UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended September 30, ~~2017~~2020

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

Commission File Number: 001-36729

FRESHPET, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

20-1884894

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)


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

(Address of principal executive offices)

(~~Address of principal executive offices)~~Zip Code)

~~(Zip Code)~~

Registrant’s telephone number, including area code: (201) 520-4000

Securities registered pursuant to Section 12(b) of the Act:

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

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

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

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

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~~	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

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

As of ~~November 3, 2017,~~October 30, 2020, the registrant had ~~34,861,198~~40,640,010 shares of common stock, $0.001 par value per share, outstanding.

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	1314
Item 3.		Quantitative and Qualitative Disclosures About Market Risks	2624
Item 4.		Controls and Procedures	2725
Part II. Other Information		2826
Item 1.		Legal Proceedings	2826
Item 1A.		Risk Factors	2826
Item 6.		Exhibits	2927

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)

							*September 30,*			*December 31,*
	September 30, 2017			December 31, 2016			*2020*			*2019*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,069,344		$	3,908,177		$	84,184,714		$	9,471,676
Short-term investments								10,000,000			0
Accounts receivable, net of allowance for doubtful accounts		12,390,110			8,886,790			21,644,451			18,580,840
Inventories, net		8,690,803			5,402,735			17,510,839			12,542,269
Prepaid expenses		598,499			741,091			3,411,293			3,275,992
Other current assets		876,792			304,560
Other current assets(1)								730,596			10,452,990
Total Current Assets		24,625,549			19,243,353			137,481,893			54,323,767
Property, plant and equipment, net		101,422,104			101,493,080			242,299,147			165,287,597
Deposits on equipment		4,057,627			3,620,444			5,669,151			3,600,931
Operating lease right of use assets								8,192,272			9,154,234
Equity method investment								27,749,501			0
Other assets		2,021,805			2,094,339			4,550,532			3,759,058
Total Assets	$	132,127,085		$	126,451,216		$	425,942,496		$	236,125,587
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		8,231,738			6,884,155		$	10,742,536		$	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)								11,958,320			22,132,928
Current operating lease liabilities								1,269,380			1,185,058
Total Current Liabilities	$	20,391,972		$	18,668,685			23,970,236			41,985,715
Other liabilities		236,878			—
Long term debt								0			54,466,099
Long term operating lease liabilities								7,483,060			8,409,252
Total Liabilities	$	20,628,850		$	18,668,685		$	31,453,296		$	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, 40,645,047 issued and 40,630,878 outstanding on September 30, 2020, and 36,162,433 issued and 36,148,264 outstanding on December 31, 2019								40,645			36,162
Additional paid-in capital		308,969,771			299,477,706			597,368,593			334,299,172
Accumulated deficit		(197,506,371	)		(191,729,136	)		(202,625,523	)		(202,735,417	)
Accumulated other comprehensive income (loss)								(38,289	)		(79,170	)
Treasury stock, at cost — 14,169 shares on September 30, 2020 and on December 31, 2019								(256,226	)		(256,226	)
Total Stockholders' Equity		111,498,235			107,782,531			394,489,200			131,264,521
Total Liabilities and Stockholders' Equity	$	132,127,085		$	126,451,216		$	425,942,496		$	236,125,587

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)~~/INCOME~~

													*For the Three Months Ended*						*For the Nine Months Ended*
	For the Three Months Ended						For the Nine Months Ended						*September 30,*						*September 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		$	84,189,912		$	65,265,901		$	234,267,776		$	180,110,282
COST OF GOODS SOLD		21,697,051			19,185,274			62,206,855			53,841,492			47,535,488			34,560,261			131,890,646			96,163,080
GROSS PROFIT		19,502,729			15,350,877			53,475,843			45,150,568			36,654,424			30,705,640			102,377,130			83,947,202
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES		19,303,705			14,542,680			57,844,411			48,916,509			32,894,793			27,171,138			101,272,838			89,075,672
(LOSS)/INCOME FROM OPERATIONS		199,024			808,197			(4,368,568	)		(3,765,941	)
INCOME (LOSS) FROM OPERATIONS														3,759,631			3,534,502			1,104,292			(5,128,470	)
OTHER INCOME/(EXPENSES):
Other Income/(Expenses), net		41,435			41,601			(515,473	)		(93,036	)		24,663			(137,624	)		69,766			(141,077	)
Interest Expense		(465,253	)		(214,067	)		(830,932	)		(490,097	)		(215,661	)		(310,465	)		(999,364	)		(688,890	)
		(423,818	)		(172,466	)		(1,346,405	)		(583,133	)		(190,998	)		(448,089	)		(929,598	)		(829,967	)
(LOSS)/INCOME BEFORE INCOME TAXES		(224,794	)		635,731			(5,714,973	)		(4,349,074	)
INCOME (LOSS) BEFORE INCOME TAXES														3,568,633			3,086,413			174,694			(5,958,437	)
INCOME TAX EXPENSE		20,754			15,000			62,261			45,000			21,600			19,250			64,800			57,750
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													$	3,547,033		$	3,067,163		$	109,894		$	(6,016,187	)
OTHER COMPREHENSIVE INCOME (LOSS):
Change in foreign currency translation													$	368,492		$	(81,667	)	$	40,881		$	(143,941	)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)														368,492			(81,667	)		40,881			(143,941	)
TOTAL COMPREHENSIVE INCOME (LOSS)													$	3,915,525		$	2,985,496		$	150,775		$	(6,160,128	)
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
-BASIC	$	(0.01	)	$	0.02		$	(0.17	)	$	(0.13	)	$	0.09		$	0.09		$	0.00		$	(0.17	)
-DILUTED	$	(0.01	)	$	0.02		$	(0.17	)	$	(0.13	)	$	0.09		$	0.08		$	0.00		$	(0.17	)
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			40,560,104			36,079,935			39,451,675			35,894,377
-DILUTED		34,666,180			34,171,036			34,316,161			33,603,535			41,699,862			37,289,478			40,473,290			35,894,377

	For the Nine Months Ended						*For the Nine Months Ended*
	September 30,						*September 30,*
		2017			2016		*2020*			*2019*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,777,234	)	$	(4,394,074	)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Net income (loss)							$	109,894		$	(6,016,187	)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Provision for loss/(gains) on accounts receivable		30,953			(7,147	)		(3,826	)		104,700
Loss on disposal of equipment and deposits on equipment		97,692			169,797
Loss on disposal of equipment								1,300,519			138,106
Share-based compensation		3,292,362			3,459,094			7,811,081			5,706,580
Fair value adjustment for outstanding warrants		334,628			(19,007	)
Change in reserve for inventory obsolescence		315,006			113,581
Inventory obsolescence								146,830			104,624
Depreciation and amortization		9,411,173			6,958,113			14,945,758			11,707,422
Amortization of deferred financing costs and loan discount		398,648			109,678			762,555			125,303
Changes in operating assets and liabilities
Changes in operating assets and liabilities:
Accounts receivable		(3,534,273	)		(1,631,493	)		(3,059,785	)		(7,278,751	)
Inventories		(3,603,074	)		419,060			(5,115,400	)		(4,094,386	)
Prepaid expenses and other current assets		(347,876	)		(550,392	)		9,587,093			(10,650,214	)
Operating lease right of use								961,962			125,711
Other assets		(162,488	)		(324,893	)		(221,614	)		(608,060	)
Accounts payable		2,307,943			571,388			(3,021,045	)		3,742,265
Accrued expenses		2,129,095			2,445,710			(10,299,608	)		10,396,504
Other liabilities		236,878			—
Net cash flows provided by operating activities		5,129,433			7,319,415
Other lease liabilities								(841,870	)		(17,018	)
Net cash flows from operating activities								13,062,544			3,486,599
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments								(20,001,196	)		0
Proceeds from maturities of short-term investments		—			3,250,000			10,001,196			0
Investments in equity method investment								(27,624,501	)		0
Acquisitions of property, plant and equipment, software and deposits on equipment		(10,835,532	)		(26,083,581	)		(99,923,887	)		(40,738,346	)
Net cash flows used in investing activities		(10,835,532	)		(22,833,581	)		(137,548,388	)		(40,738,346	)
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								252,062,254			0
Proceeds from exercise of options to purchase common stock								4,663,456			3,841,918
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			50,620,988
Repayment of borrowings under Credit Facilities		(9,000,000	)		(1,000,000	)		(76,000,000	)		(15,900,000	)
Financing fees paid in connection with borrowings								(823,532	)		(406,859	)
Net cash flows provided by financing activities		3,867,266			10,981,066			199,198,882			36,903,094
NET CHANGE IN CASH AND CASH EQUIVALENTS		(1,838,833	)		(4,533,100	)		74,713,038			(348,653	)
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		$	84,184,714		$	7,205,735
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	489,738		$	363,991			925,396			521,688
NON-CASH INVESTING AND FINANCING ACTIVITIES:
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Property, plant and equipment purchases in accounts payable	$	497,209		$	472,362			2,670,367			5,781,915
Conversion of warrants to common stock	$	588,019		$	—

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 30, ~~2017,~~2020, the results of its operations and changes to stockholders’ equity for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, and its cash flows for the nine months ended September 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 months ended September 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.

Equity method investment – The Company utilizes the equity method to account for investments when the Company possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. The Company applies the equity method to investments in common stock and to other investments when such other investments possess substantially identical subordinated interests to common stock. The Company has elected to record its share of equity in income (losses) of equity method investment on a one-quarter lag based on the most recently available financial statements.

In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by our proportionate share of the net income or loss.

Variable interest entities ("VIEs") – In accordance with the applicable accounting guidance for the consolidation of variable interest entities, the Company analyzes its variable interests to determine if an entity in which it has a variable interest is a variable interest entity. The Company's analysis includes both quantitative and qualitative reviews to determine if we must consolidate a variable interest entity as its primary beneficiary.

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.

Fair Value of Financial Instruments– Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the 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 ~~Company may enter into forward exchange contracts~~hierarchy gives the highest priority to ~~reduce~~unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the ~~Company’s exposure~~lowest priority to ~~foreign currency fluctuations~~unobservable inputs (Level 3 measurement).

The carrying amounts reported in the balance sheets for cash and ~~liabilities denominated in foreign currencies. The foreign currency forward contracts have not been designated as hedges~~cash equivalents, short-term investments, other receivables, accounts payable and ~~accordingly, any changes in~~accrued expenses approximate their fair value ~~are recognized~~based on the ~~Consolidated Statements~~short-term maturity of ~~Operations~~these instruments. Certain assets, including the equity method investment, right-of-use assets and ~~Comprehensive Loss in Other income/(expenses), net,~~property and ~~carried~~equipment are also subject to measurement 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.~~on a non-recurring basis if they are deemed to be impaired as a result of an impairment review.

As of September 30, ~~2017,~~2020, the ~~notional value of foreign currency forward contracts outstanding was 0.7 million pounds sterling. The fair value of the foreign currency forward contracts~~Company's Short-term investments are ~~measured using Level~~ level 2 ~~inputs in the fair value hierarchy because they~~ assets. All other assets and all liabilities are ~~determined based on a market approach utilizing externally quoted forward rates for similar contracts. For the three months~~level 1 assets and ~~nine months ended September 30, 2017 the net loss recognized on forward contracts was less than $0.1 million.~~liabilities.

Short-Term Investments – ~~Certain prior period amounts were reclassified~~The Company holds interest-bearing certificates of deposits with financial institutions with maturities ranging from three months to ~~conform to the current year’s~~ ~~presentation.~~

6one 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 25,967 shares totaling $1.6 million for the nine months ended September 30, 2020, and withheld 31,734 shares totaling $1.3 million for the nine months ended September 30, 2019. NaN shares were withheld during the three months ended September 30, 2020 and 2019. 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 September 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 nine months ended September 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 Company’s “Trade accounts receivable” accounting policy above.

In January 2020, the FASB issued Accounting Standards Update No.2020-01, Investments - Equity Services (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The standard addresses accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts to acquire investments. The standard is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. Adoption of ~~an interim or annual reporting period.~~the standard requires changes to be made prospectively. The Company is ~~assessing~~in the process of evaluating the impact ~~of ASU No. 2016-02 on its corporate office lease, and upon~~the adoption of this ~~guidance, expects~~standard will have, however, the Company does not expect the adoption of this standard to ~~record the lease~~have a material impact on ~~its consolidated balance sheet in accordance with ASU No. 2016-02.~~their financial condition and results of operations.

Depreciation expense related to property, plant and equipment totaled $3,154,623 and $9,235,932 for the three and nine months ended September 30, 2017, respectively, of which $1,447,992 and $4,329,624 was recorded to cost of goods sold for the three and nine months ended September 30, 2017, 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~~$4,970,451 and ~~$6,830,780~~$14,708,962 for the three and nine months ended September 30, ~~2016,~~2020, respectively, of which ~~$1,241,563~~$2,128,590 and ~~$2,660,340~~$6,422,288 was recorded to cost of goods sold for the three and nine months ended September 30, ~~2016,~~2020, respectively, with the remainder of depreciation and amortization expense recorded to selling, general and administrative expense.

~~Note 5 – Accrued Expenses:~~Depreciation expense related to property, plant and equipment totaled $3,975,822 and $11,462,514 for the three and nine months ended September 30, 2019, respectively, of which $1,598,843 and $4,753,623 was recorded to cost of goods sold for the three and nine months ended September 30, 2019, respectively, with the remainder of depreciation and amortization expense recorded to selling, general and administrative expense.

(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.

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,~~ September 2, 2020, the Company ~~repaid the outstanding $18.0~~acquired a 19% interest in a privately held company that operates in our industry for $27.7 million. The total $27.7 million is comprised of an initial investment of $26.6 million and ~~modified~~$1.1 million of transaction costs. The Company concluded that they are not the ~~terms~~primary beneficiary, which is primarily the result of the ~~$40.0~~Company's conclusion that it does not have the power to direct the activities that most significantly impact the economic performance. However, the Company completed an analysis over the investment and determined that based on the circumstances within the agreement, the Company does have the ability to exercise significant influence even though the Company's percentage of ownership is below 20%. As a result, this investment is accounted for under the equity method of accounting.

There is 0 equity in income (loss) of equity method investment included in our Consolidated Statement of Operations and Comprehensive Loss (Unaudited) for the periods presented because the Company has elected to record their equity in income (loss) using a one-quarter lag based on the most recently available financial statements. In the fourth quarter of 2020, the Company will begin including their equity in income (loss) of equity method investment.

On April 17, 2020, the Company entered into the 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 senior secured credit facility (the "New Credit ~~Facilities. The $18.0~~Facility"), encompassing a $130.0 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 the~~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 ~~Revolving Facility by $10.0 million, with borrowings bearing interest at variable rates.~~Loan Agreement also includes events of default customary for agreements of this type.

~~The~~During the nine months ended September 30, 2020, the Company borrowed an additional $20.9 million under the 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, bringing the total outstanding debt to $76.0 million. Subsequent to the additional borrowings, the Company paid down the total outstanding debt on its Credit Facility of $76.0 million. As a result, the Company had ~~$7.5 million~~0 debt outstanding under the ~~existing~~Credit Facility as of September 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 September 30, 2020, there was $1.3 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 operating leases were as follows:

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the ~~existing Loan Agreement. These costs are included in Interest Expense in~~information available at the ~~three and nine months ended~~ commencement date to determine the present value of lease payments.

Maturities of lease liabilities under noncancelable operating leases as of September 30, ~~2017.~~2020 were as follows:

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.

A summary of rent expense for the three and nine months ended September 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 months ended September 30, ~~2017~~ 2020 and ~~2016 was $1,132,852~~2019 is $3,409,728 and $~~787,675~~,$3,129,648, respectively. Total compensation cost for share-based payments recognized for the nine months ended September 30, ~~2017~~ 2020 and ~~2016~~ ~~was $3,292,362~~2019 is $7,984,490 and ~~$3,490,754,~~$5,870,657, 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 September 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 shares of common stock may be issued or used for reference purposes as awards granted under~~ . In September 2020, the 2014 ~~Plan. In September 2016, the 2014~~ Plan was amended to allow for the granting of an additional ~~2,500,000~~700,000 shares of common stock to be issued or used for reference purposes as awards granted, for aan available total of ~~3,979,200~~4,679,200 shares. 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~~ At September 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 2,548,891.

At September 30, ~~2017,~~2020, there were ~~2,092,881~~1,344,050 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 nine months ended September 30, 2020, share-based awards were granted to the Company’s Chief Executive Officer and the Executive Vice President of Finance, at the time, who is currently Chief Financial Officer, 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 30, 2017, the~~The awards ~~granted were~~are 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 months ended September 30, ~~2017.~~2020.

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

As of September 30, ~~2017, 516,877~~2020, 1,285,774 performance-vested stock options at a weighted average exercise price of ~~$9.79~~$18.66 have performance metrics that are probable of achievement. These shares are included in share-based compensation costs for the ~~three and~~ nine months ended September 30, ~~2017.~~

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

Note 89 – Earnings Per ~~Share:~~Share Attributable to Common Shareholder:

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.

The following table includes adjustments between weighted average common shares outstanding, for basic earnings per share and weighted average common shares outstanding for diluted earnings per share.

For the three and nine months ended September 30, ~~2017~~ 2020 and ~~2016,~~2019, there were no adjustments between net loss and net loss attributable to common stockholders.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Service Period Stock Options

2,471,469

2,263,098

2,691,504

2,130,200

Restricted Stock Units

152,598

102,904

142,180

54,154

Warrants

—

61,117

—

61,117

Total

2,624,067

2,427,119

2,833,684

2,245,471

For the ~~three~~nine months ended September 30, ~~2017 and nine months ended September 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.~~period.

~~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~~Performance awards are excluded from the ~~diluted earnings per share calculation.~~calculation of dilutive potential common shares until the threshold performance conditions have been satisfied.

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.

Note 11 – ~~The following table sets forth net sales by class of retailer:~~ Commitments and Contingencies:

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 resolution of certain matters in a related case, Curran v. Freshpet, Inc., which has been settled. The parties to the Meldon action 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 was approved and certified on August 4, 2020. As of September 30, 2020, the settlement funds due were paid by the Company's insurers, totaling $0.2 million.

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.

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 nine months ended September 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 September 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, 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.

At the end of 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.

Despite the COVID-19 related disruptions, our ability to bring the power of fresh to pet parents has continued, in part due to our post-surge pivot. Consumers' increased interest in their pets, the strong appeal of the Freshpet idea and products, our ability to continuously run our manufacturing facilities and successfully add capacity, 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 in some of our strongest growth. As noted above the unexpected surge in consumption towards the second half of Q1 2020, as well as the subsequent strong growth has caused us to draw down on trade inventory and have higher out of stocks than usual. With the additional capacity brought on during Q2 and Q3, as well as Kitchens 2.0 startup, we believe we will be able to rebuild our trade inventory and decrease our out of stocks within the next few months.

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 experienced higher beef prices as a result of reduced supplies. We have estimated that we will be slightly under $4 million ~~revolver (the “New Revolving Facility”)~~this year on COVID-19 related expenses.

We will continue to monitor the retail environment and pet parent demand, and intend to adapt to changing conditions to continue to drive growth and meet our goal of “changing the ~~ability~~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 increase 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 of $5.5 million under the $30.0 million New Revolving Facility, with $24.5 million available. We expectcustomer operations, consumer purchasing behavior, or unexpected changes to ~~fund~~ 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 and expected to run through Q4 of 2021

In order to fund the strategic capital investments as well as provide the Company with capital flexibility, in March 2020, the Company completed 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 replaced 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 22,371 retail stores as of September 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 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. 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 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Amount

% of
Net Sales

Amount

% of
Net Sales

Amount

% of
Net Sales

Amount

% of
Net Sales

(Dollars in thousands)

(Dollars in thousands)

Net sales
$
41,200

100
%

$
34,536

100
%

$
115,683

100
%

$
98,992

100
%
Cost of goods sold

21,697

53

19,185

56

62,207

54

53,841

54

Gross profit

19,503

47

15,351

44

53,476

46

45,151

46

Selling, general and administrative
expenses

19,304

47

14,543

42

57,844

50

48,917

49

(Loss)/Income from operations

199

0

808

2

(4,368
)

(4
)

(3,766
)

(4
)
Other income/(expenses):

Other income/(expenses), net

41

0

42

0

(516
)

(0
)

(93
)

(0
)
Interest expense

(465
)

(0
)

(214
)

0

(831
)

(0
)

(490
)

(0
)
(Loss)/Income before income taxes

(225
)

(1
)

636

2

(5,715
)

(5
)

(4,349
)

(4
)
Income tax expense

21

0

15

0

62

0

45

0

Net (Loss)/Income
$
(246
)

(1
)%

$
621

2
%

$
(5,777
)

(5
)%

$
(4,394
)

(4
)%

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

Three Months Ended September 30,

2017

2016

Amount

% of
Net Sales

Store Count

Amount

% of
Net Sales

Store Count

(Dollars in thousands)

Grocery, Mass and Club* (1)

$
33,562

81
%

12,777

$
27,551

80
%

11,454

Pet Specialty, Natural and Other (2)

7,638

19

4,873

6,985

20

4,807

Net Sales

$
41,200

100
%

17,650

$
34,536

100
%

16,261

* 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~~$18.9 million, or ~~19%~~29%, to ~~$41.2~~$84.2 million for the three months ended September 30, ~~2017~~2020 as compared to $65.3 million in the same period in the prior year. The ~~$6.7~~$18.9 million increase in net sales was driven by ~~growth~~an increase of ~~$6.8~~$16.3 million in our Grocery (including Online), Mass, and Club refrigerated channel and ~~$0.7~~$2.6 million in our Pet Specialty and Natural ~~and Other~~ refrigerated ~~channel, partially offset~~channel. Our Freshpet Fridge store locations grew by ~~declines in Baked~~7.7% to 22,371 as of ~~$0.8 million. Net sales excluding baked~~September 30, 2020 compared to 20,779 as of September 30, 2019.

Gross profit increased ~~$7.1~~$5.9 million, or ~~21.2%~~19.4%, to ~~$40.8~~$36.7 million for the three months ended September 30, ~~2017~~2020 as compared to ~~the same period~~$30.7 million in ~~the prior year. Our Freshpet Fridge store locations grew by 8.5% from 16,261 as of September 30, 2016 to 17,650 as of September 30, 2017.~~

~~Gross profit increased $4.2 million, or 27%, to $19.5 million for the three months ended September 30, 2017 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%~~43.5% for the three months ended September 30, ~~2017 increased 290~~2020 decreased 350 basis points compared to the same period in the prior year, ~~primarily~~due to plant start-up cost of 220 basis points, increased processing cost of 100 basis points, increased beef input cost of 70 basis points, COVID-19 related to cost ~~savings~~of 50 basis points, increased depreciation and ~~margin improvement through scale and plant startup costs in the prior year,~~stock compensation cost of 50 basis points, partially offset by ~~a decrease due to additional depreciation~~increase in sales price and shifting selling mix of ~~our Freshpet Kitchens expansion.~~70 basis points and plant cost efficiency of 70 basis points.

Adjusted Gross Profit was ~~$21.0~~$41.5 million and ~~$17.1~~$32.5 million in the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Adjusted Gross Profit Margin was ~~50.9%~~49.3% and ~~49.6%~~49.8% in the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Adjusted Gross Profit excludes ~~$1.4~~$2.1 million of depreciation expense, $1.8 million of plant start-up expense $0.5 million of share-based compensation expense, and $0.4 million in COVID-19 expenses in the three months ended September 30, 2020 and excludes $1.6 million of depreciation expense and $0.2 million of share-based compensation expense in the three months ended September 30, ~~2017, and $1.2 million of depreciation expense and $0.5 million of non-capitalizable plant start-up costs in the three months ended September 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~~$5.7 million, or ~~33%~~21.1%, to ~~$19.3~~$32.9 million for the three months ended September 30, ~~2017~~2020 as compared to the same period in the prior year. Key components of the dollar increase include higher ~~media spend of $1.9 million, higher stock-based compensation expenses of $0.3 million, higher freight~~variable costs due to volume of ~~$0.8~~$1.7 million, higher ~~non-recurring expenses related to leadership transition expenses~~incremental operating costs of ~~$0.4~~$1.0 million, ~~higher depreciation~~increased media expense of ~~$0.3~~$1.3 million, increased loss on disposal of equipment of $1.3 million, and ~~incremental operating expenses~~increased in depreciation and options expense of ~~$1.1~~$0.4 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%~~39.1% for the three months ended September 30, ~~2017~~2020 from ~~42.1%~~41.6% for the three months ended September 30, ~~2016.~~ 2019.

Adjusted SG&A ~~increased~~Expenses was $24.5 million and $20.5 million in the three months ended September 30, 2020 and 2019, respectively. Adjusted SG&A Expenses decreased as a percentage of net sales to ~~44.0%~~29.1% in the ~~third quarter of 2017~~three months ended September 30, 2020 as compared to ~~40.8%~~31.4% of net sales in the ~~third quarter~~three months ended September 30, 2019. The decrease of ~~2016.~~230 basis points in Adjusted SG&A is a result of 240 basis point gain in SG&A leverage, slightly offset by 10 basis points increase in media as a percentage of Net Sales. Adjusted SG&A excludes ~~$1.1~~$2.9 million of depreciation expense, $2.9 million of non-cash share-based compensation expense, $1.3 million of loss on disposal of equipment, $0.8 million of launch expense, $0.4 million in enterprise resource planning expense, and ~~$0.7~~$0.2 million COVID-19 expenses in the three months ended September 30, 2020 while excluding $2.5 million of depreciation and amortization expense, $2.9 million for ~~stock-based~~share-based compensation expense, $1.3 million of launch expense and $0.1 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 September 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~~increased $0.2 million ~~or 75%,~~ to ~~$0.2~~income from operations of $3.8 million for the three months ended September 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 was $0.5 million and $0.2 million in the three months ended September 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.

~~Other income, net~~credit facilities decreased ~~less than~~ $0.1 million, ~~for the three months ended September 30, 2017.~~

~~Net Loss increased $0.8 million~~or 30.5%, to $0.2 million for the three months ended September 30, ~~2017~~2020 as compared to the same period in the prior year as a result of the factors discussed above.

Other income (expenses), net increased $0.2 million, or 117.9%, to other income of ~~$0.6~~$0.0 million for the three months ended September 30, 2020 as compared to the same period in the prior year as a result of the factors discussed above.

Net Income (loss) increased $0.5 million, or 15.6%, to net income of $3.5 million for the three months ended September 30, 2020 as compared to net income of $3.0 million for the same period in the prior ~~year.~~

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

Nine Months Ended September 30,

2017

2016

Amount

% of
Net Sales

Store Count

Amount

% of
Net Sales

Store Count

(Dollars in thousands)

Grocery, Mass and Club* (1)

$
93,703

81
%

12,777

$
77,584

78
%

11,454

Pet Specialty, Natural and Other (2)

21,980

19

4,873

21,408

22

4,807

Net Sales

$
115,683

100
%

17,650

$
98,992

100
%

16,261

~~(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~~$54.2 million, or ~~17%~~30.1%, to ~~$115.7~~$234.3 million for the nine months ended September 30, ~~2017~~2020 as compared to $180.1 million during the same period in the prior year. The ~~$16.7~~$54.2 million increase in net sales was driven by ~~growth~~an increase of ~~$18.0~~$49.8 million in our Grocery (including Online), Mass, and Club refrigerated channel and ~~$0.6~~$4.4 million in our Pet Specialty and Natural ~~and Other~~ refrigerated ~~channel and declines in Baked~~channel. Our Freshpet Fridge store locations grew by 7.7% to 22,371 as of ~~$1.9 million. Net sales excluding baked~~September 30, 2020 compared to 20,779 as of September 30, 2019.

Gross profit increased ~~$18.6~~$18.4 million, or ~~19.4%~~22%, to ~~$113.9~~$102.4 million for the nine months ended September 30, ~~2017~~2020 as compared to ~~the same period in the prior year. Our Freshpet Fridge store locations grew by 8.5% from 16,261 as of September 30, 2016 to 17,650 as of September 30, 2017.~~

~~Gross profit increased $8.3~~$83.9 million ~~or 18%, to $53.5 million for the nine months ended September 30, 2017 as compared to~~during 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%~~43.7% for the nine months ended September 30, ~~2017 increased 60~~2020 decreased 290 basis points compared to the same period in the prior year, ~~primarily~~due to plant start-up cost of 130 basis points, COVID-19 related to cost ~~savings~~of 90 basis points, increased processing cost of 90 basis points, increased depreciation and ~~margin improvement through scale and plant startup costs in the prior year,~~stock compensation cost of 30 basis points, increased beef input cost of 30 basis points, partially offset by ~~additional depreciation~~increase in sales price and shifting selling mix of ~~our Freshpet Kitchens expansion.~~80 basis points.

Adjusted Gross Profit was ~~$57.8~~$115.4 million and ~~$49.0~~$89.2 million in the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Adjusted Gross Profit Margin was ~~50.0%~~49.3% and 49.5% in the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Adjusted Gross Profit excludes ~~$4.3~~$6.4 million of depreciation expense, $1.4 million of share-based compensation expense, $2.2 million in COVID-19 expenses, and $3.0 million of plant start-up expense in the nine months ended September 30, ~~2017,~~2020 and ~~$2.7~~excludes $4.8 million of depreciation expense and ~~$1.2~~$0.5 million of ~~non-capitalizable plant start-up costs~~share-based compensation expense in the nine months ended September 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~~$12.2 million, or ~~18%~~13.7%, to ~~$57.8~~$101.3 million for the nine months ended September 30, ~~2017~~2020 as compared to the same period in the prior year. Key components of the dollar increase include higher ~~media spend of $4.9 million, higher depreciation expense of $0.8 million, increased freight costs~~variable cost due to volume of ~~$1.0~~$4.3 million, incremental operating costs of $3.4 million, increase in depreciation and options expense of $2.8 million, increase on loss on disposal of equipment of $1.3 million, and ~~higher incremental~~increased media spend of $0.4 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%~~43.2% for the nine months ended September 30, ~~2017~~2020 from ~~49.4%~~49.5% for the nine months ended September 30, ~~2016.~~ 2019.

Adjusted SG&A ~~increased~~Expenses was $81.5 million and $73.2 million in the nine months ended September 30, 2020 and 2019, respectively. Adjusted SG&A Expenses decreased as a percentage of net sales to ~~47.2%~~34.8% in the ~~first~~ nine months ~~of 2017~~ended September 30, 2020 as compared to ~~44.8%~~40.7% of net sales in the ~~same period~~nine months ended September 30, 2019. The decrease of ~~2016.~~590 basis points in Adjusted SG&A is a result of 250 basis point gain in SG&A leverage, and 340 basis points leverage gain in media. Adjusted SG&A excludes ~~$3.1~~$8.5 million of depreciation expense, $6.4 million of non-cash share-based compensation expense, $2.4 million of launch expense, $1.3 million of loss on disposal of equipment, $0.8 million in enterprise resource planning expense, $0.1 million in equity offering expense, and $0.3 million in COVID-19 expenses in the nine months ended September 30, 2020,while excluding $7.0 million of depreciation and amortization expense, $5.2 million for share-based compensation expense, $3.3 million ~~for stock-based compensation~~of launch expense and $0.3 million of secondary offering expense in the nine months

ended September 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.

Income (loss) from Operations increased $6.2 million to income from operations ~~increased $0.6 million to $4.4~~of $1.1 million for the nine months ended September 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 increased $0.3 million, or 45.1%, to $1.0 million for the nine months ended September 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 ~~$0.8 million and $0.5~~$0.7 million in the nine months ended September 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~~$0.2 million, or 149.5%, to ~~$0.5~~other income of $0.1 million for the nine months ended September 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 income (loss) increased $6.1 million, or 101.8%, to net income of $0.1 million for the nine months ended September 30, 2020 as compared to a net loss of $6.0 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 on disposal of equipment, fees related to ~~a secondary offering.~~equity offerings of our common stock, implementation and other costs associated with the implementation of an ERP system 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, ~~plant start-up expense,~~non-cash share-based compensation, ~~warrant fair valuation,~~ launch expenses, plant start-up expenses, fees related to equity offerings of our common stock, COVID-19 expenses and implementation and other costs associated with the implementation of an ERP system. 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 and in light of the implementation of a ~~secondary offering and leadership transition costs.~~new ERP system.

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:

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						Nine Months Ended						Three Months Ended						Nine Months Ended
		September 30,						September 30,						September 30,						September 30,
		2017			2016			2017			2016			2020			2019			2020			2019
	(Dollars in thousands)													(Dollars in thousands)
Net (Loss)/Income		$	(246	)	$	621		$	(5,778	)	$	(4,394	)
Net income (loss)														$	3,547		$	3,067		$	110		$	(6,016	)
Depreciation and amortization			3,216			2,720			9,411			6,957			5,052			4,064			14,946			11,707
Interest expense			465			214			831			490			216			310			999			689
Income tax expense			21			15			62			45			22			19			65			57
EBITDA		$	3,456		$	3,570		$	4,526		$	3,098		$	8,837		$	7,460		$	16,120		$	6,437
Loss on disposal of equipment			7			11			98			170			1,265			137			1,301			138
Non-cash share-based compensation															3,347			3,076			7,811			5,706
Launch expense (a)			929			728			2,359			2,038			760			1,264			2,403			3,335
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
Plant start-up expenses (b)															1,828			—			3,020			—
Equity offering expenses (c)															—			50			58			349
Enterprise Resource Planning (d)															428			—			830			—
COVID-19 expense (e)															582			—			2,440			—
Adjusted EBITDA		$	5,580		$	5,337		$	10,709		$	11,281		$	17,048		$	11,987		$	33,983		$	15,965
Adjusted EBITDA as a % of Net Sales															20.2	%		18.4	%		14.5	%		8.9	%

(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.~~

~~(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						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Gross Profit (as reported)	$	19,503		$	15,351		$	53,476		$	45,151
Depreciation expense (a)		1,448			1,242			4,330			2,660
Plant start-up expenses and processing (b)		—			540			—			1,208
													(Dollars in thousands)
Gross Profit													$	36,654		$	30,706		$	102,377		$	83,948
Depreciation expense														2,129			1,599			6,422			4,754
Plant start-up expense (a)														1,828			—			3,020			—
Non-cash share-based compensation														484			174			1,425			508
COVID-19 expense (b)														395			—			2,157			—
Adjusted Gross Profit	$	20,951		$	17,133		$	57,805		$	49,019		$	41,490		$	32,479		$	115,402		$	89,210
Adjusted Gross Profit as a % of Net Sales														49.3	%		49.8	%		49.3	%		49.5	%
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	%

~~(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

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
%

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

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~~plants 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 access the debt and/or equity markets in order to increase our capital for funding 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.

Working capital consists of current assets net of current ~~liabilities, excluding cash, net of debt.~~liabilities. Working capital increased ~~$3.9~~$101.2 million to ~~$7.6~~$113.5 million at September 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~~an increase in cash and cash equivalents and short-term investments from 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 cash and cash equivalents and short-term investments is mainly from our $252.1 million equity raise and $13.1 million of cash from operations, offset by investments in 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. Further, the Company acquired a 19% interest in a privately held company for $27.7 million on September 2, 2020.

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 30, ~~2017,~~2020, our capital resources consisted primarily of ~~$2.1~~$84.2 million of cash on hand, ~~and $24.5~~$10.0 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:

Cash ~~provided by~~from 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 months ended September 30, ~~2016,~~2020, net cash ~~provided by~~generated in operating activities of $13.1 million was ~~$7.3 million,~~ primarily ~~consisting~~attributed to:

For the nine months ended September 30, 2019, net cash generated in operating activities of ~~adjusted 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 change in operating assets and liabilities of $0.9 million. Change in assets of $2.1 million is~~was 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 million was due to timing of payments and accrued leadership transition costs.attributed to:

Net cash used in investing activities ~~was $10.8~~of $137.5 million for the nine months ended September 30, ~~2017, relating~~2020, was primarily ~~to capital expenditures for Freshpet Kitchens of $2.8 million and investment in fridges and other capital spend of $8.0 million.~~related to:

Net cash used in investing activities ~~was $22.8~~of $40.7 million for the nine months ended September 30, ~~2016, relating~~2019, 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. The cash used in investing activities was partially offset by maturities of short-term investments of $3.3 million.related to:

Net cash provided by financing activities was ~~$3.9~~$199.2 million for the nine months ended September 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:

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:

Net cash ~~from~~provided by financing activities was ~~$11.0~~$36.9 million for the nine months ended September 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:

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

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 6 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.

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

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

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.

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.

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 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.

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.

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 months ended September 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 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.

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.

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.

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.

A securities lawsuit, Curran v. Freshpet, Inc. et al, Docket No. 2:16-cv-02263, was instituted April 21, 2016 in the United States District Court for the District of New Jersey against us and certain of our executive officers and directors on behalf of certain purchasers of our common stock. We were served with

For a ~~copy~~description of the ~~complaint~~Company's material pending legal proceedings, see Note 11, Commitments and Contingencies, to the accompanying notes to the consolidated financial statements included in June 2016. The plaintiffs seek to recover damages for investors under the federal securities laws. The Company believes that the plaintiffs’ allegations are without merit and intends to vigorously defend against the claims. Because the Company is in the early stagesPart I, Item 1 of ~~litigation, the Company is unable to estimate a reasonably possible range of loss, if any, that may result from~~ this ~~matter.~~

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 effectQuarterly Report 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.Form 10-Q.

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.~~

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 or any key employees are 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. We cannot predict if another surge (or slackening) of buying activity will occur during the COVID-19 pandemic. 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.


Exhibit No.		Description
3.1		Fourth Amended and Restated Certificate of Incorporation of Freshpet, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed with the SEC on September 25, 2020)
10.1		~~Third~~Freshpet, Inc. Second Amended and Restated ~~Loan and Security Agreement, dated September 21, 2017,~~2014 Omnibus Incentive Plan (incorporated by ~~and among Freshpet, Inc., City National Bank, a national banking association, as~~reference to Exhibit 99.1 to the ~~arranger and administrative agent, and~~Company's Registration Statement on Form S-8, filed with the ~~lenders party thereto~~SEC on October 7, 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~~3, 2020	FRESHPET, INC.

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

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

	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, 2019		36,162,433	$	36,162	$	334,299,172		$	(202,735,417	)	$	(79,170	)		14,169	$	(256,226	)	$	131,264,521
Exercise of options to purchase common stock		44,156		44		402,512			0			0			0		0			402,556
Issuance of restricted stock units		64,823		65		(644,664	)		0			0			0		0			(644,599	)
Share-based compensation expense		—		0		2,241,847			0			0			—		0			2,241,847
Shares issued in primary offering		3,999,999		4,000		252,058,254			0			0			0		0			252,062,254
Foreign Currency Translation		—		0		0			0			58,955			—		0			58,955
Net income (loss)		—		0		0			(3,590,233	)		0			—		0			(3,590,233	)
BALANCES, March 31, 2020		40,271,411	$	40,271	$	588,357,121		$	(206,325,650	)	$	(20,215	)		14,169	$	(256,226	)	$	381,795,301
Exercise of options to purchase common stock		199,796		200		1,687,780			0			0			0		0			1,687,980
Issuance of restricted stock units		9,018		9		(991,706	)		0			0			0		0			(991,697	)
Share-based compensation expense		—		0		2,332,915			0			0			—		0			2,332,915
Foreign Currency Translation		—		0		0			0			(386,566	)		—		0			(386,566	)
Net income (loss)		—		0		0			153,094			0			—		0			153,094
BALANCES, June 30, 2020		40,480,225	$	40,480	$	591,386,109		$	(206,172,556	)	$	(406,781	)		14,169	$	(256,226	)	$	384,591,026
Exercise of options to purchase common stock		164,089		164		2,572,756			0			0			0		0			2,572,920
Issuance of restricted stock units		733		1		0			0			0			0		0			1
Share-based compensation expense		—		0		3,409,728			0			0			—		0			3,409,728
Foreign Currency Translation		—		0		0			0			368,492			—		0			368,492
Net income (loss)		—		0		0			3,547,033			0			—		0			3,547,033
BALANCES, September 30, 2020		40,645,047	$	40,645	$	597,368,593		$	(202,625,523	)	$	(38,289	)		14,169	$	(256,226	)	$	394,489,200

	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			0			0			0		0			1,791,668
Issuance of restricted stock units		61,532		62		(673,836	)		0			0			0		0			(673,774	)
Share-based compensation expense		—		0		1,260,126			0			0			—		0			1,260,126
Foreign Currency Translation		—		0		0			0			91,047			—		0			91,047
Net income (loss)		—		0		0			(3,422,000	)		0			—		0			(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			0			0			0		0			1,983,879
Issuance of restricted stock units		29,126		29		(579,207	)		0			0			0		0			(579,178	)
Share-based compensation expense		—		0		1,480,882			0			0			—		0			1,480,882
Foreign Currency Translation		—		0		0			0			(153,321	)		—		0			(153,321	)
Net income (loss)		—		0		0			(5,661,350	)		0			—		0			(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
Exercise of options to purchase common stock		10,717		11		66,359			0			0			0		0			66,370
Share-based compensation expense		—		0		3,129,648			0			0			—		0			3,129,648
Foreign Currency Translation		—		0		0			0			(81,667	)		—		0			(81,667	)
Net income (loss)		—		0		0			3,067,163			0			—		0			3,067,163
BALANCES, September 30, 2019		36,100,662	$	36,100	$	331,538,514		$	(207,368,869	)	$	(175,551	)		14,169	$	(256,226	)	$	123,773,968

	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,*			*December 31,*
	*2020*			*2019*
Raw Materials and Work in Process	$	6,894,283		$	4,453,498
Packaging Components Material		1,502,385			1,419,155
Finished Goods		9,589,548			6,842,359
		17,986,216			12,715,012
Reserve for Obsolete Inventory		(475,377	)		(172,743	)
	$	17,510,839		$	12,542,269

							*September 30,*			*December 31,*
	September 30, 2017			December 31, 2016			*2020*			*2019*
Refrigeration Equipment	$	68,903,218		$	62,603,188		$	104,739,451		$	97,568,137
Machinery and Equipment		46,444,727			45,953,884			70,312,048			54,274,118
Building, Land, and Improvements		25,162,046			25,114,611			27,388,013			25,621,495
Furniture and Office Equipment		4,228,574			3,941,995			5,091,775			4,931,703
Leasehold Improvements								740,385			395,241
Automotive Equipment		319,496			317,615			159,819			309,137
Leasehold Improvements		360,505			297,681
Construction in Progress		4,740,444			2,841,035			116,949,086			58,587,375
		150,159,010			141,070,009			325,380,577			241,687,206
Less: Accumulated Depreciation and Amortization		(48,736,906	)		(39,576,929	)
Less: Accumulated Depreciation								(83,081,430	)		(76,399,609	)
	$	101,422,104		$	101,493,080		$	242,299,147		$	165,287,597

	•	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*				*Nine Months Ended*
	*September 30,*				*September 30,*
	*2020*		*2019*		*2020*		*2019*
Grocery (including Online), Mass and Club	$	71,025,035	$	54,712,007	$	200,128,333	$	150,340,440
Pet Specialty and Natural		13,164,877		10,553,894		34,139,443		29,769,842
Net Sales	$	84,189,912	$	65,265,901	$	234,267,776	$	180,110,282

	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			5.53
Weighted-average discount rate			6.14	%

	*September 30,*
	*2020*

2020 (a)		432,786
2021		1,760,250
2022		1,767,797
2023		1,802,007
2024		1,511,214
2025 and beyond		2,786,004
Total lease payments		10,060,058
Less: Imputed interest		(1,358,752	)
Present value of lease liabilities	$	8,701,306

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		59,782			65.62
Exercised		(361,446	)		8.86
Forfeited		(357	)		11.00
Outstanding at September 30, 2020		1,057,969		$	15.46

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		55,163			64.58
Issued upon vesting		(100,587	)		30.74
Forfeited		(1,102	)		41.88
Outstanding at September 30, 2020		193,703		$	38.24

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~~
		~~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 of saleable product is slated to begin in the fourth quarter of 2020. Of the expected, approximately $115.0 million investment, we have invested approximately $100.5 million on the project to date, with approximately $63.4 million invested during 2020.
	•	Freshpet Kitchens 3.0 – Located in Ennis, Texas on 68 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 $7.9 million in the project to date.

	Three Months Ended September 30,												Nine Months Ended September 30,
	2020						2019						2020						2019
	Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales
	(Dollars in thousands)												(Dollars in thousands)
Net sales	$	84,190			100	%	$	65,266			100	%	$	234,268			100	%	$	180,110			100	%
Cost of goods sold		47,535			56			34,560			53			131,891			56			96,163			53
Gross profit		36,654			44			30,706			47			102,377			44			83,947			47
Selling, general and administrative expenses		32,895			39			27,171			42			101,273			43			89,076			49
Income (Loss) from operations		3,760			4			3,535			5			1,104			0			(5,129	)		(3	)
Other income/(expenses), net		25			0			(139	)		(0	)		70			0			(141	)		(0	)
Interest expense		(216	)		(0	)		(310	)		(0	)		(999	)		(0	)		(689	)		(0	)
Income (Loss) before income taxes		3,569			4			3,086			5			175			0			(5,959	)		(3	)
Income tax expense		22			0			19			0			65			0			57			0
Net Income (loss)	$	3,547			4	%	$	3,067			5	%	$	110			0	%	$	(6,016	)		(3	)%

	•	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.

	(b)	Represents fees associated with public offerings of our common stock.
	(c)	Represents implementation and other costs associated with the implementation of an ERP system.
	(d)	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.

	September 30,			December 31,
	2020			2019
	(Dollars in thousands)
Cash and cash equivalents	$	84,185		$	9,472
Short-term investments		10,000			—
Accounts receivable, net of allowance for doubtful accounts		21,644			18,581
Inventories, net		17,511			12,542
Prepaid expenses		3,411			3,276
Other current assets (1)		731			10,453
Accounts payable		(10,743	)		(18,668	)
Accrued expenses (1)		(11,958	)		(22,133	)
Current operating lease liabilities		(1,269	)		(1,185	)
Total Working Capital	$	113,512		$	12,338

	•	$11.2 million increase in working capital mainly due to a $2.1 million change in assets and a $13.3 million change in liabilities.
	•	$0.8 million increase in other lease liabilities.

	•	$82.3 million in capital expenditures for Freshpet Kitchens, of which $77.0 million relates to the Freshpet Kitchens and other expansion projects and $5.3 million relates to recurring capital expenditures.
	•	$17.6 million in capital expenditures relating to investment in fridges and other capital spend.
	•	$27.6 million in connection with an equity method investment pursuant to which the Company received a 19% interest in a privately held company.
	•	$20.0 million purchase of short-term investments.

	•	$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.

	•	$15.9 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.