EFTA01381271.pdf

Form S-1 Table of Contents We operate in a highly competitive industry andmay lose market share or experience margin erosion if we are unable to compete effectively. The pet food industry is highly competitive. We compete on the basis of product quality and palatability, brand awareness and loyalty, product variety and ingredients, interesting product names. product packaging and package design, shelf space, mputation, price and promotional efforts. We compete with a significant number of companies of varying sizes. including divisions or subsidiaries of larger companies who may have greater financial resources and larger customer bases than we have. As a result, these competitors may be able to identify and adapt to changes in consumer preferences more quickly than us due to their resources and scale. They may also be more successful in marketing and selling their products, better able to increase prices to reflect cost pressures and better able to increase their promotional activity, which may impact us and the entire pet food industry. Increased promotional activity may include increasing the size of packaging, which in turn has in the past reduced and may in the future reduce foot traffic at retailers and the number of opportunities we have to educate pet parents about the benefits of BLUE. While some of these larger companies have entered the Wholesome Natural market segment through new brand introductions, brand extensions and/or acquisitions, and have also launched brands and products that have some but not all of the Wholesome Natural market segment's characteristics. they have not gained significant share within the Wholesome Natural market segment. However, we expect that they will continue to attempt to penetrate the Wholesome Natural market segment, whether by introducing or acquiring new Wholesome Natural brands, launching brand extensions or increasing the promotion of existing Wholesome Natural brands and pet food products, all of which will increase our direct competition. We also compete with other companies who focus solely on manufacturing Wholesome Natural pet foods that may be smaller, more innovative and/or able to bring products to market faster and move more quickly to exploit and serve niche markets. If these competitive pressures cause our products to lose market share or experience margin erosion, our business, financial conditions and results of operations may be materially adversely affected. We mayface issues with respect to raw materials and other supplies, including increasedcosts, disrupdons ofsupply, shortages, contaminations, adulterations or mislabeling. We and our contract manufacturers use various raw materials and other supplies in our busmoss, including ingredients. packaging materials and fuel. The prices of our raw materials and other supplies are subject to fluctuations attributable to. among other things, changes in supply and demand of crops or other commodities, weather conditions, agricultural uncertainty or governmental incentives and controls. We generally do not have long-term supply contracts with our ingredient suppliers. The length of the contracts is fixed for a period of time, typically up to a year or for a season and/or a crop year. In addition, some of our raw materials are sourced from a limited number of suppliers. We may not be able to renew or enter into new contracts with ow existing suppliers following the expiration of such contracts on commercially reasonable terms, or at all. We purchase some of our raw materials in the open market, and although we aim to enter into fixed price and/or fixed quantity contracts for a pre-determined amount of our ingredients to reduce short term price volatility in certain commodities, these activities may not successfully reduce or stabilize the cows of our raw materials and supplies. If commodity prices increase or our procurement or future hedging activities arc not effective, we may not be able to increase our prices to offset these increased costs. Monwver, our competitors may be better able than we are to implement productivity initiatives or effect price increases or to otherwise pass along cost increases to their customers. Some of the raw materials we use arc vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes and pestileness and may be impacted by climate change and other factors. Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce supplies of raw materials, increase the prices of raw materials, increase costs of storing raw materials and intenupt or delay our production schedules if harvests arc delayed. Ow competitors may not be impacted by such weather conditions and natural disasters depending on the location of their suppliers and operations. 22 http/Annv.sce.gov/Archi tug/Wear/data/I 609989/000119312515218883/d734898ds1.htm17/20/2015 10:30:13 Alvti CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0080109 CONFIDENTIAL SDNY GM_00226293 EFTA01381271