ANNIES HOMEGROWN INC, 10-K405, 1998-06-29

ANNIES HOMEGROWN INC
10-K405, 1998-06-29
MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS

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

FORM 10-KSB

[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended March 31, 1998

[_] 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 31,1998 was $6,792,177. As
of March 31, 1998, the aggregate market value of the Issuer's voting stock held
by non-affiliates was approximately $7,266,066 based on the initial public
offering price of Common Stock of $6.00 per share.

As of June 15, 1998, there were 4,548,168 shares of the Issuer's Common Stock,
$.001 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definite proxy statement for the Annual Meeting of Stockholders
of Annie's Homegrown, Inc. (the "Proxy Statement"), to be filed with the
Securities and Exchange Commission within 120 days after March 31, 1998 are
incorporated by reference into Part III of this Report.
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PART I

ITEM 1. BUSINESS

GENERAL

Annie's Homegrown, Inc. ("Annie's" or the "Company"), which was founded by Ann
E. Withey and Andrew M. Martin, is engaged in the manufacture, marketing and
sale of premium all natural macaroni and cheese dinners, all natural pasta meals
and other all natural food products. The Company's products include; Annie's
Shells and Cheddar, Annie's Alfredo, Annie's Whole Wheat Shells and Cheddar and
Annie's Mild Mexican/TM/. During the quarter ending March 31, 1997, the Company
introduced a new line of all natural pasta meals called Annie's One-Step. The
One-Step meals combine different pasta shapes with five sauce recipes which
provide the convenience and simplicity of one-step, one-pot cooking. During the
fiscal year ended March 31, 1998, the Company introduced 4 more dinners
including; Annie's Pizza Pasta, Annie's Mild White Cheddar, Annie's Family Size
and Annie's Bunny ShaPe PaSTa & Yummy Cheese.

The Company uses contract packers to manufacture its products according to
strict Company specifications, which include the recipe, ingredients, graphics
and packaging for the product. The Company's products are sold primarily through
distributors to supermarkets and natural and specialty food stores. The Company
also manufactures a private label house brand for a specialty retailer, using a
formulation of an all-natural white cheddar cheese formula together with elbow
macaroni. In the natural food stores, the Company's original products are
distributed nationally along with the new products being introduced on a
national scale. In the supermarkets, the Company has previously focused its
marketing and distribution efforts on the Northeast and West Coast U.S. markets.
The Company has started to expand into the Mid Atlantic, Rocky Mountain and
Central U.S. markets. The Company's strategy is to expand its supermarket
distribution nationally in addition to developing new and unique all natural
food products to sell to its existing customer base.

Annie's mission is to provide the highest quality, all natural food products to
its customers and to serve as an ethically, socially, and environmentally
conscious business model for customers, other companies and the food industry.
The Company promotes environmental efforts to minimize the consumption of
resources and encourages individuals to make personal commitments to social and
environmental causes.

The Company was founded in January 1989 as a Delaware corporation. Its principal
executive offices are located at 395 Main Street, Wakefield, MA 01880 and its
telephone number is (781) 224-1172.

Statements in this Form 10-KSB which are not historical facts, so called
"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. The Company's actual results,
performance or achievements may differ materially from those expressed or
implied by such forward-looking statements. Investors are cautioned that all
forward-looking statements involve risks and uncertainties, including those
detailed herein and in the Company's other filings with the Securities and
Exchange Commission. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors That May Affect
Future Results."

PRODUCTS

The Company manufactures and sells a variety of products under the Annie's name.
All of the Company's products are made using premium all natural ingredients.
The Company's 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.

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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, introduced in February 1990, made with
an organically grown whole wheat pasta shells and premium all natural white
Vermont 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 Pizza Pasta, introduced in April 1997, made with durum semolina pizza
wheels and premium totally natural cheddar cheese and pizza seasonings.

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 world-
famous "Free Willy" whale pursuant to a license agreement with The Free Willy-
Keiko Foundation.

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.

These products are typically priced at retail between $0.99 and $1.49 for a
package.

In the quarter ended March 1997, the Company introduced a new line of five all
natural pasta dinners called Annie's One-Step. The dinners combine different
pasta shapes with five sauce recipes which provide the convenience and
simplicity of one-step, one-pot cooking. Annie's One-Step Dinners include the
following:

Annie's One-Step Rotini with Four Cheese Sauce

Annie's One-Step Penne Pasta with Alfredo Sauce

Annie's One-Step Radiatore Pasta with Sundried Tomato and Basil Sauce

Annie's One-Step Corkscrew Pasta with Savory Herb and Garlic Sauce

Annie's One-Step Curly Fettuccine with White Cheddar and Broccoli Sauce

Annie's One-Step dinners are typically priced at retail between $1.59 and $1.99
for a 5 oz. package.

Annie's White Cheddar Popcorn, introduced in the second quarter of 1997, a
totally natural, white cheddar popcorn 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 mass markets.

New Zealand Organic Creamed Honey, a totally natural antibiotic and chemical-
free creamed honey produced by small family farmers located in rural New
Zealand. It is produced without the pesticides, herbicides or antibiotics
commonly used by American and European producers.

In the second quarter, Annie's acquired Raw Materials Food Company a producer of
all natural organic whole food concentrates. Raw Materials Food Company makes
and sells three products under the Living Food name:

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Living Food, which is a meal replacement product, which strengthens the body by
providing 100% organic whole food nourishment, not stimulants. The primary
ingredients including grains and seeds are grown on our state of the art
hydroponics farm using our proprietary sprouting technology. Living Food sells
in a 17.5 oz jar and is typically priced at retail around $29.95

Living Cleanse provides total body purification without any extensive lifestyle
modifications. This product allows virtually anyone to improve their energy
levels and mental focus without an interruption of their daily schedule. Living
Cleanse sells 60 tablets in a jar, which is typically priced at retail around
$24.95.

Living Enzymes assist the body in the breakdown and absorption of nutrients.
This reduces the burdens of digestion and improves overall energy levels.
Living Enzymes sell 90 capsules in a jar, which is typically priced at retail
around $19.95.

SALES, MARKETING AND DISTRIBUTION

The Company sells its products through distributors to primarily two classes of
retailers: (i) supermarket chains, also known as "mass markets;" and (ii)
natural and specialty food stores. Selection of new regional markets is based
upon consumer profiles, product opportunity and costs of introduction.

In the mass markets, the Company sells in large supermarket chains such as Stop
and Shop in New England and Safeway Stores in California. The Company currently
has penetrated all of the major supermarket chains in New England, and sells in
several major supermarket chains in New York and California. The Company is
currently expanding its sales area to include major supermarkets in the Mid-
Atlantic, Rocky Mountain, and Central region.

The Company's products are also sold in natural food markets and specialty food
stores, such as Whole Foods and Fresh Fields, 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 2 ranked
brand, based on total dollar sales, in the Entree and Mixes category with the
top two selling items in that category for the two months ended March 31, 1998.

In October 1996, the Company signed a master distribution agreement with Liberty
Richter, Inc.("Liberty"). The agreement calls 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 sells the products to Liberty who in
turn sells the products to supermarket chains, natural and specialty food stores
and to select natural and specialty food sub distributors who in turn sell to
the two classes of trade. Liberty has two warehouses, one located in New Jersey
and the other located in California. Liberty distributes and sells Annie's
products within the territory utilizing its own sales force that they maintain.
In addition, Liberty provides 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
are subject to Annie's approval.

Using the Company's sales and marketing presentation, Liberty, through its
regional managers and food brokers, presents the Company's products to the
supermarket or distributor buyer. 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 the
product, other issues such as the cost of acquiring shelf space (slotting fees)
and the Company's specific commitments to marketing programs are negotiated.
Introductory slotting fees and marketing programs often varies from customer to
customer. Emphasizing the selling features of its products, the Company, through
Liberty and its brokers, attempts to negotiate the lowest slotting cost.
Slotting fees can take the form of cash payments and/or free product allowances.
Utilizing both Liberty's and the brokers' knowledge regarding specific accounts,
the Company tailors its introductory marketing program to each new account.

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Under the Liberty Agreement, Liberty must distribute any new products that
Annie's chooses to distribute through Liberty's channels unless Liberty has a
preexisting non-compete provision with another vendor. The contract expires
December 31, 1998 with automatic renewals scheduled on a year to year basis.

Prior to October 1996, the Company sold its products directly to supermarket
chains and select natural and specialty food distributors, utilizing regional
food brokers on a commission basis. Regional food brokers served as the
Company's sales representatives and assisted the Company in the sales process.
The Company had retained 21 food brokers. Using the Company's sales and
marketing presentation, the food brokers presented the Company's products to the
supermarket or distributor buyer. Prior to entering into the Liberty Agreement,
the Company's products were shipped directly from the manufacturer via common
carrier to either of the Company's two public warehouses located in
Massachusetts and California. The Company did not rent the warehouses but was
charged a fee based on the amount of use. The Company then distributed its
products by shipping either directly to supermarket chains' central warehouses,
where the products were then redistributed to individual stores as needed, or to
a distributor's warehouse.

The Company's strategy is to continue to expand its supermarket distribution
nationally in addition to developing new and unique all-natural food products to
sell to its existing customer base. Management believes the Company will benefit
from greater trade relations due to Liberty's favorable position in the
supermarket and natural food trade. In addition, Management believes its
consolidated distribution with Liberty's other products will provide the Company
greater access to key accounts in expansion markets as well as facilitate new
product introductions into its existing customers.

For the fiscal year ended December 31, 1996, no one customer accounted for more
than 10% of the Company's net sales. For the fiscal year ended March 31, 1998,
Liberty accounted for approximately 85% of the Company's net sales under the
master distribution agreement.

CUSTOMERS

The Company's products are marketed toward mothers, children and young adults.
These three groups are the primary purchasers in the macaroni and cheese dinner
category. Management believes its customers are people who prefer to buy a
natural, better-tasting product and are willing to pay a premium price.

The Company relies primarily on brand loyalty and word of mouth to promote its
products. The Company's marketing strategy is designed to encourage customers to
try its products for the first time and develop brand loyalty. The Company
accomplishes this by continually educating customers about the differences
between its 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.

PRODUCT QUALITY AND DEVELOPMENT

Ann E. Withey, the Company's co-founder, Director, and Inspirational President,
maintains the final responsibility for the recipes for the Company's products.
The Company takes great pride in producing high quality, all natural, easy to
prepare meals. Annie's pasta is made from 100% durum semolina flour. Management
believes the quality of its 100% durum semolina pasta is one of the more
important differences between Annie's 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. The Company
has 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 the Company, all of which are subject to Ms. Withey's
final approval.

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MANUFACTURING

The Company uses a contract packer to manufacture its products according to
strict Company specifications, which include the recipe, ingredients, graphics
and packaging for the product. The Company has all the components of the
products shipped to the contract packer. The Company has never experienced
material shortages or delays in the manufacture of its products. However, its
products are subject to the inherent risks in agriculture and all of its
products must be transported from its manufacturer and are therefore subject to
work stoppages and other risks. The Company believes that there are numerous
companies, which could manufacture its products under its quality specifications
without a substantial increase in cost or delay in delivery.

COMPETITION

The industry in which the Company competes 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. The Company competes not only for
consumer acceptance but also for shelf space in supermarkets and natural food
stores and for the marketing focus by the Company's distributors, some of which
also distribute other competing products. The Company competes in two primary
classes of trade: (i) the mainstream supermarket trade, also known as the "mass
markets" and (ii) the natural food trade. The macaroni and cheese category in
the mass-market trade is highly competitive. The leading brand in the category
is Kraft's Original Macaroni and Cheese Dinner (Kraft is owned by Philip Morris
Companies, Inc.) which accounted for over 40% of the total dollar sales in the
category in 1996 according to Information Resources Infoscan reports. In
addition to the Kraft brand, the category is comprised of other products such as
Golden Grain (The Quaker Oats Company), private label products (store brands),
and several regional brands. Store brands are usually sold at prices well under
the Company's products. Most of the companies that compete in the macaroni and
cheese category are larger than Annie's and have significantly greater
resources.

Management believes that the Company's products do not directly compete with
these "value-priced" lines. The Company's products are positioned as a
"premium" brand and viewed as a natural alternative to the low-priced,
artificially flavored brands. Management believes its target customers are
people who prefer to buy natural, better-tasting products and are willing to pay
a premium for those products. The Company uses unique, brightly colored
packaging to differentiate its products from competing brands, which tend to be
very similar in graphical design.

The macaroni and cheese category is less competitive in natural food stores,
which do not typically carry Kraft Macaroni and Cheese or Golden Grain. The
Company competes in that market with other branded products as well as store
brands based on quality and all natural ingredients. Several of these brands are
also being offered by companies larger than the Company. There is less pricing
competition within this segment, as natural, specialty and gourmet food stores
typically sell products based on their quality and ingredients, not price.

Management believes that the principal bases of competition include price,
product quality, taste, reputation and brand loyalty. The Company believes that
it competes favorably with respect to these factors, although there can be no
assurance that it will be able to continue to do so. The ability of the Company
to compete successfully in the future will depend on factors both within and
outside its control, including the Company's ability to respond to changing
market conditions and the activities of its competitors, to control costs, to
introduce successful new products, to grow its customer base, and general market
and economic conditions. There can be no assurance that the Company will be able
to compete successfully with respect to these factors in the future or that
present competitors or future entrants will not successfully compete with the
Company in the future, any of which could have a material adverse effect on the
Company's business, results of operations or financial condition.

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PHILOSOPHY AND CORPORATE CULTURE

The Company understands that it has a responsibility to produce profits for its
stockholders. However, in addition to its corporate responsibilities, the
Company is committed to benefiting the community as a reward for its support.
Since its inception, the Company has supported hundreds of non-profit and school
groups that helped woman, children and the environment. Currently, Annie's
Homegrown continues to support hundreds of non-profit groups through its
Community Enrichment Program.

COMMUNITY ENRICHMENT PROGRAM

The Company's mission is to provide the highest quality all natural food
products to its customers and to serve as an ethically, socially, and
environmentally conscious business model for customers, other companies and the
food industry. The Company promotes environmental efforts to minimize the
consumption of resources and encourages individuals to make personal commitments
to social and environmental causes. The Company also actively supports a variety
of non-profit and school groups that help woman, children and the environment.

The Company's Community Enrichment Program contributes cases of its 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 organization. The
Community Enrichment Program helps society and the environment while
simultaneously increasing the public awareness for Annie's products.

The Company has also created and supports the Be Green(R) environmental
awareness program. There is a description on each package of the Company's
product describing how individuals can help the environment by increasing
environmental awareness. Consumers can receive a free Be Green(R) bumper
sticker which helps consumers express their support for the environment.

Be Green(R) Magazine is a publication produced by the Company and is a forum
whereby the Company can communicate its philosophy, products and community
programs. Be Green(R) Magazine features inspiring articles and stories, facts
about the environment, coloring pages, comic strips for kids, stories about
groups that are helping the environment and society.

The Company also created and supports the Support American Volunteer Efforts
(S.A.V.E.) awareness program. Each package of the Company's pasta products
describes how individuals can help their community by volunteering. Consumers
can receive a free brochure, which helps them express their support for
volunteers as well as to identify local opportunities.

In January 1997, the Company entered into an agreement with the Free Willy-Keiko
Foundation, Inc. (the "Foundation") concerning the use of the Foundation's mark,
Keiko." The Foundation is a non-profit organization dedicated to the rescue,
rehabilitation and attempt to return captive and stranded dolphins and whales to
the wild. Under this agreement, the Company has used the Keiko trademarks in
conjunction with the promotion and sale of Annie's Mild Cheddar macaroni and
cheese dinners. The Company makes a royalty payment of 2.5% of its gross
receipts attributable to the sale of products in connection with which it has
used the rights of the Foundation to support its programs.

INTELLECTUAL PROPERTY RIGHTS

The Company seeks to protect the value of its trademarks, trade dress,
copyrights and trade secrets through licensing and other means. It has the
following registered trademarks in the United States: "Bernie-Rabbit of
Approval," "Annie's," "Annie's Homegrown," "Annie's Pasta," and "Be Green." The
Company also uses other trademarks and trade dress for which federal trademark
registrations are now pending. The Company uses appropriate copyright notices
with its packaging, promotional materials and other artwork. All of the
Company's suppliers, have entered into confidentiality agreements with the
Company, pursuant to which they have agreed to keep confidential and not use the
Company's trade secrets, including its processes, formulae, ingredients and

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recipes, except for the benefit of the Company. The Company does not have any
patents. The Company believes that it is not infringing on the intellectual
property rights of any third party, and it intends to take all necessary and
appropriate action to protect against dilution, imitation of its products,
packaging, promotional materials and other art work, and to defend such
trademarks, copyrights, and trade secrets against such infringements.

In January 1997, the Company entered into an agreement with the Free Willy-Keiko
Foundation, Inc. (the "Foundation") concerning the use of the Foundation's mark,
Keiko." The Foundation is a non-profit organization dedicated to the rescue,
rehabilitation and attempt to return captive and stranded dolphins and whales to
the wild. Under this agreement, the Company has the right to use the Keiko
trademarks in conjunction with the promotion and sale of Annie's prepackaged
macaroni and cheese dinners. The Agreement continues until January 31, 2000.
The Company makes a royalty payment of 2.5% of its gross receipts attributable
to the sale of goods in connection with which it has used the rights of the
Foundation to support its programs.

REGULATION

The production and marketing of the Company's products are subject to the rules
and regulations of various federal, state, and local heath agencies, including
the United States Food and Drug Administration (the "FDA"). The FDA also
regulates the labeling of the Company's products.

EMPLOYEES

As of March 31, 1998, the Company had twelve employees: three general management
employees, two salespeople, three sales and marketing support, and four
operations including financial management. The Company has never participated in
a collective bargaining agreement. Management believes the relationship it has
with its employees is good.

ITEM 2. DESCRIPTION OF PROPERTIES

The Company leases 3,400 square feet at 395 Main Street, Wakefield,
Massachusetts and leased 600 square feet of office space at 200 Gate Five Road,
Suite 211, Sausalito, California. The Wakefield 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 its portion of the real estate taxes and
building expenses. The Sausalito lease expired on June 15, 1998. The Company
believes that its properties are adequately covered by insurance.

The Company believes that its facilities and equipment are in good condition and
are suitable for its operations as presently conducted and for its foreseeable
future operations. The Company currently believes 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

The Company is not currently involved in any material legal proceedings.

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

At the Company's annual meeting of stockholders held on October 27, 1997, the
Company's stockholders:

(i) Elected the following persons as Directors of the Company to serve a one-
year term:

<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Each Director From Each Director
-----------------------------------
<S> <C> <C>
Ann E. Withey 3,373,973 1,500
Andrew Martin 3,373,123 2,350
Deborah Churchill Luster 3,373,973 1,500
Brady Bevis 3,373,873 1,600
Patrick DeTemple 3,374,023 1,450
Paul Geffner 3,374,073 1.400
Kare Anderson 3,373,873 1,600
</TABLE>

(ii) Ratified the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending March 31, 1998. With
respect to such matter, the votes were as following: 3,366,213 shares voted
for the proposal, 1,050 shares voted against the proposal, and 8,210 shares
abstained from voting on the proposal.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock, $.001 par value, is not listed on any public
securities exchange and does not trade in any other public market.

The approximate number of record holders of the Company's Common Stock as of
March 31, 1998 was 2,580. The Company has never paid a cash dividend with
respect to its shares of the Common Stock. The Company currently intends to
retain earnings, if any, for use in its business and does not anticipate paying
cash dividends on its shares of Common Stock in the foreseeable future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

The Company has developed four premium macaroni and cheese dinners: Annie's
Shells and Cheddar, Annie's Alfredo, Annie's Whole Wheat Shells and Cheddar, and
Annie's Mild Mexican. During the quarter ending March 31, 1997, the Company
introduced a new line of all natural pasta meals called Annie's One-Step. The
One-Step meals combine different pasta shapes with five sauce recipes which
provide the convenience and simplicity of one-step, one-pot cooking. During the
fiscal year ended March 31, 1998, the Company introduced 4 more dinners
including; Annie's Pizza Pasta, Annie's Mild White Cheddar, Annie's Family Size
and Annie's Bunny ShaPe PaSTa & Yummy Cheese. The Company also has an agreement
with a specialty retailer to provide a private label house brand using an all-
natural white cheddar cheese formula together with elbow macaroni.

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

Using the Company's sales and marketing presentation, Liberty, through its food
brokers, presents the Company's products to the supermarket or distributor buyer
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 the product, other issues such
as the cost of acquiring shelf space (slotting fees) and the Company's specific
commitments to marketing programs are negotiated. Introductory slotting fees and
marketing programs often varies from customer to customer. Emphasizing the
selling features of its products, the Company, through Liberty and its brokers,
attempts to negotiate the lowest slotting cost. Slotting fees can take the form
of cash payments and/or free product allowances. Utilizing both Liberty's and
the brokers' knowledge regarding specific accounts, the Company tailors its
introductory marketing program to each new account.

Under the Liberty Agreement , Liberty must distribute any new products that
Annie's chooses to distribute through their channels unless Liberty has a
preexisting non-compete provision with another vendor. The contract expires
December 31, 1998 with automatic renewals scheduled on a year to year basis.

On July 31, 1997, RMFC Acquisition Corp, a wholly owned subsidiary of the
Company, merged with Raw Materials Food Company ("RMFC"), with RMFC as the
surviving corporation. This transaction allowed the Company to acquire 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 has been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been 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 is being amortized over 20 years on the
straight-line basis. The operating results of RMFC have been included in the
consolidated statements of operations from the date of acquisition.

The Company's cost of sales consists of the cost of finished product shipped
from a contract packer. The raw materials are purchased by the Company and
shipped to the contract packer according to the specifications provided by the
Company, which include the recipe, 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 the Company. The
products are shipped directly from the manufacturer via common carrier to either
of two of Liberty's public warehouses located in New Jersey and California. The
Company distributes its products through Liberty's distribution system to either
the supermarket chains' central warehouses or to a distributor.

Selling expenses include the costs of product marketing, sales commissions, cost
of product distribution and account management. Liberty retains brokers at the
approval of the Company who present the Company's products to supermarket chains
and distributors. The brokers work on a commission basis, generally 5% of net
cash received. The Company negotiates, through the 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.

The Company's sales strategy is to continue to expand its supermarket
distribution nationally in addition to developing new and unique all-natural
food products to sell to its existing customer base. The Company will benefit
from greater trade relations due to Liberty's favorable position in the
supermarket and natural food trade. Management believes its consolidated
distribution with Liberty's other products will provide the Company greater
access to key accounts in expansion markets as well as facilitate new product
introductions into its existing customers. For the fiscal year ended December
31, 1996, no one customer accounted for more than 10% of the Company's net
sales. For the fiscal year ended March 31, 1998, Liberty accounted for
approximately 85% of the Company's net sales under the master distribution
agreement.

9
<PAGE>

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 (the items for the year ended March 31,
1997 are proforma amounts and are unaudited). The proforma year ended March 31,
1997 amounts were calculated by adding the quarter ended March 31, 1997 and
subtracting the quarter ended March 31, 1996 from the audited financial
statements at December 31, 1996.

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1997 1998
----------- ----------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................... 100.00% 100.00%
Cost of sales........................... 57.74 58.13
Gross profit............................ 42.26 41.87
Selling expenses........................ 26.32 26.10
General and administrative expenses..... 13.51 14.08
Slotting fees........................... 3.41 0.95
Compensation of outside directors....... 0.11 0.00
Operating income (loss)................. (1.09) 0.74
Interest expense and borrowing charges.. 1.09 0.80
Interest and other income............... 0.21 0.13
Income tax expense...................... 0.04 0.01
Net income (loss)....................... (2.01) 0.06
</TABLE>

FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO PROFORMA FISCAL YEAR ENDED MARCH
31, 1997

NET SALES. Net sales increased by $1,440,388 or 26.91% from $5,351,789 in 1997
to $6,792,177 in 1998. The net sales increase was primarily a result of sales
growth of existing products in existing stores (10.15%), new products (13.41%),
and sales by RMFC (3.35%). In the natural food stores, the Company's original
products are distributed nationally along with the new products being introduced
on a national scale. The Company believes that it has penetrated all major
supermarket chains in the New England states, and sells in several major
supermarket chains in New York and California. The Company has expanded its
supermarket business into the Mid-Atlantic, the Rocky Mountain and Central U.S.
regions.

GROSS PROFIT. As a percentage of net sales, gross profit decreased from 42.26%
in 1997 to 41.87% in 1998. This decrease was primarily the result of the
increase in dairy and wheat costs during 1998, offset by reduced raw material
costs due to the Company's decision to purchase all its raw materials directly
from suppliers and having the co-packers produce the product using these raw
materials. This enabled the Company to achieve better pricing than purchasing
the finished product from the co-packer where the co-packer provided the raw
materials.

SELLING EXPENSES. Selling expenses increased by $364,655 or 25.89% from
$1,408,563 in 1997 to $1,773,218 in 1998 and decreased as a percentage of net
sales from 26.32% in 1997 to 26.10% in 1998. The increase in selling expenses
reflected an increase in spending in marketing costs, including price reductions
and trade show appearances, associated with the continued roll-out of the
Company's new products in 1998. The Company maintained the same number of
personnel to sell and support its products and customer base. Freight costs
remained level due to efficiencies of larger customer orders and customers
picking up orders despite the customer base expanding away from the Company's
warehouses.

10
<PAGE>

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $233,080 or 32.24% from $722,963 in 1997 to $956,043 in 1998 and
increased as a percentage of net sales from 13.51% in 1997 to 14.08% in 1998.
The increase in general and administrative expenses is primarily a result of
increased spending in four areas: (i) increase in the management fee from
Liberty Richter due to the increase in volume; (ii) increased insurance costs
including Directors and Officer's Insurance; (iii) increased payroll costs
offset by Officers' voluntary salary reduction of approximately $46,000 and
related benefits; and (iv) increased costs on new product development.

SLOTTING FEES. Slotting expenses decreased by $118,167 or 64.74% from $182,518
in 1997 to $64,351 in 1998, and decreased as a percentage of net sales from
3.41% in 1997 to 0.95% in 1998. The decrease was due to the Company's decision
to scale back purchasing additional shelf space at supermarkets, which requires
paying introductory slotting fees as a result of insufficient working capital.
These slotting fees are required by most supermarkets and are expensed at the
time of product introduction.

COMPENSATION OF OUTSIDE DIRECTORS. In 1997, $6,000 in compensation for stock
options granted in 1995 was recorded for the four outside directors of the
Company. The Company pays no compensation for its directors who are also
employees of the Company.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date through the initial public
offering of Common Stock, private sale of equity and convertible debt
securities, a line of credit from a financial institution and cash generated
from operations. At March 31, 1998 and 1997, the Company had working capital
of $443,796 and $576,992, respectively. The net decrease in working capital was
primarily generated by a substantial reduction in advances from distributor, a
reduction in accounts payable, an increase in other assets netted against a
substantial reduction in inventory and an increase in borrowing under the line
of credit.

Net cash used in operating activities for the year ended March 31, 1998 was
$436,184, consisting primarily of a decrease in accounts payable and a
substantial decrease in advances from distributor offset by a substantial
decrease in inventory.

Net cash used in investing activities consisted of capital expenditures totaling
$41,340 which related principally to the purchase of plates and dies for the new
products as well as office equipment and $23,901 used for the acquisition of Raw
Materials Food Company.

The Company 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 is for a term of two years and is secured by all of the assets of the
Company and guaranteed by the two largest stockholders of the Company. Also, the
Company has initiated discussions with other parties for the purpose of raising
additional capital.

The Company's primary capital needs are for developing new products to sell to
its existing consumer base, purchase existing all natural brands, or expansion
into national supermarket distribution. The Company is negotiating with the
financial institution for a $300,000 increase in the Line of Credit. The Company
anticipates that the funds available from the Line of Credit, together with
funds generated from operations, will be sufficient to meet its liquidity needs
for the next twelve months. However, the Company needs additional capital in the
future to fully implement its business strategy as set forth herein. If such
capital is unavailable either because of general market conditions or the
results of the Company's operations, the Company will have to continue to scale
back either its investments in new products, or its national supermarket
expansion, or both.

OTHER MATTERS

In June 1997, the FASB issued Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" and No. 131, "Disclosure about Segments of an Enterprise
and Related Information", which are effective for fiscal years beginning after
December 15, 1997. The Company will comply with the required presentation of
SFAS No. 130 in fiscal 1999 and is currently evaluating the effects of SFAS No.
131.

11
<PAGE>

Management is aware of the potential software anomalies associated with the year
2000 date change. The Company has been evaluating the potential issues that need
to be addressed in connection with its operations. A review of the Company's
computer systems and software is largely complete and the Company is not aware
at this time of any significant year 2000 issues in its own systems that will
not be resolved prior to the year 2000. Formal communications have begun with
Liberty, the Company's master distributor, to ensure that Liberty has
appropriate plans in place to properly address the year 2000 issue. Based on
preliminary information, costs of addressing the issue are not expected to have
any material effect upon the Company's financial position, results of
operations, or cash flows in future periods. The Company believes it has
adequate plans in place to address the year 2000 issue. However, there can be no
assurance that the systems of other companies, on which the Company's systems
and operations rely, will be converted on a timely basis and will not have a
material effect on the Company.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

From time to time, information provided by the Company, statements made by its
employees or information included in its 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 the Company's 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
the Company's working capital requirements during 1999 and the Company's
expectation that future cash flow will continue to be provided from operations
will have any significant impact on its business may be forward-looking
statements. The Company's actual future results may differ significantly from
those stated in any forward-looking statements. Factors that may cause such
differences include, but are not limited to, the factors discussed below. Each
of these factors, and others, are discussed from time to time in the Company's
filings with the Securities and Exchange Commission.

SEASONALITY

The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially affect revenues and profitability,
including: competitive pressure on selling prices and margins; cost of
ingredients; transportation and distribution costs; timing of customer orders;
timing and amount of slotting fees and capital expenditures: and the
introduction of new products by the Company's competitors. As a result of the
foregoing and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis which could materially
and adversely affect its business, operating results and stock price.

RELIANCE ON NEW PRODUCTS/NATIONAL EXPANSION STRATEGY

The Company's strategy is to expand its sales by developing new products to sell
to its existing consumer base, purchase existing all natural brands, or
purchasing shelf space (slotting fees) at major supermarket chains. The
introductory slotting fees are required by most retailers and are fully expensed
at the time of new product introductions. The Company must then implement
marketing programs and promotions, as well as rely upon customers' perception of
quality, value and approval of the Company's business philosophy and style, to
generate sufficient initial and repeat sales, and to provide profit to the
retailer. If that profitability is not demonstrated to the retailer's
satisfaction, or if other products are considered more profitable to the
retailer, the Company could lose its shelf space at certain retail markets
following the trial period. In 1989, the Company lost one retailer after having
paid introductory slotting fees. To date, the Company has lost only one other
retailer for which it had acquired shelf space

12
<PAGE>

COMPETITION

In the national market (consisting principally of sales to supermarket chains),
the Company's products compete with nationally known brands, as well as other
lesser known brands and private label store brands. Most of the other brands
are sold at prices lower than the prices of the Company's products and are
offered by companies which are larger than the Company and have greater
financial and marketing resources. Private label store brands often are sold at
prices substantially lower than the Company's products. In its other market
segment (comprising natural and specialty food stores), the Company competes
with other products based on taste, quality and choice of ingredients. Several
of these brands are also offered by companies larger than the Company.

PRODUCT LIABILITY

Food products, including the Company's, are subject to certain hazards, such as
contamination. The Company maintains product liability insurance, which may or
may not be sufficient to pay any losses for which the Company could potentially
be held liable. From inception through March 31, 1998, no product liability
claims have been made against the Company.

LIMITED OPERATING HISTORY; LOSSES

The Company's future results are subject to substantial risks and uncertainties.
The Company has operated at a very small profit or at a loss for its entire
history and there can be no assurance of it ever achieving consistent
profitability. Management expects to continue operating profitably as sales
increase. However, future events, including management's ability to adjust to
greater complexities, unanticipated expenses, increased price competition,
interruptions of supplies, unfavorable economic conditions or decreased consumer
demand for natural food products could have a material adverse effect on the
Company's future operating results. There can be no assurance that future
product sales will meet the Company's expectations or that the Company will be
profitable in the future.

DEPENDENCE ON MASTER DISTRIBUTOR

In October 1996, the Company signed a master distribution agreement with Liberty
Richter, Inc. ("Liberty"). The Liberty Agreement calls 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 will sell substantially all of
it's the products to Liberty who in turn sells the products to its two main
classes of trade: (i) supermarket chains and (ii) natural and specialty food
stores. The Liberty Agreement expires on December 31, 1998 but automatically
renews for a twelve months period unless terminated by September 15 of the then
current year. Management also believes the Company will benefit from greater
trade relations due to Liberty's favorable position in the supermarket and
natural food trade. Management believes its consolidated distribution with
Liberty's other products will provide the Company greater access to key accounts
in expansion markets as well as facilitate new product introductions into its
existing customers. The ability of the Company to achieve its operating plan
will be largely dependent on the ability of Liberty to sell the Company's
products and execute its business strategy. The loss or termination of the
Liberty Agreement or the inability of Liberty to execute the Company's strategy
may have a material adverse effect on the Company's business, results of
operations, and financial condition.

DEPENDENCE ON SUPPLIERS AND PACKERS

The Company does not own a production facility. The Company's pasta products
are produced according to the Company's specifications pursuant to certain
supply contracts. The ingredients are packaged by packers, and shipped to the
distributor's public warehouses via common carrier.

PRODUCT COSTS, RISK OF INTERRUPTIONS AND MARKET PRICE FLUCTUATIONS

The Company's operating results and financial condition may be adversely
affected by market fluctuations in the cost of its raw materials, particularly
wheat and cheese. Raw materials costs are determined by a constantly changing
market over which the Company has no control. Cost fluctuations in the open
market could increase the Company's product costs and adversely affect its
operations. Interruptions in supplies of certain agricultural commodities to
the Company's suppliers, or transportation to and from the suppliers, packers,
distributors and customers, by natural disasters or other causes, could have a
material adverse effect on the Company's success

13
<PAGE>

DEPENDENCY ON FOUNDERS AND OTHER EMPLOYEES

The Company seeks to employ a minimum number of employees to limit operating
costs. The loss of any key person or persons could affect the success of the
Company unless and until new personnel could be hired and trained. The success
of the Company is also dependent upon its ability to hire and retain its
managers and executive officers. Competition for such personnel is intense, and
there can be no assurance that the Company will be able to hire or retain such
necessary management and executive personnel. Ann E. Withey, the Company's co-
founder and Inspirational President, is particularly identified with the Company
and its products. In addition, the Company has been largely dependent on the
creativity, guidance, direction and efforts of Andrew M. Martin, the Company's
co-founder and present Chairman of the Board of Directors. The Company has no
employment agreements with either Ms. Withey or Mr. Martin, neither of whom
presently devotes their full time efforts to the Company. The loss of the
services of either Ms. Withey or Mr. Martin could have a material adverse effect
on the Company. The Company maintains a key person life insurance policy on
Mr. Martin for $1 million.

FUTURE CAPITAL NEEDS; ADDITIONAL FUTURE FUNDING

The Company's future results are subject to substantial risks and uncertainties.
The Company has operated at a very small profit or at a loss for its entire
history and there can be no assurance of it ever achieving consistent
profitability. The Company had working capital at March 31, 1998 of $443,796.
The Company may still require additional working capital in the future and there
can be no assurance that such working capital will be available on acceptable
terms, if at all. In addition, the Company needs additional capital in the
future to fully implement its business strategy as set forth herein. If such
capital is unavailable either because of general market conditions or the
results of the Company's operations, the Company will have to continue to scale
back either its investments in new products, or its national supermarket
expansion, or both.

PROTECTION OF TRADEMARK RIGHTS

The Company's regards its trademarks, service marks, trade dress, trade secrets
and other intellectual property, including without limitation, "Bernie Rabbit of
Approval(R)", "Annie's(R)", "Annie's Homegrown(R)", "Annie's Pasta(R)", and "Be
Green(R)", as material to the Company's success due to such property's name
recognition with its customers. The Company's intellectual property is
protected by common law, as well as by registration and contract. The Company
intends to take action to protect against imitation of its products and to
protect its intellectual property rights as necessary. Litigation, which could
result in substantial cost to, and diversion of effort by, the Company, may be
necessary to protect the Company's intellectual property rights or to determine
the enforceability, scope and validity of the proprietary rights of others.

COMPANY DONATIONS MAY AFFECT GROWTH AND EXPANSION

The Company's philosophy includes a commitment to social and environmental
responsibility as evidenced by support of community organizations through
product give-a-ways and donations, as well as time and effort. The Company
intends to donate a percentage of certain product proceeds to such
organizations. No assurance can be given that these donations will not
adversely affect the Company's growth and expansion plans

ITEM 7. FINANCIAL STATEMENTS

Please refer to pages F-1 through F-16
Independent Auditors' Report
Consolidated Balance Sheets at March 31 1998 and 1997
Consolidated Statements of Operations for the Year ended March 31, 1998, Three
Months Ended March 31, 1997 and Year Ended December 31, 1996
Consolidated Statements of Stockholders' Equity for the Year ended March 31,
1998, Three Months Ended March 31, 1997 and Year Ended December 31, 1996
Consolidated Statements of Cash Flows for the Year ended March 31, 1998, Three
Months Ended March 31, 1997 and Year Ended December 31, 1996
Notes to Consolidated Financial Statements at March 31 1998 and 1997 and
December 31, 1996

14
<PAGE>

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

None

NOTE: ITEMS 9 THROUGH 12 ARE INCORPORATED BY REFERENCE (INTO PART III OF THIS
REPORT) TO THE PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WITHIN 120 DAYS AFTER MARCH 31, 1998.

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
** 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
** 10.8 Loan and Security Agreement dated as of February 3, 1998
between Fremont Financial Corporation and Annie's
Homegrown, Inc.
** 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.
** 11 Computation of Per Share Earnings
** 24.1 Power of Attorney (included on Signature Page of this
report)
* 27.1 Financial Data Schedule

15
<PAGE>

____________________

* Filed herewith
** Previously filed as an Exhibit to the Company Registration statement on
Form SB-2 (R6 No. 33-93982-L.A.) 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, 1998.

16
<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/ Andrew Martin
------------------------
Andrew Martin, Chairman
Chairman, Chief Executive Officer

June 29, 1998
--------------------
Date

Each person whose signature appears below appoints Andrew M. Martin, Deborah
Churchill, 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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Andrew M. Martin Chairman, Chief Executive Officer June 29, 1998
- ----------------------------
Andrew M. Martin and Director (Principal Executive Officer)

/s/ Ann E. Withey Inspirational President & Director June 29, 1998
- ----------------------------
Ann E. Withey

/s/ Paul Nardone President June 29, 1998
- ----------------------------
Paul Nardone

/s/ Deborah Churchill Secretary & Director June 29, 1998
- ----------------------------
Deborah Churchill

/s/ Neil Raiff Chief Financial Officer & Treasurer June 29, 1998
- ----------------------------
Neil Raiff (Principal Financial and Accounting Officer)
</TABLE>

17
<PAGE>

<TABLE>
<S> <C> <C>
/s/ Brady Bevis Director June 29, 1998
- ----------------------------
Brady Bevis

/s/ Patrick DeTemple Director June 29, 1998
- ----------------------------
Patrick DeTemple
</TABLE>

18
<PAGE>

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

No annual report or proxy material has been sent to the Issuer's security
holders with respect to the year ended March 31, 1998. A copy of the Issuer's
Annual Report to Stockholders for the fiscal year ended March 31, 1998 and the
Issuer's Proxy Statement for the 1998 Special Meeting in Lieu of Annual Meeting
of Stockholders will be furnished to stockholders and filed with the Securities
and Exchange Commission on or about August 1, 1998.

19
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of Annie's
Homegrown, Inc. as of March 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1996, for the three months ended March 31, 1997, and for the
year ended March 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Annie's Homegrown,
Inc. at March 31, 1997 and 1998 and the results of their operations and their
cash flows for the year ended December 31, 1996, for the three months ended
March 31, 1997, and for the year ended March 31, 1998, in conformity with
generally accepted accounting principles.

/s/ KPMG Peat Markwick LLP
--------------------------
KPMG Peat Marwick LLP

Boston, Massachusetts
May 26, 1998

F-1
<PAGE>

ANNIE'S HOMEGROWN, INC.

Consolidated Balance Sheets

<TABLE>
<CAPTION>
March 31, March 31,
ASSETS 1997 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 484,196 249,669
Accounts receivable:
Trade (note 10) 67,901 67,174
Related parties (note 5) 40,323 20,541
Inventory 1,162,391 820,855
Other assets - 84,896
---------- ---------
Total current assets 1,754,811 1,243,135
---------- ---------

Office equipment, plates and dies 85,642 129,129
Accumulated depreciation (39,964) (58,980)
---------- ---------
Office equipment, plates and dies, net 45,678 70,149
---------- ---------

Due from officer (note 5) 75,000 75,000
Goodwill, net - 386,848
Other assets 26,809 112,656
---------- ---------

Total assets $1,902,298 1,887,788
========== =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable (note 6) $ 7,500 279,398
Accounts payable, trade (note 11) 621,065 431,542
Accrued expenses (note 7) 79,996 47,805
Advances from distributor 424,224 6,476
Due to employees 45,034 34,118
---------- ---------
Total current liabilities 1,177,819 799,339
---------- ---------

Commitments (note 8)

Stockholders' equity (note 9):
Common stock, $.001 par value. Authorized 10,000,000
shares; issued 4,368,801 shares and 4,660,074
shares at March 31, 1997 and 1998, respectively 4,369 4,660
Additional paid-in capital 1,761,932 2,306,659
Accumulated deficit (950,072) (946,102)
Note receivable stockholders (1,750) (186,768)
Treasury stock; 111,906 common shares at cost (90,000) (90,000)
---------- ---------
Total stockholders' equity 724,479 1,088,449
---------- ---------

Total liabilities and stockholders' equity $ 1,902,298 1,887,788
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.

F-2
<PAGE>

ANNIE'S HOMEGROWN, INC.

Consolidated Statements of Operations

<TABLE>
<CAPTION>
Three months
Year ended ended Year ended
December 31, March 31, March 31,
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Net sales (note 10) $4,811,762 $1,948,510 $6,792,177
Cost of sales 2,784,902 1,193,518 3,948,084
--------- --------- ----------
Gross profit 2,026,860 754,992 2,844,093
--------- --------- ----------

Operating expenses:
Selling 1,344,084 469,829 1,773,218
General and administrative 673,694 236,327 956,043
Slotting fees 227,403 12,842 64,351
Compensation of outside directors 15,000 - -
--------- --------- ----------
Total operating expenses 2,260,181 718,998 2,793,612
--------- --------- ----------

Operating (loss) income (233,321) 35,994 50,481

Other (expense) income:
Interest expense and borrowing charges (note 6) (50,952) (18,582) (54,334)
Interest and other income 8,201 3,798 8,967
--------- --------- ----------

(Loss) income before income tax expense (276,072) 21,210 5,114

Income tax expense (note 4) 3,286 1,050 1,144
---------- ---------- ----------

Net (loss) income $ (279,358) $ 20,160 $ 3,970
========== ========== ==========

(Loss) earnings per common share:
Basic $ (.067) $ .005 $ .001
Diluted $ (.067) $ .004 $ .001

Weighted average number of shares used in computation
of per share data:
Basic $4,180,910 $4,256,895 $4,412,532
Diluted $4,180,910 $4,993,003 $4,661,146

</TABLE>
See accompanying notes to consolidated financial statements.

F-3
<PAGE>

ANNIE'S HOMEGROWN, INC.

Consolidated Statements of Stockholders' Equity

Year ended December 31, 1996, three months ended March 31, 1997
and year ended March 31, 1998
<TABLE>
<CAPTION>
Common stock Additional Note Deferred
-------------------- paid-in Accumulated receivable- compensation
Shares Amount capital deficit stockholder directors
--------- ------ ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 4,178,211 $ 4,178 $ 726,518 $ (690,874) $ (1,750) $ (15,000)

Issuance of common stock
upon public offering 190,590 191 1,134,457 - - -

Public offering costs - - (99,043) - - -

Amortization of deferred
compensation of
directors - - - - - 15,000

Net loss - - (279,358) - -
--------- ---------- -------- -------- ---------
Balance at December 31,
1996 4,368,801 4,369 1,761,932 (970,232) (1,750) -

Net income - - - 20,160 - -
--------- ----- ---------- -------- -------- ---------
Balance at March 31, 1997 4,368,801 4,369 1,761,932 (950,072) (1,750) -

Exercise of stock options 231,273 231 184,787 - (185,018) -

Shares issued in
connection with
purchase of subsidiary 60,000 60 359,940 - - -

Net income - - - 3,970 - -
--------- ----- ---------- -------- -------- ---------
Balance at March 31, 1998 4,660,074 $ 4,660 $ 2,306,659 $ (946,102) (186,768) -
========= ===== ========== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
-------------------- Stockholders'
Shares Amount equity
------- -------- ------------
<S> <C> <C> <C>
Balance at December 31,
1995 111,906 $ (90,000) $ (66,928)

Issuance of common stock
upon public offering - - 1,134,648

Public offering costs - - (99,043)

Amortization of deferred
compensation of
directors - - 15,000

Net loss - - (279,358)
------- ------- ---------
Balance at December 31,
1996 111,906 (90,000) 704,319

Net income - - 20,160
------- ------- ---------
Balance at March 31, 1997 111,906 (90,000) 724,479

Exercise of stock options - - -

Shares issued in
connection with
purchase of subsidiary - - 360,000

Net income - - 3,970
------- ------- ---------
Balance at March 31, 1998 111,906 (90,000) $ 1,088,449
======= ======= =========

</TABLE>
See accompanying notes to consolidated financial statements.

F-4
<PAGE>

ANNIE'S HOMEGROWN, INC.

Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

Three months
Year ended ended Year ended
December 31, March 31, March 31,
1996 1997 1998
------------- ------------- -----------
<S> <C> <C> <C>

Cash flows from operating activities:
Net (loss) income $ (279,358) $ 20,160 $ 3,970
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 11,173 4,500 31,336
Outside directors compensation 15,000 - -
Changes in:
Accounts receivable - trade 118,597 18,195 5,995
Accounts receivable - related parties (76,937) 57,367 19,782
Inventory (828,346) 71,719 355,528
Other assets (11,992) 4,836 (154,807)
Accounts payable - trade 425,971 (396,565) (236,710)
Advances from distributor 535,068 (110,844) (417,748)
Accrued expenses (74,530) (25,057) (32,614)
Due to employees (5,053) 373 (10,916)
---------- --------- ---------
Net cash used in operating activities (170,407) (355,316) (436,184)
---------- --------- ---------

Cash flows from investing activities:
Purchase of office equipment, plates and dies (18,044) (10,976) (41,340)
Acquisition of business, net of cash acquired - - (23,901)
---------- --------- ---------
Net cash used in investing activity (18,044) (10,976) (65,241)
---------- --------- ---------

Cash flows from financing activities:
Net (repayment of) proceeds from notes payable (22,115) (10,014) 266,898
Issuance of common stock and exercise of stock options, net 1,035,605 - -
---------- --------- ---------
Net cash provided by (used in)
financing activities 1,013,490 (10,014) 266,898
---------- --------- ---------

Net increase (decrease) in cash and cash equivalents 825,039 (376,306) (234,527)

Cash and cash equivalents, beginning of year 35,463 860,502 484,196
---------- --------- ---------

Cash and cash equivalents, end of year $ 860,502 $ 484,196 $ 249,669
========== ========= =========

Supplemental disclosures of cash flow information:
Cash paid for interest $ 5,990 $ 18,582 $ 35,336
========== ========= =========
Cash paid for income taxes $ 3,286 $ 1,050 $ 1,144
========== ========= =========

Supplemental disclosure of noncash activities:
Compensation expense recorded for issuance of common stock
and stock options to four outside directors $ 15,000 $ - $ -
========== ========= =========

Common stock issued in exchange for acquired business $ - $ - $ 360,000
========== ========= =========

Note receivable received for exercise of stock options $ - $ - $ 185,018
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.

F-5
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements

December 31, 1996, March 31, 1997 and March 31, 1998

(1) DESCRIPTION OF BUSINESS

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

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements for the year ended March 31, 1998
include the accounts of Annie's Homegrown Inc. and its wholly owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.

(B) CHANGE IN FISCAL YEAR

Effective April 1, 1997, the Company elected to change its fiscal year end
from December 31 to March 31. The results of operations and cash flows for
the three months ended March 31, 1997 are not necessarily indicative of
results that would be expected for a full year.

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.

(D) REVENUE RECOGNITION

Most of the Company's sales are made to Liberty Richter, Inc. ("Liberty" or
"distributor") under contract terms allowing certain rights of return on
unsold product held by Liberty. The contract calls for Liberty to pay the
Company based on terms relating to the receipt of the company's products by
Liberty. The Company defers recognition of such sales until the product is
sold by Liberty to its two main classes of trade; supermarket chains and
natural and specialty food stores. Accordingly, if Liberty pays the Company
before Liberty sells to a third party, the Company records an advance from
distributor. If Liberty sells product to a third party before it pays the
Company, the Company records a receivable from distributor.

(E) INVENTORIES

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

F-6
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(2), CONTINUED

(F) 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.

(G) 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.

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 not 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.

(H) 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.

(I) 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.

F-7
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(2), CONTINUED

(J) EARNINGS PER COMMON SHARE

During 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. Under the provisions of SFAS 128, basic earnings per share replaces
primary earnings per share and the dilutive effective of stock options and
warrants are excluded from the calculation. Fully diluted earnings per share
are replaced by diluted earnings per share and include the dilutive effect of
stock options and warrants, using the treasury stock method. All prior period
earnings per share data have been restated to conform to the requirements of
SFAS 128.

A reconciliation of the weighted average number of shares outstanding used in
the computation of the basic and diluted earnings (loss) per share is as
follows:

<TABLE>
<CAPTION>
Three
months Year
Year ended ended ended
December 31, March 31, March 31,
1996 1997 1998
------------ --------- ---------
<S> <C> <C> <C>

Weighted average shares (basic) 4,180,910 4,256,895 4,412,532

Effect of dilutive stock options - 736,108 248,614

Weighted average shares (diluted) 4,180,910 4,993,003 4,661,146
</TABLE>
The net income used in the calculation for basic and diluted earnings per
share calculations agrees with the net income appearing in the financial
statements.

For the year ended December 31, 1996, net loss per share, assuming full
dilution of stock options, was considered to be the same as basic since the
effect of stock options would have been antidilutive.

(K) 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.

(L) 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.

F-8
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(2), CONTINUED

(M) STOCK OPTION PLAN

Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income (loss) and pro forma earnings (loss) per share disclosures for
employee stock option grants made in 1995 and future years as if the fair-
value-based method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.

(N) RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board recently issued SFAS No. 129,
Disclosure of Information about Capital Structure. This statement establishes
standards for disclosing information about an entity's capital structure.
This statement is effective for periods ending after December 15, 1997. The
Company is in compliance with this standard.

The Financial Accounting Standards Board recently issued SFAS No. 130,
Reporting Comprehensive Income. This statement establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This statement is effective for
fiscal years beginning after December 15, 1997 and requires reclassification
of financial statements for earlier periods provided for comparative
purposes. The Company will comply with the required presentation in fiscal
1999.

The Financial Accounting Standards Board recently issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
statement establishes standards for reporting operating segments of publicly
traded business enterprises in annual and interim financial statements and
requires that those enterprises report selected information about operating
segments. This statement supersedes SFAS No. 14, Financial Reporting for
Segments of a Business, but retains the requirement to report information
about major customers. This statement is effective for financial statements
for fiscal years beginning after December 15, 1997 and requires that
comparative information for earlier years be restated. The Company has not
yet determined what impact, if any, this standard will have on its financial
statement presentation.

F-9
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(2), CONTINUED

The Financial Accounting Standards Board recently issued SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. This
statement standardizes disclosure requirements for pensions and other
postretirement benefits, and is effective for fiscal years beginning after
December 15, 1997. This statement does not apply to the Company as the
Company does not currently sponsor any defined benefit plans.

(3) ACQUISITION OF WHOLLY OWNED SUBSIDIARY

On July 31, 1997, RMFC Acquisition Corp., a wholly owned subsidiary of the
Company, merged with Raw Materials Food Company ("Raw Materials"), with Raw
Materials as the surviving corporation. This transaction allowed the Company
to acquire all the outstanding shares of Raw Materials, a Colorado-based
whole food supplement company, for stock valued at $360,000 and paid
acquisition costs.

The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been 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 liabilities assumed totaled $52,610. Goodwill of
$400,184 is being amortized over 20 years on the straight-line basis and
amounted to $13,336 for the period ended March 31, 1998.

The operating results of Raw Materials have been included in the consolidated
statements of operations from the date of acquisition. Pro forma combined
results of operations of the Company and Raw Materials on the basis that the
acquisition had taken place on January 1, 1996 are not presented since the
effect is not material.

(4) INCOME TAXES

Income tax expense consists of state taxes of $3,286, $1,050 and $1,144 in
1996, 1997 and 1998, respectively.

As of March 31, 1998, the Company had the following net operating loss
carryforwards for tax purposes:

Federal $894,341
========

State $796,129
========

F-10
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(4), CONTINUED

These net operating loss carryforwards are available to offset future
federal/state taxable income through 2012. The Company also has alternative
minimum tax net operating loss carryforwards of $707,523 as of March 31,
1998, which are available to reduce future federal alternative minimum
taxable income through 2012. 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 provision for income taxes differs
from the amounts computed by applying the lowest federal statutory rate (15%)
to pre-tax income (loss) due to the following:

<TABLE>
<CAPTION>
Three months
Year ended ended Year ended
December 31, March 31, March 31,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>

Federal income tax (benefit) expense
at statutory rate $(41,410) $ 3,181 $ 767
State income taxes, net of federal benefit 2,793 1,485 358
Change in federal valuation allowance 39,253 (4,353) (2,825)
Other 2,650 737 2,844
-------- ------- ----------
Actual income tax expense $ 3,286 $ 1,050 $ 1,144
======== ======= ==========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are presented below:

<TABLE>
<CAPTION>
March 31, March 31,
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 163,410 $ 204,211
Deferred revenue 34,417 324
Payroll expense, due to accrual for financial
reporting purposes 15,973 6,440
--------- ---------
213,800 210,975
Valuation allowance (213,800) (210,975)
--------- ---------
Deferred tax liabilities - -
--------- ---------
Net deferred tax asset $ - $ -
========= =========
</TABLE>
The total federal and state valuation allowance was $213,800 and $210,975 at
March 31, 1997 and 1998, respectively.

F-11
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(5) RELATED PARTY TRANSACTIONS

Amounts due from related parties consist of:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1998
--------- ---------
<S> <C> <C>

Due from officer $ 75,000 75,000
Other related parties 40,323 20,541
------- -------

$115,323 95,541
======== =======
</TABLE>
Due from officer is evidenced by a promissory note secured by 25,000 shares
of Company common stock. The note earns interest at an annual rate of 6%.

The balance due from other related parties at March 31, 1997 and 1998
included $9,484 and $20,541 representing advances to an officer of the
Company.

(6) NOTES PAYABLE

Notes payable consist of:

<TABLE>
<CAPTION>
March 31, March 31,
1997 1998
--------- ---------
<S> <C> <C>
(a) Notes payable - financial institution $ - $279,398
(b) Notes payable - officer 7,500 -
------ --------

$7,500 $279,398
====== ========
</TABLE>
(a) The line of credit agreement for $600,000 was signed on February 3, 1998.
This line of credit with a financial institution is for a term of two
years and allows for borrowing of 75% or 90% of certain categories of the
Company's accounts receivables with interest at the "Prime Rate" as
published by the Wall Street Journal plus 3% (11.5% at March 31, 1998).
The financial institution also charges an annual facility fee of $6,000.
The line of credit calls for minimum monthly interest payments based on
borrowings of $400,000. The line of credit is secured by all of the
assets of the Company and guaranteed by the two largest stockholders of
the Company.

(b) The $7,500 demand note payable to an officer of the Company bore interest
at 11% and was repaid during fiscal 1998.

F-12
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(7) ACCRUED EXPENSES

Accrued expenses consist of:

<TABLE>
<CAPTION>
March 31, March 31,
1997 1998
------ ---------
<S> <C> <C>

Compensation $67,031 $40,049
Other 12,965 7,756
------- -------
$79,996 $47,805
======= =======
</TABLE>

(8) LEASES

The Company leases office space under operating leases that expire through
2003.

A schedule of future minimum lease payments under noncancelable leases is as
follows:
<TABLE>
<CAPTION>
Year ending
March 31, Total
----------- ------
<S> <C>

1999 $ 34,153
2000 35,558
2001 37,262
2002 38,955
2003 40,658
Thereafter 9,600
--------
$196,186
========
</TABLE>

Total net expense on operating leases amounted to $24,775, $7,373 and $38,676
for the year ended December 31, 1996, for the three months ended March 31,
1997, and for the year ended March 31, 1998, respectively.

(9) STOCKHOLDERS' EQUITY

On August 22, 1995, the Company filed an effective Registration Statement
offering for sale 600,000 shares of common stock. The offering was made
directly by the Company and was closed on July 31, 1996. The Company sold
256,895 shares of common stock under the offering for gross proceeds of
$1,532,478. Expenses related to the offering totaled $310,937.

F-13
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(9), CONTINUED

The Company maintains a 1990 stock option plan which permits the Company to
grant stock options to key employees and certain non-employees. The Board of
Directors administers the plan, selects individuals to whom options will be
granted, and determines the number of shares and the exercise price of each
option. All options granted under the plan are exercisable upon the date of
grant, expire five years from the date of grant, and have certain transfer
restrictions. As of March 31, 1998, options to purchase 406,982 shares were
outstanding at exercise prices per share ranging from $1.01 to $5.90, and
12,338 shares were available for future grants.

During the year ended March 31, 1998, three officers of the Company exercised
stock options for 231,273 shares in exchange for full recourse promissory
notes in the amount of $185,018 bearing interest at 6-3/4%. The notes are
collateralized by the stock issued upon the exercise of the options.

The principal balance of the notes plus interest thereon will be forgiven at
a rate of 20% per year as long as the officers continue to be employed by the
Company.

In October 1996, the Company adopted the 1996 stock plan. Under this plan,
the Company has authorized 200,000 shares to be granted as stock options to
officers, employees, directors and consultants. The Board of Directors
administers the plan, selects individuals to whom options will be granted,
determines the number of shares, the exercise price of each option and the
term of the options. At March 31, 1998, no options were issued under this
plan.

A summary of changes in common stock options is as follows:
<TABLE>
<CAPTION>
Weighted
average
Number exercise price
of shares per share
--------- --------------
<S> <C> <C>

Outstanding at December 31, 1995 997,519 $ 1.57
-------

Outstanding at December 31, 1996 997,519 1.57
-------

Outstanding at March 31, 1997 997,519 1.57
-------

Options granted - -

Options exercised 231,273 .80

Options expired/canceled 359,264 1.21
-------

Outstanding at March 31, 1998 406,982 $ 2.33
=======
</TABLE>

F-14
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(9), CONTINUED

The following table summarizes information about fixed stock options
outstanding at March 31, 1998:
<TABLE>
<CAPTION>

Options Outstanding and Exercisable
-----------------------------------------------------
Weighted
Number average Weighted
Range of outstanding remaining average
exercise prices at March 31, 1998 contractual life exercise price
--------------- ----------------- ---------------- --------------
<S> <C> <C> <C>
$1.01 286,894 9 months $ 1.01
$ 5.10 to 5.90 120,088 19 5.51
-------
$ 1.01 to 5.90 406,982 $ 2.33
=======
</TABLE>

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

(10) CONCENTRATION OF CREDIT RISK

For the year ended December 31, 1996, no one customer accounted for more than
10% of net sales. The Company's top ten customers accounted for approximately
51% of net sales for the year ended December 31, 1996. For the three months
ended March 31, 1997 and the year ended March 31, 1998, Liberty, under the
master distribution agreement, accounted for approximately 83% and 85% of net
sales, respectively.

Two customers accounted for 70% of accounts receivable at March 31, 1997 and
three customers accounted for 45% of accounts receivable at March 31, 1998.

(11) SUPPLIER/SOURCES OF SUPPLY

Two vendors accounted for 30% and 40% of accounts payable at March 31, 1997
and 1998, respectively.

(12) DISTRIBUTION AGREEMENT

In October 1996, the Company signed a master distribution agreement with
Liberty. The agreement calls 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 sells the products to Liberty who in turn sells
the products to supermarket chains, and natural and specialty food stores.
Liberty has two warehouses, one located in New Jersey and the other located
in California.

F-15
<PAGE>

ANNIE'S HOMEGROWN, INC.

Notes to Consolidated Financial Statements, Continued

(12), CONTINUED

Liberty distributes and sells the Company's products within the territory
utilizing its own sales force and sub distributors that they maintain. In
addition, Liberty provides 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
are subject to the Company's approval.

Under the Liberty Agreement, Liberty must distribute any new products that
the Company chooses to distribute through their channels unless Liberty has a
pre-existing non compete provision with another vendor. The current contract
expires December 31, 1998 with automatic renewals scheduled on a year-to-year
basis.

F-16

<PAGE>

EXHIBIT 10.43

STANDARD FORM COMMERCIAL LEASE

1. PARTIES
-------

Anthony C. Simboli ("Landlord") having an office address of 80 Everett
Avenue, Chelsea, Massachusetts, 02150 hereby leases to Annie's Homegrown, Inc.
("Tenant") having an office address prior to occupancy of the Premises of: 180
Second Street, Chelsea, Massachusetts; and after occupancy of the Premises of:
395 Main Street, Wakefield, Massachusetts and Tenant hereby leases from Landlord
the following described premises (the "Premises") upon the terms and conditions
hereinafter set forth.

2. PREMISES
--------

A. Second floor space comprising approximately 3,400 rentable square feet
known as and numbered 395 Main Street, Wakefield, Massachusetts in the building
(the "Building") located on the property known as and numbered 395-397 Main
Street, Wakefield, Massachusetts (the Building and the land on which it is
situated being hereinafter referred to as the "Property"). The approximate
location of the boundaries of the Premises is shown on the sketch plan attached
hereto as Exhibit A.

B. Tenant shall have the non-exclusive right to use in common with others
the following parking spaces situated on another property owned by Landlord
located at 26 Princess Street, Wakefield, Massachusetts and known as Princess
Plaza ("Princess Plaza"): two (2) parking spaces at the front of the Princess
Plaza and three (3) spaces at the rear of the Princess Plaza property. Such
rights shall always be subject to reasonable rules and regulations from time to
time established by Landlord pursuant to Paragraph 25.C and to the right of
Landlord to designate and change from time to time areas and facilities so to be
used.

3. TERM
----

A. The Original Term of this lease shall be for five (5) years commencing
on the date Landlord delivers possession of the Premises to Tenant with
Landlord's Work substantially complete (the "Commencement Date") and ending at
midnight on the day prior to the fifth anniversary of the Commencement Date.

B. So long as Tenant has never been in default hereunder, Tenant shall
have one (1) option to extent the term of this lease for an additional period of
five (5) years (the "Option Period") commencing upon the expiration of the
Original Term, provided Tenant gives landlord notice of such election at least
nine (9) months prior to the expiration of the Original Term. If

1
<PAGE>

Tenant fails to so notify Landlord on or before nine (9) months prior to the
expiration of the Original Term then within fifteen (15) days following the date
which occurs nine (9) months prior to the expiration of the Original Term,
Landlord shall notify Tenant of Tenant's failure to so extend, whereupon Tenant
shall have until the date which occurs eight (8) months prior to the expiration
of the Original Term to so notify Landlord in writing of its election, if any,
to extend the Original Term. If Tenant fails to so notify Landlord at such time,
then Tenant shall be deemed to have elected not to exercise its option to
---
extend the Original Term. Prior to the exercise by Tenant of any election to
extend the Original Term, the word "Term" or any equivalent expression shall
mean the Original Term as set forth in this Paragraph 3.B. After the exercise by
Tenant of any such election, the word "Term" or any equivalent expression shall
mean the Original Term plus the Option Period. Except as expressly otherwise
provided in this lease, all agreements and conditions contained in this Lease
shall apply to the additional period to which the Original Term shall be
extended as aforesaid. If Tenant shall exercise its election to extend this
Lease, the Term shall be extended without the requirement of any action on the
part of Landlord.

4. BASE RENT
---------

Tenant shall pay to Landlord rent ("Base Rent") as follows:

LEASE ANNUAL
YEAR BASE RENT
1 $34,000
2 $35,700
3 $37,400
4 $39,100
5 $40,800

*6-10 increased by $1,700 ($.50 per rentable square
foot) per year in each and every year of the
Option Period.

*Provided the term is extended through the Option Period as set forth in
Paragraph 3.B.

Base Rent shall be payable to Landlord at Landlord's office in advance on the
first day of each month in monthly installments of 1/12th of the annual amount
thereof. Any rent due for a partial month at the beginning or end of the lease
term shall be prorated. As used herein the term "Lease Year" shall mean the
consecutive twelve (12) month period beginning each year on the Commencement
Date or anniversary thereof.

5. SECURITY DEPOSIT
----------------

Tenant, concurrently with the execution of this Lease, shall deposit with
Landlord the sum of five thousand dollars ($5,000.00) as security for the
faithful and timely payment and performance of the obligations of Tenant under
this Lease. If at any time Tenant shall be in default in any of the provisions
of this Lease, Landlord shall have the right, at Landlord's sole election, to
use said deposits, or so much thereof as may be necessary, in payment of any
rent in default as

<PAGE>

aforesaid and/or in payment of any expense incurred by Landlord on behalf of
Tenant, and/or in payment of any damages incurred by Landlord by reason of such
default of Tenant. In the event that said deposits shall not be utilized for any
such purpose, then any unused portion of such deposits shall be refunded to
Tenant within thirty (30) days after the end of this lease subject to Tenant's
satisfactory compliance with the terms and conditions hereof. Tenant
acknowledges and agrees that Landlord shall not be required to keep said
deposits segregated from Landlord's own funds and that Tenant shall not be
entitled to any interest earned on account of said deposits. The amounts held by
Landlord as a security deposit shall in no way relieve or excuse any default or
delay in the payment of all rent and other sums due under this Lease in a prompt
and timely fashion and Tenant shall have no right to claim a set off of the
Security Deposit against Tenant's liabilities hereunder unless and until
Landlord has elected to retain all or a portion of the same.

6. REAL ESTATE TAXES
-----------------

A. Tenant shall pay to Landlord as additional rent 33 1/3% of Landlord's
Real Estate Tax Expense for the Property. For the purpose of this agreement the
Real Estate Tax Expense is defined as the sum of all costs and expenses incurred
by Landlord with respect to all real estate taxes and betterment assessments
assessed against the Property and all buildings and fixtures situated thereon.
At Landlord's option, Tenant shall make monthly payments on account of the Real
Estate Tax Expense with each payment of Base Rent, in an amount reasonably
estimated by Landlord to equal 1/12th of Tenant's actual annual share of the
Real Estate Tax Expense.

B. Promptly after the end of each calendar year the Landlord shall
determine the actual amount of real estate taxes for the previous calendar year.
If the monthly payments theretofore made by Tenant for such period exceed the
Tenant's actual share of the Real Estate Tax Expense, then Landlord shall notify
Tenant and credit the amount of overpayment against any obligations of Tenant
then due, or next becoming due. If the monthly payments made by Tenant on
account of the Real Estate Tax Expense are less than Tenant's share of such
charges then Landlord shall notify Tenant of the amount due and Tenant shall pay
such amount to Landlord within fifteen (15) days after the date of such notice.
In the event that this Lease was not in effect for the full calendar year the
Tenant's share of the Real Estate Tax Expense shall be prorated accordingly.

7. OPERATING EXPENSES
------------------

Tenant shall pay to Landlord as additional rent 33 1/3% of Landlord's
Operating Expenses for the Property. For the purpose of this agreement Operating
Expenses are defined as the sum of all costs and expenses incurred by Landlord
with respect to the fire and property damage insurance and the general liability
insurance maintained by Landlord from time to time concerning the Property
(including loss of gross income for one (1) year); any utility or services paid
for by Landlord with respect to the Property; and any maintenance, repairs or
replacements performed by Landlord with respect to the Property. There shall
also be included in Landlord's Operating Expenses a sum sufficient to compensate
Landlord for a reasonable management fee, which fee

3
<PAGE>

shall not exceed the greater of (i) 5% of the gross income generated by the
Property or (ii) 15% of the aggregate of the Real Estate Tax Expense and
Operating Expenses for the Property. Tenant's share of Landlord's Operating
Expenses shall be due and payable within fifteen (15) days of presentment of
bills for the same. At Landlord's option, Tenant shall make monthly payments on
account of Landord's Operating Expenses with each payment of Base Rent in an
amount reasonably estimated by Landlord to equal 1/12th of Tenant's annual share
of Landlord's Operating Expenses. If Tenant's monthly payments on account of the
Operating Expenses is more or less than Tenant's annual share of such charges
then an adjustment shall be made as provided in Paragraph 6.B.

8. UTILITIES
---------

Tenant shall pay all charges for utilities used by the Premises from and
after the date Tenant commences any of Tenant's Work in the Premises. Such
charges shall include, but not be restricted to, any and all charges for heat,
sewer and water, gas, oil, air conditioning, telephone and electricity. Tenant
further indemnifies Landlord from all liability that may be incurred as a result
of nonpayment of these charges. Tenant shall make all necessary arrangements to
provide for the separate billing (directly to Tenant) of any charges for
utilities which are separately metered. As of the date of execution of this
Lease, all such utilities (other than water and sewer) are separately metered to
the Premises. Water and sewer charges will be prorated by Landlord based on
Tenant's usage of same as determined by the use of separate meters or submeters
for the other tenant(s) in the Building, if any.

9. USE OF LEASED PREMISES
----------------------

Tenant shall use the Premises only for the purpose of general and
administrative offices, and not for any other purpose.

10. COMPLIANCE WITH LAWS
--------------------

Tenant agrees that no activities shall be conducted in the Premises or use
made thereof which will be unlawful, or contrary to any federal, state or local
laws, by-laws, ordinances, codes, rules or regulations in force in the city or
town in which the Premises are situated. Tenant shall at all times be fully
responsible for complying with all federal, state or local laws, bylaws,
ordinances, codes, rules and regulations applicable to Tenant's use and
occupancy of the Premises.

11. CONDITION OF PREMISES/ALTERATIONS AND ADDITIONS
-----------------------------------------------

A. Except as expressly provided in paragraph 11.C below, the Premises are
being leased on an absolutely "AS IS" basis. No representations, except such as
are contained herein or endorsed hereon, have been made to Tenant respecting the
condition of the Premises and Landlord shall have no obligation to make any
repairs or improvements to the Premises except as may be expressly stated
herein. Without limiting the foregoing the Landlord makes no warranty or
representation with respect to the accuracy of any information shown on Exhibit
A, or with respect to the actual square footage of the Premises. In the event
that any alterations, in or to the

<PAGE>

Premises are required to meet the needs of Tenant, then Tenant agrees that
Tenant will make all such alterations, in or to the Premises at the sole
expense of Tenant. Except as described in this Lease, Tenant shall not make any
alterations or additions to the structural or mechanical components of the
Building, but may make non-structural alterations provided Landlord consents
thereto in writing, which consent shall not be unreasonably withheld. Tenant
agrees that Tenant's Work and any alterations or additions to the Premises will
be performed in a good and workmanlike manner. Any such work shall also be done
in compliance with all laws, codes, rules and regulations pertaining to such
work and Tenant shall be responsible for obtaining any permits and approvals
that may be required in connection with any such work. Any alterations or other
improvements made by Tenant shall be removed by Tenant at the time Tenant
vacates the Premises, and Tenant shall restore the Premises to the same
condition they were in immediately before the making of such alterations,
partitions, additions or improvements unless Landlord otherwise elects. If
Landlord so elects, any alterations, additions or other improvements, made by
Tenant shall become the property of Landlord. Tenant agrees that Tenant shall
indemnify and save Landlord harmless from and against all expenses, liens,
damages or claims arising in connection with the making of any repairs,
alterations, partitions, additions or improvements in or to the Premises. The
parties agree that Tenant shall never have the right to cause the creation of a
lien over the property demised hereunder, and Tenant shall immediately pay or
cause to be discharged or rendered ineffective any lien or encumbrance over the
Property or the interests of Landlord.

B. All partitions, alterations, betterments and improvements and all
personal property of any kind or description whatsoever in the demised premises
shall be at Tenant's sole risk, and Landlord shall not be liable for any damage
done to, or loss of such partitions, alterations, betterments, improvements or
such personal property.

C. Prior to the Commencement Date, Landlord, at Landlord's expense, shall
build-out the Premises in accordance with mutually agreed upon plans which are
attached hereto as Exhibit B.

12. MAINTENANCE OF PREMISES
-----------------------

A. Landlord agrees to keep in good order, condition and repair the roof,
exterior walls, and structure of the Premises, and any HVAC, electrical,
plumbing, and fire protection systems serving the Premises, all insofar as they
effect the Premises, except that Landlord shall in no event be responsible to
Tenant for any condition in the Premises or the Building caused by any act or
neglect of Tenant or Tenant's servants, employees, agents, licensees, invitees
and contractors and any person or entity acting on behalf of any of the
foregoing.

B. Tenant agrees to maintain and keep, at Tenant's cost and expense, the
entire Premises at all times in good order, repair and condition with the glass
whole. Without limiting the foregoing, Tenant shall be responsible for
performing all necessary maintenance, repairs, or replacements with respect to
the following: any floor or wall coverings in the Premises, any

5
<PAGE>

window treatments in the Premises, the entire storefront, suspended ceiling
system, all windows, window frames, doors, door frames and all associated locks
and other hardware. Tenant shall not permit the Premises to be overloaded,
damaged, stripped, or defaced nor suffer any waste. Tenant shall at all times
keep the Premises and all sidewalks and other common areas bordering the
Premises in a clean and neat condition. The removal of snow and ice from the
sidewalks bordering upon the Premises, whether from natural or unnatural
accumulation, shall be Tenant's responsibility.

C. In the event Tenant introduces to the Premises personnel or equipment
which overloads the capacity of the Building's electrical, heating, air
conditioning, plumbing or fire protection systems or in any other way interferes
with the ability of such systems to perform adequately their proper functions,
supplementary systems may, at Landlord's option, be provided by Landlord, if and
as needed, at Tenant's expense.

13. ASSIGNMENT-SUBLEASING
---------------------

A. Tenant shall not assign or sublet the whole or any part of the
Premises or permit the Premises to otherwise be used or occupied by anyone than
Tenant without Landlord's prior written consent, which consent shall not be
unreasonably withheld. However, without limitation, Landlord shall not be deemed
to be unreasonable in withholding its consent to a proposed assignment or
sublease if (i) the proposed assignee or subtenant does not possess substantial
business experience and a good business reputation, or (ii) the proposed
assignee or subtenant is not in sound financial condition or (iii) the proposed
assignee or subtenant does have a minimum level of net worth or shareholder's
equity equivalent to Tenant as of the date of the proposed assignment or
subletting. It shall be a condition of the validity of any assignment that the
assignee agrees directly with Landlord, by written instrument in form
satisfactory to Landlord, to be bound by all the obligations of Tenant
hereunder, including, without limitation, the covenant against further
assignment and subletting. No assignment or subletting shall relieve Tenant from
its obligations hereunder and Tenant shall remain fully and primarily liable
therefor.
B. If this Lease be assigned, or if the Premises or any part thereof be
sublet or occupied by anyone other than Tenant, Landlord may, at any time and
from time to time, collect rent and other charges from the assignee, subtenant
or occupant, and apply the net amount collected to the rent and other charges
herein reserved, but no such assignment, subletting, occupancy or collection
shall be deemed a waiver of this covenant, or the acceptance of the assignee,
subtenant or occupant as a tenant or a release of Tenant from further
performance by Tenant of its obligations hereunder. The consent by Landlord to
an assignment or subletting shall in no way be construed to relieve Tenant or
any successor from obtaining the express consent in writing of Landlord to any
further assignment or subletting.

C. In connection with any proposed assignment or subletting, Tenant shall
promptly provide Landlord with such information as to the proposed assignee or
subtenant and as to the proposed business arrangement between the proposed
assignee or subtenant and Tenant as Landlord may reasonably request.
Furthermore, Tenant shall promptly reimburse Landlord for all

6
<PAGE>

reasonable attorney's fees incurred in connection with any request by Tenant for
Landlord's consent to any such assignment or sublease.

14. SUBORDINATION
-------------

This lease shall be subject and subordinate to any and all mortgages, deeds
or trust and other instruments in the nature of a mortgage, now or any time
hereafter, a lien or liens on the property of which the Premises are a part.
Tenant shall, when requested, promptly execute and deliver such written
instruments as shall be necessary to show the subordination of this lease to
said mortgages, deeds and trust or other such instruments in the nature of a
mortgage.

15. LANDLORD'S ACCESS
-----------------

Landlord shall have the right to enter the Premises at all reasonable hours
for the purpose of inspecting or making repairs to the same, for purposes of
installing, repairing or replacing any portions of the demising partitions or
mechanical systems of the Building such as the plumbing, electrical, telephone,
fire protection, and security systems including any wires, lines, pipes,
conduits and the like, and for the purpose of showing the Premises to
prospective or existing mortgagees, purchasers or tenants. Landlord shall have
the right to enter the Premises at any hour for the purpose of making emergency
repairs. To effectuate Landlord's foregoing rights of access, at Landlord's
request Tenant shall promptly deliver to Landlord a duplicate set of keys to the
Premises. At any time within eight (8) months before the expiration of the term,
Landlord may affix to any suitable part of the Premises a notice for letting or
selling the Premises or the Property and keep the same so affixed without
hindrance or molestation.

16. INDEMNIFICATION AND LIABILITY
-----------------------------

A. Tenant shall indemnify and hold Landlord harmless from all claims of
whatever nature (a) arising from any injury, loss, or damage whatsoever to any
person or property occurring on the Premises or the sidewalks adjacent thereto,
or (b) caused by the negligent or intentional act or omission of Tenant, or
Tenant's agents, employees or independent contractors. This indemnity and hold
harmless agreement shall include indemnity against all costs and expenses
(including, without limitation, reasonable attorneys fees) incurred in
connection with any such claim or proceeding brought thereon, or the defense
thereof.

B. Landlord shall not be liable for any damages whatsoever nor shall the
rental hereinbefore stipulated be withheld or abated for failure to furnish
water, heat, cooling, electric, oil, or other service, when such failure to
furnish or to delay in furnishing is occasioned by needful repairs, renewals,
additions or improvements or in whole or in part by any strike, lock-out or
other labor controversy or by inability to secure oil after reasonable effort to
do so, or by any act or default of Tenant or other parties or by any causes
beyond the control of Landlord, nor shall Landlord be liable for any act or
default of the janitors or other employees not authorized by Landlord, and such
failure, delay or default in furnishing water, heat, cooling, electric, oil, or
other service or unauthorized act or default of the janitors or employees shall
not be considered or

<PAGE>

construed as an actual or constructive eviction of Tenant by Landlord nor shall
it in any way operate to release Tenant from the prompt and punctual performance
of each and all of the covenants and agreements of this Lease.

C. Tenant shall not be entitled to withhold or abate its rent and
Landlord shall not be liable for damage or for loss suffered by the business or
occupation of Tenant arising from any act or neglect of co-tenants or other
occupants of the Building (or of their employees) or of other persons, or from
earthquake, windstorm, fire, boiler explosion, steam, sewerage, illuminating
gas, sewer gas or odors or by the bursting or leaking of water, gas, sewer or
steam pipes, or plumbing or electrical works, electric wires, overflowing of
water, or any other kind of casualty by equipment or appliances, or cause in any
other manner whatsoever.

D. Landlord shall in no event be in default in the performance of any of
its obligations hereunder or liable to Tenant for damages unless and until
Landlord shall have failed to perform such obligations within thirty (30) days
or such additional time as is reasonably required to correct any such default
after notice by Tenant to Landlord properly specifying wherein Landlord has
failed to perform any such obligation.

17. INSURANCE
---------

A. Tenant shall, at Tenant's expense, at all times from and after the
date that Tenant is in possession of the Premises procure and continue in force
for the benefit of Landlord and Tenant, commercial gereral liability insurance
insuring Landlord and Tenant against any and all claims for damages for damages
for injuries to persons and/or property occuring in, upon or about the Premises,
or Tenant's use thereof or conduct of business therein, and shall include
coverage for products/completed operations, personal injury, broad form property
damage, extended bodily injury, and broad form contractual liability. The
minimum limit of liability carried on such insurance shall be one million
dollars ($1,000,000) per occurence with any aggregate limit applying only to
products/completed operations, personal injury and constractual liability.
However, if the policy contains a general policy aggregate which applies to
coverages other than the aforementioned coverages, Tenant shall purchase minimum
limits of one million dollars (1,000,000) per occurrence, two million dollars
($2,000,000) aggregate per location. Such insurance shall be written on an
"occurrence" basis and not on a "claims made" basis.

B. Any personal property, merchandise, inventory, equipment or fixtures
that are placed or stored by Tenant in the Premises including loss of use of
such personal property, merchandise, inventory, equipment or fixtures shall be
at Tenant's sole risk. Tenant agrees to maintain, at Tenant's own expense, fire
and extended coverage property damage insurance with respect to personal
property, equipment and store fixtures, tenant improvements, and interior finish
and build-out to the Premises located in the Premises in an amount not less
than the replacement cost thereof. Tenant shall also maintain, at Tenant's own
expense, insurance against loss of Business Income and for losses covered by
so-called "Extra Expense" insurance coverage. In no event shall Landlord be
responsible for repairing or replacing any damage or destruction to

<PAGE>

any doors, door frames, windows, window frames or glass storefront serving the
Premises, or for any claim resulting from Tenant's loss of business.

Tenant shall not permit any use of the Premises which will make
voidable any insurance on the Property or on the contents of the Property, or
which shall be contrary to any law or regulation from time to time established
by the New England Fire Insurance Rating Association, or any similar body
succeeding to its powers. Tenant further agrees that, in the event that Tenant
shall do or permit any thing to be done in or upon the Premises which would
increase the rate of insurance on the Property above the standard rate that
would normally apply to a building used for dry goods use. Tenant will promptly
pay to Landlord, on demand, any such increase resulting therefrom, which shall
be due and payable as additional rent hereunder.

C. Tenant agrees to maintain worker's compensation insurance providing
statutory limits including employer's liability insurance with current limits of
one hundred thousand dollars ($100,000) for each additional injury and, with
respect to bodily injury by disease, one hundred thousand dollars ($100,000)
each employee and five hundred thousand dollars ($500,000) per policy year.

D. All of the insurance policies required to be maintained pursuant to
this Lease shall designate the Landlord as an additional insured. Such insurance
shall be obtained from companies licensed to do business of such nature in the
Commonwealth of Massachusetts and which have a Best's Rating of "A VII" or
better. Tenant shall deposit with Landlord certificates for all insurance
required to be maintained by Tenant at lease fifteen (15) days prior to the
commencement of the term, and thereafter within thirty (30) days prior to the
expiration of any such policies. Such certificates shall state that in the event
of cancellation or material change written notification shall be given to
Landlord at least thirty (30) days in advance of such cancellation or material
change. However, if Tenant, having used all reasonable efforts is unable to have
such certificate so state, then at least such certificate shall state that in
the event of such cancellation or material change in coverage, the insurer shall
endeavor to mail written notice thereof to Landlord at least ten (10) days prior
to such cancellation or material change, and in such event Tenant shall promptly
notify Landlord of any such cancellation or change upon receipt by Tenant of
written notice from the insurer thereof.

E. If Tenant fails at any time to maintain the appropriate insurance or
provide Landlord with certificate that it has the proper insurance as herein
provided, Landlord, without prejudice to his other remedies, may declare Tenant
in default and/or take out such insurance and charge the cost thereof to Tenant
with interest at the rate hereinafter provided for late payments.

F. Insofar as, and to the extent that, the following provision may be
effective without invalidating or making it impossible to secure insurance
coverage obtainable from responsible insurance companies doing business in the
locality in which the Property is located (even though extra premiums may
result therefrom), Landlord and Tenant mutually agree that, with respect to any
hazard, the loss from which is covered by insurance then being carried by them,
respectively, the one carrying such insurance and suffering such loss releases
the other of any from any and all claims with respect to such loss to the extent
of the insurance proceeds paid with respect thereto;

<PAGE>

and they further mutually agree that their respective insurance companies shall
have no right of subrogation against the other on account thereof.

18. FIRE / EMINENT DOMAIN
---------------------

A. ABATEMENT OF RENT. If the Premises shall be damaged by fire or
-----------------
casualty without the fault or neglect of Tenant or Tenant's agents, employees or
contractors, the Base Rent payable by Tenant shall abate proportionately for the
period in which, by reason of such damage, there is substantial interference
with Tenant's use of the Premises, having regard to the extent to which Tenant
may be required to discontinue Tenant's use of all or a portion of the Premises,
but such abatement or reduction shall end if and when Landlord shall have
substantially restored the Premises to the condition in which they were prior to
such damage. If all or any portion of the Premises shall be taken by any
exercise of the power of eminent domain, Base Rent and Operating Expenses
payable by Tenant shall be justly and equitably abated and reduced according to
the nature and extent of the loss of use thereof suffered by Tenant.

B. LANDLORD'S RIGHT OF TERMINATION. If the Premises or the Building are
-------------------------------
substantially damaged by fire or casualty (the term "substantially damaged"
meaning damage of such a character that the same, in Landlord's judgment,
cannot, in ordinary course, reasonably be expected to be repaired within one
hundred and twenty (120) days from the time that repair work would commence), or
if any part of the Property is taken by any exercise of the right of eminent
domain, then Landlord shall have the right to terminate this Lease (even if
Landlord's entire interest in the Premises may have been divested (by giving
notice of Landlord's election so to do within ninety (90) days after the
occurrence of such casualty or the effective date of such taking, whereupon this
Lease shall terminate thirty (30) days after the date of such notice with the
same force and effect as if such date were the date originally established as
the expiration date of this Lease, except that if such damage by fire or
casualty was caused by the fault or neglect of Tenant of Tenant's
Representatives, Landlord may still pursue any and all remedies against Tenant
for such damage, insofar as Landlord has not been reimbursed by its insurance
carrier for such damage and, in any event, Landlord shall retain any rights
which Landlord may have had against Tenant for any failure of Tenant to satisfy
any obligations hereunder prior to such termination date.

C. RESTORATION. If this Lease shall not be terminated pursuant to
-----------
Section 18.B, Landlord shall thereafter use due diligence to restore the
portions of the Premises originally constructed by Landlord to the condition the
same were in prior to the fire or casualty, provided that Landlord's obligation
to restore the Premises shall be limited to the amount of insurance or
condemnation proceeds received by Landlord and available therefor, and shall be
subject to then existing laws, rules, regulations and ordinances. If, for any
reason, such restoration shall not be substantially completed before the
expiration of the 120-day period referred to in Section 18.B

<PAGE>

(which period may be extended for such periods of time as Landlord is prevented
from proceeding with or completing such restoration for any cause beyond
Landlord's reasonable control, but in no event for more than an additional
three (3) months), Tenant shall have the right to terminate this Lease by
giving notice to Landlord thereof within thirty (30) days after the expiration
of such period (as so extended). Upon the giving of such notice, this Lease
shall terminate unless, within thirty (30) days after such notice, Landlord
substantially completes such restoration. Such right of termination shall be
Tenant's sole and exclusive remedy at law or in equity for Landlord's failure to
so complete such restoration.

D. AWARD. Landlord shall have and hereby reserves and excepts, and
-----
Tenant hereby grants and assigns to Landlord, all rights to recover for damages
to the Property, the Premises and the leasehold interest hereby created, and to
compensation accrued or hereafter to accrue by reason of such taking, damage or
destruction, and by way of confirming the foregoing, Tenant hereby grants and
assigns, and covenants with Landlord to grant and assign to Landlord (by
execution of such instruments as Landlord may reasonably require), all rights to
such damages or compensation. If necessary, Tenant will join with Landlord in
any action for the recovery of such damages and reasonably cooperate with
Lanlord in prosecution of such action. Nothing contained herein shall be
construed to prevent Tenant from prosecuting in any condemnation proceedings a
claim for the value of any of Tenant's store fixtures or equipment installed in
the Premises by Tenant at Tenant's expense and for relocation expenses, provided
that such action shall not affect the amount of the award made to Landlord by
such taking authority.

19. DEFAULT
-------

A. The following shall constitute "Events of Default" for purposes of
this Lease:

(i) Tenant shall fail to pay any installment of rent or other sum
due Landlord on or before the date such sum was due and payable; or

(ii) Tenant shall fail to observe or perform any other of Tenant's
obligations under this lease and such failure shall not be corrected within
thirty (30) days after written notice thereof provided however, that if the
default is of a nature which cannot be cured within such thirty (30) day period,
the time within which to cure shall be reasonably extended so long as Tenant
shall commence to cure within such thirty (30) day period and thereafter
diligently and expeditiously proceeds to complete such cure; or

(iii) Tenant shall file for relief under federal or state bankruptcy
laws or be declared bankrupt or insolvent according to law, or, if any
assignment shall be made of Tenant's property for the benefit of the creditors,

B. Upon the occurrence of any of the foregoing Events of Default,
Landlord shall have the right at any time thereafter, to declare the term of
this lease ended, effective upon the giving of notice of such termination to
Tenant. Upon the giving of notice of the exercise of such right of termination,
Landlord shall also have the right to re-enter and take possession of the
Premises and to remove Tenant's signs and other property and to store the same
at Tenant's

<PAGE>

expense without prejudice to any remedies which might be otherwise be available
under this Lease or by law. Notwithstanding any such termination, Tenant shall
remain fully liable to Landlord for all of the obligations of Tenant as provided
in this Lease. Tenant shall indemnify and hold Landlord harmless from all
damages incurred by Landlord as a result of the termination of this Lease due to
Tenant's default including without limitation all loss of rents and additional
rent and any attorneys' fees, court costs, brokerage fees paid in connection
with this Lease, and any costs and expenses incurred by Landlord in connection
with re-letting the Premises to another tenant. All payments of the Base Rent
and additional rent shall be paid in monthly installments by Tenant on the first
day of each month as the same would have become due under the terms of this
Lease had the lease term not been terminated and any suit brought to collect the
amount of the deficiency for any month shall not prejudice in any way the rights
of Landlord to collect the deficiency for any subsequent month by similar
proceedings. Landlord upon termination of this Lease due to a Default of Tenant
or at any time thereafter, shall have the right, in lieu of collecting its
actual damages payable in installments as above provided, to recover from Tenant
liquidated damages, payable on demand, equal to the then present value
(discounted at the current prime rate) of the excess of the amounts which would
have been payable under this Lease from the date of such demand to the end of
the period which would otherwise have constituted the balance of the term of
this Lease, over the actual cash value of the rents received (in advance) for
the Premises for the same period. For this purpose, in computing the amount of
additional rent, the amounts to be included for real estate taxes, operating
expenses and other amounts required by this Lease to be paid by Tenant shall be
deemed, for each month, to be equal to 1/12th of the amount of the item (in the
aggregate) for the twelve (12) months preceding the date of demand. Such
election shall not diminish or impair Landlord's remedies hereunder for periods
prior to the date of the exercise of such election.

C. In case this Lease is terminated due to an Event of Default, Landlord
may (i) re-let the Premises or any part or parts thereof, either in the name of
Landlord or otherwise, for a term or terms which may at Landlord's option be
equal to or less than or exceed the period which would otherwise have
constituted the balance of the term of this Lease and may grant concessions or
free rent to the extent that Landlord considers advisable and necessary to re-
let the same and (ii) may make such alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable and necessary for
the purpose of re-letting the Premises; and such re-letting or the making of
such alterations, repairs and decorations shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall in no event
be liable in any way whatsoever for failure to re-let the Premises, or, in the
event that the Premises are re-let, for failure to collect the rent under such
re-letting. Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed, or in the event of Landlord obtaining possession of the
Premises.

D. If Tenant shall fail or default, after reasonable notice thereof, to
observe or perform any of the conditions or covenants on Tenant's part to be
observed or performed under any of the provisions in any article of this lease,
Landlord, without being under any obligation to do so and without thereby
waiving such default, may remedy such default for the account of and at the
expense of Tenant and any sums expended by Landlord in remedying any such
default shall

12
<PAGE>

be immediately due and payable by Tenant.

E. In the event Tenant fails to pay any sums to Landlord on or before the
date the same was due hereunder, Landlord shall be entitled to charge Tenant
interest on any such unpaid sums from the date the same were due and payable at
the rate of 1 1/12% per month compounded monthly. Any such interest charge for
late payment shall be added to and constitute part of the next installment
payment of Base Rent due under this Lease. In the event Tenant fails to pay
rent for more than two (2) months or if more than two (2) of Tenant's checks are
returned for insufficient funds during any consecutive twelve (12) month period
then Landlord shall have the right to require Tenant to make all future payments
by treasurer's or cashier's checks or by certified checks.

20. NOTICE
------

Any notice relating to the Premises or this Lease, shall be mailed
registered or certified mail, return receipt requested, postage prepaid, or sent
via Federal Express or other similar overnight delivery service, to the
addresses set forth on the first page of this Lease or to such other address as
either party may designate by like notice to the other, or, in the case of
Tenant, delivered to the Premises. Time shall be deemed to be of the essence
with respect to any time periods for which notices are required to be given and
for any actions required to be taken in connection therewith.

21. SURRENDER
---------

Upon the expiration or earlier termination of the term of this Lease,
Tenant shall peaceably quit and surrender to Landlord the Premises in a broom
clean and neat condition and in good order, condition and repair, and excepting
only damage by fire or other casualty for which, under other provisions of this
Lease, Landlord is responsible to repair, and ordinary wear and tear. Tenant
shall, if Landlord so requests, remove any signs installed by Tenant and repair
any holes or other damage to the Property caused by the removal of such signs.
Tenant's obligations to observe or perform this covenant shall survive the
expiration or other termination of the Term.

22. ATTORNEY'S FEES
---------------

Tenant agrees to pay all reasonable attorney's fees and any other expenses
incurred by Landlord in connection with the failure of Tenant to perform in a
timely manner any of its obligations under this Lease.

23. SIGNS
-----

Except as otherwise herein provided, Tenant will not place on the exterior
of the Premises or areas inside the Premises which are visible from outside the
Premises (including both interior and exterior surfaces of windows and doors) or
on any part of the Building or the Property outside the Premises, any signs,
lettering, symbols, advertisements, awnings, canopies, curtains,

13
<PAGE>

blinds, shades, flag poles, antennas or any other object of any kind without the
prior written consent of Landlord, which consent may be withheld, in Landlord's
sole discretion.

Tenant, at Tenant's expense, shall have the right, subject to Landlord's
prior written consent (which consent shall not be unreasonably withheld), to
install a sign on the front of the Building over the windows serving the
Premises. Tenant shall be responsible for obtaining any permits or approvals
required in connection with any such sign.

No showcases, merchandise, obstructions, signs, or any advertising device
of any kind whatsoever which are incidental to Tenant's business shall be placed
on the sidewalks, or other area outside the Premises, and Landlord may remove
any and all such matter, materials, or appliances, and all signs other than
those herein expressly excepted without notice to Tenant and at Tenant's
expense.

24. REFUSE FACILITIES
-----------------

If Landlord provides for a common dumpster or other trash removal
facilities Tenant agrees to use such dumpster or common trash removal
facilities and to pay its pro rata share of the costs incurred by Landlord in
connection therewith. If Landlord elects not to provide any trash removal
facilities or services then Tenant shall, if Landlord so requests, provide at
Tenant's expense an enclosed dumpster or other refuse facility satisfactory to
Landlord. Said refuse facility shall be placed in the location designated by
Landlord and shall be kept at all times by Tenant in an orderly and sanitary
condition. Tenant shall provide for refuse collection at least once each week or
such increased frequency as may be needed to maintain orderly and sanitary
conditions. At the request of Tenant, Landlord will assist Tenant in identifying
a suitable location for such dumpster. In any event refuse shall be stored and
disposed of as provided by state and local law. No other items shall be stored,
placed or disposed of outside the Premises, and if any articles or objects are
so stored, placed or disposed of due to the act or neglect of Tenant Landlord
may remove and dispose of any such objects or articles without notice to Tenant
and Tenant shall be liable on demand for any costs incurred by Landlord in
connection therewith.

25. OTHER PROVISIONS
----------------

A. No waiver of any condition expressed in this Lease shall be implied by
any neglect of Landlord to declare a default or take any other action on account
of the violation of such condition, and no waiver on any one occasion shall be
deemed to constitute a waiver on any other occasion if such violation shall be
continued or repeated subsequently. All rights and remedies of Landlord under
this Lease shall be cumulative, and the exercise of any right or remedy by
Landlord shall not preclude Landlord from exercising any other rights and
remedies herein provided or allowed by law.

B. The words "Landlord" and "Tenant" wherever used herein shall be
construed to mean landlords and tenants in all cases where there is more than
one person or entity named as

14
<PAGE>

Landlord or Tenant, and the necessary grammatical changes required to make the
provisions hereof apply either to corporations or individuals, men or women,
shall in all cases be assumed as though having been, in each case, fully
expressed as the context so requires. Each of the provisions of this Lease shall
extend to, and shall, as the case may require, bind or inure to the benefit not
only of Landlord and of Tenant, but also of their respective heirs, successors,
assigns and legal representatives.

C. Landlord reserves the right to make such other and further reasonable
rules and regulations as in his judgment may from time to time be needful for
the safety, care, cleanliness, and proper operation of the Property, and for the
preservation of good order therein, and any such other or further rules and
regulations shall be binding upon the parties hereto with the same force and
effect as if they had been inserted herein at the time of the execution hereof.

D. Recognizing that Landlord may find it necessary to establish to third
parties, such as accountants, banks, mortgagees, or the like, the then current
status of performance hereunder, Tenant, on the written request of Landlord made
from time to time, shall promptly furnish a written statement that the Lease is
in full force and effect and is unmodified except as otherwise stated; that
Tenant has accepted possession of the Premises and that all improvements (if
any) required by the terms of the Lease to be made by Landlord have been
completed to the satisfaction of Tenant; that no rent under the Lease has been
paid more than 30 days in advance of its due date; and that Tenant has no
charge, lien, or claim of offset under the Lease or otherwise, against rents or
other charges due or to become due thereunder. Such statement shall be furnished
within ten (10) business days after a request has been made for same.

E. After receiving written notice from Landlord stating the name and
address of any person, firm, or other entity, holding a first mortgage which
includes as a part of the mortgaged premises the Premises, Tenant shall, so long
as such mortgage is outstanding, be required to give to such holder the same
notice as is required to be given to Landlord under the terms of this Lease.
Notice to the holder of the mortgage shall be a condition precedent to the
validity and effectiveness of any notice given by Tenant to Landlord pursuant to
this Lease, but such notice may be given by Tenant to Landlord and such holder
concurrently. The holder of a first mortgage shall have the same rights as
Landlord (but not the obligations) to cure, on behalf of Landlord, and default
of Landlord hereunder and such cure shall be deemed to be the act of Landlord
for all purposes hereunder.

F. With reference to any assignment by Landlord of Landlord's interest in
this Lease, or the rents payable hereunder, conditional in nature or otherwise,
which assignment is made to the holder of the first mortgage on the Premises,
Tenant agrees;

(1) that the execution thereof by Landlord and the acceptance thereof
by the holder of such mortgage, shall never be deemed an assumption by such
holder of any of the obligations of Landlord hereunder, unless such holder
shall, by written notice sent to Tenant, specifically otherwise elect; and

<PAGE>

(2) that, except as aforesaid, such holder shall be treated as having
assumed Landlord's obligations hereunder only upon foreclosure of such holder's
mortgage and the taking of possession of the Premises.

G. Tenant warrants and represents that Tenant has dealt with no broker in
connection with the consummation of this Lease and in the event of any brokerage
claim against Landlord made by any broker predicated upon prior dealings with
Tenant, Tenant agrees to defend the same and indemnify Landlord against any such
claim.

H. Landlord shall be liable under this Lease only while owner of the
Premises and if Landlord shall be one or more persons acting in a trustee or
other fiduciary capacity, Landlord's obligations hereunder shall not be binding
upon such fiduciaries individually nor upon any beneficiary or shareholder for
whom such fiduciaries act, but shall be binding only upon a fiduciary as
fiduciary and upon his trust estate. There shall be no personal liability of any
officer or general or limited partner of Landlord as to any of Landlord's
obligations hereunder, and in the event of a default by Landlord, Tenant shall
look solely to the equity of Landlord in the Property for satisfaction of
Tenant's claim.

L. If Tenant or anyone claiming under Tenant shall remain in possession
of the Premises or any part thereof after the expiration of the leasae term the
person remaining in possession shall be deemed a tenant at will, from month to
month, subject to the provisions of this Lease insofar as the same may be made
applicable to a tenancy from month to month, except that the monthly Base Rent
shall be increased by an amount equal to $500 per month, compounded monthly.

J. Tenant agrees and acknowledges that neither Landlord nor Landlord's
officers, agents or employees have made any statements, warranties or
representations whatsoever on which Tenant has relied except as may be expressly
set forth in this Lease. Further, to the extent Landlord or Landlord's officers,
agents or employees may have made any statements, warranties or representations
other than those expressly set forth in this Lease, Tenant hereby releases and
discharges Landlord and Landlord's officers, agents and employees from any and
all claims, demands, causes of action and suits whatsoever which Tenant now has
or at any time hereafter may have by virtue of any such statements, warranties
or representations. This Lease may only be amended or modified pursuant to a
written agreement signed by both parties, and no person other than Anthony C.
Simboli (or his heirs, successors, or assigns) shall have any authority to
agree to any amendment or modification of this Leasae on behalf of Landlord.

K. Landlord's submittal of this document to Tenant for review shall not
constitute an offer to lease, and nothing contained herein shall be deemed to
obligate either Landlord or Tenant until such time as an agreement to lease has
been fully executed by and delivered to, both Landlord and Tenant, with Tenant
concurrently therewith paying to Landlord the security deposit specified in
Paragraph 5 hereof and delivering to Landlord certificates of insurance
evidencing proper insurance coverage pursuant to Paragraph 17 hereof.

<PAGE>

L. If any term of provision of this Lease, other than Tenant's obligation
to pay rent or other charges, or the application thereof to any person or
circumstances shall be finally held invalid or unenforceable by the court of
last resort having jurisdiction, the remainder of this Lease, or the application
of such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforced to the
fullest extent permitted by law.

M. Prior to the execution of this agreement and within ninety (90) days
of the close of tenant's fiscal year throughout the Term, Tenant agrees to
provide Landlord with current, audited financial statements of Tenant; provided,
however, Tenant shall not be required to furnish Landlord with such financial
statements prior to submitting same to the Securities and Exchange Commission.
--------

WITNESS the execution hereof, under seal, in any number of counterpart
copies, each of which shall be deemed an original for all purposes, as of the
_______ day of January, 1998.

LANDLORD

_______________________ __________________________

17
<PAGE>

Anthony C. Simboli Witness

TENANT;
Annie's Homegrown Inc.

By: _____________________________ _____________________
Paul B. Nardone Witness

Its:President and Chief Operating Officer

_____________________________
hereunto duly authorized

By: _____________________________ ____________________
Neil Raiff Witness

Its:Chief Financial Officer

_____________________________
hereunto duly authorized

<PAGE>

EXHIBIT 10.44

PROMISSORY NOTE

$75,000.00 December 31, 1997

FOR VALUE RECEIVED, Andrew M. Martin ("Maker"), promises to pay to ANNIE'S
HOMEGROWN, INC., a Delaware corporation ("Holder") at the Holder's principal
place of business, or such other place as the Holder may from time to time
designate, in lawful money of the United States, the principal sum of Seventy
Five Thousand dollars ($75,000) plus interest thereon, as set forth below.

Interest. Interest on the principal balance of the Note outstanding from
--------
time to time shall accrue at a simple annual rate of 6.02%, which is equal to
the Mid-Term Applicable Federal Rate for December, 1997.

Payments of Principal and Interest. On demand, the Maker shall pay to the
----------------------------------
Holder all principal outstanding under the Note, plus all interest accrued and
unpaid through such date. Interest as stated above shall be payable by the
Maker to the Holder on the first business day of each successive calendar
quarter, commencing on April 1, 1998, and so long as any principal balance
remains outstanding on the Note.

Prepayment. The Maker may prepay all or any portion of the principal and
----------
interest due under the Note at any time, or from time to time, without penalty
and without first obtaining the consent of the Holder.

Application of Payments. All payments made hereunder, whether at maturity
-----------------------
or as prepayments, shall be applied first to any interest then accrued and
unpaid, then to any other amounts due with respect to the Note, and then to the
reduction of principal.

Default. The Maker shall be in default under the Note if:
-------

(a) The Maker fails to make a payment of interest when due;

(b) The Maker voluntarily files for, or is adjudicated as, bankrupt or
insolvent, seeks or consents to the appointment of a receiver or trustee for
itself or for all or any part of its property, files a petition seeking relief
under the bankruptcy or similar laws of the United States or any state or any
other competent jurisdiction, makes a general assignment for the benefit of
creditors, or admits in writing its inability to pay its debts as they become
due; or

(c) A court of competent jurisdiction enters an order, judgment or decree
appointing, without the consent of the Maker, a receiver or trustee for all or
any part of his property or enters an order for relief or approves a petition
filed against the Maker under the bankruptcy or similar laws of the United
States or any state or other competent jurisdiction, and such order, judgment or
decree remains in force undischarged or unstayed for a period of sixty (60)
days.

Remedies. Upon the occurrence of a default hereunder, the Holder, at the
--------
Holder's option, may (i) declare all sums of principal and interest outstanding
hereunder to be immediately due and payable without presentment, demand, notice
of nonperformance, notice of protest, notice of dishonor, all of which are
expressly waived by Holder, and (ii) exercise
<PAGE>

any and all of the remedies provided in the Note, the Pledge Agreement (defined
below) and applicable law. Failure to exercise the foregoing remedies upon any
default by the Maker shall not constitute a waiver of the right to exercise the
same or any other remedies at any subsequent time with respect to the same event
or any other default.

Governing Law: Sever-ability. The Note shall be governed by and construed
----------------------------
in accordance with the laws of State of California as applied to contracts
entered into and to be performed entirely within that state. If any provision
hereof is in conflict with any statute or rule of California or otherwise is
unenforceable for any reason, then such provisions shall be deemed separable
from and shall not invalidate any other provision of the Note.

Successors and Assigns. The Holder may not sell, assign, pledge or
----------------------
otherwise transfer the Note without the prior written consent of the Maker. The
terms of the Note shall inure to the benefit of and bind the Maker and the
Holder and their respective successors and permitted assigns.

Security. The Note is secured by a pledge of Twenty Five Thousand (25,000)
--------
shares of the common stock of the Holder pursuant to a pledge agreement of even
date herewith between the Holder and the Maker (the "Pledge Agreement").

Maximum Legal Rate of Interest. All agreements between Maker and Holder,
------------------------------
whether now existing or hereafter arising, are hereby limited so that in no
event shall the interest charged hereunder or agreed to be paid to Holder exceed
the maximum amount permissible under applicable law. Holder shall be entitled
to amortize, prorate and spread throughout the full term of this Note all
interest paid or payable so that the interest paid does not exceed the maximum
amount permitted by law. If Holder ever receives interest or anything deemed
interest in excess of the maximum lawful amount, an amount equal to the
excessive interest shall be applied to the reduction of the principal, and if it
exceeds the unpaid balance of principal hereof, such excess shall be refunded to
Maker. If interest otherwise payable to Holder would exceed the maximum lawful
amount, the interest payable shall be reduced to the maximum amount permitted
under applicable law. This paragraph shall control all agreements between Maker
and Holder in connection with the indebtedness evidenced hereby.

IN WITNESS WHEREOF, the Maker has caused the Note to be duly executed.

MAKER:

___________________
Andrew M. Martin

<PAGE>

EXHIBIT 10.45

STOCK PURCHASE AND LOAN AGREEMENT

This Stock Purchase, Stock Pledge, and Loan Agreement ("Agreement") is made
as of October 1, 1997, by and between ANNIE'S HOMEGROWN, INC. ("Company") and
Andrew M. Martin ("Key Employee").

RECITALS
--------

WHEREAS, Key Employee has performed and is expected to continue to
perform valuable services for the Company;

WHEREAS, the Company granted to Key Employee certain incentive stock
options "(Options") pursuant to the Company's stockholder-approved 1990
Incentive Stock Option Plan;

WHEREAS, the Options expire on October 1, 1997; and

WHEREAS, to enable Key Employee to purchase up to Eighty Four Thousand,
Five Hundred Fifty-Two (84,552) shares of the Company's common stock ($.001 par
value) ("Shares") pursuant to the Options, the Company and Key Employee desire
the Company to make a personal loan ("Loan") to Key Employee subject to the
terms and conditions of this Agreement.

AGREEMENT
---------

NOW, THEREFORE, in consideration of the covenants, duties, terms, and
conditions set forth in this Agreement, the parties agree as follows:

1 . Share Purchase. Subject to the terms and conditions stated in this
--------------
Agreement, the Company hereby agrees to sell to Key Employee and Key Employee
agrees to purchase 84,552 shares at the price of $0.80 per Share.

2. Loan. Subject to the terms and conditions stated in this Agreement, the
----
Company hereby agrees to loan Key Employee $67,641.60. The amount of the Loan
is equal to the purchase price of 84,552 Shares at $0.80 per Share.

3. Use of Proceeds. Key Employee agrees to use all of the proceeds from the
---------------
Loan to purchase, from the Company, 84,552 Shares at the price of $0.80 per
Share.

4. Interest. The outstanding principal amount of the Loan shall bear interest
-------
("Interest") at the rate of 6.34%, compounded annually, from the date hereof to
the date of payment. This interest rate is equal to the Mid-Term Applicable
Federal Rate as defined in Section 1274(d) of the Internal Revenue Code of 1986,
as amended.

5. Payment. Interest on any outstanding principal balance shall be payable
-------
annually on October 1st of each year commencing October 1, l998, subject to (i)
acceleration of payment under the circumstances described below in Section 8 of
this Agreement, and (ii) payment by the Company under Section 6 of this
Agreement. The outstanding principal balance of the Loan, ("Principal Amount"),
shall be due and payable in full on October 1, 2002 (the "Maturity Date"),
subject to (i) acceleration of payment on termination of
<PAGE>

employment under the circumstances described below in Section 8 of this
Agreement, and (ii) the reductions provided under Section 6 of this Agreement.

6. Payment of Interest: Reduction of Principal Amount.
--------------------------------------------------

6.1. Payment of Interest. If, as of September 30 of each year, Key
-------------------
Employee is still employed with the Company, the Company agrees to pay, on Key
Employee's behalf, all Interest associated with the Loan. Any Interest paid by
the Company on Key Employee's behalf will not be distributed to Key Employee
but, rather, will be automatically applied against Key Employee's Interest
payment obligations under this Agreement. Any Interest paid by the Company on
Key Employee's behalf will be deemed to be additional compensation income to Key
Employee.

6.2. Reduction of Principal Amount. The Company agrees to reduce the
-----------------------------
Principal Amount as follows:

(a) If, as of September 30, 1998, Key Employee is still employed by
the Company, the Company agrees to forgive $16,910.40 of the Principal Amount;

(b) If, as of September 30, 1999, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $16,910.40 of the
Principal Amount;

(c) If, as of September 30, 2000, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $16,910.40 of the
Principal Amount;

(d) If, as of September 30, 2001, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $16,910.40 of the
Principal Amount;

(e) If, as of September 30, 2002, Key Employee is still employed by
the Company, the Company agrees to forgive the remaining $16,910.40 of the
Principal Amount.

It is the parties intention that, if Key Employee continues to be
employed by the Company as of September 30, 2002, the Principal Amount will be
completely forgiven.
<PAGE>

6.3. Change in Control. In the event that a single person or entity
-----------------
(other than the current shareholders of the Company) acquires more than 50% of
the outstanding stock of the Company, then:

(a) The full amount of the Principal Amount not yet paid plus all
accrued interest thereon, will become due and payable on either of such events.

(b) The payment of interest and reduction in Principal Amount
provisions of Sections 6.1 and 6.2 of this Agreement will also be accelerated
and the Shares will be released from the Pledge as provided in Section 7.

7. Pledge of Stock.
---------------

7.1. Pledged Shares. Key Employee's obligations under this Agreement are
--------------
secured by the Shares, and Key Employee hereby grants the Company a security
interest in the Shares (the "Pledged Shares"). The foregoing security interest
shall constitute a first priority interest to secure the payment of the
Principal Amount as such amount is reduced by Section 6 of this Agreement. All
certificates representing the Shares, if any shall have been issued, shall be
fully endorsed in blank by Key Employee and delivered by Key Employee to the
Company.

7.2. Rights of the Company as Secured Party. The Company shall have all
--------------------------------------
rights and remedies set forth in this Agreement and all other rights of a
secured party at law or in equity.

7.3. Rights Regarding Pledged Shares. The Company has the right to
-------------------------------
deliver any or all of the Pledged Shares to any person, to have any or all of
the Pledged Shares registered in its name or in the name of any other person,
and Key Employee irrevocably appoints the Company its attorney-in-fact
authorized at any time during the term of this Agreement to take any actions or
exercise any rights available to the Company under this Agreement.

7.4. Voting Rights. Key Employee hereby grants the Company the right to
-------------
vote the Pledged Shares until either Key Employee makes full payment of the
Principal Amount and any applicable Interest or the Principal Amount is
completely forgiven pursuant to Section 6.2 of this Agreement.

7.5. Key Employee's Representations Regarding Shares. Key Employee
-----------------------------------------------
represents that, as of the date of this Agreement, Key Employee has not taken
any action that would result in the Pledged Shares being subject to any adverse
claims, liens, or encumbrances (other than the pledge under this Agreement),
and, to his knowledge, there are no adverse claims, liens, or encumbrances on
the Pledged Shares as of the date of this Agreement.
<PAGE>

7.6. Release of Security. As the Principal Amount is reduced pursuant to
-------------------
Section 6, Shares (at a value of $0.80/Share for this purpose) will be released
from the pledge to Key Employee, i.e., 20% of the Shares after one (1) year, an
additional 20% after two (2) years, an additional 20% after three (3) years, an
additional 20% after (4) years, and the balance after five (5) years of
employment. Upon full payment of the Principal Amount and any applicable
Interest or complete forgiveness of the Principal Amount pursuant to Section
6.2 of this Agreement, the Company shall cause the Shares representing the
balance of the Pledged Shares to Key Employee to be registered on the books of
the Company's transfer agent.

7.7. Remedies Related to Collateral. Upon an Event of Default (as
------------------------------
defined in Section 11 of this Agreement), the Company may, in its sole
discretion and with or without further notice to Key Employee (in addition to
all rights or remedies available at law or equity or otherwise): (i) register
the Pledged Shares in the name of the Company or in any such name as the
Company may decide, and (ii) exercise any rights provided to a secured party
under the applicable commercial code.

8. Termination of Employment. In the event that Key Employee ceases to be
-------------------------
employed by the Company, the Company may purchase the Shares sold to Key
Employee as provided in this section.

8.1. Termination of Employment Before July 29, 1999. In the event of
----------------------------------------------
termination of Key Employee's employment with the Company before September 30,
2002, the Company shall be entitled to buy back from Key Employee, Shares
purchased pursuant to the terms of this Agreement, at a price equal to $0.80
per Share plus 140% of interest accrued and not yet forgiven on the Loan, as
follows:

(a) If Key Employee's employment is terminated before September
30, 1998, the Company will be entitled to buy back from key Employee all of the
Shares purchased pursuant to this Agreement;

(b) If Key Employee's employment is terminated on or after
September 30, 1998 but before September 30, 1999, the Company will be entitled
to buy back from Key Employee 67,642 Shares purchased pursuant to this
Agreement;

(c) If Key Employee's employment is terminated on or after
September 30, 1999 but before September 30, 2000, the Company will be entitled
to buy back from Key Employee 50,731 Shares purchased pursuant to this
Agreement;

(d) If Key Employee's employment is terminated on or after
September 30, 2000 but before September 30, 2001, the Company will be entitled
to buy back from Key Employee 33,821 Shares purchased pursuant to this
Agreement;

(e) If Key Employee's employment is terminated on or after
September 30, 2001 but before September 30, 2002, the Company will be entitled
to buy back from Key Employee 16,910 Shares purchased pursuant to this
Agreement.
<PAGE>

8.2. Company's Election Not to Buy Back Shares. In the event that
-----------------------------------------
the Company elects not to buy back Key Employee's Shares pursuant to the terms
of Section 8.1 of this Agreement, Key Employee may either (i) obtain title to
the Pledged Shares and a release of the Company's security interest in the
Pledged Shares by making full payment of the Principal Amount and any
applicable Interest within 45 days of the termination date, or (ii) sell some
or all of the Shares to the Company for the price of $0.80 per Share (plus
accrued interest) in repayment of the Principal Amount and any applicable
Interest. The Company will be obligated to purchase the Shares from Key
Employee pursuant to this Section 8.2 if the Company elects not to purchase the
Shares pursuant to Section 8.1 of this Agreement and Key Employee elects to
sell the Shares back to the Company pursuant to the terms of this Section 8.2.

8.3. Termination of Employment On or After September 30, 2002 or Before
------------------------------------------------------------------
September 30, 2002 for Other Than Good Cause. In the event of termination of
- --------------------------------------------
Key Employee's employment with the Company on or after September 30, 2002 for
any reason whatsoever, or in the event that the Company terminates Key
Employee's employment before September 30, 2002 for other than Good Cause (as
defined below), the Company will not be entitled to buy back the Shares
purchased by Key Employee pursuant to this Agreement other than as provided in
Section 8.4 of this Agreement. Notwithstanding the foregoing, the parties may
enter into a subsequent agreement whereby the Company agrees to purchase Shares
held by Key Employee.

As used herein, the term "Good Cause" shall mean (i) any act or
omission of gross negligence, willful misconduct, dishonesty, or fraud by Key
Employee in the performance of his duties, (ii) the failure or refusal of Key
Employee to perform the duties or to render the services assigned to him from
time to time, (iii) the charging or indictment of Key Employee in connection
with a felony or any misdemeanor involving dishonesty or moral turpitude, (iv)
the material breach by Key Employee of his fiduciary duty or duty of trust to
the Company, (v) death of Key Employee, or (vi) voluntary termination of
employment by Key Employee.

8.4. Principal Amount and Interest in the Event of Termination. In the
---------------------------------------------------------
event the Company exercises its right to buy back the Shares from Key Employee
pursuant to Section 8.1 of this Agreement, any outstanding Principal Amount and
any applicable Interest will be immediately due and payable and shall be
applied against amounts due to Key Employee for purchase of Shares. In the
-------
event that the Company terminates Key Employee's employment before September
30, 2002 for other than Good Cause, Key Employee may either (i) obtain title to
the Pledged Shares and a release of the Company's security interest in the
Pledged Shares by making full payment of the Principal Amount and any
applicable interest within 45 days of the termination date, or (ii) sell Shares
to the Company (and the Company agrees to purchase the Shares) for the price of
$0.80 per Share (plus accrued interest) in repayment of the Principal Amount
and any applicable Interest.
<PAGE>

9. Arbitration. If a dispute arises between the Company and Key Employee
-----------
concerning this Agreement, the disputed matter shall be submitted to arbitration
in the City of San Francisco, California, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA Rules"). Any
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. The arbitrators shall have the authority to grant
any equitable and legal remedies that would be available in any judicial
proceeding instituted to resolve the disputed matter. The arbitrators shall
apply the laws of the State of California in making any determination hereunder.
Notwithstanding anything to the contrary which may now or hereafter be contained
in the AAA Rules, the parties agree any such arbitration shall be conducted
before a panel of three arbitrators who shall be compensated for their services
at a rate to be determined by the American Arbitration Association in the event
the parties are not able to agree upon their rate of compensation. Each party
shall have the right to appoint one arbitrator (to be appointed within 20 days
of the notice of a dispute to be resolved by arbitration hereunder), and the two
arbitrators so chosen shall mutually agree upon the selection of the third,
impartial arbitrator. The majority decision of the arbitrators will be final
and conclusive upon the parties hereto.

10. Payments. Any payments due from Key Employee under this Agreement shall
--------
be made payable to Annie's Homegrown, Inc. and shall be sent to the Company's
offices at 180 Second Street, Suite 202, Chelsea, MA 02150, Attention: Neil
Raiff.

11. Event of Default. It shall be an event of default (an "Event of
----------------
Default") if Key Employee fails to pay the Company pursuant to Section 5.

12. No Right of Employment. Nothing herein shall confer upon Key
----------------------
Employee the right to continue in the employment of the Company nor affect any
right which the Company may have to terminate the employment of Key Employee.

13. Miscellaneous.
-------------

13.1. This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, agreements, and
warranties, whether oral or written.

13.2. This Agreement shall be governed by and interpreted according to
the laws of the State of California, without regard to the choice of law
provisions thereunder.

13.3. With respect to the Company, this Agreement shall inure to the
benefit of and be binding upon any successors or assigns of the Company. With
respect to Key Employee, this Agreement shall not be assignable but shall inure
to the benefit of estate of Key Employee or his legal successor upon death or
disability.
<PAGE>

13.4. The captions of the various sections of this Agreement are inserted
only for convenience and shall not be considered in construing this Agreement.

13.5. This Agreement can be modified, amended, or any of its terms
waived only by a writing signed by both parties.

13.6. If any provision of this Agreement shall be held invalid, illegal,
or unenforceable, the remaining provisions of the Agreement shall remain in full
force and effect and the invalid, illegal, or unenforceable provision shall be
limited or eliminated only to the extent necessary to remove such invalidity,
illegality or unenforceability in accordance with the applicable law at that
time.

13.7. No remedy made available to the Company by any of the provisions of
this Agreement is intended to be exclusive of any other remedy. Each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder as well as those remedies existing at law, in equity, by statute, or
otherwise.

13.8. This Agreement may be executed in counterparts, each of which will
be considered an original and each of which will constitute one and the same
document.

IN WITNESS WHEREOF, this Agreement has been executed as of the date
specified in the first paragraph.

ANNIE'S HOMEGROWN, INC.

By: __________________________
Neil Raiff
Its: Chief Financial Officer

KEY EMPLOYEE:

_________________________
Andrew M. Martin

<PAGE>

EXHIBIT 10.46

AMENDMENT TO
STOCK PURCHASE AND LOAN AGREEMIENT

Reference is made to that certain Stock Purchase and Loan Agreement (the
"Original Loan Agreement"), dated as of October 1, 1997, by and between ANNIE'S
HOMEGROWN, INC. (the "Company"), a Delaware corporation, and Andrew M. Martin
("Key Employee"). This amendment ("Amendment") to the Original Loan Agreement
is made as of December 31, 1997 by and between the Company and Key Employee.
Capitalized terms not defined in this Amendment shall have the meaning given to
them in the Original Loan Agreement.

BACKGROUND
----------

A. Key Employee and the Company entered into the Original Loan Agreement
to enable Key Employee to purchase Eighty Four Thousand Five Hundred Fifty-Two
(84,552) Shares at a price of $0.80 per Share pursuant to certain Options which
previously were granted by the Company to Key Employee.

B. The Original Loan Agreement states in Section 6 thereof that the
Principal Amount of the loan will be repaid by the Company under certain
circumstances. A computational error was made in computing the amounts of such
repayments.

C. Key Employee and the Company wish to amend the Original Loan Agreement
to correct this error, among other things.

AGREEMENT
---------

In consideration of the foregoing background and the mutual agreements of
the parties set forth in this Amendment, the Company and Key Employee agree as
follows:

1. Section 5 of the Original Loan Agreement is hereby stricken in its entirety
and replaced by the following provision:

645. Payment of Principal and Interest. For value received, Key Employee
---------------------------------
promises to pay to the Company, in lawful money of the United States of
America, and in immediately available funds, the principal sum of Sixty
Seven Thousand Six Hundred and Forty-One dollars and Sixty cents
($67,641.60), or so much thereof as may be outstanding, with interest
thereon, on October 1, 2002 (the "Maturity Date"). Subject to Section 6.
1, Interest accrued on this Loan shall be payable annually on October lst
of each year, commencing on October 1, 1998.
<PAGE>

2. Section 6.2 of the Original Loan Agreement is hereby stricken in its
entirety and replaced by the following provision:

"6.2 Reduction of Principal Amount. The Company agrees to reduce the
-----------------------------
Principal Amount as follows:

(a) If, as of September 30, 1998, Key Employee is still employed
by the Company, the Company agrees to forgive $13,528.32 of the Principal
Amount;

(b) If, as of September 30, 1999, Key Employee is still employed
by the Company, the Company agrees to forgive an additional $13,528.32 of
the Principal Amount;

(c) If, as of September 30, 2000, Key Employee is still employed
by the Company, the Company agrees to forgive an additional $13,528.32 of
the Principal Amount;

(d) If, as of September 30, 2001, Key Employee is still employed
by the Company, the Company agrees to forgive an additional $13,528.32 of
the Principal Amount;

(e) If, as of September 30, 2002, Key Employee is still employed
by the Company, the Company agrees to forgive the remaining $13,528.32 of
the Principal Amount.

It is the parties intention that, if Key Employee continues to be
employed by the Company as of September 30, 2002, the Principal Amount will
be completely forgiven."

3. This Amendment may be executed in counterparts, each of which will be
considered an original and each of which will constitute one and the same
document.
<PAGE>

IN WITNESS WHEREOF, this Amendment has been executed as of the date
specified in the first paragraph.

ANNIE'S HOMEGROWN, INC.

By: __________________________
Neil Raiff
Its: Chief Financial Officer

KEY EMPLOYEE:

___________________________
Andrew M. Martin

<PAGE>

EXHIBIT 10.47

STOCK PURCHASE AND LOAN AGREEMENT

This Stock Purchase, Stock Pledge, and Loan Agreement ("Agreement") is made
as of October 1, 1997, by and between ANNIE'S HOMEGROWN, INC. ("Company") and
Ann E. Withey ("Key Employee").

RECITALS
--------

WHEREAS, Key Employee has performed AND is expected to continue to perform
valuable services for the Company;

WHEREAS, the Company granted to Key Employee certain incentive stock
options ("Options") pursuant to the Company's stockholder-approved 1990
Incentive Stock Option Plan;

WHEREAS, the Options expire on October 1, 1997; and

WHEREAS, to enable Key Employee to purchase uP to Eighty Four Thousand,
Five Hundred Fifty-Two (84,552) shares of the Company's common stock ($.001 par
value) ("Shares") pursuant to the Options, the Company and Key Employee desire
the Company to make a personal loan ("Loan") to Key Employee subject to the
terms and conditions of this Agreement.

AGREEMENT
---------

NOW, THEREFORE, in consideration of the covenants, duties, terms, and
conditions set forth in this Agreement, the parties agree as follows:

1. Share Purchase. Subject to the terms and conditions stated in this
--------------
Agreement, the Company hereby agrees to sell to Key Employee and Key Employee
agrees to purchase 84,552 shares at the price of $0.80 per Share.

2. Loan. Subject to the terms and conditions stated in this Agreement, the
----
Company hereby agrees to loan Key Employee $49,735.20. The amount of the Loan is
equal to the purchase price of 84,552 Shares at $0.80 per Share.

3. Use of Proceeds. Key Employee agrees to use all of the proceeds from the
---------------
Loan to purchase, from the Company, 84,552 Shares at the price of $0.80 per
Share.

4. Interest. The outstanding principal amount of the Loan shall bear interest
--------
("Interest") at the rate of 6.34%, compounded annually, from the date hereof to
the date of payment. This interest rate is equal to the Mid-Term Applicable
Federal Rate as defined in Section 1274(d) of the Internal Revenue Code of 1986,
as amended.

5. Payment. Interest on any outstanding principal balance shall be payable
-------
annually on October 1st of each year commencing October 1, 1998, subject to (i)
acceleration of payment under the circumstances described below in Section 8 of
this Agreement, and (ii) payment by the Company under Section 6 of this
Agreement. The outstanding principal balance of the Loan, ("Principal Amount"),
shall be due and payable in full on October 1, 2002 (the "Maturity Date"),
subject to (i) acceleration of payment on termination of employment under the
circumstances described below in Section 8 of this Agreement, and (ii) the
reductions provided under Section 6 of this Agreement.
<PAGE>

6. Payment of Interest; Reduction of Principal Amoul'it.
----------------------------------------------------

6.2. Reduction of Principal Amount. The Company agrees to reduce the
-----------------------------
Principal Amount as follows:

(a) If, as of September 30, 1998, Key Employee is still employed by
the Company, the Company agrees to forgive $16,910.40 of the Principal Amount;

(b) If, as of September 30, 1999, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $16,910.40 of the
Principal Amount;

(c) If, as of September 30, 2000, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $16,910.40 of the
Principal Amount,

(d) If, as of September 30, 2001, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $16,910.40 of the
Principal Amount;

(e) If, as of September 30, 2002, Key Employee is still employed by
the Company, the Company agrees to forgive the remaining $9,947.04 of the
Principal Amount.

It is the parties intention that, if Key Employee continues to be employed
by the, Company as of September 30, 2002, the Principal Amount will be
completely forgiven.

(a) The full amount of the Principal Amount not yet paid plus all
accrued interest thereon, will become due and payable on either of such events.

7. Pledge of Stock.
---------------
<PAGE>

7.3 Rights Regarding Pledged Shares. The Company has the right to
---------------- -------
deliver any or all of the Pledged Shares to any person, to have any or all of
the Pledged Shares registered in its name or in the name of any other person,
and Key Employee irrevocably appoints the Company its attorney-in-fact
authorized at any time during the term of this Agreement to take any actions or
exercise any rights available to the Company under this Agreement.

7.4. Voting Rights. Key Employee hereby grants the Company the right to
-------------
vote the Pledged Shares until either Key Employee makes full payment of the
Principal Amount and any applicable interest or the Principal Amount is
completely forgiven pursuant to Section 6.2 of this Agreement.

7.5. Key Employee's Representations Regarding Shares. Key Employee
-----------------------------------------------
represents that, as of the date of this Agreement, Key Employee has not taken
any action that would result in the Pledged Shares being subject to any adverse
claims, liens, or encumbrances (other than the pledge under this Agreement),
and, to her knowledge there are no adverse claims, liens, or encumbrances on the
Pledged Shares as of the date of this Agreement.
<PAGE>

7.6. Release of Security. As the Principal Amount is reduced pursuant to
-------------------
Section 6, Shares (at a value of $0.80/Share for this purpose) will be released
from the pledge to Key Employee, i.e., 20% of the Shares after one (1) year, an
additional 20% after two (2) years, an additional 20% after three (3) years, an
additional 20% after (4) years, and the balance after five (5) years of
employment. Upon full payment of the Principal Amount and any applicable
interest or complete forgiveness of the Principal Amount pursuant to Section 6.2
of this Agreement, the Company shall cause the Shares representing the balance
of the Pledged Shares to Key Employee to be registered on the books of the
Company's transfer agent.

7.7. Remedies Related to Collateral. Upon an Event of Default (as
------------------------------
defined in Section 11 of this Agreement), the Company may, in its sole
discretion and with or without further notice to Key Employee (in addition to
all rights or remedies available at law or equity or otherwise): (i) register
the Pledged Shares in the name of the Company or in any such name as the Company
may decide, and (ii) exercise any rights provided to a secured party under the
applicable commercial code.

8.1. Termination of Employment Before July 29, 1999. IN the event of
------------------------------------------------
termination of Key Employee's employment with the Company before September 30,
2002, the Company shall be entitled to buy back from Key Employee, Shares
purchased pursuant to the terms of this Agreement, at a price equal to $0.80 per
Share plus 140% of interest accrued and not yet forgiven on the Loan, as
follows:

(a) If Key Employee's employment is terminated before September 30,
1998, the Company will be entitled to buy back from Key Employee all of the
Shares purchased pursuant to this Agreement;

(b) If Key Employee's employment is terminated on or after September
30, 1998 but before September 30, 1999, the Company will be entitled to buy back
from Key Employee 67,642 Shares purchased pursuant to this Agreement;

(c) If Key Employee's employment is terminated on or after September
30, 1999 but before September 30, 2000, the Company will be entitled to buy back
from Key Employee 50,731 Shares purchased pursuant to this Agreement;

(d) If Key Employee's employment is terminated on or after September
30, 2000 but before September 30, 2001, the Company will be entitled to buy back
from Key Employee 33,821 Shares purchased pursuant to this Agreement;

(e) If Key Employee's employment is terminated on or after September
30, 2001 but before September 30, 2002, the Company will be entitled to buy back
from Key Employee 16,910 Shares purchased pursuant to this Agreement.
<PAGE>

8.2. Company's Election Not to Buy Back Shares. In the event that the
-----------------------------------------
Company elects not to buy back Key Employee's Shares pursuant to the terms of
Section 8.1 of this Agreement, Key Employee may either (i) obtain title to the
Pledged Shares and a release of the Company's security interest in the Pledged
Shares by making full payment of the Principal Amount and any applicable
Interest within 45 days of the termination date, or (ii) sell some or all of the
Shares to the Company for the price of $0.80 per Share (plus accrued interest)
in repayment of the Principal Amount and any applicable Interest. The Company
will be obligated to purchase the Shares from Key Employee pursuant to this
Section 8.2 if the Company elects not to purchase the Shares pursuant to Section
8.1 of this Agreement and Key Employee elects to sell the Shares back to the
Company pursuant to the terms of this Section 8.2.

8.3 Termination of Employment On or After September 30, 2002 or Before
------------------------------------------------------------------
September 30, 2002 for Other Than Good Cause. In the event of termination of
- --------------------------------------------
Key Employee's employment with the Company on or after September 30, 2002 for
any reason whatsoever, or in the event that the Company terminates Key
Employee's employment before September 30, 2002 for other than Good Cause (as
defined below), the Company will not be entitled to buy back the Shares
purchased by Key Employee pursuant to this Agreement other than as provided in
Section 8.4 of this Agreement. Notwithstanding the foregoing, the parties may
enter into a subsequent agreement whereby the Company agrees to purchase Shares
held by Key Employee.

As used herein, the term "Good Cause" shall mean (i) any act or
omission of gross negligence willful misconduct, dishonesty, or fraud by Key
Employee in the performance of her duties, (ii) the failure or refusal of Key
Employee to perform the duties or to render the services assigned to her from
time to time, (iii) the charging or indictment of Key Employee in connection
with a felony or any misdemeanor involving dishonesty or moral turpitude, (iv)
the material breach by Key Employee of her fiduciary duty or duty of trust to
the Company, (v) death of Key Employee, or (vi) voluntary termination of
employment by Key Employee.

8.4. Principal Amount and Interest in the Event of Termination. In the
---------------------------------------------------------
event the Company exercises its right to buy back the Shares from Key Employee
pursuant to Section 8.1 of this Agreement, any outstanding Principal Amount and
any applicable Interest will be immediately due and payable and shall be applied
against amounts due to Key Employee for purchase of Shares. In the event that
the Company terminates Key Employee's employment before September 30, 2002 for
other than Good Cause, Key Employee may either (i) obtain title to the Pledged
Shares and a release of the Company's security interest in the Pledged Shares by
making full payment of the Principal Amount and any applicable interest within
45 days of the termination date, or (ii) sell Shares to the Company (and the
Company agrees to purchase the Shares) for the price of $0.80 per Share (plus
accrued interest) in repayment of the Principal Amount and any applicable
interest.
<PAGE>

10. Payments. Any payments due from Key Employee under this Agreement shall be
--------
made payable to Annie's Homegrown, Inc. and shall be sent to the Company's
offices at 180 Second Street, Suite 202, Chelsea, MA 02150, Attention: Neil
Raiff.

11. Event of Default. It shall be an event of default (an "Event of Default")
----------------
if Key Employee fails to pay the Company pursuant to Section 5.

12. No Right of Employment. Nothing herein shall confer upon Key Employee the
----------------------
right to continue in the employment of the Company nor affect any right which
the Company may have to terminate the employment of Key Employee.

13. Miscellaneous.
-------------

13.1. This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, agreements, and
warranties, whether oral or written.

13.2. This Agreement shall be governed by and interpreted according to the
laws of the State of California, without regard to the choice of law provisions
thereunder.

13.3 With respect to the Company, this Agreement shall inure to the
benefit of and be binding upon any successors or assigns of the Company. With
respect to Key Employee, this Agreement shall not be assignable but shall inure
to the benefit of estate of Key Employee or her legal successor upon death or
disability.

13.4. The captions of the various sections of this Agreement are inserted
only for convenience and shall not be considered in construing this Agreement.
<PAGE>

13.5. This Agreement can be modified, amended, or any of its terms waived
only by a writing signed by both parties.

13.8. This Agreement may be executed in counterparts, each of which will be
considered an original and each of which will constitute one and the same
document.

IN WITNESS WHEREOF, this Agreement has been executed as of the date
specified in the first paragraph.

ANNIE'S HOMEGROWN, INC.

By: _________________________
Neil Raiff
Its: Chief Financial Officer

KEY EMPLOYEE:

__________________________
Ann E. Withey

<PAGE>

EXHIBIT 10.48

AMENDMENT TO
STOCK PURCHASE AND LOAN AGREEMENT

Reference is made to that certain Stock Purchase and Loan Agreement (the
"Original Loan Agreement"), dated as of October 1, 1997, by and between ANNIE'S
HOMEGROWN, INC. (the "Company"), a Delaware corporation, and Ann E. Withey ("Key
Employee"). This amendment ("Amendment") to the Original Loan Agreement is made
as of December 31, 1997 by and between the Company and Key Employee. Capitalized
terms not defined in this Amendment shall have the meaning given to them in the
Original Loan Agreement.

BACKGROUND
----------

B. The Original Loan Agreement erroneously states in Section 2 thereof
that the Principal Amount of the loan is $49,735.20. the correct Principal
Amount is $67,641.60.

C. Key Employee and the Company wish to amend the Original Loan
Agreement to correct this error, among other things.

AGREEMENT
---------

In consideration of the foregoing background and the mutual agreements of
the parties set forth in this Amendment, the Company and Key Employee agree as
follows:

1. Section 2 of the Original Loan Agreement is hereby stricken in its entirety
and is replaced by the following provision:

"2. Loan. Subject to the terms and conditions of this Agreement, the
----
Company hereby agrees to loan Key Employee Sixty Seven Thousand Six Hundred
and Forty-One dollars and Sixty cents ($67,641.60) (the "Principal
Amount"). The Principal Amount is equal to the purchase price of 84,552
Shares at $0.80 per Share."

2. Section 5 of the Original Loan Agreement is hereby stricken in its entirety
and replaced by the following provision:

"5. Payment of Principal and Interest. For value received, Key Employee
---------------------------------
promises to pay to the Company, in lawful money of the United States of
America, and in immediately available funds, the principal sum of
<PAGE>

Sixty Seven Thousand Six Hundred and Forty-One dollars and Sixty cents
($67,641.60), or so much thereof as may be outstanding, with interest
thereon, on October 1, 2002 (the "Maturity Date"). Subject to Section 6.1,
Interest accrued on this Loan shall be payable annually on October 1st of
each year, commencing on October 1, 1998."

3. Section 6.2 of the Original Loan Agreement is hereby stricken in its
entirety and replaced by the following provision:

"6.2 Reduction of Principal Amount. The Company agrees to reduce the
-----------------------------
Principal Amount as follows:

(a) If, as of September 30, 1998, Key Employee is still employed
by the Company, the Company agrees to forgive $13,528.32 of the Principal
Amount;

(b) If, as of September 30, 1999, Key Employee is still employed
by the Company, the Company agrees to forgive an additional $13,528.32 of
the Principal Amount;

(c) If, as of September 30, 2000, Key Employee is still employed
by the Company, the Company agrees to forgive an additional $13,528.32 of
the Principal Amount;

(d) If, as of September 30, 2001, Key Employee is still employed
by the Company, the Company agrees to forgive an additional $13,528.32 of
the Principal Amount;

(e) If, as of September 30, 2002, Key Employee is still employed
by the Company, the Company agrees to forgive the remaining $13,528.32 of
the Principal Amount.

It is the parties intention that, if Key Employee is continuously employed
by the Company through September 30, 2002, the Principal Amount will be
completely forgiven."

4. This Amendment may be executed in counterparts, each of which will be
considered an original and each of which will constitute one and the same
document.

2
<PAGE>

IN WITNESS WHEREOF, this Amendment has been executed as of the date
specified in the first paragraph.

ANNIE'S HOMEGROWN, INC.

BY: ___________________________
Neil Raiff
ITS: Chief Financial Officer

KEY EMPLOYEE:

___________________________
Ann E. Withey

<PAGE>

EXHIBIT 10.49

STOCK PURCHASE AND LOAN AGREEMENT

This Stock Purchase, Stock Pledge, and Loan Agreement ("Agreement") is made
as of October 1, 1997, by and between ANNIE'S HOMEGROWN, INC. ("Company") and
Deborah Churchill Luster ("Key Employee").

RECITALS
--------

WHEREAS, Key Employee has performed and is expected to continue to perform
valuable services for the Company;

WHEREAS, the Company granted to Key Employee certain incentive stock
options ("Options") pursuant to the Company's stockholder-approved 1990
Incentive Stock Option Plan;

WHEREAS, the Options expire on October 1, 1997; and

WHEREAS, to enable Key Employee to purchase up to Sixty Two Thousand, One
Hundred Sixty-Nine (62,169) shares of the Company's common stock ($.001 par
value) ("Shares") pursuant to the Options, the Company and Key Employee desire
the Company to make a personal loan ("Loan") to Key Employee subject to the
terms and conditions of this Agreement.

AGREEMENT
---------

NOW, THEREFORE, in consideration of the covenants, duties, terms, and
conditions set forth in this Agreement, the parties agree as follows:

1. Share Purchase. Subject to the terms and conditions stated in this
--------------
Agreement, the Company hereby agrees to sell to Key Employee and Key Employee
agrees to purchase 62,169 shares at the price of $0.80 per Share.

3. Use of Proceeds. Key Employee agrees to use all of the proceeds from the
---------------
Loan to purchase, from the Company, 62,169 Shares at the price of $0.80 per
Share.

6. Payment of Interest; Reduction of Principal Amount.
--------------------------------------------------

6.2. Reduction of Principal Amount. The Company agrees to reduce the
-----------------------------
Principal Amount as follows:

(a) If, as of September 30, 1998, Key Employee is still employed by
the Company, the Company agrees to forgive $9,947.04 of the Principal Amount;

(b) If, as of September 30, 1999, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $9,947.04 of the
Principal Amount;

(c) If, as of September 30, 2000, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $9,947.04 of the
Principal Amount;

(d) If, as of September 30, 2001, Key Employee is still employed by
the Company, the Company agrees to forgive an additional $9,947.04 of the
Principal Amount;

(e) If, as of September 30, 2002, Key Employee is still employed by
the Company, the Company agrees to forgive the remaining $9,947.04 of the
Principal Amount;

It is the parties intention that, if Key Employee continues to be employed by
the Company as of September 30, 2002, the Principal Amount will be completely
forgiven.

2
<PAGE>

6.3. Change in Control. In the event that a single person or entity (other
-----------------
than the current shareholders of the Company) acquires more than 50% of the
outstanding stock of the Company, then:

(a) The full amount of the Principal Amount not yet paid plus all
accrued interest thereon, will become due and payable on either of such events.

(b) The payment of interest and reduction in Principal Amount
provisions of Section 6.1 and 6.2 of this Agreement will also be accelerated and
the Shares will be released from the Pledge as provided in Section 7.

7. Pledge Stock.
------------

7.2 Rights of the Company as Secured Party. The Company shall have all
--------------------------------------
rights and remedies set forth in this Agreement and all other rights of a
secured party at law or in equity.

7.3. Rights Regarding Pledged Shares. The Company has the right to deliver
-------------------------------
any or all of the Pledged Shares to any person, to have any or all of the
Pledged Shares registered in its name or in the name of any other person, and
Key Employee irrevocably appoints the Company its attorney-in-fact authorized at
any time during the term of this Agreement to take any actions or exercise any
rights available to the Company under this Agreement.

7.5. Key Employee's Representations Regarding Shares. Key Employee
-----------------------------------------------
represents that, as of the date of this Agreement, Key Employee has not taken
any action that would result in the Pledged Shares being subject to any adverse
claims, liens, or encumbrances (other than the pledge under this Agreement),
and, to her knowledge, there are no adverse claims, liens, or encumbrances on
the Pledged Shares as of the date of this Agreement.

7.6. Release of Security. As the Principal Amount is reduced pursuant to
-------------------
Section 6, Shares (at a value of $0.80/Share for this purpose) will be released
from the

<PAGE>

pledge to Key Employee, i.e., 20% of the Shares after one (1) year, an
additional 20% after two (2) years, an additional 20% after three (3) years, an
additional 20% after (4) years, and the balance after five (5) years of
employment. Upon full payment of the Principal Amount and any applicable
Interest or complete forgiveness of the Principal Amount pursuant to Section 6.2
of this Agreement, the Company shall cause the Shares representing the balance
of the Pledged Shares to Key Employee to be registered on the books of the
Company's transfer agent.

7.7. Remedies Related to Collateral. Upon an Event of Default (as defined
------------------------------
in Section 11 of this Agreement), the Company may, in its sole discretion and
with or without further notice to Key Employee (in addition to all rights or
remedies available at law or equity or otherwise): (i) register the Pledged
Shares in the name of the Company or in any such name as the Company may decide,
and (ii) exercise any rights provided to a secured party under the applicable
commercial code.

8.1. Termination of Employment Before July 29, 1999. In the event of
----------------------------------------------
termination of Key Employee's employment with the Company before September 30,
2002, the Company shall be entitled to buy back from Key Employee, Shares
purchased pursuant to the terms of this Agreement, at a price equal to $0.80 per
Share plus 140% of interest accrued and not yet forgiven on the Loan, as
follows:

(a) If Key Employee's employment is terminated before September 30,
1998, the Company will be entitled to buy back from key Employee all of the
Shares purchased pursuant to this Agreement;

(b) If Key Employee's employment is terminated on or after September
30, 1998 but before September 30, 1999, the Company will be entitled to buy back
from Key Employee 49,735 Shares purchased pursuant to this Agreement;

(c) If Key Employee's employment is terminated on or after September
30, 1999 but before September 30, 2000, the Company will be entitled to buy back
from Key Employee 37,301 Shares purchased pursuant to this Agreement;

(d) If Key Employee's employment is terminated on or after September
30, 2000 but before September 30, 2001, the Company will be entitled to buy back
from Key Employee 24,868 Shares purchased pursuant to this Agreement;

(e) If Key Employee's employment is terminated on or after September
30, 2001 but before September 30, 2002, the Company will be entitled to buy back
from Key Employee 12,434 Shares purchased pursuant to this Agreement.

8.2. Company's Election Not to Buy Back Shares. In the event that the
-----------------------------------------
Company elects not to buy back Key Employee's Shares pursuant to the terms of
Section

4
<PAGE>

8.1 of this Agreement, Key Employee may either (i) obtain title to the Pledged
Shares and a release of the Company's security interest in the Pledged Shares by
making full payment of the Principal Amount and any applicable Interest within
45 days of the termination date, or (ii) sell some or all of the Shares to the
Company for the price of $0.80 per Share (plus accrued interest) in repayment of
the Principal Amount and any applicable Interest. The Company will be obligated
to purchase the Shares from Key Employee pursuant to this Section 8.2 if the
Company elects not to purchase the Shares pursuant to Section 8.1 of this
Agreement and Key Employee elects to sell the Shares back to the Company
pursuant to the terms of this Section 8.2.

8.3. Termination of Employment On or After September 30, 2002 or Before
------------------------------------------------------------------
September 30, 2002 for Other Than Good Cause. In the event of termination of Key
- --------------------------------------------
Employee's employment with the Company on or after September 30, 2002 for any
reason whatsoever, or in the event that the Company terminates Key Employee's
employment before September 30, 2002 for other than Good Cause (as defined
below), the Company will not be entitled to buy back the Shares purchased by Key
Employee pursuant to this Agreement other than as provided in Section 8.4 of
this Agreement. Notwithstanding the foregoing, the parties may enter into a
subsequent agreement whereby the Company agrees to purchase Shares held by Key
Employee.

As used herein, the term "Good Cause" shall mean (i) any act or
omission of gross negligence, willful misconduct, dishonesty, or fraud by Key
Employee in the performance of her duties, (ii) the failure or refusal of Key
Employee to perform the duties or to render the services assigned to her from
time to time, (iii) the charging or indictment of Key Employee in connection
with a felony or any misdemeanor involving dishonesty or moral turpitude, (iv)
the material breach by Key Employee of her fiduciary duty or duty of trust to
the Company, (v) death of Key Employee, or (vi) voluntary termination of
employment by Key Employee.

8.4. Principal Amount and Interest in the Event of Termination. In the
---------------------------------------------------------
event the Company exercises its right to buy back the Shares from Key Employee
pursuant to Section 8.1 of this Agreement, any outstanding Principal Amount and
any applicable Interest will be immediately due and payable and shall be applied
against amounts due to Key Employee for purchase of Shares. In the event that
the Company terminates Key Employee's employment before September 30, 2002 for
other than Good Cause, Key Employee may either (i) obtain title to the Pledged
Shares and a release of the Company's security interest in the Pledged Shares by
making full payment of the Principal Amount and any applicable interest within
45 days of the termination date, or (ii) sell Shares to the Company (and the
Company agrees to purchase the Shares) for the price of $0.80 per Share (plus
accrued interest) in repayment of the Principal Amount and any applicable
Interest.

5
<PAGE>

rendered by the arbitrators may be entered in any court having jurisdiction
thereof. The arbitrators shall have the authority to grant any equitable and
legal remedies that would be available in any judicial proceeding instituted to
resolve the disputed matter. The arbitrators shall apply the laws of the State
of California in making any determination hereunder. Notwithstanding anything to
the contrary which may now or hereafter be contained in the AAA Rules, the
parties agree any such arbitration shall be conducted before a panel of three
arbitrators who shall be compensated for their services at a rate to be
determined by the American Arbitration Association in the event the parties are
not able to agree upon their rate of compensation. Each party shall have the
right to appoint one arbitrator (to be appointed within 20 days of the notice of
a dispute to be resolved by arbitration hereunder), and the two arbitrators so
chosen shall mutually agree upon the selection of the third, impartial
arbitrator. The majority decision of the arbitrators will be final and
conclusive upon the parties hereto.

11. Event of Default. It shall be an event of default (an "Event of Default")
----------------
if Key Employee fails to pay the Company pursuant to Section 5.

13. Miscellaneous.
-------------

13.1. This Agreement contains the full and complete understanding of the
parties and supercedes all prior representations, promises, agreements, and
warranties, whether oral or written.

13.2. This Agreement shall be governed by and interpreted according to the
laws of the State of California, without regard to the choice of law provisions
thereunder.

13.4. The captions of the various sections of this Agreement are inserted
only for convenience and shall not be considered in construing this Agreement.

13.5. This Agreement can be modified, amended, or any of its terms waived
only by a writing signed by both parties.

13.6. If any provision of this Agreement shall be held invalid, illegal,
or unenforceable, the remaining provisions of the Agreement shall remain in full
force and

6
<PAGE>

effect and the invalid, illegal, or unenforceable provision shall be limited or
eliminated only to the extent necessary to remove such invalidity, illegality or
unenforceability in accordance with the applicable law at that time.

13.8. This Agreement may be executed in counterparts, each of which will
be considered an original and each of which will constitute one and the same
document.

IN WITNESS WHEREOF, this Agreement has been executed as of the date
specified in the first paragraph.

ANNIE'S HOMEGROWN, INC.

By: ______________________________
Neil Raiff
Its: Chief Financial Officer

KEY EMPLOYEE:

______________________________
Deborah Churchill Luster.

<PAGE>

EXHIBIT 10.50

PLEDGE AGREEMENT

This Pledge Agreement is entered into as of December 31, 1997, between
ANNIE'S HOMEGROWN, INC., a Delaware corporation (the "Secured Party") and Andrew
M. Martin ("Pledgor").

AGREEMENT
---------

In consideration of Pledgor's Secured Promissory Note of even date herewith
(the "Note"), the parties agree as follows:

Security Interest. Pursuant to the provisions of the California Commercial
-----------------
Code, Pledgor hereby grants to the Secured Party, and the Secured Party hereby
accepts, a present security interest in 25,000 shares of the common stock of
Annie's Homegrown, Inc. (the "Shares"), to secure payment of the obligations to
the Secured Party under the Note. Pledgor herewith delivers to the Secured
Party stock certificate No. _____, representing the Shares, issued in the name
of Pledgor, together with a fully executed Assignment Separate From Certificate
in the form of Exhibit A hereto; to be held in pledge pursuant to the terms of
---------
this Agreement.

Representations and Warranties. Pledgor hereby represents and warrants to
------------------------------
the Secured Party that (i) Pledgor is the owner of the Shares; (ii) Pledgor has
obtained all consents necessary to pledge the Shares as provided herein and
otherwise has the power to execute, deliver and perform this Agreement and the
Note; and, (iii) Pledgor shall not to grant or create, nor attempt to grant or
create, any security interest, claim, lien, pledge or other encumbrance with
respect to the Shares until the all principal and interest due under the Note
has been paid in full.

Rights on Default. In the event of default by Pledgor under the Note, the
-----------------
Secured Party and its assigns shall have full power to sell, assign and deliver
the whole or any part of the Shares at any broker's exchange or elsewhere, at
public or private sale, at the option of the Secured Party or its assigns, in
order to satisfy any part of the obligations of Pledgor now existing or
hereinafter arising under the Note should payment of such obligations be in
default. On any such public sale, the Secured Party or its assigns may purchase
all or any part of the Shares. In addition, at its sole option, the Secured
Party may elect to retain the Shares in satisfaction of Pledgor's obligation
under the Note, in accordance with the provisions and procedures set forth in
the California Commercial Code.

Additional Remedies. The rights and remedies granted to the Secured Party
-------------------
herein upon default shall be in addition to all the rights, powers and remedies
of the Secured Party under the California Commercial Code and applicable law,
and such rights, powers and remedies shall be exercisable by the Secured Party
with respect to all of the Shares. The Secured Party's reasonable expenses of
holding and qualifying the Shares for resale or other disposition, and selling
or otherwise disposing of the Shares, including attorneys' fees and other legal
expenses, will be deducted from the proceeds of any sale or other disposition of
the Shares. All rights, powers and remedies of the Secured Party shall be
cumulative and not alternative. Any forbearance or failure or delay by the
Secured Party in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of any such right, power or remedy and any single or
partial exercise of any such right, power or remedy hereunder shall not preclude
the further exercise thereof.
<PAGE>

Dividends. All dividends hereinafter declared on or payable with respect
---------
to the Shares during the term of this pledge, if any, shall be immediately
delivered to the Secured Party to be held in pledge hereunder.

Voting. Pledgor shall be entitled to vote the Shares.
------

Adjustments. In the event that during the term of this pledge, any stock
-----------
dividend, reclassification, readjustment, stock split or other change is
declared or made with respect to the Shares, or if warrants or any other rights,
options or securities are issued in connection with the Shares, all new,
substituted and/or additional shares or other securities issued by reason of
such change or by reason of the exercise of such warrants, rights, options or
securities, shall be immediately pledged to the Secured Party in the same manner
as the Shares are pledged hereunder.

Release of Security Interest. Upon request, the Secured Party will release
----------------------------
a pro rata portion of the Shares as set forth above if a partial payment of
principal has been made under the Note.

Successors and Assigns. This Agreement shall inure to the benefit of the
----------------------
respective heirs, personal representatives, successors and assigns of the
parties hereto.

Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of State of California as applied to
contracts entered into and to be performed entirely within that state. If any
provision hereof is in conflict with any statute or rule of California or
otherwise is unenforceable for any reason, then such provisions shall be deemed
separable from and shall not invalidate any other provision of this Agreement.

Modification. This Agreement shall not be amended without the written
------------
consent of both parties hereto.

Entire Agreement. This Agreement constitutes the entire agreement of the
----------------
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings related to such subject matter.
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.

PLEDGOR:

___________________________
ANDREW M. MARTIN

SECURED PARTY:

ANNIE'S HOMEGROWN, INC.

____________________________
By: Neil Raiff
Its: Chief Financial Officer

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 249,669
<SECURITIES> 0
<RECEIVABLES> 87,715
<ALLOWANCES> 0
<INVENTORY> 820,855
<CURRENT-ASSETS> 1,307,083
<PP&E> 129,129
<DEPRECIATION> 58,980
<TOTAL-ASSETS> 1,887,788
<CURRENT-LIABILITIES> 799,339
<BONDS> 0
0
0
<COMMON> 4,660
<OTHER-SE> 1,083,789
<TOTAL-LIABILITY-AND-EQUITY> 1,887,788
<SALES> 6,792,177
<TOTAL-REVENUES> 6,792,177
<CGS> 3,948,084
<TOTAL-COSTS> 2,793,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,334
<INCOME-PRETAX> 5,114
<INCOME-TAX> 1,144
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 3,970
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</TABLE>