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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB/A

[X]         Annual report under Section 13 or 15(d) of the Securities Exchange
            Act of 1934

            For the fiscal year ended March 31, 2001

[_]         Transition report under Section 13 or 15(d) of the Securities
            Exchange Act of 1934

            For the transition period from ____________ to ____________

                       Commission file number: 33-93982-LA

                             ANNIE'S HOMEGROWN, INC.
                             -----------------------
        (Exact name of Small Business Issuer as specified in its charter)

             DELAWARE                                       06-1258214
             --------                                       ----------
  (State or other jurisdiction of                        (I.R.S. Employer
   incorporation or organization)                       Identification No.)

                      395 MAIN STREET, WAKEFIELD, MA 01880
                      ------------------------------------
               (Address of principal executive offices) (Zip Code)

                                  781-224-1172
                                  ------------
                (Issuer's telephone number, including area code)

    Securities registered pursuant to Section 12(b) of the Exchange Act: NONE

    Securities registered pursuant to Section 12(g) of the Exchange Act: NONE

Check whether the Issuer: (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 [_]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
the Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this form. [X]

The issuer's revenue for the fiscal year ended March 31, 2001 was $13,498,740.
As of March 31, 2001, the aggregate market value of the Issuer's voting stock
held by non-affiliates was approximately $2,323,496. The Issuer's securities are
not traded on any market or exchange. The market value used for the issuer's
securities is based on the Homegrown Natural Foods, Inc. transaction price of
$2.00 per share, as described herein.

As of June 29, 2001, there were 1,000,000 shares of the Issuer's Series A
Convertible Preferred Stock, $2.00 par value and 4,657,808 shares of the
Issuer's Common Stock, $.001 par value, issued and outstanding.
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<PAGE>

                                     PART I

ITEM 1.   BUSINESS

GENERAL

Annie's Homegrown, Inc. is engaged in the manufacture, marketing and sale of
premium all natural and organic macaroni and cheese dinners, all natural pasta
meals and other all natural and organic food products. We were founded in
January 1989 as a Delaware corporation. Our principal executive offices are
located at 395 Main Street, Wakefield, Massachusetts 01880 and our telephone
number is (781) 224-1172.

We use contract packers to manufacture our products according to strict
specifications, which include the recipes, ingredients, graphics and packaging
for our products. Our products are sold primarily through distributors to
supermarkets and natural and specialty food stores. We also manufacture private
label macaroni and cheese house brands for retailers. In the natural food
stores, our original products are distributed nationally along with the new
products being introduced on a national scale. In the supermarkets, we are sold
through approximately 99% of the stores in the Northeast and approximately 96%
of the stores in Northern California. We continue to expand into the Mid
Atlantic, Rocky Mountain and Central U.S. markets with both existing products as
well as new products. Our strategy is to expand our supermarket distribution
nationally in addition to developing new and unique all natural and organic food
products to sell to our existing customer base.

Our mission is to provide the highest quality, all natural food products to our
customers and to serve as an ethically, socially, and environmentally conscious
business model for customers, other companies and the food industry. We promote
environmental efforts to minimize the consumption of resources and encourage
individuals to make personal commitments to social and environmental causes.

PRODUCTS

We manufacture and sell a variety of products under the Annie's name. All of our
products are made using premium all natural ingredients. Our products include:

ANNIE'S SHELLS AND CHEDDAR, introduced in January 1989, made with petite durum
semolina pasta shells and premium all natural white Vermont cheddar cheese.

ANNIE'S ALFREDO, introduced in August 1989, made with petite durum semolina
pasta shells and premium all natural white Vermont cheddar cheese with garlic
and basil.

ANNIE'S WHOLE WHEAT SHELLS AND CHEDDAR, reintroduced in May 1999 as part of our
totally organic line of products is made with an organically grown whole wheat
pasta shells and premium organic white cheddar cheese.

ANNIE'S MILD MEXICAN(TM), introduced in November 1994, made with petite durum
semolina pasta shells and premium all natural white Vermont cheddar cheese and
Mexican spices.

ANNIE'S MILD CHEDDAR, introduced in April 1997, made with durum semolina elbows
and premium totally natural mild cheddar cheese. The product was developed to
appeal to the tastes of young children. Its packaging highlights the cartoon
version of Bernie the Rabbit of Approval.

ANNIE'S FAMILY SIZE SHELLS AND CHEDDAR, introduced in September 1997, is a
larger version of the original ANNIE'S SHELLS AND CHEDDAR.

ANNIE'S BUNNY SHAPE PASTA & YUMMY CHEESE, introduced in September 1997, made
with bunny shaped durum semolina pasta and a yummy premium all natural white
cheddar cheese.

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ANNIE'S ORGANIC PASTA & ORGANIC WHITE CHEDDAR, introduced in May 1998, made with
an organically grown durum wheat pasta shells and premium all natural Organic
white cheddar cheese. We believe that it is the only product of its kind in the
market.

ANNIE'S PEACE PASTA WITH PARMESAN, introduced in November 1998, is a "groovy"
product that combines durum semolina peace symbol shaped pasta with a premium
parmesan cheese that has a hint of garlic and onion. Annie's Peace Pasta with
Parmesan comes packaged in a tie-dye box.

ANNIE'S ORGANIC SHELLS & ORGANIC ALFREDO, introduced in December 1999, made with
an organically grown durum wheat pasta shells and organic white cheddar cheese
with garlic and basil. We believe that it is the only product of its kind in the
market.

ANNIE'S CHEDDAR MACARONI AND CHEESE, introduced in November 2000, made with
petite durum semolina pasta shells and premium all natural orange Vermont
cheddar cheese.

These products are typically priced at retail between $0.99 and $1.49 for a
package except for the Organics, which are approximately $1.79.

In the quarter ended September 1998, we reintroduced a new line of five all
natural pasta dinners called Annie's Pasta Meals. We responded to our consumer
requests to reduce the amount of unused cardboard packaging by adding more pasta
and cheese to each box thus reducing the amount of unused cardboard packaging.
The meals combine different pasta shapes with five sauce recipes with simple
cooking directions. Annie's Pasta Meals include the following:

ANNIE'S ROTINI WITH FOUR CHEESE SAUCE
ANNIE'S PENNE PASTA WITH ALFREDO SAUCE
ANNIE'S RADIATORE PASTA WITH SUNDRIED TOMATO AND BASIL SAUCE
ANNIE'S CORKSCREW PASTA WITH SAVORY HERB AND GARLIC SAUCE
ANNIE'S CURLY FETTUCCINE WITH WHITE CHEDDAR AND BROCCOLI SAUCE

Annie's Pasta Meals are typically priced at retail between $1.59 and $1.99 for a
7.25 oz. package.

ANNIE'S WHITE CHEDDAR POPCORN, totally natural white cheddar popcorn, is based
on the founders' successful Smartfood White Cheddar popcorn recipe. The product
is sold in 4 oz. and 1 oz. bags in the natural and specialty stores and
supermarkets.

We entered the canned meal category in May 1998 and introduced another two new
canned meals in May 1999. In February 2001, Annie's reintroduced the canned meal
line to be totally organic.

BERNIEOS, introduced in May 1998, is made with bunny and O shaped pasta in a
tomato and cheese sauce ALL STARS, introduced in May 1998 is made with star
shaped pasta in a tomato and cheese sauce P'SGHETTi, introduced in December 1999
is made with cut spaghetti in tomato sauce P'SGHETTI WITH SOY MEATBALLS,
introduced in December 1999 is made with cut spaghetti in tomato sauce with
small soy meatballs.

The canned meals retail between $.99 and $1.29 for a 15 oz. can.

In September 2000, Annie's introduced ANNIE'S MICROWAVE MACARONI AND CHEESE that
is a microwavable single serving organic durum macaroni and all natural cheddar
cheese package. There are five servings to a box with a retail price between
$3.50 and $3.99.

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<PAGE>

On August 27, 1998, we acquired certain assets of The Tamarind Tree Ltd.
Tamarind Tree produces and markets an ethnic line of heat and serve vegetarian
food entrees in the Indian cuisine tradition. The products are as follows:

Alu Chole, curried garbanzos and potatoes Channa Dal Masala, golden lentils with
vegetables Dal Makhani, aromatic lentil chili Dhingi Mutter, garden peas and
mushrooms Saag Chole, tender spinach and garbanzos Navratan Korma, creamy
vegetable medley with nuts Palak Paneer, savory spinach with Indian cheese
Vegetable Jalfrazi, spicy garden vegetables

Tamarind Tree entrees are typically priced at retail between $3.59 and $3.99 for
a 9.25 oz. package.

SALES, MARKETING AND DISTRIBUTION

We sell our products two ways: either through distributors or direct to the
retail chain. If we sell through distributors, the distributors sell our
products to primarily two classes of retailers: (i) supermarket chains, also
known as "mass markets"; and (ii) natural and specialty food stores. When we
sell direct we sell directly to the mass markets or club stores, thus
establishing a lower retail selling price in those outlets. Selection of new
regional markets is based upon consumer profiles, product opportunity and costs
of introduction.

In the mass markets, we sell in large supermarket chains such as STOP AND SHOP
in New England and SAFEWAY STORES in California. We currently have penetrated
all of the major supermarket chains in New England, and sell in several major
supermarket chains in New York and California. In 2001, we expanded our business
to include club stores such as Costco. We continue to expand our sales area to
include major supermarkets in the Mid-Atlantic, Rocky Mountain, and Central
regions. Currently, we sell in approximately 40% of the supermarkets in those
regions.

Our products are also sold in natural food markets and specialty food stores,
such as WHOLE FOODS and WILD OATS, and to select natural and specialty food
distributors. Buying practices of natural and specialty food stores are highly
selective due to the nature of the retailers, which reflect their customers'
demands for both natural and premium quality products. According to Spence
Information Services which is the only sales information service catering to the
natural food trade, Annie's was the Number 1 ranked brand, based on total dollar
sales and total unit sales, in the Entree and Mixes category with the top two
selling items in that category for the 52-week period ended March 31, 2001.

Annie's uses food brokers to represent the Company in contacting distributors
and retailers. Food brokers are under contract directly with Annie's. Regional
managers supplied by Napa Valley Kitchens (or formerly Liberty Richter) manage
the food brokers. Regional managers and food brokers present our products to a
supermarket or distributor buyer using our sales and marketing presentation. The
key competitive factors in influencing a purchasing decision by the buyer
include the product quality, packaging, sales history, profitability, and
consumer demand. If a buyer decides to accept our product, other issues such as
the cost of acquiring shelf space (slotting fees) and our specific commitments
to marketing programs are negotiated. Introductory slotting fees and marketing
programs often vary from account to account. Emphasizing the selling features of
our products, our brokers attempt to negotiate the lowest slotting cost.
Slotting fees can take the form of cash payments and/or free product allowances.
Utilizing our brokers' knowledge regarding specific accounts, we tailor our
introductory marketing program to each new account.

In October 1996, we signed a master distribution agreement with Liberty Richter,
Inc. The agreement called for them to distribute all of our products throughout
the continental United States, except for our private label and mail order
lines. In addition, they agreed to provide other services, such as order
processing, invoicing, record management, sales coverage, broker management,
promotion execution, management of sales allowances and trade show
participation. In July 1999, we agreed with Liberty to modify the master
agreement to allow us to sell our products directly to the mass markets that do
not buy through distributors in the New England and West Coast regions. For the
fiscal years ended March 31, 1999 and 2000, sales under that master distribution
agreement accounted for approximately 87% and 69%, respectively, of our net
sales. As of May 31, 2000, we mutually agreed to terminate that agreement and
Liberty ceased to represent our products.

                                        3
<PAGE>

Since June 1, 2000, we have been selling our products directly to our
distributors. We retained Napa Valley Kitchens to provide certain services such
as order processing, invoicing, record management, sales coverage, broker
management, promotion execution, management of sales and allowances. All
promotions and slotting presentation are subject to the Company's approval. Napa
Valley Kitchens is a subsidiary of Homegrown Natural Foods, Inc., which acquired
control of us in December 1999.

The Company's sales strategy is to continue to expand our supermarket
distribution nationally. By examining market research data, Annie's determines
the areas of the country in which it needs to improve distribution. Those areas
are then examined for the size of the macaroni and cheese market. Annie's then
determines which markets to enter by comparing the size of the market with the
size of our current distribution, concentrating on the larger markets. In
addition, Annie's continues to develop new and unique all natural and organic
food products to sell to our existing customers. New products are introduced
based on conditions in the market place. No material increase in development of
new products is planned.

CONSUMERS

Our products are marketed toward mothers, children and young adults. These three
groups are the primary purchasers in the macaroni and cheese dinner category. We
believe our consumers are people who prefer to buy a natural, better-tasting
product and are willing to pay a premium price.

We rely primarily on brand loyalty and word of mouth to promote our products.
Our marketing strategy is designed to encourage consumers to try our products
for the first time and develop brand loyalty. We accomplish this by continually
educating consumers about the differences between our all natural products and
the competition's products, as well as through product sampling, community
giveaways, promotional pricing and account specific marketing events such as
buy-one, get-one free promotions.

Over the years, we have developed a mailing list of 150,000 names. Currently we
receive approximately 250 pieces of mail, 100 e-mails, and 40 telephone calls
each week pertaining to our products and our Company.

Our strategy is to use word of mouth to promote our products. Our Website,
consumer correspondence and our packaging help to generate brand loyalty and
educate the consumer. In stores, we use product sampling and promotional pricing
to get consumers to try our products.

PRODUCT QUALITY AND DEVELOPMENT

Ann E. Withey, our co-founder, Director, and Inspirational President, maintains
the final responsibility for our product recipes. We take great pride in
producing high quality, all natural, easy to prepare meals. Our pasta is made
from 100% durum semolina flour. We believe the quality of our 100% durum
semolina pasta is one of the more important differences between our products and
other competitive national brands. Several of the lower priced brands are
prepared from a lower grade, less expensive blend of spring wheat and durum
flour. Pure durum semolina flour produces a golden, translucent looking finished
pasta product, while blended enriched flour produces a faded, chalky looking
finished product. We have retained a product development consultant to increase
the speed at which new products are created and introduced to the market. The
consultant reviews all recipes and flavors with us. All of our consultant's
recommendations are subject to Ms. Withey's final approval.

MANUFACTURING

We use contract packers to manufacture our products according to strict
specifications, which include our products' recipes, ingredients, graphics and
packaging. We have all the components of the products shipped to the contract
packers. We have never experienced material shortages or delays in the
manufacture of our products. However, our products are subject to the inherent
risks in agriculture and all of our products must be transported from the
manufacturer and are therefore subject to work stoppages and other risks. We
believe that there are numerous companies that could manufacture our products
under our quality specifications without a substantial increase in cost or delay
in delivery.

COMPETITION

Our industry is highly competitive. The principal methods of competition in the
macaroni and cheese market include pricing, product quality and taste, brand
advertising, trade and consumer promotions, packaging and the development of new
products. We compete not only for consumer acceptance but also for shelf space
in supermarkets and natural food stores and for the marketing focus of our
distributors, some of which also distribute competing products.

                                        4
<PAGE>

The mass-market macaroni and cheese category is highly competitive. The leading
brand in that category is Kraft's Original Macaroni and Cheese Dinner (Kraft is
approximately 85% owned by Philip Morris Companies, Inc.), which accounted for
over 70% of the total dollar sales in the macaroni and cheese category in 2000,
according to Information Resources, Inc.'s Infoscan reports. In addition to the
Kraft brand, the mass-market macaroni and cheese category is comprised of other
products such as Golden Grain (owned by the Quaker Oats Company), several
regional brands, and private label products (i.e., store brands). Store brands
are usually sold at prices well under the prices of our products. Most of the
companies that compete in the mass-market macaroni and cheese category are
larger than us and have significantly greater resources than we do.

Nevertheless, we believe that our products do not directly compete with those
"value-priced" lines as mentioned above. Our products are positioned as
"premium" brands and compete with other premium brands in the macaroni and
cheese categories, such as Kraft's Velveeta brand. We are viewed as a natural
alternative to the mass-market, artificially flavored brands. We believe that
our target consumers are people who prefer to buy natural, better-tasting
products and are willing to pay a premium for those products. We use unique,
brightly colored packaging to differentiate our products from mass-market
brands, which tend to be very similar to each other in graphical design.

The macaroni and cheese category is less competitive in natural food stores,
which do not typically carry mass market brands such as Kraft and Golden Grain.
We compete with other branded products as well as with store brands in that
market based on our quality and all natural and/or organic ingredients. There is
also pricing competition within the natural food segment, as natural, specialty
and gourmet food stores are selling products based on their quality and
ingredients but competing more and more with the mass markets in pricing. In the
natural foods market, we compete with several brands that are produced by
companies that are larger than us.

As discussed above, we believe that our principal bases of competition include
price, product quality, taste, reputation and brand loyalty. We believe that we
compete favorably with respect to those factors, although there can be no
assurance that we will be able to continue to do so. Our ability to compete
successfully in the future will depend on factors both within and outside our
control, including general market conditions and our ability to respond to
changing market conditions and the activities of our competitors, to control
costs, to introduce successful new products, and to grow our customer base. We
can give no assurance that we will be able to compete successfully with respect
to these factors in the future or that present or future competitors will not
successfully compete with us in the future.

PHILOSOPHY AND CORPORATE CULTURE

Our mission is to provide the highest quality all natural food products to our
customers and to serve as an ethically, socially, and environmentally conscious
business model for our customers, other companies and the food industry. We
promote environmental efforts to minimize the consumption of resources and to
encourage individuals to make personal commitments to social and environmental
causes. We understand that we have a responsibility to produce profits for our
stockholders. However, in addition to our corporate responsibilities, we are
committed to benefiting communities as a reward for their support. Since our
inception, we have supported hundreds of non-profit and school groups that
helped women, children and the environment. Currently, we continue to support
hundreds of non-profit groups through our "Cases for Causes" program.

Through our Cases for Causes Program, we contribute cases of our products to PTA
groups, walkathons, book fairs, bake sales, daycare centers and other non-profit
groups and events. These groups can give away the cases or sell the free cases
as a fund-raiser to generate support for their organizations. The Cases for
Causes Program helps society and the environment while simultaneously increasing
the public awareness for our products.

We have also created and support the Be Green(R) environmental awareness
program. There is a description on each package of our product describing how
individuals can help the environment by increasing environmental awareness.
Consumers can receive a free Be Green(R) bumper sticker that helps consumers
expresses their support for the environment.

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<PAGE>

INTELLECTUAL PROPERTY RIGHTS

We seek to protect the value of our trademarks, trade dress, copyrights and
trade secrets through licensing and other means. We have the following
registered trademarks in the United States: "Bernie-Rabbit of Approval,"
"Annie's," "Annie's Homegrown," "Annie's Pasta," and "Be Green." We also use
other trademarks and trade dress for which federal trademark registrations are
now pending. We use appropriate copyright notices with our packaging,
promotional materials and other artwork. All of our suppliers have entered into
confidentiality agreements with us, pursuant to which they have agreed to keep
confidential and not use our trade secrets, including our processes, formulae,
ingredients and recipes, except to our benefit. We do not have any patents. We
believe that we are not infringing on the intellectual property rights of any
third party, and we intend to take all necessary and appropriate action to
protect against dilution or imitation of our products, packaging, promotional
materials and other artwork, and to defend our trademarks, copyrights, and trade
secrets against such infringements.

REGULATION

The production, marketing, and labeling of our products are subject to the rules
and regulations of the United States Food and Drug Administration (the "FDA").
In addition, local boards of health in many states have rules and regulations
governing the sale of food products. We have not encountered any regulatory
action as a result of our operations, and no such action is anticipated. In
order to maintain our organic products as certified organic, Annie's is
certified by an outside private agency, Oregon Tilth, that our organic products
meet their highest quality standards.

EMPLOYEES

As of June 29, 2001, we had eight employees: two general management employees,
two sales and marketing support, and four in operations including financial
management. We have never participated in a collective bargaining agreement. We
believe the relationship we have with our employees is good.

ITEM 2. DESCRIPTION OF PROPERTIES

We lease 3,400 square feet at 395 Main Street, Wakefield, Massachusetts. The
lease expires on May 31, 2003. The lease has a monthly base rent (which
increases approximately 5% each year) plus an additional amount due for our
portion of the real estate taxes and building expenses. Total rent expense under
this lease was $52,999 for the year ended March 31, 2001. We believe that our
properties are adequately covered by insurance.

We believe that our facilities and equipment are in good condition and are
suitable for our operations as presently conducted and for our foreseeable
future operations. We currently believe that additional facilities and equipment
can be acquired if necessary, although there can be no assurance that additional
facilities and equipment will be available upon reasonable or acceptable terms,
if at all.

ITEM 3. LEGAL PROCEEDINGS

There are no material legal proceedings ongoing and none are anticipated by
management.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

As previously disclosed in our Form 10-QSB for the quarter ended December 31,
2000:

(a) The Company held a Special Meeting in Lieu of an Annual Meeting of
Stockholders on November 13, 2000.

(b)  The following directors were elected at the meeting:  Ellen Ambrose, Ronald
L. Cheney, John Foraker, Richard Lemon, Michael Moone, Paul B. Nardone and Ann
E. Withey.

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<PAGE>

(c)  The following matters were voted upon at the Special Meeting:

1.   ELECTION OF DIRECTORS

       NOMINEE                                   VOTES FOR        VOTES WITHELD

       Ellen Ambrose                             4,803,985            2,765

       Ronald L. Cheney                          4,803,885            2,865

       E. Michael Moone                          4,804,035            2,715

       Paul B. Nardone                           4,803,870            2,880

       Ann E. Withey                             4,804,685            2,065

       John Foraker                              4,804,085            2,665

       C. Richard Lemon                          4,804,135            2,615


2.   RATIFICATION OF THE SELECTION OF KPMG LLP AS AUDITORS FOR THE FISCAL YEAR
     ENDING MARCH 31, 2001

                    Votes For          Votes Against          Abstentions

                    4,805,001               550                  1,199


3.  AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION, AS AMENDED, TO CHANGE THE
    NAME OF THE CORPORATION FROM "ANNIE'S HOMEGROWN INC." TO "ANNIE'S HOMEGROWN,
    INC."

                    Votes For          Votes Against          Abstentions

                    4,470,894                0                     0


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our securities are not listed or traded on any public securities market or stock
exchange or over the counter, and no public market maker exists with respect to
our securities.

The approximate number of record holders of our Common Stock as of June 29, 2001
was 2,500. As of June 29, 2001, there was one holder of our Series A Preferred
Stock. We have never paid a cash dividend with respect to any of our securities.
We currently intend to retain earnings, if any, for use in our business, and we
do not anticipate paying cash dividends on our shares of Common Stock or
Preferred Stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES.

We amended our Certificate of Incorporation on November 30, 1999 to authorize
one million shares of Preferred Stock, $2.00 par value. The Board of Directors
designated all of those shares as Series A Convertible Preferred Stock. The
Series A Convertible Preferred Stock has the same voting rights as our Common
Stock, is convertible into an equal number of shares of Common Stock,
participates in dividends at the same rate as Common Stock, and has a
liquidation preference over the Common Stock equal to its par value plus 10% per
annum. Certain mergers, consolidations and sales of assets are treated as
liquidations for the purpose of determining whether this liquidation preference
takes effect.

On December 2, 1999, we sold all of the authorized Series A Convertible
Preferred Stock, to Homegrown Natural. a Delaware corporation that was
previously unaffiliated with us, for $2 million.

We relied upon Rule 506 of Regulation D promulgated under the Securities Act of
1933 in connection with the sale of our Series A Convertible Preferred Stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

We are engaged in the manufacture, marketing, and sale of premium, all natural
and organic macaroni and cheese dinners, all natural pasta meals and other all
natural and organic food products. We use contract packers to manufacture our
products according to our specifications, which include our products' recipes,
ingredients, graphics and packaging. Our products are sold primarily through
distributors to supermarkets and natural and specialty food stores. We also
manufacture private label macaroni and cheese house brands for retailers.

Prior to June 1, 2000, most of our sales were made to Liberty under contract
terms allowing certain rights of return on unsold product held by Liberty. The
contract called for Liberty to pay us based on terms relating to the receipt of
our products by Liberty. We deferred recognition of such sales until the product
was sold by Liberty to distributors or supermarket chains. As a result, if
Liberty paid us before Liberty sold the products to a third party, we had an
advance from Liberty. If Liberty sold the products to a third party before it
paid us, we had a receivable from Liberty.

As of May 31, 2000, we mutually agreed to terminate that agreement and Liberty
ceased to represent our products. We terminated the agreement in order to obtain
certain of the services provided by Liberty from Napa Valley Kitchens and to
sell our products directly to distributors. Napa Valley Kitchens is an affiliate
of Homegrown Natural Foods, which acquired control of us in December 1999. We
reimbursed Liberty in the amount of approximately $450,000 for all of our
salable products held in their warehouse. In addition, we paid Liberty the
balance of their anticipated earnings in the amount of approximately $185,000
from the distribution agreement through the calendar year 2000. These payments
had no material impact on the Company's financial position during the fiscal
year ended March 31, 2001. The Company paid Napa Valley Kitchens approximately
$264,000 for its services in the fiscal year ended March 31, 2001 and
approximately $260,000 for the period from April 1, 2001 through December 31,
2001. The Company does not expect its selling cost to change materially as a
result of the cancellation of the Liberty Richter agreement, the engagement of
Napa Valley Kitchens, and the decision to sell direct to distributors.

Our cost of sales consists of the cost of finished product shipped from a
contract packer. We purchase the raw materials and ship them to the contract
packer according to the specifications provided by us, which include the
recipes, ingredients, graphics and packaging for the product. Then, the contract
packer packages the raw materials into the appropriate boxes and cases according
to orders specified by us. The products are shipped directly from the contract
packer via common carrier to our main public warehouse in Illinois or to one of
our two satellite warehouses in Massachusetts or California.

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<PAGE>

Selling expenses include the costs of product marketing, sales commissions, cost
of product distribution and account management. Annie's has contracts directly
with the food brokers. The food brokers' work on a commission basis, generally
5% of net cash received. We negotiate, through the food broker, the cost of
acquiring shelf space (introductory slotting fees) as well as the continuing
support needed for the product as indicated. Introductory slotting fees can take
the form of cash payments and/or free product allowances.

RESULTS OF OPERATIONS

The following table sets forth, as a percentage of net sales, certain items
included in the Company's Statements of Operations (see Financial Statements and
related Notes) for the years indicated:

                                                        YEARS ENDED MARCH 31,
                                                         2000           2001
                                                       --------       --------
         STATEMENTS OF OPERATIONS DATA:
         Net sales...................................   100.00%        100.00%
         Cost of sales...............................    53.68          53.37
         Gross profit................................    46.32          46.63
         Selling expenses............................    28.43          32.91
         General and administrative expenses.........    12.29           9.38
         Slotting fees...............................     2.06           2.38
         Operating income ...........................     3.54           1.96
         Interest expense and borrowing charges......     2.02           0.36
         Interest and other income...................     0.69           0.71
         Gain on sale of RMFC........................     0.60           0.00
         Income tax expense..........................     0.01           0.01
         Net income .................................     2.80           2.30

TWELVE MONTHS ENDED MARCH 31, 2000 COMPARED TO TWELVE MONTHS ENDED MARCH 31,
2001

NET SALES. Net sales increased by $3,234,052 or 31.51% from $10,264,688 in 2000
to $13,498,740 in 2001. The net sales increase was primarily a result of sales
growth of existing products in existing accounts (15.20%), new products (4.59%),
and sales from club stores, (11.72%).

GROSS PROFIT. As a percentage of net sales, gross profit increased from 46.32%
in 2000 to 46.63% in 2001. This increase was primarily the result of the product
mix by selling more products with a higher gross profit margin in 2001 than
2000.

SELLING EXPENSES. Selling expenses increased by $1,524,217 or 52.23% from
$2,918,066 in 2000 to $4,442,283 in 2001 and increased as a percentage of net
sales from 28.43% in 2000 to 32.91% in 2001. The increase in selling expenses
reflected an increase in spending in marketing costs, including price reductions
and trade show appearances, associated with the continued rollout of our
products in 2001. Freight and warehousing costs increased due to increased
sales, increased costs, and the customer base expanding away from our shipping
points. Selling expenses increased more than net sales during 2001 because of
the Company's strategic decision to increase marketing activities.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $4,318 or 0.34% from $1,261,775 in 2000 to $1,266,093 in 2001 and
decreased as a percentage of net sales from 12.29% in 2000 to 9.38% in 2001. The
increase in general and administrative expenses is primarily a result of an
increase in consultants, insurance and graphics relating to new products offset
by a decrease in payroll and related expenses and professional fees.

SLOTTING FEES. Slotting expenses increased by $110,759 or 52.47% from $211,076
in 2000 to $321,835 in 2001, and increased as a percentage of net sales from
2.06% in 2000 to 2.38% in 2001. The increase was due to our decision

                                        9
<PAGE>

to continue with our expansion plan by purchasing additional shelf space at
supermarkets. These slotting fees are required by most supermarkets and are
expensed at the time of product introduction.

INTEREST EXPENSE AND OTHER CHARGES. Interest expense and other charges decreased
by $157,971 from $206,756 in 2000 to $48,785 in 2001 and decreased as a
percentage of sales from 2.01% in 2000 to 0.36% in 2001. The decrease in
interest expense and other charges is the result of lower average line of credit
borrowings. The average balance on the line of credit during the year ended
March 31, 2001 was approximately $239,000 with the balance at year end amounting
to $695,598.

INTEREST AND OTHER INCOME. Interest and other income increased by $25,584 or
36.14% from $70,800 in 2000 to $96,384 in 2001 and increased as a percentage of
sales from 0.69% in 2000 to 0.71% in 2001. The increase was a result of
recognizing interest income on notes receivable from stockholders, recognizing
income relating to cash repayments on the RMFC note receivable and recognizing
income from coupon inserts.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations to date through a public offering of Common
Stock, private sales of equity and convertible debt securities, a line of credit
and term loan from a financial institution and cash generated from operations.
At March 31, 2001, we had working capital of $1,881,562, an increase of $421,125
over our working capital balance of $1,460,437 at March 31, 2000. The net
increase in working capital was primarily attributable to the net income of
Annie's.

Net cash used by operating activities for the year ended March 31, 2001 was
$1,017,488 consisting primarily of an increase in accounts receivable offset by
net income and an increase in accounts payable. The increase in accounts
receivable was attributable to our largest sales ever in March 2001.

Net cash used in investing activities consisted of capital expenditures totaling
$131,153 which related to the purchase of the Tamarind Tree Brand, described
below, and the purchase of plates and dies for the new products as well as
office equipment.

TAMARIND TREE

On August 27, 1998, we acquired certain assets of The Tamarind Tree Ltd.
("Tamarind Tree"). Tamarind Tree produced and marketed an ethnic line of heat
and serve vegetarian food entrees. The assets acquired consisted of the Tamarind
Tree brand, including the registered trademark, "The Taste of India,"
intellectual property relating to the brand and other tangible and intangible
assets that were used in Tamarind Tree's business.

The purchase price was comprised of cash in the amount of $200,000, legal fees
in the amount of $71,038, royalty payments of $10,110, and an advance against
royalties in the amount of $75,000, and future royalties and overrides. The
royalties are payable by us to Tamarind Tree for five years at the rate of 6%
annually on "adjusted net sales." Additionally, overrides are payable by us to
Tamarind Tree for five years at the rate of 2% of all sales of certain products
and sales in excess of a certain minimum amount of other products. The royalty
payments will be accounted for as additional consideration for the purchase of
the assets and will be recorded as additional goodwill as the future royalties
are earned. We have capitalized the payments of $271,038 and $110,533 of
royalties earned subsequent to the acquisition as goodwill.

We financed the acquisition of Tamarind Tree by entering into a $300,000 term
loan with Fremont Financial Corporation. The interest rate on the loan was prime
rate plus 3% and called for 20 monthly principal payments of $15,000 commencing
October 1, 1998. The loan was secured by all of our assets including a security
interest in the Tamarind Tree Brand, and was guaranteed by the two largest
stockholders of the Company. The balance of the term loan was paid in December
1999 upon the closing of the Homegrown Natural Foods transaction.

We negotiated a line of credit with a financial institution for $600,000, which
closed on February 3, 1998 ("Line of Credit"). The Line of Credit was for a term
of two years and was secured by all of our assets and guaranteed by our two
largest stockholders at that time, Andrew Martin and Ann Withey. In August 1998,
we increased the Line of Credit to $900,000 and signed a Term Loan for an
additional $300,000 to purchase the Tamarind Tree Brand. We used the proceeds of
the sale of

                                       10
<PAGE>

Preferred Stock to Homegrown Natural Foods to payoff and terminate the Line of
Credit and the Term Loan with the financial institution.

RAW MATERIALS FOOD COMPANY ("RMFC")

On July 31, 1997, we acquired all the outstanding shares of RMFC, a Colorado
based whole food supplement company, for stock valued at $360,000 and paid
acquisition costs. The acquisition was accounted for using the purchase method
of accounting and, accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition. The fair value of assets acquired, including goodwill, was
$437,555, and the liabilities assumed totaled $52,610. Goodwill of $400,184 was
being amortized over 20 years on the straight-line basis. In our effort to focus
on our core business, we sold the RFMC subsidiary to the remaining founder of
RMFC on June 30, 1999 for the return of his 30,000 shares of our common stock
and a note for $77,000.

On November 13, 1998, we terminated our employment contract with one of the
founders of RMFC and repurchased all 30,000 shares of our common stock. As of
June 30, 1999, we consummated an agreement with the other founder of Raw
Materials Food Company to sell back to that founder all of the common stock of
RMFC. In payment for the common stock, the founder returned to us 30,000 shares
of our Common Stock issued to him as consideration for the original acquisition
of RMFC and a note in the amount of $77,000. The note bears interest at 5.79%
per annum and the repayment terms are tied to the cash flows of Raw Materials
Food Company. At March 31, 2001, the balance on the note receivable is $48,183.

We recognized a gain of $62,121 on the aforementioned sale of the common stock
of RMFC, which represents the amount by which the fair value of the 30,000
shares of our common stock exceeds the net assets sold. We have deferred any
gain recognition relating to the $77,000 note receivable from RMFC until such
time as cash flows from RMFC's operating activities are sufficient to fund the
repayment of the note.

HOMEGROWN NATURAL FOODS, INC.

On December 2, 1999, Homegrown Holdings Corp., now known as Homegrown Natural
Foods, Inc., a corporation that was previously unaffiliated with us purchased
one million shares of the Preferred Stock, designated Series A Convertible
Preferred Stock, for $2 million. See "Homegrown Natural Foods Transaction" in
Item 11.

                                       11
<PAGE>

2000 LINE OF CREDIT

On May 4, 2000, we entered into an agreement for a $250,000 line of credit with
a bank. The line of credit is secured by all of our assets. On November 3, 2000,
we replaced the $250,000 line with a $1,000,000 line of credit from Warren Five
Cents Savings Bank. The line of credit calls for an interest rate of the bank's
prime rate plus 1% (5.75% at December 31, 2001) and is secured by all of the
assets of the Company. On June 15, 2001, we increased the current line of credit
to $1,500,000.

ORGANIC WHEAT SUPPLIER JOINT VENTURE

In April 2001, Annie's and Ceres Organic Harvest, Inc., an organic wheat
supplier (the "Supplier") entered into a joint venture transaction whereby both
Annie's and the Supplier became 50% owners of the membership interests in a
Delaware limited liability company (the "Joint Venture"). As a member of the
Joint Venture, Annie's contributed, or will contribute, all goodwill and
intangible assets related to the Joint Venture's business, including
relationships with vendors, customers, both potential and current, and all of
the Joint Venture's working capital in cash or pursuant to a line of credit
(described below). The Supplier contributed, or will contribute, all of its
certified organic semolina flour, durum patent flour, durum wheat, other pasta
wheat-based flours and products, and other related pasta products to the Joint
Venture. The Supplier has also contributed, or will also contribute to the Joint
Venture, any purchase order or pending transaction, any accounts receivable, any
accounts payable, and any inventory purchased that relates to the Joint
Venture's business, as well as all goodwill and intangible assets related to the
Joint Venture's business, including relationships with potential and current
vendors and customers.

Pursuant to the terms of the Joint Venture's Limited Liability Company
Agreement, responsibility for the business and affairs of the Joint Venture has
been allocated between Annie's and the Supplier. Annie's is responsible for
providing the Joint Venture's financial accounting, marketing and administrative
functions (including billing customers, paying vendors, overseeing licensing,
certification, taxation, legal, and certain selling and marketing tasks.) In
addition, Annie's has agreed to make available to the Joint Venture a revolving
line of credit, the proceeds of which will be available for general business
purposes in an amount not to exceed $350,000. This line of credit will be
secured by all of the assets of the Joint Venture. Annie's will also make
capital contributions to the Joint Venture, up to $125,000, on an as-needed
basis to fund the expenses of the Joint Venture.





                                       12
<PAGE>

The Supplier is responsible for providing the other operational functions for
the Joint Venture, including sourcing, manufacturing, marketing, purchasing,
logistics, maintaining compliance with organic certification rules and
regulations, and quality control. Annie's and the Supplier each receive monthly
management fees to reimburse them for the services they provide to the Joint
Venture and out-of-pocket costs they will each render on behalf of the Joint
Venture. In connection with this transaction, the Supplier assigned its
five-year term supply agreement with Annie's to the Joint Venture.

The net profits and net losses of the Joint Venture for each fiscal year will be
allocated equally between Annie's and the Supplier. The Joint Venture will
distribute to Annie's certain receivables that the Supplier contributed to the
Joint Venture.

Under the terms of the Joint Venture agreement, Annie's has the option to
purchase the Supplier's interest in the Joint Venture in June 2006 for a price
equal to one times the Joint Venture's net operating profit after interest and
depreciation and before taxes, for the then previous twelve consecutive months.

As a result of this transaction, both Annie's and the Joint Venture expect to
sell durum wheat to other companies in the expanding organic wheat market.
Annie's also believes that this transaction will result in a more stable supply
and price for Annie's organic wheat requirements.

CAPITAL NEEDS

Our primary capital needs are for developing new products to sell to our
existing customer base and expansion into national supermarket distribution. We
estimate to fully implement our plan that we need $750,000. Annie's realizes
that we cannot fully implement our plan within one fiscal year. Also, the
estimate will increase as we introduce new products to our existing customers.
We anticipate that the funds available from the Line of Credit together with
funds generated from operations will be sufficient to meet our liquidity needs
for the next twelve months. However, we might still need additional capital in
the future to fully implement our business strategy as set forth herein. If such
capital is unavailable either because of general market conditions or the
results of our operations, we will have to scale back either our investments in
new products, or our national supermarket expansion, or both.

OTHER MATTERS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133). The
statement requires companies to recognize all derivatives as either assets or
liabilities with the instruments measured at fair value. The accounting for
changes in fair value gains and losses depends on the intended use of the
derivative and its resulting designation. The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. We adopted SFAS
133 on April 1, 2001. Adoption of SFAS 133 did not have a material impact on the
consolidated financial statements.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, REVENUE RECOGNITION. The adoption of SAB 101 did not
have a material impact on the financial statements.

In May 2000, the Financial Accounting Standards Board Emerging Issues Task Force
("EITF") reached a consensus on Issue No. 00-14, ACCOUNTING FOR CERTAIN SALES
INCENTIVES. This issue addressed the recognition, measurement, and income
statement classification for various types of sales incentives, including
discounts, coupons and rebates. In April 2001, the EITF reached a consensus on
Issue No. 00-25, VENDOR INCOME STATEMENT CLASSIFICATION OF CONSIDERATION TO A
PURCHASER OF VENDOR'S PRODUCT OR SERVICES. This issue addresses the income
statement classification of consideration a vendor provides to a retailer, other
than that directly addressed in Issue No. 00-14, including slotting fees,
cooperative advertising arrangements and buydowns. The consensuses reached in
Issues 00-25 and 00-14 are effective for fiscal quarters beginning after
December 15, 2001. The adoption of these consensuses will not affect when the
Company recognizes incentives or the amount. However, adoption of these
consensuses will affect the classification of certain expenses in the statement
of operations. As a result, the Company does not expect the adoption of these
consensuses to have a material impact on the financial statements.

                                       13
<PAGE>

FORWARD LOOKING STATEMENTS

From time to time, information provided by us, statements made by our employees
or information included in our filings with the Securities and Exchange
Commission (including this Form 10-KSB) may contain statements which are not
historical facts, so called "forward-looking statements", which involve risks
and uncertainties. Forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. When
used in this Form 10-KSB, the terms "anticipates", "expects", "estimates",
"believes" and other similar terms as they relate to the Company or its
management are intended to identify such forward-looking statements. In
particular, statements made above in "Item 2. Description of Property" relating
to the suitability of our facilities and equipment for future operations and the
availability of additional facilities and equipment in the future and in "Item
6. Management's Discussion and Analysis of Financial Condition and Results of
Operations" relating to the sufficiency of funds for our working capital
requirements during 2001-2002 and our expectation that future cash flow will
continue to be provided from operations will not have any significant impact on
our business may be forward-looking statements. Our actual future results may
differ significantly from those stated in any forward-looking statements.

ITEM 7. FINANCIAL STATEMENTS

Please refer to pages F-1 through F-17 Independent Auditors' Report Balance
Sheets at March 31, 2000 and 2001
Statements of Operations for the Years ended March 31, 2000 and 2001 Statements
of Stockholders' Equity for the Years ended March 31, 2000 and 2001 Statements
of Cash Flows for the Years ended March 31, 2000 and 2001 Notes to Financial
Statements at March 31, 2000 and 2001

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

EXECUTIVE OFFICERS, KEY PERSONS AND DIRECTORS

The executive officers and directors of the Company serve for one year or until
their successors have been elected or appointed. The following chart lists the
executive officers and directors as of June 29, 2001:

        NAME             AGE    FIRST YEAR ELECTED           POSITION

    Ann E. Withey         38    1989                Inspirational President and
                                                    Director

    John Foraker          38    1999                Chairman

    Paul B. Nardone       34    1995                President, Chief Executive

    Neil Raiff            44    1989                Chief Financial
                                                    Officer,Secretary and
                                                    Treasurer

    Ronald L. Cheney      65    1998                Director

    E. Michael Moone      61    1999                Director

    C. Richard Lemon      58    1999                Director

    Ellen Ambrose         46    1999                Director

    ANN E. WITHEY co-founded Annie's Homegrown, Inc. in 1989 and is currently a
    director and has served as our Inspirational President since 1995. For the
    fiscal year ended March 31, 2001, Ms. Withey elected to reduce her salary
    from $84,000 to $30,000 without reducing her role with us. Ms. Withey has
    served as a director of the Company since 1989. Ms. Withey's
    responsibilities, since co-founding the Company, are to maintain the social
    integrity of the Company including adherence to our mission statement as
    well as new product development, quality control and consumer correspondence
    and relations. Ms. Withey was co-founder of Smartfood, Inc. and creator of
    the original recipe for Smartfood Popcorn. Smartfood Inc. was sold to
    Frito-Lay, a division of PepsiCo, in 1989. Ms. Withey and her husband own
    and operate a small organic produce farm in Connecticut. 14
<PAGE>

    Ms. Withey actively supports a variety of programs that benefit women,
    children, education and the environment. Ms. Withey holds a B.A. degree from
    the University of Connecticut.

    JOHN FORAKER founded Homegrown Holdings Corp. (now known as Homegrown
    Natural Foods, Inc.) in 1999 as an investment vehicle for the natural food
    industry, and negotiated Homegrown Natural Foods' investment in Annie's. Mr.
    Foraker is currently our Chairman as well as the CEO of Homegrown Natural
    Foods. Mr. Foraker has served as President & CEO of Napa Valley Kitchens,
    marketer of CONSORZIO(R)brand specialty food products, since 1995. In 1997,
    Mr. Foraker founded Calio Groves, the leading domestic producer and marketer
    of California olive oil products. From 1987 through 1991, Mr. Foraker was a
    Vice President for Bank of America NT & SA, in Santa Rosa, CA., where he was
    responsible for a significant portion of the Bank's wine industry portfolio.
    Mr. Foraker is on the board of Spottswoode Winery and Calio Groves. Mr.
    Foraker holds a B.S. in Agricultural Economics from the University of
    California at Davis and an M.B.A. from the University of California at
    Berkley.

    PAUL B. NARDONE has been the Company's President since October 1996 and
    Chief Executive Officer since December 1999. In July 1999, Mr. Nardone was
    elected to our Board of Directors. Mr. Nardone is responsible for managing
    our strategic plan. In 1990, Mr. Nardone founded New England Snacks, Inc., a
    regional snack food distributorship. In March 1992, New England Snacks, Inc.
    was sold to Alternative Distributors where Mr. Nardone served as Vice
    President of sales until joining the Company in 1993. Mr. Nardone holds a
    B.A. degree in Political Science from Tufts University in Medford,
    Massachusetts.

    NEIL RAIFF, CPA has been our Chief Financial Officer and Treasurer since
    1989 and our Secretary since December 1999. From 1989 to September 1994, Mr.
    Raiff served in this capacity on a contractual basis. In October 1994, Mr.
    Raiff became a part-time employee, and in May 1995 he joined us as a
    full-time employee. Mr. Raiff is responsible for all financial and
    administrative functions including financial forecasting and strategic
    planning, expense control, accounting, and banking and insurance
    relationships. From 1991 to May 1995, Mr. Raiff was self-employed as a CPA
    in private practice. Mr. Raiff holds a B.S. in Accountancy from Bentley
    College in Waltham, Massachusetts.

    RONALD L. CHENEY has been a member of our Board of Directors since 1998. He
    retired from his practice of law in 1996. From 1992 to 1996, Mr. Cheney
    served as an officer and director of Intertill Investment Corporation, an
    unregistered investment fund, and as a general partner of Intertill
    Associates LP, a limited partnership that invested in unregistered
    investment companies. Prior to his retirement, Mr. Cheney worked for the
    last ten years as a sole practitioner specializing in the area of securities
    law. Mr. Cheney has been a panelist at discussions on securities litigation,
    lectured in law school, and published articles on securities law. Mr. Cheney
    holds a B.A. from Yale University and his LL.B. from Harvard Law School.

    E. MICHAEL MOONE has been Chairman of Luna Vineyards in Napa, California and
    a managing partner of Silverado Equity Partners, LP since 1995. From 1990 to
    1992, Mr. Moone served as President & CEO of Stouffer Foods Corporation,
    where he also served as President of Nestle Frozen Food Company. From 1984
    to 1990 Mr. Moone served as President of Wine World Estates, a producer and
    importer of premium wines. From 1995 to 2000, Mr. Moone served as Chariman
    of Napa Valley Kitchens. In 1995, Silverado Partners, led by Mr. Moone,
    completed the successful purchase of Nestle's wine holdings, which was taken
    public in 1997 under the name Beringer Wine Estates. Mr. Moone holds a B.S.
    from University of California at Los Angeles.

    ELLEN AMBROSE is a principal in Brand Insights, a marketing consulting
    company for the packaged foods industry a position she has held since 1996.
    From 1990 to 1996, Ms. Ambrose was Vice President & General Manager for
    Nestle Beverage Company, with responsibility for the ready-to-drink coffee,
    ground coffee, and powdered beverages divisions. Before joining Nestle, Ms.
    Ambrose was a principal in Marketing Corporation of America, a strategic
    marketing consulting firm handling clients such as Frito-Lay, Kraft, General
    Foods, and Pepperidge Farms. She also served as a marketing director for
    Beatrice/Hunt Wesson's Fisher nuts brand, and as Group marketing Manager for
    the Orville Redenbacher division. Ms. Ambrose is currently a director of
    Homegrown Natural Foods. Ms. Ambrose holds a B.S. degree in Food Science
    from University California at Davis.

    C. RICHARD LEMON has practiced law for 30 years, the last 20 being with the
    Napa, California law firm of Dickenson, Peatman, & Fogarty. He devotes his
    practice primarily to the food and wine industries,

                                       15
<PAGE>

    including mergers and acquisitions, financing and general corporate and real
    estate work. He founded and is a board member of Napa National Bank. He is
    President of Temecula Vineyards, Inc., and is a Partner in Silverado
    Partners, a mergers and acquisition consultant to the wine industry. Mr.
    Lemon holds an A.B. from the University of California at Los Angeles and a
    J.D. from Boalt Hall School of Law, University of California.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Not Applicable.

ITEM 10. EXECUTIVE COMPENSATION

The Board of Directors has the authority to fix the compensation of the
directors. The directors may be paid their expenses and a fixed sum for their
attendance at each meeting of the Board or a stated salary as a director, and
each may be reimbursed for his or her expenses. Annie's pays no compensation for
its directors who are also employees of Annie's. Options to purchase the
Company's Common Stock were granted to the Company's non-employee directors for
their services for fiscal year 2000 pursuant to the 1999 Non-employee Director's
Stock Option Plan.

The following table sets forth, for the fiscal years ended March 31, 2001,
2000,and 1999, a summary of compensation awarded to, earned by or paid to the
Company's Chief Executive
Officer and each of its four other most highly compensated executive officers
(the "Named Executive Officers") at March 31, 2001.

SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
                                                                                    SECURITIES
                                                                                    UNDERLYING
         NAME AND              YEAR           SALARY (1)          BONUS (2)           OPTIONS            ALL OTHER
    PRINCIPAL POSITION                           ($)                 ($)                (#)            COMPENSATION
--------------------------- ------------ ------------------- ------------------ ------------------- ------------------
<S>                            <C>          <C>                  <C>                <C>                <C>
PAUL NARDONE (3)(6)            2001         $  126,000           $  21,323              --                  --(7)
President, Chief               2000            104,000              44,044              --                  --(7)
Executive Officer              1999            109,000              33,852              --                  --

ANN E. WITHEY                  2001         $   30,000           $      --              --             $  36,041(5)
Inspirational President        2000             84,000                  --              --                  --
                               1999             94,500                  --              --                13,528(5)

NEIL RAIFF (8)                 2001         $  108,000           $  18,277              --                  --
Chief Financial Officer,       2000             84,000              25,962              --                  --
Secretary and Treasurer        1999            100,500                  --              --                  --

ANDREW M. MARTIN (3)           2001         $       --           $      --              --             $    --
                               2000             72,000                  --              --                  --
                               1999            121,500                  --              --                35,949(4)
</TABLE>

(1)      Amounts shown do not include the cost to the Company of personal
         benefits, the value of which did not exceed 10% of the aggregate salary
         and bonus compensation for each Named Executive Officer.

(2)      Bonus were earned pursuant to a bonus plan adopted by the Board of
         Directors, which required us to achieve certain financial targets for
         the years ended March 31, 2000 and 2001.

(3)      Mr. Martin served as Chief Executive Officer until July 1999. The Board
         of Directors appointed Mr. Nardone our Chief Executive Officer on
         December 2, 1999.

(4)      Other compensation to Mr. Martin includes imputed interest on
         indebtedness to the Company, the personal portion of rent and telephone
         expenses paid by the Company on Mr. Martin's behalf and the forgiveness
         of the Stock Option Loan from October 1997. See "Certain Relationships
         and Related Transactions."
                                       16
<PAGE>

(5)      Other compensation to Ms. Withey includes the forgiveness of the Stock
         Option Loan from October 1997. For 2000, Ms. Withey waived the
         forgiveness on the Stock Option Loan from October 1997 and December
         1998.

(6)      Pursuant to an Employment Agreement between Mr. Nardone and us dated
         November 26, 1996, Mr. Nardone receives a quarterly cash bonus and a
         fixed number of stock options based on the amount by which our actual
         performance exceeds budget during the preceding quarter. Mr. Nardone
         earned, and was owed, stock options to purchase 37,500 shares of Common
         Stock. On July 7, 1999, the Compensation Committee authorized the
         issuance of an incentive stock option to Mr. Nardone to purchase
         237,500 shares of our Common Stock under our 1999 Omnibus Stock Option
         Plan, with accelerated vesting based upon the achievement of certain
         performance incentives. On August 26, 1999, the Compensation Committee
         authorized the issuance of a non-qualified stock option to Mr. Nardone
         to purchase 107,366 shares of our Common Stock under our 1996 Stock
         Plan, at an exercise price of $0.01 per share, in exchange for the
         following changes to Mr. Nardone's Employment Agreement: (i) surrender
         of his entitlement to a change of control bonus of 2%; (ii) surrender
         of his entitlement to incentive stock options to purchase 37,500 shares
         of Common Stock mentioned above; (iii) reduction of his base salary
         from $120,000 to $96,000, (iv) surrender of his entitlement to certain
         cash bonuses based on performance in exchange for his participation in
         our Bonus Pool Program and (v) extension of the term of his Employment
         Agreement to March 31, 2000. Mr. Nardone's contract was extended
         through March 31, 2001.

(7)      In December 1999, Mr. Nardone received 12,500 shares of common stock of
         Homegrown Natural Foods, Inc. (less than 1% of the outstanding common
         shares of Homegrown Natural Foods), which he returned to Homegrown
         Natural Foods on June 29, 2001.

(8)      On July 7, 1999, the Compensation Committee authorized the issuance of
         an incentive stock option to Mr. Raiff to purchase 118,750 shares of
         our Common Stock under our 1999 Omnibus Stock Option Plan, with
         accelerated vesting based upon the achievement of certain performance
         incentives. On August 26, 1999, the Compensation Committee authorized
         the issuance of a ten-year non-qualified stock option to Mr. Raiff to
         purchase 47,368 shares of our Common Stock under our 1996 Stock Plan,
         with an exercise price of $0.01 per share, in exchange for the
         surrender of his entitlement to a change of control bonus of 1% granted
         to him in our Change of Control and Severance Agreement dated December
         21, 1998.

OPTION GRANTS IN LAST FISCAL YEAR

Stock options were granted to the Named Executive Officers during the 2000
fiscal year as follows:

Paul B. Nardone         237,500 shares at an exercise price of $2.00 per share
Paul B. Nardone         107,366 shares at an exercise price of $.01 per share
Neil Raiff              118,750 shares at an exercise price of $2.00 per share
Neil Raiff               47,368 shares at an exercise price of $.01 per share

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information with respect to the Named Executive
Officers concerning the exercise of options during fiscal years ended March 31,
2001, March 31, 2000 and March 31, 1999 and unexercised options held as of the
end of fiscal 2001.

                                       17
<PAGE>

<TABLE><CAPTION>
                                                                             NUMBER OF                VALUE OF
                                                                             SECURITIES             UNEXERCISED
                                                                             UNDERLYING             IN-THE-MONEY
                                                                            UNEXERCISED              OPTIONS AT
                                                      SHARES TO BE         OPTIONS AT FY-          FY-END ($) (1)
                                                        RECEIVED          END EXERCISABLE/          EXERCISABLE/
          NAME                      YEAR               ON EXERCISE         UNEXERCISABLE           UNEXERCISABLE
-------------------------- ----------------------- ------------------- --------------------- --------------------------

<S>                                 <C>                  <C>               <C>                    <C>
PAUL B. NARDONE (2)                 2001                   --              42,946/301,920         $85,463/$128,195
President and Chief                 2000                   --              21,473/323,393         $42,731/$170,927
Executive Officer                   1999                   --                   --                       --

ANN E. WITHEY                       2001                   --                   --                       --
Inspirational President             2000                   --                   --                       --
                                    1999                 71,620              15,667/0                  $0/$0

NEIL RAIFF                          2001                   --              18,949/147,169         $37,708/$56,554
Chief Financial Officer,            2000                   --               9,475/156,643         $18,855/$75,407
Secretary and Treasurer             1999                   --                   --                       --

ANDREW M. MARTIN (2)                2001                   --                   --                       --
                                    2000                   --                   --                       --
                                    1999                101,959              37,302/0                  $0/$0
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Calculated based on an assumed fair market value of $2.00, minus the
         exercise price of the option. The $2.00 fair market value assigned to
         the Common Stock is derived from the valuation used in the sale of
         Series A Convertible Preferred Stock (convertible on a one-for-one
         basis into shares of Common Stock) to Homegrown Natural Foods in
         December 1999 and the call price of the Stock Collar Agreements the
         founders entered into with Homegrown Natural Foods in December 1999
         covering certain of their shares of Common Stock, which was also $2.00
         per share. We have no information on other transactions that would
         present a more meaningful estimate of the per share price of our Common
         Stock.

(2)      Mr. Martin served as Chief Executive Officer until July 1999. The Board
         of Directors appointed Mr. Nardone our Chief Executive Officer on
         December 2, 1999.

DIRECTOR COMPENSATION

In July 1999, the Board of Directors adopted our 1999 Non-Employee Directors'
Stock Option Plan (the "Non-Employee Directors' Plan"). The Non-Employee
Directors' Plan was created to compensate directors while simultaneously
creating an incentive to such directors to maximize stockholder value. The
following is a general summary of the plan, which is qualified in its entirety
by reference to the Non-Employee Directors' Plan.

The Non-Employee Directors' Plan provides for an annual non-discretionary grant
of stock options to each director who is not also an employee (collectively, the
"Non-Employee Directors"). This annual grant is in lieu of all other
compensation for service as a member of the Board of Directors (although
Non-Employee Directors may still receive reimbursement for their expenses in
attending meetings). A total of 100,000 shares of Common Stock is reserved for
issuance under the Non-Employee Directors' Plan.

Each Non-Employee Director receives an annual option grant on the anniversary of
his or her election or appointment to the Board of Directors to purchase 7,500
shares of our Common Stock for service on the Board of Directors for the ensuing
year and 2,500 shares for each committee on which the Non-Employee Director
serves, both with an exercise price equal to the fair market value of the
underlying Common Stock on the date the option is granted. The exercise price
will be 110% of the fair market value of the subject Common Stock for any person
who owns stock possessing more than 10% of the total combined voting power or
value of our equity. Options remain exercisable for five years from the date
granted. Messrs. Foraker, Lemon and Moone voluntarily waived their participation
in the Non-Employee Directors' Plan in 1999, 2000 and 2001. As of January 2,
2002, two non-employee directors held options to purchase 62,500 shares of our
common stock at an exercise price of $2.00 per share under the Non-Employee
Directors' Plan.

1999 OMNIBUS STOCK OPTION PLAN

Our management strives to attract and retain top quality employees, consultants
and directors. To that end, in July 1999, the Board of Directors adopted and our
stockholders approved our 1999 Omnibus Stock Option Plan (the

                                       18
<PAGE>

"1999 Plan"). The following is a general summary of the plan, which is qualified
in its entirety by reference to the 1999 Plan.

Under the 1999 Plan, options to purchase shares of our Common Stock may be
granted which are either (i) options intended to qualify as ISOs under Section
422(b) of the Internal Revenue Code, or (ii) non-qualified stock options
("NQSOs"). Options to purchase a total of 475,000 shares of Common Stock may be
granted under the 1999 Plan; however, options to purchase more than 300,000
shares may not be granted to any single recipient during any single calendar
year. If there is a change of the number or kind of shares issuable under the
1999 Plan as a result of declaration of stock dividend, stock split,
combination, exchange, merger, consolidation, reclassification or any similar
extraordinary event affecting our Common Stock, an adjustment will be made in
the maximum aggregate number of shares that may be subject to the 1999 Plan, as
well as in the number of shares subject to outstanding options and the exercise
price of options granted under the 1999 Plan. The Compensation Committee will
oversee and administer the 1999 Plan (subject to the 1999 Plan's terms), will
have authority to select recipients eligible to receive option grants, and will
grant ISOs and NQSOs under the 1999 Plan's terms. The Compensation Committee may
grant ISOs or NQSOs or any combination of such options, but our directors and
consultants will only be entitled to receive NQSOs.

The exercise price of options under the 1999 Plan will be not less than 100% of
the fair market value of our Common Stock on the date of grant if the grant is
intended to be an ISO. No ISO will be granted to any individual who, immediately
prior to the grant, owns shares of our stock possessing more than 10% of the
total combined voting power of our stock, unless that option's exercise price is
not less than 110% of fair market value of our Common Stock on the date of grant
and the option, by its terms, expires no later than five years after the date of
grant.

Our Board of Directors, will determine the exercise period and vesting terms, if
any, for each option grant, but the exercise period will not be more than ten
years after the date the option is granted. If a recipient of options ceases to
be an employee, consultant or director to us for any reason other than his or
her death, disability or approved retirement, any option that is otherwise
exercisable by such former employee, consultant or director will terminate
unless it is exercised within 30 days of the date of his or her termination. If
a recipient ceases to be an employee, consultant or director of us by reason of
his or her death, any option held by that recipient which was exercisable on the
date of his or her death may be exercised by the legal representative of the
recipient's estate for up to one year after his or her death or until the stated
expiration date of the option, whichever period is shorter. Any option not
exercisable on the date of the recipient's death is forfeited. If a recipient
ceases to be an employee, consultant or director as a result of his or her
disability, any such options which are exercisable on the date of his or her
termination may be exercised for up to one year following the date of
termination or until the stated expiration date of such option, whichever period
is shorter. If a recipient is "Terminated for Cause", as defined under the 1999
Plan (e.g., for violation of our personnel policies), the terminated recipient's
options will immediately be forfeited.

In the event of a Change of Control, as defined in the 1999 Plan, unless
otherwise proscribed in the stock option grant, one-half of the unvested
portions of each grant under the 1999 Plan will become fully exercisable
immediately prior to such event. We did not intend for the Homegrown Natural
Foods transaction described previously to constitute a "Change of Control" for
the purposes of the 1999 Plan, and the stock option grants prior to the closing
of the Homegrown Natural Foods transaction will so indicate. If the 1999 Plan
remains in effect following such a Change of Control, the remainder of any
unvested options will continue to vest as otherwise provided unless the Board of
Directors determines otherwise.

The Board of Directors may amend, discontinue or terminate the 1999 Plan at any
time. The 1999 Plan will automatically terminate on the tenth anniversary of its
effective date.

On July 7, 1999 and August 26, 1999, pursuant to the 1999 Plan, the Compensation
Committee of the Board of Directors approved the issuance of incentive stock
options to purchase an aggregate of 391,862 shares to five employees with an
exercise price equal to the fair market value of the Common Stock on the date of
grant, with accelerated vesting based upon the achievement of certain
performance milestones.

                                       19
<PAGE>

1996 STOCK PLAN

On October 28, 1996, we adopted a 1996 stock option plan (the "1996 Plan"). The
purpose of the 1996 Plan is to encourage ownership of our Common Stock by
officers, key employees, directors, consultants and other persons not employed
by us. Pursuant to the 1996 Plan, we may grant incentive stock options and
non-qualified stock options to our employees, officers, directors and
consultants. A total of 200,000 shares of Common Stock were reserved for
issuance under the 1996 Plan. The Board of Directors is authorized to determine
the employees, officers, directors and consultants to whom options are granted
and the number of shares for each option. The Board also interprets the 1996
Plan and the options granted thereunder and is authorized to adopt, amend or
rescind the rules and regulations and make all other determinations necessary or
advisable for the administration of the 1996 Plan. The 1996 Plan may be amended
at any time by the Board, although certain amendments would require stockholder
approval. During the year ended March 31, 2000, 164,734 stock options were
granted to employees with an exercise price of $.01 per share.

The Board has the discretion to determine the extent to which an option may be
exercised in part and the extent to which any part may or may not be exercised
prior to expiration of specified periods of time after the grant. However, no
option shall be exercisable to any extent after the expiration of ten years
(five years in the case of an incentive stock option granted to a greater than
10% stockholder). If the optionee terminates his or her services with the
Company, the optionee must exercise the option within the earlier of the
expiration date of such option or within 90 days of termination of services for
any reason other than death or disability. In the event of death or retirement,
the incentive stock option shall terminate at the earlier of such date of
expiration or within 180 days and 90 days respectively following such event. The
exercise price of incentive stock options granted under the 1996 Plan must be at
least equal to the fair market value of our Common Stock on the date of grant.
The exercise price of incentive stock options granted to an optionee who owns
stock possessing more than 10% of our Common Stock must equal at least 110% of
the fair market value of our Common Stock on the date of grant.

1990 INCENTIVE STOCK OPTIONS PLAN

In January 1990, we adopted an incentive stock option plan (the "1990 Plan").
The purpose of that plan was to encourage ownership of our Common Stock by
officers, key employees, directors, consultants and other persons not employed
by us. Pursuant to the 1990 Plan, we granted incentive stock options and
non-qualified stock options to our employees, officers, directors and
consultants. The Board of Directors was authorized to determine the employees,
officers, directors and consultants to whom options are granted and the number
of shares for each option. The Board also interpreted the 1990 Plan and the
options granted thereunder and was authorized to adopt, amend or rescind the
rules and regulations and make all other determinations necessary or advisable
for the administration of the 1990 Plan.

The Board had the discretion to determine the extent to which an option may be
exercised in part and the extent to which any part may or may not be exercised
prior to expiration of specified periods of time after the grant. However, no
option was exercisable to any extent after the expiration of ten years (five
years in the case of an incentive stock option granted to a greater-than 10%
stockholder). If an optionee terminates his or her services with us, the
optionee must exercise the option within the earlier of the expiration date of
such option or within 30 days of termination of services for any reason other
than death, retirement or disability. In the event of death or retirement, the
incentive stock option shall terminate at the earlier of such date of expiration
or within 180 days and 90 days respectively following such event. The exercise
price of incentive stock options granted under the 1990 Plan is at least equal
to the fair market value of our Common Stock on the date of grant. The exercise
price of incentive stock options granted to an optionee who owns stock
possessing more than 10% of our Common Stock must equal at least 110% of the
fair market value of the Common Stock on the date of grant.

The 1990 Plan terminated in accordance with its provisions in January 2000.

                                       20
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company
regarding the beneficial ownership of our Common Stock as of December 31, 2001
for (i) each stockholder known by us to own beneficially 5% or more of the
outstanding shares of its Common Stock; (ii) each director; and (iii) all
directors and executive officers as a group. We believe that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.

<TABLE><CAPTION>
NAME AND ADDRESS (1)        PRE-SPLIT AMOUNT OF          PERCENT OF PRE-SPLIT        POST-SPLIT AMOUNT OF     PERCENT OF POST-SPLIT
                            BENEFICIAL                   COMMON STOCK ON AN AS       BENEFICIAL               COMMON STOCK ON AN AS
                            OWNERSHIP (2)(3)             CONVERTED BASIS (4)         OWNERSHIP (5)            CONVERTED BASIS (5)
<S>                         <C>                          <C>                         <C>                      <C>
HOMEGROWN NATURAL FOODS,    3,577,691                    63.23%                      1788.85                  66.40%
INC. (6)
580 GATEWAY DRIVE
NAPA, CA 94558

JOHN FORAKER (7)            3,577,691                    63.23%                      1788.85                  66.40%
C/O HOMEGROWN NATURAL
FOODS, INC.
580 GATEWAY DRIVE
NAPA, CA 94558

ANN E. WITHEY (8)           788,542                      13.94%                      394.27                   14.64%
C/O ANNIE'S HOMEGROWN INC.
395 MAIN STREET
WAKEFIELD, MA 01880

PAUL NARDONE (9)            101,919                      1.77%                       50.96                    1.86

NEIL RAIFF (10)             80,645                       1.42                        40.32                    1.49%

RONALD L. CHENEY (11)       100,104                      1.76%                       50.05                    1.85%

ELLEN AMBROSE (12)          17,500                       *                           8.75                     *

E. MICHAEL MOONE (13)       0                            *                           0                        *

C. RICHARD LEMON (14)       0                            *                           0                        *
                            ----------                   --------                    ---------                ---------
ALL DIRECTORS AND           4,666,401                    80.07%                      2333.20                  83.96%
EXECUTIVE OFFICERS AS A
GROUP (8 PERSONS)(15)
</TABLE>
--------------------------
* Less than 1% of total voting securities

(1)  Addresses are provided only for 5% beneficial owners.
(2)  Except as otherwise noted in the footnotes to this table, each person or
     entity named in the table has sole voting and investment power with respect
     to all shares as owned, based on information provided to us by the persons
     or entities named in the table.
(3)  Shares of Common Stock subject to options exercisable within 60 days of
     December 31, 2001 are deemed outstanding for computing the percentage of
     the person or group holding such securities.
(4)  Percentage of beneficial ownership is calculated on the basis of the amount
     of outstanding securities (Common and Preferred Stock) at December 31, 2001
     (5,657,808) plus, for each person or group, any securities that person or
     group has the right to acquire within 60 days pursuant to stock options or
     other rights.
(5)  Assumes the effectiveness of the 1 for 2,000 reverse stock split, which is
     presented as Proposal 3 in the Company's Proxy Statement for its February
     28, 2002 Annual Meeting. Pursuant to the Proposal, 270,000 shares of Common
     Stock will be retired and 270,000 units of scrip will be issued. Percentage
     of beneficial ownership is calculated on an as adjusted, pro forma basis,
     showing the amount of outstanding securities (Common and Preferred Stock)
     on December 31, 2001, less shares that will be retired in conjunction with
     the reverse stock split (leaving 2,703.904 deemed outstanding).
(6)  Includes all stock subject to Irrevocable Proxies that Mr. Andrew Martin
     (1,411,109 shares) and Ms. Ann Withey (617,418 shares) granted to Homegrown
     Holdings Corp., now known as Homegrown Natural Foods, Inc., in conjunction
     with the Stock Collar Agreements each dated December 2, 1999 (described
     below), which grants voting authority with respect to such shares.
(7)  Includes all stock subject to Irrevocable Proxies Agreement that Mr. Andrew
     Martin (1,411,109 shares) and Ms. Ann Withey (617,418 shares) granted to
     Homegrown Holdings Corp., now known as Homegrown Natural Foods, Inc., in
     conjunction with the Stock Collar Agreements dated December 2, 1999
     (described below), which grants voting authority with respect to such
     shares and for which Mr. Martin and Ms. Withey disclaim beneficial
     ownership. Mr. Foraker, Chairman of the Company's Board of Directors, is
     also the Chief Executive Officer of Homegrown Natural Foods. Mr. Foraker
     holds 30, 532 shares of Homegrown Natural Foods. Series A Preferred Stock,
     227, 501 shares of its Common Stock, and options to purchase 101, 000
     shares of its Common Stock.
(8)  Ms. Withey is a director of Annie's and is the Company's Inspirational
     President. All of Ms. Withey's Common Stock is subject to Stock Transfer
     Instructions, dated July 27, 1995, and as amended described below. Certain
     loans by Annie's to Ms. Withey are secured by the Common Stock that may be
     received by her upon exercise of certain option grants (described below).
     Does not include 617,418 shares of Ms. Withey's Common Stock are subject to
     a Stock Collar Agreement and Irrevocable Proxy with Homegrown Natural
     Foods, for which she disclaims beneficial ownership.
(9)  Mr. Nardone is a director of Annie's. Includes the vested portion (64,419
     shares) of a non-qualified stock option to purchase 107,366 shares of the
     Company's Common Stock under the Company's 1996 Stock Plan for an exercise
     price of $0.01. Also includes unvested portion (37,500 shares) on a
     Qualified Stock Option to purchase 237,500 shares of the Company's Common
     Stock under the Company's 1999 Common Stock Option Plan for an exercise
     price of $2.00. Mr. Nardone was issued 12,500 shares of Common Stock of
     Homegrown Natural Foods (less than 1% of the outstanding Common Stock of
     Homegrown Natural Foods) in consideration of service rendered. Mr. Nardone
     returned those shares to Homegrown Natural Foods on June 29, 2001.
(10) Mr. Raiff is the Chief Financial Officer of Annie's. The figure above
     includes the vested portion (28,422) shares of a non-qualified stock option
     to purchase 47,368 shares of the Company's Common Stock under the Company's
     1996 Stock Plan for an exercise price of $0.01 per share.
(11) Mr. Cheney is a director of Annie's. The figure above includes 22,500
     shares of Common Stock issuable upon exercise of certain options granted
     pursuant to the Company's Non-Employee Directors' Stock Option Plan.
(12) Ms. Ambrose is a director of Annie's. The figure above includes 17,500
     shares of Common Stock issuable upon exercise of certain options granted
     pursuant to Annie's Non-Employee Directors' Stock Option Plan. Ms. Ambrose
     also holds 2,500 shares of Series A Preferred Stock and options to purchase
     5,000 shares of Common Stock of Homegrown Natural Foods, Inc. and is a
     director of Homegrown Natural Foods, Inc.
(13) Mr. Moone is a director of Annie's and a director of Homegrown Natural
     Foods, Inc. Mr. Moone also holds 488,402 shares of Series A Preferred Stock
     and options to purchase 103,333 shares of Common Stock of Homegrown Natural
     Foods, Inc.
(14) Mr. Lemon is currently a director of Annie's. He is not standing for
     reelection.
(15) Includes 170,341 shares of Common Stock issuable upon exercise of certain
     options granted to directors and executive officers pursuant to the
     Company's various Stock Option Plans.

                                       21
<PAGE>

STOCK TRANSFER INSTRUCTIONS

In July 1995, and as a condition to qualification imposed by the Securities
Division of the Secretary of State of the Commonwealth of Massachusetts for the
Company's then upcoming direct public offering, the Company's co-founders, Ms.
Ann Withey and Mr. Andrew Martin, each delivered to Annie's stock transfer agent
certificates representing 750,000 of their shares of the Company's Common Stock
(the "Initial Subject Shares"). In addition to the Initial Subject Shares, they
presented certain Stock Transfer Instructions to the Company's transfer agent
relating to the disposition and transfer of the Initial Subject Shares, as
described below. Pursuant to an addendum to those Stock Transfer Instructions,
the co-founders' other shares of Common Stock (the "Additional Subject Shares")
were also subjected to the Stock Transfer Instructions. The Commonwealth of
Massachusetts is not a party to the Stock Transfer Instructions.

The Stock Transfer Instructions provide that the Initial Subject Shares and the
Additional Subject Shares will not have any right, title, interest or
participation in the assets of Annie's in the event of a dissolution,
liquidation, reorganization, exchange or any other transaction or proceeding
which results in a distribution of the assets of Annie's until the holders of
all shares of Common Stock not covered by the Stock Transfer Instructions have
received an amount equal to the public offering price, $6.00 per share.

The stock transfer instructions provide that on July 27, 2001, 2002, 2003, and
2004, 25% of those shares become freely transferable. Additionally, each
co-founder may transfer, within any three-month period, a number of the
Additional Subject Shares that would equal 1% of the Company's Common Stock then
outstanding.

The Initial Subject Shares and the Additional Subject Shares may also become
transferable upon certification by the Company's Chief Financial Officer that
any of the following has been achieved:

o    for two consecutive fiscal years, Annie's has minimum annual earnings equal
     to $0.30 per share;

o    for five consecutive fiscal years, Annie's has an average minimum annual
     earnings of $0.30 per share; or

o    the Company's shares have traded on a United States stock exchange at a
     price at least equal to $10.50 (adjusted for stock splits, stock dividends
     and recapitalizations and the like) for at least 90 consecutive trading
     days.

No such certification has occurred, and no such certification is expected by the
Company's management to occur in the foreseeable future.

Shares subject to the Stock Transfer Instructions may be transferred upon death
or by gift to family members if the shares remain subject to the restrictions
described above. Shares subject to the Stock Transfer Instructions continue to
have all voting rights to which those shares are entitled. Annie's will withhold
any dividends on Ms. Withey's and Mr. Martin's shares subject to the Stock
Transfer Instructions and will pay those dividends to Ms. Withey and Mr. Martin
only as and to the extent their shares become free for transfer.

HOMEGROWN NATURAL FOODS TRANSACTION

On December 2, 1999, Homegrown Holdings Corp., now known as Homegrown Natural
Foods, Inc., purchased 1,000,000 of the Company's Series A Preferred Stock and
entered into Stock Collar Agreements with Mr. Martin and Ms. Withey in
connection with certain shares of the Company's Common Stock owned by Ms. Withey
and all of the Company's Common Stock owned by Mr. Martin. Specifically,
Homegrown Natural Foods was granted a "call" option to purchase 1,677,691 shares
of the Company's Common Stock held by Mr. Martin and 900,000 shares of the
Company's Common Stock held by Ms. Withey, each exercisable as quickly as those
shares are released from the Stock Transfer Instructions, and for an exercise
price of $2.00 per share. In addition, Mr. Martin was granted a "put" option to
sell 1,677,691 shares of the Company's Common Stock held by him to Homegrown
Natural Foods at $1.92 per share, exercisable fifteen days after Homegrown
Natural Foods' call option is exercisable. Ms. Withey was granted a put option
to sell 900,000 shares of the Company's Common Stock held by her to Homegrown
Natural Foods for $1.92 per share exercisable fifteen days after Homegrown
Natural Foods call option for her shares is exercisable.

Mr. Martin and Ms. Withey have provided Homegrown Natural Foods with an
Irrevocable Proxy to vote their shares of the Company's Common Stock subject to
the Stock Collar Agreements. Pursuant to the Irrevocable Proxy Agreement, on
December 2, 1999, Homegrown Natural Foods obtained full power and authority to
vote all of Mr. Martin's shares of the Company's Common Stock and 617,418 of Ms.
Withey's shares of the Company's Common Stock for a ten year period. Because of
these transactions and a related issuance of Preferred Stock to Homegrown
Natural Foods, Homegrown Natural Foods acquired control of Annie's on December
2, 1999.




                                       22
<PAGE>

           ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

           NAPA VALLEY KITCHENS.

In June 2000, Annie's retained Napa Valley Kitchens to provide certain services
such as order processing, invoicing, record management, sales coverage, broker
management, promotion execution, management of sales and allowances. The Company
paid Napa Valley Kitchens approximately $264,000 for its services in the fiscal
year ended March 31, 2001 and approximately $260,000 for the period from April
1, 2001 through December 31, 2001. Napa Valley Kitchens is a subsidiary of
Homegrown Natural Foods, which acquired control of Annie's pursuant to the terms
of the Stock Collar Agreement that Ms. Withey and Mr. Martin entered into with
Homegrown Natural Foods and pursuant to a Stock Purchase Agreement dated
December 2, 1999.














                                       23
<PAGE>


HOMEGROWN NATURAL FOODS.

In conjunction with the Homegrown Natural Foods transaction, on December 2,
1999, Mr. Martin and Ms. Withey entered into a Stock Collar Agreement with
Homegrown Holdings Corp., now known as Homegrown Natural Foods that provides
Homegrown Natural Foods with a stock collar on certain shares of Annie's Common
Stock owned by Ms. Withey and all of the shares of the Company's Common Stock
owned by Mr. Martin. Under the terms of the Stock Collar Agreement, Homegrown
Natural Foods was granted a call option to purchase 1,677,691 shares of the
Company's Common Stock held by Mr. Martin and 900,000 shares of the Company's
Common Stock held by Ms. Withey, each exercisable as quickly as those shares are
released from the Irrevocable Stock Transfer Instructions, described above under
the heading "Security Ownership" by Management and Principal Stockholders. In
addition, Mr. Martin was granted a put option at $1.92 per share with regard to
1,677,691 shares of the Company's Common Stock held by him, exercisable fifteen
days after Homegrown Natural Foods' call option is exercisable. Ms. Withey was
granted a put option on the same terms with respect to 900,000 shares of Common
Stock owned by her. The call and put options are exercisable quarterly over a
five-year period following the closing of the Homegrown Natural Foods
transaction. Mr. Martin and Ms. Withey have provided Homegrown Natural Foods
with an Irrevocable Proxy to vote their shares subject to the Stock Collar
Agreement.

LOANS TO OFFICER.

Mr. Martin, a former director of Annie's, borrowed $75,000 from Annie's on June
30, 1995 pursuant to an unsecured demand note accruing interest at 11% per
annum. As of June 30, 1999, the full principal balance of the loan was
outstanding. Annie's called the demand note and Mr. Martin executed a secured
promissory note, dated December 31, 1997, in the principal amount of $75,000
providing for interest payable quarterly at 6.02%, secured by 25,000 shares of
the Company's Common Stock owned by Mr. Martin, which stock was deposited in an
escrow account established for this purpose, together with stock powers in blank
authorizing the resale of such shares under the applicable rules and regulations
of the Securities and Exchange Commission, and restricting the resale of other
shares of Annie's Common Stock owned by Mr. Martin under certain circumstances.
The loan was rescheduled into an Omnibus Secured Promissory Note in accordance
with Mr. Martin's separation agreement.

AMOUNTS DUE FROM OFFICER.

Annie's periodically paid certain of Mr. Martin's personal expenses, which were
accounted for on Annie's books as "Due From Officer." The total amount of such
advances outstanding on March 31, 1999 was $24,759. The loan was rescheduled
into an Omnibus Secured Promissory Note in accordance with Mr. Martin's
separation agreement.

STOCK OPTION LOANS.

Pursuant to Section 8 of the Company's 1990 Stock Option Plan, on December 21,
1998, Annie's made loans to Mr. Martin, Ms. Withey and to Ms. Churchill Luster
in the amounts of $102,468.80, $71,978.10 and $43,236.11, respectively, to
enable each of them to purchase shares of Common Stock upon exercise of certain
options that previously were granted to them. In each case, the options were
granted on December 30, 1993 for a term of five years with an exercise price of
$1.005 per share. The terms of the Stock Purchase and Loan Agreements ("1998
Stock Loans") provide for annual interest at the rate of 4.51%, the mid-term
Applicable Federal Rate in effect for December 1998. Interest is payable
annually on December 30. The entire outstanding principal is due on December 30,
2003. The terms of the 1998 Stock Loans further provide for Annie's to pay all
interest due on the foregoing loan on each borrower's behalf, plus one-fifth of
the original principal amount of such loans, providing that each such borrower
is still employed by Annie's on December 29 of each year during the life of the
obligation. Payments of principal and interest are deemed compensation income to
each borrower. The 1998 Stock Loans are secured by the Common Stock (the "1998
Stock Loan Pledged Shares") issuable upon exercise of the options. In the event
that a borrower is terminated by Annie's for good cause, the 1998 Stock Loan
Pledged Shares are subject to repurchase by Annie's at $1.005 per share. In the
event that a borrower is terminated for other than good cause, such a borrower
may obtain title to the 1998 Stock Loan Pledged Shares by payment of all
outstanding principal and interest due on his or her stock loan, or may resell
the 1998 Stock Loan Pledged Shares to Annie's at $1.005 per share.

On October 1, 1997 and pursuant to Section 8 of the 1990 Option Plan, Annie's
also made loans to Ms. Churchill Luster, Mr. Martin and Ms. Withey in the
amounts of $49,735.20, $67,641.60 and $67,641.60, respectively, to enable each
of them to purchase shares of Common Stock upon exercise of certain options that
previously were granted to them (the "1997 Stock Loans"). In each case, the
options were granted on October 1, 1992 for a term of five years with an
exercise price of $0.80 per share. The terms of the 1997 Stock Loans provide for
annual interest at the rate of 6.34%, the mid-term Applicable Federal Rate in
effect for October 1997. Interest is payable annually on October 1. The entire
outstanding principal is due on October 1, 2002. The terms of the 1997 Stock
Loans further provide for Annie's to pay all interest due on the foregoing loan
on each borrower's behalf, plus one-fifth of the original principal amount of
such loans, providing that each such borrower is still employed by Annie's on
September 30 of each year during the life of the obligation. Payments of
principal and interest are deemed compensation income to each borrower. The 1997
Stock Loans are secured by the Common Stock (the "1997 Stock Loan Pledged
Shares") issuable upon exercise of the options. In the event that a borrower is
terminated by Annie's for good cause, the 1997 Stock Loan Pledged Shares are
subject to repurchase by Annie's at $0.80 per share. In the event that a
borrower is terminated other than for good cause, the borrower may obtain title
to the 1997 Stock Loan Pledged Shares by payment of all outstanding

                                       24
<PAGE>

principal and interest due on his or her stock loan, or may resell the 1997
Stock Loan Pledged Shares to Annie's at $0.80 per share.

Pursuant to the terms of the 1998 Stock Loans and the 1997 Stock Loans, Mr.
Martin's and Ms. Churchill Luster's stock loans became due and payable 45 days
after the date of their respective terminations. That maturity date was extended
to the closing date of the Homegrown Natural Foods financing. In conjunction
with that financing, Mr. Martin and Ms. Churchill Luster each entered into
Separation Agreements, dated December 2, 1999, with Annie's.

Under the terms of Mr. Martin's Separation Agreement, he executed a five-year
Omnibus Secured Promissory Note, pursuant to which he agreed to pay $274,630.18
to Annie's, with interest accruing on the principal balance at the rate of 9%
per annum, and payable in 20 quarterly installments equal to 5% of the original
principal amount of the debt, with the balance due and payable of the fifth
anniversary of the date of the note. The note was secured by all of his interest
in his Stock Collar Agreement with Homegrown Natural Foods pursuant to a
Security Agreement and Collateral Assignment, dated December 2, 1999. As part of
the Separation Agreement, Annie's released its security interest on the shares
of Common Stock owned by Mr. Martin that it held pursuant to the 1998 Stock Loan
Agreement and the 1997 Stock Loan Agreement. The Omnibus Secured Promissory Note
was given in satisfaction of his obligations to Annie's under the 1997 Stock
Loan Agreement, 1998 Stock Loan Agreement, another promissory note and other
certain personal advances and loans by Annie's to Mr. Martin. Also, as part of
this transaction, Mr. Martin agreed to amend the Company's right to repurchase
shares of the Company's stock acquired using proceeds from the 1998 Stock Loan
Agreement and 1997 Stock Loan Agreement to change the purchase price for each
stock to $2.00 per share.

Ms. Luster also executed a Separation Agreement with the Company, dated December
2, 1999. The Separation Agreement provided for severance payments to her as a
result of termination of her employment by us, in consideration for a release of
any claims that she may have had against the Company. In connection with her
Separation Agreement, Ms. Luster also rescheduled her debt to the Company,
originally incurred as a result of the loans described above. Ms. Luster's
rescheduled obligations are evidenced by an Omnibus Secured Promissory Note in
the amount of $87,794, dated December 2, 1999, bearing interest at the rate of
9% per annum and secured by her shares of our Common Stock. During the year
ended March 31, 2001, the note was fully paid through her surrender to the
Company of shares of our common stock.

ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K

(A) EXHIBITS


  Exhibit Number             Description
--------------------------------------------------------------------------------
     ** 3.1            Certificate of Incorporation, as amended
     ** 3.2            By-Laws, as amended
     ** 3.4            Certificate of Amendment re: name change
     ** 4.1            Certificate of Designation
     ** 10.1           Lease agreement with Second Street Limited Partnership
                       dated December 19, 1994 for Chelsea, MA office
     ** 10.2           Lease agreement with Marin Freeholders dated August 31,
                       1995 for Sausalito, CA office
     ** 10.6           Distribution Agreement with Liberty Richter, Inc.
     ** 10.7           Employment Contract with Paul B. Nardone dated November,
                       1996

                                       25
<PAGE>


     **10.8            Loan and Security Agreement dated as of February 3, 1998
                       between Fremont Financial Corporation and Annie's
                       Homegrown, Inc.
     **10.13           Stock Purchase and Loan Agreement with Andrew Martin
                       dated December 21, 1998
     **10.14           Stock Purchase and Loan Agreement with Ann Withey dated
                       December 21, 1998
     **10.15           Stock Purchase and Loan Agreement with Deborah Churchill
                       Luster dated December 21, 1998
     **10.16           Employment Agreement with Paul Nardone dated December 21,
                       1998
     **10.17           Change of Control and Severance Agreement with Neil Raiff
                       dated December 21, 1998
     **10.18           Sample Change of Control and Severance Agreement with
                       Other Employees
     **10.31           1990 Incentive Stock Option Plan
     **10.32           1996 Stock Plan
     **10.41           Loan Agreement and Security Agreement with Inventory
                       Addendum dated June 7, 1996 with Presidential Financial
                       Corporation of Massachusetts
     **10.42           Demand and Secured Promissory Note dated June 7, 1996
                       payable to Presidential Financial Corporation of
                       Massachusetts
     **10.43           Lease agreement with Anthony C. Simboli dated February 3,
                       1998 for Wakefield, MA office
     **10.44           Loan Agreement dated December 31, 1997 between Andrew M.
                       Martin and Annie's Homegrown, Inc.
     **10.45           Stock Purchase and Loan Agreement dated October 1, 1997
                       between Andrew M. Martin and Annie's Homegrown, Inc.
     **10.46           Amendment to Stock Purchase and Loan Agreement between
                       Andrew M. Martin and Annie's Homegrown, Inc. dated
                       December 31, 1997
     **10.47           Stock Purchase and Loan Agreement dated October 1, 1997
                       between Ann E. Withey and Annie's Homegrown, Inc.
     **10.48           Amendment to Stock Purchase and Loan Agreement between
                       Ann E. Withey and Annie's Homegrown, Inc. dated December
                       31, 1997
     **10.49           Stock Purchase and Loan Agreement dated October 1, 1997
                       between Deborah Churchill and Annie's Homegrown, Inc.
     **10.50           Pledge Agreement dated December 31, 1997 between Andrew
                       M. Martin and Annie's Homegrown, Inc.
     **10.54           Investment and Stock Purchase Agreement
     **10.55           Escrow Letter Agreement
     **10.56           Promissory Note in the original principal amount of
                       $1,000,000 issued to Homegrown Holdings Corp. by Annie's
                       Homegrown Inc. dated December 2, 1999.
     **10.57           Warrant issued to Homegrown Holdings Corp. by Ann E.
                       Withey to purchase shares of the Company's Common Stock.
                       Warrant issued to Homegrown Holdings Corp. by Andrew M.
                       Martin to purchase shares of the Company's Common Stock.
     **10.58           Stock Collar Agreement by and between Ann E. Withey and
                       Homegrown Holdings Corp. dated December 2, 1999
     **10.59           Stock Collar Agreement by and between Andrew M. Martin
                       and Homegrown Holdings Corp. dated December 2, 1999.
     **10.60           Separation Agreement by and between Andrew M. Martin and
                       Annie's Homegrown Inc. dated December 2, 1999.
     **10.61           Separation Agreement by and between Deborah Churchill
                       Luster and Annie's Homegrown Inc. dated December 2, 1999

                                       26
<PAGE>

     **10.62           Irrevocable Proxy between Ann E. Withey and Homegrown
                       Holdings Corp. dated December 2, 1999.
     **10.63           Irrevocable Proxy between Andrew M. Martin and Homegrown
                       Holdings Corp. dated December 2, 1999.
     **10.64           Second Amendment to Employment Agreement by and between
                       Paul B. Nardone and Annie's Homegrown Inc.
     **10.65           Third Amendment to Employment Agreement by and between
                       Paul B. Nardone and Annie's Homegrown Inc. dated August
                       16, 2000
     **10.66           Amendment to the Investment and Stock Purchase Agreement
                       between Homegrown Holdings Corp and Annie's Homegrown,
                       Inc. dated October 16, 2000
     **10.67           $1,000,000 Revolving Demand Note between Warren Five
                       Cents Savings Bank and Annie's Homegrown, Inc. dated
                       November 3, 2000
     **10.68           Loan and Security Agreement between Warren Five Cents
                       Savings Bank and Annie's Homegrown, Inc. dated November
                       3, 2000
     **10.69           $1,500,000 Revolving Demand Note between Warren Five
                       Cents Savings Bank and Annie's Homegrown, Inc. dated June
                       15, 2001
     **10.70           Loan and Security Agreement between Warren Five Cents
                       Savings Bank and Annie's Homegrown, Inc. dated June 15,
                       2001
     **10.71           Limited Liability Company Agreement of Ceres Organics LLC
                       dated July 2, 2001
     *  24.1           Power of Attorney (included on Signature Page of this
                       report)
     -------------------
     *  Filed herewith
     ** Previously filed as an Exhibit to the Company Registration statement on
        Form SB-2 (No. 33-93982-LA) and subsequent periodic reports and
        incorporated herein by reference.

(B) REPORTS ON FORM 8-K

No reports on Form 8-K were filed by the Company during the Company's fiscal
quarter ended March 31, 2001.

                                       27
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                    ANNIE'S HOMEGROWN, INC.
                                    Registrant

                                    /s/ Paul B. Nardone
                                    --------------------------------
                                    Paul B. Nardone, President
                                    and Chief Executive Officer

                                    January 10, 2002
                                    --------------------------------
                                    Date

Each person whose signature appears below appoints Paul B. Nardone, and Neil
Raiff, as his or her attorney-in-fact, with full power of substitution and
resubstitution to sign any and all amendments to this report on Form 10-KSB of
Annie's Homegrown, Inc. and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact and
agent or his or her substitute or substitutes may lawfully do or cause to be
done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

SIGNATURE                 TITLE                                     DATE
---------                 -----                                     ----


/s/ Paul B. Nardone      President, Chief Executive Officer    January 10. 2002
-----------------------  and Director (Principal Executive
Paul B. Nardone          Officer)


/s/       *              Inspirational President & Director    January 10. 2002
-----------------------
Ann E. Withey



/s/ John Foraker         Chairman of the Board                 January 10. 2002
-----------------------
John Foraker



/s/ Neil Raiff           Chief Financial Officer, Treasurer    January 10. 2002
-----------------------  and Secretary (Principal Financial
Neil Raiff               and Accounting Officer)

/s/       *              Director                              January 10. 2002
-----------------------
Ronald Cheney

                         Director
-----------------------
E. Michael Moone


-----------
*  by Neil Raiff under p/o/a
                                       28


<PAGE>


/s/ C. Richard Lemon     Director                              January 10. 2002
-----------------------
C. Richard Lemon



/s/       *              Director                              January 10. 2002
-----------------------
Ellen Ambrose




-----------
*  by Neil Raiff under p/o/a






















                                       29


<PAGE>


                         SUPPLEMENTAL INFORMATION TO BE
                      FURNISHED WITH REPORTS FILED PURSUANT
                        TO SECTION 15(D) OF THE EXCHANGE
                          ACT BY NON-REPORTING ISSUERS

































                                       30


<PAGE>

                             ANNIE'S HOMEGROWN, INC.

                              Financial Statements
                             March 31, 2000 and 2001
                   (With Independent Auditors' Report Thereon)


Independent Auditors' Report ...............................................F-1

Audited Balance Sheets as of March 31, 2000 and March 31, 20001 ............F-2

Statement of Operations for the year ended March 31, 2000 and
March 31, 2001 .............................................................F-3

Statement of Stockholders' Equity for the year ended March 31, 2000 and
March 31, 2001 .............................................................F-4

Statement of Cash Flows for the year ended March 31, 2000 and
March 31, 2001 .............................................................F-5

Notes to Consolidated Financial Statements .................................F-6
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Annie's Homegrown, Inc.:


We have audited the accompanying balance sheets of Annie's Homegrown, Inc. as of
March 31, 2000 and 2001, and the related statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Annie's Homegrown, Inc. at
March 31, 2000 and 2001 and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.


/s/ KPMG

Boston, Massachusetts
May 25, 2001

                                       F-1
<PAGE>


                             ANNIE'S HOMEGROWN, INC.
                                 Balance Sheets
                             March 31, 2000 and 2001



                                     ASSETS                2000         2001
                                                       ===========  ===========

Current assets:
    Cash and cash equivalents                          $   452,903       78,823
    Accounts receivable:
      Trade                                                557,923    2,149,513
    Inventory                                            1,344,688    1,427,356
    Other assets                                             9,575       42,671
                                                       -----------  -----------
           Total current assets                          2,365,089    3,698,363
                                                       -----------  -----------

Office equipment, plates and dies                          204,350      301,222
Accumulated depreciation                                  (117,464)    (159,464)
                                                       -----------  -----------
           Office equipment, plates and dies, net           86,886      141,758
                                                       -----------  -----------

Goodwill, net                                              296,344      300,625
Note receivable, net of deferred gain                           --           --
Other assets                                               150,482      121,092
                                                       -----------  -----------
           Total assets                                $ 2,898,801    4,261,838
                                                       ===========  ===========


           LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Notes payable                                      $        --      695,598
    Accounts payable, trade                                699,265      865,698
    Accrued expenses                                       205,387      255,505
                                                       -----------  -----------
           Total current liabilities                       904,652    1,816,801
                                                       -----------  -----------
           Total liabilities                               904,652    1,816,801
                                                       -----------  -----------

Commitments

Stockholders' equity:
    Series A convertible preferred stock (aggregate
       liquidation preference $2,266,120), $2.00 par
       value. Authorized 1,000,000 shares; issued and
       outstanding 1,000,000 shares                      2,000,000    2,000,000

    Common stock, $.001 par value.  Authorized
       10,000,000 shares; issued 4,881,674 shares
       at March 31, 2000 and 2001                            4,882        4,882

    Additional paid-in capital                           2,712,272    2,712,272
    Accumulated deficit                                 (1,818,254)  (1,507,913)
    Note receivable stockholders                          (458,413)    (292,158)
    Treasury stock; 171,906 and 223,866 common
       shares at cost at March 31, 2000 and 2001,
       respectively                                       (200,000)    (287,292)
    Deferred compensation                                 (246,338)    (184,754)
                                                       -----------  -----------
           Total stockholders' equity                    1,994,149    2,445,037
                                                       -----------  -----------
           Total liabilities and stockholders' equity  $ 2,898,801    4,261,838
                                                       ===========  ===========



                See accompanying notes to financial statements.

                                       F-2
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                            Statements of Operations
                       Years ended March 31, 2000 and 2001



                                                           2000         2001
                                                       ===========  ===========

Net sales                                              $10,264,688   13,498,740
Cost of sales                                            5,510,537    7,204,031
                                                       -----------  -----------
           Gross profit                                  4,754,151    6,294,709
                                                       -----------  -----------

Operating expenses:
    Selling                                              2,918,066    4,442,283
    General and administrative                           1,261,775    1,266,093
    Slotting fees                                          211,076      321,835
                                                       -----------  -----------
           Total operating expenses                      4,390,917    6,030,211
                                                       -----------  -----------
           Operating income                                363,234      264,498
                                                       -----------  -----------

Other (expense) income:
    Interest expense and borrowing charges                (206,756)     (48,785)
    Interest and other income                               70,800       96,384
    Gain on sale of Raw Materials Food Company              62,121           --
                                                       -----------  -----------
           Other (expense) income                          (73,835)      47,599
                                                       -----------  -----------
           Income before income tax expense                289,399      312,097

Income tax expense                                           1,806        1,756
                                                       -----------  -----------
           Net income                                  $   287,593      310,341
                                                       ===========  ===========

Earnings per common share:
           Basic                                       $       .06          .07
           Diluted                                             .05          .05

Weighted average number of shares used in computation of per-share data:
           Basic                                         4,715,601    4,705,438
           Diluted                                       5,929,508    5,919,345








                See accompanying notes to financial statements.

                                       F-3
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                       Statements of Stockholders' Equity
                       Years ended March 31, 2000 and 2001
<TABLE><CAPTION>
                                           PREFERRED STOCK              COMMON STOCK          ADDITIONAL
                                     --------------------------  --------------------------     PAID-IN     ACCUMULATED
                                        SHARES        AMOUNT        SHARES        AMOUNT        CAPITAL       DEFICIT
                                     ------------  ------------  ------------  ------------  ------------  ------------
<S>                                     <C>        <C>              <C>        <C>           <C>           <C>
Balance at March 31, 1999                    --    $       --       4,876,674  $      4,877  $  2,524,125  $ (2,105,847)

    Issuance of preferred stock
       to Homegrown Holdings, Corp.,
       net of issuance costs            1,000,000     2,000,000          --            --        (149,670)         --
    Issuance of stock to directors           --            --           5,000             5         9,995          --
    Acquisition of treasury stock            --            --            --            --            --            --
    Deferred compensation
       associated with issuance
       of stock options                      --            --            --            --         327,822          --
    Amortization of deferred
       compensation expense                  --            --            --            --            --            --
    Reclassification of note
       receivable from officer               --            --            --            --            --            --
    Reclassification of receivable
       from related party                    --            --            --            --            --            --
    Accrued interest on
       stockholders' notes                   --            --            --            --            --            --
    Repayment of stockholders'
       notes                                 --            --            --            --            --            --
    Net income                               --            --            --            --            --         287,593
                                     ------------  ------------  ------------  ------------  ------------  ------------
Balance at March 31, 2000               1,000,000     2,000,000     4,881,674         4,882     2,712,272    (1,818,254)

    Acquisition of treasury stock            --            --            --            --            --            --
    Amortization of deferred
       compensation expense                  --            --            --            --            --            --
    Repayment of stockholders'
       notes                                 --            --            --            --            --            --
    Net income                               --            --            --            --            --         310,341
                                     ------------  ------------  ------------  ------------  ------------  ------------
Balance at March 31, 2001               1,000,000  $  2,000,000     4,881,674  $      4,882  $  2,712,272  $ (1,507,913)
                                     ============  ============  ============  ============  ============  ============
</TABLE>

<PAGE>
<TABLE><CAPTION>
                                         NOTE          NOTE            TREASURY STOCK                      STOCKHOLDERS'
                                     RECEIVABLE -   RECEIVABLE   --------------------------    DEFERRED       EQUITY
                                     STOCKHOLDERS  FROM OFFICER     SHARES        AMOUNT     COMPENSATION    (DEFICIT)
                                     ------------  ------------  ------------  ------------  ------------  ------------
<S>                                  <C>           <C>                <C>      <C>           <C>           <C>
Balance at March 31, 1999            $   (367,446) $    (75,000)      141,906  $   (125,000) $       --    $   (144,291)

    Issuance of preferred stock
       to Homegrown Holdings,
       Corp., net of issuance
       costs                                 --            --            --            --            --       1,850,330
    Issuance of stock to directors           --            --            --            --            --          10,000
    Acquisition of treasury stock            --            --          30,000       (75,000)         --         (75,000)
    Deferred compensation
       associated with issuance
       of stock options                      --            --            --            --        (327,822)         --
    Amortization of deferred
       compensation expense                  --            --            --            --          81,484        81,484
    Reclassification of note
       receivable from officer            (75,000)       75,000          --            --            --            --
    Reclassification of receivable
       from related party                 (24,759)         --            --            --            --         (24,759)
    Accrued interest on
       stockholders' notes                (23,068)         --            --            --            --         (23,068)
    Repayment of stockholders'
       notes                               31,860          --            --            --            --          31,860
    Net income                               --            --            --            --            --         287,593
                                     ------------  ------------  ------------  ------------  ------------  ------------


Balance at March 31, 2000                (458,413)         --         171,906      (200,000)     (246,338)    1,994,149

    Acquisition of treasury stock            --            --          51,960       (87,292)         --         (87,292)
    Amortization of deferred
       compensation expense                  --            --            --            --          61,584        61,584
    Repayment of stockholders'
       notes                              166,255          --            --            --            --         166,255
    Net income                               --            --            --            --            --         310,341
                                     ------------  ------------  ------------  ------------  ------------  ------------
Balance at March 31, 2001            $   (292,158) $       --         223,866  $   (287,292) $   (184,754) $  2,445,037
                                     ============  ============  ============  ============  ============  ============
</TABLE>
                 See accompanying notes to financial statements.

                                       F-4
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                            Statements of Cash Flows
                       Years ended March 31, 2000 and 2001

                                                           2000         2001
                                                       ===========  ===========
Cash flows from operating activities:
    Net income                                         $   287,593      310,341
    Adjustments to reconcile net income to net cash
       used in operating activities:
          Depreciation and amortization                     54,500       72,000
          Gain on sale of Raw Materials Food Co.           (62,121)          --
          Stock compensation to outside directors,
            employees and consultants                      103,920      111,334
          Changes in assets and liabilities, net
           of business disposal:
            Accounts receivable - trade                   (487,013)  (1,591,590)
            Inventory                                      184,129      (82,668)
            Other assets                                    81,225       (3,706)
            Accounts payable - trade                       (38,462)     166,433
            Accrued expenses                               106,608          368
            Advances from distributor                     (728,395)          --
            Due to employees                                (5,110)          --
                                                       -----------  -----------

              Net cash used in operating activities       (503,126)  (1,017,488)
                                                       -----------  -----------

Cash flows from investing activities:
    Purchase of office equipment, plates and dies          (25,643)     (96,872)
    Acquisition of brand                                   (38,826)     (34,281)
                                                       -----------  -----------

              Net cash used in investing activities        (64,469)    (131,153)
                                                       -----------  -----------

Cash flows from financing activities:
    Net proceeds from issuance of preferred stock        1,850,330           --
    Note receivable stockholders                             8,792       78,963
    Net (payments) borrowings on line of credit           (628,269)     695,598
    Payment of debt issuance costs                         (46,980)          --
    Principal payments on term note                       (210,000)          --
                                                       -----------  -----------

              Net cash provided by financing activities    973,873      774,561
                                                       -----------  -----------

Net increase (decrease) in cash and cash equivalents       406,278     (374,080)

Cash and cash equivalents, beginning of year                46,625      452,903
                                                       -----------  -----------
Cash and cash equivalents, end of year                 $   452,903       78,823
                                                       ===========  ===========
Supplemental disclosures of cash flow information:
    Cash paid for interest                             $   206,493       48,785
                                                       ===========  ===========

    Cash paid for income taxes                         $     1,806        1,756
                                                       ===========  ===========
Supplemental disclosure of noncash activities:
    Common stock and note receivable received
       in connection with the sale of Raw
       Materials Food Co.                              $   152,000           --
                                                       ===========  ===========
    Treasury stock received in exchange for the
       payment of a note receivable stockholder        $        --       87,292
                                                       ===========  ===========


                See accompanying notes to financial statements.

                                       F-5
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001

(1)    DESCRIPTION OF BUSINESS

       Annie's Homegrown, Inc. (the "Company") is engaged in the manufacture,
       marketing and sale of premium all natural and organic macaroni and cheese
       dinners, all natural pasta meals and other natural and organic food
       products.

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (A)    CASH AND CASH EQUIVALENTS

              For purposes of the statements of cash flows, the Company
              considers all highly liquid debt instruments with an original
              maturity of three months or less to be cash equivalents.

       (B)    REVENUE RECOGNITION

              During 2000 and the first two months of 2001, a majority of the
              Company's sales were made to Liberty Richter, Inc. ("Liberty" or
              "distributor") under contract terms allowing certain rights of
              return on unsold product held by Liberty. The contract called for
              Liberty to pay the Company based on terms relating to the receipt
              of the Company's products by Liberty. The Company deferred
              recognition of such sales until the product is sold by Liberty to
              its natural and specialty food distributors. As of May 31, 2000,
              the Company and Liberty mutually terminated this agreement. As a
              result, the Company's sales are made directly to their customers
              and are recognized as revenue upon shipment.

       (C)    INVENTORIES

              Inventories are valued at the lower of average cost, using the
              first-in, first-out ("FIFO") method, or market.

       (D)    OFFICE EQUIPMENT, PLATES AND DIES

              Office equipment, plates and dies are recorded at cost. The cost
              of office equipment, plates and dies is depreciated using
              accelerated depreciation methods over the estimated useful lives
              of the related assets, generally five to seven years.

       (E)    GOODWILL

              Goodwill represents the excess of purchase price over the fair
              value of net assets acquired in connection with purchase business
              combinations. Goodwill is amortized using the straight-line method
              over 20 years.

                                       F-6
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001

              The Company evaluates impairment of intangible and other long-term
              assets annually, or more frequently if events or changes in
              circumstances indicate that carrying amounts may no longer be
              recoverable. Recoverability of intangible assets is determined
              based upon the excess of carrying amounts over expected future
              cash flows (undiscounted) of the underlying business or product
              line. The assessment of the recoverability of intangible assets
              will be impacted if estimated future cash flows are not achieved.

       (F)    INCOME TAXES

              Income taxes are accounted for under the asset and liability
              method. Deferred tax assets and liabilities are recognized for the
              future tax consequences attributable to differences between the
              financial statement carrying amounts of existing assets and
              liabilities and their respective tax bases and operating loss and
              tax credit carryforwards. Deferred tax assets and liabilities are
              measured using enacted tax rates expected to apply to taxable
              income in the years in which those temporary differences are
              expected to be recovered or settled. The effect on deferred tax
              assets and liabilities of a change in tax rates is recognized in
              income in the period that includes the enactment date. A valuation
              allowance reduces deferred tax assets when it is "more likely than
              not" that some portion or all of the deferred tax asset will not
              be recognized.

       (G)    SLOTTING FEES

              Introductory slotting fees paid as required by most retailers for
              the acquisition of shelf space at supermarkets are fully expensed
              at the time of new product introduction.

       (H)    EARNINGS PER COMMON SHARE

              Basic earnings per common share are computed by dividing net
              earnings available to common stockholders by the weighted average
              number of common shares outstanding for the period. Diluted
              earnings per common share reflect the maximum dilution that would
              have resulted from the exercise of stock options and conversion of
              preferred stock. Diluted earnings per common share are computed by
              dividing net earnings by the weighted average number of common
              shares and all dilutive securities.

              A reconciliation of the weighted average number of shares
              outstanding used in the computation of the basic and diluted
              earnings per share for the years ended March 31, 2000 and 2001 are
              as follows:
                                                           2000         2001
                                                       ===========  ===========
              Weighted average shares (basic)            4,715,601    4,705,438
              Effect of dilutive stock options             213,907      213,907
              Assumed conversion of preferred stock      1,000,000    1,000,000
                                                       -----------  -----------

                  Weighted average shares (diluted)      5,929,508    5,919,345
                                                       ===========  ===========

                                       F-7
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001


       (I)    USE OF ESTIMATES

              The preparation of financial statements in conformity with
              generally accepted accounting principles requires management to
              make 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 revenues and expenses during the reporting
              period. Actual results could differ from those estimates.

       (J)    FAIR VALUE OF FINANCIAL INSTRUMENTS

              The carrying amounts of cash and cash equivalents, accounts
              receivable, accounts payable, accrued expenses and notes payable
              approximate fair value because of the short maturity of those
              instruments. Based upon borrowing rates currently available to the
              Company for issuance of similar debt with similar terms and
              remaining maturities, the estimated fair value of long-term debt
              approximates their carrying amounts.

       (K)    STOCK OPTION PLANS

              The Company accounts for its stock-based compensation under the
              provisions of Accounting Principles Board ("APB") Opinion No. 25,
              ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
              interpretations and provides disclosure related to its stock-based
              compensation under the provisions of Financial Accounting
              Standards Board No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.

       (L)    RECLASSIFICATIONS

              Certain reclassifications have been made to the 2000 financial
              statements to conform to the current year presentation.

       (M)    RECENT ACCOUNTING PRONOUNCEMENTS

              In June 1998, the Financial Accounting Standards Board issued SFAS
              No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
              ACTIVITIES ("SFAS 133"). The statement requires companies to
              recognize all derivatives as either assets or liabilities with the
              instruments measured at fair value. The accounting for changes in
              fair value gains and losses depends on the intended use of the
              derivative and its resulting designation. The statement is
              effective for all fiscal quarters of fiscal years beginning after
              June 15, 2000. The Company adopted SFAS 133 on April 1, 2001.
              Adoption of SFAS 133 did not have a material impact on the
              financial statements.

              In December 1999, the Securities and Exchange Commission issued
              Staff Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION.
              The adoption of SAB 101 did not have a material impact on the
              financial statements.

              In May 2000, the Financial Accounting Standards Board's Emerging
              Issues Task Force ("EITF") reached a consensus on Issue No. 00-14,
              ACCOUNTING FOR CERTAIN SALES INCENTIVES. This issue addressed the
              recognition, measurement and income statement classification for
              various types of

                                       F-8
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001


              sales incentives, including discounts, coupon, and rebates. In
              April 2001, the EITF reached a consensus on Issue No. 00-25,
              VENDOR INCOME STATEMENT CLASSIFICATION OF CONSIDERATION TO A
              PURCHASER OF VENDOR'S PRODUCTS OR SERVICES. This issue addresses
              the income statement classification of consideration a vendor
              provides to a retailer, other than that directly addressed in
              Issue No. 00-14, including slotting fees, cooperative advertising
              arrangements and buydowns. The consensuses reached in Issues 00-25
              and 00-14 are effective for fiscal quarters beginning after
              December 15, 2001. The adoption of these consensuses will not
              affect when the Company recognizes incentives or the amount.
              However, adoption of these consensuses will affect the
              classification of certain expenses in the statement of operations.
              As a result, the Company does not expect the adoption of these
              consensuses to have a material impact on the financial statements.

(3)    HOMEGROWN HOLDINGS CORP. TRANSACTION

       On November 30, 1999, pursuant to a special meeting of its stockholders,
       the Company amended its Certificate of Incorporation to authorize one
       million shares of preferred stock, par value $2.00.

       On December 2, 1999, Homegrown Holdings Corp., a Delaware corporation
       that was previously unaffiliated with the Company ("Homegrown Holdings"),
       purchased one million shares of Series A convertible preferred stock
       ("preferred stock") for $2 million. The preferred stock, in the
       aggregate, has voting rights equivalent to one million shares of common
       stock. The preferred stock carries the rights to be converted into an
       equal number of shares of common stock and participates in dividends at
       the same rate as the common stock. In event of a liquidation, the
       preferred stock has the liquidation preference of par value plus 10% per
       annum. Certain mergers, consolidations and sales of assets are treated as
       liquidations.

       In connection with the issuance of preferred stock, the Company also
       executed a $1 million five-year promissory note in favor of Homegrown
       Holdings, with interest at the rate of 9% per annum, and provided a
       five-year warrant to purchase 1,500,000 shares of the Company's common
       stock with an exercise price ranging from $2.00 per share to $4.00 per
       share, varying over time. The promissory note will be subordinated to any
       bank debt or institutional lenders that may now or hereafter exist. The
       warrant was independently valued at $372,000. Total costs incurred by the
       Company for this transaction were approximately $197,000. The costs were
       allocated between the debt and equity based on their respective fair
       values. The promissory note and the warrant were being held in escrow
       pursuant to an escrow agreement pending the Company's receipt of the loan
       proceeds from Homegrown Holdings. The loan was never funded by Homegrown
       Holdings and on October 16, 2000, the Company and Homegrown Holdings
       signed an amendment to the investment agreement terminating the note and
       warrants.

       In a related transaction, Homegrown Holdings entered into certain
       agreements also dated December 2, 1999 (the "stock collar agreements"),
       with the Company's co-founders, which provided a stock collar in favor of
       Homegrown Holdings on certain shares of the co-founders' common stock of
       the Company. One of the co-founders subjected all shares of common stock
       to the stock collar agreement. In connection with the stock collar
       agreement, this stockholder executed an irrevocable proxy in favor of
       Homegrown Holdings to vote all of the individual's shares of common
       stock. The other co-founder

                                       F-9
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001

       subjected 900,000 shares of common stock to the stock collar agreement
       and executed an irrevocable proxy in favor of Homegrown Holdings with
       respect to 852,903 of the individual's shares of common stock. As a
       result of these transactions, Homegrown Holdings currently has the right
       to vote approximately 75% of the Company's outstanding shares.

       Additionally, effective December 2, 1999, one of the co-founders of the
       Company and an officer of the Company, who also served as a member of the
       board of directors, resigned from the Company. As part of an agreement
       with the co-founder regarding the termination of his employment with the
       Company, the co-founder executed a separation agreement with the Company,
       providing for severance payments to him in consideration for a full
       release of any claims that he may have had against the Company. In
       connection with the separation agreement, the co-founder rescheduled his
       debt to the Company arising out of certain advances and loans previously
       made to him by the Company. The rescheduled obligations are evidenced by
       an Omnibus secured promissory note (the "promissory note"), which bears
       interest at the rate of 9% per annum. The promissory note is secured by
       the co-founders' right to payment under his stock collar agreement with
       Homegrown Holdings. The note will be repaid over five years in quarterly
       installments commencing December 2, 1999.

       Additionally, an officer and board member also executed a separation
       agreement with the Company on December 2, 1999. The separation agreement
       provided for severance payments to her as a result of termination of her
       employment with the Company, in consideration for a full release of any
       claims that she may have had against the Company. She also rescheduled
       her debt to the Company, originally incurred as a result of certain loans
       previously made to her by the Company. The rescheduled obligations are
       evidenced by an Omnibus secured promissory note bearing interest at the
       rate of 9% per annum and secured by her shares of the Company's common
       stock. During the year ended March 31, 2001, the note was fully paid
       through the receipt of her shares of the Company's common stock.

(4)    INCOME TAXES

       Income tax expense consists of state taxes of $1,806 and $1,756 in 2000
       and 2001, respectively.

       As of March 31, 2001, the Company had the following net operating loss
       carryforwards for tax purposes:

                           Federal                 $   1,211,614
                                                   =============
                           State                   $   1,197,721
                                                   =============

       These net operating loss carryforwards are available to offset future
       federal/state taxable income through 2019. The Company also has
       alternative minimum tax net operating loss carryforwards of $1,149,104 as
       of March 31, 2001, which are available to reduce future federal
       alternative minimum taxable income through 2019. Pursuant to Section 382
       of the Internal Revenue Code, if there is a change in stock ownership of
       the Company exceeding 50% during a three-year period, the utilization of
       the Company's net operating loss carryforwards may be limited. The
       Homegrown Holdings Corp. transaction as described in note 3 resulted in a
       change in stock ownership and, consequently, the Company's net operating
       losses generated prior to the ownership change are subject to an annual
       limitation.


                                      F-10
<PAGE>


                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001


       The provision for income taxes for the years ended March 31, 2000 and
       2001 differs from the amounts computed by applying the federal statutory
       rate to pre-tax income due to the following:

                                                           2000         2001
                                                       ===========  ===========
       Federal income tax expense at statutory rate         98,396      106,113
       State income taxes, net of federal benefit           18,795       21,846
       Change in federal and state valuation allowance    (133,942)    (160,665)
       Other                                                18,557       34,462
                                                       -----------  -----------
                     Actual income tax expense         $     1,806        1,756
                                                       ===========  ===========

       The tax effects of temporary differences that give rise to significant
       portions of deferred tax assets and liabilities at March 31 are presented
       below:

                                                           2000         2001
                                                       ===========  ===========
             Deferred tax assets:
                 Net operating loss carryforwards          244,668      484,344
                 Other accrued expenses                         --       30,100
                 Payroll expense, due to accrual
                  for financial reporting purposes          19,785       56,797
                                                       -----------  -----------
                                                           264,453      571,241

             Valuation allowance                          (264,453)    (425,118)
                                                       -----------  -----------
                                                                --      146,123
                                                       -----------  -----------
             Deferred tax liabilities:
                 Deferred gain on sale                          --     (144,339)
                 Depreciation and amortization                  --       (1,784)
                                                       -----------  -----------
                     Net deferred tax asset            $        --           --
                                                       ===========  ===========

       A valuation allowance has been established due to the uncertainty of
       realizing the net operating loss carryforwards and other deferred tax
       assets.

       The total federal and state valuation allowance was $264,453 and $425,118
       at March 31, 2000 and 2001, respectively.


                                      F-11
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001

(5)    RELATED PARTY TRANSACTIONS

       Amounts due from related parties at March 31, 1999 consisted of a note
       receivable from an officer of the Company of $75,000 secured by 25,000
       shares of the Company's common stock and an advance of $24,579 to the
       officer. In connection with the Homegrown Holdings transaction discussed
       in note 3, two of the officers noted above terminated their employment
       with the Company. As a result of their termination, all amounts owed to
       the Company from these two officers were reclassified in the accompanying
       March 31, 2000 balance sheet and statement of stockholders' equity as a
       note receivable from stockholders.

       The Company retained Napa Valley Kitchens ("NVK") on June 1, 2000 to
       provide services such as order processing, invoicing, record management,
       sales coverage, broker management, promotion execution, management of
       sales allowances and marketing support. All promotions and slotting
       presentation are subject to the Company's approval. NVK is owned by
       Homegrown Holdings and during the year ended March 31, 2001, the Company
       paid NVK $264,338 for these services. As of March 31, 2001, the Company
       owed NVK $84,809 and is included in accounts payable in the accompanying
       balance sheet.

(6)    DEBT

       At December 31, 1999, the Company fully paid its line of credit and term
       loan with the proceeds obtained from the sale of 1,000,000 shares of
       preferred stock and terminated its relationship with the financial
       institution. On May 4, 2000, the Company entered into a $250,000 line of
       credit with a bank which was secured by all of the assets of the Company.
       On November 3, 2000, the Company entered into a $1,000,000 line of credit
       with a different bank replacing the previous $250,000 line of credit. The
       new line of credit provides for interest at prime plus 1% (9% at March
       31, 2001). The new line of credit is secured by all the assets of the
       Company. At March 31, 2001, the balance on the line of credit is $695,598
       leaving $304,402 remaining available under the line of credit. Subsequent
       to year-end, the Company amended its line of credit to increase the
       maximum borrowings to $1,500,000.

(7)    ACCRUED EXPENSES

       Accrued expenses consist of the following at March 31:

                                                           2000         2001
                                                       ===========  ===========
                             Compensation              $    87,045       91,305
                             Other                         118,342      164,200
                                                       -----------  -----------
                                                       $   205,387      255,505
                                                       ===========  ===========

                                      F-12
<PAGE>


                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001

(8)    LEASES

       The Company leases office space under an operating a lease that expires
in 2003.

       A schedule of future minimum lease payments under the noncancelable lease
is as follows:

                         YEAR ENDING MARCH 31,
                         ---------------------
                                  2002               $      38,959
                                  2003                      40,658
                                  2004                       9,600
                                                     -------------
                                                     $      89,217
                                                     =============

       Total rent expense on operating leases amounted to $50,224 and $52,999
       for the years ended March 31, 2000 and 2001, respectively.

(9)    STOCK OPTION PLANS

       In January 2000, the 1990 Stock Option Plan maintained by the Company was
       terminated. Upon termination of the plan, 120,088 options related to the
       plan expired.

       1996 STOCK OPTION PLAN

       In October 1996, the Company adopted the 1996 stock option plan. Under
       this plan, the Company has authorized 200,000 shares to be granted as
       stock options to employees, directors and consultants. The Board of
       Directors administers the plan, selects individuals to whom options will
       be granted and determines the number of options, the exercise price and
       the vesting terms of each option. Additionally, the vesting terms are
       also subject to acceleration upon the occurrence of certain events.
       During the year ended March 31, 2000, 164,734 options were granted to
       employees with an exercise price of $.01 per option.

       In connection with the granting of these options, the Company recorded
       deferred compensation expense of $327,822 for the difference between the
       exercise price and the fair value of the Company's common stock
       (determined by reference to third party transactions) at the date of
       grant. This amount is being amortized to compensation expense over the
       vesting of the individual options on a straight-line basis for each
       portion of the options that vest in each year. Deferred compensation
       expense recognized for the years ended March 31, 2000 and 2001 amounted
       to $81,484 and $61,584, respectively.

       As of March 31, 2001, 164,734 options were issued under this plan.

                                      F-13
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001

       1999 OMNIBUS STOCK OPTION PLAN

       In July 1999, the Company adopted the 1999 Omnibus Stock Option Plan that
       permits the Company to grant stock options to employees, directors and
       consultants. Under this plan, the Company has authorized 475,000 shares
       to be granted as stock options. The Board of Directors administers the
       plan, selects the individuals to whom the options will be granted and
       determines the number of options, the exercise price and vesting terms of
       each option. Additionally, the vesting period will not be more than ten
       years after the grant date of the option and can be subject to
       acceleration upon the occurrence of certain events. During the years
       ended March 31, 2000 and 2001, 374,062 and 5,937 options were granted to
       employees with an exercise price of $2.00 per option, respectively. The
       exercise price related to these options equaled the fair value of the
       Company's common stock at the date of grant. Accordingly, the Company has
       not recorded any compensation expense.

       In addition, during the year ended March 31, 2000, the Company granted
       50,000 options to a consultant with an exercise price of $.01 per option
       in exchange for services to be rendered over a two-year period. The cost
       of these services is based on the fair value of the options issued in
       exchange for the receipt of such services. The fair value of the options
       represents the difference between the exercise price and the fair value
       of the Company's common stock. The Company will accrue for the expense
       over the period during which the services are provided. For the years
       ended March 31, 2000 and 2001, the Company recognized $12,436 and $49,750
       of expense related to these services, respectively.

       As of March 31, 2001, 429,999 options were issued under this plan.

       1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

       In July 1999, the Company adopted the 1999 Non-Employee Directors' Stock
       Option Plan. Under this plan, the Company has authorized 100,000 shares
       to be granted to directors that are not employees of the Company in lieu
       of compensation for service as a member of the Board of Directors. All
       eligible individuals are granted 7,500 stock options for service on the
       Board of Directors and 2,500 stock options for each committee on which
       the individual serves. The exercise price of the stock options is equal
       to the fair market value of the Company's common stock on the date of the
       grant. The stock options vest on the last day of service to which the
       stock option grant relates to and have an exercise period of five years
       from the grant date of the stock options.

       During the years ended March 31, 2000 and 2001, 17,500 and 22,500 options
       were granted to directors with an exercise price of $2.00 per option,
       respectively. The exercise price related to these options equaled the
       fair value of the Company's common stock at the date of grant.
       Accordingly, the Company has not recorded any compensation expense.

       As of March 31, 2001, 40,000 options were issued under this plan.

                                      F-14
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001

       A summary of changes in common stock options is as follows:

                                                                WEIGHTED AVERAGE
                                                                        EXERCISE
                                             NUMBER OF SHARES    PRICE PER SHARE
                                             ----------------   ----------------
          Outstanding at March 31, 1999             120,088      $         5.51

              Options granted                       606,296                1.30
              Options exercised                          --                  --
              Options expired/canceled              120,088                5.51
                                             ----------------

          Outstanding at March 31, 2000             606,296                1.30

              Options granted                        28,437                2.00
              Options exercised                          --                  --
              Options expired/canceled                   --                  --
                                             ----------------
          Outstanding at March 31, 2001             634,733       $        1.33
                                             ================

       The following table summarizes information about fixed stock options
outstanding at March 31, 2001:

                               OPTIONS OUTSTANDING AND EXERCISABLE
                       ----------------------------------------------------
          RANGE OF         NUMBER       WEIGHTED AVERAGE
          EXERCISE     OUTSTANDING AT      REMAINING       WEIGHTED AVERAGE
           PRICES      MARCH 31, 2001   CONTRACTUAL LIFE    EXERCISE PRICE
        ------------   --------------   ----------------   ----------------
       $    .01             96,895         103 months         $     .01
           2.00             17,500          43 months              2.00
                       --------------
       $.01 to 2.00        114,395                            $    1.30
                       ==============

       The Company applies APB Opinion No. 25 and related interpretations for
       its stock option plans. Had compensation cost for the Company's stock
       option plans been determined consistent with SFAS No. 123, the Company's
       net income and income per share would not have changed.

(10)   RAW MATERIALS FOOD COMPANY

       As of June 30, 1999, the Company reached an agreement with the remaining
       founder of Raw Materials to sell back to such founder the common stock of
       Raw Materials. In payment for the common stock, the founder will return
       to the Company 30,000 shares of Company common stock issued to him as
       consideration for the original acquisition of Raw Materials and a note in
       the amount of $77,000.

                                      F-15
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001

       In connection with the sale of the common stock of Raw Materials, the
       Company recognized a gain of $62,121 during the year ended March 31,
       2000, which represents the amount by which the fair value (determined by
       the most recent independent appraisal) of the 30,000 shares of Annie's
       Homegrown, Inc. exceeds the net assets sold. The Company deferred any
       gain recognition of the $77,000 note receivable from Raw Materials until
       such time as cash flows from Raw Materials' operating activities are
       sufficient to fund the repayment of the note. During the years ended
       March 31, 2000 and 2001, the Company recognized $14,268 and $14,549 in
       other income relating to cash repayments on the note receivable,
       respectively.

(11)   ACQUISITION OF TAMARIND TREE

       On August 27, 1998, the Company acquired certain assets of The Tamarind
       Tree Ltd. ("Tamarind Tree") and royalties are payable by the Company to
       Tamarind Tree for five years at the rate of 6% annually on "adjusted net
       sales". Additionally, overrides are payable by the Company to Tamarind
       Tree for five years at the rate of 2% of all sales of certain products
       and sales in excess of a certain minimum amount of other products. The
       royalty payments will be accounted for as additional consideration for
       the purchase of the assets acquired and will be recorded as additional
       goodwill as the future royalties are earned. Royalty payments in 2000 and
       2001 amounted to $38,826 and $34,281, respectively.

(12)   CONCENTRATION OF CREDIT RISK

       For the year ended March 31, 2000, Liberty, under the master distribution
       agreement, accounted for approximately 69% of net sales.

       One customer accounted for 42% of accounts receivable at March 31, 2000.

(13)   SUPPLIER/SOURCES OF SUPPLY

       Three vendors accounted for 42% of accounts payable at March 31, 2000,
       and four vendors accounted for 45% of accounts payable at March 31, 2001.

(14)   LIBERTY DISTRIBUTION AGREEMENT

       In October 1996, the Company signed a master distribution agreement with
       Liberty. The agreement called for Liberty to distribute all of the
       Company's products except for the private label and mail order lines in
       the continental United States. The Company consigned the products to
       Liberty who in turn sold the products to supermarket chains, and natural
       and specialty food stores. Liberty had one warehouse located in New
       Jersey.





                                      F-16
<PAGE>

                             ANNIE'S HOMEGROWN, INC.
                          Notes to Financial Statements
                             March 31, 2000 and 2001


       Liberty distributed and sold the Company's products within the territory
       utilizing its own sales force and sub distributors that they maintain. In
       addition, Liberty provided other services such as order processing,
       invoicing, record management, sales coverage, broker management,
       promotion execution, management of sales allowances and trade show
       participation. All promotions and slotting presentations as well as sub
       distributors and brokers were subject to the Company's approval.

       Under the Liberty Agreement, Liberty had to distribute any new products
       that the Company chose to distribute through their channels unless
       Liberty had a pre-existing non compete provision with another vendor. In
       July 1999, the Company and Liberty modified their master distribution
       agreement to permit the Company to sell its products directly to
       supermarket chains that do not buy through distributors in the New
       England and West Coast regions. The contract expired on December 31, 1999
       with automatic renewals scheduled on a year-to-year basis. On May 31,
       2000, the Company and Liberty mutually agreed to terminate the
       distribution agreement. According to the agreement, Liberty ceased
       representing the Company and the Company reimbursed Liberty for all
       salable inventories remaining at Liberty's warehouse in the amount of
       approximately $450,000. The Company also paid to Liberty the balance of
       Liberty's approximate earnings from the distribution agreement through
       the calendar year 2000, which amounted to $185,000 and has been evenly
       allocated to selling and general and administrative expenses in the
       accompanying 2001 statement of operations.








                                      F-17