UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended SeptemberJune 30, 20122013

OR

For the Transition Period FromTo

Commission File Number: 001-35470

Annie’s, Inc.

(Exact name of registrant as specified in its charter)

(510) 558-7500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), Annie’s, Inc. qualifies as an “emerging growth company,” as defined under the JOBS Act.

On OctoberJuly 15, 2012,2013, the registrant had 17,122,24916,889,239 shares of common stock, par value $0.001 per share, outstanding.

Annie’s, Inc.

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Annie’s, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands)

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except share and per share amounts)

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited)

(in thousands, except share amounts)

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Annie’s, Inc. (the “Company”), a Delaware corporation incorporated on April 28, 2004, is a natural and organic food company. The Company offers over 125135 products in the following three product categories: meals; snacks; and dressings, condiments and other. The Company’s products are sold throughout the U.S. and Canada via a multi-channel distribution network that serves the mainstream grocery, mass merchandiser and natural retailer channels. The Company’s headquarters are located in Berkeley, California.

Basis of Presentation and Consolidation

The accompanying interim condensed consolidated balance sheets as of SeptemberJune 30, 20122013 and March 31, 2012,2013, the interim condensed consolidated statementsstatement of convertible preferred stock and stockholders’ equity (deficit) as of September 30, 2012 andfor the three months ended March 31, 2012,2013, and the interim condensed consolidated statements of operations for the three and six months ended September 30, 2012 and 2011, and cash flows for the sixthree months ended SeptemberJune 30, 20122013 and 20112012 are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, certainthey do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance withnotes required by U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Company’s Annual Report on Form 10-K filed with the SEC on June 8, 2012.14, 2013. The March 31, 20122013 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP for auditedcomplete financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly our financial position as of SeptemberJune 30, 20122013 and results of our operations for the three and six months ended September 30, 2012 and 2011, and cash flows for the sixthree months ended SeptemberJune 30, 20122013 and 2011.2012. The interim results for the sixthree months ended SeptemberJune 30, 20122013 are not necessarily indicative of the results that may be expected for the year ending March 31, 2013.2014.

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly ownedwholly-owned subsidiaries, Annie’s Homegrown, Inc., Annie’s Enterprises,Napa Valley Kitchen, Inc. and Napa Valley Kitchen,Annie’s Enterprises, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Initial Public Offering (IPO)

On April 2, 2012, the Company closed its IPO, in which it sold 950,000 shares of common stock at an offeringa price of $19.00 per share and raised $11.1 million in net proceeds after deducting underwriting discounts and commissions of $1.3 million and other offering expenses of $5.6 million. In addition, certain of the Company’s stockholders, including funds administered byaffiliated with Solera Capital, LLC, (“Solera”), sold 4.8 million shares at the $19.00 offering price in the IPO. The Company sometimes refers to Solera Capital, LLC and its affiliates as Solera in this Quarterly Report onForm 10-Q.

Immediately prior to the closing of the IPO, the outstanding shares of convertible preferred stock were automatically converted into 15,221,571 shares of common stock, the Company’s outstanding convertible preferred stock warrant was automatically converted into a common stock warrant to purchase a total of 80,560 shares of common stock and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital.

Pursuant to ourthe Company’s Amended and Restated Certificate of Incorporation or Charter and its Amended and Restated Bylaws, which became effective upon consummation of the IPO, the Company has authorized 35,000,000 shares of capital stock, 30,000,000 shares, par value $0.001 per share, of which are common stock and 5,000,000 shares, par value $0.001 per share, of which are preferred stock. As of SeptemberJune 30, 2012, 17,121,2492013, 16,889,060 shares of common stock were issued and outstanding and no shares of preferred stock were issued and outstanding.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Secondary Public Offering

On August 6, 2012, the Company closed a secondary public offering, in which certain stockholders, including funds administered by Solera, sold 3,649,976 shares of common stock at an offering price of $39.25 per share. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The offering expenses incurred by the Company were $0.7 million, including legal, accounting and printing costs and various other fees associated with the registration and sale of common stock sold in the secondary public offering.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reported periods. Actual results could differ from those estimates.

Concentration Risk

Customers with 10% or moreThe table below provides net sales, expressed as a percentage of the Company’s net sales, consist offrom the following:three largest customers during the three months ended June 30, 2013 and 2012:

As of SeptemberJune 30, 2012, Customer A2013, three customers represented 31%, 20% and Customer B represented 26% and 18%10%, respectively of accounts receivable. The same twothree customers represented 21%26%, 36% and 45%10%, respectively, of accounts receivable as of March 31, 2012.2013.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The carrying amount of the convertible preferred stock warrant liability at March 31, 2012 represented its estimated fair value. Upon consummation of the IPO on April 2, 2012, prior to the automatic conversion of the convertible preferred stock warrant into a common stock warrant, the estimated fair valueit was remeasured and the change in fair value was recorded as a non-cash charge in other income (expense), net and the related liability was reclassified to additional paid-in capital.capital (Note 7).

Property and Equipment

The Company capitalizes certain internal and external costs related to the development and enhancement of the Company’s internal-use software. Capitalized internal-use software development costs are included in property and equipment on the accompanying condensed consolidated balance sheets. At September 30, 2012 and March 31, 2012, capitalized software development costs, net of accumulated amortization, totaled $2.3 million and 2.0 million, respectively. As of SeptemberJune 30, 2012,2013, the Company had $2.1 million capitalized software development costs, net of accumulated amortization, and $0.2including $0.5 million in construction in progress. As of March 31, 2013, the Company had $2.1 million capitalized software development costs, net of accumulated amortization, including $0.4 million in construction in progress.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Shipping and Handling Costs

Shipping and handling costs are included in selling, general and administrative expenses in the condensed consolidated statements of operations. Shipping and handling costs primarily consist of costs associated with moving finished products to customers, including costs associated with the Company’s distribution center, route delivery costs and the cost of shipping products to customers through third-party carriers. Shipping and handling costs recorded as a component of selling, general and administrative expenses were $1.5 million and $1.1$1.3 million for the three months ended SeptemberJune 30, 20122013 and 2011, respectively and were $2.8 million and $2.2 million for the six months ended September 30, 2012, and 2011, respectively.

Research and Development Costs

Research and development costs primarily consist of the costs incurred to develop new products. These costs include consumer research, prototype development, materials and resources to conduct trial production runs, package development and employee-related costs for personnel responsible for the research and development of new products, supplies and materials.product innovation. Research and development costs recorded as a component of selling, general and administrative expenses were $0.7$0.6 million and $0.5$0.8 million for the three months ended SeptemberJune 30, 20122013 and 2011, respectively and were $1.5 million and $0.9 million for the six months ended September 30, 2012, and 2011, respectively.

Advertising Costs

Advertising costs include the costs of producing advertisements and the costs of communicating advertisements. The costs of producing advertisements are expensed as incurred and the costs of communicating advertising are expensed over the period of communication. Total advertising costs for the three months ended SeptemberJune 30, 20122013 and 20112012 included in selling, general and administrative expenses were $0.1$0.4 million and $0.3 million, respectively. Total advertising

Product Recall

The Company establishes reserves for product recalls on a product-specific basis when circumstances giving rise to the recall become known. The Company, when establishing reserves for a product recall, considers cost estimates for any fees and incentives to customers for their effort to return the product, freight and destruction charges for returned products, warehouse and inspection fees, repackaging materials, point-of-sale materials and other costs were $0.4 millionincluding costs incurred by contract manufacturers. Additionally, the Company estimates product returns from consumers and $0.4 millioncustomers across distribution channels, utilizing third-party data and other assumptions. These factors are updated and reevaluated each period and the related reserves are adjusted when these factors indicate that the recall reserves are either insufficient to cover or exceed the estimated product recall expenses.

Significant changes in the assumptions used to develop estimates for product recall reserves could affect key financial information, including accounts receivable, inventory, accrued liabilities, net sales, gross profit, operating expenses and net income. In addition, estimating product recall reserves requires a high degree of judgment in areas such as estimating consumer returns, shelf and in-stock inventory at retailers across distribution channels, fees and incentives to be earned by customers for their effort to return the six months ended September 30, 2012products, future freight rates and 2011, respectively.consumers’ claims.

Net Income Per Share of Common Stock

Basic net income per share of common stock is calculated by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share of common stock is computed by giving effect to all potentially dilutive securities outstanding during the period. PotentialThe Company utilizes the treasury stock method to calculate potential common shares included those underlying our convertible preferred stock (using the if-converted method),that underlie its stock options to purchase our common stock and restricted stock units (using the treasury stock method) and the warrant to purchase our common stock (using the treasury stock method).units. Performance share units were excluded from potential common shares since no shares were issuable as of SeptemberJune 30, 20122013 and March 31, 2012. The performance share units vest based on achievement of specified percentage of targeted cumulative compounded earnings per share growth rate during the three-year period beginning April 1, 2012 and ending March 31, 2015.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The potential common shares from the convertible preferred stock warrant had an anti-dilutive effect on the earnings per share for the six months ended September 30, 2011, and the potential common shares from convertible preferred stock had an anti-dilutive effect on the earnings per share for the three and six months ended September 30, 2011, and, accordingly, were excluded from the calculation. Additionally, certain2013. Certain stock options to purchase our common stock and restricted stock units had an anti-dilutive effect on the earnings per share for the periods presented, and were also excluded. Further, certain restricted stock units had an anti-dilutive effect on the earnings per share for the three and six months ended September 30, 2012 and were excluded.

Net income attributable to common stockholders during the three and six months ended September 30, 2011, was allocated using the two-class method. The two-class method is an earnings allocation method for calculating earnings per share when a company’s capital structure includes two or more classes of common stock or common stock and participating securities. Under this method, the Company reduced income from operations by the dividends paid to convertible preferred stockholders and the rights of the convertible preferred stockholders to participate in undistributed earnings. The undistributed earnings were allocated based on the relative percentage of weighted average shares of outstanding convertible preferred stock to the total number of weighted average shares of outstanding common and convertible preferred stock.

Out-of-period Adjustment

During the six months ended September 30, 2011, the Company corrected an error in the measurement of the convertible preferred stock warrant liability. The correction increased the fair value of the convertible preferred stock warrant liability by $0.9 million and decreased additional paid-in capital by $0.4 million with a corresponding increase in expense of $0.5 million, which was recorded in other income (expense), net in the accompanying statement of operations during the six months ended September 30, 2011. The correction was an accumulation of an error that should have been recorded in prior periods and would have increased net loss for fiscal 2009 by $44,000, increased net income by $79,000 for fiscal 2010 and decreased net income by $0.6 million for fiscal 2011. Management had assessed the impact of this error and did not believe that it was material, either individually or in the aggregate, to any prior period financial statements or to the financial statements for the year ended March 31, 2012.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Inventory

Inventory is comprised of the following (in thousands):

Property and Equipment, Net

Property and equipment, net are comprised of the following (in thousands):

The Company incurred depreciation expense of $248,000$294,000 and $433,000 for$185,000 during the three and six months ended SeptemberJune 30, 2013 and 2012, respectively. The depreciation expense for the same periods in prior year was $147,000 and $297,000, respectively.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Intangible Assets, Net

Intangible assets, net are comprised of the following (in thousands):

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company incurred amortization expense of $15,000 and $30,000 on its intangible assets during each of the three and six months ended SeptemberJune 30, 2012. The amortization expense for the same periods over the prior year was $3,0002013 and $5,000,2012, respectively.

The estimated future amortization expense relating to intangible assets is anticipated to be $45,000 for the remainder of fiscal 2013,2014; $60,000 for each of the next five years from fiscal 2015 through fiscal 20182019, totaling $300,000; and thereafter is $30,000, $60,000$756,000 after fiscal 2019.

Prepaid Expenses and $816,000,Other Current Assets

Prepaid expenses and other current assets as of June 30, 2013 and March 31, 2013 included receivables from contract manufacturers and suppliers of $2.2 million and $3.9 million, respectively.

Accrued Liabilities

The following table shows the components of accrued liabilities (in thousands):

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

In December 2011,2005, the Company entered into a second amendment and restatedbank line of credit agreement (the “Credit Agreement”) with Bank of America, N.A., which providesprovided for revolving loans and letters of credit up to $11.0 million. In March 2008, the Company amended the Credit Agreement with Bank of America to establish an inter-creditor agreement with another lender (Note 7). In August 2010, the Company amended the Credit Agreement to decrease the maximum borrowing limit on revolving loans to $10.0 million and extended the expiration date to August 20, 2012. In December 2011, the Company entered into a second amended and restated credit facility with Bank of America that, among other things, provided for an increase in its line of credit to $20.0 million and is available toan extension of the term through August 2014. In March 2013, the Company entered into another amendment to its credit facility. This amendment provides for, among other things, an increase in the line of credit to $40.0 million and extension of the term through August 2014.2016. The Credit Agreement is securedcollateralized by substantially all of the Company’s assets.

Revolving advancesThe Company may select from three interest rate options for borrowings under the Credit Agreement bear interest atcredit facility: (i) LIBOR (as defined in the LIBORcredit facility) plus 1.5%1.25%, as defined.(ii) IBOR (as defined in the credit facility) plus 1.25% or (iii) Prime Rate (as defined in the credit facility). Weighted average interest was 1.5% for each of the three and six months ended September 30, 2012. Weighted average interest was 1.8% and 2.2%1.5% for the three and six months ended SeptemberJune 30, 2011,2013 and 2012, respectively. The Company is required to pay a commitment fee on the unused credit facility commitments, if the outstanding balance is less than half the commitment at an annual rate ranging from 0.25% to 0.40% depending on the utilization rate. As of SeptemberJune 30, 20122013 and March 31, 2012,2013, there was $20.0$40.0 million and $7.2$33.0 million, respectively, of availability for borrowings under the Credit Agreement. An unused line fee of 0.0625% per quarter is applied to the available balance unless the Company’s outstanding borrowings exceed half of the borrowing limit. Interest is payable monthly.

The credit facility contains restrictions on, among other things, the Company’s ability to incur additional indebtedness, pay dividends or make other distributions and make investments and loans. The credit facility also limits the Company’s ability to make capital expenditures in excess of $15.0 million. The credit facility requires that the Company maintain a Funded Debt (as defined in the credit facility) to Adjusted EBITDA (as defined in the credit facility) ratio of not more than 2.75 to 1.0 and a minimum Net Worth (as defined in the credit facility) equal to at least $50.0 million, plus 30% of earnings after taxes earned each quarter (if positive), beginning with the June 2013 quarterly earnings.

There are various financial and other covenants under the Credit Agreement. Financial covenants, as defined in the Credit Agreement include a net income covenant, total liabilities to tangible net worth covenant and a minimum fixed charge coverage covenant.covenant, through the term of the agreement. The Credit Agreement requires the Company to submit interim and annual financial statements by specified dates after each reporting period. The Company was in compliance with the financial covenants under the Credit Agreement as of SeptemberJune 30, 2012.2013 and March 31, 2013.

Agreement with Solera Capital, LLC

The Company had an advisory services agreement with Solera, an affiliate of its principal stockholder, Solera Partners, L.P., to provide consulting and advisory services to the Company for a term ending on the later of: (i) March 5, 2014, or (ii) the date on which Solera and its affiliates cease to own at least 10% of the voting equity of the Company (including any successor thereto). The services to be provided under the agreement included (i) assisting in the raising of additional debt and equity capital from time to time for the Company, if deemed advisable by the Company’s board of directors, (ii) assisting the Company in its long-term strategic planning generally, and (iii) providing such other consulting and advisory services as the Company may reasonably request.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

In consideration of Solera providing the services listed above, effective April 1, 2011, the Company was obliged to pay Solera an annual advisory fee of $600,000, payable quarterly. The Company was also obliged to reimburse Solera for out-of-pocket costs and expenses incurred by Solera on behalf of the Company. During the three and six months ended September 30, 2011, the Company incurred $150,000 and $300,000, respectively, for such consulting and advisory services. The advisory services agreement with Solera wasit terminated upon the consummation of the IPO and as such the Company paid Solera a one-time termination fee of $1.3 million in April 2012. Additionally, the Company is a party to an amended and restated registration rights agreement dated as of November 14, 2005, or Registration Rights Agreement, relating to its shares of common stock held by certain affiliates of Solera and certain other stockholders. In connection with Solera’s exercise of its rights under the Registration Rights Agreement, the Company filed a registration statement on Form S-3 on July 16, 2013 to register Solera’s remaining shares. In connection with preparations for filing of this registration statement, the Company incurred $34,000 for legal and other out-of-pocket expenses on Solera’s behalf during the three months ended June 30, 2013.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Lease Commitments

The Company entered into a lease agreement (the “Lease”) forleases its headquarters at 1610 Fifth Street, Berkeley, California on November 15, 2010 with an initial termoffices and other equipment under noncancelable operating leases that expires in February 2016. On September 25, 2012, the Company entered into an amendment to the Lease (the “Lease Amendment”). The Lease Amendment provides (i) for reconfiguration of the sample storage area to additional office space to accommodate growth, and (ii) the Company with a first option to extend the initial term of the lease for three years (the “First Option”) followed by a second option to extend the lease for an additional two years (the “Second Option and, together with the First Option, the “Option Periods”). The terms, covenants and conditions of the Lease, as amended, will continue to govern the Options Periods, except that the applicable monthly rent for the Option Periods will be equal to 95% of the fair market rental rate for the property, however, the monthly rent payable during the Option Periods will not be less than the monthly rent payable during the immediately preceding month of the initial term or First Option period, as applicable. The landlord is required to deliver to the Company a notice of the fair market rental rate for the property no later than August 1, 2015. If the Company does not agree with the proposed fair market rental rate, then the term of the lease will expire at the end of the initial term in February 2016. In such event, the Company will have to reimburse to the landlord, an amount not to exceed 40% of the total tenant improvement allowance plus interest, as determined in accordance with the Lease. Concurrently with the execution of the Lease Amendment, the Company exercised the First Option to extend the initial lease for an additional three years to Februarythrough fiscal year 2019.

Rent expense for non-cancelablenon-cancellable operating leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Rent expense for the three and six months ended SeptemberJune 30, 2013 and 2012 was $120,000$150,000 and $239,000, respectively. Rent expense for the three and six months ended September 30, 2011 was $120,000, and $280,000, respectively.

Future minimum lease payments under the noncancelable operating leaseleases as of SeptemberJune 30, 20122013 are as follows (in thousands):

Purchase Commitments

The Company has material non-cancelable purchase commitments, directly or through contract manufacturers, to purchase ingredients to be used in the future to manufacture its products. As of SeptemberJune 30, 2012,2013, the Company’s purchase commitments totaled $16.3$19.2 million, which will substantially be incurred within a year.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

TheIn September 2011, the Company hasentered into an agreement with its contract warehousing company that includes minimum overhead fees of $200,000 annually beginning April 1, 2012 through June 30, 2015. As of June 30, 2013, the remaining obligation under the agreement for overhead fees was $400,000.

In November 2011, the Company entered into an agreement with one of its contract manufacturers for the purchase of product formulas for a purchase price of $2.0 million. The expense is includedagreement requires annual payments of at least $150,000 in selling, general and administrative expenseseach of the first six years of the agreement with the balance of the $2.0 million payment due at the end of the seven-year term in November 2018. As of June 30, 2013, the condensed consolidated statements of operations.Company’s remaining obligation for product formulas was $1.85 million.

Indemnifications

In the normal course of business, the Company enters into contracts that contain a variety of representations and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, theThe Company has not paid any significant claims or been required to defend any action related to its indemnification obligations, and, accordingly, the Company believes that the estimated fair value of these indemnification obligations is minimal and has not accrued any amounts for these obligations.

Legal Matters

From time to time, the Company is subject to claims and assessments in the ordinary course of business. The Company is not currently a party to any litigation mattermatters that, individually or in the aggregate, isare expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The outstandingIn March 2008, in connection with a prior term loan, the Company had issued a warrant to Hercules Technology II, L.P. (“Hercules”) for the purchase of 80,560 shares of convertible preferredSeries A 2005 Convertible Preferred Stock at an exercise price of $8.07 per share. The warrant was immediately exercisable on the date of issuance and was scheduled to expire at the earlier of five years from a qualifying IPO of the Company’s common stock immediately prior toor April 1, 2018. Upon the closingconsummation of the Company’s IPO on April 2, 2012, were automatically converted into 15,221,571the warrant became a warrant to purchase 80,560 shares of our common stock. As such, the Company on April 2, 2012 measured the fair value of the outstanding convertible preferred stock warrant using an option pricing method and recorded a non-cash charge of $13,000 related to the increase in the fair value of the convertible preferred stock warrant in other income (expense), net and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital. On April 12, 2012, Hercules exercised the warrant to purchase 80,560 shares of our common stock by surrendering 17,367 shares to pay for the exercise. As a result, the Company issued Hercules 63,193 shares of common stock. During the three and six months ended September 30, 2011, the convertible preferred stockholders received a cash dividend of $0.097 per share, or approximately $1.5 million in the aggregate, as a result of participating in the common stock dividend. No dividend was declared or paid during the three and six months ended September 30, 2012.

TheAs of each of June 30, 2013 and March 31, 2013, the Company’s certificate of incorporationCharter authorized 5,000,000 shares of preferred stock, $0.001 par value per share. As of SeptemberJune 30, 2012,2013, no certificate of designations defining the rights and preferences of the preferred stock had been filed and no shares of preferred stock were issued and outstanding.

As of Septembereach of June 30, 20122013 and March 31, 2012,2013, the Company’s certificate of incorporationCharter authorized 30,000,000 and 24,000,000 shares of common stock, $0.001 par value per share, respectively, of which 17,121,24916,889,060 and 483,24216,849,016 shares were issued and outstanding, respectively. Each share of the common stock has the right to one vote. The holders of common stock are also entitled to receive dividends out ofwhenever funds are legally available therefor and if, as and when or if declared by the Company’s boardBoard of directors. During the three and six months ended September 30, 2011, the Company declared and paid common shareholders a cash dividend of $0.097 per share, or $45,000 in the aggregate.Directors. No dividends were declared or paid during the three and six months ended SeptemberJune 30, 2012.2013 and 2012, respectively.

The Company has adopted performance incentive plans (2004(the 2004 Stock Option Plan and the Omnibus Incentive Plan, which together are the “Plans”) under which nonqualified stock options, restricted stock units and performance share units are granted to eligible employees, officers and directors. The Company has also granted non-plan performance based option awards to certain key management. Options granted under Plans to date generally vest over a two- to five-year period from the date of grant. Vested options can be exercised and generally expire ten years after the grant date. The restricted stock units granted to employees vest 50% on the second anniversary of the grant date, and the remaining 50% on the third anniversary of the grant date, provided continuance of the employment with the Company. The performance share units granted to employees vest based on achievement of required cumulative compounded adjusted diluted earnings per share growth during the stipulated three-year performance period beginning at the first fiscal quarter beginning after the grant date and ending March 31, 2015.applicable to a grant. Stock-based compensation expense included in selling, general and administrative expenses was $231,000$293,000 and $133,000$216,000 for the three months ended SeptemberJune 30, 20122013 and 2011, respectively, and was $447,000 and $239,000 for the six months ended September 30, 2012, and 2011, respectively.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes the activityActivity of stock options under our 2004 Plan, non-plan option awards and Omnibus Incentive Plan is set forth below:

The weighted average grant date fair value of employee stock options granted during the sixthree months ended SeptemberJune 30, 2012:2013 was $13.99 per share. The total intrinsic value of stock options exercised during the three months ended June 30, 2013 was $1.1 million. The intrinsic value is calculated based on the difference between the exercise price and the fair value of the common stock at time of exercise.

The following table summarizes the activity of unvested restricted stock units and performance share units during the six months ended September 30, 2012:units:

As of SeptemberJune 30, 2012,2013, there were 83,136 unvested performance share units outstanding, net of actual forfeitures. As of June 30, 2013, the number of shares estimated to be issued at the end of the performance period(s) is a total of 41,574 shares. The maximum number of total shares that could be issued at the end of performance period(s) is 124,710 shares.

As of June 30, 2013, there was $3.4$4.5 million of total unrecognized compensation cost related to unvested share-based compensation arrangements which is expected to be recognized over a weighted average period of 3.23.3 years.

We recognized income tax expense of $2.6 million and $4.0 million for the three and six months ended September 30, 2012, compared to $2.5 million and $3.4 million in the same periods last year. The Company’s effective tax rate was 40.6%40.2% for the sixthree months ended SeptemberJune 30, 2012,2013, compared to 38.7% in40.9% for the same period last year.three months ended June 30, 2012. The effective tax rate is based on a projection of ourthe Company’s annual fiscal year results. OurThe effective tax rate for the sixthree months ended SeptemberJune 30, 20122013 was higherlower than the effective tax rate for the sixthree months ended SeptemberJune 30, 2011 largely2012 due to a tax benefit recorded during the six months ended September 30, 2011 related to an increase in the tax rate applied for deferred tax assets due to an increase in theimpact of permanent items and federal and state income tax rates.

In addition, during the three and six months ended September 30, 2012, we recognized $2.3 million and $14.1 million ofcredits. The Company expects its full year effective tax deductions associated with stock option exercises. As of September 30, 2012, $2.1 million and $13.5 million of these tax deductions are considered “excess” stock compensation related deductions, resulting in a reduction in taxes payable of $3.8 million, recording a tax refund receivable of $1.4 million, with a corresponding increase in additional paid in capital of $5.3 million. We will recognize the remaining $0.2 million of stock compensation related deductions as a reduction in taxes payable in future periods as we generate state taxable income.rate for fiscal 2014 to be approximately 40% to 41%.

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company files consolidated tax returns for federal income taxes as well as for state income taxes in various state jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. These audits include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and local tax laws. The Company is potentially subject to U.S. federal, state and local income tax examinations for years 2005 and beyond.

The Company does not have any unrecognized tax positions as of September 30, 2012 that if recognized would affect the annual effective tax rate. No interest or penalties have been accrued for any period presented. Based on the Company’s assessment, including past experience and complex judgments about future events, the Company does not expect that changes in the liability for unrecognized tax benefits during the next twelve months will have a significant impact on its financial position or results of operations.

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net income per share of common stock for the periods presented, because including them would have been anti-dilutive:

A reconciliation of the basic and diluted net income per share attributable to common stockholders is as follows (in thousands except share and per share amounts):

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company’s net sales by geographic area,areas, based on the location to where the product was shipped, are summarized as follows (in thousands):

Annie’s, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table sets forth net sales by product category (in thousands):

All of the Company’s long-lived assets are located in the U.S.

In January 2013, the Company announced a voluntary product recall of certified organic and made with organic pizza products due to the possible presence of fragments of flexible metal mesh from a faulty screen at a third-party flour mill. The Company initiated the recall of all lots of pizza product manufactured with this supplier’s flour from its first purchase from the supplier in May 2012. The Company recorded certain items associated with the recall in its financial results for the three months ended June 30, 2013.

The Company recorded the estimated customer and consumer returns as a reduction of net sales, related costs associated with product returns, destruction charges, inventory write-off and costs incurred by contract manufacturers as cost of sales, and administrative costs associated with the recall such as legal expenses as selling, general and administrative expenses. As a result of the voluntary product recall, the Company recorded charges for product returns and recall-related costs of approximately $0.3 million for the three months ended June 30, 2013 as follows (in thousands except per share amount):

The accrual for product returns is based on the Company’s estimate of cases of pizza products at retail stores and is derived from third-party data and other assumptions. A high degree of judgment is required in estimating consumer returns, shelf and in-stock inventory at retailers across distribution channels, fees and incentives to be earned by customers for their effort to return the products, future freight rates and consumers’ claims. Actual results could differ from those estimates. The Company expects to incur approximately $0.1 million of additional costs associated with the voluntary product recall.

The Company carries product recall insurance and expects to recover a substantial portion of the recall-related costs from its insurance carrier. The Company may seek to recover additional costs from the third-party flour mill. The Company has submitted its claim to the insurance company and, as of July 31, 2013, recovered $0.4 million against the claims submitted. The impact of the recovery from the insurance was included in net sales for the fourth quarter of fiscal 2013.

ITEM 2 —– MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended March 31, 20122013 (“fiscal 2012”2013”) included in our Annual Report on Form 10-K filed with the SEC on June 8, 2012.14, 2013. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,( the “Exchange Act”). These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those in our Form 10-K discussed in the section titled “Risk Factors.”Factors” including risks relating to competition; new product introductions; implementation of our growth strategy; our brand; our reputation; product liability claims; product recalls and related insurance proceeds (if any); economic disruptions; changes in consumer preferences; ingredient and packaging costs and availability; reliance on a limited number of distributors, retailers, contract manufacturers and third-party suppliers and an outside warehouse facility; efficiency projects; intellectual property and related disputes; regulatory compliance; transportation; our supply-chain; our and our customers’ inventory levels; and seasonality. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.