TABLE OF CONTENTS

		Page No.
Part I. Financial Information		4
Item 1.		Financial Statements	34
		Consolidated Balance Sheets	35
		Consolidated Statements of Operations and Comprehensive Income (Loss) ~~Income~~	45
	Changes to Statements of Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	57
		Notes to Consolidated Financial Statements	68
Item 2.		Management’s Discussion and Analysis of Financial Conditions and Results of Operations	1317
Item 3.		Quantitative and Qualitative Disclosures About Market Risks	2632
Item 4.		Controls and Procedures	2733
Part II. Other Information		2834
Item 1.		Legal Proceedings	2834
Item 1A.		Risk Factors	2834
Item 6.		Exhibits	2936

2Forward-Looking Statements

This report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

	•	our ability to successfully implement our growth strategy;
	•	our ability to timely complete the construction of our Freshpet Kitchens 2.0, Kitchens South and Kitchens 3.0 (together, the “Freshpet Kitchens expansion projects”) and achieve the anticipated benefits therefrom;

	•	the effect of the novel coronavirus (“COVID-19”) on our business, employees, suppliers, customers and end consumers;
	•	the loss of key members of our senior management team;

	•	allegations that our products cause injury or illness or fail to comply with government regulations;
	•	the loss of a significant customer;

	•	the entrance of new competitors into our industry;
	•	the effectiveness of our marketing and trade spending programs;

	•	our ability to introduce new products and improve existing products;
	•	our limited manufacturing capacity;

	•	the impact of government regulation, scrutiny, warning and public perception;
	•	the effect of false marketing claims;

	•	adverse weather conditions, natural disasters, pestilences and other natural conditions affecting our operations;
	•	our ability to develop and maintain our brand;

	•	the effect of potential price increases and shortages on the inputs, commodities and ingredients that we require;
	•	our ability to manage our supply chain effectively;

	•	our ability to generate sufficient cash flow or raise capital on acceptable terms;
	•	volatility in the price of our common stock; and

•

other factors discussed under the headings “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K and in this report.

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FRESHPET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

							*June 30,*			*December 31,*
	September 30, 2017			December 31, 2016			*2020*			*2019*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,069,344		$	3,908,177		$	107,727,885		$	9,471,676
Short-term investments								20,001,196			—
Accounts receivable, net of allowance for doubtful accounts		12,390,110			8,886,790			22,651,347			18,580,840
Inventories, net		8,690,803			5,402,735			18,692,994			12,542,269
Prepaid expenses		598,499			741,091			2,782,085			3,275,992
Other current assets		876,792			304,560
Other current assets(1)								765,463			10,452,990
Total Current Assets		24,625,549			19,243,353			172,620,970			54,323,767
Property, plant and equipment, net		101,422,104			101,493,080			220,074,510			165,287,597
Deposits on equipment		4,057,627			3,620,444			6,134,329			3,600,931
Operating lease right of use assets								8,690,401			9,154,234
Other assets		2,021,805			2,094,339			4,340,100			3,759,058
Total Assets	$	132,127,085		$	126,451,216		$	411,860,310		$	236,125,587
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		8,231,738			6,884,155		$	9,090,164		$	18,667,729
Accrued expenses		6,660,234			4,531,139
Accrued warrants		—			253,391
Borrowings under Credit Facilities		5,500,000			7,000,000
Accrued expenses(1)								8,985,593			22,132,928
Current operating lease liabilities								1,336,694			1,185,058
Total Current Liabilities	$	20,391,972		$	18,668,685			19,412,451			41,985,715
Other liabilities		236,878			—
Long term debt								—			54,466,099
Long term operating lease liabilities								7,856,832			8,409,252
Total Liabilities	$	20,628,850		$	18,668,685		$	27,269,283		$	104,861,066
STOCKHOLDERS' EQUITY:
Common stock — voting, $0.001 par value, 200,000,000 shares authorized, 34,835,698 and 33,961,650 issued and outstanding on September 30, 2017 and December 31, 2016, respectively		34,835			33,961
Common stock — voting, $0.001 par value, 200,000,000 shares authorized, 40,480,225 issued and 40,466,056 outstanding on June 30, 2020, and 36,162,433 issued and 36,148,264 outstanding on December 31, 2019								40,480			36,162
Additional paid-in capital		308,969,771			299,477,706			591,386,109			334,299,172
Accumulated deficit		(197,506,371	)		(191,729,136	)		(206,172,555	)		(202,735,417	)
Accumulated other comprehensive income (loss)								(406,781	)		(79,170	)
Treasury stock, at cost — 14,169 shares on June 30, 2020 and on December 31, 2019								(256,226	)		(256,226	)
Total Stockholders' Equity		111,498,235			107,782,531			384,591,027			131,264,521
Total Liabilities and Stockholders' Equity	$	132,127,085		$	126,451,216		$	411,860,310		$	236,125,587

Note 1 – Nature of the Business and Summary of Significant Accounting Policies:

Nature of the Business – Freshpet, Inc. (hereafter referred to as “Freshpet”, the “Company”, “we” or ~~the “Company”~~“our”), a Delaware corporation, manufactures and markets natural fresh meals and treats for dogs and cats. The Company’s products are distributed throughout the United States and other international markets, into major retail classes including Grocery (including online), Mass and ~~Mass (which includes internet and club) as well as~~Club, Pet Specialty, and Natural retail.

Basis of ~~Consolidation~~Presentation – The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). The unaudited consolidated financial statements include the accounts of the Company as well as the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

~~Basis of Presentation~~ – The accompanying consolidated balance sheet as of September 30, 2017, statements of operations and comprehensive (loss) income for the three and nine months ended September 30, 2017 and 2016, and statements of cash flows for the nine months ended September 30, 2017 and 2016 are unaudited. The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and in accordance with the rules and regulations of the United States Securities and Exchange ~~Commission.~~Commission (the “SEC”). In the opinion of management, the interim unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of ~~September~~June 30, ~~2017,~~2020, the results of its operations and changes to stockholders’ equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, and its cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2017 and 2016 are unaudited.~~2019. The results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of results to be expected for the year ending December 31, ~~2017,~~2020, or any other interim periods, or any future year or period. Certain amounts that appear in this report may not add up because of differences due to rounding.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2016.~~2019.

Estimates and Uncertainties – The preparation of our consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results, as determined at a later date, could differ from those estimates.

~~Foreign Currency Contracts~~ –The Company may enter into forward exchange contracts to reduce the Company’s exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies. The foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Operations and Comprehensive Loss in Other income/(expenses), net, and carried at their fair value in the Consolidated Balance Sheet with assets reported in Prepaid expenses and other current assets and liabilities reported in Accrued expenses.

Fair Value of ~~September 30, 2017,~~Financial Instruments – Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the ~~notional value~~inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of ~~foreign currency forward contracts outstanding was 0.7 million pounds sterling. The fair value of the foreign currency forward contracts are measured using Level 2 inputs in~~ the fair value hierarchy ~~because they~~ are determined based on a market approach utilizing externally quoted forward rates for similar contracts. For the three months and nine months ended September 30, 2017 the net loss recognized on forward contracts was less than $0.1 million.as follows:

~~Reclassifications~~ – ~~Certain prior period amounts were reclassified to conform to the current year’s~~ ~~presentation.~~

The carrying amounts reported in the balance sheets for cash and cash equivalents, short-term investments, other receivables, accounts payable and accrued expenses approximate their fair value based on the short-term maturity of these instruments.

As of June 30, 2020, the Company only maintained Level 1 assets and liabilities.

Short-Term Investments – The Company holds interest-bearing certificates of deposits with financial institutions with maturities ranging from three months to one year. Certificates of deposit are classified as short-term investments and interest is recorded as other income.

Trade accounts receivable – The allowance for doubtful accounts is based on the Company's assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer's ability to pay.

Restricted Stock Tax Withholdings– To meet payroll tax withholdings obligations arising from the vesting of restricted share units, the Company withheld 87,543 shares totaling $1.0 million and 97,620 shares totaling $1.6 million for the three and six months ended June 30, 2020, respectively, and withheld 13,383 shares totaling $0.6 million and 31,734 shares totaling $1.3 million for the three and six months ended June 30, 2019, respectively. Shares of common stock withheld for tax withholdings do not reduce the Company’s total share repurchase authority.

Debt Issuance Cost– During the first quarter of 2020, the Company paid the outstanding balance of the Delayed Draw Term Loan associated with the Fourth Amended and Restated Loan and Security Agreement and wrote down $0.6 million of the related fees to interest expense.

During the second quarter of 2020, as part of the Fifth Amended and Restated Loan and Security Agreement (as amended, the "New Loan Agreement"), the Company incurred an additional $0.8 million of fees associated with the debt modification, of which $0.6 million of the fees were related to the Delayed Draw Term Loan with the remaining balance relating to the Revolving Loan Facility. The Company’s policy is to record the debt issuance cost related to the Delayed Draw Term Loan, net of debt, for the portion of the Delayed Draw Term Loan that is outstanding, with the remaining amount recorded within assets. As of June 30, 2020, there was $1.1 million of debt issuance cost that were recorded to other assets and less than $0.3 million was recorded to other current assets.

The Company amortizes debt issuance costs categorized as assets on a straight-line basis over the term of the loan and amortizes the debt issuance costs that are categorized net of debt using the effective interest method, over the term of the loan.

Net Sales - Information about the Company’s net sales by class of retailer is as follows:

In ~~May 2014,~~ June 2016, the Financial Accounting ~~Standard~~Standards Board ~~(“FASB”)~~(FASB) issued ~~ASU~~ Accounting Standards Update No. ~~2014-09, “Revenue from Contracts with Customers,” which~~2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires an entity to ~~recognize~~utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount ~~of revenue to which it expects~~expected to be ~~entitled for~~collected on the ~~transfer of promised goods or services~~financial asset. The CECL model is expected to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In connection with this ASU, the FASB also issued ASU No. 2016-10 regarding identification of performance obligations and licensing considerations, ASU No. 2016-12 regarding narrow scope improvements and practical expedients- and ASU No. 2016-08 which clarifies the implementation of guidance on principal versus agent considerations. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 to fiscal years beginning after December 15, 2017, with early adoption permitted only for fiscal years beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method.

The Company is currently utilizing a comprehensive approach to assess the impact of this guidance by reviewing current accounting policies to identify the potential impact of the new requirements on its revenue contracts. The Company does not currently expect this guidance to have a material impact on its consolidated financial statements. The new standard will be effective as of January 1, 2018. The Company currently anticipates adopting Topic 606 using the modified retrospective transition approach that may result in ~~a cumulative adjustment to beginning retained earnings as of January 1, 2018. Based on the Company’s analysis to date, the Company expects the new standard will require accelerated~~more timely recognition of trade promotions and customer incentives. These transactions are currently recognized at the later of the sale of goods or agreement, however under the new standard the Company will estimate incentives to be offered to customers as part of the sales price. The Company does not expect the change to be material.

In February 2016, the FASB issued ASU No. 2016-02, "Leases,” which requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.credit losses. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, ~~2018,~~ 2019, and interim periods within those fiscal years. The ~~amendments should be applied at~~reported results for the ~~beginning~~three and six months ended June 30, 2020 reflect the application of ASU 2016-13. The application of the ~~earliest period presented using~~update did not have a ~~modified retrospective approach with earlier application permitted as~~material impact to our allowance for doubtful accounts. Please see the description of the beginning of an interim or annual reporting period. The Company is assessing the impact of ASU No. 2016-02 on its corporate office lease, and upon adoption of this guidance, expects to record the lease on its consolidated balance sheet in accordance with ASU No. 2016-02.Company’s “Trade accounts receivable” accounting policy above.

Depreciation expense related to property, plant and equipment totaled ~~$3,154,623~~$5,365,720 and ~~$9,235,932~~$9,738,511 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~ 2020, respectively, of which ~~$1,447,992~~$2,550,041 and ~~$4,329,624~~$4,293,698 was recorded to cost of goods sold for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively, with the remainder of depreciation and amortization expense recorded to selling, general and administrative expense. The increase in depreciation expense was mainly related to Kitchens South.

Depreciation expense related to property, plant and equipment totaled $3,843,199 and $7,486,692 for the six months ended June 30, 2019, respectively, of which $1,588,692 and $3,154,780 was recorded to cost of goods sold for the six months ended June 30, 2019, respectively, with the remainder of depreciation and amortization expense recorded to selling, general and administrative expense.

Depreciation expense related to property, plant and equipment totaled $2,669,278 and $6,830,780 for the three and nine months ended September 30, 2016, respectively, of which $1,241,563 and $2,660,340 was recorded to cost of goods sold for the three and nine months ended September 30, 2016, respectively, with the remainder of depreciation and amortization expense recorded to selling, general and administrative expense.

September 30, 2017

December 31, 2016

Accrued Compensation

$
2,893,834

$
1,895,443

Accrued Chiller Cost

1,343,951

1,010,018

Accrued Freight

838,665

359,009

Accrued Marketing

460,018

282,784

Accrued VAT

278,817

—

Accrued Utility

150,000

124,000

Accrued Leadership Transition Expenses (1)

66,505

428,150

Other Accrued Expenses

628,444

431,735

$
6,660,234

$
4,531,139

(1) Accrued Leadership Transition Expenses represent costs detailed within our former Chief Executive Officer’s separation agreement as well as incremental costs associated with leadership transition.

~~Note 6 – Debt:~~

On November 13, 2014, the Company entered into senior secured credit facilities (the “Debt Refinancing”) comprised of a five-year $18.0 million term facility (the “Term Facility”), a three-year $10.0 million revolving facility (the “Revolving Facility”) and a $12.0 million additional term loan commitment earmarked primarily for capital expenditures (the “Capex Commitments” and together with the Term Facility and Revolving Facility, the “Credit Facilities” and such loan agreement, the “Loan Agreement”).

On ~~December 23, 2014,~~ April 17, 2020, the Company ~~repaid~~entered into the ~~outstanding $18.0~~New Loan Agreement, which amended and restated in full the Company’s Fourth Amended and Restated Loan and Security Agreement, dated as of May 15, 2019. The New Loan Agreement provides for a $165.0 million ~~and modified the terms of the $40.0~~senior secured credit facility (the "New Credit Facility"), encompassing a $130.0 million ~~Credit Facilities. The $18.0 million term facility was extinguished, the three-year $10.0 million Revolving Facility remained unchanged and the $12.0 million~~delayed draw term loan ~~commitment earmarked for capital expenditures was increased to $30.0 million.~~facility (the "Delayed Draw Facility") and a $35.0 million revolving loan facility (the "Revolving Loan Facility"), which replaces the Company's prior $55.0 million delayed draw term loan facility and $35.0 million revolving loan facility.

The New ~~Revolver~~Credit Facility matures ~~in September 2020~~ on April 17, 2025 and borrowings thereunder ~~will~~ bear interest at variable rates depending on the ~~Company’s~~Company's election, either at a base rate or at ~~the London Interbank Offered Rate (“LIBOR”)~~LIBOR (or a comparable successor rate if LIBOR no longer exists), in each case, plus an applicable margin. Subject to the ~~Company’s~~Company's leverage ratio, the applicable margin ~~will vary~~varies between ~~0.75%~~0.50% and ~~1.25%~~1.00% for base rate loans and ~~1.75%~~1.50% and ~~2.25%~~2.00% for LIBOR loans. The Company has the option to borrow term loans under the Delayed Draw Facility ("Delayed Draw Term Loans") until October 17, 2022, subject to certain conditions. Commencing on December 31, 2022, the amount of any outstanding Delayed Draw Term Loans shall be repayable in equal consecutive quarterly installments equal to 1/28th of the outstanding Delayed Draw Term Loans and the remainder shall be due and payable on April 17, 2025.

~~On September 21, 2017,~~Borrowings under the ~~Company further amended~~New Credit Facility are secured by substantially all of the ~~Loan Agreement (the “New Loan Agreement”) which modified the $10.0 million Revolving Facility to $30.0 million (the “New Revolving Facility”)~~Company's and ~~extinguished the $30.0 million Capex Commitments.~~certain of its subsidiaries' assets. The New Loan Agreement ~~has a term~~requires compliance with various covenants customary for agreements of ~~three years~~this type, including financial covenants and negative covenants that limit, among other things, the Company's ability to ~~increase~~incur additional debt, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make voluntary prepayments to subordinated debt, permit a change of control, pay dividends or distributions, make investments, and enter into certain transactions with affiliates. The New Loan Agreement also includes events of default customary for agreements of this type.

During the six months ended June 30, 2020, the Company borrowed $20.9 million under the New Credit Facility, which consisted of $13.9 million related to Delayed Draw Term Loans, net of unamortized debt issuance cost of less than $0.1 million, and $7.0 million related to the Revolving Loan Facility. Subsequent to the borrowings, the Company paid down the outstanding debt on its New Credit Facility ~~by $10.0 million, with borrowings bearing interest at variable rates.~~

~~The~~of $76.0 million. As a result, the Company had ~~$7.5 million~~0 debt outstanding under the ~~existing~~New Credit Facility as of June 30, 2020.

Net borrowings under the Credit Facilities ~~prior~~totaled $54.5 million at December 31, 2019, of which $40.5 million net of unamortized debt issuance cost of $0.6 million, related to ~~closing, which was repaid with proceeds from~~ the ~~New~~Delayed Draw Term Loans and $14.0 million related to the Revolving ~~Facility and cash on hand. Upon closing, the Company had $5.5 million outstanding and $24.5 million available under the New Revolving~~Loan Facility.

In connection with ~~this amendment,~~entering into the New Credit Facility, the Company ~~accelerated the amortization of $0.3~~incurred $0.8 million of ~~unamortized~~ debt issuance ~~costs~~cost which is capitalized on the balance sheet and amortized over the life of the New Credit Facility.

As of June 30, 2020, there was $1.4 million of the remaining debt issuance cost from the New Credit Facility as well as fees incurred from the prior credit facilities.

We have various noncancelable lease agreements for office and warehouse space, as well as office equipment, with original remaining lease terms of two years to nine years, some of which include an option to extend the lease term for up to five years. Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments. The Company’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants.

Weighted-average remaining lease term (in years) and discount rate related to ~~the existing Loan Agreement. These costs are included in Interest Expense in the three and nine months ended September 30, 2017.~~operating leases were as follows:

As most of various covenants, including financial covenants, and includes events of default that are customary for facilities of this type. As of September 30, 2017, the Company was in compliance with all the covenants in the New Loan Agreement.

~~Borrowings under~~ our Credit Facilities totaled $7.5 million and repayments totaled $9.0 million for the nine months ended September 30, 2017. The Company had $5.5 million in debt outstanding under the Credit Facilities.

Interest expense and fees totaled $0.5 million and $0.8 million for the three and nine months ended September 30, 2017, respectively, of which $0.2 million was related to new debt issuance costs. Interest expense and fees totaled $0.2 million and $0.5 million for the three and nine months ended September 30, 2016, respectively. There was less than $0.1 million of accrued interestleases do not provide an implicit rate, we use our incremental borrowing rate based on the ~~Credit Facilities~~information available at the commencement date to determine the present value of lease payments.

Maturities of lease liabilities under noncancelable operating leases as of ~~September~~June 30, ~~2017 and December 31, 2016.~~2020 were as follows:

A summary of rent expense for the three and six months ended June 30, 2020 and 2019 was as follows:

Supplemental cash flow information and non-cash activity relating to operating leases are as follows:

Total compensation cost for share-based payments recognized for the ~~three~~six months ended ~~September~~June 30, ~~2017~~ 2020 and ~~2016 was $1,132,852~~2019 is $4,574,762 and $~~787,675~~,$2,741,009, respectively. ~~Total compensation cost for share-based payments recognized for the nine months ended September 30, 2017 and~~ ~~2016~~ ~~was $3,292,362 and $3,490,754, respectively.~~

2010 Stock Plan (the “2006 Plan”) under which options to purchase approximately 624,223 shares of the Company’s common stock were granted to employees and affiliates of the Company. These options are time-based (vest over five years). Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2006 Plan). At September 30, 2017, there were zero shares available for grant as the 2006 Plan is frozen.

~~2010 Stock Plan~~—~~In December 2010, the Company approved the 2010 Stock Plan (the “2010 Plan”) under which options to purchase approximately 2,146,320~~shares of the Company’s common stock were granted to employees and affiliates of the Company (in 2012, the 2010 Plan was amended to allow for the granting of approximately 2,220,280 options to purchase shares of the Company’s common stock). The outstanding options are time-based (vest between two and four years). At June 30, 2020, there were 0 shares available for grant as the 2010 Plan is frozen. The total number of unexercised options ~~granted have maximum contractual terms of 10 years. The Board of Directors froze~~for the 2010 Plan ~~such that no further grants may be issued under the 2010 Plan.~~

2014 Omnibus Incentive Plan—In November 2014, the Company approved the 2014 Omnibus Incentive Plan (the ~~“2014~~“2014 Plan”) ~~under which 1,479,200~~. Under the 2014 Plan, 3,979,200 shares of common stock may be issued or used for reference purposes as awards granted under the 2014 Plan. In September 2016, the 2014 Plan was amended to allow for the granting of an additional 2,500,000 shares of common stock to be issued or used for reference purposes as awards granted, for a total of 3,979,200 shares.granted. These awards may be in the form of stock options, stock appreciation rights, restricted stock, as well as other stock-based and cash-based awards. ~~As of September~~At June 30, ~~2017,~~2020, the awards granted were either time-based, performance-based (vest when performance targets are met, as defined in the stock option grant agreement), or restricted stock units (employee RSUs vest over three years or cliff vest (as defined in the restricted stock agreement) and non-employee director RSUs vest over one year). The total number of unexercised options and RSUs for the 2014 Plan is 2,645,744.

At ~~September~~June 30, ~~2017,~~2020, there were ~~2,092,881~~1,351,141 shares of common stock available to be issued or used for reference purposes under the 2014 Plan.

NASDAQ Marketplace Rules Inducement Award—During fiscal year 2016 ~~stock-based~~ and the six months ended June 30, 2020, share-based awards were granted to the Company’s Chief Executive Officer and the Executive Vice President of Finance, respectively, as an inducement under the NASDAQ Marketplace Rules, and therefore outside of any Plan. Under the terms of the applicable agreement, ~~the~~each grant is governed as if issued under the 2014 Omnibus Plan. As of ~~September~~June 30, ~~2017,~~2020, the awards granted to the Company's Chief Executive Officer and the Executive Vice President of Finance were time-based (cliff vest over four ~~years)~~ years and three years, respectively) and performance-based (vest when performance targets are met, as defined in the stock option grant agreement).

The following table includes activity related to outstanding service period stock options during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

The following table includes activity related to outstanding performance-vested stock options during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

As of ~~September~~June 30, ~~2017, 516,877~~2020, 1,322,678 performance-vested stock options at a weighted average exercise price of ~~$9.79~~$19.16 have performance metrics that are probable of achievement. These shares are included in share-based compensation costs for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017.~~

The following table includes activity related to outstanding restricted stock units during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

Restricted Stock Units

Shares

Weighted-Average Grant-Date Fair Value Per Unit

Outstanding at December 31, 2016

97,515

$
9.05

Granted

115,320

11.00

Issued Upon Vesting

(59,183
)

9.05

Forfeited

(1,433
)

9.98

Outstanding at September 30, 2017

152,219

$
10.52

Basic net ~~loss~~earnings (loss) per share of common stock is calculated by dividing net ~~loss~~income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net ~~loss~~earnings (loss) per share of common stock is computed by giving effect to all potentially dilutive securities.

~~For the three and nine months ended September 30, 2017 and 2016, there were no~~

The following table includes adjustments between net ~~loss~~income and net ~~loss~~income attributable to common ~~stockholders.~~stockholders for the three months ended June 30, 2020.

For the ~~three~~six months ended ~~September~~June 30, ~~2017~~ 2020 and ~~nine~~for the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2019, diluted net loss per share of common stock is the same as basic net loss per share of common stock, due to the fact that potentially dilutive securities would have an antidilutive effect as the Company incurred a net loss during such periods.

~~For the three months ended September 30, 2016, diluted net income per share of common stock is calculated as follows:~~

~~For the three months ended September 30, 2016, there were 450,189 anti-dilutive service period stock options excluded from the diluted earnings per share calculation.~~

Payments of $2,016,716 and $6,323,016 for the three and nine months ended September 30, 2017, and $1,484,600 and $4,666,495 for the three and nine months ended September 30, 2016, were made to one stockholder for the purchase of raw materials. The Company believes that all payments made to the shareholder are at market value and thus at arms-length.

Concentration of Credit Risk—The Company maintains its cash balances in financial institutions ~~which~~that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 each. At times, such balances may be in excess of the FDIC insurance limit.

~~Net Sales By Class of Retailer~~ – ~~The following table sets forth net sales by class of retailer:~~

A securities lawsuit, Curran v. Freshpet, Inc. et al, Docket No.2:16-cv-02263, was instituted on April 21, 2016 in the United States District Court for the District of New Jersey against the Company and certain of the Company’s current and former executive officers and directors on behalf of certain purchasers of our common stock. The plaintiffs sought to recover damages for investors under the federal securities laws. On October 3, 2019, the parties filed with the District Court a motion for preliminary approval of settlement that attached the parties’ stipulation of settlement and a proposed order. The settlement funds due were paid by the Company’s insurers, and the District Court approved the Final Judgment and Order of Dismissal with Prejudice on March 11, 2020 with a 30 day option to appeal. As of June 30, 2020, all settlement funds, totaling $10.1 million, and legal fees had been dispersed as there had been no appeal taken within 30 days from the entry of the Final Judgement. The Final Judgement was effective April 10, 2020.

A shareholder derivative lawsuit, Meldon v. Freshpet, Inc. et al, Docket No.2:18-cv-10166, was instituted June 5, 2018 in the United States District Court for the District of New Jersey against us and certain of our current and former executive officers and directors on behalf of certain holders of our common stock. We were served with a copy of the complaint in June 2018. The plaintiffs seek to recover damages for investors based on state law claims (alleged breaches of fiduciary duty, waste, and unjust enrichment) in connection with the alleged violations of federal securities laws alleged in the Curran action. On April 3, 2019, the Court granted a stay of the Meldon case pending (i) the close of expert discovery in the Curran action or (ii) the dismissal with prejudice of the Curran action. The parties then entered into settlement discussions, after which the parties reached an agreement in principle to settle the case based on the Company’s commitment to continue certain governance practices. The parties also reached agreement on attorneys’ fees. The settlement is subject to court approval. All parties believe that the agreement in principle to settle the dispute is in their respective best interests in order to avoid the risk, uncertainty, and costs associated with litigation. The parties are in the process of finalizing the settlement documents for submission to the District Court. As of June 30, 2020, the Company accrued for an estimated probable loss of $0.2 million, which represents the proposed settlement and accrued legal fees. The Company concluded that the insurance recovery is probable and recorded a gain contingency of $0.2 million within other current assets.

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are ~~issued. Based upon the evaluation, the~~issued for recognitions or disclosures.

The Company did not identify any recognized or unrecognized subsequent events that have required adjustment or disclosure in the financial statements.

I~~tem~~Item 2. Management’s Discussion and Analysis ofof Financial Conditions and Results of Operations

The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in ourAnnual Report on Form 10-K.

In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations, and intentions set forth under the sections entitled "Forward-Looking Statements" in this report and "Risk Factors" in our Annual Report on Form 10-K. Our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section entitled "Risk Factors" in our Annual Report on Form 10-K.

For information regarding our consolidated operating results, financial condition, liquidity and cash flows for the six months ended June 30, 2019 as compared to the same period in 2018, refer to "Part I—Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2019, filed with the SEC on August 6, 2019, which information is incorporated herein by reference.

We started Freshpet with a single-minded mission to bring the power of real, fresh food to our dogs and cats. We were inspired by the rapidly growing view among pet owners that their dogs and cats are a part of their family, leading them to demand healthier pet food choices. Since our Company’s inception ~~of the company~~ in 2006, we have created a comprehensive business model to deliver wholesome pet food that pet parents can trust, and in the process we believe we have become one of the fastest growing pet food companies in North America. Our business model is difficult for others to replicate and we see significant opportunity for future growth by leveraging the unique elements of our business, including our brand, our product know-how, our Freshpet Kitchens, our refrigerated distribution, our Freshpet Fridge and our culture.

In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. In late February 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and in March 2020, the WHO characterized COVID-19 as a pandemic.

Due to COVID-19 our retail customers, in the US, UK and Canada, especially in Grocery and Mass, experienced a surge in consumption as consumers stocked up on food and necessities towards the second half of Q1 2020. The unexpected surge in consumption caused a spike in orders which at times were greater than our production capacity. This caused instances in which we were not able to ship 100% of the orders placed in the first quarter, which was not unusual for consumer-packaged goods companies during the COVID crisis. The surge in consumption lasted through early April. During the ~~third~~second quarter, we were largely able to catch up to the surge in demand we experienced during the first quarter.

At the end of ~~2017,~~Q1, we ~~amended~~announced our ~~Credit Facilities~~post-surge pivot. That strategic pivot was built on a foundation that said, if we could keep our employees safe, then we could rebuild our supply and that would enable us to ~~replace~~replenish our ~~Term Facility~~product supply in retail stores, which would allow us to turn on our advertising to drive consumption and ~~Capex Commitments~~household penetration gains. As a result, we invested in each of ~~$30.0 million~~those areas, including safety enhancements to protect our team, incremental capacity at Kitchens South, incremental retail coverage, new e-commerce purchase and ~~$10.0 million Revolving Facility~~delivery options and additional media advertising.

The Company made and continues to make investments designed to protect its team members. These efforts include taking the temperature of every team member and administering a brief health screening before entering our Freshpet Kitchens, installing increased space for social distancing, instituting staggered shifts, enhancing daily sanitation efforts and weekly deep cleaning of all common areas, requiring use of face coverings by all employees, and limiting visitors, who must also submit to a health check before entering the facilities. Additionally, the Company adjusted its absenteeism policy – and brought in incremental staffing to meet demand – so that any team member who does not feel well does not feel compelled to show up for work. These investments have resulted in us having no known record of the virus being transmitted from one team member to another in our facilities despite the virus being present in our communities. We reinstituted the absenteeism policy, with exceptions for those with underlying health risks, on July 1, 2020 and absenteeism has dropped into the single digits.

As noted above, during the second quarter, we were largely able to catch up to the surge in demand we experienced during the first quarter. The Freshpet Kitchens never stopped operating in the second quarter and were able to produce record quantities. This was, in large part, a result of all the safety measures put in place at the Freshpet Kitchens. Additionally, as part of the post-surge pivot, we quickly advanced Kitchens South's start-up of a second shift. Our Q2 record production ensured we were able to increase our fill rates from the mid-70's in early April to the 90's by the end of the quarter. As the year progresses, we will also be better situated to increase our fill rates to the 95+% level we have come to expect as well as supply any potential COVID-19 related demand surges through the investments we are making in additional capacity, with Kitchens 2.0 coming on-line at the beginning of the fourth quarter.

Although the threat of future retail shutdowns and a second wave of infections creates uncertainty with respect to our ability to execute on planned Freshpet Fridge placements, we believe that we are well positioned to continue to drive growth because advertising drives most of our growth. Our ability to advertise has not been impacted, and as the pandemic caused media rates to go down, we have been experiencing better returns for our advertising investment.

Despite the COVID-19 related disruptions, our business growth accelerated during the quarter. Consumers' increased interest in their pets, the strong appeal of the Freshpet idea and products, our ability to continuously run our manufacturing facilities, the increased impact of our advertising, and our customers' realization of the value that Freshpet brings to their pet food category offerings and stores has resulted some of our strongest growth. There is no guarantee that this will continue but it is evidence of the nimbleness of our management team and the strength of the Freshpet brand.

We are unsure how long the COVID-19 pandemic will require us to absorb higher costs to protect and reward our employees while simultaneously ensuring we can support our pet parents with a ~~straight $30.0~~continual supply of Freshpet products. We are also monitoring our supply of raw materials, ingredients and packaging materials. Although we have not experienced any extended supply interruptions to date and our chicken prices for the year are fixed contractually, subject to limited exceptions, we have used our secondary suppliers from time-to-time, and have also started to experience higher beef prices as a result of reduced supplies. We have estimated that we will spend $4 million ~~revolver (the “New Revolving Facility”)~~this year on COVID-19 related expenses, with Q2 being the peak expenditure quarter, and estimate that our beef prices will be up almost $2 million in the ~~ability~~second half of the year.

We will continue to ~~increase~~monitor the ~~New Revolving Facility by an additional $10.0 million. The New Revolving Facility will mature in September 2020. At closing, we had total borrowings~~retail environment and pet parent demand, and intend to adapt to changing conditions to continue to drive growth and meet our goal of ~~$5.5 million under~~“changing the ~~$30.0 million New Revolving Facility, with $24.5 million available. We expect~~way people feed their pets forever” during the evolving COVID-19 pandemic.

Our outlook for the balance of 2020 assumes there is not a material change to ~~fund~~customer operations, consumer purchasing behavior, or unexpected changes to our ~~business through cash provided by operations~~supply chain for the remainder of ~~2017, while continuing~~the year. See the important information in Item 1A. “Risk Factors” below, under the caption “The COVID-19 outbreak has had a material impact on the U.S. and global economies and could have a material adverse impact on our employees, suppliers, customers and end consumers, which could adversely and materially impact our business, financial condition and results of operations.”

At the Company’s February 2020 Investor Day. Freshpet’s updated strategic plan was presented – “Feed the Growth – 5 by 2025”. The strategic plan looks to ~~reduce~~add 5 million more households by 2025. To support the strategic plan Freshpet is committed to invest in production capacity as well as upgrades to our systems and processes. During 2020 the investments related to capacity upgrades include:

Additionally, the Company is upgrading its enterprise resource planning (“ERP”) system. The project commenced in Q1 2020 with due diligence regarding software selection. The project is expected to run through Q4 of 2021.

In order to fund the strategic capital investments as well as provide the Company with capital flexibility, the Company performed a primary equity offering which provided proceeds of $252.1 million.

In addition, on April 17, 2020, the Company entered into a Fifth Amended and Restated Loan and Security Agreement with City National Bank, as the arranger and administrative agent, and the other lenders party thereto (the “New Loan Agreement”). The New Loan Agreement provides for a $165.0 million senior secured credit facility ~~usage. This represents~~(the “New Credit Facility”), encompassing a ~~reduction in the unused rate of between 25 and 75 basis points~~$130.0 million delayed draw term loan facility (the “New Delayed Draw Facility”) and a ~~reduction in~~$35.0 million revolving loan facility (the “New Revolving Loan Facility”), which replaces the ~~total rate of between 200~~Company’s prior $55.0 million delayed draw term loan facility and ~~250 basis points.~~ $35.0 million revolving loan facility.

The ~~existing facility, which had $7.5 million outstanding, was repaid with~~Company intends to use the net proceeds from the ~~new revolver~~primary equity offering, borrowings from the New Credit Facility and cash ~~on hand.~~from operations to continue to fund the Freshpet Kitchens expansion projects.

Our net sales are derived from the sale of pet food to our customers, who purchase either directly from us or through third-party distributors. Our products are sold to consumers through a fast-growing network of company-owned branded refrigerators, known as Freshpet Fridges, located in our customers’ stores. We continue to roll out Freshpet Fridges ~~across~~at leading retailers across North America and parts of Europe and have installed Freshpet Fridges in ~~over 17,600~~approximately 22,100 retail stores as of ~~September~~June 30, ~~2017. All of our~~2020. Our products are sold under the Freshpet brand name with ingredients, packaging and labeling customized by class of retail. Sales are recorded net of discounts, slotting, returns and promotional allowances.

We believe that as a result of the above key factors, we will continue to penetrate the pet food marketplace and increase our share of the pet food category.

Our gross profit is net of costs of goods sold, which include the costs of product manufacturing, product ingredients, packaging materials ~~spoils~~ and inbound freight. In 2016, we undertook a capital expansion project at our Freshpet Kitchens facility that we believe will further increase our production capacity by at least 130%. Over time, growing capacity utilization of our new facility will allow us to leverage fixed costs and thereby expand our gross profit margins.

Our gross profit margins are also impacted by the cost of ingredients, packaging materials, and ~~packaging materials.~~labor and overhead and share-based compensation related to direct labor and overhead. We expect to mitigate any adverse movement in input costs through a combination of cost management and price increases.

~~Selling, general and administrative costs.~~ ~~Selling, general & administrative (“SG&A”) costs as~~

Outbound freight. We use a percentage of net sales have historically decreased from 81.3% in the year ended 2012, 62.7% in 2013, 55.7% in 2014, 50.2% in 2015 and to 47.0% in 2016. Due to our Feed the Growth initiative, which increases our investment in media, we do not expect our SG&A as a percentage of net sales to change significantly in the near term future, which is noted within our slight increase of SG&A costs as a percentage of net sales increase from 49.4% in the nine months ended September 30, 2016 to 50.0% in the nine months ended September 30, 2017. We believe that as we begin to realize the benefits of our Feed the Growth initiative SG&A expenses will once again decrease as a percentage of net sales.

~~Outbound freight.~~ ~~Prior to the second quarter of 2016,~~third-party logistics provider for outbound freight ~~from our Freshpet Kitchens was managed by a national~~that ships directly to retailers as well as third-party refrigerated and frozen human food manufacturer. During the second quarter of 2016, we transitioned to a new third-party logistics provider. We have realized cost efficiencies in logistics through our new third-party logistics provider’s infrastructure. Additionally, we sell through third-party distributors for the grocery, mass, club, pet specialty and natural classes in the United States, Canada, and in the United Kingdom.distributors.

Marketing & advertising. Our marketing and advertising expenses primarily consist of national television media, digital marketing, social media and grass roots marketing to drive brand awareness. These expenses may vary from quarter to quarter depending on the timing of our marketing and advertising campaigns. Our Feed the Growth initiative will focus on growing the business through increased marketing investments.

Freshpet Fridge operating costs. Freshpet Fridge operating costs consist of repair costs and depreciation. The purchase and installation costs for new Freshpet Fridges are capitalized and depreciated over the estimated useful life. All new refrigerators are covered by a manufacturer warranty for three years. We subsequently incur maintenance and freight costs for repairs and refurbishments handled by third-party service providers.

Research & development. Research and development costs consist of expenses to develop and test new products. The costs are expensed as incurred.

Brokerage. We ~~utilize~~use third-party brokers to assist with monitoring our products at the point-of-sale as well as representing us at headquarters for various customers. These brokers visit our retail customers’ store locations to ensure items are appropriately stocked and maintained.

Share-based compensation. We account for all share-based compensation payments issued to employees, directors and non-employees using a fair valuemethod. Accordingly, share-based compensation expense is measured based on the estimated fair value of the awards on the grant date. Werecognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders therequired services to us using the straight-line single option method.

Other general & administrative costs. Other general and administrative costs include non-plant personnel salaries and benefits, as well as corporate general & administrative costs.

We had federal net operating loss (“NOL”) carry forwards of approximately ~~$160.7~~$198.1 million as of December 31, ~~2016,~~2019, of which, approximately $175.0 million, generated in 2017 and prior, will expire between 2025 and ~~2036. We~~2037. The NOL generated in 2018 and 2019, of approximately $23.1 million, will have an indefinite carryforward period but can generally only be used to offset 80% of taxable income in any particular year. The Company may be subject to ~~certain limitations in our annual~~the net operating loss utilization provisions of ~~NOL carry forwards to off-set future taxable income pursuant to~~ Section 382 of the Internal Revenue Code ~~which could result in~~(the “Code”). The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carry forwards ~~expiring unused.~~attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Although we have not completed an analysis under Section 382 of the Code, it is likely that the utilization of the NOLs will be limited. At December 31, ~~2016,~~2019, we had approximately ~~$132.4~~$160.0 million of ~~State NOL carry forwards,~~state NOLs, which expire between ~~2017~~2020 and ~~2036.~~2039. At December 31, ~~2016,~~2019, we had a full valuation allowance against our net deferred tax assets as the realization of such assets was not considered more likely than not.

Three Months Ended ~~September~~June 30, ~~2017~~2020 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2019

~~(1)Stores at September 30, 2017 and September 30, 2016 consisted of 8,872 and 7,669 Grocery and 3,905 and 3,785 Mass and Club, respectively.~~

~~(2)Stores at September 30, 2017 and September 30, 2016 consisted of 4,539 and 4,505 Pet Specialty and 334 and 302 Natural, respectively.~~

* Includes sales from Freshpet Baked product of $0.4 million and $0.9 million, or 1.0% and 3.0% of total net sales, for the three months ended September 30, 2017 and 2016, respectively.

Net sales increased ~~$6.7~~$19.9 million, or ~~19%~~33.2%, to ~~$41.2~~$80.0 million for the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in the prior year. The ~~$6.7~~$19.9 million increase in net sales was driven by growth of ~~$6.8~~$18.4 million in our Grocery (including Online), Mass, and Club refrigerated channel and ~~$0.7~~$1.6 million in our Pet Specialty and Natural ~~and Other~~ refrigerated channel, partially offset by declines in Baked of $0.8 million. Net sales excluding baked increased $7.1 million, or 21.2%, to $40.8 million for the three months ended September 30, 2017 as compared to the same period in the prior year.channel. Our Freshpet Fridge store locations grew by ~~8.5% from 16,261~~8.4% to 22,120 as of ~~September~~June 30, ~~2016~~2020 compared to ~~17,650~~20,414 as of ~~September~~June 30, ~~2017.~~

Gross profit increased ~~$4.2~~$6.6 million, or ~~27%~~24.2%, to ~~$19.5~~$33.9 million for the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in the prior year. The increase in gross profit was primarily driven by higher net sales, ~~and an increase in gross profit margin.~~offset by increased cost.

Gross profit margin of ~~47.3%~~42.4% for the three months ended ~~September~~June 30, ~~2017 increased 290~~2020 decreased 310 basis points compared to the same period in the prior year, ~~primarily~~due to COVID-19 related cost of 190 basis points, plant start-up cost of 90 basis points, increased processing cost of 60 basis points, increased depreciation mainly related to Kitchens South of 50 basis points, and increased stock compensation cost ~~savings and margin improvement through scale and plant startup costs in the prior year,~~of 30 basis points, partially offset by ~~a decrease due to additional depreciation~~increase in sales price and shifting selling mix of ~~our Freshpet Kitchens expansion.~~110 basis points.

Adjusted Gross Profit was ~~$21.0~~$39.2 million and ~~$17.1~~$29.1 million in the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Adjusted Gross Profit Margin was ~~50.9%~~49.1% and ~~49.6%~~48.5% in the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Adjusted Gross Profit excludes ~~$1.4~~$2.6 million of depreciation expense, $0.5 million of share-based compensation expense, $1.5 million in COVID-19 expenses, and $0.7 million of plant start-up expense in the three months ended ~~September~~June 30, ~~2017,~~2020 and ~~$1.2~~excludes $1.6 million of depreciation expense and ~~$0.5~~$0.2 million of ~~non-capitalizable plant start-up costs~~share-based compensation expense in the three months ended ~~September~~June 30, ~~2016.~~2019. See “—Non-GAAP Financial Measures” for how we define Adjusted Gross Profit and a reconciliation of Adjusted Gross Profit to Gross Profit, the closest comparable U.S. GAAP measure.

Selling, general and administrative expenses increased ~~$4.8~~$1.0 million, or ~~33%~~3.2%, to ~~$19.3~~$33.7 million for the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in the prior year. Key components of the dollar increase include higher ~~media spend~~incremental operating costs of ~~$1.9~~$1.4 million, higher ~~stock-based compensation expenses of $0.3 million, higher freight costs~~variable cost due to volume of ~~$0.8~~$1.2 million ~~higher non-recurring expenses related to leadership transition expenses of $0.4 million, higher~~and depreciation and options expense of ~~$0.3~~$1.1 million, ~~and incremental operating expenses~~offset by decreased media expense of ~~$1.1~~$2.7 million. The increased operating expenses were primarily due to new hires, and increased employee incentive and benefit ~~costs, which include variable compensation.~~

costs. As a percentage of net sales, selling, general and administrative expenses ~~increased~~decreased to ~~46.9% for the three months ended September 30, 2017 from~~ 42.1% for the three months ended ~~September~~June 30, ~~2016.~~ 2020 from 54.4% for the three months ended June 30, 2019.

Adjusted SG&A ~~increased~~decreased as a percentage of net sales to ~~44.0%~~35.1% in the ~~third quarter of 2017~~three months ended June 30, 2020 as compared to ~~40.8%~~46.4% of net sales in the ~~third quarter~~three months ended June 30, 2019. The decrease of ~~2016.~~1,130 basis points in Adjusted SG&A is a result of 270 basis point gain in SG&A leverage, and 860 basis points leverage gain in media. Adjusted SG&A excludes ~~$1.1~~$2.9 million ~~and~~of depreciation expense, $1.8 million of non-cash share-based compensation expense, $0.7 million of launch expense, $0.1 million in enterprise resource planning expense, and $0.1 million COVID-19 expenses in the three months ended June 30, 2020 while excluding $2.3 million of depreciation and amortization expense, $1.2 million for ~~stock-based~~share-based compensation expense, $0.9 million of launch expense and $0.3 million of secondary offering expense in the third quarter of 2017 and 2016, respectively, and $0.1 million incremental costs and $0.3 million change in estimate related to leadership transition expenses in the third quarter of 2017 and 2016, respectively.three months ended June 30, 2019. See “—Non-GAAP Financial Measures” for how we define Adjusted SG&A and a reconciliation of Adjusted SG&A to SG&A, the closest comparable U.S. GAAP measure.

Income (Loss) from Operations decreased ~~$0.6~~$5.1 million ~~or 75%,~~ to a profit of $0.2 million for the three months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in the prior year as a result of the factors discussed above.

Interest expense relating ~~primarily~~ to our ~~Credit Facilities~~credit facilities was ~~$0.5~~$0.1 million ~~and $0.2~~for the three months ended June 30, 2020, while interest expense was $0.3 million in the three months ended ~~September~~June 30, 2017 and 2016, respectively. Interest expense in the three months ended September 30, 2017 includes $0.3 million of accelerated amortization of debt issuance costs related to the amendment of our Credit Facilities.2019.

Other income (expenses), net ~~decreased~~increased less than $0.1 million for the three months ended ~~September~~June 30, ~~2017.~~2020 compared to the same period in the prior year.

~~Net Loss~~Income (loss) increased ~~$0.8~~$5.8 million to income of $0.2 million for the three months ended ~~September~~June 30, ~~2017~~2020 as compared to ~~income~~loss of ~~$0.6~~$5.7 million for the same period in the prior ~~year.~~

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2019

~~(1)Stores at September 30,~~ ~~2017 and September 30, 2016 consisted of 8,872 and 7,669 Grocery and 3,905 and 3,785 Mass and Club, respectively.~~

~~(2)Stores at September 30, 2017 and September 30, 2016 consisted of 4,539 and 4,505 Pet Specialty and 334 and 302 Natural, respectively.~~

* Includes sales from Freshpet Baked product of $1.7 million and $3.6 million, or 2.0% and 4.0% of total net sales, for the nine months ended September 30, 2017 and 2016, respectively.

Net sales increased ~~$16.7~~$35.2 million, or ~~17%~~30.7%, to ~~$115.7~~$150.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in the prior year. The ~~$16.7~~$35.2 million increase in net sales was driven by growth of ~~$18.0~~$33.5 million in our Grocery (including Online), Mass, and Club refrigerated channel and ~~$0.6~~$1.7 million in our Pet Specialty and Natural ~~and Other~~ refrigerated channel and declines in Baked of $1.9 million. Net sales excluding baked increased $18.6 million, or 19.4%, to $113.9 million for the nine months ended September 30, 2017 as compared to the same period in the prior year.channel. Our Freshpet Fridge store locations grew by ~~8.5% from 16,261~~8.4% to 22,120 as of ~~September~~June 30, ~~2016~~2020 compared to ~~17,650~~20,414 as of ~~September~~June 30, ~~2017.~~2019.

Gross profit increased ~~$8.3~~$12.5 million, or ~~18%~~23.4%, to ~~$53.5~~$65.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in the prior year. The increase in gross profit was primarily driven by higher net sales, ~~and an increase in gross profit margin.~~offset by increased cost.

Gross profit margin of ~~46.2%~~43.8% for the ~~nine~~six months ended ~~September~~June 30, ~~2017 increased 60~~2020 decreased 260 basis points compared to the same period in the prior year, ~~primarily~~due to COVID-19 related cost of 120 basis points, plant start-up cost of 80 basis points, increased processing cost of 80 basis points, increased plant cost related to the ramp up of 7 day production of 50 basis points, increased depreciation mainly related to Kitchen South of 20 basis points, increased stock compensation cost ~~savings and margin improvement through scale and plant startup costs in the prior year,~~of 20 basis points, partially offset by ~~additional depreciation~~increase in sales price and shifting selling mix of ~~our Freshpet Kitchens expansion.~~110 basis points.

Adjusted Gross Profit was ~~$57.8~~$73.9 million and ~~$49.0~~$56.7 million in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Adjusted Gross Profit Margin was ~~50.0%~~49.3% and ~~49.5%~~49.4% in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Adjusted Gross Profit excludes $4.3 million of depreciation expense, $0.9 million of share-based compensation expense, $1.8 million in COVID-19 expenses, and $1.2 million of plant start-up expense in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 and ~~$2.7~~excludes $3.2 million of depreciation expense and ~~$1.2~~$0.3 million of ~~non-capitalizable plant start-up costs~~share-based compensation expense in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. See “—Non-GAAP Financial Measures” for how we define Adjusted Gross Profit and a reconciliation of Adjusted Gross Profit to Gross Profit, the closest comparable U.S. GAAP measure.

Selling, general and administrative expenses increased ~~$8.9~~$6.5 million, or ~~18%~~10.5%, to ~~$57.8~~$68.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in the prior year. Key components of the dollar increase include higher ~~media spend~~incremental operating costs of ~~$4.9~~$2.6 million, higher ~~depreciation expense of $0.8 million, increased freight costs~~variable cost due to volume of ~~$1.0~~$2.6 million and ~~higher incremental~~depreciation and options expense of $2.3 million, partially offset by decreased media spend of $1.0 million. The increased operating expenses ~~of $3.6 million, offset by lower share-based compensation expense of $0.2 million~~were primarily due to new hires, and ~~lower non-recurring costs related to leadership transition expenses of $1.2 million~~

increased employee incentive and benefit costs. As a percentage of net sales, selling, general and administrative expenses ~~increased~~decreased to ~~50.0%~~45.6% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 from ~~49.4%~~53.9% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2019.

Adjusted SG&A ~~increased~~decreased as a percentage of net sales to ~~47.2%~~38.0% in the ~~first nine~~six months ~~of 2017~~ended June 30, 2020 as compared to ~~44.8%~~45.9% of net sales in the ~~same period~~six months ended June 30, 2019. The decrease of ~~2016.~~790 basis points in Adjusted SG&A is a result of 260 basis point gain in SG&A leverage, and 540 basis points leverage gain in media. Adjusted SG&A excludes ~~$3.1~~$5.6 million of depreciation expense, $3.5 million of non-cash share-based compensation expense, $1.6 million of launch expense, $0.4 million in enterprise resource planning expense, $0.1 million in equity offering expense, and ~~$3.3~~$0.1 million in COVID-19 expenses in the six months ended June 30, 2020,while excluding $4.5 million of depreciation and amortization expense, $2.3 million for ~~stock-based~~share-based compensation expense, $2.0 million of launch expense, and $0.3 million of secondary offering expense in the ~~nine~~six months

ended ~~September~~June 30, ~~2017 and 2016, respectively, and $0.1 million and $1.3 million of costs related to leadership transition expenses in the third quarter of 2017 and 2016, respectively.~~2019. See “—Non-GAAP Financial Measures” for how we define Adjusted SG&A and a reconciliation of Adjusted SG&A to SG&A, the closest comparable U.S. GAAP measure.

Loss from ~~operations increased $0.6~~Operations decreased $6.0 million to ~~$4.4~~$2.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to the same period in the prior year as a result of the factors discussed above.

Interest expense relating ~~primarily~~ to our ~~Credit Facilities~~credit facilities was $0.8 million ~~and $0.5~~for the six months ended June 30, 2020, of which $0.6 million related to the recognition of debt issuance fees with the repayment of the Draw Term Loan, while interest expense was $0.4 million in the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016, respectively. Interest expense in the nine months ended September 30, 2017 includes $0.3 million of accelerated amortization of debt issuance costs related to the amendment of our Credit Facilities.2019.

~~Other expenses,~~income (expenses), net increased ~~$0.4 million to $0.5~~less than $0.1 million for the ~~nine~~six months ended ~~September~~June 30, 2017, primarily related to the revaluation of warrants of $0.3 million and foreign currency forward contracts of $0.1 million to fair value. The outstanding warrants were converted to common stock during the third quarter of 2017.

~~Net Loss increased $1.4 million, or 31%, to $5.8 million for the nine months ended September 30, 2017 as~~2020 compared to ~~a loss of $4.4 million for~~ the same period in the prior year.

Net loss decreased $5.6 million to $3.4 million for the six months ended June 30, 2020 as compared to loss of $9.1 million for the same period in the prior year as a result of the factors discussed above.

Freshpet uses the following non-GAAP financial measures in its financial communications. These non-GAAP financial measures should be considered as supplements to the GAAP reported measures, should not be considered replacements for, or superior to, the GAAP measures and may not be comparable to similarly named measures used by other companies.

•~~Adjusted Gross Profit as a percentage of net sales (Adjusted Gross Margin)~~

~~The non-GAAP~~Such financial measures are not financial measures prepared in accordance with U.S. GAAP. We define Adjusted Gross Profit as Gross Profit before non-cash depreciation expense, ~~and~~ plant start-up ~~costs.~~expense, COVID-19 expenses and non-cash share-based compensation. We define Adjusted SG&A ~~Expenses~~ as SG&A ~~Expenses~~expenses before depreciation and amortization expense, non-cash share-based compensation, ~~leadership transition expenses and~~launch expense, loss (gain) on disposal of equipment, fees related to ~~a secondary offering.~~equity offerings of our common stock, fees associated with due diligence of new enterprise resource planning (“ERP”) software and COVID-19 expenses. EBITDA represents net ~~loss~~income (loss) plus interest expense, income tax expense, and depreciation and ~~amortization, interest expense and income tax expense.~~amortization. Adjusted EBITDA represents EBITDA plus loss on disposal of equipment, non-cash share-based compensation, launch expenses, plant start-up expense, ~~share-based compensation, warrant fair valuation, launch expenses,~~ fees related to ~~a secondary offering~~equity offerings of our common stock, COVID-19 expenses and ~~leadership transition costs.~~fees associated with due diligence of new ERP software. We have changed our method for calculating Adjusted Gross Profit, Adjusted SG&A and Adjusted EBITDA in light of certain non-recurring expenses related to the COVID-19 pandemic.

We believe that each of these non-GAAP financial measures ~~provides an~~provide additional ~~metric~~metrics to evaluate our operations and, when considered with both our U.S. GAAP results and the reconciliation to the closest comparable U.S. GAAP measures, ~~provides~~provide a more complete understanding of our business than could be obtained absent this disclosure. We use the non-GAAP financial measures, together with U.S. GAAP financial measures, such as net sales, gross profit margins and cash flow from operations, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating performance and to compare our performance to that of our peers and competitors.

Adjusted EBITDA is also an important component of internal budgeting and setting management compensation.

The non-GAAP financial measures are presented here because we believe they are useful to investors in assessing the operating performance of our business without the effect of non-cash items, and other items as detailed below. The non-GAAP financial measures should not be considered in isolation or as alternatives to net ~~loss,~~ income (loss), income (loss) from operations or any other measure of financial performance calculated and prescribed in accordance with U.S. GAAP. Neither EBITDA nor Adjusted EBITDA should be considered a measure of discretionary cash available to us to invest in the growth of our business. Our non-GAAP financial measures may not be comparable to similarly titled measures in other organizations because other organizations may not calculate non-GAAP financial measures in the same manner as we do.

Our presentation of the non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. We recognize that the non-GAAP financial measures have limitations as analytical financial measures. For example, the non-GAAP financial measures do not reflect:

~~our capital expenditures or future requirements for capital expenditures;~~

~~the interest expense, or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;~~

depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor any cash requirements for such replacements; and

~~changes in or cash requirements for our working capital needs.~~

Additionally, Adjusted EBITDA excludes (i) non-cash ~~stock based~~share-based compensation expense, which is and will remain a key element of our overall ~~long term~~long-term incentive compensation package, and (ii) certain costs essential to our sales growth and strategy, including an allowance for marketing expenses for each new store added to our network and non-capitalizable freight costs associated with Freshpet Fridge replacements. Adjusted EBITDA also excludes certain cash charges resulting

from matters we consider not to be indicative of our ongoing operations. Other companies in our industry may calculate the non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, the most directly comparable financial measure presented in accordance with U.S. GAAP:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
	(Dollars in thousands)
Net income (loss)	$	153		$	(5,661	)	$	(3,437	)	$	(9,083	)
Depreciation and amortization		5,441			3,923			9,894			7,643
Interest expense		80			276			784			379
Income tax expense		22			19			43			38
EBITDA	$	5,696		$	(1,443	)	$	7,284		$	(1,023	)
Loss (gain) on disposal of equipment		34			(7	)		36			1
Non-cash share-based compensation		2,286			1,430			4,464			2,630
Launch expense (a)		686			948			1,642			2,071
Plant start-up expenses (b)		725			—			1,192			—
Equity offering expenses (c)		—			265			58			299
Enterprise Resource Planning (d)		129			—			402			—
COVID-19 expense (e)		1,642			—			1,859			—
Adjusted EBITDA	$	11,199		$	1,193		$	16,938		$	3,978
Adjusted EBITDA as a % of Net Sales		14.0	%		2.0	%		11.3	%		3.5	%

(a)

Represents new store marketing allowance of $1,000 for each store added to our distribution network, as well as the non-capitalized freight costs associated with Freshpet Fridge replacements. The expense enhances the overall marketing spend to support our growing distribution network.

(b)

Represents additional operating costs incurred in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion projects.

(c)

Represents fees associated with public offerings of our common stock.

(d)

Represents fees associated with due diligence of new Enterprise Resource Planning software.

(e)

Represents COVID-19 expenses including (i) costs incurred to protect the health and safety of our employees during the COVID-19 pandemic, (ii) temporary increased compensation expense to ensure continued operations during the pandemic, and (iii) costs related to mitigate potential supply chain disruptions during the pandemic.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(Dollars in thousands)

Net (Loss)/Income

$
(246
)

$
621

$
(5,778
)

$
(4,394
)
Depreciation and amortization

3,216

2,720

9,411

6,957

Interest expense

465

214

831

490

Income tax expense

21

15

62

45

EBITDA

$
3,456

$
3,570

$
4,526

$
3,098

Loss on disposal of equipment

7

11

98

170

Launch expense (a)

929

728

2,359

2,038

Plant start-up expenses and processing (b)

—

540

—

1,208

Non-cash stock based compensation (c)

1,133

788

3,292

3,459

Warrant fair valuation (d)

(44
)

(47
)

335

(19
)
Leadership transition expenses (e)

100

(253
)

100

1,327

Adjusted EBITDA

$
5,580

$
5,337

$
10,709

$
11,281

(a)Represents new store marketing allowance of $1,000 for each store added to our distribution network as well as the non-capitalized freight costs associated with Freshpet Fridge replacements. The expense enhances the overall marketing spend to support our growing distribution network.

~~(b)Represents additional operating costs incurred in 2016 in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion project.~~

~~(c)Represents non-cash stock based compensation expense.~~

~~(d)Represents the change of fair value for the outstanding common stock warrants. All warrants were converted to common stock in the third quarter of 2017.~~

~~(e)Leadership Transition Expenses represent costs detailed within our former Chief Executive Officer’s separation agreement as well as incremental costs associated with leadership transition.~~

The following table provides a reconciliation of Adjusted Gross Profit to Gross Profit, the most directly comparable financial measure presented in accordance with U.S. GAAP:

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Gross Profit (as reported)	$	19,503		$	15,351		$	53,476		$	45,151
													(Dollars in thousands)
Gross Profit													$	33,933		$	27,327		$	65,723		$	53,242
Depreciation expense (a)		1,448			1,242			4,330			2,660			2,550			1,589			4,294			3,155
Plant start-up expenses and processing (b)		—			540			—			1,208
Plant start-up expense (b)														725			—			1,192			—
Non-cash share-based compensation (c)														493			186			941			334
COVID-19 expense (d)														1,546			—			1,763			—
Adjusted Gross Profit	$	20,951		$	17,133		$	57,805		$	49,019		$	39,248		$	29,102		$	73,914		$	56,731
Adjusted Gross Profit as a % of Net Sales														49.1	%		48.5	%		49.3	%		49.4	%
Adjusted Gross Profit	$	20,951		$	17,133		$	57,805		$	49,019
Net Sales	$	41,200		$	34,536		$	115,683		$	98,992
Adjusted Gross Profit as a % of Net Sales		50.9	%		49.6	%		50.0	%		49.5	%

(a)

Represents depreciation and amortization expense included in cost of goods sold.

(b)

Represents additional operating costs incurred in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion projects.

(c)

Represents non-cash share-based compensation expense included in cost of goods sold.

(d)

~~(a)Represents non-cash depreciation expense included in Cost of Goods Sold.~~

~~(b)Represents additional operating costs incurred in 2016 in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion project.~~

The following table provides a reconciliation of Adjusted SG&A Expenses to SG&A Expenses, the most directly comparable financial measure presented in accordance with U.S. GAAP:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
	(Dollars in thousands)
SG&A expenses	$	33,702		$	32,672		$	68,378		$	61,904
Depreciation and amortization expense (a)		2,891			2,334			5,600			4,486
Non-cash share-based compensation (b)		1,793			1,244			3,523			2,296
Launch expense (c)		686			948			1,642			2,071
Loss (gain) on disposal of equipment		34			(7	)		36			1
Equity offering expenses (d)		—			265			58			299
Enterprise Resource Planning (e)		129			—			402			—
COVID-19 expense (f)		96			—			96			—
Adjusted SG&A Expenses	$	28,073		$	27,888		$	57,020		$	52,751
Adjusted SG&A Expenses as a % of Net Sales		35.1	%		46.4	%		38.0	%		45.9	%

(a)

Represents non-cash depreciation expense included in SG&A.

(b)

Represents non-cash share-based compensation expense included in SG&A.

(c)

(d)

Represents fees associated with public offerings of our common stock.

	(e)	Represents fees associated with due diligence of new Enterprise Resource Planning software.
	(f)	Represents COVID-19 expenses including (i) costs incurred to protect the health and safety of our employees during the COVID-19 pandemic, (ii) temporary increased compensation expense to ensure continued operations during the pandemic, and (iii) costs related to mitigate potential supply chain disruptions during the pandemic included in SG&A.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

��
2016

SG&A expenses (as reported)

$
19,304

$
14,543

$
57,844

$
48,917

Non-cash stock based compensation (a)

1,064

716

3,118

3,282

Leadership transition expenses (b)

100

(253
)

100

1,327

Adjusted SG&A Expenses

$
18,139

$
14,080

$
54,628

$
44,308

Adjusted SG&A Expenses as a % of Net Sales

Adjusted SG&A Expenses

$
18,139

$
14,080

$
54,628

$
44,308

Net Sales

$
41,200

$
34,536

$
115,683

$
98,992

Adjusted SG&A as a % of Net Sales

44.0
%

40.8
%

47.2
%

44.8
%

~~(a)Represents non-cash stock based compensation expense.~~

~~(b)Represents~~ ~~costs detailed within our former Chief Executive Officer’s separation agreement as well as incremental costs associated with leadership transition.~~

Liquidity and Capital Resources

Developing our business will require significant capital in the future. To meet our capital needs, we expect to rely on our current and future cash flow from operations and our current and future available borrowing capacity. Our ability to obtain additional funding will be subject to various factors, including general market conditions, our operating performance, the market’s perception of our growth potential, lender sentiment and our ability to incur additional debt in compliance with other contractual restrictions, such as financial covenants under our debt agreements.

Additionally, our ability to make payments on, and to refinance, any indebtedness under our ~~Credit Facilities~~credit facilities and to fund any necessary expenditures for our growth will depend on our ability to generate cash in the future. If our business does not achieve the levels of profitability or generate the amount of cash that we anticipate or if we expand faster than anticipated, we may need to seek additional debt or equity financing to operate and expand our business. Future third-party financing may not be available on favorable terms or at all.

Our primary cash needs are for ingredients, ~~purchases~~packaging and operating expenses, marketing expenses and capital expenditures to procure Freshpet Fridges and expand and improve our manufacturing plant to support our net sales growth.

Over the next three years we also expect to invest over $300 million in capital expenditures to expand our plant capacity and increase distribution. We believe that our cash and cash equivalents, short-term investments, expected cash flow from operations and planned borrowing capacity are adequate to fund debt service requirements, operating lease obligations, capital expenditures and working capital obligations for the foreseeable future. From time to time, we may seek to raise additional capital by accessing the debt and/or equity markets to fund capital expenditures or otherwise. However, our ability to continue to meet ~~these~~our capital resource requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow from operations, ~~and~~ our ability to manage costs and working capital ~~successfully.~~successfully and our ability to access the debt and equity markets. Additionally, our cash flow generation ability is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations in an amount sufficient to enable us to fund our liquidity needs. Further, our capital requirements may vary materially from those currently planned if, for example, our revenues do not reach expected levels, or we have to incur unforeseen capital expenditures and make investments to maintain our competitive position. If this is the case, we may seek alternative financing, such as selling additional debt or equity securities, and we cannot assure you that we will be able to do so on favorable terms, if at all. Moreover, if we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity or convertible debt securities, existing stockholders may experience dilution, and such new securities could have rights senior to those of our common stock. These factors may make the timing, amount, terms and conditions of additional financings unattractive. Our inability to raise capital could impede our growth or otherwise require us to forego growth opportunities and could materially adversely affect our business, financial condition and results of operations.

The following table sets forth, for the periods indicated, our working capital:

	June 30,			December 31,
	2020			2019
	(Dollars in thousands)
Cash and cash equivalents	$	107,728		$	9,472
Short-term investments		20,001			—
Accounts receivable, net of allowance for doubtful accounts		22,651			18,581
Inventories, net		18,693			12,542
Prepaid expenses		2,782			3,276
Other current assets (1)		765			10,453
Accounts payable		(9,090	)		(18,668	)
Accrued expenses (1)		(8,986	)		(22,133	)
Current operating lease liabilities		(1,337	)		(1,185	)
Total Working Capital	$	153,207		$	12,338

(1)

Includes a $10.1 million legal contingency that was recorded as both a liability within accrued expenses, and a $10.1 million insurance receivable at December 31, 2020. The legal contingency was settled during the second quarter of 2020; the entire legal contingency was covered by insurance proceeds.

Working capital consists of current assets net of current ~~liabilities, excluding cash, net of debt.~~liabilities. Working capital increased ~~$3.9~~$140.9 million to ~~$7.6~~$153.2 million at ~~September~~June 30, ~~2017~~2020 compared with ~~$3.7~~working capital of $12.3 million at December 31, ~~2016.~~2019. The increase was mainly a result of ~~increased~~the equity raise presented within cash and cash equivalents and short-term investments, and an increase in accounts receivable and ~~inventory, offset by an increase~~inventories, as well as a decrease in accounts payable and accrued expenses. The increase in accounts receivable and inventories is mainly due to the growing business. The decrease in accounts payable was mainly due to the timing of capital expenditure spend. The decrease in accrued expenses, net of the legal contingency, is mainly a result of the timing of our variable compensation.

We normally carry three to four weeks of finished goods inventory. The average duration of our accounts receivable is approximately three to four weeks.

As of ~~September~~June 30, ~~2017,~~2020, our capital resources consisted primarily of ~~$2.1~~$107.7 million of cash on hand, ~~and $24.5~~$20.0 million in short-term investments, $35.0 million available under our ~~Credit Facilities. In the third quarter~~credit facilities, of ~~2017, we amended our Credit Facilities, under~~ which ~~outstanding borrowings of $5.5 million were refinanced and~~ $2.0 million ~~were repaid. In 2017, as part~~is reserved for two Letters of ~~our Feed The Growth initiative, we are increasing our investment in marketing~~Credit, and ~~borrowed an additional $2.0 million. On a net basis, we have repaid $6.5~~$130.0 million ~~and have $5.5 million outstanding on our Credit Facilities.~~ delayed draw term loan facility.

We expect to fund our ongoing operations and obligations with cash and cash equivalents, ~~on hand,~~ cash flow from operations and available funds under our ~~Credit Facilities.~~credit facilities.

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

	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2017			2016			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Cash at the beginning of period	$	3,908		$	8,029		$	9,472		$	7,554
Net cash provided by operating activities		5,129			7,319
Net cash used in operating activities								(5,118	)		(9,835	)
Net cash used in investing activities		(10,836	)		(22,834	)		(93,252	)		(22,889	)
Net cash provided by financing activities		3,867			10,981			196,626			29,923
Cash at the end of period	$	2,069		$	3,496		$	107,728		$	4,753

Net Cash ~~Provided by~~Used in Operating Activities

Cash ~~provided by~~used in operating activities consists primarily of net ~~income~~loss adjusted for certain non-cash items (i.e., provision for loss on receivables, ~~loss~~loss/(gain) on disposal of equipment, change in reserve for inventory obsolescence, depreciation and amortization, amortization of deferred financing costs and loan discount, and share-based ~~compensation and the fair valuation of warrants)~~compensation).

For the nine months ended September 30, 2017, net cash provided by operating activities was $5.1 million, consisting of net income, adjusted for reconciling non-cash items, of $8.1 million and a decrease in operating assets and liabilities of $3.0 million. Net income, adjusted for reconciling non-cash items, excludes $13.9 million of non-cash items primarily relating to

$3.3 million of share-based compensation and $9.4 million of depreciation and amortization. The increase in assets of $7.6 million is primarily related to growth in accounts receivable, which is primarily due to growth in net sales and an increase in the number of stores with a Freshpet Fridge. The increase in liabilities of $4.7 million was primarily due to timing of payments due to increased media spend in the third quarter of fiscal year 2017.

For the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, net cash ~~provided by~~used in operating activities of $5.1 million was ~~$7.3 million,~~ primarily ~~consisting~~attributed to:

•

$16.5 million increase in working capital mainly due to a $0.1 million change in assets and a $16.6 million change in liabilities.

•

$0.4 million increase in other lease liabilities.

This was partially offset by:

•

$11.8 million of net income, adjusted for reconciling non-cash items, which excludes $15.2 million primarily related to $9.9 million of depreciation and amortization, $4.5 million of share-based compensation, and $0.7 million of amortization of deferred financing costs and loan discount.

For the six months ended June 30, 2019, net income of $6.4 million, which excludes $10.8 million of non-cash items primarily relating to $3.5 million of share based compensation and $7.0 million of depreciation and amortization. Proceeds were offset by a changecash used in operating ~~assets and liabilities~~activities of $0.9 million. Change in assets of $2.1 million is primarily related to growth in accounts receivable, which is primarily due to growth in net sales and an increase in the number of stores with a Freshpet Fridge. The increase in liabilities of $3.0$9.8 million was ~~due to timing of payments and accrued leadership transition costs.~~primarily attributed to:

•

$11.4 million increase in working capital mainly due to $11.4 million increase in assets, a result of an increase in inventory, accounts receivable, prepaid expenses and other current assets

This was partially offset by:

	•	$1.4 million of net income, adjusted for reconciling non-cash items, which excludes $10.4 million primarily related to $2.6 million of share-based compensation and $7.6 million of depreciation and amortization.
	•	$0.2 million increase in other assets and liabilities.

Net Cash Used in Investing Activities

Net cash used in investing activities was $10.8 million for the nine months ended September 30, 2017, relating primarily to capital expenditures for Freshpet Kitchens of $2.8 million and investment in fridges and other capital spend of $8.0 million.

Net cash used in investing activities ~~was $22.8~~of $93.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, relating~~2020, was primarily to September 30, 2016 capital expenditures for Freshpet Kitchens of $19.8 million (including the Freshpet Kitchens expansion of $17.4 million and recurring capital expenditures of $2.4 million) and investment in fridges and other capital spend of $6.3 million. Therelated to:

•

$60.4 million in capital expenditures for Freshpet Kitchens, of which $56.8 million relates to the Freshpet Kitchens and other expansion projects and $3.6 million relates to recurring capital expenditures.

•

$12.9 million in capital expenditures relating to investment in fridges and other capital spend.

•

$20.0 million purchase of short term investments.

Net cash used in investing activities of $22.9 million for the six months ended June 30, 2019, was ~~partially offset by maturities of short-term investments of $3.3 million.~~primarily related to:

•

$12.8 million in capital expenditures for Freshpet Kitchens, of which $10.9 million relates to the Freshpet Kitchens expansion and $1.9 million relates to recurring capital expenditures.

•

$10.1 million in capital expenditures relates to investment in fridges and other capital spend.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was ~~$3.9~~$196.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, attributable ~~to the proceeds from borrowings under our Credit Facilities of $7.5 million and cash proceeds from the exercise of stock options of $5.6~~to:

•

$252.1 million of proceeds from common shares issued in primary offering, net of issuance cost.

•

$20.9 million of proceeds from borrowings under our credit facilities.

•

$2.1 million cash proceeds from the exercise of stock options.

This was partially offset ~~by repayments of borrowings under Credit Facilities of $9.0 million and payments of debt issuance costs in connection with the amendment of our Credit Facility of $0.2 million.~~by:

•

$76.0 million repayment of borrowings under credit facilities.

	•	$1.6 million for tax withholdings related to net share settlements of restricted stock units.
	•	$0.8 million for debt issuance cost related to the new credit facility.

Net cash ~~from~~provided by financing activities was ~~$11.0~~$29.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, attributable ~~to the exercise of stock options of $2.0 million and the proceeds from borrowing $10.0 million under our Credit Facilities,~~to:

•

$35.3 million of proceeds from borrowings under our credit facilities.

•

$3.8 million cash proceeds from the exercise of stock options.

This was partially offset ~~by repayments of short term borrowing of $1.0 million.~~by:

	•	$7.5 million repayment of borrowings under our credit facilities.
	•	$1.3 million for tax withholdings related to net share settlements of restricted stock units.
	•	$0.4 million financing fees paid in connection with borrowings.

Indebtedness

On November 13, 2014, the Company entered into Debt Refinancing comprised of the Credit Facilities and such Loan Agreement. On December 23, 2014, the Company repaid the outstanding $18.0 million and modified the terms of the $40.0 million Credit Facilities. The $18.0 million term facility was extinguished, the three-year $10.0 million Revolving Facility remained unchanged and the $12.0 million term loan commitment earmarked for capital expenditures was increased to $30.0 million.

~~The New Revolver matures~~For a discussion of our material indebtedness, see Note 5 to our consolidated financial statements included in September 2020 and borrowings thereunder will bear interest at variable rates depending on the Company’s election, either at a base rate or at the London Interbank Offered Rate (“LIBOR”), in each case, plus an applicable margin. Subject to the Company’s leverage ratio, the applicable margin will vary between 0.75% and 1.25% for base rate loans and 1.75% and 2.25% for LIBOR loans. In addition, the Company will be required to pay customary fees and expenses in connection with the New Loan Agreement.this report.

On September 21, 2017, the Company further amended the Loan Agreement (the “New Loan Agreement”) which modified the $10.0 million Revolving Facility to $30.0 million and extinguished the $30.0 million Capex Commitments. The New Loan Agreement has a term of three years and the ability to increase the New Revolving Facility by $10.0 million, with borrowings bearing interest at variable rates.Contractual Obligations

The Company had $7.5 million outstanding under the existing Credit Facilities prior to closing, which was repaid with proceeds from the New Revolving Facility and cash on hand. Upon closing, the Company had $5.5 million outstanding and $24.5 million available under the New Revolving Facility.

In connection with this amendment, the Company accelerated the amortization of $0.3 million of unamortized debt issuance costs related to the existing Loan Agreement. These costs are included in Interest expense in the three and nine months ended September 30, 2017.

The New Loan Agreement provides for the maintenance of various covenants, including financial covenants, and includes events of default that are customary for facilities of this type. As of September 30, 2017, the Company was in compliance with all the covenants in the New Loan Agreement.

Borrowings under our Credit Facilities totaled $7.5 million and repayments totaled $9.0 million for the nine months ended September 30, 2017. The Company had $5.5 million in debt outstanding under the Credit Facilities.

Interest expense and fees totaled $0.5 million and $0.8 million for the three and nine months ended September 30, 2017, respectively, of which $0.2 million was related to new debt issuance costs. Interest expense and fees totaled $0.2 million and $0.5 million for the three and nine months ended September 30, 2016, respectively. There was less than $0.1 million of accrued interest on the Credit Facilities as of September 30, 2017 and December 31, 2016.

~~Contractual Obligations~~

There were no material changes to our commitments under contractual obligations, as disclosed in our latest Annual Report Form 10-K.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements or any holdings in variable interest entities.

Critical Accounting Policies and Significant Estimates

Our management’s discussion and analysis of ~~our~~ financial condition and results of operations ~~are~~is based ~~upon~~on our financial statements, which have been prepared in accordance with ~~U.S.~~accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and ~~judgments~~assumptions that affect the reported amounts of assets and liabilities and the ~~related~~ disclosure of contingent assets and liabilities ~~revenue and expenses~~ at the date of the financial ~~statements. Generally,~~statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience and on various other ~~assumptions in accordance with U.S. GAAP~~factors that we believe ~~to be~~are reasonable under the ~~circumstances.~~circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these ~~estimates.~~estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our latest Annual Report Form 10-K.

Recent Accounting Pronouncements

~~Not Yet~~

Recently Adopted Standards:

~~In May 2014,~~

See Note 1 of our consolidated financial statements for additional information.

Standards Effective in Future Years:

We consider the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting ~~Standard~~Standards Board ~~(“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects~~(FASB). ASUs not listed herein were assessed and determined to be ~~entitled for the transfer of promised goods~~either not applicable or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In connection with this ASU, the FASB also issued ASU No. 2016-10 regarding identification of performance obligations and licensing considerations, ASU No. 2016-12 regarding narrow scope improvements and practical expedients- and ASU No. 2016-08 which clarifies the implementation of guidance on principal versus agent considerations. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 to fiscal years beginning after December 15, 2017, with early adoption permitted only for fiscal years beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method.

The Company is currently utilizing a comprehensive approach to assess the impact of this guidance by reviewing current accounting policies to identify the potential impact of the new requirements on its revenue contracts. The Company does not currently expect this guidanceare expected to have ~~a material~~minimal impact ~~on its~~to our consolidated financial statements. The new standard will be effective as of January 1, 2018. The Company currently anticipates adopting Topic 606 using the modified retrospective transition approach that may result in a cumulative adjustment to beginning retained earnings as of January 1, 2018. Based on the Company’s analysis to date, the Company expects the new standard will require accelerated recognition of trade promotions and customer incentives. These transactions are currently recognized at the later of the sale of goods or agreement, however under the new standard the Company will estimate incentives to be offered to customers as part of the sales price. The Company does not expect the change to be material.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a

liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is assessing the impact of ASU No. 2016-02 on its corporate office lease, and upon adoption of this guidance, expects to record the lease on its consolidated balance sheet in accordance with ASU No. 2016-02.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Risk

We are sometimes exposed to market risks from changes in interest rates on debt and changes in commodity prices. Our exposure to interest rate fluctuations is limited to our outstanding indebtedness under our credit ~~agreements,~~facilities, which bears interest at variable rates. As of ~~September~~June 30, ~~2017,~~2020, we ~~had $5.5 million~~did not have any outstanding borrowings under our ~~Credit Facilities. A change in interest rates of 100 basis points would cause a $0.1 million increase or decrease in annual interest expense.~~credit facilities.

Commodity Price Risk

We purchase certain products that are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. In many cases, we believe we will be able to address material commodity cost increases by either increasing prices or reducing operating expenses. However, increases in commodity prices, without adjustments to pricing or reduction to operating expenses, could increase our operating costs as a percentage of our net sales.

Foreign Exchange Rates

Fluctuations in the currencies of countries where the Company operates outside the U.S. may have a significant impact on financial results. The Company is exposed to movements in the British pound ~~sterling.~~sterling and Euro. The Statements of Financial Position of ~~non U.S.~~non-U.S. business units are translated into U.S. dollars using period-end exchange rates for assets and liabilities and weighted-average exchange rates for revenues and expenses. The percentage of consolidated revenue for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 recognized in ~~the United Kingdom~~Europe was approximately 1%.

The Company may, from time to time, enter into forward exchange contracts to reduce the Company’s exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies. ~~The~~Historically, the foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) in Other expenses, net, and carried at their fair value in the Consolidated Balance Sheet with gains reported in ~~Prepaid~~prepaid expenses and other current assets and losses reported in ~~Accrued~~accrued expenses.

As of ~~September~~June 30, ~~2017, the notional value of foreign currency~~2020, there were no forward contracts outstanding was 0.7 million pounds sterling. The fair value of the foreign currency forward contracts are measured using Level 2 inputs in the fair value hierarchy because they are determined based on a market approach utilizing externally quoted forward rates for similar contracts. For the three and nine months ended September 30, 2017 the net loss recognized on forward contracts was less than $0.1 million.outstanding.

I~~tem~~Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date our disclosure controls and procedures were effective.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

~~In designing~~

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

P~~ART~~PART II—OTHER INFORMATION

Item 1. Legal Proceedings

A securities lawsuit, Curran v. Freshpet, Inc. et al, Docket No. 2:16-cv-02263, was instituted on April 21, 2016 in the United States District Court for the District of New Jersey against the Company and certain of the Company's current and former executive officers and directors on behalf of certain purchasers of our common stock. The plaintiffs sought to recover damages for investors under the federal securities laws. On October 3, 2019, the parties filed with the District Court a motion for preliminary approval of settlement that attached the parties' stipulation of settlement and a proposed order. The settlement funds due were paid by the Company’s insurers, and the District Court approved the Final Judgment and Order of Dismissal with Prejudice on March 11, 2020 with a 30 day option to appeal. As of June 30, 2020, all settlement funds and legal fees related to the lawsuit had been dispersed as there was no appeal taken within 30 days from the entry of the Final Judgment. The Final Judgment became effective April 10, 2020.

A shareholder derivative lawsuit, Meldon v. Freshpet, Inc. et al, Docket No. 2:18-cv-10166, was instituted June 5, 2018 in the United States District Court for the District of New Jersey against us and certain of our current and former executive officers and directors on behalf of certain ~~purchasers~~holders of our common stock. We were served with a copy of the complaint in June ~~2016.~~2018. The plaintiffs seek to recover damages for investors ~~under~~based on state law claims (alleged breaches of fiduciary duty, waste, and unjust enrichment) in connection with the alleged violations of federal securities ~~laws.~~laws alleged in the Curran action. On April 3, 2019, the Court granted a stay of the Meldon case pending (i) the close of expert discovery in the Curran action or (ii) the dismissal with prejudice of the Curran action. The parties then entered into settlement discussions, after which the parties reached an agreement in principle to settle the case based on the Company’s commitment to continue certain governance practices. The parties also reached agreement on attorneys’ fees. The settlement is subject to Court approval. All parties believe that the agreement in principle to settle the dispute is in their respective best interests in order to avoid the risk, uncertainty, and costs associated with litigation. The parties are in the process of finalizing the settlement documents for submission to the District Court. As of June 30, 2020, the Company accrued for an estimated probable loss of $0.2 million, which represents the proposed settlement and accrued legal fees. The Company ~~believes~~concluded that the ~~plaintiffs’ allegations are without merit~~insurance recovery is probable and ~~intends to vigorously defend against the claims. Because the Company is in the early stages~~recorded a gain contingency of ~~litigation, the Company is unable to estimate a reasonably possible range of loss, if any, that may result from this matter.~~$0.2 million within other current assets.

In addition, we are currently involved in various claims and legal actions that arise in the ordinary course of our business, including claims resulting from employment related matters. None of these claims or proceedings, most of which are covered by insurance, are expected to have a material adverse effect on our business, financial condition, results of operations or cash flows. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims could materially and adversely affect our business, financial condition, results of operations or cash flows.

Item 1A. Risk Factors

~~There have been no material changes from~~

The information set forth below supplements, and should be read in conjunction with, the ~~risk factors previously disclosed~~“Risk Factors” section in ~~our~~the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, ~~2016.~~

282019.

The COVID-19 outbreak has had a material impact on the U.S. and global economies and could have a material adverse impact on our employees, suppliers, customers and end consumers, which could adversely and materially impact our business, financial condition and results of operations.

COVID-19 may affect demand for our products due to quarantines, government restrictions on movements, or other societal changes. Governmental or societal impositions of restrictions on public gatherings, especially if prolonged in nature, may have adverse effects on in-person traffic to retail stores and, in turn, our business. Even the perceived risk of infection or health risk may adversely affect traffic to retail customers and, in turn, our business, liquidity, financial condition and results of operations. Further, if any circumstances related to the pandemic cause consumers to change how they feel about the presence of pets in their households, that could have a material impact on demand.

The spread of pandemics, epidemics or disease outbreaks such as COVID-19 may also disrupt our third party business partners’ ability to meet their obligations to us, which may negatively affect our operations. These third parties include those who supply our ingredients, packaging, and other necessary operating materials, contract manufacturers, distributors, and logistics and transportation services providers. As a result of the current COVID-19 outbreak, transport restrictions related to quarantines or travel bans have been put in place and global supply may become constrained, each of which may cause the price of certain ingredients and raw materials used in our products to increase and/or we may experience disruptions to our operations.

Workforce limitations and travel restrictions resulting from pandemics, epidemics or disease outbreaks such as COVID-19 and related government actions may affect many aspects of our business. If a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks, our operations, including manufacturing at our Freshpet Kitchens may be negatively affected. Additionally, the Company has incurred, and may continue to incur additional costs related to initiatives that increase workplace safety and attempt to minimize potential manufacturing shutdowns.

Our results of operations depend on, among other things, our ability to maintain and increase sales volume with our existing retail customers and consumers, and to attract new customers and consumers. Our ability to implement our advertising, increase our distribution, and innovate new products, that are designed to increase and maintain sales volumes may be negatively affected as a result of decreased retailer traffic, modifications to retailer shelf reset timing or other activities during the COVID-19 outbreak. Retailers may also alter their normal inventory receiving and product restocking practices during pandemics, epidemics or disease outbreaks such as COVID-19, which may negatively impact our business.

Adverse and uncertain economic conditions, such as decreases in per capita income and level of disposable income, increased unemployment or a decline in consumer confidence as a result of the COVID-19 outbreak or similar situations, could have an adverse effect on distributor, retailer and consumer demand for our products. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns. Prolonged unfavorable economic conditions, including as a result of COVID-19 or similar outbreaks, and any resulting recession or slowed economic growth, may have an adverse effect on our sales and profitability.

Towards the second half of Q1 2020, consumer demand for our products surged. During this surge, we could not fulfill demand for all of our product orders. If such surges outpace our capacity build or occur at unexpected times, we may be unable to fully meet our consumers' and customers' demands for our products. Further, it is unknown what impact a "second wave" of outbreaks in 2020 or beyond could have on our operations and workforce. Such impacts could include effects on our business and operations from additional government restrictions on travel, shipping and workforce activities, including stay-at-home orders.

Our efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any pandemic, epidemic or disease outbreak, as well as third party actions taken to contain its spread and mitigate public health effects.

Item 6.

Exhibits


Exhibit No.		Description
10.1		~~Third~~Fifth Amended and Restated Loan and Security Agreement Amendment, dated ~~September 21, 2017,~~April 17, 2020, by and among ~~Freshpet, Inc.,~~the Company and City National Bank, a national banking association, as the arranger and administrative agent, and the lenders ~~party~~ thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on April 20, 2020).
~~31.1~~31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~31.2~~31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~32.1~~32.1*		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~EX-101.INS~~EX-101.INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
~~EX-101.SCH~~EX-101.SCH*		Inline XBRL Taxonomy Extension Schema ~~Documents~~Document
~~EX-101.CAL~~EX-101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
~~EX-101.LAB~~EX-101.LAB*		Inline XBRL ~~Labels~~Taxonomy Extension Label Linkbase Document
~~EX-101.PRE~~EX-101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
~~EX-101.DEF~~EX-101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
EX-104		Inline XBRL Formatted Cover Page (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

SIGNATURES

~~SIGNATURES~~

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

Date: ~~November 7, 2017~~August 4, 2020		FRESHPET, INC.

		/s/ William B. Cyr William B. Cyr Chief Executive Officer (Principal Executive Officer)

		/s/ Richard Kassar
		Richard Kassar Chief Financial Officer
		~~Richard Kassar~~ ~~Chief~~(Principal Financial ~~Officer~~and Accounting Officer)
		~~(Principal Financial and Accounting Officer)~~

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	FRPT	NASDAQ Global Market

Large accelerated filer	☐☒	Accelerated filer		☒
			☐
Non-accelerated filer	☐ ~~(Do not check if a small reporting company)~~	Smaller reporting company		☐
Emerging growth company	☐
~~Emerging growth company~~	☒

													*For the Three Months Ended*						*For the Six Months Ended*
	For the Three Months Ended						For the Nine Months Ended						*June 30,*						*June 30,*
	September 30,						September 30,						*2020*			*2019*			*2020*			*2019*
	2017			2016			2017			2016
NET SALES	$	41,199,780		$	34,536,151		$	115,682,698		$	98,992,060		$	79,980,060		$	60,052,179		$	150,077,864		$	114,844,381
COST OF GOODS SOLD		21,697,051			19,185,274			62,206,855			53,841,492			46,046,979			32,725,598			84,355,157			61,602,819
GROSS PROFIT		19,502,729			15,350,877			53,475,843			45,150,568			33,933,081			27,326,581			65,722,707			53,241,562
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES		19,303,705			14,542,680			57,844,411			48,916,509			33,702,103			32,672,284			68,378,046			61,904,534
(LOSS)/INCOME FROM OPERATIONS		199,024			808,197			(4,368,568	)		(3,765,941	)
INCOME (LOSS) FROM OPERATIONS														230,978			(5,345,703	)		(2,655,339	)		(8,662,972	)
OTHER INCOME/(EXPENSES):
Other Income/(Expenses), net		41,435			41,601			(515,473	)		(93,036	)		23,586			(20,748	)		45,104			(3,453	)
Interest Expense		(465,253	)		(214,067	)		(830,932	)		(490,097	)		(79,869	)		(275,649	)		(783,703	)		(378,425	)
		(423,818	)		(172,466	)		(1,346,405	)		(583,133	)		(56,283	)		(296,397	)		(738,599	)		(381,878	)
(LOSS)/INCOME BEFORE INCOME TAXES		(224,794	)		635,731			(5,714,973	)		(4,349,074	)
INCOME (LOSS) BEFORE INCOME TAXES														174,695			(5,642,100	)		(3,393,938	)		(9,044,850	)
INCOME TAX EXPENSE		20,754			15,000			62,261			45,000			21,600			19,250			43,200			38,500
NET (LOSS)/INCOME		(245,548	)		620,731			(5,777,234	)		(4,394,074	)
NET (LOSS)/INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(245,548	)	$	620,731		$	(5,777,234	)	$	(4,394,074	)
NET (LOSS)/INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS													$	153,095		$	(5,661,350	)	$	(3,437,138	)	$	(9,083,350	)
OTHER COMPREHENSIVE INCOME (LOSS):
Change in foreign currency translation													$	(386,566	)	$	(153,321	)	$	(327,611	)	$	(62,274	)
TOTAL OTHER COMPREHENSIVE (LOSS)														(386,566	)		(153,321	)		(327,611	)		(62,274	)
TOTAL COMPREHENSIVE INCOME (LOSS)													$	(233,471	)	$	(5,814,671	)	$	(3,764,749	)	$	(9,145,624	)
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
-BASIC	$	(0.01	)	$	0.02		$	(0.17	)	$	(0.13	)	$	0.00		$	(0.16	)	$	(0.09	)	$	(0.25	)
-DILUTED	$	(0.01	)	$	0.02		$	(0.17	)	$	(0.13	)	$	0.00		$	(0.16	)	$	(0.09	)	$	(0.25	)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING USED IN COMPUTING NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING USED IN COMPUTING NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
-BASIC		34,666,180			33,717,676			34,316,161			33,603,535			40,338,982			35,930,350			38,891,370			35,800,061
-DILUTED		34,666,180			34,171,036			34,316,161			33,603,535			41,509,819			35,930,350			38,891,370			35,800,061

	Common Stock - Voting													Treasury Stock
	Number of Shares Issued		Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Number of Shares		Amount			Total Stockholders' Equity
BALANCES, December 31, 2018		35,556,595	$	35,556	$	323,079,437		$	(201,352,682	)	$	(31,610	)		14,169	$	(256,226	)	$	121,474,475
Exercise of options to purchase common stock		248,195		248		1,791,420			—			—			—		—			1,791,668
Issuance of restricted stock units		61,532		62		(673,836	)		—			—			—		—			(673,774	)
Share-based compensation expense		—		—		1,260,126			—			—			—		—			1,260,126
Foreign Currency Translation		—		—		—			—			91,047			—		—			91,047
Net loss		—		—		—			(3,422,000	)		—			—		—			(3,422,000	)
BALANCES, March 31, 2019		35,866,322	$	35,866	$	325,457,147		$	(204,774,682	)	$	59,437			14,169	$	(256,226	)	$	120,521,542
Exercise of options to purchase common stock		194,497		194		1,983,685			—			—			—		—			1,983,879
Issuance of restricted stock units		29,126		29		(579,207	)		—			—			—		—			(579,178	)
Share-based compensation expense		—		—		1,480,882			—			—			—		—			1,480,882
Foreign Currency Translation		—		—		—			—			(153,321	)		—		—			(153,321	)
Net loss		—		—		—			(5,661,350	)		—			—		—			(5,661,350	)
BALANCES, June 30, 2019		36,089,945	$	36,089	$	328,342,507		$	(210,436,032	)	$	(93,884	)		14,169	$	(256,226	)	$	117,592,454

	For the Nine Months Ended						*For the Six Months Ended*
	September 30,						*June 30,*
		2017			2016		*2020*			*2019*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,777,234	)	$	(4,394,074	)	$	(3,437,138	)	$	(9,083,350	)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Provision for loss/(gains) on accounts receivable		30,953			(7,147	)		6,631			(2,520	)
Loss on disposal of equipment and deposits on equipment		97,692			169,797
Loss on disposal of equipment								35,855			684
Share-based compensation		3,292,362			3,459,094			4,464,116			2,630,180
Fair value adjustment for outstanding warrants		334,628			(19,007	)
Change in reserve for inventory obsolescence		315,006			113,581
Inventory obsolescence								151,123			105,170
Depreciation and amortization		9,411,173			6,958,113			9,893,912			7,643,452
Amortization of deferred financing costs and loan discount		398,648			109,678			691,467			72,294
Changes in operating assets and liabilities
Changes in operating assets and liabilities:
Accounts receivable		(3,534,273	)		(1,631,493	)		(4,077,138	)		(7,027,205	)
Inventories		(3,603,074	)		419,060			(6,301,848	)		(4,013,770	)
Prepaid expenses and other current assets		(347,876	)		(550,392	)		10,181,434			(177,392	)
Operating lease right of use								463,833			(177,249	)
Other assets		(162,488	)		(324,893	)		(211,754	)		(44,498	)
Accounts payable		2,307,943			571,388			(3,430,173	)		(158,556	)
Accrued expenses		2,129,095			2,445,710			(13,147,335	)		(31,969	)
Other liabilities		236,878			—
Net cash flows provided by operating activities		5,129,433			7,319,415
Other lease liabilities								(400,784	)		229,194
Other current liabilities								—			200,000
Net cash flows used in operating activities								(5,117,799	)		(9,835,535	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of short-term investments		—			3,250,000
Purchase of short-term investments								(20,001,196	)		—
Acquisitions of property, plant and equipment, software and deposits on equipment		(10,835,532	)		(26,083,581	)		(73,250,757	)		(22,888,753	)
Net cash flows used in investing activities		(10,835,532	)		(22,833,581	)		(93,251,953	)		(22,888,753	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs		(245,291	)		—
Exercise of options to purchase common stock		5,612,557			1,981,066
Proceeds from common shares issued in primary offering, net of issuance cost								252,062,253			—
Proceeds from exercise of options to purchase common stock								2,090,536			3,775,548
Tax withholdings related to net shares settlements of restricted stock units								(1,636,296	)		(1,252,953	)
Proceeds from borrowings under Credit Facilities		7,500,000			10,000,000			20,933,000			35,307,000
Repayment of borrowings under Credit Facilities		(9,000,000	)		(1,000,000	)		(76,000,000	)		(7,500,000	)
Financing fees paid in connection with borrowings								(823,532	)		(406,859	)
Net cash flows provided by financing activities		3,867,266			10,981,066			196,625,961			29,922,736
NET CHANGE IN CASH AND CASH EQUIVALENTS		(1,838,833	)		(4,533,100	)		98,256,209			(2,801,552	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		3,908,177			8,029,413			9,471,676			7,554,388
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,069,344		$	3,496,313		$	107,727,885		$	4,752,836
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	489,738		$	363,991		$	789,417		$	165,844
NON-CASH INVESTING AND FINANCING ACTIVITIES:
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Property, plant and equipment purchases in accounts payable	$	497,209		$	472,362		$	1,427,123		$	7,662,437
Conversion of warrants to common stock	$	588,019		$	—

	•	Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
	•	Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies.
	•	Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

	*Three Months Ended*				*Six Months Ended*
	*June 30,*				*June 30,*
	*2020*		*2019*		*2020*		*2019*
Grocery (including Online), Mass and Club	$	68,284,447	$	49,920,536	$	129,103,297	$	95,628,433
Pet Specialty and Natural		11,695,613		10,131,643		20,974,567		19,215,948
Net Sales	$	79,980,060	$	60,052,179	$	150,077,864	$	114,844,381

	September 30, 2017			December 31, 2016
Raw Materials and Work in Process	$	2,031,997		$	1,568,789
Packaging Components Material		834,189			908,771
Finished Goods		6,116,330			3,219,634
		8,982,516			5,697,194
Reserve for Obsolete Inventory		(291,713	)		(294,459	)
	$	8,690,803		$	5,402,735

	September 30, 2017		December 31, 2016
Accrued Compensation	$	2,893,834	$	1,895,443
Accrued Chiller Cost		1,343,951		1,010,018
Accrued Freight		838,665		359,009
Accrued Marketing		460,018		282,784
Accrued VAT		278,817		—
Accrued Utility		150,000		124,000
Accrued Leadership Transition Expenses (1)		66,505		428,150
Other Accrued Expenses		628,444		431,735
	$	6,660,234	$	4,531,139

Weighted-average remaining lease term			5.68
Weighted-average discount rate			6.06	%

	*June 30,*
	*2020*

2020 (a)		915,072
2021		1,863,254
2022		1,811,907
2023		1,802,007
2024		1,511,214
2025 and beyond		2,786,004
Total lease payments		10,689,458
Less: Imputed interest		(1,495,932	)
Present value of lease liabilities	$	9,193,526

Service Period Stock Options	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2016		2,788,285		$	8.61
Granted		340,618			11.00
Exercised		(776,938	)		7.22
Forfeited		(17,073	)		10.15
Expired		(7,776	)		9.01
Outstanding at September 30, 2017		2,327,116		$	9.41

Service Period Stock Options	*Shares*			*Weighted Average Exercise Price*
Outstanding at December 31, 2019		1,359,990		$	11.50
Granted		54,782			62.84
Exercised		(240,265	)		8.45
Forfeited		(357	)		11.00
Outstanding at June 30, 2020		1,174,150		$	14.52

Performance Based Options	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2016		1,357,561		$	10.24
Granted		110,741			11.00
Forfeited		(35,221	)		10.45
Outstanding at September 30, 2017		1,433,081		$	10.29

Restricted Stock Units	*Shares*			*Weighted-Average Grant-Date Fair Value Per Unit*
Outstanding at December 31, 2019		240,229		$	29.07
Granted		53,041			63.77
Issued upon vesting		(97,620	)		24.51
Forfeited		(420	)		27.00
Outstanding at June 30, 2020		195,230		$	40.78


400 Plaza Drive, 1^st Floor, Secaucus, New Jersey	07094

							*June 30,*			*December 31,*
	September 30, 2017			December 31, 2016			*2020*			*2019*
Refrigeration Equipment	$	68,903,218		$	62,603,188		$	106,012,579		$	97,568,137
Machinery and Equipment		46,444,727			45,953,884			69,543,548			54,274,118
Building, Land, and Improvements		25,162,046			25,114,611			27,255,091			25,621,495
Furniture and Office Equipment		4,228,574			3,941,995			4,946,145			4,931,703
Leasehold Improvements								748,060			395,241
Automotive Equipment		319,496			317,615			164,430			309,137
Leasehold Improvements		360,505			297,681
Construction in Progress		4,740,444			2,841,035			96,170,302			58,587,375
		150,159,010			141,070,009			304,840,155			241,687,206
Less: Accumulated Depreciation and Amortization		(48,736,906	)		(39,576,929	)
Less: Accumulated Depreciation								(84,765,645	)		(76,399,609	)
	$	101,422,104		$	101,493,080		$	220,074,510		$	165,287,597

Restricted Stock Units	Shares			Weighted-Average Grant-Date Fair Value Per Unit
Outstanding at December 31, 2016		97,515		$	9.05
Granted		115,320			11.00
Issued Upon Vesting		(59,183	)		9.05
Forfeited		(1,433	)		9.98
Outstanding at September 30, 2017		152,219		$	10.52

	*Three Months Ended*
	*June 30, 2020*

Net Income (Loss) Attributable to Common Stockholders	$	153,095

Weighted Average Common Shares Outstanding, Basic		40,338,982
Dilutive Effect of Share-Based Awards:
Service Period Stock Options		1,032,095
Restricted Stock Units		113,617
Performance		25,125
Weighted Average Common Shares Outstanding, Diluted		41,509,819

Basic Earnings per Share	$	0.00
Diluted Earnings per Share	$	0.00

		~~Three Months Ended~~
		~~September 30, 2016~~
~~Net Income Attributable to Common Stockholders~~		~~$ 620,731~~

~~Weighted Average Common Shares Outstanding, Basic~~		~~33,717,676~~
~~Dilutive Effect of Stock-Based Awards:~~
~~Service Period Stock Options~~		~~381,953~~
~~Restricted Stock Units~~		~~49,283~~
~~Warrants~~		~~22,124~~
~~Weighted Average Common Shares Outstanding, Diluted~~		~~34,171,036~~

~~Basic Earnings per Share~~		~~$ 0.02~~
~~Diluted Earnings per Share~~		~~$ 0.02~~

	•	Full Conversion of Freshpet Kitchens to Seven-Day Production – During January 2020, the Company completed the full conversion to seven-day production across all four manufacturing lines at Freshpet Kitchens by converting its final and fourth line to seven-day production.
	•	Opening of Kitchens South – The Companycompleted its investment of approximately $15.5 million at a manufacturing facility titled “Kitchens South,” which cooked its first meal in February 2020.

	•	Freshpet Kitchens 2.0 – The Company has continued to build a 90,000 square-foot addition to our manufacturing location. Freshpet Kitchens 2.0 will make greater use of automation to improve quality, safety and reduce costs. Production start-up is slated to begin in the fourth quarter of 2020. Of the expected, approximately $115.0 million investment, we have invested approximately $70.6 million on the project to date, with approximately $33.6 million invested during 2020.
	•	Freshpet Kitchens 3.0 – Located in Ennis, Texas on 74 acres, the initial design and engineering phase has begun. We expect initial production to begin by the fourth quarter of 2022. The Company expects, over time, to install at least seven production lines. Each line is expected to produce approximately $100.0 million in net sales. We have invested approximately $5.1 million in the project to date.

	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended June 30,												Six Months Ended June 30,
	2017						2016						2017						2016						2020						2019						2020						2019
	Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales
	(Dollars in thousands)												(Dollars in thousands)												(Dollars in thousands)												(Dollars in thousands)
Net sales	$	41,200			100	%	$	34,536			100	%	$	115,683			100	%	$	98,992			100	%	$	79,980			100	%	$	60,052			100	%	$	150,078			100	%	$	114,844			100	%
Cost of goods sold		21,697			53			19,185			56			62,207			54			53,841			54			46,047			58			32,726			54			84,355			56			61,603			54
Gross profit		19,503			47			15,351			44			53,476			46			45,151			46			33,933			42			27,326			46			65,723			44			53,241			46
Selling, general and administrative expenses		19,304			47			14,543			42			57,844			50			48,917			49			33,702			42			32,672			54			68,378			46			61,904			54
(Loss)/Income from operations		199			0			808			2			(4,368	)		(4	)		(3,766	)		(4	)
Other income/(expenses):
Income (Loss) from operations																										231			0			(5,346	)		(9	)		(2,655	)		(2	)		(8,663	)		(8	)
Other income/(expenses), net		41			0			42			0			(516	)		(0	)		(93	)		(0	)		24			0			(21	)		(0	)		45			0			(3	)		(0	)
Interest expense		(465	)		(0	)		(214	)		0			(831	)		(0	)		(490	)		(0	)		(80	)		(0	)		(275	)		(0	)		(784	)		(0	)		(378	)		(0	)
(Loss)/Income before income taxes		(225	)		(1	)		636			2			(5,715	)		(5	)		(4,349	)		(4	)
Income (Loss) before income taxes																										175			0			(5,642	)		(9	)		(3,394	)		(2	)		(9,044	)		(8	)
Income tax expense		21			0			15			0			62			0			45			0			22			0			19			0			43			0			39			0
Net (Loss)/Income	$	(246	)		(1	)%	$	621			2	%	$	(5,777	)		(5	)%	$	(4,394	)		(4	)%
Net Income (loss)																									$	153			0	%	$	(5,661	)		(9	)%	$	(3,437	)		(2	)%	$	(9,083	)		(8	)%

	•	our capital expenditures or future requirements for capital expenditures;
	•	the interest expense, or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;
	•	depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor any cash requirements for such replacements; and
	•	changes in or cash requirements for our working capital needs.