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ITEM 1A. ITEM 1B. RISK FACTORS we plan to continue to pursue a growth strategy that includes, in part, and Crepini®. We produce and market process using the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework. engage third no for further discussion about risks from Audit Committee will make the Board aware of any information it deems necessary Chief Financial Officer 
Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control.
The following is a description of the known factors that have or may in the future materially affect our business, financial
condition or results of operations. They should be considered carefully, in addition to the information set forth elsewhere in this
Annual Report on Form 10-K, including under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations, in making any investment decisions with respect to our securities. Additional risks or uncertainties
that are not currently known to us, or that we are aware of but currently deem to be immaterial or that could apply to any
company could also materially adversely affect our business, financial condition or results of operations.
See
“Forward -Looking
Statements” at the beginning of this report.
INDUSTRY RISK FACTORS
Market prices of wholesale shell eggs are volatile and decreases in these prices have had, and in the future may have, a
materially adverse impact on our revenues and profits.
Our operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside our
control. Wholesale shell egg market prices directly affect the selling prices of our products sold under market -based pricing
formulas and may indirectly impact our products sold under cost -based and hybrid pricing formulas as customers may seek to
renegotiate the terms of their arrangements during periods of sustained low prices. Accordingly, our historical results are not
necessarily indicative of future performance.
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Modest increases in industry supply or decreases in demand have resulted in, and may in the future have a material adverse effect
on shell egg prices. Low shell egg prices adversely affect our revenues and profits.
Market prices for wholesale shell eggs have been, and in the future may be, volatile and cyclical. Shell egg prices have risen in
the past during periods of high demand such as the initial outbreak of the COVID-19 pandemic and periods when high protein
diets are popular. Shell egg prices have also risen during periods of constrained supply, such as during outbreaks of highly
pathogenic avian influenza (“HPAI”). During times when prices are high, the egg industry has typically produced more eggs,
primarily by increasing the number of layers, which historically has ultimately resulted in an oversupply of eggs, leading to
periods of lower prices.
As discussed above in
, seasonal fluctuations impact shell egg prices. Therefore, comparisons
of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful
comparisons.
A decline in consumer demand for shell eggs or our prepared foods offerings have had, and in the future may have , a
material adverse impact our business.
We believe high-protein diet trends, industry advertising campaigns, the improved nutritional reputation of eggs and an increase
in at -home consumption of eggs during the COVID-19 pandemic, have all contributed at one time or another to increased shell
egg demand. However, it is possible that the demand for shell eggs will decline in the future. Adverse publicity relating to health
or safety concerns and changes in the perception of the nutritional value of shell eggs, changes in consumer views regarding
consumption of animal -based products, as well as movement away from high protein diets, have had and in the future may have
an adverse effect on demand for shell eggs, which has had and in the future could have a material adverse effect on our results of
operations and financial condition.
Certain of our prepared foods offerings are generally subject to changing consumer trends, demands and preferences as well as a
modest amount of seasonality. Trends within the prepared foods industry change often, and failure to identify and react to changes
in these trends could lead to, among other things, reduced demand and price reductions for our prepared foods brands and
products. We strive to respond to consumer preferences and social expectations, but we may not be successful in our efforts.
Further, we could be adversely affected if consumers lose confidence in the safety and quality of certain food products or
ingredients, or the food safety system generally. Prolonged negative perceptions concerning the health implications of certain
food products or ingredients or loss of confidence in the food safety system generally could influence consumer preferences and
acceptance of some of our products and marketing programs. Continued negative perceptions and failure to satisfy consumer
preferences could have a material adverse effect on our sales, financial condition and results of operations.
Feed costs are volatile and increases in these costs have had, and in the future may have , a material adverse impact our
results of operations.
Feed costs are the largest element of our shell egg production cost, typically exceeding 50% of our total farm production costs.
Although feed ingredients, primarily corn and soybean meal, are available from a number of sources, we do not have control ov er
the prices of the ingredients we purchase, which are affected by weather, various global and U.S. supply and demand factors,
transportation and storage costs, speculators, agricultural, energy and trade policies in the U.S. and internationally, and global
instability, including as a result of geopolitical conflicts. For example, while feed costs declined during fiscal 2026, we saw higher
prices for corn and soybean meal over the last four fiscal years as a result of weather -related shortfalls in production and yields,
ongoing supply chain disruptions, and geopolitical conflicts and their impact on the export markets. Our costs for corn and
soybean meal are also affected by local basis prices.
Increases in feed costs unaccompanied by increases in the selling price of eggs have had and in the future may have a materia
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adverse effect on the results of our operations and cash flow. Decreases in feed costs can lead to increased egg production and
increases in the egg supply, possibly resulting in lower egg prices and lower revenue.
Increases in other input costs such as packaging materials, delivery expenses, construction materials and equipment,
including as a result of inflation and tariffs , have had and in the future may have, a material adverse impact on our
profitability .
In addition to feed ingredient costs, other significant input costs include costs of packaging materials and delivery expenses. Our
costs of packaging materials increased during the past three fiscal years due to inflation and higher labor costs, and these costs
may continue to increase. We have also experienced increases in delivery expenses due to increases in fuel and labor costs for
both our fleet and contract trucking, and these costs may continue to increase. Changes in U.S. trade and tariffs policies have
caused and may continue to cause higher costs for construction materials, equipment, packaging and other items. Increases in
these costs are largely outside of our control and could have a material adverse effect on our profitability and cash flow.
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Agricultural risks, including outbreaks of avian diseases such as HPAI, have harmed and in the future could harm our
business.
Our shell egg production activities are subject to a variety of agricultural risks. Unusual or extreme weather conditions, disease
and pests have had and in the future may have a material adverse effect on the quality and quantity of shell eggs we produce and
distribute. HPAI is currently widespread in the wild bird population worldwide. Outbreaks of HPAI among poultry occur
periodically worldwide, including recently in the U.S., with an increased risk during migratory seasons for wild birds. HPAI
outbreaks in the U.S. have in the past caused significant depopulation of U.S. commercial table egg layer flocks, which contributed
to lower shell egg supplies and higher shell egg prices. For example, during the third and fourth quarters of fiscal 2024, we
experienced HPAI outbreaks within our facilities located in Kansas and Texas, and in March of 2026 we experienced a HPAI
outbreak within our pullet facility in Maryland, resulting in the depopulation of approximately 352,000 pullets. For additional
information, refer to
We maintain controls and procedures designed to reduce the risk of exposing our flocks and employees to harmful diseases;
however, despite these efforts, outbreaks of avian diseases have occurred and may occur, which has had and in the future may
have a material adverse impact on the health of our flocks and in the future could adversely impact the health of our employees.
Continued or intensified spread of HPAI could have a material adverse impact on our financial results by, among other things,
decreasing revenue, increasing costs, increasing government restrictions on the sale and distribution of our products , other new
regulatory requirements and requiring us to euthanize the affected layers. Negative publicity from HPAI outbreaks within our
industry can negatively impact customer perception. If a substantial portion of our layers or production facilities are affected by
any of these factors in any given quarter or year, our business, financial condition, and results of operations could be materially
and adversely affected.
Our shell eggs, prepared foods and egg products offerings are susceptible to contamination, and we may be required to,
or we may voluntarily, recall contaminated products.
We sell food products for human consumption, including shell eggs, prepared foods and egg products, which involves food safety
risks such as:
●
food contamination caused by disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella
Enteritidis, and pathogenic E Coli., including contamination caused by introduction of pathogens as a result of improper
handling by customers or consumers (over which we have no control), or by operational errors by suppliers or co-
manufacturers or in our facilities;
●
mislabeling, including with respect to food allergens;
●
food spoilage;
●
nutritional and health -related concerns; and
●
product tampering.
Shipment of contaminated, mislabeled, spoiled or otherwise deficient products, even if inadvertent, could result in a violation of
law and lead to increased risk of exposure to product liability claims, product recall or withdrawal and scrutiny by federal, state
and local regulatory agencies. We have little, if any, control over proper handling once the product has been shipped or delivered.
In addition, products purchased from other producers could contain contaminants, or be spoiled, mislabeled or otherwise deficient
that might be inadvertently redistributed or sold by us. As such, we might decide or be required to recall or withdraw a product
if we, our customers or regulators believe it poses a potential health risk. This has occurred in the past and may occur in the future.
Any shipment of deficient product or any action taken in response, such as a product recall or withdraw, could result in a loss of
consumer confidence in our products, adversely affect our reputation with existing and potential customers and have a material
adverse effect on our business, results of operations and financial condition. We currently maintain insurance with respect to
certain of these risks, including product liability insurance, business interruption insurance, product recall insurance and general
liability insurance, but in many cases such insurance is expensive and difficult to obtain, and no assurance can be given that such
insurance will adequately cover our costs or can be maintained in the future on acceptable terms or in sufficient amounts to protect
us against losses due to any such events, or at all.
BUSINESS AND OPERATIONAL RISK FACTORS
Our acquisition growth strategy subjects us to various risks.
As discussed in
selective acquisitions of other businesses engaged in the production and sale of shell eggs and prepared foods, with a priority on
those that will facilitate our ability to expand our specialty shell egg and prepared foods production capabilities in key locations
and markets. We may over -estimate or under -estimate the demand for specialty shell eggs or our prepared foods offerings, which
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could cause our acquisition strategy to be less-than -optimal for our future growth and profitability. The number of existing
businesses with specialty shell egg capacity that we may be able to purchase is limited. Conversely, when we acquire specialty
shell egg production capacity, which is more expensive to purchase and operate, and customer demands or legal requirements for
specialty shell eggs were to change, any resulting lack of demand for specialty shell eggs has and in the future may result in
higher costs and lower profitability.
Although we had already diversified our business with some prepared foods product offerings, our acquisition of Echo Lake
Foods in the first quarter of fiscal 2026 represented a significant expansion of our strategy to diversify our product mix to include
more prepared foods. Accordingly, we have experienced and in the future may experience unexpected challenges in integrating
and managing the prepared foods businesses and brands that we acquire from time to time. Integrating the prepared foods
businesses and brands that we acquire, may be more costly or time-consuming than we expect. Even if these businesses and
brands are successfully integrated, we may not realize the benefits we expect from the acquisitions, including the synergies, cost
savings, reduction in earnings volatility, strong management team, margin expansion, financial returns, new or expanded
customer and vendor relationships, or sales or growth opportunities. Our experience managing prepared foods businesses is much
more limited than our experience managing our shell egg and egg products businesses, and our strategy to diversify our product
mix to include more prepared foods may not produce the favorable financial and other results that we anticipate. For additional
information regarding our acquisitions and our strategy to diversify our product mix to include more prepared foods, see Part I.
Item 1. Business –
Acquisitions require capital resources and can divert management’s attention from our existing business. Acquisitions also entail
an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct
prior to our acquisition of a business that were unknown to us at the time of acquisition. We could incur significantly greater
expenditures in integrating an acquired business than we anticipated at the time of its purchase.
We cannot assure you that we:
●
will identify suitable acquisition candidates;
●
can consummate acquisitions on acceptable terms;
●
can successfully integrate an acquired business into our operations; or
●
can successfully manage the operations of an acquired business.
No assurance can be given that businesses we acquire in the future will contribute positively to our results of operations or
financial condition. In addition, federal antitrust laws require regulatory approval of acquisitions that exceed certain threshold
levels of significance or that could otherwise negatively affect competition, and we cannot guarantee that such approvals would
be obtained. Further, current or future federal antitrust regulations may adversely affect current operations or financial condition
such as required divestitures or spin-offs of certain business or assets and limitations on the types or amounts of products we
could produce .
The consideration we pay in connection with any acquisition affects our financial results. If we pay cash, we could be required
to use a portion of our available cash or credit facility to consummate the acquisition. To the extent we issue shares of our
Common Stock, existing stockholders may be diluted. In addition, acquisitions may result in additional debt. Our ability to access
any additional capital that may be needed for an acquisition may be adversely impacted by higher interest rates and economic
uncertainty.
Disruptions to our production, supply chain or distribution operations, or to the operations of key customers or sales
channels, could have a material adverse effect our business and operations.
Our ability to produce, supply and distribute shell eggs and prepared foods efficiently and reliably is critical to our success. Our
operations depend on the continued availability and effective functioning of our production facilities, supply chain, logistics and
distribution networks, some of which are supported by third-party providers. A significant disruption to any of these capabilities,
whether due to operational failures, labor shortages, transportation disruptions, facility outages, facility upgrades or other events,
could impair our ability to meet customer requirements or operate in a profitable manner . For example, Echo Lake Foods has and
is expected to continue to experience a temporary reduction in production volumes and higher costs, which began late in the
second quarter of fiscal 2026 and are expected to be completed in fiscal 2027. We may not be able to successfully complete these
expansion projects timely or on budget, if at all.
In addition, we rely on our customers and established sales channels to sell our products to ultimate consumers. Disruptions
affecting a significant customer, distributor, foodservice provider, retailer or other sales channel, including operational disruptions
or changes in purchasing or distribution practices, could result in reduced sales volumes, delays in product movement, or changes
in the mix of products sold. Any such disruptions could have a material adverse effect on our results of operations and financial
condition.
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Our largest customers have accounted for a significant portion of our net sales, and the loss of, reduced purchases by, or
pricing pressure from, one or more of such large customers could have a material adverse effect on our business.
Our top three customers accounted for an aggregate of 43.1%, 49.2% and 49.0% of our net sales for fiscal 2026, 2025 and 2024,
respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 30.0%, 33.6% and 34.0% of net sales
dollars for fiscal 2026, 2025 and 2024, respectively. Although we have established long-term relationships with most of our
customers who continue to purchase from us based on our ability to service their needs, they are generally free to acquire our
products from other sources. If, for any reason, one or more of our large customers were to purchase significantly less of our
products in the future, terminate their purchases from us or demand significantly lower pricing, and we were not able to sell our
products to new customers at comparable levels, it would have a material adverse effect on our business, financial condition, and
results of operations.
The sophistication and buying power of certain of our customers, including their ability to expand private-label offerings,
could adversely affect our pricing, margins and results of operations.
Certain of our customers, including large retailers, warehouse clubs, foodservice providers and distributors, are large and
sophisticated and have significant bargaining power. These customers may be more capable of resisting price increases and may
demand lower pricing, increased promotional activity, alternative pricing structures, or customized products and services. In
addition, some of these customers have the scale and resources to operate with reduced inventories, modify sourcing strategies,
or develop and market their own private -label or store-brand products that directly compete with our branded and specialty
offerings. Shelf space and product placement at retail customers are not guaranteed, and customers may choose to allocate shelf
space to competing products, including private-label or lower-priced alternatives.
These risks may be exacerbated during periods of economic weakness, inflation, or elevated food prices, when consumers may
trade down to lower-priced options , reduce purchases of specialty products, or shift purchases to private-label offerings. If we are
unable to effectively respond to these competitive pressures through pricing, cost control, operational efficiencies, or product
innovation, or if our customers materially change their purchasing practices or expand competing private -label offerings, our
sales volumes, profitability and results of operations could be materially adversely affected.
High market prices for eggs, primarily caused by HPAI-related reductions in supply, have led to pressure from customers
to change long-standing market-based pricing frameworks and/or otherwise reduce the price of our eggs and may do so
in the future. A material change in our sales arrangements with key customers could have a material adverse effect on
our revenues, gross profits and net income. Other reactions to high egg prices, including by state or federal government
agencies, may also adversely impact our business.
Market prices for wholesale shell eggs have been volatile and cyclical over time. Market prices for eggs tend to increase during
and following outbreaks of agricultural diseases in the egg industry that reduce the supply of eggs, which has occurred during
HPAI outbreaks, until the supply and demand balance is restored. Some of our sales arrangements with customers, particularly
for conventional shell eggs, are based on formulas that take into account, in varying ways, independently quoted regional
wholesale market prices for eggs. High market prices for eggs have led to pressure from customers to change longstanding market-
based pricing frameworks and/or otherwise reduce the price of our eggs and may do so in the future. To remain competitive and
retain our customers and gain new ones, we must consider our customer relationships and the reactions and potential reactions of
competitors. A material change in our sales arrangements with key customers could have a material adverse effect on our revenues
and gross profits.
Other reactions to high egg prices, including investigations or lawsuits by state or federal government agencies or private
plaintiffs, may also adversely impact our business. In March 2025, we received a civil investigative demand in connection with
a widely publicized investigation by the Antitrust Division of the Department of Justice (“DOJ”) into the causes behind
nationwide increases in egg prices. We settled the case in June 2026, but the settlement remains subject to court approval which
may or may not be obtained. Since November 2025, we have been named as a defendant, along with other egg producers and
industry associations, in various class actions that allege the defendants conspired to fix the prices of conventional shell eggs
nationwide, primarily through manipulation of industry price benchmarks, coordinated reporting, and supply restrictions,
particularly during the 2022 avian flu outbreak. In addition, persistent high egg prices may cause some consumers to purchase
fewer eggs. Persistent high-price cycles, investigations and lawsuits may also increase attention on the egg industry, and the
Company specifically, by state and federal government agencies or plaintiffs, which may lead to additional government
investigations , lawsuits or related activities, including but not limited to the adoption of new regulations. For further discussion,
see Part I. Item 3. Legal Proceedings below and Part II. Item 8. Notes to the Consolidated Financial Statements,
. The potential impacts of these reactions on our business are unclear, unpredictable and may divert our
resources and attention from our core business activities, which may have a material adverse effect on our business.
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Our business is highly competitive.
The production and sale of fresh shell eggs, which accounted for 84.6% to 94.3% of our net sales in our last three fiscal years, is
intensely competitive. We compete with a large number of competitors that may prove to be more successful than we are in
producing, marketing and selling shell eggs. We cannot provide assurance that we will be able to compete successfully with any
or all of these companies. Increased competition could result in price reductions, greater cyclicality, reduced margins and loss of
market share, which would negatively affect our business, results of operations, and financial condition.
In addition, our growth strategy includes expansion of our product offerings including prepared foods. The prepared foods
business is intensely competitive and includes competition from other prepared food companies and other suppliers of prepared
and convenience foods, including restaurants, grocery stores and convenience stores, many of which have more experience or
scale operating prepared and convenience foods businesses. In response to these competitive pressures, we may have to reduce
the prices of our products, or increase or reallocate our spending on marketing, advertising and promotional activity. Competitive
pressures may also restrict our ability to increase prices, including in response to commodity and other input cost increases. Our
profits could decrease if either a reduction in prices or increase in costs without comparable increase in price is not offset with
increased sales volume. Alternatively, if we do not reduce our prices or increase our prices, as applicable, and our competitors
seek advantage through pricing or promotional changes, our revenues , profitability and market share could be adversely affected.
We are dependent on our management team, and the loss of any key member of this team may have a material adverse
effect on the implementation of our business plan in a timely manner.
Our success depends largely upon the continued service of our senior management team and the recruitment of additional team
members as we grow. The loss or interruption of service of one or more of our key executive officers could have a material
adverse effect on our ability to manage our operations effectively and/or pursue our growth strategy. We have not entered into
any employment or non -compete agreements with any of our executive officers. Competition could cause us to lose talented
employees, and unplanned turnover could deplete institutional knowledge. Increased competition for employees has, and may
continue to, result in increased costs.
Our business is dependent on our information technology systems and software, and failure to protect against or
effectively respond to cyber -attacks, security breaches, or other incidents involving those systems, could adversely affect
day-to-day operation s and decision making processes and have a material adverse effect on our performance and
reputation.
The efficient operation of our business depends on our information technology systems, which we rely on to effectively manage
our business data, communications, logistics, accounting, regulatory and other business processes. If we do not allocate and
effectively manage the resources necessary to build and sustain an appropriate technology environment, our business, reputation,
or financial results could be negatively impacted. In addition, our information technology systems may be vulnerable to damage
or interruption from circumstances beyond our control, including systems failures, natural disasters, terrorist attacks, viruses,
ransomware, security breaches or cyber incidents. Cyber -attacks are becoming more sophisticated and are increasing in the
number of attempts and frequency by groups and individuals with a wide range of motives. We have experienced and expect to
continue to experience attempted cyber -attacks of our information technology systems or networks.
We regularly engage with third-party service providers as part of our operations to provide a high level of service to our customers.
We have implemented certain practices and policies to minimize the potential risks associated with the exchange of information
with contracted vendors. Despite these practices and policies, we cannot guarantee that information technology systems of our
third-party service providers will prevent and detect all cybersecurity breaches and incidents. Although we require third-party
service providers to notify us upon a potential breach or incident, there is a potential risk that our business, reputation, or financial
results could be negatively impacted by cybersecurity incidents at their businesses.
Additionally, future or past business transactions (such as acquisitions or integrations) have exposed and in the future may expose
us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in
acquired or integrated systems and technologies. Furthermore, we may discover security issues that were not found during due
diligence of such acquired or integrated businesses, and it may be difficult to integrate businesses into our information technology
environment and security program.
Our information technology systems also subject us to numerous data privacy obligations. We may at times fail (or be perceived
to have failed) in our efforts to comply with our data privacy obligations. If we or the third parties on which we rely fail, or are
perceived to have failed, to address or comply with applicable data privacy obligations, we could face significant consequences,
including but not limited to government enforcement actions and litigation. A security breach of sensitive information could result
in damage to our reputation and our relations with our customers or employees. Any such damage or interruption could have a
material adverse effect on our business.
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Technology and related business and regulatory requirements continue to change rapidly. Failure to update or replace legacy
systems to address these changes could result in increased costs, including remediation costs, system downtime, third party
litigation, regulatory actions or cyber security vulnerabilities which could have a material adverse effect on our business.
We are currently implementing a new enterprise resource planning (“ERP”) system, and difficulties with this transition
could have a material adverse effect on our business
.
We are in the process of replacing and modernizing our core financial and operational systems through a new ERP platform. This
implementation is a complex, multi-phase project that has and will require significant investment of time, capital, and internal
resources. There can be no assurance that the ERP system will be implemented on the expected timeline, within budget or with
the intended functionality.
Challenges associated with the ERP transition , including data conversion issues, system integration problems, process redesign,
user adoption difficulties, or disruptions to existing operations could impair our ability to process transactions , manage our supply
chain and human resources, produce accurate and timely financial reports, maintain effective internal controls over financial
reporting or otherwise disrupt our business operations . The implementation may also divert management ’s attention from normal
business operations.
If we are unable to successfully complete the ERP implementation, or if unexpected issues arise during the transition, our business,
financial condition, results of operations, and internal control environment could be materially adversely affected.
Labor shortages or increases in labor costs have had and in the future could have a material adverse impact on our
business and results of operations.
Our success is dependent upon recruiting, motivating, and retaining staff to operate our production facilities. Approximately
80.7% of our employees are paid at hourly rates, often in entry -level positions. While all our employees are paid at rates above
the federal minimum wage requirements, any significant increase in local, state or federal minimum wage requirements could
increase our labor costs. In addition, any regulatory changes requiring us to provide additional employee benefits or mandating
increases in other employee -related costs, such as unemployment insurance or workers compensation, would increase our costs.
A shortage in the labor pool, which may be caused by competition from other employers, the remote locations of many of our
production fac ilities, decreased labor participation rates or changes in government -provided support or immigration laws or
policies, particularly in times of lower unemployment, has had and in the future could have an adverse material effect on our
business and results of operations. A shortage of labor available to us could cause our production facilities to operate with reduced
staff, which could negatively impact our production capacity and efficiencies. In fiscal 2025 and 2026, labor wages continued to
rise due to inflation and low unemployment. Any significant labor shortages or increases in our labor costs has had, and in the
future could have, a material adverse effect on our results of operations.
We also rely on third-party suppliers for the provision of contingent workers, and our failure to effectively manage our use of
such contingent workers could increase our costs and adversely affect our results of operations. We may be subject to shortages,
oversupply, or fixed contractual terms relating to contingent workers. Our ability to manage the size and cost of our contingent
workforce may be subject to additional constraints imposed by local laws.
Global or regional health crises , including pandemics or epidemics , could have a material adverse impact on our business
and operations.
The effects of global or regional pandemics or epidemics have had and in the future may have a significant impact on our
operations. Although demand for our products could increase as a result of restrictions such as travel bans and restrictions,
quarantin es, shelter-in-place orders, and business and government shutdowns, which can prompt more consumers to eat at home,
these restrictions could also significantly increase our cost of doing business due to labor shortages, supply-chain disruptions,
increased costs and decreased availability of packaging supplies or feed, and increased medical and other costs. We experienced
these impacts as a result of the COVID-19 pandemic, primarily during our fiscal years 2020 and 2021. The impacts of health
crises are difficult to predict and depend on numerous factors including the severity, length and geographic scope of the outbreak,
resurgences of the disease and variants, availability and acceptance of vaccines, and governmental, business and individuals’
responses.
LEGAL AND REGULATORY RISK FACTORS
Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our
practices to comply with developing standards or subject us to marketing costs to defend challenges to our current
practices and protect our image with our customers. In particular, changes in customer preferences and state legislation
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have accelerated an increase in demand for cage-free eggs, which increases uncertainty in our business and increases our
costs.
We and many of our customers face pressure from animal rights groups, such as People for the Ethical Treatment of Animals and
the Humane Society of the U. S., to require companies that supply food products to operate their businesses in a manner that
treats animals in conformity with certain standards developed or approved by these groups. In general, we may incur additiona
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costs if we conform our practices to address any of these standards or to defend our existing practices to protect our image with
our customers. The standards promoted by these groups change over time, but typically require minimum cage space for hens,
among other requirements, and some of these groups have led successful legislative efforts to ban any form of caged housing in
various states.
As discussed in
, ten states have passed minimum space and/or cage-free
requirements for hens, and other states are considering such requirements. In addition, a significant number of our customers
have announced goals to either exclusively offer cage-free eggs or significantly increase the volume of cage -free egg sales in the
future, subject in most cases to availability of supply, affordability and consumer demand, among other contingencies. While we
anticipate that our retail and foodservice customers will continue to transition to selling cage-free eggs given publicly stated goals,
there is no assurance that this transition will take place or take place according to the timeline of current cage-free goals. For
example, customers may accelerate their transition to stocki ng cage-free eggs, which may challenge our ability to meet the cage-
free volume needs of those customers and result in a loss of shell egg sales. Similarly, customers who commit to stock greater
proportional quantities of cage -free eggs are under no obligation to continue to do so, which may result in an oversupply of cage-
free eggs and result in lower specialty shell egg prices, which could reduce the return on our capital investment in cage-free
production. In addition, on July 9, 2025, the DOJ filed a lawsuit against the State of California alleging that California’s cage-
free laws “impose burdensome red tape on the production of eggs and poultry products nationally in violation of the Supremacy
Clause of the U.S. Constitution” and lead to higher egg prices for U.S. consumers. Although this lawsuit was dismissed in March
2026, potential similar future litigation could further complicate and the cage-free egg landscape and affect our ability to
successfully navigate these issues.
Changing our infrastructure and operating procedures to conform to consumer preferences, customer demands, laws and
challenges to these laws has resulted and will continue to result in additional costs, including capital and operating cost increases.
In response to our customers’ announced goals and increased legal requirements for cage-free eggs, we have increased capital
expenditures to increase our cage-free production capacity. We are also enhancing our focus on cage-free capacity when
considering acquisition opportunities. Our customers typically do not commit to long-term purchases of specific quantities or
type of eggs with us, and as a result, we cannot predict with any certainty which types of eggs they will require us to supply in
future periods. The production of cage -free eggs is more costly than the production of conventional shell eggs, and these higher
production costs contribute to the prices of cage-free eggs, which historically have typically been higher than conventional shell
egg prices. Many consumers prefer to buy less expensive conventional shell eggs. These consumer preferences, in addition to the
regulatory landscape, may in turn influence our customers’ future needs for cage-free and conventional shell eggs. Due to these
uncertai nties, we may over-estimate future demand for cage -free eggs, which could increase our costs unnecessarily, or we may
under-estimate future demand for cage -free eggs, which could harm us competitively. If our competitors obtain non -cancelable
long-term contracts to provide cage -free eggs to our existing or potential customers, then there may be decreased demand for our
cage-free eggs due to these lost potential sales. If we and our competitors increase cage-free egg production and there is no
commensurate increase in demand for cage-free eggs, this overproduction could lead to an oversupply of cage -free eggs, reducing
the sales price for specialty shell eggs and our return on capital investments in cage-free production.
Failure to comply with applicable governmental regulations, including environmental regulations, could harm our
operating results, financial condition, and reputation. Further, we may incur significant costs to comply with any current
or future regulations.
We are subject to federal, state and local regulations relating to grading, processing, packaging, quality control, distribution,
advertising, labeling, sanitary control, food safety, storage, waste disposal, and other areas of our business and may be subject to
additional regulations in the future. As a fully-integrated shell egg producer, our shell egg facilities are subject to regulation and
inspection by the USDA, OSHA, EPA and FDA, as well as state and local health and agricultural agencies, among others. Our
shell egg production and feed mill facilities as well as our prepared foods operations are subject to FDA, USDA, EPA and OSHA
regulation and inspections, as applicable. In addition, rules are often proposed that, if adopted as proposed, could increase our
costs.
Further, the marketing, labeling and advertising of our products are subject to extensive regulation under federal, state and local
laws, including consumer protection laws. We make statements in our marketing, labeling and advertising regarding, among other
things, product attributes, nutritional content, sourcing practices, animal welfare standards and sustainability characteristics.
These statements may be challenged as false, misleading or deceptive. Changes in legal or regulatory requirements, including
22
with respect to nutrition facts, allergen disclosures, serving size standards, front -of-pack labeling, ingredient or packaging
restrictions, or marketing practices, or differing or evolving enforcement priorities, may increase our compliance costs or require
changes to our products, packaging or marketing practices. Failure, or
a
perceived failure, to comply with applicable regulations
could subject us to civil penalties, injunctions, product relabeling, recalls or withdrawals, loss of necessary approvals or permits,
loss of customers or damage to our reputation, any of which could have a material adverse effect on our business, financial
condition and results of operations.
Our operations and facilities are subject to various federal, state and local environmental, health, and safety laws and regulations
governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous
materials. Under these laws and regulations, we are required to obtain permits from governmental authorities, including, but not
limited to wastewater discharge permits and manure and litter land applications.
If we fail to comply with applicable laws or regulations, or fail to obtain necessary permits, we could be subject to significant
fines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be
materially adversely affected. In addition, because these laws and regulations are becoming increasingly more stringent, it i
s
possible that we will be required to incur significant costs for compliance with existing and future laws and regulations.
Events beyond our control, such as extreme weather, natural disasters and changing climate conditions, and legal or
regulatory responses may have a material adverse impact on our business and results of operations.
Extreme weather events, such as derechos, wildfires, drought, tornadoes, hurricanes, other storms, excessive cold or heat, floods
or other natural disasters, as well as other events beyond our control, such as bioterrorism, water rights restrictions and other fire
events, some of which have in the past and in the future could have a material adverse effect on our operating results and financial
condition. Such events have, and in the future may, among other things, cause one or more of the following: impair the health or
growth of our flocks, decrease production or availability of feed ingredients, or interfere with our operations due to power outages,
fuel shortages, discharges from overtopped or breached wastewater treatment lagoons, damage to our production and processing
facilities, labor shortages or disruption of transportation channels.
Increased global temperatures and more frequent occurrences of extreme weather events may cause crop and livestock areas to
become unsuitable, including due to water scarcity or high or unpredictable temperatures, which may result in much greater stress
on food and water systems and more pronounced food insecurity globally. Lower global crop production, including corn and
soybean meal, which are the primary feed ingredients that support the health of our animals, may result in significantly higher
prices for these commodity inputs, impact our ability to source the commodities we use to feed our flocks, and negatively impact
our ability to maintain or grow our operations. Changing climate conditions may increasingly expose workers and animals to
high heat and humidity stressors that adversely impact poultry production and our costs. Increased greenhouse gas emissions may
also negatively impact air quality, soil quality and water quality, which may hamper our ability to support our operations,
particularly in higher water - and soil-stressed regions.
Increasing frequency of severe weather events may negatively impact our ability to raise poultry and produce eggs profitably or
to operate our transportation and logistics supply chains. These changes may cause us to change, significantly, our day -to-day
business operations and our strategy. Changing climate conditions and extreme weather events may also impact demand for our
products given evolution of consumer food preferences. Even if we take measures to position our business in anticipation of such
changes, compliance with current and future legal or regulatory requirements may require significant management time, oversight
and enterprise expense. We may also incur significant expense tied to regulatory fines if laws and regulations are interpreted and
applied in a manner that is inconsistent with our business practices. We can make no assurances that our efforts to prepare for
these adverse events will be in line with future market and regulatory expectations and our access to capital to support our business
may also be adversely impacted.
Current and future litigation and other legal matters could expose us to significant liabilities and have a material adverse
effect on our business reputation.
We and certain of our subsidiaries are involved in various legal proceedings and other legal matters. Litigation, government
investigations and other legal matters are inherently unpredictable and costly, and although we believe we have meaningful
defenses in these matters, we may incur liabilities due to adverse judgments or penalties or we may enter into settlements of
claims, which could have a material adverse effect on our results of operations, cash flow and financial condition. For a discussion
of our ongoing legal proceedings see Part I. Item 3. Legal Proceedings below and Part II. Item 8. Notes to the Consolidated
Financial Statements,
. Such lawsuits, investigations and other legal matters are
expensive to respond to and defend, divert management’s attention, and may result in significant adverse judgments, penalties or
settlements. In addition, legal proceedings may expose us to negative publicity, all of which could have a material adverse effect
on our business, financial condition, result of operations, reputation and customer preference for our products and brands.
23
FINANCIAL AND ECONOMIC RISK FACTORS
Economic conditions, including inflation and interest rates, could negatively impact our business.
Economic conditions, including inflation and interest rates, may adversely affect our business by:
●
Limiting our access to capital markets or increasing the cost of capital we may need to grow or operate our business;
●
Changing consumer spending and habits and demand for eggs, particularly higher-priced eggs, as well as prepared foods;
●
Restricting the supply of energy sources or increasing our cost to procure energy; or
●
Reducing the availability of feed ingredients, packaging material, and other raw materials, or increasing the cost of these
items.
Deterioration of economic conditions could also negatively impact:
●
The financial condition of our suppliers, which may make it more difficult for them to supply raw materials;
●
The financial condition of our customers, which may decrease demand for eggs and prepared foods or increase our bad
debt expense; or
●
The financial condition of our insurers, which could increase our cost to obtain insurance, and/or make it difficult for
our insurers to meet their obligations in the event we experience a loss due to an insured peril.
According to the U.S. Bureau of Labor Statistics, from June 2021 to June 2022, the Consumer Price Index for All Urban
Consumers (“CPI-U”) increased 9.1%, the largest 12-month increase since the period ending December 1981. The CPI-
U
increased 3.3%, 2.4% an d 4.2% annually from May 2023 to May 2026. Inflationary costs have increased our input costs, and if
we are unable to pass these costs through to the customer it could have a material adverse effect on our business.
We hold significant cash balances in deposit accounts with deposits in excess of the amounts insured by the Federal Deposit
Insurance Corporation (“FDIC”). In the event of a bank failure at an institution where we maintain deposits in excess of the FDIC-
insured amount, we may lose such excess deposits.
The loss of any registered trademark or other intellectual property could enable other companies to compete more
effectively with us.
We utilize intellectual property in our business, including trademarks, copyrights and trade secrets. For example, we own the
trademarks
Farmhouse Eggs
®,
4Grain
®,
Sunups
®,
Sunny Meadow®, Van ’s®,
and
Egg-
Land’s Best
® and
Land O’ Lakes
® under license agreements with EB. We have invested a significant amount of money in
establishing and promoting our trademarked brands. The loss or expiration of any intellectual property could require us to rebrand
or discontinue affected products, reduce sales volumes, or incur additional costs and may enable our competitors to compete more
effectively with us by allowing them to make and sell products substantially similar to those we offer. This could negatively
impact our ability to produce and sell those products, thereby having a material adverse effect on our business, financial condition
and results of operations .
Impairment in the carrying value of goodwill or other assets could negatively affect our results of operations or net worth.
Goodwill represents the excess of the cost of business acquisitions over the fair value of the identifiable net assets acquired.
Goodwill is reviewed at least annually for impairment by assessing qualitative factors to determine whether the existence of
events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. As of May 30, 2026, we had $97.1 of goodwill. While we believe the current carrying value of this goodwill
is not impaired, future goodwill impairment charges could have a material adverse effect on our results of operations in any
particular period and our net worth.
RISK FACTORS RELATING TO OUR COMMON STOCK
Provisions of our certificate of incorporation, bylaws, and Delaware law may make an acquisition of us or a change in our
management more difficult.
Certain provisions of our certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other
change in control that stockholders may consider favorable, including transactions in which an investor might otherwise receive
a premium for its shares. These provisions also could limit the price that investors might be willing to pay in the future for shares
of our Common Stock, thereby depressing the market price of our Common Stock. Stockholders who wish to participate in these
transactions may not have the opportunity to do so. Furthermore, these provisions could prevent or frustrate attempts by our
stockholders to replace or remove our management. These provisions:
24
●
provide for the division of the Board into three classes as nearly equal in size as practicable with staggered three-year
terms and limit the removal of directors and the filling of vacancies;
●
authorize our Board to set the terms of and issue preferred stock, without stockholder approval, that could be issued to
persons friendly to management or could operate as a “poison pill” to dilute the stock ownership of a potential hostile
acquirer to prevent an acquisition that is not approved by our Board;
●
prohibit stockholder action by written consent;
●
prohibit stockholders from calling special meetings of stockholders;
●
establish advance notice requirements for stockholder nominations to our Board or for stockholder proposals that can be
acted on at stockholder meetings; and
●
require the approval of the holders of at least 66-2/3% of the voting power of all then outstanding shares of capital stock
of the Company entitled to vote generally in the election of directors, voting together as a single class, in order to amend
our certificate of incorporation and bylaws.
In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless
certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from
merging or combining with us for a prescribed period of time.
The price of our Common Stock may be affected by the availability of shares for sale in the market, and investors may
experience significant dilution as a result of future issuances of our securities, which could have a material adverse effect
on the market price of our Common Stock.
The sale or availability for sale of substantial amounts of our Common Stock could adversely impact the price of our Common
Stock. Our Fourth Amended and Restated Certificate of Incorporation authorizes us to issue 120,000,000 shares of our Common
Stock and 10,000,000 shares of preferred stock. As of July 22, 2026, there were 46,917,080 shares of our Common Stock
outstanding and no shares of preferred stock outstanding. Accordingly, a substantial number of shares of our Common Stock
remain authorized for issuance and could become available for sale in the market. Our Fourth Amended and Restated Certificate
of Incorporation authorizes our Board to set the terms of and issue preferred stock, without stockholder approval, and such shares
if issued could dilute the voting and economic interests of holders of Common Stock. Also, we may be obligated to issue
additional shares of our Common Stock in connection with employee benefit plans (including equity incentive plans or under our
KSOP).
In the future, we may decide to raise capital through offerings of our Common Stock, preferred stock, additional securities
convertible into or exchangeable for our Common Stock or preferred stock, or rights to acquire those securities or our Common
Stock or preferred stock. We may also issue such securities as consideration in an acquisition. The issuance of such securities
could result in dilution of existing stockholders’ equity interests in us. Issuances of substantial amounts of our Common Stock or
preferred stock, or the perception that such issuances could occur, may adversely affect prevailing market prices for our Common
Stock.
The price of our Common Stock may fluctuate significantly.
The market price of our Common Stock has fluctuated significantly and may continue to do so for various reasons including, but
not limited to, the following, many of which are beyond our control:
●
our quarterly or annual earnings or those of other companies in our industry;
●
the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
●
changes in recommendations by research analysts who track our Common Stock or the stock of other companies in our
industry, or a decision by such an analyst to reduce or cease coverage regarding our Common Stock;
●
changes in general conditions in the U.S. and global economy, financial markets or our industry, including those resulting
from changes in trade and tariff policies, changes in fuel prices or fuel shortages, geopolitical conflicts, incidents of
terrorism, pandemics or responses to such events;
●
changes in the competitive landscape for our business, including any changes resulting from industry consolidation
whether or not involving us;
●
our liquidity position;
●
future sales of our Common Stock;
●
any changes in our dividend policy or share repurchase program; and
●
other risks, including those described in this Risk Factors section.
The actual timing, number and value of shares repurchased under our share repurchase program will be determined by
management in its discretion and will depend on a number of factors, including but not limited to, the market price of our Common
25
Stock and general market and economic conditions. The share repurchase program may be suspended, modified or discontinued
at any time without prior notice.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We understand the importance of cybersecurity and its role in the success of the Company. Our business operations depend on
the effective use of our information systems in order to properly serve our customers, manage our business and track and report
our financial results. Our information technology team considers risks from cybersecurity threats in the implementation and
execution of our business processes. We consider and assess the risks from cybersecurity threats as part of our overall risk
assessment
In order to identify, assess and manage material risks arising from cybersecurity threats, we maintain internal resources to monitor
and quickly respond to such threats. We perform vulnerability scans and penetration testing designed to test the effectiveness of
our security practices. We
-party service providers to assist in the evaluation of our internal controls over our
information systems through audit and consulting services to test the design and operational effectiveness of security controls.
We continually monitor our systems to detect and identify cybersecurity threats. Prior to contracting with third-party vendors, we
perform risk assessments of the vendors and require the vendors to manage cybersecurity risks to our business operations as well
as notify us of any potential or known cybersecurity risks. We also require our employees to complete training programs to
increase their awareness of and sensitivity to cybersecurity threats. These training programs include the identification of such
threats and the proper responses to a potential cybersecurity beach that aligns with our adopted processes.
The Company has developed a response process in the event of a cybersecurity incident. The process includes the cooperation of
the information technology team and our management team to properly detect and respond to these incidents. These responses
include determination of the potential impact and materiality of the incident, potential disclosure and litigation matters, and
mitigation of actual or potential damage to our systems or reputation arising from the incident. Mitigation measures are
implemented to respond to any potential cybersecurity breach in order to continue to effectively serve our customers and conduct
our operations with as little interruption as practicable. The information technology team reviews the response process
periodically to ensure that it is designed to be effective and to encompass current or new cybersecurity threats.
As of July 22, 2026, we are
t aware of any risks from cybersecurity threats, including as a result of prior cybersecurity incidents,
that have materially affected or that we believe are reasonably likely to materially affect the Company, including our business
strategy, results of operations or financial condition. See
cybersecurity threats.
Governance
The Board is responsible for the oversight of management’s process for identifying and mitigating risks related to cybersecurity
threats.
On a quarterly basis, the Director of Information Technology provides a report to the Audit Committee regarding ongoing
processes to improve and update our current cybersecurity protocols, new cybersecurity threats, results of internal assessments,
and any recent cybersecurity incidents.
The
or appropriate in order for the Board to effectively oversee the Company’s cybersecurity risk management and strategy.
The Director of Information Technology and the team he manages are responsible for the operation and maintenance of our
information systems, including the assessment, identification and management of risks from cybersecurity threats.
Together, the
Director of Information Technology and his team have over 150 years of experience in the information technology and security
environment. Our
, to whom the Director of Information Technology reports, has served as Chief Financial
Officer and a Board member since 2018 and has over 40 years of risk management experience.
26
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