** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

# **Washington, D.C.20549**

# ** **

**FORM 10-K**

 

| **(Mark One)** |
|----------------|
| **x**          | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF 1934** |
| ** **     | ** ** | **For the fiscal year ended December 29, 2007** |
| ** **     | ** ** | ** ** |
| **o**          | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from                to                **

** **

**CommissionFile Number: 1-14556**

 

**THE INVENTURE GROUP, INC.**

**(FORMERLY POORE BROTHERS, INC.)**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                     | ** ** | **86-0786101**                        |
|----------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |       |                                  |

 

**5050 N.40th Street, Suite 300**

**Phoenix,Arizona 85018**

(Address ofprincipal executive offices) (Zip Code)

 

Registrant’stelephone number, including area code:  **(623) 932-6200**

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 
| **Title of Class**  | ** ** | **Name of exchange on which registered** |
|-------------------------------|------------|-------------------------------------------------------------------|
| Common Stock,  $.01 par value |       | Nasdaq                                                            |

 

Securitiesregistered pursuant to Section 12(g) of the Act:  **None**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

|   | Yes o No x |
|--------|------------|

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

|   | Yes o No x |
|--------|------------|

 

| 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 x No o |

 

| Indicate by check mark if  disclosure of delinquent filers in response to Item 405 of Regulation S-K is  not contained herein, and will not be contained, to the best of Registrant’s  knowledge, in definitive proxy or information statements incorporated by  reference in |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Part III of this  Form 10-K or any amendment to this Form 10-K.                                                                                                                                                                                                     | x |

 

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

 

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer o    |   | Smaller reporting company x |
|---------------------------|--------|---------------------|--------|----------------------------|--------|-----------------------------|
|                      |   |                |   | (Do not check if a         |   |                        |
|                      |   |                |   | smaller reporting company) |   |                        |

 

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

 

The aggregate marketvalue of the voting stock (Common Stock, $.01 par value) held by non-affiliatesof the Registrant was approximately $52.7 million based upon the closing marketprice on June 30, 2007, the last business day of the Registrant’s mostrecently completed second fiscal quarter.

 

The number of issued andoutstanding shares of Common Stock, $.01 par value, as of March 24, 2008was 20,186,213.

 

DOCUMENTSINCORPORATED BY REFERENCE

 

Portions of the ProxyStatement for the Registrant’s Annual Meeting of Shareholders to be held on May 19,2008 are incorporated by reference into Part III of this Form 10-K.

 

EXCHANGE ACTREPORTS AVAILABLE ON COMPANY WEBSITE

 

Under “SEC Filings” onthe “Investors” page of the Company’s website located atwww.inventuregroup.net, the following filings are made available as soon asreasonably practicable after they are electronically filed with or furnished tothe Securities and Exchange Commission (the “SEC”): the Company’s Annual Reporton Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,Proxy Statement on Schedule 14A related to the Company’s Annual ShareholdersMeeting, and any amendments to those reports or statements filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities ExchangeAct of 1934.  You may also read and copyany materials we file with the SEC at the SEC’s Public Reference Room at100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330.  TheSEC also maintains an Internet website located at http://www.sec.gov thatcontains the information we file of furnish electronically with the SEC.

 

 

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**TABLE OFCONTENTS**

 
|        | **PART I** |                                                                                                                |
|-------------|-----------------|---------------------------------------------------------------------------------------------------------------------|
|        | ** **      |                                                                                                                |
| Item 1.     |            | Business                                                                                                            | 4 |
| Item  1A.   |            | Risk Factors                                                                                                        | 10 |
| Item  2.    |            | Properties                                                                                                          | 17 |
| Item 3.     |            | Legal Proceedings                                                                                                   | 17 |
| Item 4.     |            | Submission  of Matters to a Vote of Security Holders                                                                | 17 |
|        |            |                                                                                                                |   |
|        |            | **PART II**                                                                                                    |   |
|        |            | ** **                                                                                                          |   |
| Item 5.     |            | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 18 |
| Item 7.     |            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 20 |
| Item 8.     |            | Financial  Statements and Supplementary Data                                                                        | 26 |
| Item 9.     |            | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               | 26 |
| Item 9A(T). |            | Controls and  Procedures                                                                                            | 26 |
| Item 9B.    |            | Other Information                                                                                                   | 27 |
|        |            |                                                                                                                |   |
|        |            | **PART III**                                                                                                   |   |
|        |            | ** **                                                                                                          |   |
| Item 10.    |            | Directors  and Executive Officers of the Registrant                                                                 | 28 |
| Item 11.    |            | Executive  Compensation                                                                                             | 28 |
| Item 12.    |            | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                     | 28 |
| Item 13.    |            | Certain  Relationships and Related Transactions                                                                     | 28 |
| Item 14.    |            | Principal  Accounting Fees and Services                                                                             | 28 |
|        |            |                                                                                                                |   |
|        |            | **PART IV**                                                                                                    |   |
|        |            | ** **                                                                                                          |   |
| Item 15.    |            | Exhibits and  Financial Statement Schedules                                                                         | 29 |

 

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**CAUTIONARY STATEMENT REGARDING****FORWARD-LOOKING STATEMENTS**

 

This Annual Report on Form 10-K, including alldocuments incorporated by reference, includes “forward-looking” statementswithin the meaning of Section 27A of the Securities Act of 1933, asamended (the “Securities Act”), Section 21E of the Securities Exchange Actof 1934, as amended, and the Private Securities Litigation Reform Act of 1995,and The Inventure Group, Inc. (the “Company”) desires to take advantage ofthe “safe harbor” provisions thereof. Therefore, the Company is including this statement for the expresspurpose of availing itself of the protections of the safe harbor with respectto all of such forward-looking statements. In this Annual Report on Form 10-K,the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,”“will likely result,” “will continue,” “future” and similar terms andexpressions identify forward-looking statements. The forward-looking statementsin this Annual Report on Form 10-K reflect the Company’s current viewswith respect to future events and financial performance. These forward-lookingstatements are subject to certain risks and uncertainties, includingspecifically the possibility that the Company will need additional financingdue to future operating losses or in order to implement the Company’s businessstrategy, the possible diversion of management resources from the day-to-dayoperations of the Company as a result of strategic acquisitions, potentialdifficulties resulting from the integration of acquired businesses with theCompany’s business, other acquisition-related risks, lack of consumeracceptance of existing and future products, dependence upon key license agreements,dependence upon major customers, significant competition, risks related to thefood products industry, volatility of the market price of the Company’s commonstock, par value $.01 per share (the “Common Stock”), the possible de-listingof the Common Stock from the Nasdaq SmallCap Market if the Company fails tosatisfy the applicable listing criteria (including a minimum share price) inthe future and those other risks and uncertainties discussed herein, that couldcause actual results to differ materially from historical results or thoseanticipated.  In light of these risks anduncertainties, there can be no assurance that the forward-looking informationcontained in this Annual Report on Form 10-K will in fact transpire orprove to be accurate.  Readers arecautioned to consider the specific risk factors described herein and in “RiskFactors,” and not to place undue reliance on the forward-looking statementscontained herein, which speak only as of the date hereof. The Companyundertakes no obligation to publicly revise these forward-looking statements toreflect events or circumstances that may arise after the date hereof. Allsubsequent written or oral forward-looking statements attributable to theCompany or persons acting on its behalf are expressly qualified in theirentirety by this section.

 

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**Item1.  Business**

 

**Description of Business**

 

The Inventure Group, Inc.(the “Company”) is engaged in the development, production, marketing anddistribution of innovative snack food products and frozen berry products thatare sold primarily through grocery retailers, mass merchandisers, club stores,convenience stores and vend distributors across the United States.  The Company currently manufactures and sellsnationally T.G.I. Friday’s® brand snacks under license from TGI Friday’s Inc.and BURGER KINGTM brand snack products unders license from BURGERKINGTM  We also distributeBraids® and pretzels.  The Company also currently (i) manufacturesand sells its own brands of snack food products, including Poore Brothers®, Bob’sTexas Style®, and Boulder Canyon Natural FoodsTM brand batch-friedpotato chips and Tato Skins® brand potato snacks, (ii) manufacturesprivate label potato chips for certain grocery retail chains and (iii) distributesin Arizona snack food products that are manufactured by others.  The Company sells its T.G.I. Friday’s® brandsalted snack products and BURGER KINGTM  licensed snack products to massmerchandisers, grocery, club and drug stores directly and to convenience storesand vend operators primarily through independent distributors.  The Company’s own brands are also soldthrough independent distributors.

 

# On May 17, 2007, The InventureGroup, Inc. and subsidiaries (“The Inventure Group” or the Company)completed the acquisition of Rader Farms, Inc. (“Rader Farms”) for a totalcost of approximately $20.9 million, including $0.2 million of acquisitioncosts, which was funded by cash of $4.9 million plus $16 million indebt.  Rader Farms is a Washingtoncorporation located in Whatcom County. The Company grows processes and markets premium berry blends,raspberries, blueberries, and rhubarb and purchases marionberries, cherries,cranberries and strawberries from a select network of fruit growers for resale.The fruit is processed, frozen and packaged for sale and distribution towholesale customers.  We believe the acquisitionprovides The Inventure Group access to a growing specialty food category with abest-in-class business.

#  

For the fiscal years 2007and 2006, net revenues totaled $90,910,580 and $69,818,930, respectively, andT.G.I. Friday’s® brand salted snacks represented 47% and  66%, respectively, of the Company’s total netrevenues.

 
| ** **                                            | ** ** | **Percent of Total Net Revenues** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                              | ** ** | **2006** | ** ** |
| Branded snack  and berry products                     |       | 94                                                    | %          | 93 | % |
| Private label  products                               |       | 3                                                     | %          | 3 | % |
| Total  manufactured snack and berry products revenues |       | 97                                                    | %          | 96 | % |
|                                                  |       |                                                  |       |   |   |
| Distributed  products segment revenues                |       | 3                                                     | %          | 4 | % |
|                                                  |       |                                                  |       |   |   |
| Total revenues                                        |       | 100                                                   | %          | 100 | % |

 

The Company produces T.G.I.Friday’s® brand snacks,  BURGER KINGTMsnack products and Tato Skins® brand potato snacks utilizing a sheeting andfrying process that includes licensed technology and each snack product isoffered in several different flavors and formulations.  All of these products are manufactured at theCompany-owned facility in Bluffton, Indiana, except for Mozzarella SnackSticks, Onion Rings and Hot Pepper Jack Cheese Fries products which areproduced by contract manufacturers on behalf of the Company and sold under theT.G.I. Friday’s® brand name.

 

Poore Brothers®, Bob’sTexas Style® and Boulder Canyon Natural FoodsTM brand potato chipsare manufactured with a batch-frying process that the Company believes producespotato chips with enhanced crispness and flavor. Poore Brothers®, Bob’s TexasStyle® and Boulder Canyon Natural FoodsTM potato chips are eachoffered in a variety of flavors.  TheCompany also manufactures potato chips for sale on contract manufacturing basisusing a continuous frying process.  The Company’spotato chips are manufactured at a Company-owned facility in Goodyear,Arizona.  See “*Products*”and “*Marketing andDistribution.”*

 

In addition, with theacquisition of Rader Farms, the Company grows raspberries, blueberries andrhubarb at its Company-owned farming operations in Lynden, Washington, whichare individually quick frozen on site to enhance shelf life.  The Company also purchases marionberries,cherries, cranberries and strawberries from a select network of fruit growersfor resale.  The fruit is processed,frozen and packaged for sale and distribution nationally to wholesale customersunder the Rader Farms® brand, as well as co-branded with store brands.

 

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The Company’s businessobjective is to build a diverse portfolio of specialty food brands that providehigh quality products at competitive prices that are superior in taste,texture, flavor variety and brand personality to comparable products. Asignificant element of the Company’s growth strategy is to develop, acquire orlicense innovative specialty food brands. We may broaden our focus for new opportunities beyond snack foods, andperhaps even beyond food brands.  TheCompany also plans to increase sales of its existing brands and continue toimprove profit margins through increased operating efficiencies andmanufacturing capacity utilization.  See “*Business Strategy*.”

 

The Company’s executive offices are located at 5050 N.40th Street, Suite 300 Phoenix, Arizona 85018, and its telephonenumber is (623) 932-6200.

 

**Company History**

 

The Inventure Group, Inc.,(“the Company”) a Delaware corporation, was formed in 1995 as a holding companyto acquire a potato chip manufacturing and distribution business, which hadbeen founded by Donald and James Poore in 1986. The Company changed its name from Poore Brothers, Inc. to TheInventure Group, Inc. on April 10, 2006.

 

In December 1996, the Company completed aninitial public offering of its Common Stock. In November 1998, the Company acquired the business and certainassets (including the Bob’s Texas Style® potato chip brand) of Tejas Snacks,L.P. (“Tejas”), a Texas-based potato chip manufacturer.  In October 1999, the Company acquiredWabash Foods, LLC (“Wabash”) including the Tato Skins®, O’Boisies®, andPizzarias® trademarks and the Bluffton, Indiana manufacturing operation andassumed all of Wabash Foods’ liabilities. In June 2000, the Company acquired Boulder Natural Foods, Inc.(“Boulder”) and the Boulder Canyon Natural FoodsTM brand of totallynatural potato chips.  In May 2007,the Company acquired Rader Farms, Inc., including a farming operation anda berry processing facility in Lynden, Washington.

 

In 2000, the Companylaunched its T.G.I. Friday’s® brand salted snacks pursuant to a licenseagreement with TGI Friday’s Inc., which expires in 2014.  In 2007, Company launched its BURGER KINGTMsnack products pursuant to a license agreement with BURGER KING, which expiresin 2012.

 

The Company continues tointroduce line extensions and test market new and innovative snack foodproducts.

 

### **Business Strategy**

### ** **

The Company is engaged inthe development, production, marketing and distribution of innovative snackfood products and frozen berry products that are sold primarily through groceryretailers, mass merchandisers, club stores, convenience stores and venddistributors across the United States and Canada.  The Company currently manufactures and sellsnationally T.G.I. Friday’s® brand snacks under license from TGI Friday’s Incand BURGER KINGTM snack products pursuant to a license agreementwith BURGER KING.  We also distributeBraids® and pretzels.  The Company alsocurrently (i) manufactures and sells its own brands of snack foodproducts, including Poore Brothers®, Bob’s Texas Style®, and Boulder CanyonNatural FoodsTM brand batch-fried potato chips and Tato Skins® brandpotato snacks, (ii) manufactures private label potato chips for certaingrocery retail chains, and (iii) distributes in Arizona snack foodproducts that are manufactured by others. The Company sells its T.G.I. Friday’s® brand snack products to massmerchandisers, grocery, club and drug stores directly and to convenience storesand vend operators through independent distributors.  The Company’s own brands are also soldthrough independent distributors.  Inaddition, with the acquisition of Rader Farms, the Company grows raspberries,blueberries and rhubarb at its Company-owned farming operations in Lynden,Washington, which are individually quick frozen on site to enhance shelflife.  The Company also purchasesmarionberries, cherries, cranberries and strawberries from a select network offruit growers for resale.  The fruit isprocessed, frozen and packaged for sale and distributed nationally to wholesalecustomers under the Rader Farms® brand, as well as through store brands.

 

The Company’s businessstrategy is to continue building a diverse portfolio of specialty food brandswith annualized revenues of $5 million to $50 million each through licensing,acquisition or development.  The goals ofour strategy are to (i) capitalize on specialty food brand opportunities, (ii) deliverincremental category growth for retailers, (iii) provide productinnovation targeted to a defined consumer segment, (iv) complement, ratherthan compete directly against, large national competitors with leading nationalbrands, and (v) build relationships with major retailers in all channelsof distribution by providing them higher margins, excellent customer serviceand constant innovation.  The primary elementsof the Company’s long-term business strategy are as follows:

 

*Develop, Acquire or License Innovative SpecialtyFood Brands.*  A significant element of the Company’sbusiness strategy is to develop, acquire or license new innovative specialtyfood brands that provide strategic fit with our existing business and possessstrong national brand equity in order to expand, complement or diversify theCompany’s existing business. The Company initiated this element of its strategyin 2000 by launching its first national 

 

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niche brand, T.G.I.Friday’s® brand salted snacks, under an exclusive license from TGI Friday’s Incand in 2007 launched its second national niche brand, BURGER KINGTMsnack products pursuant to a license agreement with BURGER KING.  The Company plans to continue developing,acquiring or licensing additional specialty food brands, though it intends tomitigate the financial impact of launching new brands by introducing newlicensed products in small-scale test markets rather than large scale regionalor national introductions.

 

*Broaden Distribution of Existing Brands.* The Company plans to increase distribution and build the market share ofits existing branded products through selected trade activity in variousexisting or new markets and channels. For example, the Company has recently extended the shelf life of ourPoore Brothers® brands in order for us to expand beyond Arizona.  We are looking at expanding the distributionof our Boulder Canyon Natural FoodsTM brand nationally through thenatural channel as well as through the natural segment in the Grocerychannel.  The Company is looking atexpanding overseas with the T.G.I. Friday’s® brand. Marketing efforts mayinclude, among other things, trade advertising and promotional programs withdistributors and retailers, in-store advertisements, in-store displays andlimited consumer advertising, public relations and coupon programs.

 

*Pursue Acquisitions.* In 2007, the Company acquired Rader Farms, Inc. (“Rader Farms”) foran estimated total cost of approximately $20.9 million. The Companycontinues to evaluate a number of acquisition opportunities in the specialtyfood area where we can use our competencies in Operations, Sales, Marketing andDistribution in order to drive revenue and profit growth.

 

*Develop New Products for Existing Brands.* In addition, the Company plans to continue its innovation activities toidentify and develop (i) new line extensions for its brands, such as newflavors or products, and (ii) new food segments in which to expand thebrand’s presence.  We have launched anumber of new items such as: T.G.I. Friday’s® Quesadillas, T.G.I. Friday’s®Pizza chips, BURGER KINGTM potato snack products, Poore Brothers®Three Cheese Jalapeno, Poore Brothers® Reduced Fat and Boulder Canyon NaturalFoodsTM  Spinach and Artichokepotato chips.

 

*Leverage Infrastructure and Capacity.* The Company’s Indiana, Arizona and Washington facilities are currentlyoperating at approximately 40%, 60% and 50% of their respective manufacturingcapacities.  The Company currently hasarrangements with several grocery chains for the manufacture and distributionby the Company of their respective private label potato chips and believes thatadditional contract manufacturing opportunities exist.  While such arrangements are extremely pricecompetitive and can be short in duration, the Company believes that they mayprovide a profitable opportunity for the Company to improve the capacityutilization of its facilities.  TheCompany intends to seek additional private label and contract manufacturingcustomers located near its facilities who demand superior product quality at areasonable price.  The Company alsoutilizes contract manufacturers’ excess capacity to produce items that theCompany does not have the equipment or ability to manufacture.

 

*Improve Profit Margins.* The Company plans to increase gross profit margins through increasedlong-term revenue growth, improved operating efficiencies, and higher margin newproducts.  It believes that additionalimprovements to its manufactured products’ gross profit margins are possiblewith the achievement of the business strategies discussed above.  Depending on product mix, the Companybelieves that the existing manufacturing facilities could produce, in theaggregate, up to $230 million in annual revenue volume and thereby furtherreduce manufacturing product costs as a percentage of net revenue.

 

#### **Products**

#### ** **

*ManufacturedSnack Food Products*.  The Company produces T.G.I.Friday’s® brand Potato Skins snacks, BURGER KINGTM brand potatosnack products and Tato Skins® brand potato snacks utilizing a sheeting andfrying process.  All of these are offeredin several different flavors and formulations and are manufactured at theCompany-owned facility in Bluffton, Indiana, except for Mozzarella SnackSticks, Onion Rings and Hot Pepper Jack Cheese Fries products which areproduced by contract manufacturers on behalf of the Company and sold under theT.G.I. Friday’s® brand name.

 

Poore Brothers®, Bob’sTexas Style®, and Boulder Canyon Natural FoodsTM brand potato chipsare produced utilizing a batch-frying process and are marketed by the Companyas premium products based on their distinctive combination of cooking methodand variety of distinctive flavors. Poore Brothers®, Bob’s Texas Style® and Boulder Canyon Natural FoodsTMpotato chips are each offered in a variety of flavors.  The Company currently has agreements withseveral grocery chains pursuant to which the Company produces their respectiveprivate label potato chips in the styles and flavors specified by each grocerychain.

 

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*DistributedSnack Food Products*.  The Company purchases andresells throughout Arizona snack food products manufactured by others.  Such products include pretzels, popcorn, dipsand meat snacks.

 

*BerryFarming and Processing.* The Company grows raspberries, blueberries andrhubarb at its Company-owned farming operations in Lynden, Washington, whichare individually quick frozen on site to enhance shelf life.  The Company also purchases marionberries,cherries, cranberries and strawberries from a select network of fruit growersfor resale.  The fruit is processed andpackaged for sale and distribution nationally to wholesale customers under theRader Farms® brand, as well as through store brands.

 

**Manufacturing**

 

The Company-owned manufacturingfacility in Bluffton, Indiana includes three fryer lines that can produce anaggregate of up to approximately 9,000 pounds per hour of T.G.I. Friday’s®,BURGER KINGTM,  and TatoSkins® brand products.  The Indianafacility is currently operating at approximately 40% of capacity.  Certain T.G.I. Friday’s®, BURGER KINGTMand Tato Skins® brand products are produced utilizing a sheeting and fryingprocess that includes some licensed technology. Some T.G.I. Friday’s® brand salted snack products are produced bycontract manufacturers on behalf of the Company.  See “*Patents, Trademarks andLicense*s.”

 

The Company believes that a keyelement of the success to date of the Poore Brothers®, Bob’s Texas Style® andBoulder Canyon Natural FoodsTM brand potato chips has been theCompany’s use of certain cooking techniques and key ingredients in themanufacturing process to produce potato chips with improved flavor.  These techniques currently involve twoelements: the Company’s use of a batch-frying process, as opposed to theconventional continuous line cooking method, and the Company’s use ofdistinctive seasonings to produce potato chips in a variety of flavors.  The Company believes that although thebatch-frying process produces less volume, it is superior to conventionalcontinuous line cooking methods because it enhances crispness and flavorthrough greater control over temperature and other cooking conditions.

 

The Company-ownedmanufacturing facility in Goodyear, Arizona has the capacity to produce up toapproximately 3,500 pounds of potato chips per hour, including 1,400 pounds ofbatch-fried branded potato chips per hour and 2,100 pounds of continuous-friedprivate label potato chips per hour.  TheCompany owns additional batch-frying equipment which, if needed, could beinstalled without significant time or cost, and which would result in increasedcapacity to produce the batch-fried potato chips.  The Arizona facility is currently operatingat approximately 60% of capacity.

 

The Company-owned farmingand facility in Lynden, Washington has the capacity to produce up to eightmillion pounds of grown berries per year. The individually quick frozen (“IQF”) processing facilities located atthe same location have the capacity to IQF forty million pounds of berriesannually.  Overall, the farming andprocessing facilities are operating at 97% and 50% of capacity, respectively.

 

There can be no assurancethat the Company will obtain sufficient business to recoup the Company’sinvestments in its manufacturing facilities or to increase the utilizationrates of such facilities.   See “*Item 2. Properties*.”

 

### **Marketing and Distribution**

### ** **

The Company’s T.G.I.Friday’s® brand snack food products have achieved significant market presenceacross a number of sales channels.  TheCompany attributes the success of its products in these markets to consumerloyalty.  The Company believes thisloyalty results from the products’ differentiated taste, texture and flavorvariety which result from the Company’s manufacturing processes.  The Company has retained a leading nationalsales and marketing agency with employees and offices nationwide to represent T.G.I.Friday’s® brand snacks on behalf of the Company in the grocery and conveniencestore channels.  The Company’s own salesorganization sells T.G.I. Friday’s® brand snacks in the mass, club and drugchannels.  The Company also obtainssignificant sales on T.G.I. Friday’s® brand snacks in the vending channelnationwide through an independent network of brokers and distributors.

 

The Company’s potato chipbrands are distributed to grocery and other retailers primarily by a selectgroup of independent distributors.  PooreBrothers® brand potato chip products have achieved significant market presencein the southwest United States.  TheCompany’s Bob’s Texas Style® brand potato chip products have achievedsignificant market presence in south/central Texas.  The Company’s Boulder Canyon Natural FoodsTMbrand potato chip products have achieved significant market presence inColorado and in natural food stores nationwide. The Company selects brokers and distributors for its branded productsprimarily on the basis of quality of service, call frequency on customers,financial capability and relationships they have with supermarkets and vendingdistributors, including access to shelf space for snack food.

 

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The Company’sdistribution throughout Arizona includes approximately 50 independentlyoperated service routes.  Each route isoperated by an independent distributor who merchandises to major grocery storechains in Arizona, such as Albertson’s, Basha’s, Fry’s and Safeway stores.  In addition to servicing major supermarketchains, the Company’s independent distributors service many smaller independentgrocery stores, club stores, and military facilities throughout Arizona.  In addition to Poore Brothers® brand products,the Company distributes throughout Arizona a wide variety of snack food itemsmanufactured by other companies, including pretzels, popcorn, dips, and meatsnacks.  The Company currently alsoretains a Canadian sales and marketing agency to sell to Canadian customers andis seeking opportunities to selectively expand its growth in other countries.

 

The Company’s marketingof its berry products is essentially performed through buyer networks andbrokerage arrangements with whom the Company has relationships.   Similar to its snack business, the Companyselects brokers primarily on the basis of quality of service, call frequency oncustomers, financial capability and relationships they have with supermarketsand club stores including access to freezer space for the berry products.

 

Successful marketing ofthe Company’s products depends, in part, upon obtaining adequate shelf orfreezer space for such products, particularly in supermarkets for both snacksand berry products and vending machines for snacks.  Frequently, the Company incurs additionalmarketing costs in order to obtain additional shelf space.  Whether or not the Company will continue toincur such costs in the future will depend upon a number of factors including,demand for the Company’s products, relative availability of shelf space andgeneral competitive conditions.  TheCompany may incur significant shelf space, consumer marketing or otherpromotional costs as a necessary condition of entering into competition ormaintaining market share in particular markets or channels.  Any such costs may materially affect theCompany’s financial performance.

 

The Company’s marketingprograms are designed to increase product trial and build brand awareness incore markets.  Most of the Company’smarketing spending has traditionally been focused on trade advertising andtrade promotions designed to attract new consumers to the products at a reducedretail price.  The Company’s marketingprograms also include selective event sponsorship designed to increase brandawareness and to provide opportunities to mass sample branded products.  Sponsorship of the Arizona Diamondbackstypifies the Company’s efforts to reach targeted consumers and provide themwith a sample of the Company’s products to encourage new and repeat purchases.

 

**Suppliers**

 

The principal rawmaterials used by the Company are potatoes, potato flakes, corn, oils andberries.  The Company believes that theraw materials it needs to produce its products are readily available fromnumerous suppliers on commercially reasonable terms.  Potatoes, potato flakes and corn are widelyavailable year-round, although they are subject to seasonal pricefluctuations.  The Company uses a varietyof oils in the production of its snack products and the Company believes thatalternative sources for such oils, as well as alternative oils, are readilyabundant and available.  The Company alsouses seasonings and packaging materials in its snack manufacturing process.  Although the Company produces many of itsberry products in its own farms, it also augments that by purchasing additionalberries to meet customer demands.

 

The Company chooses itssuppliers based primarily on price, availability and quality.  Although the Company believes that itsrequired products and ingredients are readily available, and that its businesssuccess is not dependent on any single supplier, the failure of certainsuppliers to meet the Company’s performance specifications, quality standardsor delivery schedules could have a material adverse effect on the Company’soperations.  In particular, a suddenscarcity, a substantial price increase, or an unavailability of productingredients could materially adversely affect the Company’s operations.  There can be no assurance that alternativeingredients would be available when needed and on commercially attractiveterms, if at all.

 

### **Customers**

### ** **

Three customers of theCompany, Costco, Wal*Mart (including its SAM’s Clubs) and Vistar, formerlyVending Services of America, a national vending distributor  accounted for 15%, 8% and 8%, respectively,of the Company’s 2007 net revenues.  Theremainder of the Company’s revenues was derived from sales to a limited numberof additional customers, either grocery chains, club stores or regionaldistributors, none of which individually accounted for more than 10% of theCompany’s net revenues in 2007.  Adecision by any of the Company’s major customers to cease or substantiallyreduce their purchases could have a material adverse effect on the Company’sbusiness.

 

The majority of theCompany’s revenues are attributable to external customers in the UnitedStates.  The Company does sell toCanadian customers as well, however the revenues attributable to Canadiancustomers is insignificant.  All of theCompany’s assets are located in the United States.

 

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### ** **

### **Competition**

### ** **

The Company’s snackproducts generally compete against other snack foods, including potato chipsand tortilla chips.  The snack foodindustry is large and highly competitive and is dominated by large foodcompanies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc.,Nabisco and Kraft.  These companiespossess substantially greater financial, production, marketing, distributionand other resources than the Company and their brands are more widelyrecognized than the Company’s products.  Numerousother companies that are actual or potential competitors of the Company offerproducts similar to the Company’s, and some of these have greater financial andother resources (including more employees and more extensive facilities) thanthe Company.  In addition, manycompetitors offer a wider range of products than offered by the Company.  Local or regional markets often havesignificant smaller competitors, many of whom offer products similar to thoseof the Company.  Expansion of the Company’soperations into new markets has and will continue to encounter significantcompetition from national, regional and local competitors that may be greaterthan that encountered by the Company in its existing markets.  In addition, such competitors may challengethe Company’s position in its existing markets. While the Company believes that it has innovative products and methodsof operation that will enable it to compete successfully, there can be noassurance of its ability to do so.

 

The Company’s berry productsgenerally compete against other packaged berries on the basis of quality andprice.  Obtaining freezer space atsupermarkets and club stores is tantamount to successfully competing with otherberry products, as supermarkets and club stores will frequently only carry onebrand of frozen berry products, contrasted to snack products where multiplebrands are carried.

 

The principal competitivefactors affecting the markets of the Company’s products include product qualityand taste, brand awareness among consumers, access to shelf or freezer space,price, advertising and promotion, varieties offered, nutritional content,product packaging and package design. The Company competes in its markets principally on the basis of productquality and taste.  While productsproduced at the Company’s Bluffton, Indiana facility involve the use of certainlicensed technology and unique manufacturing processes, the taste and qualityof products produced at the Company’s Goodyear, Arizona facility are largelydue to two elements of the Company’s manufacturing process: its use ofbatch-frying and its use of distinctive seasonings to produce a variety offlavors.  The Company does not haveexclusive rights to the use of either element; consequently, competitors mayincorporate such elements into their own processes.

 

**Government Regulation**

 

The manufacture, labelingand distribution of the Company’s products are subject to the rules andregulations of various federal, state and local health agencies, including theFood & Drug Administration (“FDA”). In May 1994, regulations issued under the Nutrition Labeling andEducation Act of 1990 (“NLEA”), which requires specified nutritionalinformation to be disclosed on all packaged foods, concerning labeling of foodproducts, including permissible use of nutritional claims such as “fat-free”and “low-fat” became effective.  TheCompany believes that it is complying in all material respects with the NLEAregulations and closely monitors the fat content of its snack products throughvarious testing and quality control procedures. The Company does not believe that compliance with the NLEA regulationsmaterially increases the Company’s manufacturing costs.

 

As a direct result of theSeptember 11, 2001 terrorism attack, the FDA issued the Bioterrorism Actof 2002 (“the Act”) to protect the U.S. food supply.  While there are four parts to the Act, onlytwo of the provisions impact the Company. One requirement for the Company was registration with the FDA as a U.S.Food Manufacturing Company, which the Company completed prior to the requireddate of December 12, 2003.  Thesecond of the Act’s provisions pertaining to the Company relates to recordretention.  The Company is required toretain records pertaining to its raw materials’ immediate previous sources (“oneback”) as well as its finished goods’ subsequent recipients (“one up”) fortwelve months.  The Act was effective January 1,2005, and the Company believes it is currently compliant with this provision.

 

On July 11, 2003,the FDA published its final rule on Trans Fat Labeling requiring that foodlabels declare trans fats on or before January 1, 2006.  This rule requires that trans fat bedeclared on a separate line in the standard Nutrition Facts below total fat andsaturated fat and be calculated to the nearest 0.5 grams, unless it is lessthan 0.5 grams in which case it may be expressed as 0 grams.

 

There can be no assurancethat new laws or regulations will not be passed that could require the Companyto alter the taste or composition of its products or impose other obligationson the Company.  Such changes couldaffect sales of the Company’s products and have a material adverse effect onthe Company.

 

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In addition to lawsrelating to food products, the Company’s operations are governed by lawsrelating to environmental matters, workplace safety and worker health,principally the Occupational Safety and Health Act.  The Company believes that it presentlycomplies in all material respects with such laws and regulations.

 

### **Employees**

### ** **

As of December 29,2007, the Company had 361 full-time employees, including 308 in manufacturingand distribution, 23 in sales and marketing and 30 in administration andfinance.  The Company’s employees are notrepresented by any collective bargaining organization, and the Company hasnever experienced a work stoppage.  TheCompany believes that its relations with its employees are good.

 

**Patents, Trademarks and Licenses**

 

The Company producesT.G.I. Friday’s® brand snacks, BURGER KINGTM brand potato snackproducts and Tato Skins® brand potato crisps utilizing a sheeting and fryingprocess that includes technology that the Company licenses from a thirdparty.  Pursuant to the license agreementbetween the Company and the third party, the Company has a royalty-bearing,exclusive right license to use the technology in the United States, Canada, andMexico until such time the parties mutually agree to terminate the agreementand provide written sixty (60) days notice to each other.  In consideration for the use of thistechnology, the Company is required to make royalty payments on sales ofproducts manufactured utilizing the technology until such termination date.  The patents for this technology expired December 26,2006. However, should products substantially similar to Tato Skins®, O’Boisies®and Pizzarias® become available for any reason in the marketplace by anymanufacturer other than the Company which results in a sales decline of 10% ormore, any royalty obligation for the respective product(s) shall cease.

 

TheCompany licenses the T.G.I. Friday’s® brand snacks trademark from TGI Friday’sInc. under a license agreement with a term expiring in 2014.  Pursuant to the license agreement, theCompany is required to make royalty payments on sales of T.G.I. Friday’s® brandsnack products and is required to achieve certain minimum sales levels bycertain dates during the contract term.

 

TheCompany licenses the BURGERKINGTM  brand snacks trademarkfrom BURGER KINGTM undera license agreement with a term expiring in 2012.  Pursuant to the license agreement, theCompany is required to make royalty payments on sales of BURGER KINGTM brand snack products and is required to achievecertain minimum sales levels by certain dates during the contract term.

 

TheCompany continues to evaluate new licensing opportunities tobroaden its product offering and to complement the growth of itsexisting T.G.I. Friday’s® and BURGER KINGTM product lines through the introduction of new products in snack foods aswell as other consumer product categories.

 

TheCompany owns the following trademarks in the United States: Poore Brothers®,Rader FarmsTM, An IntenselyDifferent Taste®, Texas Style®, Boulder Canyon®, Tato Skins®, O’Boisies®,Pizzarias®, Braids® and Knots®.

 

TheCompany considers its trademarks to be of significant importance in the Company’sbusiness.  The Company is not aware ofany circumstances that would have a material adverse effect on the Company’sability to use its trademarks.  Anytermination of the Company’s license agreements, whether at the expiration ofits term or prior thereto, could have a material adverse effect on the Company’sfinancial condition and results of operations.

 

**Seasonality**

 

The food productsindustry is seasonal.  Consumers tend topurchase our snack products at higher levels during the major summer holidaysand also at times surrounding major sporting events throughout the year.  Additionally, we may face seasonal priceincreases for raw materials.

 

**Item1A.  Risk Factors**

 

Any one of the followingfactors could affect operating results. You should read and carefully consider these risk factors, and theentirety of this report, before you invest in our securities.

 

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**Risks Related to Our Business**

 

*We mayincur significant future expenses due to the implementation of our businessstrategy.*

 

The Company is strivingto achieve its long-term vision of being a significant marketer of specialtyfood brands.  Such action is subject tothe substantial risks, expenses and difficulties frequently encountered in theimplementation of a business strategy. Even if the Company is successful in developing, acquiring and/or licensingnew brands, and increasing distribution and sales volume of the Company’sexisting products, it may require the Company to incur substantial additionalexpenses, including advertising and promotional costs, “slotting” expenses(i.e., the cost of obtaining shelf of freezer space in certain grocery stores),and integration costs of any future acquisitions. Accordingly, the Company mayincur additional losses in the future as a result of the implementation of theCompany’s business strategy, even if revenues increase significantly. There canbe no assurance that the Company will be able to implement its strategic plan,that its business strategy will prove successful or that it will be able tomaintain profitability during such implementation.

 

*We maynot be able to obtain the additional financing we need to implement ourbusiness strategy.*

 

A significant element ofthe Company’s business strategy is the development, acquisition and/orlicensing of innovative specialty food brands, for the purpose of expanding,complementing and/or diversifying the Company’s business. In connection witheach of the Company’s previous acquisitions, the Company borrowed funds orassumed additional indebtedness in order to satisfy a substantial portion ofthe consideration required to be paid by the Company.  The Company may, in the future, requireadditional third party financing (debt or equity) as a result of any futureoperating losses, in connection with the expansion of the Company’s businessthrough non-acquisition means, in connection with any additional acquisitionscompleted by the Company, or to provide working capital for general corporatepurposes.  There can be no assurance thatany such required financing will be available or, if available, be on termsattractive to the Company.  Any thirdparty financing obtained by the Company may result in dilution of the equityinterests of the Company’s shareholders.

 

*We expectour future growth to be derived in significant part, from acquisitions, but ouracquisition strategy may not be successful, or we may not be successfulintegrating acquisitions.*

 

A significant element ofthe Company’s business strategy is the pursuit of selected strategicacquisition opportunities for the purpose of expanding, complementing and/ordiversifying the Company’s business. However, no assurance can be given that the Company will be able toidentify, finance and complete additional suitable acquisitions on acceptableterms, or that future acquisitions, if completed, will be successful.  Any future acquisitions could divertmanagement’s attention from the daily operations of the Company and otherwiserequire additional management, operational and financial resources.  Moreover, there can be no assurance that theCompany will be able to successfully integrate acquired companies or their managementteams into the Company’s operating structure, retain management teams ofacquired companies on a long-term basis, or operate acquired companiesprofitably. Acquisitions may also involve a number of other risks, includingadverse short-term effects on the Company’s operating results, dependence onretaining key personnel and customers, and risks associated with unanticipatedliabilities or contingencies.

 

*We aresubject to ongoing financial covenants under our main credit facility, and ifwe fail to meet those covenants or otherwise default on our credit facility,our lender may accelerate our borrowings.*

 

At December 29,2007, the Company had outstanding indebtedness in the aggregate principalamount of $13.6 million.  Theindebtedness under these loans is secured by the Company’s land and buildings.

 

We borrowed the principalamount of $16 million of our indebtedness pursuant to a credit agreement withU.S. Bank National Association which is secured by substantially all assets ofthe Company.  The Company’s obligationsunder the Credit Agreement are guaranteed by each of its subsidiaries.  The Company is required to comply withcertain financial covenants pursuant to the U.S. Bank Credit Agreement so longas borrowings from U.S. Bank remain outstanding.  Should the Company be in default under any ofsuch covenants, U.S. Bank shall have the right, upon written notice and afterthe expiration of any applicable period during which such default may be cured,to demand immediate payment of all of the then unpaid principal and accrued butunpaid interest under the Credit Agreement. At December 29, 2007, the Company was in compliance with allcovenants of the Credit Agreement.

 

As the Company implementsits business strategy, there can be no assurance that the Company will remainin compliance with the financial covenants in the future. Any acceleration ofthe borrowings under the Credit Agreement prior to the applicable maturitydates could have a material adverse effect upon the Company. See “*Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations — Liquidity and Capital Resources*.”

 

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*We maynot be able to successfully implement our strategy to expand our business internationally.*

 

The Company plans toexpand sales to Canadian customers and is exploring other international marketopportunities for its brands.  Suchexpansion may require significant management attention and financial resourcesand may not produce desired levels of revenue. International business is subject to inherent risks, including longeraccounts receivable collection cycles, difficulties in managing operationsacross disparate geographical areas, difficulties enforcing agreements andintellectual property rights, fluctuations in local economic, market andpolitical conditions, compliance requirements with U.S. and foreign exportregulations, potential adverse tax consequences and currency exchange ratefluctuations.

 

*We mayincur material losses and costs as a result of product liability claims thatmay be brought against us or any product recalls we have to make*.

 

As a manufacturer andmarketer of food products, the Company may be subjected to various productliability claims.  There can be noassurance that the product liability insurance maintained by the Company willbe adequate to cover any loss or exposure for product liability, or that suchinsurance will continue to be available on terms acceptable to the Company.  Any product liability claim not fully coveredby insurance, as well as any adverse publicity from a product liability claimor product recall, could have a material adverse effect on the financialcondition or results of operations of the Company.

 

*We aresubject to numerous governmental regulations, and our failure to comply withthose regulations could result in fines or penalties being imposed on us.*

 

The packaged foodindustry is subject to numerous federal, state and local governmentalregulations, including those relating to the preparation, labeling andmarketing of food products.  The Companyis particularly affected by the Nutrition Labeling and Education Act of 1990 (“NLEA”),which requires specified nutritional information to be disclosed on allpackaged foods.

 

Additionally, as a directresult of the September 11, 2001 terrorism attack, the FDA issued theBioterrorism Act of 2002 (“the Act”) to protect the U.S. food supply.  While there are four parts to the Act, onlytwo of the provisions impact the Company. One requirement for the Company was registration with the FDA as a U.S.Food Manufacturing Company, which the Company completed prior to the requireddate of December 12, 2003.  Thesecond of the Act’s provisions pertaining to the Company relates to recordretention.  The Company is required toretain records pertaining to its raw materials’ immediate previous sources (“oneback”) as well as its finished goods’ subsequent recipients (“one up”) fortwelve months. The Act was effective January 1, 2005.

 

On July 11, 2003,the FDA published its final rule on Trans Fat Labeling requiring that foodlabels declare trans fats on or before January 1, 2006.  This rule requires that trans fat bedeclared on a separate line in the standard Nutrition Facts below total fat andsaturated fat and be calculated to the nearest 0.5 grams, unless it is lessthan 0.5 grams in which case it may be expressed as 0 grams.

 

We cannot assure you thatwe will not face fines or penalties if our efforts to comply with theseregulations are determined to be inadequate.

 

*Newlyadopted governmental regulations could increase our costs or liabilities orimpact the sale of our products.*

 

The food industry ishighly regulated.  We cannot assure youthat new laws or regulations will not be passed that could require the Companyto alter the taste or composition of its products or impose other obligationson the Company.  Such changes couldaffect sales of the Company’s products and have a material adverse effect onthe Company.

 

*We do notown the patents for the technology we use to manufacture our T.G.I. Friday’s®,BURGER KINGTM  and Tato Skins®brand products*.

 

The Company licensestechnology from a third party in connection with the manufacture of its T.G.I.Friday’s®, BURGER KINGTM  andTato Skins® brand products and has a royalty-bearing, exclusive right licenseto use the technology in the United States, Canada, and Mexico until such timethe parties mutually agree to terminate the agreement and provide written sixty(60) days notice to each other.  Inconsideration for the use of this technology, the Company is required to makeroyalty payments to the third party on sales of products manufactured utilizingthe technology until such termination date. The patents for this technology expired December 26, 2006.  Since these patents expired, we no longerhave exclusive rights to this technology and, as a result, may face additionalcompetition that could adversely affect our revenues.  Moreover, competitors of the Company, certainof which may have significantly greater resources than the Company, may utilizedifferent technology in the manufacture of products that are similar to thosecurrently manufactured, or that may in the future be manufactured, by theCompany.  The entry of any such productsinto the marketplace could have a material adverse effect on sales ofT.G.I. Friday’s®, BURGER KINGTM  and Tato Skins® brand products, as well as any such futureproducts, by the Company.

 

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The taste and quality ofPoore Brothers®, Bob’s Texas Style® and Boulder Canyon Natural FoodsTMbrand potato chips is largely due to two elements of the Company’smanufacturing process: its use of batch-frying and its use of distinctiveseasonings to produce a variety of flavors. The Company does not have exclusive rights to the use of either element;consequently, competitors may incorporate such elements into their ownprocesses.

 

*Themajority of revenues are derived from a limited number of food brands.*

 

TheCompany derives a substantial portion of its revenue from a limited number ofsnack food brands.  For the year ended December 29,2007, 79% of the Company’s net revenues were attributable to the T.G.I. Friday’s®brand products, thePoore Brothers® brand products and Rader Farms brand products.  A decrease in the popularity of these brandsduring any year could have a material adverse effect on the Company’s business,financial condition and results of operations. There can be no assurance that any of the Company’s food brands will retaintheir historical levels of popularity or increase in popularity.  Any impact to a licensed brand’s reputationcould also lead to an impact on the Company’s other snack food productsassociated with that brand.  Decreasedsales from any one of our key food brands without a corresponding increase insales from other existing or newly introduced products would have a materialadverse effect on the Company’s financial condition and results of operations.

 

*We dependon a license agreement for the right to sell our T.G.I. Friday’s® brandand BURGER KINGTM brand products and we may rely on similar licenseagreements in the future.*

 

The T.G.I. Friday’s®brand products are manufactured and sold by the Company pursuant to a licenseagreement by and between the Company and TGI Friday’s Inc. which expires in2014.  Pursuant to the license agreement,the Company is subject to various requirements and conditions (including,without limitation, minimum sales targets). The failure of the Company to comply with certain of such requirementsand conditions could result in the early termination of the license agreementby TGI Friday’s Inc.  Any termination ofthe license agreement, whether at the expiration of its term or prior thereto,could have a material adverse effect on the Company’s financial condition andresults of operations.

 

The BURGER KINGTMbrand products are manufactured and sold by the Company pursuant to a licenseagreement by and between the Company and BURGER KINGTM which expiresin 2012.  Pursuant to the licenseagreement, the Company is subject to various requirements and conditions(including, without limitation, minimum sales targets).  The failure of the Company to comply withcertain of such requirements and conditions could result in the early terminationof the license agreement by BURGER KINGTM.  Any termination of the license agreement,whether at the expiration of its term or prior thereto, could have a materialadverse effect on the Company’s financial condition and results of operations.

 

The Company may introduceone or more new product lines in the future that will be manufactured and soldpursuant to additional license agreements by and between the Company and one ormore third parties.  Pursuant to any suchlicense agreements, the Company will likely be subject to various requirementsand conditions (including minimum sales targets or royalty payments).  The failure of the Company to comply withcertain of such requirements and conditions could result in the earlytermination of such additional license agreements.  Depending upon the success of any such newproduct lines, a termination of the applicable license agreements, whether atthe expiration of their respective terms or prior thereto, could have a materialadverse effect on the Company’s financial condition and results of operations.

 

*The lossof one of our major customers could have a material adverse effect on ourbusiness*.

 

Three customers of theCompany, Costco, Wal*Mart (including its SAM’s Clubs) and Vistar, formerlyVending Services of America, a national vending distributor accounted for 15%,8% and 8%, respectively, of the Company’s 2007 net revenues, with the remainderof the Company’s net revenues being derived from sales to a limited number ofadditional customers, either grocery chains or regional distributors, none ofwhich individually accounted for more than 10% of the Company’s revenues for2007.  A decision by any major customerto cease or substantially reduce its purchases could have a material adverseeffect on the Company’s business.

 

*The lossof certain key employees could adversely affect our business*.

 

The Company’s success isdependent in large part upon the abilities of its executive officers, includingEric Kufel, President, Chief Executive Officer, Terry McDaniel, Chief OperatingOfficer and Steve Weinberger, Chief Financial Officer.  The Company’s business strategy willchallenge its executive officers, and the inability of such officers to performtheir duties or the inability of the Company to attract and retain other highlyqualified personnel could have a material adverse effect upon the Company’sbusiness and prospects.

 

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**Risks Related to the SnackBusiness**

 

*We maynot be able to compete successfully in our highly competitive industry**.*

 

The market for snackfoods, such as those sold by us, including potato chips and meat snacks, islarge and intensely competitive. Competitive factors in the snack food industryinclude product quality and taste, brand awareness among consumers, access tosupermarket shelf space, price, advertising and promotion, variety of snacksoffered, nutritional content, product packaging and package design. The Companycompetes in that market principally on the basis of product taste and quality.

 

The snack food industryis dominated by large food companies, including Frito-Lay, Inc., Nabiscoand others which have substantially greater financial and other resources thanthe Company and sell brands that are more widely recognized than are theCompany’s products. Numerous other companies that are actual or potentialcompetitors of the Company, many with greater financial and other resources(including more employees and more extensive facilities) than the Company,offer products similar to those of the Company. In addition, many of suchcompetitors offer a wider range of products than that offered by the Company.Local or regional markets often have significant smaller competitors, many ofwhom offer products similar to those of the Company. With expansion of Companyoperations into new markets the Company has and will continue to encountersignificant competition from national, regional and local competitors that maybe greater than that encountered by the Company in its existing markets. In addition,such competitors may challenge the Company’s position in its existing markets.There can be no assurance of the Company’s ability to compete successfully.

 

*Unavailabilityof our necessary supplies, at reasonable prices, could materially adversely affectour operations.*

 

The Company’smanufacturing costs are subject to fluctuations in the prices of potatoes,potato flakes, wheat flour, corn and oil as well as other ingredients of theCompany’s products.  Potatoes, potatoflakes, wheat flour and corn are widely available year-round, and the Companyuses a variety of oils in the production of its products.  Nonetheless, the Company is dependent on itssuppliers to provide the Company with products and ingredients in adequatesupply and on a timely basis.  Thefailure of certain suppliers to meet the Company’s performance specifications,quality standards or delivery schedules could have a material adverse effect onthe Company’s operations.  In particular,a sudden scarcity, a substantial price increase, or an unavailability ofproduct ingredients could materially adversely affect the Company’soperations.  There can be no assurancethat alternative ingredients would be available when needed and on commerciallyattractive terms, if at all.

 

*We mayincur substantial costs in order to market our snacks.*

 

Successful marketing ofsnack products generally depends upon obtaining adequate retail shelf space forproduct display, particularly in supermarkets. Frequently, food manufacturersand distributors, such as the Company, incur additional costs in order toobtain additional shelf space. Whether or not the Company incurs such costs ina particular market is dependent upon a number of factors, including demand forthe Company’s products, relative availability of shelf space and generalcompetitive conditions. The Company may incur significant shelf space or otherpromotional costs as a necessary condition of entering into competition ormaintaining market share in particular markets or stores. If incurred, such costsmay materially affect the Company’s financial performance.

 

*Ourbusiness may be adversely affected by oversupply of snack products at thewholesale and retail levels and seasonal fluctuations.*

 

Profitability in the foodproduct industry is subject to oversupply of certain snack products at thewholesale and retail levels, which can result in our products going out of datebefore they are sold.  The snack productsindustry is also seasonal.  Consumerstend to purchase our products at higher levels during the major summer holidaysand also at times surrounding the major sporting events throughout the year.

 

*We maynot be able to respond successfully to shifting consumer tastes.*

 

Consumer preferences forsnack foods are continually changing and are extremely difficult topredict.  The ability of the Company togenerate revenues in new markets will depend upon customer acceptance of theCompany’s products.  The success of newproducts will be key to the success of the Company’s business plan and therecan be no assurance that the Company will succeed in the development of any newproducts or that any new products developed by the Company will achieve marketacceptance or generate meaningful revenue for the Company.

 

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*Diettrends may adversely affect our revenues.*

 

Increased consumerconcerns about nutrition and healthy diets and the risk that sales of our foodproduct may decline due to perceived health concerns, changes in consumertastes or other reasons beyond the control of the Company may adversely affectour revenues.

 

**Risks Related to the Rader Farms Business**

 

*Farming is subject to numerousinherent risks including changes in weather conditions or natural disastersthat can have an adverse impact on crop production and materially affect ourresults of operations.*

 

The Company,through its subsidiary Rader Farms, Inc. is subject to the risks thatgenerally relate to the agricultural industry. Change in weather conditions andnatural disasters, such as earthquakes, droughts, extreme cold or pestilence,may affect the planting, growing and delivery of crops, reduce sales stock,interrupt distribution, and have a material adverse impact on our business,financial condition and results of operation. Our competitors may be affecteddifferently by such weather conditions and natural disasters depending on thelocation of their supplies or operations.

 

*Revenues are derived from onebrand; the loss or impairment of this brand may have a material adverse effecton operating results*.

 

Rader Farms derives themajority of its revenue from the sales of one brand. The Company’s net revenuesare predominantly attributable to the Rader Farms® brand of frozen berries. Adecrease in the popularity of frozen berries during any year could have amaterial adverse effect on the Company’s business, financial condition andresults of operations. There can be no assurance that the Rader Farms® brand will retain itshistorical level of popularity or increase in popularity. Decreased sales fromthe Rader Farms® brand of frozen berries would have a material adverse effecton the Company’s financial condition and results of operations.

 

*The loss of the general managerof Rader Farms could adversely affect our business*.

 

Rader Farms’ success is dependent in large part uponthe ability of Rader Farms’ general manager Brad Rader. The inability of Mr. Raderto perform his duties or the inability of Rader Farms to attract and retainother highly qualified personnel could have a material adverse effect upon theCompany’s business and prospects. Mr. Rader is signed to an employmentagreement through May, 2010.

 

*Unavailability of purchasedberries, at reasonable prices, could materially adversely affect ouroperations.*

 

The Company’s manufacturing costs are subject tofluctuations in the prices of certain commodity prices. Berries are not readilyavailable year-round, therefore, the Company uses an individual quick frozen(IQF) technique to freeze the berries harvested for use during the year to meetprocessing demands. In addition to freezing our own home-grown berries, we alsopurchase a significant amount of berries from outside suppliers to meetcustomer demands. The Company is dependent on its suppliers to provide theCompany with adequate supply and on a timely basis. The failure of certainsuppliers to meet the Company’s performance specifications, quality standardsor delivery schedules could have a material adverse effect on the Company’soperations. In particular, a sudden scarcity, a substantial price increase, oran unavailability of certain types of berries could materially adversely affectthe Company’s operations. There can be no assurance that alternative productswould be available when needed and on commercially attractive terms, if at all.

 

*We may incur material losses andcosts as a result of product liability claims that may be brought against us orany product recalls we have to make*.

 

The sale of food products for human consumptioninvolves the risk of injury to consumers. Such hazards could result from:tampering by unauthorized third parties; product contamination (such aslisteria, e-coli, and salmonella) or spoilage; the presence of foreign objects,substances, chemicals, and other agents; residues introduced during the growing,storage, handling or transportation phases; or improperly formulated products.There can be no assurance that the product liability insurance maintained bythe Company will be adequate to cover any loss or exposure for productliability, or that such insurance will continue to be available on termsacceptable to the Company. Any product liability claim not fully covered byinsurance, as well as any adverse publicity from a product liability claim orproduct recall, could have a material adverse effect on the financial conditionor results of operations of the Company.

 

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**Risks Related to Our Securities**

 

*Themarket price of our Common Stock is volatile**.*

 

The market price of ourCommon Stock has experienced a high level of volatility since the completion ofthe Company’s initial public offering in December 1996.  Commencing with an offering price of $3.50per share in the initial public offering, the market price of the Common Stockexperienced a substantial decline, reaching a low of $0.50 per share (based onlast reported sale price of the Common Stock on the Nasdaq SmallCap Market) on December 22,1998.  During fiscal 2007, the marketprice of the Common Stock (based on last reported sale price of the Common Stockon the Nasdaq SmallCap Market) ranged from a high of $3.24 per share to a lowof $1.60 per share.  The last reportedsales price of the Common Stock on the Nasdaq SmallCap Market on December 28,2007 was $2.05per share. There can be no assurance as to the future marketprice of the Common Stock.  See *“Our Common Stock may not continue to trade at a market pricesufficient to prevent our de-listing from the NASDAQ SmallCap Market.”*

 

*OurCommon Stock may not continue to trade at a market price sufficient to preventour de-listing from the NASDAQ SmallCap Market.*

 

In order for the Company’sCommon Stock to continue to be listed on the Nasdaq SmallCap Market, theCompany is required to be in compliance with certain continued listingstandards.  One of such requirements isthat the bid price of listed securities be equal to or greater than $1.00.  If, in the future, the Company’s Common Stockfails to be in compliance with the minimum closing bid price requirement for atleast thirty consecutive trading days or the Company fails to be in compliancewith any other Nasdaq continued listing requirements, then the Common Stockcould be de-listed from the Nasdaq SmallCap Market.  Upon any such de-listing, trading, if any, inthe Common Stock would thereafter be conducted in the over-the-counter marketon the so-called “pink sheets” or the “Electronic Bulletin Board” of theNational Association of Securities Dealers, Inc. (“NASD”).  As a consequence of any such de-listing, aninvestor could find it more difficult to dispose of, or to obtain accuratequotations as to the price of, the Company’s Common Stock.  See *“The market price of ourCommon Stock is volatile.”*

 

*Asignificant amount of our Common Stock is controlled by individuals, and theinterests of such individuals may conflict with those of other shareholders.*

 

As a result of the WabashFoods acquisition, Capital Foods, LLC (“Capital Foods”) (an affiliate of theformer owner of Wabash Foods) became the single largest shareholder of theCompany, holding approximately 22% of the outstanding shares of Common Stockbased on Capital Foods’ Schedule 13G filing. Accordingly, Capital Foods is in a position to exercise substantialinfluence on the business and affairs of the Company.  In addition, Heartland Advisors, Inc. (“Heartland”)and BC Advisors, LLC (“BC”) are the beneficial owners of approximately 14% and15%, respectively, of the outstanding shares of Common Stock at December 29,2007 based on their Schedule 13G filings. Capital Foods, Heartland and BC are hereinafter referred to collectivelyas the “Significant Shareholders.”  Therecan be no assurance that one or more of the Significant Shareholder will notadopt or support a plan to undertake a material change in the management orbusiness of the Company.

 

Apart from transfer restrictionsarising under applicable provisions of the securities laws, there are norestrictions on the ability of the Significant Shareholders to transfer any orall of their respective shares of Common Stock at any time.  One or more of such transfers could have theeffect of transferring effective control of the Company, including to one ormore parties not currently known to the Company.

 

*Asignificant amount of our Common Stock is subject to registration rights, andthe registration and sale of such shares could negatively affect the marketprice of our Common Stock and impair our ability to obtain financing.*

 

Approximately 4.3 millionshares of outstanding Common Stock issued by the Company are subject to “piggyback”registration rights granted by the Company, pursuant to which such shares ofCommon Stock may be registered under the Securities Act and, as a result,become freely tradable in the future. The Company will be required to pay all expenses relating to any suchregistration, other than underwriting discounts, selling commissions and stocktransfer taxes applicable to the shares, and any other fees and expensesincurred by the holder(s) of the shares (including, without limitation,legal fees and expenses) in connection with the registration.  All or a portion of such shares may, at theelection of the holders thereof, be included in a future registration statementof the Company and, upon the effectiveness thereof, may be sold in the publicmarkets.

 

No prediction can be made as to theeffect, if any, that future sales of shares of Common Stock will have on themarket price of the Common Stock prevailing from time to time.  Sales of substantial amounts of Common Stock,or the perception that these sales could occur, could adversely affectprevailing market prices for the Common Stock and could impair the ability ofthe Company to raise additional capital through the sale of its equitysecurities or through debt financing.

 

16

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*OurCertificate of Incorporation authorizes us to issue preferred stock, and therights of holders of Common Stock may be adversely affected by the rights ofholders of any such preferred stock*.

 

The Company’s Certificateof Incorporation authorizes the issuance of up to 50,000 shares of “blank check”preferred stock with such designations, rights and preferences as may bedetermined from time to time by the Board of Directors of the Company.  The Company may issue such shares ofpreferred stock in the future without shareholder approval.  The rights of the holders of Common Stockwill be subject to, and may be adversely affected by, the rights of the holdersof any preferred stock that may be issued in the future.  The issuance of preferred stock, while providingdesirable flexibility in connection with possible acquisitions and othercorporate purposes, could have the effect of discouraging, delaying orpreventing a change of control of the Company, and preventing holders of CommonStock from realizing a premium on their shares. In addition, under Section 203 of the Delaware General CorporationLaw (the “DGCL”), the Company is prohibited from engaging in any businesscombination (as defined in the DGCL) with any interested shareholder (asdefined in the DGCL) unless certain conditions are met.  This statutory provision could also have ananti-takeover effect.

 

### **Item 2. Properties**

### ** **

The Company owns a140,000 square foot manufacturing facility located on 15 acres of land inBluffton, Indiana, approximately 20 miles south of Ft. Wayne, Indiana.  The facility is financed by a mortgage withU.S. Bank National Association that matures in December, 2016.  The Company produces its T.G.I. Friday’s®brand snacks, BURGER KINGTM  brandsnacks and Tato Skins® brand potato snacks at the Bluffton, Indianafacility.

 

The Company owns a 60,000square foot manufacturing facility located on 7.7 acres of land in Goodyear,Arizona, approximately 15 miles west of Phoenix, Arizona.  The facility is financed by a mortgage withMorgan Guaranty Trust Company of New York that matures in June 2012.  The Company produces its Poore Brothers®, Bob’sTexas Style® and Boulder Canyon Natural FoodsTM brand potato chips,as well as its private label potato chips, at the Goodyear, Arizona facility.

 

The Company owns afarming, processing and storage facility located on 696 acres of land inLynden, Washington, which is leased from the Uptrails Group LLC, owned by fourmembers of the Rader family.  One of thefour, Brad Rader, is a current employee of the Company and two of the others,Lyle and Sue Rader, were the former owners of Rader Farms.  This lease commenced on the acquisition dateand is effect until May 17, 2017. Lease payments are $43,500 per month throughout the term of the lease.

 

The Company also leasesone-half of a 200,000 square foot facility in Bluffton, Indiana which is usedas a distribution center.  The Companyhas entered into a lease, the initial term expiring in November 2006, withrespect to the facility and has entered into the first of two three-yearrenewal options.  Current lease paymentsare approximately $32,500 per month.

 

The Company isresponsible for all insurance costs, utilities and real estate taxes inconnection with its facilities. The Company believes that its facilities areadequately covered by insurance.

 

### **Item 3.  LegalProceedings**

### ** **

The Company isperiodically a party to various lawsuits arising in the ordinary course ofbusiness.  Management believes, based ondiscussions with legal counsel, that the resolution of such lawsuits,individually and in the aggregate, will not have a material adverse effect onthe Company’s financial position or results of operations.

 

The InventureGroup, Inc. is one of eight companies sued by the Environmental LawFoundation in August, 2006 in the Superior Court for the State of Californiafor the County of Los Angeles by the Attorney General of the State ofCalifornia for alleged violations of California Proposition 65. CaliforniaProposition 65 is a state law that, in part, requires companies to warnCalifornia residents if a product contains chemicals listed within the statute.The plaintiff seeks injunctive relief and penalties but has made no specificdemands. We continue to vigorously defend this suit.

 

### **Item 4. Submission of Matters to a Vote of Security Holders**

### ** **

None.

 

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#### **PART II**

#### ** **

#### **Item 5.  Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities**

#### ** **

The Company’s CommonStock is traded on the Nasdaq SmallCap Market tier of the Nasdaq Stock Marketunder the symbol “SNAK.”  There wereapproximately 211 shareholders of record on March 24, 2008.  The Company believes the number of beneficialowners is substantially greater than the number of record holders because alarge portion of the Common Stock is held of record in broker “street names.”

 

The Company has neverdeclared or paid any dividends on the shares of Common Stock.  Management intends to retain any futureearnings for the operation and expansion of the Company’s business and does notanticipate paying any dividends at any time in the foreseeable future.  Additionally, certain debt agreements of theCompany limit the Company’s ability to declare and pay dividends.

 

The following table setsforth the range of high and low sale prices of the Company’s Common Stock asreported on the Nasdaq SmallCap Market for each quarter of the fiscal yearsended December 29, 2007 and December 30, 2006.

 
| ** **                        | ** ** | **Sales Prices** | ** ** |
|-----------------------------------|------------|-----------------------|------------|
| **Period of Quotation** | ** ** | **High**              | ** ** | **Low** | ** ** |
| **Fiscal  2006:**                 |       |                  |       |   |   |
| First Quarter                     |       | $                     | 3.10       |   | $ | 2.43 |   |
| Second Quarter                    |       | $                     | 3.07       |   | $ | 2.41 |   |
| Third Quarter                     |       | $                     | 3.02       |   | $ | 2.00 |   |
| Fourth Quarter                    |       | $                     | 2.66       |   | $ | 2.19 |   |
|                              |       |                  |       |   |   |
| **Fiscal  2007:**                 |       |                  |       |   |   |
| First Quarter                     |       | $                     | 2.90       |   | $ | 2.35 |   |
| Second Quarter                    |       | $                     | 3.18       |   | $ | 2.68 |   |
| Third Quarter                     |       | $                     | 3.24       |   | $ | 2.02 |   |
| Fourth Quarter                    |       | $                     | 2.41       |   | $ | 1.60 |   |

 

The information appearingunder the heading “Securities Authorized for Issuance under Equity CompensationPlans” in the Company’s 2008 Proxy Statement is incorporated by reference inthis section.

 

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The Company re-purchasedshares of Common Stock during the fourth fiscal quarter of 2007 as detailed inthe table below.  See also Note 9 to ourFinancial Statements in this Annual Report for stock repurchases made during 2007and 2006.

 
| **Period**                                            | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum Dollar  value of Shares that  May Yet be  Purchased under the  Plans or Programs** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| September 30,  2007 – October 30, 2007 |       | —                                               |       | —                                           |       | —                                                                                                                           |       | $                                                                                                                                              | 2,359,618  |   |
| October 31,  2007 – November 30, 2007  |       | 193,915                                              |       | $                                                | 2.14       |                                                                                                                             | 193,915    |                                                                                                                                           | $          | 1,944,640 |   |
| December 1,  2007 – December 29, 2007  |       | 45,118                                               |       | $                                                | 1.81       |                                                                                                                             | 45,118     |                                                                                                                                           | $          | 1,863,847 |   |
| **Total**                                             |       | 239,033                                              |       | $                                                | 2.07       |                                                                                                                             | 239,033    |                                                                                                                                           | $          | 1,863,847 |   |

 

The share repurchaseprogram (the “Repurchase Program”) was approved by our Board on August 23,2007 and announced to the public on August 27, 2007.  The Repurchase Program authorizes managementto purchase up to $3 million of our outstanding common shares.  Purchases may be made in the open market orin privately negotiated transactions from time to time.  The Repurchase Program will expire on August 23,2008.

 

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**Item 7.****   ****Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

Management’s Discussionand Analysis of Financial Condition and Results of Operations (“MD&A”)should be read in conjunction with the other sections of this Annual Report on Form 10-K,including “Item 1:  Business;” “Item6:  Selected Financial Data;” and “Item8:  Financial Statements andSupplementary Data.”  The varioussections of this MD&A contain a number of forward-looking statements, allof which are based on our current expectations and could be affected by theuncertainties and risk factors described throughout this filing andparticularly in “Item 1A. Risk Factors.” Accordingly, the Company’s actual future results may differ materiallyfrom historical results or those currently anticipated.

 

**Overview**

 

The Inventure Group, Inc.(the “Company”) is engaged in the development, production, marketing anddistribution of innovative snack food products and frozen berry products thatare sold primarily through grocery retailers, mass merchandisers, club stores,convenience stores and vend distributors across the United States.  The Company currently manufactures and sellsnationally T.G.I. Friday’s® brand snacks under license from TGI Friday’s Incand BURGER KINGTM brand potato snack products under license fromBURGER KINGTM. We also distribute Braids® and pretzels.  The Company also currently (i) manufacturesand sells its own brands of snack food products, including Poore Brothers®, Bob’sTexas Style®, and Boulder Canyon Natural FoodsTM brand batch-friedpotato chips and Tato Skins® brand potato snacks, (ii) manufacturesprivate label potato chips for grocery retail chains in the Southwest, and (iii) distributesin Arizona snack food products that are manufactured by others. The Companyalso grows raspberries, blueberries and rhubarb at its Company-owned farmingoperations in Lynden, Washington, which are individually quick frozen on siteto enhance shelf life.  The Company alsopurchases marionberries, cherries, cranberries and strawberries from a selectnetwork of fruit growers for resale.  Thefruit is processed, frozen and packaged for sale and distribution nationally towholesale customers under the Rader Farms® brand, as well as through storebrands.

 

The Company’s net revenueincreased 30.2% in fiscal 2007, primarily due to the acquisition of RaderFarms. net revenues from sales of T.G.I. Friday’s® snack products, whichcomprised 47% of total net revenues, decreased 6.9%.  Net revenues from potato chips and othersnacks increased 14.7% in 2007.  Thetable below highlights the changes between years:

 

**NetRevenues Comparison**

**($ inmillions)**

** **
| ** **                     | ** ** | **2007** | ** ** | **2006** | ** ** | **% Change** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|-------------------|------------|
| T.G.I. Friday’s®     |       | $        |  42.9 |     | $          |  46.1        |       | (6.9 | )% |
| Potato Chips and  Other snacks |       | 27.2     |       | 23.7     |       | 14.7              | %          |
| Rader Farms  berry products    |       | 20.8     |       | —   |       | 100.0             | %          |
| Total                          |       | $        |  90.9 |     | $          |  69.8        |       | 30.2 | % |

 

The market for snackfoods, such as potato chips, tortilla chips and meat snacks, is large andintensely competitive.  The industry isdominated by several significant competitors and includes many othercompetitors with greater financial and other resources than the Company.  However, the Company’s growth has exceededthe industry average over the last few years primarily due to historical growthfrom T.G.I. Friday’s® branded products and more recently from its acquisitionof Rader Farms.  This growth has been dueto penetration into new and existing accounts, primarily in vend, mass, groceryand convenience stores.

 

In connection with theimplementation of the Company’s business strategy, the Company is likely torequire future debt or equity financings (particularly in connection withfuture strategic acquisitions). Expenditures stemming from acquisition-related integration costs, tradeand consumer marketing programs and new product development may adverselyaffect operating expenses and consequently may adversely affect operating andnet income.

 

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**Key Trends**

 

*RetailerConsolidation*

 

The retail foodenvironment continues to be influenced by consolidation as fewer largeretailers, including Kroger, Safeway and Wal*Mart, are gaining a larger shareof the grocery retail environment.  Theseretailers are also consolidating their regional buying operations into singularnational operations to improve efficiency. This action creates opportunities for the Company because brands likeT.G.I. Friday’s® and BURGER KINGTM brand snack products are nichebrands that can be sold effectively on a national basis.

 

*ConsumerTrends*

 

The snack industry hasbeen heavily influenced in the past five years by a proliferation of newflavors and health focused snacks, with a rapid increase in the number oflow-fat, low-carb and all-natural and organic products.  Mainstream retailers such as Safeway have nowcreated standalone natural and organic sections in their stores.  The Company believes this trend for healthiersnacks will continue and will provide opportunities for its Rader Farms berryproducts to experience revenue growth.

 

*RawMaterial and Freight Price Increases and Subsequent Retail Price Increases*

 

The snack foods industryhas experienced higher costs as a result of the increase in the price ofpotatoes and oil.  Additionally, bothinbound transportation of raw materials and outbound transportation of finishedgoods have experienced higher costs as a result of freight surcharges.  Nearly all raw materials have experiencedhigher pricing both as a result of higher freight costs and certain productsrequire oil based raw materials.  As aresult of these raw material price increases, many companies, including us,have implemented price increases in 2007 and 2008.

 

**Results of Operations**

 

The following discussionsummarizes the significant factors affecting the consolidated operatingresults, financial condition, liquidity and capital resources of theCompany.  This discussion should be readin conjunction with Item 8: “Financial Statements and Supplementary Data” andthe “Cautionary Statement on Forward-Looking Statements” on page 4.

 

*Yearended December 29, 2007 compared to the year ended December 30, 2006*

 
| ** **                                    | ** ** | **2007** | ** ** | **2006**               | ** ** | **Difference** | ** ** |
|-----------------------------------------------|------------|----------|------------|------------------------|------------|----------------|------------|
| **(dollars in millions)**           | ** ** | **$**    | ** ** | **% of Rev** | ** ** | **$**          | ** ** | **% of Rev** | ** ** | **$** | ** ** | **%** | ** ** |
| Net revenues                                  |       | $        | 90.9       |                   | 100.0      | %              | $          | 69.8 |   | 100.0 | % | $ | 21.1 |   | 30.2 | % |
| Cost of revenues                              |       | 75.3     |       | 82.8                   |       | 56.5           |       | 81.0 |   | 18.8 |   | 33.3 |   |
| Gross profit                                  |       | 15.6     |       | 17.2                   |       | 13.3           |       | 19.0 |   | 2.3 |   | 17.3 |   |
| Selling, general  and administrative expenses |       | 14.1     |       | 15.5                   |       | 11.7           |       | 16.7 |   | 2.4 |   | 20.5 |   |
| Impairment of  intangible asset               |       | 2.7      |       | 3.0                    |       | —-        |       | — |   | 2.7 |   | 100.0 |   |
| Operating income  (loss)                      |       | (1.2     | )          | (1.3                   | )          | 1.6            |       | 2.3 |   | (2.8 | ) | (175.0 | ) |
| Interest income  (expense), net               |       | (1.0     | )          | (1.1                   | )          | 0.3            |       | 0.4 |   | (1.3 | ) | (433.3 | ) |
| Income (loss)  before income taxes            |       | (2.2     | )          | (2.4                   | )          | 1.9            |       | 2.7 |   | (4.1 | ) | (215.8 | ) |
| Income tax  benefit (provision)               |       | 0.7      |       | 0.8                    |       | (0.8           | )          | (1.1 | ) | 1.5 |   | 187.5 |   |
| Net income  (loss)                            |       | $        | (1.5       | )                      | (1.7       | )%             | $          | 1.1 |   | 1.6 | % | $ | (2.6 | ) | (236.4 | )% |

 

For the fiscal year endedDecember 29, 2007, net revenues increased 30.2%, or $21.1 million, to$90.9 million compared with net revenues of $69.8 million for the previousfiscal year.  The main cause of thisincrease was the acquisition of Rader Farms, which contributed $20.8 million ofnet revenues in 2007 compared to none in 2006. Further, T.G.I. Friday’s®, which comprised 47% of total net revenues in2007, decreased 6.9%.  Our potato chipsand other snacks revenue more than offset that decrease, as it increased 14.7%in net revenues in 2007 primarily due to increased net revenues from PooreBrothers® and Boulder Canyon Natural FoodsTM brand batch-friedpotato chips, of 23% and 32%, respectively.

 

Gross profit for 2006 increased$2.3 million to $15.6 million, but decreased as a percentage of net revenues to17.2% as compared to 19.0% in 2006.  Costof revenues on the snack products increased $1.9 million, largely as a resultof increased commodity and freight costs compared to 2006.  This caused the gross margin from snackproducts to decrease to 16.6% as compared to 19.0% in the prior year.  Gross margin from the Rader Farms berryproducts was 18.9%, which helped offset part of the decreased gross marginrealized from the snack products.

 

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Selling, general andadministrative expenses increased to $14.1 million in fiscal 2007, butdecreased as a percentage of revenues to 15.6% as compared to 16.7% in2006.  However, 2007 also included a $2.7million impairment charge realized on the Bob’s Texas Style® and Tato Skins®trademarks.  No such charge wasrecognized in 2006.  Inclusive of thischarge, selling, general and administrative expenses were 18.5%, which was higherthan the 16.7% recognized in 2006.

 

The Company’s effectiveincome tax benefit rate was 32.1% in 2007 while its effective tax expense rate41.7% in 2006.  This difference waslargely due to a loss before taxes being realized in 2007 compared to incomebefore taxes being realized in 2006.

 

Net loss for 2007 was$1.5 million, representing a $2.6 million decrease when compared to net incomeof $1.1 million for 2006.   The net lossfor 2007 equated to $(0.08) per basic and diluted share, compared with $0.06per basic and diluted share, in 2006.

 

**Liquidity and Capital Resources**

 

Net working capital was$3.6 million (a current ratio of 1.2:1) and $13.4 million (a current ratio of3.0:1) at December 29, 2007 and December 30, 2006, respectively.  For the fiscal year ended December 29,2007, the Company utilized $0.7 million in operating activities primarily as aresult of increased inventories. Investing activities utilized $23.4 million, primarily due to theacquisition of Rader Farms and the purchase of fixed assets.  Financing activities provided $15.9 million,largely due to debt borrowings and draw downs on the Company’s line ofcredit.  For the fiscal year ended December 30,2006, the Company generated cash flow of $2.5 million from operatingactivities, invested $1.3 million in new land, building and equipment, made$0.5 million in payments on long-term debt, received $0.2 million in proceedsfrom the issuance of Common Stock pursuant to the exercise of stock options andrepurchased $1.8 million in treasury stock.

 

The Company’s Goodyear, Arizona manufacturing anddistribution facility is subject to a $1.6 million mortgage loan from MorganGuaranty Trust Company of New York, bears interest at 9.03% per annum and issecured by the building and the land on which it is located. The loan matureson July 1, 2012; however monthly principal and interest installments of$16,825 are determined based on a twenty-year amortization period.

 

The Company’s Bluffton, Indiana manufacturing anddistribution facility was purchased for $3.0 million in December, 2006. Thefacility is subject to a $2.3 million mortgage loan from U.S. Bank NationalAssociation, bears interest at the 30 day LIBOR plus 165 basis points and issecured by the building and the land on which it is located. The interest rateassociated with this debt instrument was fixed to 6.85% via an interest rateswap agreement with U.S. Bank National Association in December 2006.  The loan matures in December, 2016; howevermonthly principal and interest installments of $18,392 are determined based ona twenty-year amortization period.

 

To fund the acquisition of Rader Farms the Companyentered into a Loan Agreement (the “Loan Agreement”) with U.S. Bank NationalAssociation (“U.S. Bank”). Each of our subsidiaries is a guarantor of the LoanAgreement, which is secured by a pledge of all of the assets of ourconsolidated group. The borrowing capacity available to us under the LoanAgreement consists of notes representing:

·                  a $15,000,000 revolving line of creditmaturing on June 30, 2011; based on asset eligibility, there was $4.2million of borrowing availability under the line of credit at December 29,2007.

·                  an equipment term loan, secured by theequipment acquired, subject to a $5.8 million mortgage loan from U.S. BankNational Association, bears interest at the 30 day LIBOR plus 165 basis points.The loan matures in May, 2014 and monthly principal installments are $71,429plus interest and

·                  a real estate term loan, secured by aleasehold interest in the real property we are leasing from the former ownersof Rader Farms in connection with the Acquisition, subject to a $4.0 millionreal estate term loan from U.S. Bank National Association, bears interest atthe 30 day LIBOR plus 165 basis points. The loan matures in July, 2017; howevermonthly principal and interest installments of $36,357 are determined based ona fifteen-year amortization period.

 

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All borrowings under the revolving line of creditwill bear interest at either (i) the prime rate of interest announced byU.S. Bank from time to time or (ii) LIBOR, plus the LIBOR Rate Margin (asdefined in the revolving credit facility note). The term loan will bearinterest at LIBOR, plus the LIBOR Rate Margin (as defined in the term loannote).

 

As is customary in such financings, U.S. Bank mayterminate its commitments and accelerate the repayment of amounts outstandingand exercise other remedies upon the occurrence of an event of default (asdefined in the Loan Agreement), subject, in certain instances, to theexpiration of an applicable cure period. The agreement requires the Company tomaintain compliance with certain financial covenants, including a minimumtangible net worth, a minimum fixed charge coverage ratio and a debt to equityratio. At December 29, 2007, the Company was in compliance with all of thefinancial covenants.

 

At December 29,2007, the Company had a net operating loss carryforward available for federalincome taxes of approximately $1.9 million. The Company’s accumulated net operating loss carryforward will begin toexpire in 2012.

 

**Off-Balance Sheet Arrangements**

 

Under SEC regulations, incertain circumstances, the Company is required to make certain disclosuresregarding the following off-balance sheet arrangements, if material:

 

·                  Any obligation under certain guaranteecontracts;

·                  Any retained or contingent interest inassets transferred to an unconsolidated entity or similar arrangement thatserves as credit, liquidity or market risk support to that entity for suchassets;

·                  Any obligation under certain derivativeinstruments; and

·                  Any obligation arising out of a materialvariable interest held by us in an unconsolidated entity that providesfinancing, liquidity, market risk or credit risk support to us, or engages inleasing, hedging or research and development services with us.

 

The Company does not haveany off-balance sheet arrangements that are required to be disclosed pursuantto these regulations, other than those described in the Notes to ConsolidatedFinancial Statements.  The Company doesnot have, nor does it engage in, transactions with any special purposeentities.  Other than an interest rateswap, the Company is not engaged in any derivative activities and had noforward exchange contracts outstanding at December 29, 2007.  In the ordinary course of business, theCompany enters into operating lease commitments, purchase commitments and othercontractual obligations.  Thesetransactions are recognized in our financial statements in accordance withgenerally accepted accounting principles in the United States, and are morefully discussed below.

 

**Management’s Plans**

 

In connection with theimplementation of the Company’s business strategy, the Company may incuroperating losses in the future and may require future debt or equity financings(particularly in connection with future strategic acquisitions, new brandintroductions or capital expenditures). Expenditures relating to acquisition-related integration costs, marketand territory expansion and new product development and introduction mayadversely affect promotional and operating expenses and consequently mayadversely affect operating and net income. These types of expenditures are expensed for accounting purposes asincurred, while revenue generated from the result of such expansion or newproducts may benefit future periods. Management believes that the Company will generate positive cash flowfrom operations during the next twelve months, which, along with its existingworking capital and borrowing facilities, will enable the Company to meet itsoperating cash requirements for the next twelve months.  The belief is based on current operatingplans and certain assumptions, including  those relating to the Company’s future revenue levels and expenditures,industry and general economic conditions and other conditions. If any of thesefactors change, the Company may require future debt or equity financings tomeet its business requirements. There can be no assurance that any requiredfinancings will be available or, if available, will be on terms attractive tothe Company.

 

**Critical Accounting Policies andEstimates**

 

The Securities andExchange Commission indicated that a “critical accounting policy” is one whichis both important to the portrayal of the Company’s financial condition andresults and requires management’s most difficult, subjective or complexjudgments, often as a result of the need to make estimates about the effect ofmatters that are inherently uncertain. The Company believes that the following accounting policies fit thisdefinition:

 

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*Allowancefor Doubtful Accounts. *The Company maintains an allowance fordoubtful accounts for estimated losses resulting from the inability of itscustomers to make required payments.  Ifthe financial condition of the Company’s customers were to deteriorate,resulting in an impairment of their ability to make payments, additionalallowances may be required.

 

*Inventories.* The Company’s inventories are stated at the lower of cost (first-in,first-out) or market.  The Companyidentifies slow moving or obsolete inventories and estimates appropriate lossprovisions related thereto.  If actual marketconditions are less favorable than those projected by management, additionalinventory write-downs may be required.

 

*Goodwilland Trademarks.*  Goodwill and trademarks are reviewed forimpairment annually, or more frequently if impairment indicators arise.  Goodwill is required to be tested forimpairment between the annual tests if an event occurs or circumstances changethat more-likely-than-not reduce the fair value of a reporting unit below itscarrying value.  Intangible assets withindefinite lives are required to be tested for impairment between the annualtests if an event occurs or circumstances change indicating that the assetmight be impaired.  During 2007, theCompany determined the carrying values of two trademarks were impairedfollowing the completion of a discounted cash flow analysis and recorded a $2.7million charge as a result.  The Companybelieves the carrying values are appropriate after recognition of the trademarkimpairment. Further discussion of goodwill and trademarks is expanded uponbelow:

 

* The Company’s Bob’sTexas Style potato chip brand was acquired in 1998 when the business of TejasSnacks, L.P. was acquired. Following a trademark impairment charge of $0.9million recorded in 2007, the Bob’s Texas Style trademark has a carrying valueof approximately $0.3 million.

 

* The Company’s TatoSkins potato chip brand was acquired in 1999 when the business of Wabash Foodswas acquired.  Following an impairmentcharge if $1.8 million recorded in 2007, the Wabash - Tato Skins trademark hasa carrying value of approximately $0.4 million.

 

* The Company’s BoulderCanyon potato chip brand was acquired in 2000 when the business of BoulderNatural Foods, Inc. was acquired. The Boulder Canyon trademark has acarrying value of $0.9 million.

 

* The Company’s RaderFarms frozen berry brand was acquired in 2007 when the business of Rader Farmswas acquired. The acquisition resulted in Goodwill of $5.6 million andtrademarks of $1.1 million at December 29, 2007.  See Note 2 of these Consolidated FinancialStatements for additional information.

 

In determining that eachof these trademarks has an indefinite life, management considered the factorsfound in paragraph 11 of SFAS No. 142. Management believes that each ofthese trademarks has the continued ability to generate cash flows indefinitely.Management’s determination that these trademarks have indefinite lives includesan evaluation of historical cash flows and projected cash flows for each ofthese trademarks. The Company continues making investments to market andpromote each of these brands, and management continues to believe that themarket opportunities and brand extension opportunities will generate cash flowsfor an indefinite period of time. In addition, there are no legal, regulatory,contractual, economic or other factors to limit the useful life of these trademarks,and management intends to renew each of these trademarks, which can beaccomplished at little cost.

 

The Company recordedgoodwill for each of the four acquisitions noted above. The three acquiredpotato chip businesses were fully integrated into and are included in theCompany’s Branded Snack Products business segment.  The Rader Farms frozen berry business isincluded in the Company’s Berry Products business segment.

 

*Advertisingand Promotional Expenses and Trade Spending. *TheCompany expenses production costs of advertising the first time the advertisingtakes place, except for cooperative advertising costs which are expensed whenthe related sales are recognized.  Costsassociated with obtaining shelf space (i.e., “slotting fees”) are accounted foras a reduction of revenue in the period in which such costs are incurred by theCompany.  Anytime the Company offersconsideration (cash or credit) as a trade advertising or promotional allowanceto a purchaser of products at any point along the distribution chain, theamount is accrued and recorded as a reduction in revenue.  Marketing programs that deal directly withthe consumer, primarily consisting of in-store demonstrations/samples and asponsorship with a professional baseball team, are recorded as a marketingexpense in selling, general and administrative expenses.  Further discussion of these marketingprograms is expanded upon below:

 

24

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·                  Demonstrations/Samples:  The Company periodically arranges in-store product demonstrations withclub stores (i.e. Sam’s, Costco or BJ’s) or grocery retailers.  Product demonstrations are conducted byindependent third party providers designated by the various retailer or clubchains.  During the in-store demonstrationsthe consumers in the stores receive small samples of our products, andconsumers are not required to purchase our product in order to receive thesample. The cost of product used in the demonstrations, which is insignificant,and the fee we pay to the independent third party providers who conduct thein-store demonstrations are recorded as a sales and marketing expense inselling, general and administrative expenses. When we conduct in-store productdemonstrations, we do not pay or give any consideration to the club stores orgrocery retailers in which the demonstrations occur.

 

·                  Sponsorship:  The Company has one sponsorship with the Arizona Diamondbacks MajorLeague Baseball team which takes place during their baseball season. We do notsell product to the Arizona Diamondbacks, and the sponsorship clearly involvesan identifiable benefit to us as the fans at the stadium see our name on themain scoreboard during each game and the value is reasonably estimated due tothe fact that the team charges us a fixed amount per game which we record as asales and marketing expense in selling, general and administrative expenses.

 

*IncomeTaxes.*  The Company has been profitable since 1999;however, it experienced significant net losses in prior fiscal years resultingin a net operating loss (“NOL”) carryforward for federal income tax purposes ofapproximately $1.9 million at December 29, 2007.  Generally accepted accounting principlesrequire that the Company record a valuation allowance against the deferred taxasset associated with this NOL if it is “more likely than not” that the Companywill not be able to utilize it to offset future taxes.

 

*Stock-Based Compensation**. ***On January 1, 2006, we adopted Statement ofFinancial Accounting Standards (SFAS) 123R,**“Share-Based Payment”*,* under the modified prospectivemethod.  SFAS 123R requires us to measurethe cost of employee services received in exchange for stock options grantedusing the fair value method as of the beginning of 2006.*** ***We account for our stock options under the fair valuemethod of accounting using a Black-Scholes valuation model to measure stockoption fair values at the date of grant. All stock option grants have a 5-yearterm. The fair value of stock option grants is amortized to expense over thevesting period, generally three years for employees and one year for the Board ofDirectors.

 

The above listing is notintended to be a comprehensive list of all of the Company’s accountingpolicies.  In many cases the accountingtreatment of a particular transaction is specifically dictated by generallyaccepted accounting principles, with no need for management’s judgment in theirapplication.  See the Company’s auditedfinancial statements and notes thereto included in this Annual Report on Form 10-Kwhich contain accounting policies and other disclosures required by accountingprinciples generally accepted in the United States.

 

**Recent Accounting Pronouncements**

 

In June 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109*  (FIN 48)*,*which clarifies the accounting for uncertainty in tax positions.  FIN 48 requires that the Company recognize inits financial statements the impact of a tax position if that position is morelikely than not of being sustained on audit, based on the technical merits ofthe position. The provisions of FIN 48 are effective as of the beginning of the2007 fiscal year, with the cumulative effect of the change in accountingprinciple recorded as an adjustment to opening retained earnings. The Company’sadoption of FIN 48 did not affect the financial statements.

 

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFASNo. 157”)*,* which clarifies the definitionof fair value whenever another standard requires or permits assets orliabilities to be measured at fair value. Specifically, the standard clarifies that fair value should be based onthe assumptions market participants would use when pricing the asset orliability, and establishes a fair value hierarchy that prioritizes theinformation used to develop those assumptions. SFAS No. 157 also requires expanded financial statement disclosuresabout fair value measurements, including disclosure of the methods used and theeffect on earnings.  SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007.  In February 2008, the FASB issued a staffposition delaying the effective date of certain non-financial assets andliabilities to fiscal periods beginning after November 15, 2008.  We are currently reviewing the effect of SFASNo. 157, if any, on our consolidated financial statements; however, it is notexpected to have a material impact on our consolidated results.

 

25

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In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS No. 159”).  SFAS No. 159 allows entities to chooseto measure eligible financial instruments at fair value with changes in fairvalue recognized in earnings of each subsequent reporting date.  The fair value election is available for mostfinancial assets and liabilities on an instrument-by-instrument basis and is tobe elected on the date the financial instrument is initially recognized.  SFAS 159 is effective for all entities as ofthe beginning of a reporting entity’s first fiscal year that begins after November 15,2007 (with earlier application permitted under certain circumstances).  The adoption of SFAS No. 159 had noimpact on the Company’s financial position or statement of operations.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “*Business Combinations*” (“SFAS No. 141(R)”),which replaces SFAS No. 141, “*BusinessCombinations*.” SFAS No. 141(R) retains the underlyingconcepts of SFAS No. 141 that require all business combinations to beaccounted for at fair value under the acquisition method of accounting,however, SFAS No. 141(R) significantly changes certain aspectsof the prior guidance including: (i) acquisition-related costs, except forthose costs incurred to issue debt or equity securities, will no longer becapitalized and must be expensed in the period incurred; (ii) non-controllinginterests will be valued at fair value at the acquisition date; (iii) in-processresearch and development will be recorded at fair value as an indefinite-livedintangible asset at the acquisition date; (iv) restructuring costsassociated with a business combination will no longer be capitalized and mustbe expensed subsequent to the acquisition date; and (v) changes indeferred tax asset valuation allowances and income tax uncertainties after theacquisition date will no longer be recorded as an adjustment of goodwill,rather such changes will be recognized through income tax expense or directlyin contributed capital. SFAS 141(R) is effective for all businesscombinations having an acquisition date on or after the beginning of the firstannual period subsequent to December 15, 2008, with the exception of theaccounting for valuation allowances on deferred taxes and acquired taxcontingencies.

 

**Item 8.****   ****Financial Statements and Supplementary Data**

 
| Report of Independent Registered Public Accounting  Firm                                                                     |   | 33 |
|------------------------------------------------------------------------------------------------------------------------------|--------|----|
| Consolidated balance sheets as of December 29,  2007 and December 30, 2006                                         |   | 34 |
| Consolidated statements of operations for the years  ended December 29, 2007, and December 30, 2006                |   | 35 |
| Consolidated statements of shareholders’ equity for the  years ended December 29, 2007, and December 30, 2006 |   | 36 |
| Consolidated  statements of cash flows for the years ended December 29, 2007, and  December 30, 2006               |   | 37 |
| Notes to  consolidated financial statements                                                                                  |   | 39 |

 

### **Item 9.**        Changes inand Disagreements with Accountants on Accounting and Financial Disclosure

### ** **

None.

 

**Item 9A(T).****          ****Controls and Procedures.**

 

**(a)****              ****Evaluation of Disclosure Controlsand Procedures**

 

The Company’s management,with the participation of the Company’s Chief Executive Officer and ChiefFinancial Officer, evaluated the effectiveness of the Company’s disclosurecontrols and procedures as of the end of the period covered by thisreport.  Based on that evaluation, theChief Executive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures as of the end of the period covered by thisreport have been designed and are functioning effectively to provide reasonableassurance that the information required to be disclosed by the Company inreports filed under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time period specified in the SEC’s rules andforms.

 

The Company’s ChiefExecutive Officer and Chief Financial Officer do not expect that the Company’sinternal controls will prevent all errors and all fraud.  A control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met.  Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of internal controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within the Company have been detected.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that internal controlsmay become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

26

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No change occurred in ourinternal controls over financial reporting (as defined in Rule 13a-15(f) ofthe Exchange Act) during the three months ended December 29, 2007 that hasmaterially affected, or is reasonably likely to materially affect our internalcontrol over financial reporting.

 

**Management’s Report on InternalControl over Financial Reporting**

 

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rule 13a-15(f) and 15d-15(f) underthe Securities Exchange Act of 1934. Our internal control over financialreporting is designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Ourinternal control over financial reporting includes those policies andprocedures that:

 
| (i)   |   | pertain to the  maintenance of records that, in reasonable detail, accurately and fairly  reflect the transactions and dispositions of the assets of the company;                                                                                                                                                                    |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | provide reasonable  assurance that transactions are recorded as necessary to permit preparation  of financial statements in accordance with generally accepted accounting  principles, and that receipts and expenditures of the company are being made  only in accordance with authorizations of our management and directors; and |
| (iii) |   | provide reasonable  assurance regarding prevention or timely detection of unauthorized  acquisition, use or disposition of assets that could have a material effect  on the financial statements.                                                                                                                                    |

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect all misstatements or instances of fraud. As such, a control system, nomatter how well conceived and operated, can provide only reasonable assurancethat the objectives of the control system are met. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

 

Management assessed theeffectiveness of internal control over financial reporting as of December 29,2007. This assessment excluded the internal controls over financial reportingat Rader Farms, which was acquired during the year ended December 29, 2007. Inmaking this assessment, management used the criteria set forth by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO) in InternalControl-Integrated Framework. Based on our assessment and those criteria,management believes that we maintained effective internal control overfinancial reporting as of December 29, 2007.

 

This Annual Report doesnot include an attestation report of the Company’s registered public accountingfirm regarding internal control over financial reporting.  Management’s report was not subject toattestation by the Company’s registered public accounting firm pursuant totemporary rules of the Securities and Exchange Commission that permit theCompany to provide only management’s report in this Annual Report.

 

**Item 9B.****    ****Other Information.**

 

None.

 

27

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**PART III**

 

**Item 10.****    ****Directors and Executive Officersof the Registrant**

 

**Code ofEthics**

 

Each of the Company’sdirectors, officers and employees are required to comply with The InventureGroup, Inc. Code of Business Conduct and Ethics adopted by the Company.  The Code of Business Conduct and Ethics setsforth policies covering a broad range of subjects and requires strict adherenceto laws and regulations applicable to the Company’s business.  The Company has also adopted a Financial Codeof Ethics for its Chief Executive Officer, Chief Financial Officer and allother finance managers.  The FinancialCode of Ethics supplements the Code of Business Conduct and Ethics and isintended to emphasize the importance of honest and ethical conduct inconnection with the Company’s financial reporting obligations.  The Code of Business Conduct and Ethics andthe Financial Code of Ethics are available on the Company’s website atwww.inventuregroup.net, under the “Investors-Governance” captions.  Copies of these Codes may also be obtained,without charge, by any shareholder upon written request directed to theSecretary of the Company at 5050 N. 40th St. Suite #300,Phoenix, Arizona 85018.  The Company willpost to its website any amendments to these Codes, or waiver from theprovisions thereof, applicable to the Company’s directors or any principalexecutive officer, principal financial officer principal accounting officer orcontroller, or any person performing similar functions under the “Investors-Governance-Codeof Business Conduct-Waivers” caption.

 

The information regardingDirectors and Executive Officers appearing under the headings “Proposal 1:Election of Directors,” “Executive Officers”, “Meetings and Committees of theBoard of Directors” and “Section 16(a) Beneficial Ownership ReportingCompliance” of the Company’s 2007 Proxy Statement is incorporated by referencein this section.

 

**Item 11.****    ****Executive Compensation**

 

The information appearingunder the headings “Director Compensation,” “Employment Agreements,” “CompensationCommittee Report on Executive Compensation” and “Executive Officer Compensation”of the Company’s 2008 Proxy Statement is incorporated by reference in thissection.

 

**Item 12.****    ****Security Ownership of BeneficialOwners and Management and Related Stockholder Matters**

 

The information appearingunder the headings “Security Ownership of Certain Beneficial Owners andManagement” and “Securities Authorized for Issuance Under Equity CompensationPlans” of the Company’s 2008 Proxy Statement is incorporated by reference inthis section.

 

**Item 13.****    ****Certain Relationships and RelatedTransactions**

 

The information appearingunder the heading “Meetings and Committees of the Board of Directors” and “CertainRelationships and Related Transactions” of the Company’s 2008 Proxy Statementis incorporated by reference in this section.

 

**Item 14.****    ****Principal Accountant Fees andServices**

 

Information appearingunder the heading “Independent Auditors” of the Company’s 2008 Proxy Statementis incorporated by reference in this section.

 

28

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**PART IV**

 

**Item 15.         Exhibitsand Financial Statement Schedules:**

 

The following documents are filed as part of thisAnnual Report on Form 10-K

 

**1.****             ****Financial Statements**

 

Report of IndependentRegistered Public Accounting Firm

Consolidated balancesheets as of December 29, 2007 and December 30, 2006

Consolidatedstatements of income for the years ended December 29, 2007 and December 30,2006

Consolidated statementsof shareholders’ equity for the years ended December 29, 2007 and December 30,2006

Consolidated statementsof cash flows for the years ended December 29, 2007 and December 30,2006

Notes to consolidatedfinancial statements

 

**2.****             ****Financial Schedules**

 

Schedules have beenomitted because of the absence of conditions under which they are required orbecause the information required is included in the Company’s consolidatedfinancial statements or notes thereto.

 

**3.****             ****Exhibits required by Item 601 ofRegulation S-K:**

 
| **Exhibit** |   |   |   |                                                                                                                                                                                                            |
|-------------|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  |   |   |   | **Description**                                                                                                                                                                                                 |
| 3.1         |   | — |   | Certificate of  Incorporation of the Company filed with the Secretary of State of the State  of Delaware on February 23, 1995. (13)                                                                        |
| 3.2         |   | — |   | Certificate of  Amendment to the Certificate of Incorporation of the Company filed with the  Secretary of State of the State of Delaware on March 3, 1995. (13)                                            |
| 3.3         |   | — |   | Certificate of  Amendment to the Certificate of Incorporation of the Company filed with the  Secretary of State of the State of Delaware on October 7, 1999. (13)                                          |
| 3.4         |   | — |   | By-Laws of the Company  (as amended and restated on January 11, 2005). (15)                                                                                                                                |
| 3.5         |   | — |   | Certificate of  Amendment to the Certificate of Incorporation of the Company filed with the  Secretary of State of the State of Delaware on May 23, 2006. (28)                                             |
| 4.1         |   | — |   | Specimen Certificate  for shares of Common Stock. (1)                                                                                                                                                           |
| 4.5         |   | — |   | Form of Revolving  Note, Term Note A and Term Note B issued by the Company to U.S. Bancorp  Republic Commercial Finance, Inc. on October 7, 1999. (4)                                            |
| 10.10       |   | — |   | Fixed Rate Note dated  June 4, 1997, by and between La Cometa Properties, Inc. and Morgan  Guaranty Trust Company of New York. (3)                                                                    |
| 10.11       |   | — |   | Deed of Trust and  Security Agreement dated June 4, 1997, by and between La Cometa  Properties, Inc. and Morgan Guaranty Trust Company of New York. (3)                                               |
| 10.12       |   | — |   | Guaranty Agreement  dated June 4, 1997, by and between the Company and Morgan Guaranty Trust  Company of New York. (3)                                                                                     |
| 10.13       |   | — |   | Agreement for Purchase  and Sale of Limited Liability Company Membership Interests dated as of  August 16, 1999, by and between Pate Foods Corporation, Wabash Foods and  the Company. (2)                 |
| 10.14       |   | — |   | Letter Agreement dated  July 30, 1999 by and between the Company and Stifel, Nicolaus &  Company, Incorporated. (5)                                                                               |
| 10.18       |   | — |   | Commercial Lease, dated  May 1, 1998, by and between Wabash Foods, LLC and American Pacific  Financial Corporation. (4)                                                                                    |
| 10.19       |   | — |   | Agreement for the  Purchase and Sale of Assets of Boulder Potato Company dated as of  June 8, 2000, by and among the Company, the shareholders of Boulder  Potato Company, and Boulder Potato Company. (6) |
| 10.20       |   | — |   | Registration Rights  Agreement dated as of June 8, 2000, by and between Boulder Potato  Company and the Company. (6)                                                                                       |
| 10.21       |   | — |   | First Amendment, dated  as of June 30, 2000, to Credit Agreement, dated as of October 3,  1999, by and between the Company and U.S. Bancorp. (6)                                                      |
| 10.22       |   | — |   | Second Amendment to  Credit Agreement (dated March 2, 2001), by and between the Company and  U.S. Bank National Association. (7)                                                                           |

 

29

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| 10.23  |   | —       |   | License Agreement,  dated April 3, 2000, by and between the Company and TGI Friday’s Inc.  (Certain portions of this exhibit have been omitted pursuant to a  confidential treatment request filed with the Securities and Exchange  Commission.) (7)                                                   |
|--------|--------|--------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.24  |   | —       |   | Third Amendment to  Credit Agreement (dated March 30, 2001), by and between the Company and  U.S. Bank National Association. (8)                                                                                                                                                                             |
| 10.25  |   | —       |   | First Amendment to  License Agreement, dated as of July 11, 2001, by and between the Company  and TGI Friday’s Inc. (certain portions of this exhibit have been omitted  pursuant to a confidentiality treatment request filed with the Securities and  Exchange Commission.) (9)                       |
| 10.27  |   | —       |   | Fourth Amendment to  Credit Agreement (dated as of June 29, 2002), by and between the Company  and U.S. Bank National Association. (10)                                                                                                                                                                      |
| 10.28  |   | —       |   | License Agreement,  dated November 20, 2002, by and between the Company and Warner Bros., a  division of Time Warner Entertainment Company, L.P. (Certain portions of this  exhibit have been omitted pursuant to a confidential treatment request filed  with the Securities and Exchange Commission.) (11) |
| 10.29  |   | —       |   | License Agreement,  dated November 20, 2002, by and between the Company and Warner Bros., a  division of Time Warner Entertainment Company, L.P. (Certain portions of this  exhibit have been omitted pursuant to a confidential treatment request filed  with the Securities and Exchange Commission.) (11) |
| 10.31  |   | —       |   | Fifth Amendment to  Credit Agreement (dated as of September 27, 2003) by and between the  Company and U.S. Bank National Association. (12)                                                                                                                                                                   |
| 10.32  |   | —       |   | License Agreement,  dated November 10, 2003, by and between the Company and Warner Bros.  Consumer Products Inc. (Certain portions of this exhibit have been omitted  pursuant to a confidential treatment request filed with the Securities and  Exchange Commission.). (13)                                |
| 10.33  |   | —       |   | Commercial Lease  Agreement, dated May 22, 2003, by and between the Company and Westland  Park LLC (13)                                                                                                                                                                                                      |
| 10.34  |   | —       |   | Warehouse Services  Agreement, dated June 30, 2003, by and between the Company and  Customized Distribution Services, Inc. (13)                                                                                                                                                                         |
| 10.35  |   | —       |   | License Agreement -  #13770-WBLT-Amendment 1, dated June 14, 2004, by and between the Company  and Warner Bros. Consumer Products, Inc. (14)                                                                                                                                                            |
| 10.36  |   | —       |   | License Agreement -  #14559-SCOO-Amendment 1, dated June 14, 2004, by and between the Company  and Warner Bros. Consumer Products, Inc. (14)                                                                                                                                                            |
| 10.37  | *      |  — |   | Form of Officer  Nonstatutory Stock Option Agreement. (16)                                                                                                                                                                                                                                                   |
| 10.38  | *      |  — |   | Summary of Director  Compensation. (17)                                                                                                                                                                                                                                                                           |
| 10.40  |   | —       |   | Loan Agreement  (Revolving Line of Credit Loan and Term Loan) dated August 19, 2005  between the Company and U.S. Bank National Association. (19)                                                                                                                                                            |
| 10.41  |   | —       |   | Security Agreement  relating to the Loan Agreement dated August 19, 2005 between the Company  and U.S. Bank National Association. (19)                                                                                                                                                                       |
| 10.42  |   | —       |   | $5 Million Promissory  Note (Facility 1 - Revolving Line of Credit Loan) dated August 19, 2005  between the Company and U.S. Bank National Association. (19)                                                                                                                                                 |
| 10.43  |   | —       |   | $756,603 Promissory  Note (Facility 2 – Term Loan) dated August 19, 2005 between the Company  and U.S. Bank National Association. (19)                                                                                                                                                                  |
| 10.44* |   |  — |   | Executive Employment  Agreement dated August 1, 2005 between the Company and Steven Sklar.  (19)                                                                                                                                                                                                             |
| 10.45* |   |  — |   | Restricted Stock  Agreement dated August 1, 2005 between the Company and Steven Sklar.  (19)                                                                                                                                                                                                                 |
| 10.46* |   |  — |   | Letter Agreement dated  as of December 14, 2005, by and between the Company and Eric J. Kufel.  (20)                                                                                                                                                                                                         |
| 10.47* |   |  — |   | Letter Agreement dated  as of December 16, 2005, by and between the Company and Thomas W.  Freeze. (20)                                                                                                                                                                                                      |
| 10.48* |   |  — |   | Letter Agreement dated  as of December 16, 2005, by and between the Company and Richard M.  Finkbeiner. (20)                                                                                                                                                                                                 |
| 10.49* |   |  — |   | Poore  Brothers, Inc. Amended and Restated 2005 Equity Incentive Plan. (21)                                                                                                                                                                                                                                  |
| 10.50* |   |  — |   | Form of Director  Nonstatutory Stock Option Agreement – Amended and Restated 2005 Equity  Incentive Plan. (23)                                                                                                                                                                                          |
| 10.51* |   |  — |   | Form of Employee  Incentive Stock Option Agreement – Amended and Restated 2005 Equity Incentive  Plan. (23)                                                                                                                                                                                             |
| 10.52* |   |  — |   | Executive Employment Agreement by and between Poore  Brothers, Inc. and Eric J. Kufel, dated as of February 14, 2006.  (22)                                                                                                                                                                             |
| 10.53* |   |  — |   | Executive Employment Agreement by and between Poore  Brothers, Inc. and Terry McDaniel, dated as of April 17, 2006. (25)                                                                                                                                                                                |
| 10.54  |   | —       |   | Commercial Lease  Agreement, dated May 8, 2006, by and between the Company and B.G.  Associates, Inc. (26)                                                                                                                                                                                              |
| 10.55* |   |  — |   | Letter Agreement dated  as of April 21, 2006, by and between the Company and Thomas Tierney.  (27)                                                                                                                                                                                                           |
| 10.56* |   |  — |   | Summary of Director and  Officer Compensation. (28)                                                                                                                                                                                                                                                               |
| 10.57* |   |  — |   | Executive Employment Agreement by and between the  Company and Steve Weinberger, dated as of July 27, 2006. (29)                                                                                                                                                                                             |
| 10.58* |   |         |   | The Inventure Group, Inc. Deferred Compensation  Plan. (30)                                                                                                                                                                                                                                                  |
| 10.59  |   |         |   | Asset Purchase  Agreement dated as of May 17, 2007, by and among Rader Farms Acquisition  Corp., Rader Farms, Inc. and the Company Shareholders named therein.  (31)                                                                                                                                    |

 

30

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| 10.60 |   |   |   | Agricultural Ground  Lease dated as of May 17, 2007, by and among Lyle Rader, Sue Rader, Brad  Rader, Julie Newell and Rader Farms Acquisition Corp. (31)                                                                                                                                                                                                                   |
|-------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.61 |   |   |   | Loan Agreement  (Revolving Line of Credit and Term Loan) dated as of May 16, 2007, by  and between The Inventure Group, Inc. and U.S. Bank, National  Association. (31)                                                                                                                                                                                                |
| 10.62 |   |   |   | Promissory Note  (Facility 1 – Revolving Line of Credit Loan) dated May 16, 2007, by The  Inventure Group, Inc. in favor of U.S. Bank, National Association. (31)                                                                                                                                                                                                 |
| 10.63 |   |   |   | Promissory Note  (Facility 2 – Term Loan) dated May 16, 2007, by The Inventure  Group, Inc. in favor of U.S. Bank, National Association. (31)                                                                                                                                                                                                                     |
| 10.64 |   |   |   | Security Agreement  (Blanket – All Business Assets) dated as of May 16, 2007, by and among  between The Inventure Group, Inc., La Cometa Properties, Inc.,  Poore Brothers Bluffton, LLC, Tejas PB Distributing, Inc., Boulder  Natural Foods, Inc., BN Foods, Inc., Rader Farms Acquisition Corp.  and U.S. Bank, National Association. (31) |
| 10.65 |   |   |   | Term Loan Agreement  dated as of June 28, 2007, by and between The Inventure Group, Inc.  and U.S. Bank, National Association. (31)                                                                                                                                                                                                                                    |
| 10.66 |   |   |   | Promissory Note Secured  by Deed of Trust (Term Loan) dated June 28, 2007, by The Inventure  Group, Inc. in favor of U.S. Bank, National Association. (31)                                                                                                                                                                                                             |
| 10.67 |   |   |   | Deed of Trust dated  June 28, 2007, by and between Rader Farms Acquisition Corp. and U.S.  Bank National  Association. (31)                                                                                                                                                                                                                                                 |
| 14.1  |   | — |   | Code of Business Conduct and Ethics (32)                                                                                                                                                                                                                                                                                                                                         |
| 14.2  |   | — |   | Financial Code of Ethics (32)                                                                                                                                                                                                                                                                                                                                                    |
| 21.1  |   | — |   | List of Subsidiaries of  the Company. (32)                                                                                                                                                                                                                                                                                                                                       |
| 23.1  |   | — |   | Consent of  Deloitte & Touche, LLP. (32)                                                                                                                                                                                                                                                                                                                                |
| 31.1  |   | — |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) or  Rule 15(d)-14(a). (32)                                                                                                                                                                                                                                                                   |
| 31.2  |   | — |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) (32)                                                                                                                                                                                                                                                                                    |
| 32    |   | — |   | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to  Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002. (32)                                                                                                                                                    |

 

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|  * |   | Management compensatory  plan or arrangement.                                                                                                                          |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                   |
| (1)     |   | Incorporated by  reference to the Company’s Registration Statement on Form SB-2,  Registration No. 333-5594-LA.                                         |
| (2)     |   | Incorporated  by reference to the Company’s definitive Proxy Statement on Schedule 14A  filed with the Commission on September 19, 1999.                     |
| (3)     |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-QSB for the  quarter ended June 30, 1997.                                       |
| (4)     |   | Intentionally omitted.                                                                                                                                                 |
| (5)     |   | Incorporated by reference  to the Company’s Quarterly Report on Form 10-QSB for the quarter ended  September 30, 1999.                                  |
| (6)     |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-QSB for the  quarter ended June 30, 2000.                                       |
| (7)     |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-QSB for the  quarter ended March 31, 2001.                                      |
| (8)     |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-QSB for the  quarter ended June 30, 2001.                                       |
| (9)     |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-QSB for the  quarter ended September 30, 2001.                                  |
| (10)    |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-Q for the quarter  ended September 28, 2002.                                    |
| (11)    |   | Intentionally omitted.                                                                                                                                                 |
| (12)    |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-Q for the quarter  ended September 27, 2003.                                    |
| (13)    |   | Incorporated by  reference to the Company’s Annual Report on Form 10-K for the fiscal  year ended December 27, 2003.                                    |
| (14)    |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-Q for the quarter  ended June 26, 2004.                                         |
| (15)    |   | Intentionally omitted.                                                                                                                                                 |
| (16)    |   | Incorporated by  reference to the Company’s Current Report on Form 8-K filed on  December 23, 2004.                                                     |
| (17)    |   | Incorporated by  reference to the Company’s Annual Report on Form 10-K for the fiscal  year ended December 25, 2004.                                    |
| (18)    |   | Intentionally omitted.                                                                                                                                                 |
| (19)    |   | Incorporated by  reference to the to the Company’s Quarterly Report on 10-Q for the quarter  ended June 25, 2005.                                            |
| (20)    |   | Incorporated by  reference to the Company’s Current Report on Form 8-K filed on  December 19, 2005.                                                     |
| (21)    |   | Incorporated  by reference to the Company’s definitive Proxy Statement on Schedule 14A  filed with the Securities and Exchange Commission on April 26, 2006. |
| (22)    |   | Incorporated by  reference to the Company’s Current Report on Form 8-K/A filed on  February 16, 2006.                                                   |
| (23)    |   | Incorporated by  reference to the Company’s Annual Report on Form 10-K for the fiscal  year ended December 31, 2005.                                    |
| (24)    |   | Intentionally omitted.                                                                                                                                                 |
| (25)    |   | Incorporated by reference  to the Company’s Current Report on Form 8-K filed on April 17,  2006.                                                        |
| (26)    |   | Incorporated by  reference to the Company’s Quarterly Report on 10-Q for the quarter ended  April 1, 2006.                                                   |

 

31

----

 
| (27) |   | Incorporated by  reference to the Company’s Current Report on Form 8-K filed on  April 21, 2006.                |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------|
| (28) |   | Incorporated by  reference to the Company’s Current Report on Form 8-K filed on  May 26, 2006.                  |
| (29) |   | Incorporated by  reference to the Company’s Current Report on Form 8-K filed on  July 27, 2006.                 |
| (30) |   | Incorporated by  reference to the Company’s Current Report on Form 8-K as filed on  January 23, 2007.           |
| (31) |   | Incorporated by  reference to the Company’s Quarterly Report on Form 10-Q for the quarter  ended June 30, 2007. |
| (32) |   | Filed herewith.                                                                                                                |

 

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| Dated: | March 28, 2008 |   | THE INVENTURE GROUP,  INC. |
|--------|---------------------|--------|----------------------------|
|   |                |   |                       |
|   |                |   | By:                        |               /s/  Eric J. Kufel |
|   |                |   |                       |              Eric  J. Kufel |
|   |                |   |                       |     Chief  Executive Officer |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant, in the capacities and on thedates indicated.

 
| **Signature**                                                                                       | ** ** | **Title**                                                | ** ** | **Date**             |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------|
|                                                                                                |       |                                                     |       |                 |
|            /s/  Eric J. Kufel                |       | Chief Executive  Officer and Director                    |       | March 28,  2008 |
|               Eric J. Kufel             |       | (Principal Executive  Officer)                           |       |                 |
|                                                                                                |       |                                                     |       |                 |
|            /s/  Steve Weinberger             |       | Chief Financial  Officer, Secretary & Treasurer |       | March 28,  2008 |
|            Steve  Weinberger                 |       | (Principal  Financial and Accounting Officer)            |       |                 |
|                                                                                                |       |                                                     |       |                 |
|            /s/  Larry R. Polhill             |       | Chairman and  Director                                   |       | March 28,  2008 |
|             Larry  R. Polhill           |       |                                                     |       |                 |
|                                                                                                |       |                                                     |       |                 |
|            /s/  Ashton D. Asensio            |       | Director                                                 |       | March 28,  2008 |
|             Ashton  D. Asensio          |       |                                                     |       |                 |
|                                                                                                |       |                                                     |       |                 |
|            /s/  Mark S. Howells              |       | Director                                                 |       | March 28,  2008 |
|              Mark  S. Howells      |       |                                                     |       |                 |
|                                                                                                |       |                                                     |       |                 |
|            /s/  Macon Bryce Edmonson         |       | Director                                                 |       | March 28,  2008 |
|              Macon  Bryce Edmonson |       |                                                     |       |                 |
|                                                                                                |       |                                                     |       |                 |
|            /s/  Itzhak Reichman              |       | Director                                                 |       | March 28,  2008 |
|           Itzhak  Reichman                        |       |                                                     |       |                 |

 

32

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REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders ofThe Inventure Group, Inc.Phoenix, Arizona

 

We have audited the accompanying consolidated balance sheets of TheInventure Group, Inc. and subsidiaries (f.k.a. Poore Brothers, Inc.and subsidiaries) (the “Company”) as of December 29, 2007 and December 30,2006, and the related consolidated statements of operations, stockholders’equity and cash flows for the two years in the period ended December 29,2007. Thesefinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon the financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, anaudit of its internal control over financial reporting.  Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, inall material respects, the financial position of The Inventure Group, Inc.(f.k.a. Poore Brothers, Inc. and subsidiaries) as of December 29,2007 and December 30, 2006, and the results of their operations and theircash flows for each of the two years in the period ended December 29, 2007, inconformity with accounting principles generally accepted in the United Statesof America.

 

*/s/ DELOITTE & TOUCHE LLP*

 

Phoenix, ArizonaMarch 28, 2008

 

33

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**THEINVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                                                                                |       |                  |       |                  |       |
| Current assets:                                                                                                                                                                           |       |                  |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                |       | $                     | 494,918    |                  | $          | 8,671,259 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $29,161 in 2007 and  $26,452 in 2006                                                                                      |       | 8,604,741             |       | 6,284,163             |       |
| Inventories                                                                                                                                                                               |       | 11,585,597            |       | 3,459,236             |       |
| Deferred income  tax asset                                                                                                                                                                |       | 1,180,349             |       | 1,103,064             |       |
| Other current  assets                                                                                                                                                                     |       | 707,093               |       | 521,208               |       |
| Total current  assets                                                                                                                                                                     |       | 22,572,698            |       | 20,038,930            |       |
|                                                                                                                                                                                      |       |                  |       |                  |       |
| Property and  equipment, net                                                                                                                                                              |       | 23,436,752            |       | 12,534,444            |       |
| Goodwill                                                                                                                                                                                  |       | 11,589,988            |       | 5,986,252             |       |
| Trademarks and  other intangibles                                                                                                                                                         |       | 2,827,742             |       | 4,207,032             |       |
| Other assets                                                                                                                                                                              |       | 263,539               |       | 45,606                |       |
| Total assets                                                                                                                                                                              |       | $                     | 60,690,719 |                  | $          | 42,812,264 |   |
|                                                                                                                                                                                      |       |                  |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                             |       |                  |       |                  |       |
| Current  liabilities:                                                                                                                                                                     |       |                  |       |                  |       |
| Accounts payable                                                                                                                                                                          |       | $                     | 6,001,136  |                  | $          | 3,440,033 |   |
| Line of Credit                                                                                                                                                                            |       | 7,452,309             |       | —                |       |
| Accrued  liabilities                                                                                                                                                                      |       | 4,206,078             |       | 2,975,723             |       |
| Current portion  of long-term debt                                                                                                                                                        |       | 1,181,888             |       | 112,113               |       |
| Current portion  of accrued costs related to brand discontinuance and other exit cost accruals                                                                                            |       | 97,229                |       | 98,400                |       |
| Total current  liabilities                                                                                                                                                                |       | 18,938,640            |       | 6,626,269             |       |
|                                                                                                                                                                                      |       |                  |       |                  |       |
| Long-term debt,  less current portion                                                                                                                                                     |       | 12,445,383            |       | 3,973,461             |       |
| Non-current  portion of accrued costs related to brand discontinuance and other exit cost  accruals                                                                                       |       | —                |       | 91,428                |       |
| Deferred income  tax liability                                                                                                                                                            |       | 1,574,727             |       | 2,200,114             |       |
| Total  liabilities                                                                                                                                                                        |       | 32,958,750            |       | 12,891,272            |       |
|                                                                                                                                                                                      |       |                  |       |                  |       |
| Commitments and  contingencies (Notes 8 and 12)                                                                                                                                           |       |                  |       |                  |       |
|                                                                                                                                                                                      |       |                  |       |                  |       |
| Shareholders’  equity:                                                                                                                                                               |       |                  |       |                  |       |
| Preferred stock,  $100 par value; 50,000 shares authorized; no shares issued or outstanding at  December 29, 2007 and December 30, 2006                                         |       | —                |       | —                |       |
| Common stock,  $.01 par value; 50,000,000 shares authorized; 20,186,213 and 20,150,746  shares issued and outstanding at December 29, 2007 and December 30,  2006, respectively |       | 201,863               |       | 201,508               |       |
| Additional  paid-in capital                                                                                                                                                               |       | 29,304,491            |       | 28,854,243            |       |
| Retained  earnings                                                                                                                                                                        |       | 1,207,189             |       | 2,710,662             |       |
|                                                                                                                                                                                      |       | 30,713,543            |       | 31,766,413            |       |
| Less : treasury  stock, at cost: 1,345,398 shares at December 29,2007 and 818,740 shares  at December 30, 2006                                                                  |       | (2,981,574            | )          | (1,845,421            | )          |
| Total shareholders’  equity                                                                                                                                                          |       | 27,731,969            |       | 29,920,992            |       |
| Total  liabilities and shareholders’ equity                                                                                                                                          |       | $                     | 60,690,719 |                  | $          | 42,812,264 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

34

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                    | ** ** | **December 29,** | ** **       | **December 30,** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------------|-----------------------|------------|
| ** **                                    | ** ** | **2007**              | ** **       | **2006**              | ** ** |
|                                          |       |                  |             |                  |       |
| Net revenues                                  |       | $                     | 90,910,580       |                  | $          | 69,818,930 |   |
|                                          |       |                  |             |                  |       |   |   |
| Cost of revenues                              |       | 75,331,567            |             | 56,563,445            |       |
|                                          |       |                  |             |                  |       |
| Gross profit                                  |       | 15,579,013            |             | 13,255,485            |       |
|                                          |       |                  |             |                  |       |
| Selling, general  and administrative expenses |       | 14,146,981            |             | 11,639,518            |       |
| Impairment of  intangible assets              |       | 2,671,372             |             | —                |       |
|                                          |       |                  |             |                  |       |
| Operating income  (loss)                      |       | (1,239,340            | )                | 1,615,967             |       |
|                                          |       |                  |             |                  |       |
| Interest income  (expense), net               |       | (974,223              | )                | 260,425               |       |
|                                          |       |                  |             |                  |       |
| Income (loss)  before income tax provision    |       | (2,213,563            | )                | 1,876,392             |       |
|                                          |       |                  |             |                  |       |
| Income tax  benefit (provision)               |       | 710,090               |             | (782,999              | )          |
|                                          |       |                  |             |                  |       |
| Net income  (loss)                            |       | $                     |  (1,503,473 | )                     | $          |  1,093,393 |   |
|                                          |       |                  |             |                  |       |
| Earnings (loss)  per common share:            |       |                  |             |                  |       |
| Basic                                         |       | $                     | (0.08            | )                     | 0.06       |   |
| Diluted                                       |       | $                     | (0.08            | )                     | 0.06       |   |
|                                          |       |                  |             |                  |       |
| Weighted average  number of common shares:    |       |                  |             |                  |       |
| Basic                                         |       | 19,206,344            |             | 19,833,068            |       |
| Diluted                                       |       | 19,206,344            |             | 19,856,280            |       |
|                                               |            |                       |                  |                       |            |  |  |  |  |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

35

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**THEINVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

 
| ** **                                                       | ** ** | ** **            | ** ** | **Additional** | ** ** | **Retained** | ** ** | ** **    | ** ** | ** **                   | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|--------------|------------|---------------|------------|------------------------------|------------|
| ** **                                                       | ** ** | **Common Stock** | ** ** | **Paid-in**    | ** ** | **Earnings** | ** ** | **Treasury**  | ** ** | ** **                   | ** ** |
| ** **                                                       | ** ** | **Shares**            | ** ** | **Amount**     | ** ** | **Capital**  | ** ** | **(Deficit)** | ** ** | **Stock, at Cost** | ** ** | **Total** | ** ** |
|                                                             |       |                  |       |           |       |         |       |          |       |                         |       |   |   |
| Balance,  December 31, 2005                                 |       | 20,077,080            |       | 200,771        |       | 28,424,817   |       | 1,617,269     |       | —                       |       | 30,242,857 |   |
| Exercise of  common stock options, including related tax benefit |       | 61,666                |       | 617            |       | 162,030      |       | —        |       | —                       |       | 162,647 |   |
| Restricted stock  and related compensation expense               |       | 12,000                |       | 120            |       | 62,635       |       | —        |       | —                       |       | 62,755 |   |
| Stock-based  compensation expense                                |       | —                |       | —         |       | 204,761      |       | —        |       | —                       |       | 204,761 |   |
| Purchase of  treasury stock, at cost                             |       | —                |       | —         |       | —       |       | —        |       | (1,845,421                   | )          | (1,845,421 | ) |
| Net income                                                       |       | —                |       | —         |       | —       |       | 1,093,393     |       | —                       |       | 1,093,393 |   |
| Balance,  December 30, 2006                                 |       | 20,150,746            |       | $              | 201,508    |         | $          | 28,854,243    |       | $                            | 2,710,662  |   | $ | (1,845,421 | ) | $ | 29,920,992 |   |
| Exercise of  common stock options, including related tax benefit |       | 35,467                |       | 355            |       | 76,976       |       | —        |       | —                       |       | 77,331 |   |
| Restricted stock  and related compensation expense               |       | —                |       | —         |       | 60,793       |       | —        |       | —                       |       | 60,793 |   |
| Stock-based  compensation expense                                |       | —                |       | —         |       | 312,479      |       | —        |       | —                       |       | 312,479 |   |
| Purchase of  treasury stock, at cost                             |       | —                |       | —         |       | —       |       | —        |       | (1,136,153                   | )          | (1,136,153 | ) |
| Net loss                                                         |       | —                |       | —         |       | —       |       | (1,503,473    | )          | —                       |       | (1,503,473 | ) |
| Balance,  December 29, 2007                                 |       | 20,186,213            |       | $              | 201,863    |         | $          | 29,304,491    |       | $                            | 1,207,189  |   | $ | (2,981,574 | ) | $ | 27,731,969 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

36

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                    | ** ** | **December 29, ** | ** ** | **December 30, ** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                    | ** ** | **2007**                    | ** ** | **2006**                    | ** ** |
| **Cash flows provided by (used in) operating activities:** | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Net income  (loss)                                                                            |       | $                           | (1,503,473 | )                           | $          | 1,093,393 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities:  |       |                        |       |                        |       |
| Depreciation                                                                                  |       | 2,054,013                   |       | 1,255,391                   |       |
| Amortization                                                                                  |       | 52,273                      |       | 5,835                       |       |
| Impairment of  trademark                                                                      |       | 2,671,372                   |       | —                      |       |
| Provision for  bad debts                                                                      |       | 84,346                      |       | (94,558                     | )          |
| Deferred income  taxes                                                                        |       | (702,672                    | )          | 726,629                     |       |
| Share-based  compensation expense                                                             |       | 312,479                     |       | 204,761                     |       |
| Restricted stock  compensation expense                                                        |       | 60,793                      |       | 62,755                      |       |
| Excess tax  benefit from exercise of stock options                                            |       | (5,827                      | )          | (8,916                      | )          |
| (Gain on  sale)/loss on disposition of equipment                                              |       | (2,760                      | )          | 12,011                      |       |
| Change in assets  and liabilities, net of effects of acquisition:                             |       |                        |       |                        |       |
| Accounts  receivable                                                                          |       | (463,903                    | )          | 481,916                     |       |
| Inventories                                                                                   |       | (2,460,997                  | )          | (642,990                    | )          |
| Other assets and  liabilities                                                                 |       | (347,233                    | )     | (228,961                    | )          |
| Accounts payable  and accrued liabilities                                                     |       | (445,882                    | )     | (400,167                    | )          |
| Net cash  provided by operating activities                                                    |       | (697,471                    | )     | 2,467,099                   |       |
| **Cash  flows provided by (used in) investing activities:**                                   |       |                        |       |                        |       |
| Purchase of  land, building and equipment                                                     |       | (2,494,203                  | )          | (1,298,522                  | )          |
| Purchase of  Rader Farms, Inc.                                                           |       | (20,938,678                 | )          | —                      |       |
| Proceeds from  disposition of equipment                                                       |       | 13,000                      |       | 6,330                       |       |
| Net cash used in  investing activities                                                        |       | (23,419,881                 | )          | (1,292,192                  | )          |
| **Cash  flows provided by (used in) financing activities:**                                   |       |                        |       |                        |       |
| Net borrowings  (repayments) on Line of Credit                                                |       | 7,452,309                   |       | —                      |       |
| Proceeds from  issuance of common stock                                                       |       | 77,331                      |       | 162,647                     |       |
| Debt borrowings                                                                               |       | 10,166,133                  |       | —                      |       |
| Payments made on  long term debt                                                              |       | (624,436                    | )          | (525,035                    | )          |
| Excess tax  benefit from exercise of stock options                                            |       | 5,827                       |       | 8,916                       |       |
| Treasury stock  purchases                                                                     |       | (1,136,153                  | )          | (1,845,421                  | )          |
| Net cash  provided by (used in) financing activities                                          |       | 15,941,011                  |       | (2,198,893                  | )          |
| Net increase  (decrease) in cash and cash equivalents                                         |       | (8,176,341                  | )          | (1,023,986                  | )          |
| Cash and cash  equivalents at beginning of year                                               |       | 8,671,259                   |       | 9,695,245                   |       |
| Cash and cash  equivalents at end of year                                                     |       | $                           | 494,918    |                        | $          | 8,671,259 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

37

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                       | ** ** | **Year Ended**         | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                       | ** ** | **December 29, ** | ** ** | **December 30, ** | ** ** |
| ** **                                                       | ** ** | **2007**                    | ** ** | **2006** | ** ** |
| **Supplemental  disclosure of cash flow information:**           | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Cash paid during  the period for interest                        |       | $                           | 992,735    |   | $ | 172,527 |   |
| Cash paid during  the year for taxes                             | ** ** | **—**                  |       | 5,000 |   |
| ** **                                                       | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **Supplemental  disclosure of non-cash investing transactions:** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Land and  building acquired with mortgage financing              | ** ** | **—**                  |       | $ | 2,400,000 |   |
| ** **                                                       | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Acquisition of  Rader Farms, Inc.                           | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Fair value of  current assets acquired                           |       | $                           | 7,720,037  |   |   |   |
| Fair value of  fixed assets acquired                             |       | 10,472,359                  |       |   |   |
| Goodwill                                                         |       | 5,603,736                   |       |   |   |
| Trademark                                                        |       | 1,070,000                   |       |   |   |
| Customer  relationship                                           |       | 100,000                     |       |   |   |
| Covenant-not-to  compete                                         |       | 160,000                     |       |   |   |
| Total assets  acquired                                           |       | 25,126,132                  |       |   |   |
| Fair value of  liabilities assumed                               |       | (4,187,454                  | )          |   |   |
| Total cash  expended to acquire Rader Farms, Inc.           |       | $                           | 20,938,678 |   |   |   |
|                                                                  |            |                             |            |  |  |  |  |  |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

38

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.     Organization, Business and Summary ofSignificant Accounting Policies:**

 

The Inventure Group, Inc.,(“the Company”) a Delaware corporation, was formed in 1995 as a holding companyto acquire a potato chip manufacturing and distribution business, which hadbeen founded by Donald and James Poore in 1986. The Company changed its name from Poore Brothers, Inc. to TheInventure Group, Inc. on April 10, 2006.

 

In December 1996,the Company completed an initial public offering of its Common Stock.  In November 1998, the Company acquiredthe business and certain assets (including the Bob’s Texas Style® potato chipbrand) of Tejas Snacks, L.P. (“Tejas”), a Texas-based potato chipmanufacturer.  In October 1999, theCompany acquired Wabash Foods, LLC (“Wabash”) including the Tato Skins®, O’Boisies®,and Pizzarias® trademarks and the Bluffton, Indiana manufacturing operation andassumed all of Wabash Foods’ liabilities. In June 2000, the Company acquired Boulder Natural Foods, Inc.(“Boulder”) and the Boulder Canyon Natural FoodsTM brand of totallynatural potato chips.  In May 2007,the Company acquired Rader Farms, Inc. including the Rader Farms®trademark and the Lynden, Washington frozen fruit processing operation.

 

In October 2000, theCompany launched its T.G.I. Friday’s® brand snacks pursuant to a licenseagreement with TGI Friday’s Inc., which expires in 2014.

 

In June 2003, theCompany launched its Crunch Toons® brand potato snacks, initially featuringcharacters pursuant to a multi-year license agreement with Warner Bros.Consumer Products.  The Company decidedto discontinue the brand in June 2004, and ceased using its licenseagreements with Warner Bros. Consumer Products.

 

In April 2005, the Company launched its Cinnabon®brand pursuant to a license agreement with Cinnabon, Inc.  We have decided the Cinnabon® brand licensedoes not fit into our strategic plan going forward and therefore the Companyterminated the agreement.  The Companyceased selling product under the Cinnabon® brand in 2006.

 

In May 2007, the Company completed theacquisition of Rader Farms, Inc. for a total cost of $20.9 million.  See Note 2 to the Consolidated FinancialStatements for additional information.

 

In July 2007, theCompany launched its BURGER KINGTM brand snack products pursuant toa license agreement with TGI Friday’s Inc., which expires in 2012.

 

TheCompany’s fiscal year ends on the last Saturday occurring in the month of December ofeach calendar year.  Accordingly, fiscal2006 commenced December 31, 2006 and ended December 29, 2007.  Our fiscal year ends on the last Saturday ofeach December, resulting in an additional week of results every five or sixyears.

 

***Business***

 

The Company is engaged inthe development, production, marketing and distribution of innovative snackfood products and frozen berry products that are sold primarily through groceryretailers, mass merchandisers, club stores, convenience stores and venddistributors across the United States. The Company currently manufactures and sells nationally T.G.I. Friday’s®brand snacks under license from TGI Friday’s Inc. and BURGER KINGTMbrand snack products under license from BURGER KINGTM.  We also distribute Braids® and pretzels.  The Company also currently (i) manufacturesand sells its own brands of snack food products, including Poore Brothers®, Bob’sTexas Style® and Boulder Canyon Natural FoodsTM brand batch-friedpotato chips and Tato Skins® brand potato snacks, (ii) manufacturesprivate label potato chips for grocery retail chains in the Southwest and (iii) distributesin Arizona snack food products that are manufactured by others.  The Company sells its T.G.I. Friday’s® brandsnack products and BURGER KINGTM brand snack products to massmerchandisers, grocery, club and drug stores directly and to primarilyconvenience stores and vend operators through independent distributors.  The Company’s other brands are also soldthrough independent distributors.

 

Inaddition, with the acquisition of Rader Farms, the Company grows, processes andmarkets premium berry blends, raspberries, blueberries, and rhubarb andpurchases marionberries, cherries, cranberries and strawberries from a selectnetwork of fruit growers for resale.  Thefruit is processed, frozen and packaged for sale and distribution nationally towholesale customers under the Rader Farms® brand, as well as through storebrands.

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**1.     Organization, Business and Summary ofSignificant Accounting Policies: (Continued)**

 

***Principles of Consolidation***

 

Theconsolidated financial statements include the accounts of The Inventure Group, Inc.and all of its wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated.

 

***Useof Estimates***

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenues and expenses during thereporting period.  The Company routinelyevaluates its estimates, including those related to accruals for customerprograms and incentives, product returns, brand discontinuance costs, baddebts, income taxes, long-lived assets, inventories and contingencies.  The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances.  Actual resultscould differ from those estimates.

 

***Fair Value of FinancialInstruments***

 

At December 29,2007 and December 30, 2006, the carrying value of cash, accountsreceivable, accounts payable and accrued liabilities approximate fair valuessince they are short-term in nature.  Thecarrying value of the long-term debt approximates fair-value based on theborrowing rates currently available to the Company for long-term borrowingswith similar terms, except for the mortgage loan with fixed interest at 9.03%,which has a fair value of $1.3 million at both December 29, 2007 and December 30,2006.  The Company estimates fair valuesof financial instruments by using available market information.  Considerable judgment is required ininterpreting market data to develop the estimate of fair value.  Accordingly, the estimate may not beindicative of the amounts that the Company could realize in a current marketexchange.  The use of different marketassumptions or valuation methodologies could have a material effect on theestimated fair value amounts.

 

***Derivative Financial Instruments***

 

The Company utilizes aninterest rate swap in the management of its variable interest rate exposure anddoes not enter into derivatives for trading purposes.  All derivatives are measured at fairvalue.  The Company did not qualify theinterest rate swap for hedge accounting.

 

***Inventories***

 

Inventories are stated atthe lower of cost (first-in, first-out) or market.  The Company identifies slow moving orobsolete inventories and estimates appropriate loss provisions relatedthereto.  If actual market conditions areless favorable than those projected by management, additional inventory write-downsmay be required.

 

***Property and Equipment***

 

Property and equipmentare recorded at cost.  Cost includesexpenditures for major improvements and replacements.  Maintenance and repairs are charged tooperations when incurred.  When assetsare retired or otherwise disposed of, the related costs and accumulateddepreciation are removed from the appropriate accounts, and the resulting gainor loss is recognized.  Depreciationexpense is computed using the straight-line method over the estimated usefullives of the assets, ranging from 2 to 30 years.  We capitalize certain computer software andsoftware development costs incurred in connection with developing or obtainingcomputer software for internal use. Capitalized software costs are included inproperty, plant and equipment and amortized on a straight-line basis whenplaced into service over three years.

 

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** **

**THE INVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –(Continued)**

 

**1.****             Organization,Business and Summary of Significant Accounting Policies: (Continued)**

 

In accordance with FinancialAccounting Standards Board (“FASB”) Statement of Financial Accounting Standards(“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets,”, the Company evaluates the recoverability of property and equipmentnot held for sale by comparing the carrying amount of the asset or group ofassets against the estimated undiscounted future cash flows expected to resultfrom the use of the asset or group of assets and their eventual disposition. Ifthe undiscounted future cash flows are less than the carrying value of theasset or group of assets being evaluated, an impairment loss is recorded. Theloss is measured as the difference between the fair value and carrying value ofthe asset or group of assets being evaluated. Assets to be disposed of arereported at the lower of the carrying amount or the fair value less cost tosell. The estimated fair value would be based on the best information availableunder the circumstances, including prices for similar assets or the results ofvaluation techniques, including the present value of expected future cash flowsusing a discount rate commensurate with the risks involved.

 

***IntangibleAssets***

 

Goodwill and trademarksare reviewed for impairment annually, or more frequently if impairment indicatorsarise. Goodwill is required to be tested for impairment between the annualtests if an event occurs or circumstances change that more-likely-than-notreduce the fair value of a reporting unit below its carrying value. Intangibleassets with indefinite lives are required to be tested for impairment betweenthe annual tests if an event occurs or circumstances change indicating that theasset might be impaired. During 2007, the Company determined the carryingvalues of two trademarks were impaired and recorded a $2.7 million charge. TheCompany believes the carrying values are appropriate after recognition of thetrademark impairment. Further discussion of goodwill and trademarks is expandedupon below:

 

·  TheCompany’s Bob’s Texas Style potato chip brand was acquired in 1998 when thebusiness of Tejas Snacks, L.P. was acquired. Following a trademark impairmentcharge of $0.9 million recorded in 2007, the Bob’s Texas Style trademark has acarrying value of approximately $0.3 million.

 

·  TheCompany’s Tato Skins potato chip brand was acquired in 1999 when the businessof Wabash Foods was acquired. Following an impairment charge if $1.8 millionrecorded in 2007, the Wabash - Tato Skins trademark has a carrying value ofapproximately $0.4 million.

 

·  TheCompany’s Boulder Canyon potato chip brand was acquired in 2000 when thebusiness of Boulder Natural Foods, Inc. was acquired. The Boulder Canyontrademark has a carrying value of $0.9 million.

 

·  TheCompany’s Rader Farms frozen berry brand was acquired in 2007 when the businessof Rader Farms was acquired. The acquisition resulted in goodwill of $5.6million and other intangibles $1.3 million. See Note 2 of these ConsolidatedFinancial Statements for additional information.

 

In determining that eachof these trademarks has an indefinite life, management considered the factorsfound in paragraph 11 of SFAS No. 142. Management believes that each ofthese trademarks has the continued ability to generate cash flows indefinitely.Management’s determination that these trademarks have indefinite lives includesan evaluation of historical cash flows and projected cash flows for each ofthese trademarks. In addition, there are no legal, regulatory, contractual,economic or other factors to limit the useful life of these trademarks, andmanagement intends to renew each of these trademarks, which can be accomplishedat little cost.

 

The Company recordedgoodwill for each of the four acquisitions noted above. The three acquiredpotato chip businesses were fully integrated into and are included in theCompany’s Branded Snack Products business segment. The Rader Farms frozen berrybusiness is included in the Company’s Berry Products business segment.

 

41

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**1.****             Organization,Business and Summary of Significant Accounting Policies: (Continued)**

 

***Advertisingand Promotional Expenses and Trade Spending****.*

 

The Company expensesproduction costs of advertising the first time the advertising takes place,except for cooperative advertising costs which are expensed when the relatedsales are recognized. Costs associated with obtaining shelf space (i.e., “slottingfees”) are accounted for as a reduction of revenue in the period in which suchcosts are incurred by the Company. Anytime the Company offers consideration(cash or credit) as a trade advertising or promotional allowance to a purchaserof products at any point along the distribution chain, the amount is accruedand recorded as a reduction in revenue. Marketing programs that deal directlywith the consumer, primarily consisting of in-store demonstration/samples and asponsorship with a professional baseball team, are recorded as a marketingexpense in selling, general and administrative expenses. Further discussion ofthese marketing programs is expanded upon below:

 

·    Demonstrations/Samples:   TheCompany will periodically arrange in-store product demonstrations with clubstores (i.e. Sam’s, Costco or BJ’s) or grocery retailers. Productdemonstrations are conducted by independent third party providers designated bythe various retailer or club chains. During the in-store demonstrations the consumersin the stores receive small samples of our products, and consumers are notrequired to purchase our product in order to receive the sample. The cost ofproduct used in the demonstrations, which is insignificant, and the fee paid tothe independent third party providers who conduct the in-store demonstrationsare recorded as a sales and marketing expense in selling, general andadministrative expenses. When in-store product demonstrations are conducted,the Company does not pay or give any consideration to the club stores orgrocery retailers in which the demonstrations occur.

 

·    Sponsorship:   TheCompany has one sponsorship with the Arizona Diamondbacks Major League Baseballteam which takes place during their baseball season. The Company does not sellproduct to the Arizona Diamondbacks, and the sponsorship clearly involves anidentifiable benefit to the Company as the fans at the stadium see the Company’sname on the main scoreboard during each game and the value is reasonablyestimated due to the fact that the team charges a fixed amount per game whichis recorded by the Company as a sales and marketing expense in selling, generaland administrative expenses.

 

***RevenueRecognition***

 

In accordance withaccounting principles generally accepted in the United States, the Companyrecognizes operating revenues upon shipment of products to customers providedtitle and risk of loss pass to its customers. In those instances where titleand risk of loss does not pass until delivery, revenue recognition is deferreduntil delivery has occurred. Provisions and allowances for sales returns,promotional allowances and discounts are also recorded as a reduction ofrevenues in the Company’s consolidated financial statements.

 

***IncomeTaxes***

 

We account for income taxes under the asset andliability method, which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of events that have beenincluded in the financial statements. Under this method, deferred tax assetsand liabilities are determined based on the differences between the financialstatements and tax basis of assets and liabilities using enacted tax rates ineffect for the year in which the differences are expected to reverse. Theeffect of a change in tax rates on deferred tax assets and liabilities isrecognized in income in the period that includes the enactment date.

 

We record net deferred tax assets to the extent webelieve these assets will more likely than not be realized. In making suchdetermination, we consider all available positive and negative evidence,including future reversals of existing taxable temporary differences, projectedfuture taxable income, tax planning strategies and recent financial operations.

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**1.****             Organization,Business and Summary of Significant Accounting Policies: (Continued)**

 

In July 2006, the Financial Accounting StandardsBoard (“FASB”) issued Financial Interpretation (“FIN”) 48, “Accounting forUncertainty in Income Taxes,” which clarifies the accounting for uncertainty inincome taxes recognized in the financial statements in accordance withStatement of Financial Accounting Standards (“SFAS”) 109, “Accounting forIncome Taxes.” FIN 48 provides that a tax benefit from an uncertain taxposition may be recognized when it is more likely than not that the positionwill be sustained upon examination, including resolutions of any relatedappeals or litigation processes, based on the technical merits. Income taxpositions must meet a more-likely-than-not recognition threshold at theeffective date to be recognized upon the adoption of FIN 48 and in subsequentperiods. This interpretation also provides guidance on measurement,derecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. We adopted FIN 48 effective January 1,2007. The total amount of unrecognized tax benefits as of the adoption date wasimmaterial, and no material changes to the amount of unrecognized tax benefitsoccurred during the year ended December 29, 2007.

 

It is the Company’s policy to recognize interest andpenalties accrued on any unrecognized tax benefits as a component of income taxexpense. As of the date of adoption of FIN 48, the Company did not have anyaccrued interest or penalties associated with any unrecognized tax benefits,nor was any interest or penalties recorded during the year ended December 29,2007.

 

The Company files incometax returns in the U.S. federal jurisdiction and various state jurisdictions.The Company’s U.S. federal income tax returns for years 2004 through 2007remain open to examination by the Internal Revenue Service. The Company’s statetax returns for years 2003 through 2007 remain open to examination by thestate.

 

***StockOptions and Stock-Based Compensation***

 

The Company’s 1995 StockOption Plan (the “1995 Plan”), as amended, provided for the issuance of optionsto purchase 3,500,000 shares of Common Stock. The options granted pursuant tothe 1995 Plan expire over a five-year period and generally vest over threeyears. In addition to options granted under the 1995 Plan, the Company alsoissued non-qualified options (non-plan options) to purchase Common Stock tocertain Directors and Officers which are exercisable and expire either five orten years from date of grant. All options are issued at an exercise price offair market value of the underlying common stock on the date of grant and arenon-compensatory. The 1995 Plan expired in May 2005 and was replaced bythe Inventure Group, Inc. 2005 Equity Incentive Plan (the “2005 Plan”) asdescribed below.

 

The 2005 Plan was approved at the Company’s 2005Annual Meeting of Shareholders, and expires in May 2015. Awards grantedunder the 2005 Plan may include: nonqualified stock options, incentive stockoptions, restricted stock, restricted stock units, stock appreciation rights,performance units and stock-reference awards. If any shares of Common Stocksubject to awards granted under the 1995 Plan or the 2005 Plan are canceled,those shares will be available for future awards under the 2005 EquityIncentive Plan.

 

In December 2004,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 123 (revised 2004), “Share-BasedPayment,” which requires that compensation cost related to all share-basedpayment arrangements, including employee stock options, be recognized in thefinancial statements based on the fair value method of accounting. In addition,SFAS No. 123R requires that excess tax benefits related to share-basedpayment arrangements be classified as cash inflows from financing activitiesand cash outflows from operating activities. SFAS No. 123R is a revisionof SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedesAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations.

 

As originally permittedby SFAS 123, the Company had previously elected to apply the guidance in APBOpinion No. 25, which allowed companies to use the intrinsic value methodof accounting to measure the value of share-based payment transactions withemployees. Based on this method, the Company had not previously recognized thecompensation cost related to employee stock options in the financial statementsas the stock options granted had an exercise price equal to the fair marketvalue of the underlying common stock on the date of grant. Effective January 1,2006, the Company adopted the provisions of SFAS 123R using the modifiedprospective application method. Accordingly, prior period amounts have not beenrestated. Under the modified prospective application method, the compensationcost related to the unvested stock options granted prior to the adoption ofSFAS No. 123R, and all new awards will be recognized in the financialstatements over the requisite service period based on the fair value of theawards.

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**1.****             Organization,Business and Summary of Significant Accounting Policies: (Continued)**

 

During the year ended December 29,2007 and December 30, 2006, the total share-based compensation expensefrom restricted stock recognized in the financial statements was $60,793 and$62,755, respectively. There were no share-based compensation costs which werecapitalized. As of December 29, 2007 and December 30, 2006 the totalunrecognized costs related to non-vested restricted stock awards granted was$38,810 and $119,006, respectively. The Company expects to recognize such costsin the financial statements over a weighted-average period of three years.

 

The adoption of SFAS 123Rduring 2006 resulted in total share-based compensation expense from vestedoptions recognized in the financial statements of $312,479 in 2007 and $204,761in 2006 which reduced income from operations accordingly. There were noshare-based compensation costs which were capitalized. The stock-basedcompensation expense caused the net loss to increase by approximately $212,000and basic and diluted loss per share to increase by $0.01 per share for theyear ended December 29, 2007. The stock-based compensation expense causednet income to decrease by approximately $125,000 and basic and diluted earningsper share to decrease by $0.01 per share for the year ended December 30,2006.

 

The Company received$77,331 and $162,647 in cash from the exercise of stock options during theyears ended December 29, 2007 and December 30, 2006. The excess taxbenefit realized for the tax deductions from the exercise of options of theshare-based payment arrangements for the years ended December 29 2007 and December 30,2006 were $5,827 and $8,916, respectively.

 

For purposes of applyingSFAS 123R, the fair value of each stock option award that was granted prior tothe effective date continues to be accounted for in accordance withSFAS 123 except that amounts must be recognized in the income statement. Thefair value of each stock option grant was estimated on the date of grant usingthe Black-Scholes option pricing model with the following weighted-averageassumptions for the years ended:

 
| ** **                                       | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|--------------------------------------------------|------------|-----------|------------|-----------|------------|
| Expected  dividend yield                         |       | 0         | %          | 0         | %          |
| Expected  volatility                             |       | 47        | %          | 50        | %          |
| Risk-free  interest rate                         |       | 4% - 5    | %          | 5% - 6    | %          |
| Expected life –  Employees Options          |       | 1.8 years |       | 2.4 years |       |
| Expected life –  Board of Directors Options |       | 1.6 years |       | 1.4 years |       |

 

The expected dividendyield was based on the Company’s expectation of future dividend payouts. Thevolatility assumption was based on historical volatility during the time periodthat corresponds to the expected life of the option. The expected life(estimated period of time outstanding) of stock options granted was estimatedbased on historical exercise activity. The risk-free interest rate assumptionwas based on the interest rate of U.S. Treasuries on the date the option wasgranted.

 

As of December 29,2007, the amount of unrecognized compensation expense to be recognized over thenext two years, in accordance with SFAS 123R, is approximately $0.4 million. Thisexpected compensation expense does not reflect any new awards, or modificationsto existing awards, that could occur in the future. Generally, the Companyissues new shares upon the exercise of stock options as opposed to reissuingtreasury shares.

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**1.****             Organization,Business and Summary of Significant Accounting Policies: (Continued)**

 

***EarningsPer Common Share***

 

Basic earnings per commonshare is computed by dividing net income by the weighted average number ofshares of common stock outstanding during the period. Exercises of outstandingstock options or warrants are assumed to occur for purposes of calculatingdiluted earnings per share for periods in which their effect would not beanti-dilutive. For 2007, no exercises were assumed because they would beanti-dilutive. Earnings per common share was computed as follows for the yearsended December 29, 2007 and December 30, 2006:

 
| ** **                                                                        | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Basic  Earnings Per Common Share:**                                             |       |       |       |       |       |
| Net income  (loss)                                                                |       | $          | (1,503,473 | )          | $          | 1,093,393 |   |
|                                                                              |       |       |       |       |       |
| Weighted average  number of common shares                                         |       | 19,206,344 |       | 19,833,068 |       |
| Earnings (loss)  per common share                                                 |       | $          | (0.08      | )          | $          | 0.06 |   |
|                                                                              |       |       |       |       |       |
| **Diluted  Earnings Per Common Share:**                                           |       |       |       |       |       |
| Net income  (loss)                                                                |       | $          | (1,503,473 | )          | $          | 1,093,393 |   |
|                                                                              |       |       |       |       |       |
| Weighted average  number of common shares                                         |       | 19,206,344 |       | 19,833,068 |       |
| Incremental  shares from assumed conversions - Stock options and restricted stock |       | —     |       | 23,212     |       |
| Adjusted  weighted average number of common shares                                |       | 19,206,344 |       | 19,856,280 |       |
|                                                                              |       |       |       |       |       |
| Earnings (loss)  per common share                                                 |       | $          | (0.08      | )          | $          | 0.06 |   |

 

***RecentAccounting Pronouncements***

 

In June 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109* (FIN 48)*,* which clarifies the accounting foruncertainty in tax positions. FIN 48 requires that the Company recognize in itsfinancial statements the impact of a tax position if that position is morelikely than not of being sustained on audit, based on the technical merits ofthe position. The provisions of FIN 48 are effective as of the beginning of the2007 fiscal year, with the cumulative effect of the change in accountingprinciple recorded as an adjustment to opening retained earnings. The Company’sadoption of FIN 48 did not affect the financial statements.

 

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFASNo. 157”)*,* which clarifies the definitionof fair value whenever another standard requires or permits assets orliabilities to be measured at fair value. Specifically, the standard clarifiesthat fair value should be based on the assumptions market participants woulduse when pricing the asset or liability, and establishes a fair value hierarchythat prioritizes the information used to develop those assumptions. SFAS No. 157also requires expanded financial statement disclosures about fair valuemeasurements, including disclosure of the methods used and the effect onearnings. SFAS No. 157 is effective for fiscal years beginning after November 15,2007. The adoption of SFAS No. 157 had no impact on the Company’sfinancial position or statement of operations.

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**1.****             Organization,Business and Summary of Significant Accounting Policies: (Continued)**

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS No. 159”). SFASNo. 159 allows entities to choose to measure eligible financialinstruments at fair value with changes in fair value recognized in earnings ofeach subsequent reporting date. The fair value election is available for mostfinancial assets and liabilities on an instrument-by-instrument basis and is tobe elected on the date the financial instrument is initially recognized. SFAS159 is effective for all entities as of the beginning of a reporting entity’sfirst fiscal year that begins after November 15, 2007 (with earlierapplication permitted under certain circumstances). The adoption of SFAS No. 157had no impact on the Company’s financial position or statement of operations.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “*Business Combinations*” (“SFAS No. 141(R)”),which replaces SFAS No. 141, “*BusinessCombinations*.” SFAS No. 141(R) retains the underlyingconcepts of SFAS No. 141 that require all business combinations to beaccounted for at fair value under the acquisition method of accounting,however, SFAS No. 141(R) significantly changes certain aspectsof the prior guidance including: (i) acquisition-related costs, except forthose costs incurred to issue debt or equity securities, will no longer becapitalized and must be expensed in the period incurred; (ii) non-controllinginterests will be valued at fair value at the acquisition date; (iii) in-processresearch and development will be recorded at fair value as an indefinite-livedintangible asset at the acquisition date; (iv) restructuring costsassociated with a business combination will no longer be capitalized and mustbe expensed subsequent to the acquisition date; and (v) changes indeferred tax asset valuation allowances and income tax uncertainties after theacquisition date will no longer be recorded as an adjustment of goodwill,rather such changes will be recognized through income tax expense or directlyin contributed capital. SFAS 141(R) is effective for all businesscombinations having an acquisition date on or after the beginning of the firstannual period subsequent to December 15, 2008, with the exception of theaccounting for valuation allowances on deferred taxes and acquired taxcontingencies. SFAS 141(R) amends SFAS 109 such that adjustmentsmade to valuation allowances on deferred taxes and acquired tax contingenciesassociated with acquisitions that closed prior to the effective date ofSFAS 141(R) would also apply the provisions of SFAS 141(R).

 

**2.****            ****Acquisition:**

 

***Rader Farms, Inc.*** On May 17,2007, The Inventure Group, Inc. and subsidiaries (“The Inventure Group” orthe Company) completed the acquisition of Rader Farms, Inc. (“Rader Farms”)for a total cost of approximately $20.9 million, including $0.2 million ofacquisition costs, which was funded by cash of $4.9 million plus $16 millionin debt. Rader Farms is a Washington corporation located in Whatcom County. TheCompany grows processes and markets premium berry blends, raspberries,blueberries, and rhubarb and purchases marionberries, cherries, cranberries andstrawberries from a select network of fruit growers for resale. The fruit isprocessed, frozen and packaged for sale and distribution to wholesalecustomers. We believe the acquisition provides The Inventure Group access to agrowing specialty food category with a best-in-class business.

 

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**THEINVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**2.****             Acquisition****: (Continued)**

 

The acquisition was accountedfor as a purchase pursuant to Statement of Financial Accounting Standards No. 141,*Business Combinations* (“SFAS No. 141”),and accordingly, the operating results of Rader Farms are included in ourconsolidated financial statements from the date of acquisition. The purchaseprice was determined through an arms-length negotiation between the parties,and has been allocated to the underlying assets based on an estimate of fairvalues and remaining economic lives. Adjustments have been made to the originalpurchase price allocation to adjust inventory and accounts receivables acquiredat the purchase date. The estimated amortization period for the intangiblesacquired and valued to date in this transaction consist of the customerrelationship amortized over 10 years and the covenant-not-to-compete amortizedover 5 years. The Goodwill recognized in the transaction is essentiallyequivalent for both book and tax purposes.

 

The following tablesummarizes the fair value for the assets acquired and liabilities assumed atthe date of acquisition:

 
| ** **                                 | ** ** | ** ** | ** ** | **Useful Life** | ** ** |
|--------------------------------------------|------------|------------|------------|-----------------|------------|
|                                       |       |       |       |            |       |
| Fair value of  current assets acquired     |       | $          | 7,720,037  |            |       |   |
| Fair value of  fixed assets acquired       |       | 10,472,359 |       |            |       |
| Goodwill                                   |       | 5,603,736  |       |            |       |
| Trademarks                                 |       | 1,070,000  |       |            |       |
| Customer  relationship                     |       | 100,000    |       | 10 years   |       |
| Covenant not to  compete                   |       | 160,000    |       | 5 years         |       |
| Total assets  acquired                     |       | 25,126,132 |       |            |       |
| Fair value of  current liabilities assumed |       | (4,187,454 | )          |            |       |
| Net assets  acquired                       |       | $          | 20,938,678 |            |       |   |

 

The followingunaudited pro-forma consolidated results of operations for the years ended December 29,2007 and December 30, 2006 assumes the Rader Farms acquisition occurred asof the beginning of each year. The pro-forma results are not necessarilyindicative of the actual results that would have occurred had the acquisitionbeen completed as of the beginning of each of the periods presented, nor arethey necessarily indicative of future consolidated results.

 
| ** **                         | ** ** | **Year Ended**             | ** **  | **Year Ended**             | ** ** |
|------------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| ** **                         | ** ** | **December 29, 2007** | ** **  | **December 30, 2006** | ** ** |
|                               |       |                            |        |                            |       |
| Total revenues                     |       | $                               | 105,732,297 |                            | $          | 97,258,547 |   |
| Net income  (loss)                 |       | $                               | (763,832    | )                               | $          | 2,011,129 |   |
| Basic earnings  (loss) per share   |       | $                               | (0.04       | )                               | $          | 0.10 |   |
| Diluted earnings  (loss) per share |       | $                               | (0.04       | )                               | $          | 0.10 |   |

 

47

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**3.****     Goodwill and Trademarks:**

 

Goodwill, trademarks and other intangibles, netconsisted of the followingas of December 29, 2007 and December 30, 2006:

 
| ** **                                              | ** ** | **Estimated  Useful Life** | ** ** | **December 29,  2007** | ** ** | **December 30,  2006** | ** ** |
|---------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Goodwill:                                               |       |                            |       |                        |       |                        |       |
| The Inventure  Group, Inc.                         |       |                            |       | $                           | 5,986,252  |                        | $          | 5,986,252 |   |
| Rader  Farms, Inc.                                 |       |                            |       | 5,603,736                   |       | —                      |       |
|                                                    |       |                            |       |                        |       |                        |       |
| Total Goodwill,  net                                    |       |                            |       | $                           | 11,589,988 |                        | $          | 5,986,252 |   |
|                                                    |       |                            |       |                        |       |                        |       |
| Trademarks:                                             |       |                            |       |                        |       |                        |       |
| The Inventure  Group, Inc.                              |       |                            |       | 1,535,659                   |       | 4,207,032                   |       |
| Rader  Farms, Inc.                                 |       |                            |       | 1,070,000                   |       | —                      |       |
|                                                    |       |                            |       |                        |       |                        |       |
| Other  intangibles:                                     |       |                            |       |                        |       |                        |       |
| Rader -  Covenant-not-to-compete, gross carrying amount |       | 5 years                         |       | 160,000                     |       | —                      |       |
| Rader -  Covenant-not-to-compete, accum. amortization   |       |                            |       | (18,667                     | )          | —                      |       |
| Rader - Customer  relationship, gross carrying amount   |       | 10 years                        |       | 100,000                     |       | —                      |       |
| Rader - Customer  relationship, accum. amortization     |       |                            |       | (19,250                     | )          |                        |       |
|                                                    |       |                            |       |                        |       |                        |       |
| Total Trademarks  and other intangibles, net            |       |                            |       | $                           | 2,827,742  |                        | $          | 4,207,032 |   |

 

Subsequent to theacquisition date, we recorded an increase of $0.7 million in Rader Farmsgoodwill as a result of certain adjustments made to the estimated fair valuesof the assets and liabilities assumed in the acquisition. These adjustments tothe initial purchase accounting were made primarily to finalize the fair valueof the accounts receivable, inventory and intangible asset balances.

 

Amortizationexpense for the 2007 and 2006 was $52,273 and $5,835, respectively. As of December 29,2007, we expect amortization expense on these intangible asset over the nextfive years to be as follows:

 
| 2008 |   | $ | 42,000 |   |
|------|--------|---|--------|--------|
| 2009 |   | $ | 42,000 |   |
| 2010 |   | $ | 42,000 |   |
| 2011 |   | $ | 42,000 |   |
| 2012 |   | $ | 23,333 |   |

 

Goodwilland trademarks are reviewed for impairment annually in the second fiscalquarter, or more frequently if impairment indicators arise. Goodwill isrequired to be tested for impairment between the annual tests if an eventoccurs or circumstances change that more-likely-than-not reduces the fair valueof a reporting unit below its carrying value. Intangible assets with indefinitelives are required to be tested for impairment between the annual tests if anevent occurs or circumstances change indicating that the asset might beimpaired. During the fourth quarter of 2007 management and the Board ofDirectors implemented strategic decisions that will likely limit the brandexpansion for two trademarks. As a result, the Company determined the carryingvalues of those two trademarks were impaired utilizing a discounted cash flowanalysis and recorded a $2.7 million charge as a result. The Company believesthe carrying values are appropriate after recognition of the trademarkimpairment.

 

48

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES(FORMERLY POORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**4.****    ****Accrued Liabilities:**

 

Accruedliabilities consisted of the following as of December 29, 2007 and December 30,2006:

 
| ** **                         | ** ** | **2007**  | ** ** | **2006** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|
| Accrued payroll  and payroll taxes |       | $         | 1,385,596  |     | $          | 1,300,653 |   |
| Accrued  royalties and commissions |       | 561,458   |       | 509,157  |       |
| Accrued  advertising and promotion |       | 1,022,639 |       | 838,934  |       |
| Accrued other                      |       | 1,236,385 |       | 326,979  |       |
|                               |       | $         | 4,206,078  |     | $          | 2,975,723 |   |

 

**5.****    ****Inventories:**

 

Inventoriesconsisted of the following as of December 29, 2007 and December 30,2006:

 
| ** **     | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|----------------|------------|-----------|------------|-----------|------------|
| Finished goods |       | $         | 3,838,344  |      | $          | 1,833,495 |   |
| Raw materials  |       | 7,747,253 |       | 1,625,741 |       |
|           |       | $         | 11,585,597 |      | $          | 3,459,236 |   |

 

 

**6.****    ****Property and Equipment:**

 

Property andequipment consisted of the following as of December 29, 2007 and December 30,2006:

 
| ** **                                      | ** ** | **Useful Lives** | ** ** | **2007**    | ** ** | **2006**   | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|-------------|------------|------------|------------|
| Buildings and  improvements                     |       | 20 – 30 years    |       | $           | 10,799,281 |       | $          | 8,457,319 |   |
| Equipment                                       |       | 7 – 15 years     |       | 20,402,765  |       | 11,331,513 |       |
| Land                                            |       | —                |       | 346,506     |       | 346,506    |       |
| Vehicles                                        |       | 5 years               |       | 268,330     |       | —     |       |
| Furniture and  office equipment                 |       | 2 – 5 years      |       | 3,174,208   |       | 1,899,430  |       |
|                                            |       |                  |       | 34,991,090  |       | 22,034,768 |       |
| Less accumulated  depreciation and amortization |       |                  |       | (11,554,338 | )          | (9,500,324 | )          |
|                                            |       |                  |       | $           | 23,436,752 |       | $          | 12,534,444 |   |

 

49

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**7.****     Long-TermDebt and Line of Credit:**

 

Long-term debt consisted of the following as of December 29, 2007and December 30, 2006:

 
| ** **                                                                                                                                                                                             | ** ** | **December 29,** | ** ** | **December 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                             | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| Mortgage loan  due monthly through July, 2012; interest at 9.03%; collateralized by land and  building in Goodyear, AZ                                                                                 |       | $                     | 1,633,771  |                  | $          | 1,685,574 |   |
| Mortgage loan  due monthly through December, 2016; interest rate at 30 day LIBOR plus 165  basis points, fixed through a swap agreement to 6.85%; collateralized by land  and building in Bluffton, IN |       | 2,344,220             |       | 2,400,000             |       |
| Equipment term  loan due monthly through May, 2104; interest at LIBOR plus 165 basis points;  collateralized by equipment at Rader Farms in Lynden, WA                                                 |       | 5,571,429             |       | —                |       |
| Real Estate term  loan due monthly through July, 2017; interest at LIBOR plus 165 basis points;  secured by a leasehold interest in the real property                                                  |       | 3,937,763             |       | —                |       |
| Vehicle term  loan and capital leases due in various monthly installments through February,  2011; collateralized by vehicles                                                                          |       | 140,088               |       | —                |       |
|                                                                                                                                                                                                   |       | 13,627,271            |       | 4,085,574             |       |
| Less current  portion of long-term debt                                                                                                                                                                |       | (1,181,888            | )          | (112,113              | )          |
| Long-term debt,  less current portion                                                                                                                                                                  |       | $                     | 12,445,383 |                  | $          | 3,973,461 |   |

 

Annual maturitiesof long-term debt as of December 29, 2007 are as follows:

 
| **Year**   | ** ** | ** ** | ** ** |
|------------|------------|------------|------------|
| 2008       |       | 1,232,480  |       |
| 2009       |       | 1,238,185  |       |
| 2010       |       | 1,244,740  |       |
| 2011       |       | 1,251,436  |       |
| 2012       |       | 1,259,142  |       |
| Thereafter |       | 7,401,287  |       |
|       |       | $          | 13,627,271 |   |
|            |            |            |            |  |

 

***Interest Rate Swap***

 

TheCompany entered into an interest rate swap in 2006 to convert the interest rateof the mortgage to purchase the Bluffton, Indiana plant from the contractualrate of 30 day LIBOR plus 165 basis points to a fixed rate of 6.85%. The swapis not accounted for as a cash flow hedge. The swap has a fixed pay-rate of6.85% and a notional amount of approximately $2.4 million at December 29,2007 and expires in December, 2016.

 

50

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**7.****     Long-TermDebt: (Continued)**

 

To fund the acquisitionof Rader Farms, the Company entered into a Loan Agreement (the “Loan Agreement”)with U.S. Bank National Association (“U.S. Bank”). Each of our subsidiaries isa guarantor of the Loan Agreement, which is secured by a pledge of all of theassets of our consolidated group. The borrowing capacity available to us underthe Loan Agreement consists of notes representing:

 

·      a$15,000,000 revolving line of credit maturing on June 30, 2011; $7,452,309outstanding at December 29, 2007. Based on eligible assets, the amountavailable under the line of credit was $4,235,217 at December 29, 2007. Asdefined in the revolving credit facility note, all borrowings under the revolving line of credit will bear interest ateither (i) the prime rate of interest announced by U.S. Bank from time totime or (ii) LIBOR plus the LIBOR Rate Margin.

·      Equipmentterm loan due May 2014 noted above.

·      Realestate term loan due July, 2017 noted above...

 

U.S.Bank may terminate its commitments and accelerate the repayment of amountsoutstanding and exercise other remedies upon the occurrence of an event ofdefault (as defined in the Loan Agreement), subject, in certain instances, tothe expiration of an applicable cure period. The agreement requires the Companyto maintain compliance with certain financial covenants, including a minimumtangible net worth, a minimum fixed charge coverage ratio and a minimum currentratio. At December 29, 2007, the Company was in compliance with all of thefinancial covenants. Deferred financing fees totaling $119.744, which areincluded in Other Assets, were recorded in connection with the Loan Agreementand are being amortized over the life of the loan.

 

Interestincome (expense), net consisted of the following for the fiscal years ended December 29,2007 and December 30, 2006:

 
| ** **                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Interest expense                |       | $        | (1,172,989 | )        | $          | (186,203 | ) |
|                            |       |     |       |     |       |
| Interest income                 |       | 198,766  |       | 446,628  |       |
|                            |       |     |       |     |       |
| Interest income  (expense), net |       | $        | (974,223   | )        | $          | 260,425 |   |

 

**8.****     Commitmentsand Contingencies:**

 

The Company isperiodically a party to various lawsuits arising in the ordinary course of business.Management believes, based on discussions with legal counsel, that theresolution of such lawsuits, individually and in the aggregate, will not have amaterial adverse effect on the Company’s financial position or results ofoperations.

 

The Company leasesone-half of a 200,000 square foot facility in Bluffton, Indiana which is usedas a distribution center. The Company entered into an operating lease, theinitial term expiring in November 2006, with respect to the facility andhas entered into the first of two three-year renewal options. Current leasepayments are approximately $32,500 per month. The Company also has entered intoa service agreement expiring in December 2008 with a third party forwarehousing services. The service agreement includes certain minimum monthlyusage commitments amounting to $1,188,000 in each of 2007 and 2008.

 

The Company owns afarming, processing and storage facility located on 696 acres of land inLynden, Washington, which is leased from the Uptrails Group LLC, owned by fourmembers of the Rader family. One of the four, Brad Rader, is a current employeeof the Company and two of the others, Lyle and Sue Rader, were the formerowners of Rader Farms. This operating lease commenced on the acquisition dateand is effect until May 17, 2017. Lease payments are $43,500 per monththroughout the term of the lease.

 

51

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

Inaddition to the Company’s facility and land leases, the Company has enteredinto a variety of operating leases for equipment and vehicles.  Rental expense under all operating leases was$1,658,886 and $1,529,400 for fiscal 2007 and 2006, respectively.  Minimum future rental commitments undernon-cancelable leases as of December 29, 2007 are as follows:

 
| **Year**   | ** ** | **Operating  Leases** | ** ** |
|------------|------------|-----------------------|------------|
| 2008       |       | 1,493,000             |       |
| 2009       |       | 1,291,000             |       |
| 2010       |       | 1,170,000             |       |
| 2011       |       | 1,024,000             |       |
| 2012       |       | 931,000               |       |
| Thereafter |       | 2,470,000             |       |
| Total      |       | $                     | 8,379,000  |   |
|            |            |                       |            |  |

 

TheCompany licenses technology from a third party in connection with themanufacture of its T.G.I. Friday’s® and Tato Skins® brand products and has aroyalty-bearing, exclusive right license to use the technology in the UnitedStates, Canada, and Mexico until such time the parties mutually agree toterminate the agreement and provide written sixty (60) days notice to eachother.  In consideration for the use ofthis technology, the Company is required to make royalty payments to the thirdparty on sales of products manufactured utilizing the technology until suchtermination date.  The patents for thistechnology expired December 26, 2006. However, should productssubstantially similar to Tato Skins® , O’Boisies® and Pizzarias® becomeavailable, for any reason, in the marketplace by any manufacturer other thanthe Company which results in a sales decline of 10% or more, any royaltyobligation for the respective product (s) shall cease.

 

The Company licenses the T.G.I. Friday’s® brand snackstrademark from TGI Friday’s Inc. under a license agreement with a term expiringin 2014.  Pursuant to the licenseagreement, the Company is required to make royalty payments on sales of T.G.I.Friday’s® brand snack products and is required to achieve certain minimum saleslevels by certain dates during the contract term.

 

The Company licenses the BURGER KINGTM brand snacks trademark from BURGERKING Corporation under a license agreementwith a term expiring in 2012.  Pursuantto the license agreement, the Company is required to make royalty payments onsales of BURGER KINGTM brandsnack products and is required to achieve certain minimum sales levels bycertain dates during the contract term.

 

**9.****     Shareholders’ Equity:**

 

***CommonStock***

 

Approximately 4.3 millionshares of outstanding Common Stock issued by the Company are subject to “piggyback”registration rights granted by the Company, pursuant to which such shares ofCommon Stock may be registered under the Securities Act and, as a result,become freely tradable in the future. The Company will be required to pay all expenses relating to any suchregistration, other than underwriting discounts, selling commissions and stocktransfer taxes applicable to the shares, and any other fees and expensesincurred by the holder(s) of the shares (including, without limitation,legal fees and expenses) in connection with the registration.  All or a portion of such shares may, at theelection of the holders thereof, be included in any future registrationstatement of the Company and, upon the effectiveness thereof, may be sold inthe public markets.

 

52

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**9.****    ****Shareholders’ Equity: (Continued)**

 

On August 1, 2005,the Company issued to its Senior Vice President of Marketing 35,353 shares ofrestricted stock under the Company’s 2005 Equity Incentive Plan, subject tovesting in equal annual installments over three years.  The restricted stock was valued at the fairmarket value of the Common Stock on the date of grant, and the resulting unearnedcompensation expense was $175,000. During 2007 and 2006, amortization expense of $58,215 and $58,215,respectively, related to this grant is included in selling, general andadministrative expenses.

 

On July 25, 2006,the Company issued to its Vice President of Human Resources 12,000 shares ofrestricted stock under the Company’s 2005 Equity Incentive Plan, subject tovesting in equal annual installments over three years.  The restricted stock was valued at the fairmarket value of the Common Stock on the date of grant, and the resulting unearnedcompensation expense was $26,520.  During2007 and 2006, amortization expense of $ $2,578 and $4,540 related to thisgrant is included in selling, general and administrative expenses.  In April 2007, this individualterminated employment with the Company, thereby causing this amortization tocease at that time.

 

***PreferredStock***

 

The Company hasauthorized 50,000 shares of $100 par value Preferred Stock, none of which isoutstanding.  The Company may issue suchshares of Preferred Stock in the future without shareholder approval.

 

***StockOptions***

 

The Company’s 1995 StockOption Plan (the “1995 Plan”), as amended, provided for the issuance of optionsto purchase 3,500,000 shares of Common Stock. The options granted pursuant to the 1995 Plan expire over a five-yearperiod and generally vest over three years. In addition to options granted under the 1995 Plan, the Company alsoissued non-qualified options (non-plan options) to purchase Common Stock tocertain Directors and Officers which are exercisable and expire either five orten years from date of grant.  Alloptions are issued at an exercise price of fair market value at the date ofgrant and are non-compensatory.  The 1995Plan expired in May 2005 and was replaced by the Inventure Group, Inc.2005 Equity Incentive Plan (the “2005 Plan”) as described below.

 

The 2005 Plan was approved at the Company’s 2005Annual Meeting of Shareholders, and expires in May 2015.  Awards granted under the 2005 Plan mayinclude: nonqualified stock options, incentive stock options, restricted stock,restricted stock units, stock appreciation rights, performance units andstock-reference awards.  If any shares ofCommon Stock subject to awards granted under the 1995 Plan or the 2005 Plan arecanceled, those shares will be available for future awards under the 2005Equity Incentive Plan.  The Awardsgranted pursuant to the 2005 Plan generally expire over a five-year period andgenerally vest over three years.  As of December 29,2007, there were 84,365 shares of Common Stock available for Awards under the2005 Plan.

 

53

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**9.****    ****Shareholders’ Equity: (Continued)**

 

During fiscal years 2006 and 2007, stock optionactivity was as follows:

 
| ** **                       | ** ** | **Plan Options**    | ** ** | **Non-Plan Options**                  | ** ** |
|----------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Balance,  December 31, 2005 |       | 783,333                  |       | $                                          | 3.04       |   | 142,500 |   | $ | 3.38 |   |
| Granted                          |       | 487,000                  |       | 2.74                                       |       | — |   | — |   |
| Canceled                         |       | (486,667                 | )          | 3.16                                       |       | (90,000 | ) | 3.25 |   |
| Exercised                        |       | (61,666                  | )          | 2.44                                       |       | — |   | — |   |
| Balance,  December 30, 2006 |       | 722,000                  |       | $                                          | 2.80       |   | 52,500 |   | $ | 3.60 |   |
| Granted                          |       | 1,081,500                |       | 2.71                                       |       | — |   | — |   |
| Canceled                         |       | (125,533                 | )          | 3.13                                       |       | (7,500 | ) | 3.60 |   |
| Exercised                        |       | (35,467                  | )          | 2.18                                       |       | — |   | — |   |
| Balance,  December 29, 2007 |       | 1,642,500                |       | $                                          | 2.73       |   | 45,000 |   | $ | 3.60 |   |

 

The followingtable summarizes information about stock options outstanding and exercisable atDecember 29, 2007:

 
| **Range of   Exercise Prices** | ** ** | **Options  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Life  (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|-----------------------------------------------|------------|--------------------------|------------|------------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
| $ 2.10 - $2.99                           |       | 1,530,500                |       | 3.4                                                                          |       | $                                      | 2.68       |                     | 234,999    |                                   | $          | 2.66 |   |
| $ 3.08 - $3.60                           |       | 142,000                  |       | 3.1                                                                          |       | $                                      | 3.13       |                     | 60,000     |                                   | $          | 3.52 |   |
| $ 4.20 - $5.00                           |       | 15,000                   |       | 2.6                                                                          |       | $                                      | 5.00       |                     | 15,000     |                                   | $          | 5.00 |   |
|                                          |       | 1,687,500                |       | 3.3                                                                          |       | $                                      | 2.75       |                     | 309,999    |                                   | $          | 3.00 |   |

 

The table belowsummarizes the number of exercisable options outstanding and the weightedaverage exercise prices for each of the previous two fiscal years:

 
| ** **              | ** ** | **Plan Options**                     | ** ** | **Non-Plan Options**                      | ** ** |
|-------------------------|------------|-------------------------------------------|------------|------------------------------------------------|------------|
| ** **              | ** ** | **Exercisable Options  Outstanding** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Exercisable Options  Outstanding** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| December 29,  2007 |       | 264,999                                   |       | $                                              | 2.42       |   | 45,000 |   | $ | 3.60 |   |
| December 30,  2006 |       | 210,000                                   |       | $                                              | 2.90       |   | 52,500 |   | $ | 3.60 |   |

 

The total intrinsic valuerelated to stock options outstanding as of December 29, 2007 was zero  The aggregate intrinsic value is based on theexercise price and the Company’s closing stock price of $2.05 as of December 29,2007.

 

54

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**9.****    ****Shareholders’Equity: (Continued)**

 

InAugust, 2007 the Company’s Board of Directors approved a stock re-purchase programwhereby up to $3 million of common stock may be purchased from time to time atthe discretion of management (the “2007 program”). Since inception of the 2007program, the Company has repurchased $1,136,153, leaving $1,863,847of remainingauthorization. The repurchased shares are held as treasury stock and areavailable for general corporate purposes. Common stock held in the Company’streasury has been recorded at cost. We continue to evaluate our share repurchase opportunities. The 2007program expires on August 23, 2008.

 

Asummary of common stock repurchases under the current active 2007 program isset forth in the following table. All shares of common stock were repurchasedpursuant to open market transactions.

 
| **Period**               | ** ** | **Total Number  of Shares  Repurchased** | ** ** | **Weighted  Average  Price Paid  Per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Programs** | ** ** | **Maximum that  may yet be  Purchased Under  the 2007 Program** | ** ** |
|--------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
|                     |       |                                               |       |                                                   |       |                                                                                                              |       |                                                                                          |       |
| 8/2007 Approved          |       |                                               |       |                                                   |       |                                                                                                              |       | $                                                                                             | 3,000,000  |   |
|                     |       |                                               |       |                                                   |       |                                                                                                              |       |                                                                                          |       |
| 8/31/07 –  12/29/07 |       | 526,658                                            |       | $                                                      | 2.16       |                                                                                                              | 526,658    |                                                                                          | 1,136,153  |   |
| 2007 Program  Remaining  |       |                                               |       |                                                   |       |                                                                                                              |       | $                                                                                             | 1,863,847  |   |
|                          |            |                                                    |            |                                                        |            |                                                                                                                   |            |                                                                                               |            |  |  |

 

InMay, 2006 the Company’s Board of Directors approved a stock re-purchase programwhereby up to $3 million of common stock could be purchased from time to timeat the discretion of management.  Therepurchase program expired on February 14, 2007.  During the year ended December 30, 2006the Company purchased 818,740 shares at a total cost of $1,845,421.  The repurchased shares are held as treasurystock and are available for general corporate purposes.  Common stock held in the Company’s treasuryhas been recorded at cost.  The 2006 program expired on February 14,2007.

 

Asummary of our common stock repurchases under the 2006 $3 million repurchaseprogram is set forth in the following table. All shares of common stock were repurchased pursuant to open markettransactions.

 
| **Period**         | ** ** | **Total Number  of Shares  Repurchased** | ** ** | **Weighted  Average Price  Paid Per  Share** | ** ** | **Total Number of Shares  Repurchased as Part of  Publicly Announced  Programs** | ** ** | **Amount  Repurchased Under  the Program** | ** ** |
|--------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
|               |       |                                               |       |                                                   |       |                                                                                                                |       |                                                 |       |
| 5/2006 Approved    |       |                                               |       |                                                   |       |                                                                                                                |       | $                                                    | 3,000,000  |   |
|               |       |                                               |       |                                                   |       |                                                                                                                |       |                                                 |       |
| Transactions:      |       |                                               |       |                                                   |       |                                                                                                                |       |                                                 |       |
|               |       |                                               |       |                                                   |       |                                                                                                                |       |                                                 |       |
| August 2006   |       | 600,740                                            |       | $                                                      | 2.26       |                                                                                                                | 600,740    |                                                 | $          | 1,358,461 |   |
|               |       |                                               |       |                                                   |       |                                                                                                                |       |                                                 |       |
| November 2006 |       | 218,000                                            |       | 2.23                                                   |       | 218,000                                                                                                             |       | 486,960                                              |       |
|               |       |                                               |       |                                                   |       |                                                                                                                |       |                                                 |       |
| Totals             |       | 818,740                                            |       | $                                                      | 2.25       |                                                                                                                | 818,740    |                                                 | $          | 1,845,421 |   |

 

55

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**10.****  IncomeTaxes:**

 

The benefit (or provision) for income taxes consistedof the following for the years ended December 29, 2007 and December 30,2006:

 
| ** **                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Current:                                    |       |     |       |     |       |
| Federal                                     |       | —   |       | $        | (2,000     | ) |
| State                                       |       | 7,418    |       | (54,370  | )          |
|                                        |       | 7,418    |       | (56,370  | )          |
| Deferred:                                   |       |     |       |     |       |
| Federal                                     |       | 589,143  |       | (678,999 | )          |
| State                                       |       | 113,529  |       | (47,631  | )          |
|                                        |       | 702,672  |       | (726,629 | )          |
| Total benefit  (provision) for income taxes |       | $        | 710,090    |     | $          | (782,999 | ) |
|                                             |            |          |            |          |            |  |  |

 

The followingtable provides a reconciliation between the amount determined by applying thestatutory federal income tax rate to the pretax income amount for the yearsended December 29, 2007 and December 30, 2006:

 
| ** **                             | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
| Benefit  (provision) at statutory rate |       | $        | 752,509    |     | $          | (637,973 | ) |
| State tax  benefit (provision), net    |       | 110,664  |       | (93,820  | )          |
| Nondeductible  expenses and other      |       | (153,083 | )          | (51,206  | )          |
| Income tax  benefit (provision)        |       | $        | 710,090    |     | $          | (782,999 | ) |

 

The income tax effects of loss carryforwards andtemporary differences between financial and income tax reporting that give riseto the deferred income tax asset and liability are as follows as of December 29,2007 and December 30, 2006:

 
| ** **                                                | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|
| **Deferred Tax Asset – current** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net operating  loss carryforward                          |       | $          | 664,333    |       | $          | 651,062 |   |
| Allowance for  doubtful accounts                          |       | 11,373     |       | 10,027     |       |
| Accrued  liabilities                                      |       | 344,524    |       | 368,874    |       |
| Other                                                     |       | 160,119    |       | 73,101     |       |
|                                                      |       | 1,180,349  |       | 1,103,064  |       |
| **Deferred  Tax Liability – noncurrent**             |       |       |       |       |       |
| Depreciation and  amortization                            |       | (1,606,117 | )          | (2,233,686 | )          |
| AMT minimum tax  credit carryforward                      |       | 31,390     |       | 33,572     |       |
|                                                      |       | (1,574,727 | )          | (2,200,114 | )          |
| Net deferred tax  liability                               |       | $          | (394,378   | )          | $          | (1,097,052 | ) |

 

TheCompany has recorded a deferred tax asset of $664,333 reflecting the benefit of$1,953,922 in loss carryforwards.  Suchdeferred tax assets expire between 2018 and 2025. Realization of the taxbenefit is dependent on generating sufficient taxable income prior toexpiration of the loss carryforwards. Although realization is not assured, management believes it is morelikely than not that all of the deferred tax asset will be realized. The amountof the deferred tax asset considered realizable, however, could be reduced inthe near term if estimates of future taxable income during the carryforwardperiod are reduced.  The Companyalso has an alternative minimum tax (“AMT”) credit carryforward for federalincome tax purposes of $31,390 at December 29, 2007.

 

56

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**10.****  Income Taxes: (Continued)**

 

Generally acceptedaccounting principles require that a valuation allowance be established when itis more-likely-than-not that all or a portion of a deferred tax asset will notbe realized.  Changes in valuationallowances from period to period are included in the tax provision in theperiod of change.  In determining whethera valuation allowance is required, the Company takes into account all positiveand negative evidence with regard to the utilization of a deferred tax assetincluding our past earnings history, expected future earnings, the characterand jurisdiction of such earnings, unsettled circumstances that, if unfavorablyresolved, would adversely affect utilization of a deferred tax asset, carrybackand carryforward periods and tax strategies that could potentially enhance thelikelihood of realization of a deferred tax asset.  The Company provides for income taxes at arate equal to the combined federal and state effective rates, whichapproximated 39% under current tax rates.

 

**11.****  BusinessSegments and Significant Customers:**

 

For the year ended December 29,2007, Costco was the only customer accounting for more than 10% of totalCompany net revenue.  Costco accountedfor $13,620,000 or 15% and $1,521,000 or 2.2%, for fiscal years 2007 and 2006,respectively.  For the year ended December 30,2006, Wal*Mart (including its SAM’s Clubs) and Vistar, a national vendingdistributor, were the only two customers accounting for more than 10% of totalCompany net revenue.  Wal*Mart accountedfor $9,284,000 or 13% and Vistar accounted for $7,972,000 for fiscal year 2006,respectively.

 

The Company’s operationsconsist of three reportable segments: manufactured products, berry products anddistributed products.  The manufacturedproducts segment produces potato chips, potato crisps and potato skins for saleprimarily to snack food distributors and retailers.  The berry products segment produces frozenberries for sale primarily to groceries and mass merchandisers.  The distributed products segment sells snackfood products manufactured by other companies to the Company’s Arizona snackfood distributors.  The Company’sreportable segments offer different products and services.  The majority of the Company’s revenues areattributable to external customers in the United States.  The Company does sell to Canadian customersas well, however the revenues attributable to Canadian customers is immaterial.  All of the Company’s assets are located inthe United States.  The Company does notallocate any assets to the distributed products segment.

 
| ** **                                          | ** ** | **Percent of Net Revenues** | ** ** |
|-----------------------------------------------------|------------|-----------------------------|------------|
| ** **                                          | ** ** | **2007**                    | ** ** | **2006** | ** ** |
| Branded snack  products                             |       | 71                          | %          | 93 | % |
| Private label  snack products                       |       | 3                           | %          | 3 | % |
| Total  manufactured snack products segment revenues |       | 74                          | %          | 96 | % |
|                                                |       |                        |       |   |   |
| Berry products                                      |       | 23                          | %          | — |   |
| Distributed  products segment revenues              |       | 3                           | %          | 4 | % |
|                                                |       |                        |       |   |   |
| Total revenues                                      |       | 100                         | %          | 100 | % |

 

In fiscal years2007 and 2006, the T.G.I. Friday’s® brand snacks represented 47% and 66%,respectively, of the Company’s total net revenues.

 

57

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**11.****  Business Segments andSignificant Customers: (Continued)**

 

The accountingpolicies of the segments are the same as those described in the Summary ofSignificant Accounting Policies (Note 1). The Company does not allocate assets, selling, general andadministrative expenses, income taxes or other income and expense to segments.

 
| ** **                                                      | ** ** | **Manufactured  Snack  Products** | ** ** | **Berry  Products** | ** ** | **Distributed   Products** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------|------------|---------------------|------------|---------------------------------|------------|------------------|------------|
| **2007**                                                        | ** ** | ** **                        | ** ** | ** **          | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Net revenues  from external customers                           |       | $                                 | 67,405,404 |                | $          | 20,750,403                      |       | $                | 2,754,773  |   | $ | 90,910,580 |   |
| Depreciation and  amortization included in segment gross profit |       | 890,178                           |       | 554,719             |       | —                          |       | 1,444,897        |       |
| Segment gross  profit                                           |       | 11,337,227                        |       | 3,926,857           |       | 314,929                         |       | 15,579,013       |       |
| Goodwill                                                        |       | 5,986,252                         |       | 5,603,736           | ** ** | **—**                      |       | 11,589,988       |       |
| ** **                                                      | ** ** | ** **                        | ** ** | ** **          | ** ** | ** **                      | ** ** | ** **       | ** ** |
| **2006**                                                        | ** ** | ** **                        | ** ** | ** **          | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Net revenues  from external customers                           |       | $                                 | 66,897,862 |                | —     |                            | $          | 2,921,068        |       | $ | 69,818,930 |   |
| Depreciation and  amortization included in segment gross profit |       | 868,359                           |       | —              |       | —                          |       | 868,359          |       |
| Segment gross  profit                                           |       | 12,923,140                        |       | —              |       | 332,345                         |       | 13,255,485       |       |
| Goodwill                                                        |       | 5,986,252                         |       | —              |       | —                          |       | 5,986,252        |       |
|                                                                 |            |                                   |            |                     |            |                                 |            |                  |            |  |  |  |  |

 

The followingtable reconciles reportable segment gross profit to the Company’s consolidatedincome before income tax benefit (provision) for the years ended December 29,2007 and December 30, 2006:

 
| ** **                      | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|---------------------------------|------------|-------------|------------|-------------|------------|
| Segment gross  profit           |       | $           | 15,579,013 |        | $          | 13,255,485 |   |
| Unallocated  amounts:           |       |        |       |        |       |
| Operating  expenses             |       | (16,818,353 | )          | (11,639,518 | )          |
| Interest income  (expense), net |       | (974,223    | )          | 260,425     |       |
| Income before  income taxes     |       | $           | (2,213,563 | )           | $          | 1,876,392 |   |

 

**12.****  Litigation:**

 

The Company isperiodically a party to various lawsuits arising in the ordinary course ofbusiness.  Management believes, based ondiscussions with legal counsel, that the resolution of any such lawsuits,individually and in the aggregate,  willnot have a material adverse effect on the financial statements taken as awhole.

 

The InventureGroup, Inc. is one of eight companies sued by the Environmental LawFoundation in August, 2006 in the Superior Court for the State of Californiafor the County of Los Angeles by the Attorney General of the State ofCalifornia for alleged violations of California Proposition 65. CaliforniaProposition 65 is a state law that, in part, requires companies to warnCalifornia residents if a product contains chemicals listed within the statute.The plaintiff seeks injunctive relief and penalties but has made no specificdemands. We continue to vigorously defend this suit.

 

58

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS – (Continued)**

 

**13.**** ****Related Party Transactions:**

 

The land and building(140,000 square feet) occupied by the Company in Bluffton, Indiana was leasedpursuant to a twenty year lease dated May 1, 1998 with American PacificFinancial Corporation, an affiliate of Pate Foods Corporation from whom theCompany purchased Wabash in October 1999. Rent expense was approximately $300,000 in the year ended December 30,2006.  On December 4, 2006, theCompany purchased the facility from Lincoln Estates, LLC for $3 million.  The Company’sBoard of Directors identified the transaction as a related partytransaction because Larry Polhill, a Director of the Company, owns 50% ofCapital Foods LLC, which is the largest single shareholder of the Company andan affiliate of Lincoln Estates, LLC.  The transaction was reviewed andunanimously approved by the Board, including all of the Company’sdisinterested Directors.

 

The Company owns afarming, processing and storage facility located on 696 acres of land inLynden, Washington, which is leased from the Uptrails Group LLC, owned by fourmembers of the Rader family.  One of thefour, Brad Rader, is a current employee of the Company and two of the others,Lyle and Sue Rader, were the former owners of Rader Farms.  This operating lease commenced on theacquisition date and is effect until May 17, 2017.  Lease payments are $43,500 per monththroughout the term of the lease.

 

59

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**14.**** ****Quarterly Financial Data (Unaudited):**

 

The results forany single quarter are not necessarily indicative of the Company’s results forany other quarter or the full year.  Thesum of quarterly earnings (loss) per share information may not agree to theannual amount due to rounding and use of the treasury stock method ofcalculating earnings (loss) per share.

 
| **(in 000’s, except for share and  per share data)** | ** ** | **First  Quarter** | ** ** | **Second  Quarter (1)** | ** ** | **Third  Quarter** | ** ** | **Fourth**

**Quarter (2)** | ** ** | **Full Year** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------------|------------|--------------------|------------|----------------------------------|------------|--------------------|------------|
| ** **                                                                                   |       |               |       |                         |       |               |       |                             |       |               |       |
| **Fiscal  2007**                                                                             |       |               |       |                         |       |               |       |                             |       |               |       |
| Net revenues                                                                                 |       | $                  | 16,980     |                         | $          | 22,926             |       | $                                | 25,372     |               | $          | 25,633 |   | $ | 90,911 |   |
| Gross profit                                                                                 |       | 3,097              |       | 4,362                        |       | 4,495              |       | 3,625                            |       | 15,579             |       |
| Operating income  (loss)                                                                     |       | 189                |       | 766                          |       | 536                |       | (2,730                           | )          | (1,239             | )          |
| Net income  (loss)                                                                           |       | $                  | 106        |                         | $          | 332                |       | $                                | 41         |               | $          | (1,982 | ) | $ | (1,503 | ) |
|                                                                                         |       |               |       |                         |       |               |       |                             |       |               |       |
| Earnings (loss)  per common share:                                                           |       |               |       |                         |       |               |       |                             |       |               |       |
| Basic                                                                                        |       | $                  | 0.01       |                         | $          | 0.02               |       | $                                | 0.00       |               | $          | (0.10 | ) | $ | (0.08 | ) |
| Diluted                                                                                      |       | $                  | 0.01       |                         | $          | 0.02               |       | $                                | 0.00       |               | $          | (0.10 | ) | $ | (0.08 | ) |
|                                                                                         |       |               |       |                         |       |               |       |                             |       |               |       |
| Weighted average  number of common shares:                                                   |       |               |       |                         |       |               |       |                             |       |               |       |
| Basic                                                                                        |       | 19,302,251         |       | 19,303,394                   |       | 19,285,759         |       | 18,933,971                       |       | 19,206,344         |       |
| Diluted                                                                                      |       | 19,317,893         |       | 19.381,322                   |       | 19,290,538         |       | 18,933,971                       |       | 19,206,344         |       |

 

----

(1) TheCompany acquired Rader Farms on May 17, 2007.

 

(2) TheCompany recorded an impairment charge of $2.7 million in the fourth quarter.

 
| **(in 000’s, except for share and  per share data)** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full Year** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|
| ** **                                                                                   |       |               |       |                |       |               |       |                |       |               |       |
| **Fiscal  2006**                                                                             |       |               |       |                |       |               |       |                |       |               |       |
| Net revenues                                                                                 |       | $                  | 17,595     |                | $          | 18,498             |       | $                   | 17,576     |               | $          | 16,150 |   | $ | 69,819 |   |
| Gross profit                                                                                 |       | 3,097              |       | 3,701               |       | 3,647              |       | 2,810               |       | 13,255             |       |
| Operating income  (loss)                                                                     |       | 81                 |       | 830                 |       | 480                |       | 225                 |       | 1,616              |       |
| Net income  (loss)                                                                           |       | $                  | 68         |                | $          | 543                |       | $                   | 329        |               | $          | 153 |   | $ | 1,093 |   |
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| Earnings (loss)  per common share:                                                           |       |               |       |                |       |               |       |                |       |               |       |
| Basic                                                                                        |       | $                  | 0.00       |                | $          | 0.03               |       | $                   | 0.02       |               | $          | 0.01 |   | $ | 0.06 |   |
| Diluted                                                                                      |       | $                  | 0.00       |                | $          | 0.03               |       | $                   | 0.02       |               | $          | 0.01 |   | $ | 0.06 |   |
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| Weighted average  number of common shares:                                                   |       |               |       |                |       |               |       |                |       |               |       |
| Basic                                                                                        |       | 20,073,111         |       | 20,106,027          |       | 19,505,400         |       | 19,394,383          |       | 19,833,068         |       |
| Diluted                                                                                      |       | 20,097,237         |       | 20,124,950          |       | 19,625,173         |       | 19,399,074          |       | 19,856,280         |       |

 

60

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**THEINVENTURE GROUP, INC. AND SUBSIDIARIES**

**(FORMERLYPOORE BROTHERS, INC. AND SUSIDIARIES)**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS – (Continued)**

 

**15.**** ****Accounts Receivable Allowance:**

 

Changes to the allowancefor doubtful accounts during the each of the two fiscal years ended December 29,2007 are summarized below:

 
| ** **  | ** ** | **Balance at  beginning of period** | ** ** | **Charges  (Reductions) to  Expense** | ** ** | **(Write-offs)  Collections** | ** ** | **Balance at end  of period** | ** ** |
|-------------|------------|----------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------|------------|----------------------------------------------|------------|
| Fiscal 2006 |       | $                                                  | 187,107    |                                       | (94,558    | )                             | (66,097    | )                                            | $          | 26,452 |   |
| Fiscal 2007 |       | $                                                  | 26,452     |                                       | 84,346     |                          | (81,637    | )                                            | $          | 29,161 |   |

 

**16.**** ****Concentrations of Credit Risk:**

 

The Company’s cashis placed with major banks.  The Company,in the normal course of business, maintains balances in excess of Federalinsurance limits.

 

The Company’sprimary concentration of credit risk is related to certain trade accountsreceivable.  In the normal course ofbusiness, the Company extends unsecured credit to its customers.  In 2007 and 2006, substantially all of theCompany’s customers were distributors or retailers whose sales wereconcentrated in the grocery industry, throughout the United States.  The Company investigates a customer’s creditworthiness before extending credit.  At December 29,2007 and December 30, 2006, three customers accounted for 26% and 20% ofaccounts receivable, respectively.

 

61

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**EXHIBITINDEX**

 
| 14.1   | — |   | Code of Business  Conduct and Ethics                                                                                                                                                                                                                      |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                      |
| 14.2   | — |   | Financial Code of  Ethics                                                                                                                                                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                      |
| 21.1   | — |   | List of subsidiaries of  The Inventure Group, Inc.                                                                                                                                                                                                   |
|   |   |   |                                                                                                                                                                                                                                                      |
| 23.1   | — |   | Consent of  Deloitte & Touche LLP.                                                                                                                                                                                                               |
|   |   |   |                                                                                                                                                                                                                                                      |
| 31.1   | — |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).                                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                      |
| 31.2   | — |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) or  Rule 15(d)-14(a).                                                                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                      |
| 32     | — |   | Certification of Chief  Executive Officer and Chief Financial Officer and Principal Accounting  Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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* - Managementcompensatory plan or arrangement.

 

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