeds of the        
February 1999 Series A Stock offering.                                          

    On July 12, 2001, Odwalla and Fresh Samantha entered into a Business
Loan Agreement providing up to $10.0 million of borrowing capability, including 
the ability to issue letters of credit up to a certain maximum amount.          
Borrowings are limited to 75% of eligible accounts receivable, which generally  
represent all trade accounts receivable less delinquent balances and other      
balances as defined in the Business Loan Agreement. Odwalla is also required to 
meet certain covenants, including maintenance of certain financial ratios       
including, fixed charge coverage, quick and leverage ratios and certain         
limitation on losses. The Business Loan Agreement also contains certain business
restrictions, including limitations on the ability to borrow additional funds,  
limitations on capital expenditures in excess of certain amounts, restrictions  
on the payment of cash dividends, purchase of Odwalla stock, ability to encumber
or sell Odwalla or Fresh Samantha assets, and limitations on other business     
transactions without prior approval from the lender. Interest is payable monthly
at the prime interest rate plus 0.0% to 0.5% depending on certain financial     
ratios. The initial rate is prime plus 0.25%. We may also select either a IBOR  
or LIBOR rate plus 2.75% to 3.5% depending on certain financial ratios. The     
Business Loan Agreement has a two-year term ending in July 2003. Accounts       
receivable, inventories, intellectual property, other general and personal      
property of Odwalla and Fresh Samantha provide collateral under the Business    
Loan Agreement.                                                                 

   This facility replaced a prior credit facility. We had exceeded the
capital asset acquisition limitation and debt service coverage covenants in the 
prior credit facility. Because of the pending termination of the prior credit   
facility, we did not request and did not receive a waiver of the covenant       
violation. The unamortized costs of loan fees of approximately $160,000         
associated with the prior credit facility are expected to be written off in the 
fourth quarter of fiscal 2001.                                                  

       Our prior Credit Agreement provided borrowings under a revolving credit
facility up to $10.0 million. We were also required to meet certain covenants,  
including maintenance of certain financial, leverage, and debt service coverage 
ratios, and certain tangible net worth. The first $2.0 million of borrowings did
not require separate borrowing base reporting. Borrowings over $2.0 million and 
up to $5.0 million were limited to 80% of eligible accounts receivable. The     
Credit Agreement defined eligible accounts receivable which generally represents
all trade accounts receivable less delinquent balances. The Credit Agreement    
also contained certain business restrictions, including the ability to borrow   
additional funds, limitations on capital expenditures in excess of certain      
amounts, restrictions on the payment of cash dividends, sale or purchase of     
Company stock, ability to encumber or sell Company assets, and limitations on   
other business transactions without prior approval from the lender. Interest was
payable monthly at either the prime interest rate plus 1% or the Eurodollar rate
plus 3.5%. The Credit Agreement had a three-year term ending in April 2003,     
although the lender had notified us that they would not extend additional credit
or renew the agreement upon termination.                                        

      The increased costs associated with integrating Samantha, our plans to
invest in new products and certain new market areas, and general corporate needs
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.                                                                      

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

        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.                                                                         

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,
dairy-free original and chocolate milk, all-natural meal replacement and        
dairy-free shakes, nourishing food bars and natural spring water. All of our    
juices are currently flash pasteurized and some are produced on a seasonal      
basis. 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.              

  We've trademarked various aspects of our brands, including labels,
certain product names, certain phrases and symbols, as we believe that these and
other intellectual property that we own are critical to our success. These items
help create the Odwalla and Samantha brands and connect in an important way with
our consumers. We have taken steps to protect our intellectual property and we  
intend to continue to protect against imitation of our products and packages and
to protect our trademarks and copyrights as necessary. This action could be     
time-consuming, result in costly litigation and divert management personnel.    
Furthermore, there can be no assurance that we would be successful in such      
action.                                                                         

       Our products are sold and distributed primarily through our DSD system,
which is serviced by route sales representatives who sell, deliver and          
merchandise products to our trade partners. This DSD system is designed to allow
us to preserve the integrity of our highly perishable all-natural products,     
optimally manage delivery schedules, efficiently control product mix, keep store
shelves or our own coolers stocked with freshly prepared products and have a    
greater influence on determining in-store location and merchandising of our     
products. At most DSD accounts, we 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. Consumers can purchase our products at supermarkets, specialty 
retail stores, natural food stores, convenience stores, warehouse outlets,      
on-line grocers and institutional food service trade partners. We also          
distribute our products through third party distributors. This distribution     
channel, with merchandising support provided by the distributors' employees     
and/or our employees, provides opportunities to expand product distribution in  
selected markets, some of which may be geographically difficult for us to       
service, and still maintain relationships with trade partners. 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 flavor profile and nutritional  
integrity of the products. 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 that captures and preserves the various qualities of fresh
and consistent flavors. Odwalla has focused on each of these elements in an     
effort to achieve our goal of providing the safest, best tasting and most       
nutritious beverages and other products for consumers.                          

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

      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, carrots and        
tangerines 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 as well as new sources for the ingredients we need. On the East 
Coast, we currently utilize a Florida co-packing arrangement for                
flash-pasteurized single-strength citrus products for the Samantha brand. We    
also purchase 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 seriously harm our business and results of operations. We are subject
to the same risks with our other ingredients as well. We also source a number of
fruits, including tropical fruits, from foreign suppliers in the form of frozen 
fruit puree. Most purees are purchased under annual price contracts. The purees 
we purchase are heat treated to increase safety and meet government regulations.
Some of our products, including our water and nourishing food bars, are produced
to our specifications and recipes by independent companies.                     

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,     
including 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, in       
December 1998, a freeze damaged citrus crops in the San Joaquin Valley and other
portions of California. This had a significant negative impact on the cost and  
yield of fresh citrus products we used until the impact of the freeze ended in  
the beginning of the third quarter of fiscal 2000. Adverse weather conditions   
could negatively affect our business and results of operations.                 

       Odwalla is pursuing a no genetically engineered organisms status on our
entire product line. However, ingredients that are not genetically modified are 
at times difficult to source in the required volumes. Genetically modified      
organisms are the product of splicing or modifying crops to release new         
organisms to the environment. Crops are genetically modified in order to        
increase crop yields, to withstand high doses of herbicides or to produce their 
own insecticides. There are uncertainties about the potential risks genetically 
modified foods pose to humans and the environment. We intend to provide our     
consumers information about any genetically modified organisms used in our      
products.                                                                       

     DEPENDENCE ON ONE OR A FEW MAJOR TRADE PARTNERS. Safeway, Inc. is our
largest single account and accounted for 11% of our fiscal 2000 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 seriously harm our business and
results of operations. Continuity of trade partner relationships is important,  
and events that impact our trade partners, including labor disputes, may have an
adverse impact on our results of operations.                                    

        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 and the California    
State Food and Drug, Department of Health Services. In 1998, the FDA regulations
for fresh apple juice went into effect. The final regulations for fruit and     
vegetable juices were enacted in January 2001. The FDA's ruling for citrus was  
to require all fresh juice processors to show a 5-log reduction in potential    
pathogenic bacterial loads, which represents a 100,000 fold reduction in the    
numbers of the most resistant pathogens. The regulation also requires a Hazard  
Analysis Critical Control Point plan, or HACCP. All Odwalla and Samantha        
products produced in our Dinuba, California facility are manufactured under a   
HACCP plan with validated critical control points. This includes pasteurization 
of the products. By meeting the pasteurization and HACCP requirements, Odwalla  
and Samantha products meet the FDA Regulations.                                 

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

     We are also subject to various federal, state and local environmental
laws and regulations that limit the discharge, storage, handling and disposal of
a variety of substances and by laws and regulations relating to workplace safety
and worker health, principally the Occupational Safety and Health Administration
Act, as well as similar state laws and regulations. We believe that we comply in
all material respects with these laws and regulations, although we cannot assure
that future compliance with such laws or regulations will not have a material   
adverse effect on our results of operations or financial condition. We currently
do not incur any significant costs to comply with environmental laws.           

    RISKS ASSOCIATED WITH PERISHABLE PRODUCTS. Except for natural spring
water, food bars and frozen fruit bars, Odwalla's products are flash pasteurized
and heat treated and don't contain any preservatives. As a result, our products 
have a limited shelf life. In order to maintain our "day-of-production" flavor  
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. In addition, our      
products are subject to issues such as the fermentation and subsequent bottle   
bloating experienced in the first quarter of fiscal 2000 due to natural         
organisms in ingredients. 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 harm 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 related to 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, the availability of hourly employees, and increased price or            
availability of fuel or other energy costs 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. However, there
is no assurance that these conditions will continue or that we will have the    
ability to control costs in the future. In fiscal 1999 and in the first half of 
fiscal 2000, for example, the cost for citrus products increased significantly  
due to the citrus crop freeze in California. In some markets, the competition   
for a skilled labor force requires us to pay salaries higher than we have       
experienced historically and we expect this trend to continue for some period of
time.                                                                           

        PRODUCT LIABILITY. Because our products are not irradiated or chemically
treated and are flash or gently pasteurized, they are highly perishable and     
contain certain naturally occurring microorganisms. From time to time we receive
complaints from consumers regarding ill effects allegedly caused by our         
products. There can be no assurance that we won't have future claims which will 
not result in adverse publicity or monetary damages, either of which could      
seriously harm our business and results of operations. Although we maintain     
product liability insurance, our coverage may not be sufficient to cover the    
cost of defense or related damages in the event of a significant product        
liability claim.                                                                

       ORCHARD PRODUCTION. We depend 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                           

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

Francisco Bay. Due to this concentration, natural disasters, including          
earthquakes, economic downturns and other conditions affecting Northern         
California may adversely affect our business and results of operations. With the
Fresh Samantha acquisition, Odwalla's market share in the Northeastern portion  
of the United States has lessened the concentration in Northern California,     
although there is no assurance that this will remain the case.                  

 CONCENTRATION OF PRODUCTION CAPACITY. All of our juice production
capacity is located at our Dinuba, California facility. We currently expect a   
Florida facility to begin operations in late calendar 2002, one year later than 
we had estimated earlier this year. The delay is primarily due to delays in     
obtaining the necessary permits to begin construction of the facility and the   
lower than projected East Coast sales volume growth. We also currently utilize a
citrus co-packer in Florida for Samantha brand single-strength citrus products. 
Because we maintain minimal finished goods inventory at all production locations
as part of our "day-of-production" production system, we could be challenged to 
continue to produce an adequate supply of 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 at our Dinuba facility would seriously harm our business   
and results of operations. Separate companies produce and package our spring    
water, food bars and frozen bars.                                               

        LACK OF DIVERSIFICATION. Odwalla's business is vertically integrated and
centered around essentially one product, all-natural super-premium beverages,   
sold primarily through our DSD system. Although we've added dairy-free shakes,  
dairy-free original and chocolate milk, meal replacement beverages, spring      
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 
impact of the California citrus freeze in December 1998. 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. Due to the extent of our operating losses in recent years until 
the third quarter of fiscal 2000 and the effort to complete the Fresh Samantha  
integration, we currently anticipate limited expansion in fiscal 2001 beyond    
existing markets. 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 resulting from the perishable nature of our products and current reliance 
on the personnel-intensive DSD system may limit the ability, or increase the    
cost of, expansion into new regions. Furthermore, consumer tastes vary by region
and there can be no assurance that consumers located in other regions will be   
receptive to our products.                                                      

      The Fresh Samantha acquisition has presented challenges to management,
including the integration of the operations, product lines, technologies and    
personnel of Odwalla and Fresh Samantha and diversion of management attention.  
We cannot assure you that we will successfully integrate or profitably manage   
Fresh Samantha's businesses. In addition, we cannot assure you that the combined
businesses will achieve increased sales levels, profitability, efficiencies or  
synergies or that the merger will result in increased earnings for the combined 
companies in any future period. The process of integrating operations could     
cause an interruption of, or loss of momentum in, the activities of Odwalla's   
businesses, including the business acquired in the merger. Additionally, the    
combined company may experience slower rates of growth as compared to historical
rates of growth of Odwalla and Samantha independently. Although we believe that 
the merger was in the best interest of Odwalla and its shareholders, we cannot  
assure you that the companies will realize the anticipated benefits of the      
merger.                                                                         

  In January 2001, we announced that we were closing the Saco, Maine
production facility and relocating East Coast production to a new facility to be
constructed in southern Florida. We currently expect a Florida facility to begin
operations in late calendar 2002, one year later than we estimated earlier this 
year.                                                                           

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

The delay is primarily due to delays in obtaining the necessary permits to begin
construction of the facility and the lower than projected East Coast sales      
volume growth. We have not completed negotiations for an appropriate site in    
Florida, entered into a construction contract, or completed financing           
arrangements for the new facility. Difficulties in negotiating a site location  
or financing acceptable to Odwalla may occur. This could negatively impact the  
timely completion of construction of the new facility, which could ultimately   
result in additional costs to us.                                               

       Acquisitions generally 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 impacted 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 additional    
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.                                                    

      COMPETITION. Our direct competitors in the juice business are national
brands including Horizon, Just Squeezed, Tropicana, Minute Maid, Newman's Own   
and Nantucket Nectars. Our juice products compete with regional brands, many of 
which are owned by North Castle Partners, a private equity fund, heavily        
invested in the healthy living and aging consumer goods products including Naked
Juice, a brand which is present in the Western region, Pacific Northwest, and   
most recently on the East Coast. Other regional North Castle brands include     
Saratoga Beverage, in several different regions of the United States, Zeigler,  
predominantly in the Midwest and Southeast regions, Fantasia in Chicago and the 
Midwest, and Ferraro's in California and the Northeast. Other privately owned   
regional brands of premium juice also serve as competition to Odwalla, including
Rocket Juice in the West and the Midwest. `Smoothie Bars' such as Jamba Juice   
are also considered as direct 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 our products. A decision by North Castle 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. 
Our food bar products, which have been on the market since August 1998, compete 
with several more established companies, including PowerBar (owned by Nestle),  
Balance Bar (owned by Kraft Foods, a division of Phillip Morris) and Clif Bar.  
In March 2001, we introduced dairy-free original and chocolate OdwallaMilk(TM), 
a blend of organic soy, rice and oat milks. This product will compete with      
several more established brands and companies, including Silk. Significant      
competitive pressure from these or other companies could negatively impact our  
sales and results of operations. 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.           

    QUARTERLY FLUCTUATIONS. Because the fruits and vegetables we use are
purchased in the open market on a negotiated basis, the price and availability  
of key ingredients may fluctuate on a quarterly basis. Consumers tend to        
establish certain buying patterns, and a disruption of those buying patterns may
result in a decline in sales. Other factors, including expansion into new       
markets, consummating an acquisition, costs of integrating acquired operations, 
price promotions of certain products, changes by our competitors, and           
introduction of new products, can result in fluctuations to sales and costs on a
quarterly basis.                                                                

     INTELLECTUAL PROPERTY RIGHTS. We believe our trademarks, trade dress,
trade secrets and similar intellectual property are critical to Odwalla's       
success and we attempt to protect such property with registered and common law  
trademarks and copyrights, restrictions on disclosure and other actions to      
prevent infringement. We've licensed elements of our distinctive trademarks,    
trade dress and similar proprietary rights                                      

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

to third parties in the past and may continue this practice. While we attempt to
ensure that the quality of our brand is maintained by these third party         
licenses, we can't be sure that these third parties will not take actions that  
might seriously harm the value of our proprietary rights or the reputation of   
our products, either of which could have a material adverse effect on our       
business. Product package and merchandising design and artwork are important to 
the success of Odwalla, and we intend to take action to protect against         
imitation of our products and packages and to protect our trademarks and        
copyrights as necessary. This action could be time-consuming, result in costly  
litigation and divert management personnel. Furthermore, there can be no        
assurance that we would be successful in such action. We currently do not have  
any patents.                                                                    

       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 currently do not 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 June 2, 2001.          

       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 the future. We do not engage in foreign currency hedging    
activities.                                                                     

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PART II - OTHER INFORMATION                                                     

ITEM 1.   LEGAL PROCEEDINGS.                                                    

        The following personal injury claims and legal proceedings seek monetary
damages and other relief relating to the product recall in 1996, 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 trial date for this matter
is currently set to begin October 29, 2001.     

     2.      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.               

We maintained commercial general liability insurance totaling   
$27,000,000 during the period for which the above claims were filed. We 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.                                                         

      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 on our results of operations and 
financial condition.                                                            

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                      

B. REPORTS ON FORM 8-K                                          

   The Company did not file any reports on Form 8-K during the quarter
ended June 2, 2001.                                                             

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 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 13, 2001                        By:  /s/  D. STEPHEN C. WILLIAMSON  
                                                 -------------------------------
                                          D. Stephen C. Williamson
                                         Chief Executive Officer
                                               (Principal Executive Officer)

Date: July 13, 2001                         By:  /s/  JAMES R. STEICHEN         
                                                 -------------------------------
                                   James R. Steichen
                                         Chief Financial Officer
                                          (Principal Financial and
                                     Accounting Officer)

23

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-Q’ Filing		Date		First		Last			Other Filings
		10/29/01		22
Filed on:		7/17/01
		7/13/01		23
		7/12/01		7		15
		7/10/01		1
For Period End:		6/2/01		1		22
		1/11/01		8		14
		12/14/00		8		14
		9/2/00		2		14			10-K
		5/27/00		2		11			10-Q
		5/2/00		6		10			3,  8-K,  8-K/A
		8/15/97		22
		6/16/97		22
		6/2/97		22
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