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 October 15, ~~2012,~~2013, the registrant had ~~17,122,249~~16,912,015 shares of common stock, par value $0.001 per share, outstanding.


	September 30,			March 31,
	2012			2012			September 30, 2013			March 31, 2013
ASSETS
CURRENT ASSETS:
Cash	$	14,629		$	562		$	11,090		$	4,930
Accounts receivable, net		11,708			11,870
Accounts receivable, net of allowance								19,100			20,015
Inventory		12,401			10,202			17,333			15,147
Deferred tax assets		1,995			1,995			2,558			2,558
Income tax receivable		1,743			164			—			588
Prepaid expenses and other current assets		2,503			1,252			5,411			5,050


Total current assets		44,979			26,045			55,492			48,288
Property and equipment, net		4,887			4,298			6,192			6,138
Goodwill		30,809			30,809			30,809			30,809
Intangible assets, net		1,146			1,176			1,086			1,116
Deferred tax assets, long-term		4,433			4,650			3,617			3,704
Deferred initial public offering costs		—			5,343
Other non-current assets		99			108			147			157


Total assets	$	86,353		$	72,429		$	97,343		$	90,212

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	2,233		$	861		$	7,512		$	4,342
Related-party payable		—			1,305
Accrued liabilities		9,042			7,452			13,652			12,021


Total current liabilities		11,275			9,618			21,164			16,363
Credit facility		—			12,796			—			7,007
Convertible preferred stock warrant liability		—			2,157
Other non-current liabilities		992			921			984			913


Total liabilities		12,267			25,492			22,148			24,283

Convertible preferred stock		—			81,373
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock		—			—
Commitments and contingencies (Note 6)
STOCKHOLDERS’ EQUITY
Common stock		17			1			17			17
Additional paid-in capital		106,982			4,392			94,875			93,190
Accumulated deficit		(32,913	)		(38,829	)		(19,697	)		(27,278	)

Total stockholders’ equity (deficit)		74,086			(34,436	)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	86,353		$	72,429
Total stockholders’ equity								75,195			65,929


Total liabilities and stockholders’ equity							$	97,343		$	90,212

See accompanying notes to the unaudited condensed consolidated financial statements


	Three Months Ended September 30,						Six Months Ended September 30,						Three Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2012			2011			2013			2012			2013			2012
Net sales	$	46,686		$	38,872		$	80,979		$	67,482
Cost of sales		28,786			24,737			49,272			41,759
Net sales (including product recall benefit of $751 during the three and six months ended September 30, 2013)													$	58,650		$	46,686		$	97,690		$	80,979
Cost of sales (including product recall benefit of $490 and $273 during the three and six months ended September 30, 2013, respectively)														36,749			28,786			61,027			49,272


Gross profit		17,900			14,135			31,707			25,723			21,901			17,900			36,663			31,707
Operating expenses:
Selling, general and administrative		11,539			8,056			21,750			16,359
Selling, general and administrative expenses (including product recall benefit of $32 and expense of $11 during the three and six months ended September 30, 2013, respectively)														12,538			11,539			23,865			21,750


Income from operations		6,361			6,079			9,957			9,364			9,363			6,361			12,798			9,957
Interest expense		(40	)		(23	)		(80	)		(41	)		(104	)		(40	)		(175	)		(80	)
Other income (expense), net		36			13			85			(471	)		32			36			58			85


Income before provision for income taxes		6,357			6,069			9,962			8,852			9,291			6,357			12,681			9,962
Provision for income taxes		2,572			2,453			4,046			3,424			3,739			2,572			5,100			4,046


Net income	$	3,785		$	3,616		$	5,916		$	5,428		$	5,552		$	3,785		$	7,581		$	5,916

Net income attributable to common stockholders	$	3,785		$	107		$	5,916		$	161

Net income per share attributable to common stockholders
Net income per share
—Basic	$	0.22		$	0.23		$	0.35		$	0.35		$	0.33		$	0.22		$	0.45		$	0.35

—Diluted	$	0.21		$	0.11		$	0.34		$	0.16		$	0.32		$	0.21		$	0.44		$	0.34

Weighted average shares of common stock outstanding used in computing net income per share attributable to common stockholders

Weighted average shares of common stock outstanding used in computing net income per share
—Basic		17,070,327			465,045			17,003,534			465,019			16,896,227			17,070,327			16,882,965			17,003,534

—Diluted		17,702,516			1,018,359			17,656,356			986,680			17,392,447			17,702,516			17,376,646			17,656,356

See accompanying notes to the unaudited condensed consolidated financial statements

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

See accompanying notes to the unaudited condensed consolidated financial statements


	Six Months Ended September 30,						Six Months Ended September 30,
	2012			2011			2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	5,916		$	5,428		$	7,581		$	5,916
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		463			302			637			463
Stock-based compensation		447			239			409			447
Allowances for trade discounts and other		(1,100	)		556
Provision for doubtful accounts								21			—
Inventory reserves		(80	)		—			430			(80	)
Excess tax benefit from stock-based compensation		(5,266	)		—			(643	)		(5,266	)
Accretion of imputed interest on purchase of intangible asset		71			—			72			71
Change in fair value of convertible preferred stock warrant liability		13			538			—			13
Amortization of deferred financing costs		9			17			6			9
Deferred taxes		217			(332	)		87			217
Changes in operating assets and liabilities:
Accounts receivable, net		1,262			2,652			894			162
Inventory		(2,119	)		(2,174	)		(2,616	)		(2,119	)
Income tax receivable		(149	)		—			588			(149	)
Prepaid expenses, other current and non-current assets		4,092			(773	)		(174	)		4,092
Accounts payable		1,359			(7,887	)		3,158			1,359
Related-party payable		(1,305	)		(3	)		—			(1,305	)
Accrued expenses and other non-current liabilities		5,426			1,190			2,273			5,426

Net cash provided by (used in) operating activities		9,256			(247	)

Net cash provided by operating activities								12,723			9,256


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,009	)		(860	)		(649	)		(1,009	)


Net cash used in investing activities		(1,009	)		(860	)		(649	)		(1,009	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility		2,663			33,206			7,720			2,663
Payments to credit facility		(15,459	)		(33,206	)		(14,727	)		(15,459	)
Proceeds from common shares issued in initial public offering, net of issuance costs		11,146			—			—			11,146
Dividends paid		—			(1,519	)
Net repurchase of stock options		—			(602	)
Excess tax benefit from stock-based compensation		5,266			—			643			5,266
Proceeds from exercises of stock options		2,204			10			450			2,204


Net cash provided by (used in) financing activities		5,820			(2,111	)		(5,914	)		5,820

NET INCREASE (DECREASE) IN CASH		14,067			(3,218	)

NET INCREASE IN CASH								6,160			14,067

CASH—Beginning of period		562			7,333			4,930			562


CASH—End of period	$	14,629		$	4,115		$	11,090		$	14,629


NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property and equipment funded through accounts payable	$	13		$	—		$	12		$	13
Conversion of convertible preferred stock into common stock	$	81,373		$	—		$	—		$	81,373

See accompanying notes to the unaudited condensed consolidated financial statements

Annie’s, Inc. (the “Company”), a Delaware corporation incorporated on April 28, 2004, is a natural and organic food company. The Company offers over ~~125~~135 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.

The accompanying interim condensed consolidated balance sheets as of September 30, ~~2012 and March 31, 2012,~~2013, the interim condensed consolidated ~~statements~~statement of ~~convertible preferred stock and~~ stockholders’ equity ~~(deficit) as of~~for the six months ended September 30, ~~2012 and March 31, 2012,~~2013, and the interim condensed consolidated statements of operations for the three and six months ended September 30, ~~2012~~2013 and ~~2011,~~2012, and cash flows for the six months ended September 30, ~~2012~~2013 and ~~2011~~2012 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, ~~certain~~they do not include all of the information and ~~footnote disclosures normally included in financial statements prepared in accordance with~~notes 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, ~~2012~~2013 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 ~~audited~~complete 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 September 30, ~~2012~~2013 and results of our operations for the three and six months ended September 30, ~~2012~~2013 and ~~2011,~~2012, and cash flows for the six months ended September 30, ~~2012~~2013 and ~~2011.~~2012. The interim results for the six months ended September 30, ~~2012~~2013 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 owned subsidiaries, Annie’s Homegrown, Inc., Annie’s Enterprises, Inc. and Napa Valley Kitchen, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

On April 2, 2012, the Company closed its IPO, in which it sold 950,000 shares at an offering 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 by~~affiliated 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 on Form 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 ~~our~~the 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 September 30, ~~2012, 17,121,249~~2013, 16,909,546 shares of common stock were issued and outstanding and no shares of preferred stock were issued and outstanding.

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.

On July 16, 2013, the Company filed a registration statement on Form S-3 to register 2,537,096 shares of common stock of the Company held by Solera. In connection with preparations for filing of this registration statement, the Company incurred $86,000 for legal, accounting and other out-of-pocket expenses on Solera’s behalf in the six months ended September 30, 2013.

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.

Customers with 10% or more of the Company’s net sales consist of the following:


	Net Sales									Net Sales
	Customer A			Customer B			Customer C			Customer A			Customer B			Customer C
Three Months Ended September 30,
2013											19	%		16	%		16	%
2012		27	%		13	%		14	%		27	%		13	%		14	%
2011		25	%		14	%		12	%

Six Months Ended September 30,
2013											21	%		13	%		14	%
2012		27	%		11	%		12	%		27	%		11	%		12	%
2011		25	%		13	%		12	%

As of September 30, ~~2012, Customer A~~2013, three customers represented 31%, 19% and ~~Customer B represented 26% and 18%~~10%, respectively, of accounts receivable. The same ~~two~~three customers represented ~~21%~~26%, 36% and ~~45%~~10%, respectively, of accounts receivable as of March 31, ~~2012.~~2013.

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 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.

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 value~~it 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).

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. AtAs of September 30, ~~2012 and March 31, 2012,~~2013, the Company had $2.2 million capitalized software development costs, net of accumulated amortization, ~~totaled $2.3~~including $0.6 million ~~and 2.0 million, respectively.~~in construction in progress. As of ~~September 30, 2012,~~March 31, 2013, the Company had $2.1 million capitalized software development costs, net of accumulated amortization, ~~and $0.2~~including $0.4 million in construction in progress.

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~~$1.8 million and ~~$1.1~~$1.5 million for the three months ended September 30, ~~2012~~2013 and ~~2011,~~2012, respectively and were ~~$2.8~~$3.3 million and ~~$2.2~~$2.8 million for the six months ended September 30, ~~2012~~2013 and ~~2011,~~2012, respectively.

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~~$0.7 million for the three months ended September 30, ~~2012~~2013 and ~~2011,~~2012, respectively and were ~~$1.5~~$1.2 million and ~~$0.9~~$1.5 million for the six months ended September 30, ~~2012~~2013 and ~~2011,~~2012, respectively.

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 September 30, ~~2012~~2013 and ~~2011~~2012 included in selling, general and administrative expenses were $0.4 million and $0.1 million, respectively, and ~~$0.3 million, respectively. Total advertising costs~~ were ~~$0.4~~$0.8 million and $0.4 million for the six months ended September 30, ~~2012~~2013 and ~~2011,~~2012, respectively.

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 including costs incurred by contract manufacturers. Additionally, the Company estimates product returns from consumers and customers 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 products, future freight rates and consumers’ claims.

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. ~~Potential~~The 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 September 30, ~~2012~~2013 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.

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.

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.


	September 30,		March 31,		September 30, 2013		March 31, 2013
	2012		2012
Raw materials	$	3,096	$	1,938	$	2,063	$	1,391
Work in process		725		754		1,020		2,142
Finished goods		8,580		7,510		14,250		11,614


Inventory	$	12,401	$	10,202	$	17,333	$	15,147


	September 30,			March 31,			September 30, 2013			March 31, 2013
	2012			2012
Equipment and automotive	$	1,876		$	1,730		$	3,835		$	2,959
Software		3,189			1,188			2,410			2,410
Leasehold improvements		566			566			1,344			1,195
Plates and dies		365			352			318			244


Total property and equipment		5,996			3,836			7,907			6,808
Less: Accumulated depreciation and amortization		(2,099	)		(1,719	)		(2,364	)		(1,760	)
Construction in progress		990			2,181			649			1,090


Property and equipment, net	$	4,887		$	4,298		$	6,192		$	6,138

The Company incurred depreciation expense of ~~$248,000~~$313,000 and ~~$433,000~~$607,000 for the three and six months ended September 30, ~~2012,~~2013, respectively. The depreciation expense for the same periods in the prior year was ~~$147,000~~$248,000 and ~~$297,000,~~$433,000, respectively.

The Company incurred amortization expense of $15,000 and $30,000 on its intangible assets during the three and six months ended September 30, ~~2012.~~2013. The amortization expense for the same periods over the prior year was ~~$3,000~~$15,000 and ~~$5,000,~~$30,000, respectively.

The estimated future amortization expense relating to intangible assets for the remainder of fiscal ~~2013,~~2014, for each of the next five years through fiscal ~~2018~~2019 and thereafter is $30,000, $60,000 and ~~$816,000,~~$756,000, respectively.

Prepaid expenses and other current assets as of September 30, 2013 and March 31, 2013 include receivables from contract manufacturers and suppliers of $3.0 million and $3.9 million, respectively.


	September 30,		March 31,		September 30, 2013		March 31, 2013
	2012		2012
Payroll and employee-related expenses	$	2,672	$	2,768	$	2,310	$	3,779
Accrued trade expenses		1,928		2,631		5,060		2,299
Inventory received not invoiced		3,542		531		4,818		4,038
Deferred rent		242		264		253		260
Brokerage commissions		313		382		231		407
Other accrued liabilities		345		876		980		1,238


Total accrued liabilities	$	9,042	$	7,452	$	13,652	$	12,021

In ~~December 2011,~~2005, the Company entered into a ~~second amendment and restated~~bank line of credit agreement (the “Credit Agreement”) with Bank of America, N.A., which ~~provides~~provided for revolving loans 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 ~~letters~~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 up to $20.0 million and ~~is available to~~an 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 ~~secured~~collateralized by substantially all of the Company’s assets.

~~Revolving advances~~The Company may select from three interest rate options for borrowings under the ~~Credit Agreement bear~~credit facility: (i) LIBOR (as defined in the credit facility) plus 1.25%, (ii) IBOR (as defined in the credit facility) plus 1.25% or (iii) Prime Rate (as defined in the credit facility). Weighted average interest atwas 1.4% and 1.5% for the ~~LIBOR plus 1.5%, as defined.~~three and six months ended September 30, 2013, respectively. 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% for~~The Company is required to pay a commitment fee on the ~~three and six months ended September 30, 2011, respectively.~~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 September 30, ~~2012~~2013 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.

~~There are various financial~~The credit facility contains restrictions on, among other things, the Company’s ability to incur additional indebtedness, pay dividends or make other distributions and ~~other covenants under~~make investments and loans. The credit facility also limits the ~~Credit Agreement. Financial covenants, as~~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 Agreement, include a net income covenant, total liabilities~~credit facility) to ~~tangible net worth covenant~~Adjusted EBITDA (as defined in the credit facility) ratio of not more than 2.75 to 1.0 and a minimum ~~fixed charge coverage covenant.~~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. 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 September 30, ~~2012.~~2013 and March 31, 2013.

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.

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. On August 6, 2012, the Company closed a secondary public offering, in which certain stockholders, including 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.

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 $86,000 for legal and other out-of-pocket expenses on Solera’s behalf during the six months ended September 30, 2013.

The Company ~~entered into a lease agreement (the “Lease”) for~~leases its ~~headquarters at 1610 Fifth Street, Berkeley, California on November 15, 2010 with an initial term~~offices and other equipment under non-cancelable 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-cancelable 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 September 30, ~~2012~~2013 was ~~$120,000~~$156,000 and ~~$239,000,~~$306,000, respectively. Rent expense for the three and six months ended September 30, ~~2011~~2012 was $120,000 and ~~$280,000,~~$239,000, respectively.

Future minimum lease payments under the ~~noncancelable~~non-cancelable operating ~~lease~~leases as of September 30, ~~2012~~2013 are as follows (in thousands):


	Lease Payments		Lease Payments
Six Months Ending March 31, 2013	$	278

Six Months Ending March 31, 2014			$	330
Fiscal Year Ending March 31:
2014		601
2015		621		675
2016		638		673
2017		638		669
2018		638		662
2019		585		586


Total future minimum lease payments	$	3,999	$	3,595

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 September 30, ~~2012,~~2013, the Company’s purchase commitments totaled ~~$16.3~~$14.5 million, which will substantially be incurred within a year.

~~The~~In September 2011, the Company ~~has~~entered 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 September 30, 2013, the remaining obligation under the agreement for overhead fees was $350,000.

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 included~~agreement requires annual payments of at least $150,000 in ~~selling, general and administrative expenses~~each 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 September 30, 2013, the ~~condensed consolidated statements of operations.~~Company’s remaining obligation for product formulas was $1.85 million.

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, the~~The 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.

~~From~~On September 4, 2013, a private organization called the Center for Environmental Health (“CEH”) issued a 60-day notice of intent to sue (“Notice”) the Company and its subsidiary, Annie’s Homegrown, Inc., under California Health & Safety Code §§ 25249.5 et seq. (commonly referred to as “Proposition 65”). In the Notice, CEH claims that warnings are required in California for alleged exposures to lead and lead compounds from cookies, including Annie’s Gluten-Free Ginger Snap Bunny Cookies. Under Proposition 65, any private enforcer such as CEH may file a lawsuit if it first issues a valid 60-day notice, and if the California Attorney General or other specified California public enforcers do not file suit within 60 days after service. A Proposition 65 plaintiff may seek

injunctive relief as well as civil penalties, which may be assessed up to a maximum of $2,500 per violation per day, and a private plaintiff does not need to show that anyone has been harmed by the alleged exposures. A prevailing plaintiff may also seek its attorneys’ fees and costs under other California laws.

Although CEH has not yet filed a lawsuit naming the Company or Annie’s Homegrown, Inc., within the past year CEH has filed several lawsuits against other manufacturers and retailers regarding various types of products containing molasses and/or ginger, such as licorice candy, cookies, and baking mix products. In CEH’s cases involving cookies and baking mix products, CEH’s operative complaints have put at issue only those cookies or baking mix products that contain ginger and/or molasses as ingredients. The Company cannot at this time reasonably estimate a range of exposure, if any, of the potential liability should a suit be brought in connection with the Notice.

Additionally, from time to time, the Company is subject to claims, ~~and~~ assessments or other legal proceedings in the ordinary course of ~~business. The Company~~business, including product liability claims, employee claims, and other general liability claims. While it is not ~~currently a party~~feasible to ~~any litigation matter~~predict or determine the ultimate outcome of these matters, the Company believes that none of these legal proceedings, individually or in the aggregate, ~~is expected to~~will have a material adverse effect on ~~the Company’s business,~~its financial ~~condition, results of operations or cash flows.~~position.

~~The outstanding~~In 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 preferred~~Series 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 to~~or April 1, 2018. Upon the ~~closing~~consummation of the Company’s IPO on April 2, 2012, ~~were automatically converted into 15,221,571~~the warrant became a warrant to purchase 80,560 shares of the Company’s common stock. As such, on April 2, 2012, the Company 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 Company’s 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.

~~The~~As of each of September 30, 2013 and March 31, 2013, the Company’s ~~certificate of incorporation~~Charter authorized 5,000,000 shares of preferred stock, $0.001 par value per share. As of September 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 each of September 30, ~~2012~~2013 and March 31, ~~2012,~~2013, the Company’s ~~certificate of incorporation~~Charter authorized 30,000,000 ~~and 24,000,000~~ shares of common stock, $0.001 par value per share, respectively, of which ~~17,121,249~~16,909,546 and ~~483,242~~16,849,016 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 of~~whenever funds are legally available therefor and if, as and when ~~or if~~ declared by the Company’s ~~board~~Board 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 September 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 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~~$116,000 and ~~$133,000~~$231,000 for the three months ended September 30, ~~2012~~2013 and ~~2011,~~2012, respectively, and was ~~$447,000~~$409,000 and ~~$239,000~~$447,000 for the six months ended September 30, 2013 and 2012, ~~and 2011,~~ respectively.

The following table summarizes the activity of stock options during the six months ended September 30, ~~2012:~~2013:

The weighted average grant date fair value of employee stock options granted during the six months ended September 30, 2013 was $14.03 per share. The total intrinsic value of stock options exercised during the six months ended September 30, 2013 was $1.9 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:~~2013:


Shares-Based Awards	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value
Unvested at March 31, 2012		65,899		$	19.00

Unvested at March 31, 2013							71,165		$	21.73
Granted		7,220			44.07		47,366			39.91
Vested		—			—		(4,692	)		45.27
Performance Shares Adjustment		—			—
Forfeited		(500	)		19.00		(13,442	)		24.16

Unvested at September 30, 2012		72,619		$	21.49

Unvested at September 30, 2013							100,397		$	28.69

As of September 30, ~~2012,~~2013, there were 73,333 unvested performance share units outstanding, net of actual forfeitures. As of September 30, 2013, the number of shares estimated to be issued at the end of the performance period(s) is a total of 36,672 shares. The maximum number of total shares that could be issued at the end of performance period(s) is 110,005 shares.

As of September 30, 2013, there was ~~$3.4~~$3.9 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 ~~3.2~~3.1 years.

~~We recognized income~~The Company’s effective tax ~~expense~~rate decreased to 40.2% for the three months ended September 30, 2013, compared to 40.5% for the three months ended September 30, 2012. The effective tax rate was 40.2% for the six months ended September 30, 2013, compared to 40.6% for the six months ended September 30, 2012. The effective tax rate is based on a projection of ~~$2.6 million~~the Company’s annual fiscal year results. The effective tax rate for the three and ~~$4.0 million~~six months ended September 30, 2013 was lower than the effective tax rate 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 effective tax rate was 40.6% for the six months ended September 30, 2012, compared to 38.7% in the same period last year. The effective tax rate is based on a projection of our annual fiscal year results. Our effective tax rate for the six months ended September 30, 2012 was higher than the effective tax rate for the six months ended September 30, 2011 largely 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 the~~impact of permanent items and federal and state ~~tax rates.~~

In addition, during the three and six months ended September 30, 2012, we recognized $2.3 million and $14.1 million of 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.

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.credits.

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:


	Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended September 30,				Six Months Ended September 30,
	2012		2011		2012		2011		2013		2012		2013		2012
Convertible preferred stock		—		15,221,571		—		15,221,571

Options to purchase common stock		2,562		167,314		2,562		167,314		85,046		2,562		133,515		2,562
Restricted stock units		6,256		—		6,256		—		5,434		6,256		12,864		6,256
Convertible preferred stock warrant		—		—		—		80,560


Total		8,818		15,388,885		8,818		15,469,445		90,480		8,818		146,379		8,818

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):

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


									Three Months Ended September 30,				Six Months Ended September 30,
	Three Months Ended September 30,				Six Months Ended September 30,				2013		2012		2013		2012
	2012		2011		2012		2011
United States	$	44,423	$	37,532	$	77,571	$	65,296	$	56,226	$	44,423	$	93,671	$	77,571
Canada		2,263		1,340		3,408		2,186		2,424		2,263		4,019		3,408

	$	46,686	$	38,872	$	80,979	$	67,482
									$	58,650	$	46,686	$	97,690	$	80,979


									Three Months Ended September 30,				Six Months Ended September 30,
	Three Months Ended September 30,				Six Months Ended September 30,				2013		2012		2013		2012
	2012		2011		2012		2011
Meals	$	21,869	$	16,724	$	36,536	$	27,176	$	29,739	$	21,869	$	46,293	$	36,536
Snacks		19,146		16,338		32,609		28,236		22,057		19,146		37,878		32,609
Dressings, condiments and other		5,671		5,810		11,834		12,070		6,854		5,671		13,519		11,834

	$	46,686	$	38,872	$	80,979	$	67,482
									$	58,650	$	46,686	$	97,690	$	80,979

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 and six months ended September 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. The Company recorded $1.2 million for insurance recoveries and a $0.1 million in reduction of net sales reserve in connection with the product recall in each of the three and six months ended September 30, 2013, respectively. The impact of the recall-related charges and related insurance recoveries in the three and six months ended September 30, 2013 is as follows (in thousands except per share amount):

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, ~~2012~~2013 (“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 this Form 10-Q relating to the acquisition of the Joplin manufacturing plant and 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 recoveries (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.

Annie’s, Inc. is a ~~rapidly growing~~ natural and organic food company with a widely recognized brand, offering consumers great-tasting products in large packaged foods categories. We sell premium products made from high-quality ingredients at affordable prices. We have the #1 natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers.

Our loyal and growing consumer following has enabled us to migrate from our natural and organic roots to a brand sold across the mainstream grocery, mass merchandiser and natural retailer channels. We offer over ~~125~~135 products and are present in over ~~25,000~~26,500 retail locations in the United States and Canada.

Our net sales are derived primarily from the sale of meals, snacks, dressings, condiments and other products under the Annie’s Homegrown and Annie’s Naturals brand names. We have experienced strong growth ~~driven by our meals and snacks~~across all product categories, resulting from our focus on supporting our best-selling items and the introduction of new products in these categories. We have reduced our offerings in our dressings and condiments product lines and discontinued our cereal product line in the fourth quarter of fiscal 2012, which resulted in low or negative growth in that category. However, excluding our cereal product line, the dressings, condiments and other category grew modestly. Sales are reported net of estimated sales and promotion incentives, slotting, customer discounts and spoils.

Gross profit is net of cost of sales, which consists of the costs of ingredients in the manufacture of products, contract manufacturing fees, inventory write-off, packaging costs and in-bound freight charges. Ingredients account for the largest portion of the cost of sales followed by contract manufacturing fees and ~~packaging.~~packaging costs.

Our selling, general and administrative expenses consist primarily of marketing and advertising expenses, freight and warehousing, wages, related payroll and employee benefit expenses, ~~including~~ stock-based compensation, commissions to outside sales representatives, legal and professional fees, travel expenses, other facility related costs, such as rent and depreciation, and consulting expenses. The primary components of our marketing and advertising expenses include trade advertising, samples, consumer events, sales data, consumer research and search engine and digital advertising.

On November 5, 2013, we entered into an agreement with Safeway Inc. and Safeway Australia Holdings, Inc. (together the “Selling Parties”) to acquire a snack manufacturing plant in Joplin, Missouri (the “Joplin Plant”) for $6.0 million, plus the value of inventory and supplies at closing (calculated based on the Selling Parties’ costs and currently estimated at approximately $4.0 million) . We expect to fund the acquisition with cash from operations and, if necessary, by drawing under our revolving credit facility, and to close the acquisition in the first quarter of

fiscal 2015. The Joplin Plant has been the primary manufacturer of our cookie and cracker products for more than ten years. Our products produced in the Joplin Plant currently account for over 50% of our total snacks net sales and represent the majority of the Joplin Plant’s total production volume. In connection with the closing of the acquisition, we expect to enter into a three-year supply agreement with an affiliate of Safeway Inc., pursuant to which we will manufacture products for the affiliate. Including the impact of previously planned efficiency projects related to the Joplin Plant, the acquisition is not expected to materially impact our net income in fiscal 2015. The supply agreement is expected to have a positive impact on net sales and a negative impact on gross margin percentage. Over the long term, however, we expect the acquisition to have a positive impact on our gross margin percentage. Our Executive Vice President, Operations and Administration previously had oversight over the Joplin Plant when she was employed by Safeway, prior to joining us. Additionally, prior to joining us, our Senior Vice President, Supply Chain and Operations had experience running a variety of manufacturing plants.

At the end of fiscal year 2014, we will be deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and as a result, we will cease to be an “emerging growth company,” as defined in the JOBS Act. As a result, we will no longer be exempted from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and our independent registered public accounting firm will be required to evaluate and report on internal control over financial reporting. In connection with the auditor attestation, we expect to incur additional fees, consulting and other costs of approximately $0.3 million in fiscal 2014.

We first began shipping organic frozen pizza in January 2012 and made with organic frozen pizza first shipped during second quarter of fiscal 2013. In January 2013, we announced a voluntary product recall of our certified organic and made with organic pizza products. The voluntary product recall was a result of our contract manufacturer for pizza crusts identifying small metal fragments in the pizza dough during a manufacturing run and in some finished pizza crusts made on the same day. We immediately halted production and began investigating the issue. Soon thereafter, we determined that the small metal fragments originated at the third-party flour mill from where we sourced our pizza flour. We then initiated a recall of all lots of pizza product manufactured with this supplier’s flour from our first purchase from the supplier in May 2012.

Direct costs of the voluntary product recall include customer and consumer returns, costs associated with returned product, costs incurred by our contract manufacturers, incremental costs associated with short-term sourcing of replacement flour, destruction charges and inventory write-off, retailer margin and customer fees and incentives. We also incurred administrative costs such as legal expenses, accounting fees and public relations expenses.

In the second quarter of fiscal 2013, we recorded $1.2 million for insurance recoveries and $0.1 million in reduction of net sales reserve in connection with the recall. We expect to recover additional amounts from the involved insurance carriers in future quarters. Recoveries are recorded to offset the charges once recovery is probable. We expect to receive additional recoveries from the involved insurance carriers in future quarters.

~~Net sales~~The growth rates for the U.S. natural and organic food market have been, and are expected to continue to be, higher than those for the overall U.S. food market. We believe growth in the natural and organic food market is driven by various factors, including heightened awareness of the role that food and nutrition play in long-term health and wellness. Many consumers prefer natural and organic products due to increasing concerns over the purity and safety of food as a result of the presence of pesticide residues, growth hormones and artificial and genetically engineered ingredients in the foods we eat. In this growing market, we expect competition from other natural and organic packaged food companies as well as mainstream conventional packaged food companies to increase, as they may seek to introduce products in our key categories or seek to make existing products more attractive to the natural and organic consumer. We continue to experience greater consumer demand for natural and organic food products and increasing awareness of the Annie’s brand, which has contributed to increased growth in net sales.

Our top-line growth continues to be driven by our increased penetration of mainstream grocery and mass merchandiser channels, product innovation, increased brand awareness and greater consumer demand for natural and organic food products. In the twelve months ended September 30, 2012, we have experienced acceleration in consumer trends for many of our products. We also have benefited from improved placement in the mainstream grocery channel and continued product innovation which includes adding new flavors and sizes to existing lines as well as introduction of new product lines. In June 2013, we ~~believe has resulted~~entered into the single-serve microwavable cup segment of the macaroni and cheese category and in ~~increased sales of our products. Our net sales growth has been primarily driven by volume; however,~~August 2013, we ~~have demonstrated the ability to execute price increases as needed to maintain margins, driven by our strong brand loyalty and perceived value relative to the competition.~~entered into family-size frozen entrées.

We purchase finished products from ~~independent~~our contract manufacturers. ~~We have long standing, strategic relationships with many~~With an industry-wide commodity cost escalation starting in fiscal 2008, we became more directly involved in the sourcing of the ingredients for our products. This allowed us to consolidate ingredient sourcing across contract manufacturers in order to negotiate more favorable pricing on ingredients and, ~~suppliers of organic ingredients. We enter either~~in some cases, to lock in ingredient pricing for typically six to 12 months forward through non-cancelable purchase commitments, directly or through contract ~~manufacturers into forward pricing contracts with certain ingredient suppliers. This practice provides us with significant visibility into our cost structure over the next six to twelve months.~~manufacturers. In fiscal ~~2012,~~2013, our contracted ingredients represented approximately ~~48%~~50% of our ~~material~~materials costs and ~~25%~~over 31% of our cost of sales. ~~Over~~These efforts mitigated the ~~past 18 months, we have experienced increased costs for many~~impact of ~~our inputs~~volatile and ~~expect these higher costs to continue throughout the remainder of our fiscal year ending March 31, 2013 (“fiscal 2013”). We strive to maintain or improve gross margins despite~~ increasing commodity costs ~~through a combination~~on our business. We plan to continue to expand our portfolio of contracted ingredients and negotiate pricing agreement for future purchases to allow us sufficient time to respond to changes in our ingredient costs over time.

Additionally, we have invested significant time and energy to offset higher costs and achieve cost ~~management~~reductions and ~~price increases. We actively manage our input and production costs through commodity management practices, vendor negotiation,~~ productivity improvements ~~and cost reductions~~ in our supply chain. ~~We invest significant time~~These efficiency projects have focused on selecting more cost-effective contract manufacturers, negotiating lower tolling fees, consolidating in-bound freight, leveraging warehouse expense and ~~effort to achieve permanent cost reductions~~reducing ingredient and packaging costs through increased volume buys, contract consolidation, direct purchasing, investment in ~~our supply chain. To drive these initiatives, we have begun to selectively invest~~ capital in equipment ~~located~~ at our contract manufacturers to ~~drive down costs,~~ improve line throughput and ~~improve~~reduce production costs, and price negotiation. We believe that our planned acquisition of the Joplin Plant is the next evolution of our hybrid model and provides us with the opportunity over the long-term to benefit from fixed cost leverage as we drive snacks volume.

While our cost structure continues to benefit from ongoing productivity and cost reducing initiatives, we have experienced increased margin pressure in fiscal 2014 resulting from several factors, including: continued input cost inflation; more limited price increases compared to prior years; a faster pace of product ~~quality.~~innovation; customer and product mix changes; increased inventory obsolescence; and higher trade spending to support continued distribution and market share growth in a competitive food retailing environment. Although commodity costs for conventional ingredients have recently moderated or declined, we have not yet experienced similar cost changes to our ingredients and continue to experience year-over-year commodity increases.

Selling, general and administrative expenses have increased as a result of the investment we have made in building our organization and adding headcount to support our ~~growth and operating as a public company.~~growth. Many of our selling, general and administrative expenses are variable with volume, including freight and warehouse expenses and commissions paid to our sales brokers. In addition, we continue to make investments in marketing to drive trial of our products, ~~and~~ promote awareness of our brand, and compete effectively against conventional as well as natural and organic brands, and in research and development to support our robust innovation pipeline. ~~Starting~~Despite these increased investments, our selling, general and administrative expenses did not increase as significantly as net sales, and resulted in ~~fiscal 2012, we incurred incremental~~lower expense ~~related to getting ready to operate~~ as a ~~public company. We expect to incur approximately $2 million~~percent of net sales in ~~incremental expense annually related to being a public company.~~the three and six months ended September 30, 2013.

The following table sets forth items included in our consolidated statements of operations in dollars and as a percentage of net sales for the periods presented:


																									Three Months Ended September 30,						% of Net Sales						Six Months Ended September 30,						% of Net Sales
	Three Months Ended September 30,						% of Net Sales						Six Months Ended September 30,						% of Net Sales						2013			2012			2013			2012			2013			2012			2013			2012
	2012			2011			2012			2011			2012			2011			2012			2011			(in thousands, except for percentages)
	(in thousands, except for percentages)
Net sales	$	46,686		$	38,872			100.0	%		100.0	%	$	80,979		$	67,482			100.0	%		100.0	%	$	58,650		$	46,686			100.0	%		100.0	%	$	97,690		$	80,979			100.0	%		100.0	%
Cost of sales		28,786			24,737			61.7	%		63.6	%		49,272			41,759			60.8	%		61.9	%		36,749			28,786			62.7	%		61.7	%		61,027			49,272			62.5	%		60.8	%


Gross profit		17,900			14,135			38.3	%		36.4	%		31,707			25,723			39.2	%		38.1	%		21,901			17,900			37.3	%		38.3	%		36,663			31,707			37.5	%		39.2	%
Operating expenses:
Selling, general and administrative expenses		11,539			8,056			24.7	%		20.7	%		21,750			16,359			26.9	%		24.2	%		12,538			11,539			21.4	%		24.7	%		23,865			21,750			24.4	%		26.9	%


Total operating expenses		11,539			8,056			24.7	%		20.7	%		21,750			16,359			26.9	%		24.2	%		12,538			11,539			21.4	%		24.7	%		23,865			21,750			24.4	%		26.9	%


Income from operations		6,361			6,079			13.6	%		15.6	%		9,957			9,364			12.3	%		13.9	%		9,363			6,361			16.0	%		13.6	%		12,798			9,957			13.1	%		12.3	%
Interest expense		(40	)		(23	)		(0.1	)%		(0.1	)%		(80	)		(41	)		(0.1	)%		(0.1	)%		(104	)		(40	)		(0.2	)%		(0.1	)%		(175	)		(80	)		(0.2	)%		(0.1	)%
Other income (expense), net		36			13			0.1	%		0.0	%		85			(471	)		0.1	%		(0.7	)%		32			36			0.1	%		0.1	%		58			85			0.1	%		0.1	%


Income before provision for income taxes		6,357			6,069			13.6	%		15.6	%		9,962			8,852			12.3	%		13.1	%		9,291			6,357			15.8	%		13.6	%		12,681			9,962			13.0	%		12.3	%
Provision for income taxes		2,572			2,453			5.5	%		6.3	%		4,046			3,424			5.0	%		5.1	%		3,739			2,572			6.4	%		5.5	%		5,100			4,046			5.2	%		5.0	%


Net income	$	3,785		$	3,616			8.1	%		9.3	%	$	5,916		$	5,428			7.3	%		8.0	%	$	5,552		$	3,785			9.5	%		8.1	%	$	7,581		$	5,916			7.8	%		7.3	%

Our discussion of our results of operations in this Quarterly Report on Form 10-Q includes certain adjusted net sales, gross profit, gross margin and net income figures that exclude the impact of our January 2013 voluntary product recall, costs associated with our planned acquisition of the Joplin Plant, shelf registration and secondary offering costs. These figures are non-GAAP financial measures. We calculate these non-GAAP figures by eliminating the impact of our January 2013 voluntary product recall, costs associated with our planned acquisition of the Joplin Plant, shelf registration and secondary offering costs, which we do not consider indicative of our ongoing operations. We believe these non-GAAP figures provide additional information to facilitate the comparison of our past and present financial results and better visibility into our normal operating results by isolating the effects of the items mentioned above. However, our computation of these non-GAAP measures is likely to differ from methods used by other companies in computing similarly titled or defined terms, limiting the usefulness of these measures. These non-GAAP financial measures should not be considered in isolation or as alternatives to GAAP financial measures and investors should not rely on any single financial measure to evaluate our business. The table below reconciles these non-GAAP figures to the most directly comparable GAAP financial measures:

Three Months Ended September 30, ~~2012~~2013 Compared to Three Months Ended September 30, ~~2011~~2012


																	Three Months Ended September 30,				Change					% of Net Sales
	Three Months Ended September 30,				Change						% of Net Sales						2013		2012		$		%			2013			2012
	2012		2011		$			%			2012			2011			(in thousands, except for percentages)
	(in thousands, except for percentages)
Meals	$	21,869	$	16,724	$	5,145			30.8	%		46.9	%		43.0	%	$	29,739	$	21,869	$	7,870		36.0	%		50.7	%		46.9	%
Snacks		19,146		16,338		2,808			17.2	%		41.0	%		42.0	%		22,057		19,146		2,911		15.2	%		37.6	%		41.0	%
Dressings, condiments and other		5,671		5,810		(139	)		(2.4	)%		12.1	%		15.0	%		6,854		5,671		1,183		20.9	%		11.7	%		12.1	%


Net sales	$	46,686	$	38,872	$	7,814			20.1	%		100.0	%		100.0	%	$	58,650	$	46,686	$	11,964		25.6	%		100.0	%		100.0	%

Net sales increased ~~$7.8~~$12.0 million, or ~~20.1%~~25.6%, to ~~$46.7~~$58.7 million ~~during~~in the three months ended September 30, ~~2012~~2013 compared to ~~$38.9~~$46.7 million ~~during~~in the three months ended September 30, ~~2011. This~~2012. Net sales for the three months ended September 30, 2013 benefited from insurance recoveries of $0.6 million and a reversal of net sales reserve of $0.1 million related to our January 2013 voluntary product recall. The net sales increase was primarily driven by volume with approximately 240 basis points of growth from higher average selling prices. Distribution gains and our mainline placement initiative contributed to the volume increase, primarily impacting mainstream grocery and mass merchandiser channels. These gains were partially offset by lower volume in the natural channel, due primarily to inventory reductions by a large customer.

The increase in net sales reflects ana $7.9 million, $2.9 million and $1.2 million increase in net sales of meals, ~~and~~ snacks ~~of $5.1 million~~ and ~~$2.8 million, respectively, offset by a slight decrease in~~ dressings, condiments and other, ~~of $0.1 million.~~respectively. The increase in meals was predominantly driven by strong growth in ~~the~~natural, gluten-free and single-serve microwavable macaroni and cheese ~~product line~~products combined with ~~a benefit~~initial shipments of frozen entrées which were introduced in August 2013. Net sales of meals also benefited from ~~organic~~insurance recoveries and ~~made with organic frozen pizza products. Organic frozen pizza first shipped in January 2012 and made with organic frozen pizza first shipped this quarter.~~reversal of net sales reserve mentioned above. The increase in snacks was primarily due to growth in our ~~snack mix,~~ fruit snacks, grahams, mixed snacks and ~~crackers~~granola bars product lines. The ~~slight decrease~~increase in ~~dressings, condiments and other was attributable to the discontinuation of our cereal product line. Excluding our cereal product line,~~ the dressings, condiments and other category ~~grew modestly. Distribution gains~~was driven by strength in both dressings and ~~our mainline placement initiatives also contributed to~~condiments.

Excluding the benefit of insurance recoveries and reversal of net sales ~~growth, primarily in the mainstream grocery channel. The~~reserve, our net sales ~~increase was primarily driven by volume with slightly higher average selling prices adding modest growth.~~

~~Gross profit~~would have increased ~~$3.8~~$11.2 million, or ~~26.6%~~24.0%, to ~~$17.9~~$57.9 million ~~for~~in the three months ended September 30, ~~2012 from $14.1~~2013 compared to $46.7 million ~~for~~in the three months ended September 30, ~~2011.~~ 2012.

Gross profit increased ~~1.9 percentage points~~$4.0 million, or 22.4%, to ~~38.3% from 36.4% during~~$21.9 million in the three months ended September 30, ~~2012 compared to~~2013 from $17.9 million in the three months ended September 30, ~~2011.~~2012. The increase in gross profit was primarily driven by ~~the increase in~~higher net ~~sales. The increase in gross margin resulted from price increases~~sales, insurance recoveries and the ~~cumulative impact~~reversal of ~~various cost reduction initiatives, which were~~net sales reserve related to our January 2013 voluntary product recall, partially offset by higher commodity costs.

Gross margin decreased 1.0 percentage point to 37.3% in the three months ended September 30, 2013 from 38.3% in the three months ended September 30, 2012. The decrease in gross margin is primarily attributable to higher commodity costs, increased inventory obsolesce, customer and product mix changes, and increased trade spending, partially offset by higher average selling prices and insurance recoveries related to our January 2013 voluntary product recall.

Excluding the benefit of insurance recoveries and reversal of net sales reserve, our gross profit would have increased $2.8 million, or 15.4%, to $20.7 million in the three months ended September 30, 2013 from $17.9 million in the three months ended September 30, 2012 and gross margin would have decreased 2.6 percentage points to 35.7% from 38.3% in the three months ended September 30, 2013 compared to the three months ended September 30, 2012.


										Three Months Ended September 30,						Change
	Three Months Ended September 30,				Change					2013			2012			$		%
	2012		2011		$		%			(in thousands, except for percentages)
	(in thousands, except for percentages)
Operating expenses:
Selling, general and administrative expenses	$	11,539	$	8,056	$	3,483		43.2	%	$	12,538		$	11,539		$	999		8.7	%


Selling, general and administrative expense as a percentage of net sales											21.4	%		24.7	%

Selling, general and administrative expenses increased ~~$3.5~~$1.0 million, or ~~43.2%~~8.7%, to ~~$11.5~~$12.5 million ~~during~~in the three months ended September 30, ~~2012~~2013 from ~~$8.0~~$11.5 million ~~during~~in the three months ended September 30, ~~2011.~~2012. This increase was due primarily to an increase in payroll expense resulting from increased headcount to support our

~~growth and operations as a public company. Additionally, public company related expenses impacted selling, general and administrative expenses~~ growth. In addition, during the three months ended September 30, ~~2012 compared~~2013, we incurred $0.2 million in legal, consulting and other costs associated with our planned acquisition of the Joplin Plant, $52,000 for legal, accounting and other out-of-pocket expenses on Solera’s behalf for the registration statement on Form S-3 filed with the ~~three months ended September 30, 2011. Further, during~~SEC on July 16, 2013, and $40,000 in insurance recoveries to offset pizza recall related expenses in prior quarters. During the three months ended September 30, 2012, we incurred $0.7 million ~~including~~in legal, accounting and printing costs and various other fees associated with the registration and sale of common stock in the secondary public offering by certain stockholders including Solera. ~~We did not receive any proceeds from the sale of shares by the selling stockholders.~~ As a percentage of net sales, selling, general and administrative expenses ~~increased 4.0~~decreased 3.3 percentage points to ~~24.7% during~~21.4% in the three months ended September 30, ~~2012~~2013 from ~~20.7% during~~24.7% in the three months ended September 30, ~~2011.~~2012.


												Three Months Ended September 30,						Change
	Three Months Ended September 30,						Change					2013			2012			$		%
	2012			2011			$		%			(in thousands, except for percentages)
	(in thousands, except for percentages)
Income from operations	$	6,361		$	6,079		$	282		4.6	%	$	9,363		$	6,361		$	3,002		47.2	%


Income from operations as a percentage of net sales		13.6	%		15.6	%							16.0	%		13.6	%

As a result of the factors discussed above, income from operations increased ~~$0.3~~$3.0 million, or ~~4.6%~~47.2%, to ~~$6.4~~$9.4 million ~~during~~in the three months ended September 30, ~~2012,~~2013, from ~~$6.1~~$6.4 million ~~during~~in the three months ended September 30, ~~2011.~~2012. Income from operations as a percentage of net sales ~~decreased 2.0~~increased 2.4 percentage points to 16.0% in the three months ended September 30, 2013, from 13.6% in the three months ended September 30, ~~2012, from 15.6%~~2012.

Interest expense increased in the three months ended September 30, ~~2011.~~2013 compared to the three months ended September 30, 2012 due to higher non-utilization fees under our revolving line of credit, which was increased to $40.0 million from $20.0 million in March 2013.

~~Interest expense~~Other income during the three months ended September 30, 2013 and 2012 ~~primarily related~~reflect royalty income.

Our effective tax rate decreased to ~~non-cash imputed interest expense related to financing of product formulas intangible asset acquired in fiscal 2012. Interest expense during~~40.2% for the three months ended September 30, ~~2011 consisted of expense related~~2013, compared to ~~borrowings on our revolving line of credit.~~

Other income (expense), net during the three months ended September 30, 2012 consisted of royalty income. Other income (expense), net during the three months ended September 30, 2011 primarily reflects royalty income partially offset by non-cash charge of $20,000 related to the increase in the fair value of our convertible preferred stock warrant liability.

~~Our effective tax rate was~~ 40.5% for the three months ended September 30, ~~2012, compared to 40.4% in the same period last year.~~2012. The effective tax rate is based on a projection of our annual fiscal year results. Our effective tax rate for the three months ended September 30, ~~2012~~2013 was ~~higher~~lower than the effective tax rate for the three months ended September 30, ~~2011 largely~~2012 due to the impact of permanent items and federal and state income tax credits. We expect our full year effective tax rate for fiscal 2014 to be approximately 40% to 41%.

As a ~~tax benefit recorded during~~result of the factors discussed above, net income increased $1.8 million, or 46.7%, to $5.6 million in the three months ended September 30, ~~2011 related to an increase~~2013 from $3.8 million in the ~~tax rate applied for deferred tax assets due to an increase~~three months ended September 30, 2012.

Excluding the impact of our recall-related insurance recoveries, reversal of net sales reserve, costs associated with our planned acquisition of the Joplin Plant and shelf registration costs recorded in the ~~federal and state tax rates.~~

~~In addition, during~~three months ended September 30, 2013, our net income would have increased $0.7 million, or 17.0%, to $4.9 million in the three months ended September 30, 2013 from $4.2 million in the three months ended September 30, 2012, we recognized $2.3 million of tax deductions associated with stock option exercises. As of September 30, 2012, $2.1 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.which excludes secondary offering costs.

As a result of the factors above, net income increased $0.2 million, or 4.7%, to $3.8 million for the three months ended September 30, 2012 from $3.6 million for the three months ended September 30, 2011.

Six Months Ended September 30, ~~2012~~2013 Compared to Six Months Ended September 30, ~~2011~~2012


																	Six Months Ended September 30,				Change					% of Net Sales
	Six Months Ended September 30,				Change						% of Net Sales						2013		2012		$		%			2013			2012
	2012		2011		$			%			2012			2011			(in thousands, except for percentages)
	(in thousands, except for percentages)
Meals	$	36,536	$	27,176	$	9,360			34.4	%		45.1	%		40.3	%	$	46,293	$	36,536	$	9,757		26.7	%		47.4	%		45.1	%
Snacks		32,609		28,236		4,373			15.5	%		40.3	%		41.8	%		37,878		32,609		5,269		16.2	%		38.8	%		40.3	%
Dressings, condiments and other		11,834		12,070		(236	)		(2.0	)%		14.6	%		17.9	%		13,519		11,834		1,685		14.2	%		13.8	%		14.6	%


Net sales	$	80,979	$	67,482	$	13,497			20.0	%		100.0	%		100.0	%	$	97,690	$	80,979	$	16,711		20.6	%		100.0	%		100.0	%

Net sales increased ~~$13.5~~$16.7 million, or ~~20.0%~~20.6%, to ~~$81.0~~$97.7 million ~~during~~in the six months ended September 30, ~~2012~~2013 compared to ~~$67.5~~$81.0 million ~~during~~in the six months ended September 30, ~~2011. This~~2012. Net sales for the six months ended September 30, 2013 benefited from insurance recoveries of $0.6 million and reversal of net sales reserve of $0.1 million related to our January 2013 voluntary product recall. The net sales increase was primarily driven by volume with approximately 210 basis points of growth from higher average selling prices. Distribution gains and our mainline placement initiative contributed to the volume increase, primarily impacting mainstream grocery and mass merchandiser channels. These gains were partially offset by lower volume in the natural channel, primarily driven by a reduction in inventory carrying levels at one of our major customers.

The increase in net sales reflects ana $9.7 million, $5.3 million and $1.7 million increase in net sales of meals, ~~and~~ snacks ~~of $9.3 million~~ and ~~$4.4 million, respectively, offset by a slight decrease in~~ dressings, condiments and other, ~~of $0.2 million.~~respectively. The increase in meals was predominantly driven by strong growth in ~~the~~natural, gluten-free and single-serve microwavable macaroni and cheese ~~product line~~products combined with ~~a benefit~~initial shipments of frozen entrées which were introduced in August 2013. Net sales of meals also benefited from ~~organic~~insurance recoveries and ~~made with organic frozen pizza products. Organic frozen pizza first shipped in January 2012 and made with organic pizza first shipped this quarter.~~reversal of net sales reserve mentioned above. The increase in snacks was primarily due to growth in our fruit snacks, grahams, ~~crackers~~mixed snacks, granola bars and ~~snack mix~~crackers product lines. The ~~slight decrease~~increase in ~~dressings, condiments and other was attributable to the discontinuation of our cereal product line. Excluding our cereal product line,~~ the dressings, condiments and other category ~~grew modestly. Distribution gains~~

Excluding the benefit of insurance recoveries and ~~our mainline placement initiatives also contributed to~~reversal of net sales ~~growth, primarily in the mainstream grocery channel. The~~reserve, our net sales ~~increase was primarily driven by volume with slightly higher average selling prices adding modest growth.~~

~~Gross profit~~would have increased ~~$6.0~~$16.0 million, or ~~23.3%~~19.7%, to ~~$31.7~~$96.9 million ~~for~~in the six months ended September 30, ~~2012 from $25.7~~2013 compared to $81.0 million ~~for~~in the six months ended September 30, ~~2011.~~ 2012.

Gross profit increased ~~1.1 percentage points~~$5.0 million, or 15.6%, to ~~39.2% from 38.1% during~~$36.7 million in the six months ended September 30, ~~2012 compared to~~2013 from $31.7 million in the six months ended September 30, ~~2011.~~2012. The increase in gross profit was primarily driven by ~~the increase in~~higher net ~~sales. The increase in gross margin resulted from price increases~~sales, insurance recoveries and the ~~cumulative benefit~~reversal of ~~various cost reduction initiatives, which were~~the net sales reserve related to our January 2013 voluntary product recall, partially offset by higher commodity costs.

Gross margin decreased 1.7 percentage points to 37.5% in the six months ended September 30, 2013 from 39.2% in the six months ended September 30, 2012. The decrease in gross margin is primarily attributable to higher commodity costs, increased inventory obsolescence, customer and product mix changes, and increased trade spending, partially offset by higher average selling prices and insurance recoveries related to our January 2013 voluntary product recall.

Excluding the benefit of insurance recoveries and the reversal of net sales reserve, our gross profit would have increased $3.9 million, or 12.4%, to $35.6 million in the six months ended September 30, 2013 from $31.7 million in the six months ended September 30, 2012 and gross margin would have decreased 2.4 percentage points to 36.8% from 39.2% in the six months ended September 30, 2013 compared to the six months ended September 30, 2012.


										Six Months Ended September 30,						Change
	Six Months Ended September 30,				Change					2013			2012			$		%
	2012		2011		$		%			(in thousands, except for percentages)
	(in thousands, except for percentages)
Operating expenses:
Selling, general and administrative expenses	$	21,750	$	16,359	$	5,391		33.0	%	$	23,865		$	21,750		$	2,115		9.7	%


Income from operations as a percentage of net sales											24.4	%		26.9	%

Selling, general and administrative expenses increased ~~$5.4~~$2.1 million, or ~~33.0%~~9.7%, to ~~$21.8~~$23.9 million ~~during~~in the six months ended September 30, ~~2012~~2013 from ~~$16.4~~$21.8 million ~~during~~in the six months ended September 30, ~~2011.~~2012. This increase was due primarily to an increase in payroll expense resulting from increased headcount to support our ~~growth and operations as a public company. Additionally, public company related expenses impacted selling, general and administrative expenses~~growth. In addition, during the six months ended September 30, ~~2012 compared~~2013, we incurred $0.2 million in legal, consulting and other costs associated with our planned acquisition of the Joplin Plant, $86,000 for legal, accounting and other out-of-pocket expenses on Solera’s behalf for the registration statement on Form S-3 filed with the ~~six months ended September 30, 2011. Further, during~~SEC on July 16, 2013, and $11,000 in administrative costs associated with the voluntary product recall net of insurance recovery of $40,000. During the six months ended September 30, 2012, we incurred $0.7 million ~~including~~in legal, accounting and printing costs and various other fees associated with the registration and sale of common stock in the secondary public offering by certain stockholders including Solera. ~~We did not receive any proceeds from the sale of shares by the selling stockholders.~~ As a percentage of net sales, selling, general and administrative expenses ~~increased 2.7~~decreased 2.5 percentage points to ~~26.9% during~~24.4% in the six months ended September 30, ~~2012~~2013 from ~~24.2% during~~26.9% in the six months ended September 30, ~~2011.~~


												Six Months Ended September 30,						Change
	Six Months Ended September 30,						Change					2013			2012			$		%
	2012			2011			$		%			(in thousands, except for percentages)
	(in thousands, except for percentages)
Income from operations	$	9,957		$	9,364		$	593		6.3	%	$	12,798		$	9,957		$	2,841		28.5	%


Income from operations as a percentage of net sales		12.3	%		13.9	%							13.1	%		12.3	%

As a result of the factors discussed above, income from operations increased ~~$0.6~~$2.8 million, or ~~6.3%~~28.5%, to ~~$10.0~~$12.8 million ~~during~~in the six months ended September 30, ~~2012,~~2013, from ~~$9.4~~$10.0 million ~~during~~in the six months ended September 30, ~~2011.~~2012. Income from operations as a percentage of net sales ~~decreased 1.6~~increased 0.8 percentage points to 13.1% in the six months ended September 30, 2013, from 12.3% in the six months ended September 30, ~~2012, from 13.9%~~2012.

Interest expense increased in the six months ended September 30, ~~2011.~~2013 compared to the six months ended September 30, 2012 due to higher non-utilization fees under our revolving line of credit, which was increased to $40.0 million from $20.0 million in March 2013.

~~Interest expense~~Other income (expense), net during the six months ended September 30, 2012 primarily related to non-cash imputed interest expense related to financing of product formulas intangible asset acquired in fiscal 2012. Interest expense during the six months ended September 30, 2011 consisted of expense related to borrowings on our revolving line of credit.

2013 reflects royalty income. Other income (expense), net during the six months ended September 30, 2012 primarily reflects royalty income partially offset by a non-cash charge of $13,000 related to the increase in the fair value of the convertible preferred stock warrant on April 2, 2012, prior to its conversion into a common stock warrant. ~~Other~~

Our effective tax rate decreased to 40.2% for the six months ended September 30, ~~2011 primarily reflects a non-recurring, non-cash out of period charge of $0.5 million related~~2013, compared to ~~the increase in the fair value of our convertible preferred stock warrant liability offset by royalty income.~~

~~Our effective tax rate was~~ 40.6% for the six months ended September 30, ~~2012, compared to 38.7% in the same period last year.~~2012. The effective tax rate is based on a projection of our annual fiscal year results. Our effective tax rate for the six months ended September 30, ~~2012~~2013 was ~~higher~~lower than the effective tax rate for the six months ended September 30, ~~2011 largely~~2012 due to the impact of permanent items and federal and state income tax credits. We expect our full year effective tax rate for fiscal 2014 to be approximately 40% to 41%.

As a ~~tax benefit recorded during~~result of the factors discussed above, net income increased $1.7 million, or 28.1%, to $7.6 million in the six months ended September 30, ~~2011 related to an increase~~2013 from $5.9 million in the ~~tax rate applied for deferred tax assets due to an increase~~six months ended September 30, 2012.

~~In addition, during~~six months ended September 30, 2013, our net income would have increased $0.8 million, or 12.2%, to $7.1 million in the six months ended September 30, 2013 from $6.3 million in the six months ended September 30, 2012, ~~we recognized $14.1 million~~which excludes secondary offering costs and the change in fair value of ~~tax deductions associated with~~convertible preferred stock option exercises. As of September 30, 2012, $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.warrant liability.

As a result of the factors above, net income increased $0.5 million, or 9.0%, to $5.9 million for the six months ended September 30, 2012 from $5.4 million for the six months ended September 30, 2011.

Historically, we have experienced greater net sales in the second and fourth fiscal quarters than in the first and third fiscal quarters due to our customers’ and retailers’ merchandising and promotional activities around the back-to-school and spring seasons. Concurrently, inventory levels and working capital requirements generally increase during the first and third fiscal quarters of each fiscal year to support higher levels of net sales in the subsequent quarters. We anticipate that this seasonal impact on our net sales and working capital is likely to continue. Accordingly, our results of operations for any particular quarter are not indicative of the results we expect for the full year.


					September 30, 2013		March 31, 2013
	September 30,		March 31,				March 31, 2013
	2012		2012		September 30, 2013	(in thousands)
	(in thousands)
Cash	$	14,629	$	562	$	11,090	$	4,930
Accounts receivable, net		11,708		11,870		19,100		20,015
Accounts payable, related-party payable and accrued liabilities		11,275		9,618
Working capital(1)		33,704		16,427
Accounts payable						7,512		4,342
Accrued liabilities						13,652		12,021
Working capital⁽¹⁾						34,328		31,925

Our principal sources of liquidity are our cash and accounts receivable, as well as cash flows from operations. Additionally, we have a line of credit with Bank of America, N.A., which provides for revolving loans and letters of credit up to $20.0 million and is available to us through August 2014. We believe that our cash and accounts receivable and potential cash flows from operations will be sufficient to satisfy our currently anticipated cash requirements through at least the next twelve months. We have historically generated cash from our operations, however, there can be no assurance that our operations will continue to generate cash flows in the future. We use cash generated from our operations to fund our ongoing operations including business expansion and growth.

The following table sets forth, for the periods indicated, our beginning balance of cash, net cash flows provided by (used in) operating, investing and financing activities and our ending balance of cash:


							September 30, 2013			September 30, 2012
	Six Months Ended September 30,						September 30, 2013			September 30, 2012
	2012			2011			(in thousands)
	(in thousands)
Cash at beginning of period	$	562		$	7,333		$	4,930		$	562
Net cash provided by (used in) operating activities		9,256			(247	)
Net cash provided by operating activities								12,723			9,256
Net cash used in investing activities		(1,009	)		(860	)		(649	)		(1,009	)
Net cash provided by (used in) financing activities		5,820			(2,111	)		(5,914	)		5,820


Cash at end of period	$	14,629		$	4,115		$	11,090		$	14,629

Operating activities in the six months ended September 30, 2013 provided $12.7 million of cash primarily due to our net income of $7.6 million, which included non-cash charges totaling $1.6 million, primarily comprised of $0.6 million for depreciation and amortization, $0.4 million for stock-based compensation and $0.4 million for increased inventory reserves. Changes in operating assets and liabilities provided an additional $4.1 million of net cash, which is primarily comprised of a $3.2 million increase in accounts payable, a $2.3 million increase in accrued expenses and other non-current liabilities, a $0.9 million decrease in accounts receivable and a $0.6 million decrease in income tax receivable offset by a $2.6 million increase in inventory and a $0.2 million decrease in prepaid expenses, other current and non-current assets due to insurance recoveries of $1.2 million from the insurance carrier against claims submitted for the recall. The increase in accounts payable was driven by the timing of check payments relative to quarter end. The decrease in accounts receivable and increase in inventory reflects seasonality related to quarterly sales trends. These increases were partially offset by the excess tax benefit from stock-based compensation of $0.6 million.

Operating activities provided $9.3 million of cash during the six months ended September 30, 2012, primarily due to our net income of $5.9 million, which included non-cash charges of $0.5 million for depreciation and

amortization, $0.4 million for stock-based compensation and a $1.1 million reduction in allowances for trade discounts and other. Changes in operating asset and liability accounts provided an additional $8.6 million of net cash, which was comprised of a $5.4 million increase in accrued expenses, a $4.1 million increase in prepaid expenses, other current and non-current assets, a $1.4 million increase in accounts payable and a $1.3 million decrease in accounts receivable, partially offset by a $2.1 million increase in inventory, other current and non-current assets and a $1.3 million decrease in related party-payable, resulting from the termination of our advisory services agreement upon consummation of our IPO. This increase in cash was offset by the excess tax benefit from stock-based compensation of $5.3 million.

Operating activities used $0.2 million of cash during the six months ended September 30, 2011, primarily due to our net income of $5.4 million, which included net non-cash charges of $1.3 million. Changes in operating asset and liability accounts used $7.0 million of net cash during the six months ended September 30, 2011.

Cash used in investing activities related to purchases of property and equipment during the six months ended September 30, 2013 and 2012 was $0.6 million and ~~2011 was~~ $1.0 million, ~~and $0.9 million,~~ respectively.

Cash used in financing activities totaled $5.9 million in the six months ended September 30, 2013 including net pay down of $7.0 million for borrowings from our credit facility offset by $0.5 million in proceeds from exercises of stock options and $0.6 million in excess tax benefit from stock-based compensation.

Cash provided by financing activities totaled $5.8 million during the six months ended September 30, 2012, comprised of:

Cash used in financing activities totaled $2.1 million during the six months ended September 30, 2011, which consisted of $1.5 million in cash dividend payments made to stockholders and $0.6 million to repurchase certain stock options.

In December 2011, we entered into a second amended and restated credit agreement (the “Credit Agreement”) with Bank of America, N.A., which provides for revolving loans and letters of credit up to $20.0 million and is available to us through August 2014. The Credit Agreement is secured by a lien on substantially all of our assets.

Revolving advances under the Credit Agreement bear interest at the LIBOR plus 1.50%, as defined. 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% for the three and six months ended September 30, 2011, respectively. As of September 30, 2012 and March 31, 2012, there was $20.0 million and $7.2 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 our outstanding borrowing exceeds half of the borrowing limit. Interest is payable monthly.

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. The Credit Agreement requires us to submit interim and annual financial statements by specified dates after each reporting period. We were in compliance with the financial covenants under the Credit Agreement as of September 30, 2012.

The following table summarizes our contractual obligations as of September 30, ~~2012:~~2013:


											Payments Due by Period
											Total			Less Than One Year		1-3 Years		3-5 Years		More than Five Years
	Payments Due by Period													Less Than One Year		1-3 Years		3-5 Years		More than Five Years
	Total		Less Than One Year		1-3 Years		3-5 Years		More than Five Years		Total		(in thousands)
	(in thousands)
Rent obligations(1)	$	3,999	$	577	$	1,241	$	1,277	$	904	$	3,466		$	635	$	1,286	$	1,279	$	266
Equipment lease obligations(2)		38		25		13		—		—		129			31		60		38		—


Total operating lease obligations		4,037		602		1,254		1,277		904		3,595			666		1,346		1,317		266
Purchase commitments(3)		16,330		16,092		238		—		—		14,474			14,257		217		—		—
Warehousing overheads obligations(4)		550		200		350
Product formula obligations(4)												1,850			150		300		1,400		—
Warehousing overhead obligations(5)												350			200		150		—		—


Total	$	20,917	$	16,894	$	1,842	$	1,277	$	904	$	20,269		$	15,273	$	2,013	$	2,717	$	266

(3)	We have non-cancelable purchase commitments, directly or through contract manufacturers, to purchase ingredients to be used in the future to manufacture products.

(4)	This represents our obligation, to one of our contract manufacturers, for the product formulas purchased in November 2011. Of these amounts, $1.1 million is included in total liabilities in our condensed consolidated balance sheet as of September 30, 2013.

(5)	We have an agreement with our contract warehousing company to pay minimum overhead fees through June 2015.

We do not have any off-balance sheet arrangements or any holdings in variable interest entities.

During the first six months of the prior fiscal year, we corrected an error in our 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 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.

Our Form 10-K for fiscal ~~2012,~~2013, filed with the SEC on June ~~8, 2012,~~14, 2013, provides a detailed discussion of the market risks affecting our operations. We believe our exposure to these market risks did not change materially during the three and six months ended September 30, ~~2012.~~2013.

We ~~maintain~~have established disclosure controls and procedures ~~and internal controls~~ that are designed to ~~provide reasonable assurance~~ensure that the information required to be disclosed by the Company in ~~our~~the reports that it files or submits under the Securities Exchange Act ~~reports~~of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in ~~the SEC’s~~SEC rules and forms and that such information is accumulated and communicated to ~~our~~ management, including our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer,~~principal financial officer, as appropriate to allow timely decisions regarding required ~~disclosures.~~disclosure.

Our management, including our ~~disclosure committee, Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer,~~principal financial officer evaluated the effectiveness of our disclosure controls and procedures. Based on this review, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures ~~as required by~~(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of ~~the Exchange Act. Based on this review, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures~~1934) were effective as of September 30, ~~2012.~~2013.

~~During the three months ended September 30, 2012, we made changes to~~There was no change in our internal control over financial reporting (as defined in ~~Exchange Act~~ Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) that ~~have~~occurred during the quarterly period ended September 30, 2013 that has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting. ~~Those changes were the installation of an integrated enterprise resource planning system to replace our legacy system.~~

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

~~From~~On September 4, 2013, a private organization called the Center for Environmental Health (“CEH”) issued a 60-day notice of intent to sue (“Notice”) us and our subsidiary, Annie’s Homegrown, Inc. under California Health & Safety Code §§ 25249.5 et seq. (commonly referred to as “Proposition 65”). In the Notice, CEH claims that warnings are required in California for alleged exposures to lead and lead compounds from cookies, including our Gluten-Free Ginger Snap Bunny Cookies. Under Proposition 65, any private enforcer such as CEH may file a lawsuit if it first issues a valid 60-day notice, and if the California Attorney General or other specified California public enforcers do not file suit within 60 days after service. A Proposition 65 plaintiff may seek injunctive relief as well as civil penalties, which may be assessed up to a maximum of $2,500 per violation per day, and a private plaintiff does not need to show that anyone has been harmed by the alleged exposures. A prevailing plaintiff may also seek its attorneys’ fees and costs under other California laws.

Although CEH has not yet filed a lawsuit naming us or Annie’s Homegrown, Inc., within the past year CEH has filed several lawsuits against other manufacturers and retailers regarding various types of products containing molasses and/or ginger, such as licorice candy, cookies, and baking mix products. In CEH’s cases involving cookies and baking mix products, CEH’s operative complaints have put at issue only those cookies or baking mix products that contain ginger and/or molasses as ingredients. We cannot at this time reasonably estimate a range of exposure, if any, of the potential liability should a suit be brought in connection with the Notice.

Additionally, from time to time, we are subject to ~~a variety of~~claims, assessments or other legal proceedings in the ordinary course of ~~our business. We are~~business, including product liability claims, employee claims, and other general liability claims. While it is not ~~currently a party~~feasible to ~~any~~predict or determine the ultimate outcome of these matters, we believe that none of these legal ~~proceeding that,~~proceedings, individually or in the aggregate, will have a material adverse effect on our financial position.

The following risk factors have been added to address our planned acquisition of a snack manufacturing plant in Joplin, Missouri and are supplemental to the risk factors previously disclosed in our Annual Report on Form 10-K for fiscal 2013 filed with the SEC on June 14, 2013.

Our business and prospects may be adversely affected by our failure to successfully consummate the recently announced acquisition of the Joplin manufacturing plant.

While we have signed an agreement to purchase the Joplin manufacturing plant from Safeway, there can be no assurance that we will complete the acquisition of the Joplin manufacturing plant under the terms set forth in the agreement, or at all, because the obligation of the parties to consummate the acquisition is subject to conditions as set forth in the agreement, many of which are beyond our control, including (i) receipt of necessary permits; (ii) acceptance by key employees of Safeway of employment by us; (iii) Safeway’s satisfaction that it has fulfilled any collective bargaining obligations that it is required to undertake with the labor organization presently representing employees at the plant; and (iv) satisfaction of other customary closing conditions. There can be no assurance that the conditions to closing will be satisfied.

If consummated, our results may be adversely affected if we fail to integrate the Joplin manufacturing operations successfully.

The acquisition of the Joplin manufacturing plant, if consummated, will pose additional risks, including the inability to integrate the acquired business efficiently into our existing operations, diversion of management’s attention from other business concerns, loss of employees key to the operation of the Joplin plant, potential assumption of unknown liabilities, potential disputes with the seller and potential impairment charges if purchase assumptions are not achieved or market conditions decline. These risks are exacerbated by the fact that we have not previously operated a manufacturing plant. Our business or financial results may be negatively affected if the Joplin acquisition is not successfully integrated.

We may fail to realize the productivity enhancements and other benefits expected from our acquisition of the Joplin manufacturing plant.

The success of the Joplin acquisition will depend, in part, on our ability to control costs, drive incremental volume and successfully integrate the Joplin manufacturing plant into our company. If we are not able to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected and our business may be adversely affected. In addition, efforts to integrate the Joplin manufacturing plant into our company may also divert management attention and resources. Issues that may arise in connection with integrating the Joplin manufacturing plant include, among other things: integration of manufacturing and distribution activities; implementation and management of information systems; conforming the manufacturing plant’s controls, procedures and accounting and other policies to our own; retaining key management and employees; and labor negotiations and collective bargaining. In addition, our ability to realize the benefits expected from our acquisition is dependent on our ability to drive future sales growth in our cookie and cracker business. If the demand for our cookie and cracker products does not increase at the rate we expect over the long term, due to competition or other factors, our results of operations may be adversely affected. We cannot assure you that we will be able to integrate the operations of the Joplin manufacturing plant successfully, control costs, drive incremental volume or operate the Joplin manufacturing plant as profitably as anticipated. Our beliefs regarding the benefits to be derived from the acquisition of the Joplin manufacturing plant are based on numerous assumptions that are subject to risks and uncertainties that could deviate materially from our expectations.

In connection with the acquisition of the Joplin manufacturing plant, we will be expanding our business model to include manufacturing for us and for an affiliate of the seller. We cannot assure you that our expansion into manufacturing and co-packing will succeed.

We have not owned or operated a manufacturing plant in the past and we may encounter increased financial and operational difficulties in integrating the Joplin manufacturing plant with our current operations. In the past, we relied exclusively on contract manufacturers to produce our products and we have not previously manufactured products for others. While we have invested in manufacturing equipment and worked closely with our contract manufacturers on the manufacturing of our products and efficiency initiatives, the operation of a manufacturing plant presents additional challenges and risks for our business. Operating a manufacturing plant requires different operating strategies and different managerial experience than our current operations, and a manufacturing plant is subject to additional and different regulations than our current operations. Our lack of experience in operating manufacturing facilities and co-packing for third parties could result in fewer benefits to us than we anticipate, as well as increased costs. Further, we expect there to be additional costs in connection with the acquisition and integration of the Joplin manufacturing plant into our operations, including costs related to information technology systems, additional personnel needs at both the plant and corporate level, and transitional services provided by Safeway or its affiliates. The operation of the Joplin manufacturing plant may also divert management’s attention from the development of our existing operations and cause our existing business to suffer.

In addition, any interruption in, or the loss of operations at the Joplin manufacturing plant, which may be caused by work stoppages, disease outbreaks or pandemics, acts of war, terrorism, fire, tornadoes, earthquakes, flooding or other natural disasters, could delay or postpone production of our products and the products that we have committed to manufacture for Safeway, which could have a material adverse effect on our business, ~~financial condition,~~ results of operations and financial condition, especially until such time as such interruption is resolved or an alternate source of production is secured.

On November 5, 2013, we entered into an Agreement of Purchase and Sale (the “Agreement”) with Safeway Inc., a Delaware corporation (“Safeway”), and Safeway Australia Holdings, Inc., a Delaware corporation (“Safeway AUS” and, together with Safeway, the “Selling Parties”). Pursuant to the Agreement, we will acquire Safeway’s cookie and cracker manufacturing plant in Joplin, Missouri (the “Joplin Plant”) and related inventory and supplies (the “Joplin Acquisition”). The Joplin Plant has been the primary manufacturing facility for our cookie and cracker products for more than ten years. The aggregate purchase price for the Joplin Acquisition consists of $6.0 million of cash, ~~flows.~~plus the value of inventory and supplies at closing (calculated based on the Selling Parties’ costs and currently estimated at approximately $4.0 million). Effective at the closing of the Joplin Acquisition, we are also required to extend offers of employment (subject to customary pre-employment conditions) to 95% of Safeway’s active

~~Sales~~employees at the Joplin Plant. The Agreement contains limited representations, warranties, covenants and indemnities by the Selling Parties. The Joplin Acquisition is subject to (i) the receipt of ~~Unregistered Securities~~

~~During~~necessary permits; (ii) acceptance by key employees of Safeway of employment by us; (iii) Safeway’s satisfaction that it has fulfilled any collective bargaining obligations that it is required to undertake with the ~~second quarter ended September 30 2012, we issued an aggregate~~labor organization presently representing employees at the plant; and (iv) satisfaction of ~~61,138 shares of our common stock~~other customary closing conditions. The Joplin Acquisition is expected to certain employees and officers upon the exercise of options awarded under our 2004 Plan and since October 1, 2012 through October 15, 2012, we issued an aggregate of 1,000 shares of our common stock to an employee upon the exercise of options awarded under our 2004 Plan. We received aggregate proceeds of $0.4 million during the three months ended September 30, 2012 and $7,000close in the ~~period since October 1, 2012 through October 15, 2012 as a result~~first quarter of fiscal 2015.

At closing of the ~~exercise~~Joplin Acquisition, we will enter into a contract manufacturing agreement with Lucerne Foods, Inc. (“Lucerne”), an indirect, wholly owned subsidiary of ~~these options. We believe these transactions were exempt from~~Safeway, pursuant to which we will produce and supply certain products to Lucerne for an initial term of three years. In addition, Safeway has agreed to provide us with transition services for up to one year after closing.

From time to time and in the ~~registration requirements~~ordinary course of business, we sell our products to Safeway. Except for the foregoing arms-length relationships, neither the Company nor any of its affiliates has any material relationships with Safeway, Safeway AUS or Lucerne, or any of their respective directors, officers or affiliates.

This description of the ~~Securities Act~~Agreement does not purport to be complete and is qualified in ~~reliance on Rule 701 thereunder~~its entirety by the terms and conditions of the Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.

On November 5, 2013, we entered into an Amendment No. 2 to Second Amended and Restated Loan Agreement (the “Amendment”) by and between Bank of America, N.A. (the “Bank”) and Annie’s, Inc., Annie’s Enterprises, Inc., Annie’s Homegrown, Inc. and Napa Valley Kitchens, Inc. The Amendment amends our Second Amended and Restated Loan Agreement dated as of December 21, 2011, as amended by that certain Amendment No. 1 to Second Amended and Restated Loan Agreement dated as of March 7, 2013 (together with any previous amendments, the “Loan Agreement”) in order to, among other things, (1) provide for the issuance of letters of credit under the Loan Agreement, (2) obtain the Bank’s consent to various transactions ~~pursuant to compensatory benefit plans and contracts~~contemplated by or relating to ~~compensation~~the Agreement of Purchase and Sale dated November 5, 2013; and (3) amend covenants relating to other debt and permitted liens on our assets as ~~provided under Rule 701. As of October 15, 2012, options to purchase an aggregate of 929,915 shares~~well as certain representations and 161,122 shares of our common stock remain outstanding under the 2004 Plan and non-plan based awards, respectively. All option awards granted under the 2004 Plan and non-plan based awards were made prior to the effectiveness of our IPO. No further option grants will be made under our 2004 Plan.warranties.

~~None~~This description of the ~~foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering.~~Amendment does not purport to be complete and is qualified in its entirety by the terms and conditions of the Agreement, a copy of which is attached hereto as Exhibit 10.3 and is incorporated herein by reference.

~~The exhibits listed below are filed as a part of this Quarterly Report on Form 10-Q.~~

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


Delaware		20-1266625
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1610 Fifth Street Berkeley, CA		94710
(Address of principal executive offices)		(Zip Code)


PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	2

	Condensed Consolidated Balance Sheets as of September 30, ~~2012~~2013 and March 31, ~~2012~~2013	2

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, ~~2012~~2013 and ~~2011~~2012	3

	Condensed Consolidated Statement of ~~Convertible Preferred Stock and~~ Stockholders’ Equity ~~(Deficit)~~ for the Six Months Ended September 30, ~~2012~~2013	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, ~~2012~~2013 and ~~2011~~2012	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

~~Item 4.~~	~~Controls and Procedures~~	29

~~PART II – OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~	30

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	31

Item 6. 4.	~~Exhibits~~Controls and Procedures	32

PART II – OTHER INFORMATION

Item 1.	~~Signatures~~Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 5.	Other Information	34

Item 6.	Exhibits	36

Signatures		37


	September 30,			March 31,
	2012			2012
Product formulas	$	1,023		$	1,023
Other intangible assets		189			189

Total intangible assets		1,212			1,212
Less: accumulated amortization		(66	)		(36	)

Intangible assets, net	$	1,146		$	1,176


	September 30, 2013			March 31, 2013

Product formulas	$	1,023		$	1,023
Other intangible assets		189			189


Total intangible assets		1,212			1,212
Less: accumulated amortization		(126	)		(96	)


Intangible assets, net	$	1,086		$	1,116


	Convertible Preferred Stock						Preferred Stock				Common Stock				Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares			Amount			Shares		Amount		Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance at March 31, 2012		12,281,553		$	81,373			—	$	—		483,242	$	1	$	4,392	$	(38,829	)	$	(34,436	)
Reclassification of convertible preferred stock warrant liability upon consummation of IPO		—			—			—		—		—		—		2,170		—			2,170
Conversion of convertible preferred stock into common stock upon consummation of IPO		(12,281,553	)		(81,373	)		—		—		15,221,571		15		81,358		—			81,373
Shares issued upon consummation of IPO		—			—			—		—		950,000		1		11,145		—			11,146
Exercise of stock options		—			—			—		—		403,243		—		2,204		—			2,204
Excess tax benefit from stock-based compensation		—			—			—		—		—		—		5,266		—			5,266
Net exercise of warrant to purchase shares of common stock												63,193		—		—		—			—
Stock-based compensation		—			—			—		—		—		—		447		—			447
Net Income		—			—			—		—		—		—		—		5,916			5,916

Balance at September 30, 2012		—		$	—			—	$	—		17,121,249	$	17	$	106,982	$	(32,913	)	$	74,086


					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Equity

Balance at March 31, 2013		16,849,016	$	17	$	93,190	$	(27,278	)	$	65,929
Exercise of stock options		60,530		—		633		—			633
Excess tax benefit from stock-based compensation		—		—		643		—			643
Stock-based compensation		—		—		409		—			409
Net Income		—		—		—		7,581			7,581


Balance at September 30, 2013		16,909,546	$	17	$	94,875	$	(19,697	)	$	75,195


	Number			Weighted-Average
	of Shares			Exercise Price
Balance, March 31, 2012		1,759,367		$	9.56
Granted		2,562			36.30
Cancelled		(2,523	)		6.29
Exercised		(403,243	)		5.47

Balance, September 30, 2012		1,356,163		$	10.84


	Number of Shares			Weighted-Average Exercise Price

Balance, March 31, 2013		1,203,990		$	13.26
Granted		42,276			38.62
Forfeited		(77,746	)		18.31
Exercised		(60,530	)		10.46


Balance, September 30, 2013		1,107,990		$	13.24


	Three Months Ended September 30, 2013		Six Months Ended September 30, 2013

Benefit to net sales	$	751	$	751
Benefit to cost of sales		490		273
Benefit to/(incremental) selling, general and administrative expenses		32		(11	)


Total benefit to income before income taxes	$	1,273	$	1,013


Benefit to net income	$	761	$	606


Benefit to net income per diluted share	$	0.04	$	0.03


	Six��Months Ended September 30,				Change
	2013		2012		$		%
	(in thousands, except for percentages)

Net income	$	7,581	$	5,916	$	1,665		28.1	%


		Incorporation by Reference
Exhibit Number	Description	Form	File No.	Exhibit(s)	Filing Date

2.1*	Agreement of Purchase and Sale by and among Safeway Australia Holdings, Inc., Safeway Inc. and Annie’s, Inc., dated November 5, 2013

3.3	Second Restated Certificate of Incorporation of Annie’s, Inc., dated September 10, 2013	Form 8-K	001-35470	3.3	September 12, 2013

3.4	Second Amended and Restated Bylaws of Annie’s, Inc., effective September 10, 2013	Form 8-K	001-35470	3.4	September 12, 2013

10.1	Executive Employment Agreement dated October 16, 2013 between Annie’s, Inc. and Zahir Ibrahim+	Form 8-K	001-35470	10.1	October 21, 2013

10.2	Transition and Separation Agreement dated October 16, 2013 between Annie’s, Inc. and Kelly J. Kennedy +	Form 8-K	001-35470	10.2	October 21, 2013

10.3*	Amendment No. 2 to the Second Amended and Restated Loan Agreement dated as of November 5, 2013 among Bank of America, N.A., Annie’s, Inc., Annie’s Homegrown, Inc., Annie’s Enterprises, Inc. and Napa Valley Kitchens, Inc.

31.1*	Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2*	Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1*	Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350

101*	The following materials from Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets as of September 30, 2013 and March 31, 2013, (ii) Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2013 and 2012, (iii) Condensed Consolidated Statement of Stockholders’ Equity for the six months ended September 30, 2013, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2013 and 2012 and (v) Notes to Condensed Consolidated Financial Statements.

+
~~Exhibit~~ ~~Number~~		~~Description~~

~~4.1~~		Termination Agreement relating to Stockholders Agreement, between the Company and Solera Capital, LLC, dated as of July 26, 2012 (incorporated by reference to Exhibit 4.4 of the Company’s amendment number 1 to registration statement on Form S-1 filed with the SEC on July 30, 2012).

~~10.1~~		Amended and Restated Contract Manufacturing and Packaging Agreement between the Company and Philadelphia Macaroni Company dated as of September 25, 2012.*

~~10.2~~		Amendment to Contract Manufacturing and Packaging Agreement between the Company and Chelten House Products, Inc. dated as of September 25, 2012.*

~~10.3~~		Contract Manufacturing and Packaging Agreement between the Company and Little Lady Foods, Inc. dated as of September 28, 2012.*

~~31.1~~		~~Certification of the Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~		~~Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~32.1~~		~~Certification of Chief Executive Officer and Chief Financial Officer, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.~~

~~101~~		The following materials from the Company’s Quarterly Report on Form 10-Q for the three and six months ended September 30, 2012 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language):

		(i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.Indicates a management contract or compensatory plan or arrangement.


ANNIE’S, INC.

By:		/s/ Kelly J. Kennedy
		Kelly J. Kennedy
		Chief Financial Officer
		(Principal Financial and Accounting
		Officer and Duly Authorized Officer)

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