QUARTERLY PET INDUSTRY REPORT Volume 4, Issue 2, Q2 2013

1 Securities offered through Colorado Financial Service Corporation. Member: FINRA-SIPC. SDR Ventures and Colorado Financial Service Corporation are separate entities.

Pet Industry Deal Activity – Q2 2013

Pet Industry M&A activity has increased in Q2 2013, with 11 transactions closing compared to 5 in the first quarter. Deals varied in size and segment and included pet food manufacturing, veterinary products and services, animal health, and pet websites. Private equity played a significant role this past quarter with four completed deals, representing over $14 million of investment into pet-related companies.

SDR Ventures’ Carol Frank will be attending the SuperZoo National Show at the Mandalay Bay Hotel & Casino in Las Vegas in July. If you would like to schedule a confidential meeting with her, please e-mail bmeier@sdrventures.com

Pet Deal Activity Highlights

Strategic Acquisitions

May 2, 2013

May 15, 2013 May 22, 1013 May 28, 2013

June 1, 2013

June 5, 2013

June 11, 2013

Animal Supply Company a leading pet food and supplies distributor purchased the Ohio-based Wholesome Pet Distributing. The Hartville Group Inc., a pet insurance provider, is merging with Crum & Forster's United States Fire Insurance Co., a wholly owned subsidiary of Fairfax Financial Holdings Ltd. Natural Balance Pet Foods, Inc. a developer and producer of pet food, has merged with Del Monte Foods. NovaBay Pharmaceuticals, Inc., a clinical-stage biotechnology company, entered into a collaboration and license agreement with global veterinary product company Virbac. Phillips Pet Food & Supplies, a distributor based in Easton, Pa. acquired PFX Pet Supply and Pet Food Limited, distributors of premium pet food and pet products. Nestlé Purina PetCare announced that it is acquiring Petfinder, a pet adoption website. Animal Feed Supplement, Inc., a producer and supplier of animal feed, has increased its beef products capabilities by acquiring Western Feed Supplements, LLC.

Financial Deals

April 9, 2013

April 26, 2013

May 1, 2013

June 4, 2013

Bark & Co. received $5 million in growth capital from investors including Polaris Partners, RRE Ventures LLC, Bertelsmann Digital Media Investments, Vast Ventures Inc., Lerer Ventures, and 500 Startups. Bark & Co. offers a box of unique toys and all-natural treats shipped to directly to customers. Swifto Inc. provides a GPS-tracked dog walking application and dog walkers. Swifto raised $2.5 Million from Benchmark Capital. DW Healthcare Partners (DWHP), a healthcare-focused private equity firm, invested in Med-Pharmex, Inc. a pharmaceutical research, formulation, and manufacturing company in the animal health industry. Portland-based Direct Vet Marketing Inc. (d/b/a Vets First Choice) has raised $6.6 million through an equity offering.

Q2 2013 Pet M&A Activities

IN THIS ISSUE

Deal Activity P. 1

Spotlight: Interview P. 2

M&A Guide P. 3

About SDR P. 4

Sniffing Out a Deal – Del Monte

Acquisition Type: Strategic

Top 5 Value Drivers: Increasing Pet Portfolio Successful Brands Robust Growth Opportunities Supply Chain Innovation Strong Distribution Relationships

Natural Balance Pet Foods, Inc. was founded in 1989 by Dick Van Patten and Joey Herrick. Today, the brand includes both dog and cat formulas and spans wet food, dry food and treats. Natural Balance is headquartered in Pacoima, CA.

Del Monte Foods is one of the country's largest producers, distributors and marketers of premium quality, branded pet products and food products for the U.S. retail market, generating approximately $3.7 billion in net sales in fiscal 2012.

This merger is consistent with the long-term strategy for Del Monte to further strengthen its pet food and snacks brand portfolio and accelerate growth by expanding in the pet specialty channel. And Natural Balance will now benefit from Del Monte’s strong distribution, supply chain and innovation resources helping the brand achieve its next level of growth.

11 Total Transactions 4 Growth Capital Deal 7 Acquisition Deals

2 Securities offered through Colorado Financial Service Corporation. Member: FINRA-SIPC. SDR Ventures and Colorado Financial Service Corporation are separate entities.

QUARTERLY PET INDUSTRY REPORT Volume 4, Issue 1, Q1 2013

Spotlight Deal Perspective: Interview with Steven Shweky, President of Fetch…for Pets! Interviewed by SDR’s Carol Frank

What differentiates Fetch…for Pets! from other pet product manufacturing companies? Fetch…for Pets! is unique in that we partner with big name brands to create innovative pet products. Why have you pursued licensing brand names such as Burt’s Bees, Off, and Arm and Hammer? Our aim is to partner with brands that consumers connect and interact with in their own lives. With the continued humanization of pets, pet parents love sharing their favorite brands with their pets. For this reason, we strive to bring names like Burt’s Bees®, ARM & HAMMER®, and OFF!® to the pet world.

Fetch is very active in licensing product ideas from inventors. What are the pros and cons of that strategy? There are many pros with licensing product ideas from inventors. By actively researching innovation, we are able to stay at the forefront of advancement in the pet world. It’s also very exciting to discuss and learn about new ideas from the ground-breaking inventors. One con is that it can be a time consuming process; since the pet industry is rapidly evolving there is a constant need for research. What are some of the largest changes the pet industry has undergone since you began? The pet industry is always developing, but there are two changes that really stand out to me. One is the departure from topical and ingestible lines being manufactured in China. After all the controversy surrounding products made there, consumers demanded products be made in the USA and the industry responded. The second change is the increase of natural ingredients in pet products. Following the human trend, pet parents now look for more holistic and natural ways to care for their pets.

What advice would you give to the small or mid-sized pet company owner in terms of maximizing the value of their business? I think it’s important to concentrate a portion of the budget on sales and marketing. It is necessary for customers to be educated on the products, and setting up a marketing strategy is the best way to go about doing this. It’s also necessary for sales employees to be extremely informed on the products so they’re able to convey this knowledge to customers.

What are some of the biggest lessons you have learned since starting your business? A major lesson is that channel exclusivity is key to running a successful pet business. Your lines should be either pet channel exclusive or retailer exclusive, but never both. (i.e. If it’s in Wal-Mart, PetsMart won’t carry it.) Channel exclusivity is a very sensitive issue in the pet market. I’ve never seen it this sensitive in any other business.

Another important lesson is that innovation is an integral part of staying in business. The pet industry can be a “me too” business. Therefore It is vital to never settle and to continue to search for ways to improve. We innovate to exist.

What’s next for Fetch? Fetch… for Pets! will continue to partner with the biggest licensed brands to develop new lines for pets. We also plan on continuing our work in Fetch… for Innovation, a department within the company which searches out the most inventive people in the pet world to assist in the development of groundbreaking pet products. For more information visit www.fetch4pets.com

Steven Shweky President, Fetch… for Pets! Steven Shweky began his career as an entrepreneur, joining his brother at Skaffles, the family accessories business. In 2007, the Skaffles Group of companies merged with ES Sutton, a $1/2 billion platform of companies based in NYC, to further expand its market reach & back-office capabilities. In an effort to expand his company’s beauty business, Shweky decided to expand into the pet business by launching Pet Head by Bed Head in early 2008. The successful launch helped jumpstart this small pet company into an industry giant in just 3 years. Focused on bringing human brands into the pet industry, Shweky expanded the company’s product and brand portfolio to become Fetch… for pets!. Steven Shweky is currently Top Dog at Fetch…for Pets, a high powered company that creates innovative pet lines with major national brands like Burt’s Bees®, SHOUT®, and ARM & HAMMER®. Fetch… for pets! continues to innovate with new products lines and brands while pushing the envelope on market reach with cutting edge pet products for dogs, cats, aquatic creatures, and small animals, and reptiles.

3 Securities offered through Colorado Financial Service Corporation. Member: FINRA-SIPC. SDR Ventures and Colorado Financial Service Corporation are separate entities.

QUARTERLY PET INDUSTRY REPORT Volume 4, Issue 1, Q1 2013

Mergers & Acquisitions (M&A) Primer We understand that the world of investment banking can be intimidating, especially if

you are not familiar with the terminology. To help ease you in, we have provided

definitions to some widely-used M&A terminology.

INVESTMENT BANKER – An investment banker acts as an intermediary for businesses

who want to buy or sell a business, raise capital, or who want financial advisory services.

Investment banks typically cater to medium – large companies and are known for

running sophisticated processes that are intent on creating competitive offers.

Investment Bankers must pass a Series 79 test and be registered with FINRA.

BUSINESS BROKER – Similar to investment banks, business brokers serve as intermediaries for companies wanting to buy or sell a business.

However, unlike investment banks, they usually represent smaller or family owned businesses that require less complex processes.

STRATEGIC BUYER – A buyer, normally a large company in the industry (or in a complimentary industry), that wants to combine companies

to create synergies. These buyers are mostly concerned with how the purchase of a company can benefit their company in the future.

FINANCIAL BUYER – This buyer is typically a private equity firm, venture capital firm, hedge fund, family investment office or high net

worth individual seeking to purchase a company to in order to receive a high return on investment.

PRIVATE EQUITY - Is simply money invested into a private company, or the privatization of a company through the investment of outside

money. Private equity firms essentially invest into a company, take a majority stake, improve the company and hope to exit their investment

at a large profit. Private Equity funds consist of money raised primarily through institutional investors, family offices, and wealthy

individuals.

VENTURE CAPITAL - Money that is provided by investors to startup firms and small businesses with perceived long-term growth potential.

Considered a subset of Private Equity, it is typically for startups that do not have access to capital markets.

MEZZANINE FINANCING - A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.

Mezzanine capital is often a more expensive financing source for a company than secured or senior debt.

SUBORDINATED DEBT - A loan that ranks below other loans with regard to claims on assets or earnings should a company fall into

bankruptcy. Subordinated loans typically have a lower credit rating and, therefore, a higher yield than senior debt.

LEVERAGED BUYOUT – The acquisition involving a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition.

The purpose of leveraged buyouts is to allow companies to make large acquisitions without a large capital commitment.

EBITDA MULTIPLE – A metric used to estimate the value of a company based on earnings before interest, taxes, depreciation, and

amortization. It is commonly used to compare company values within an industry.

DUE DILIGENCE – An audit (or investigation) of financial records and other data that is completed prior to making an investment.

FINRA - Financial Industry Regulatory Authority, Inc., a private corporation that acts as a self-regulatory organization. It performs financial

regulation of member brokerage firms and exchange markets. This is not to be confused with the Securities and Exchange Commission (SEC),

which is the government organization that is the supreme regulator of the securities industry.

Tertiary Definition Sources: Investopedia (http://www.investopedia.com)

Wall Street Oasis (http://www.wallstreetoasis.com/finance-dictionary)

Divestopedia (http://www.divestopedia.com)

Wikipedia (http://en.wikipedia.org/)

In an attempt to make them more clear, SDR has modified some of these definitions

4 Securities offered through Colorado Financial Service Corporation. Member: FINRA-SIPC. SDR Ventures and Colorado Financial Service Corporation are separate entities.

QUARTERLY PET INDUSTRY REPORT Volume 4, Issue 1, Q1 2013

Recent Transactions

SDR Ventures: The Investment Bank to the Pet Industry

Carol Frank (cfrank@sdrventures.com), Managing Director

Prior to joining SDR Ventures in 2009, Carol developed three multi-million dollar pet companies in retail, manufacturing, and distribution. She successfully built and sold all three companies, and possesses the rare combination of investment banking expertise and transactional experience in the pet industry. Carol began her career as a CPA with Ernst & Young and also spent three years as an executive recruiter for Robert Half International. She has a BBA in accounting from The University of Texas at Austin and an MBA from Southern Methodist University. Carol is a former board member of PIDA, PIJAC and The Pet Care Trust. She also holds a Series 79 license, as a registered investment banker.

SDR Core Services Transaction Advisory

Capital Formation

Strategic Advisory Unlike traditional investment banks, SDR views each client as a relationship rather than a transaction. Our passion is helping business owners maximize value in their business. While this often takes the form of advising on acquisitions, sales, and recapitalizations, we realize that not every business is ready for such a transaction. Our advisory services are designed to add value. Advisory engagements include (but are not limited to):

Company Valuation Capital Strategy Exit Planning Shareholder Strategy

Pet Industry Sell-Side As former owners and operators, our principals have experienced the M&A world from the trenches. As investment bankers, our principals have gained the experience necessary to maximize value and facilitate a successful transaction. We know how to run an efficient and effective process, how to avoid pitfalls, how to maximize shareholder value, and how to minimize operational distractions.

Pet Industry Buy-Side Whether growing your company organically with a well-planned acquisition strategy or initiating an executive search to find the right company to buy and operate, our buy-side search process has proven extremely effective at generating responses, identifying "off-the-radar" opportunities, negotiating favorable deal terms and closing deals in a timely manner.

Principal In 2008 we established a dedicated fund, committed to providing liquidity to privately held companies. To-date we have funded 37 subordinated debt deals and invested a total of over $40.8 million.

Placement Agent In the event that our debt solutions are not a fit for your strategic goals, SDR will act as a finder for debt and equity capital. Our goal is to identify the right capital and the right capital provider based on your needs.

“SDR can be your outsourced Mergers & Acquisitions team.”