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** **

 

** **

**UNITEDSTATES**

**SECURITIESAND 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 27, 2008**

## ** **

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

 

**For the transition period from                to                **

** **

**Commission File Number: 1-14556**

** **

**THEINVENTURE GROUP, INC.**

(Exact name of registrant as specified in itscharter)

 

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

 

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

**Phoenix, Arizona 85018**

(Address of principal executive offices) (ZipCode)

 

Registrant’s telephone number, including areacode:  **(623)932-6200**

 

Securities registered pursuant to Section 12(b) ofthe Act:

 

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

 

Securities registered pursuant to Section 12(g) ofthe Act:  **None**

 
| Indicate by  check mark if the registrant is a well-known seasoned issuer, as defined in  Rule 405 of the Securities Act. |
|--------------------------------------------------------------------------------------------------------------------------------|
| Yes o  No x                                                                                                                    |

 
| Indicate by  check mark if the registrant is not required to file reports pursuant to  Section 13 or Section 15(d) of the 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 market value of the voting stock (Common Stock, $.01 parvalue) held by non-affiliates of the Registrant was approximately $29.2 millionbased upon the closing market price on June 28, 2008, the last businessday of the Registrant’s most recently completed second fiscal quarter.

 

The number of issued and outstanding shares of Common Stock, $.01 parvalue, as of March 26, 2009 was 17,884,456.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Proxy Statement for the Registrant’s Annual Meeting ofShareholders to be held on May 19, 2009 are incorporated by reference intoPart III of this Form 10-K.

 

EXCHANGE ACT REPORTS AVAILABLE ON COMPANYWEBSITE

 

Under “SEC Filings” on the “Investors” page of the Company’swebsite located at www.inventuregroup.net, the following filings are madeavailable as soon as reasonably practicable after they are electronically filedwith or furnished to the Securities and Exchange Commission (the “SEC”): theCompany’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K, Proxy Statement on Schedule 14A related tothe Company’s Annual Shareholders Meeting, and any amendments to those reportsor statements filed or furnished pursuant to Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934.  Youmay also read and copy any materials we file with the SEC at the SEC’s PublicReference Room at 100 F Street, NE, Washington, DC 20549.  You may obtain information on the operationof the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet websitelocated at http://www.sec.gov that contains the information we file of furnishelectronically with the SEC.

 

 

 

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**TABLE OFCONTENTS**

 
| ** **  | ** ** | **PART I**                                                                                                    |   |   |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------|--------|--------|
|        |       |                                                                                                               |   |   |
| Item 1.     |       | Business                                                                                                           |   | 3      |
| 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**                                                                                                   |   | 17     |
|        |       |                                                                                                               |   |   |
| Item 5.     |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |   | 17     |
| Item 7.     |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        |   | 18     |
| Item 8.     |       | Financial Statements and Supplementary Data                                                                        |   | 25     |
| Item 9.     |       | Changes in and Disagreements with Accountants  on Accounting and Financial Disclosure                              |   | 25     |
| Item 9A(T). |       | Controls and Procedures                                                                                            |   | 25     |
| Item 9B.    |       | Other Information                                                                                                  |   | 26     |
|        |       |                                                                                                               |   |   |
| ** **  | ** ** | **PART III**                                                                                                  |   | 26     |
|        |       |                                                                                                               |   |   |
| Item 10.    |       | Directors, Executive Officers and Corporate  Governance                                                            |   | 26     |
| Item 11.    |       | Executive Compensation                                                                                             |   | 26     |
| Item 12.    |       | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                    |   | 26     |
| Item 13.    |       | Certain Relationships and Related  Transactions, and Director Independence                                         |   | 26     |
| Item 14.    |       | Principal Accountant Fees and Services                                                                             |   | 27     |
|        |       |                                                                                                               |   |   |
| ** **  | ** ** | **PART IV**                                                                                                   |   | 27     |
|        |       |                                                                                                               |   |   |
| Item 15.    |       | Exhibits and Financial Statement Schedules                                                                         |   | 27     |

 

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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 termsand expressions 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 licenseagreements, dependence upon major customers, significant competition, risksrelated to the food products industry, volatility of the market price of theCompany’s common stock, par value $.01 per share (the “Common Stock”), thepossible de-listing of the Common Stock from the Nasdaq SmallCap Market if theCompany fails to satisfy the applicable listing criteria (including a minimumshare price) in the future and those other risks and uncertainties discussedherein, that could cause actual results to differ materially from historicalresults or those anticipated.  In lightof these risks and uncertainties, there can be no assurance that theforward-looking information contained in this Annual Report on Form 10-Kwill in fact transpire or prove to be accurate. Readers are cautioned to consider the specific risk factors describedherein and in “Risk Factors,” and not to place undue reliance on theforward-looking statements contained herein, which speak only as of the datehereof. The Company undertakes no obligation to publicly revise theseforward-looking statements to reflect events or circumstances that may ariseafter the date hereof. All subsequent written or oral forward-lookingstatements attributable to the Company or persons acting on its behalf areexpressly qualified in their entirety by this section.

 

**Item 1. Business**

 

**Description of Business**

 

The Inventure Group, Inc. (the “Company”) is a $100+ millionmarketer and manufacturer of healthy/all natural and indulgent specialty foodbrands. The Company is headquartered in Phoenix, Arizona with plants inArizona, Indiana and Washington.  Thegoal is to build a rapidly growing specialty brand company that specializes onevolving consumer eating habits in two primary product segments: 1)Healthy/Natural Food Products 2) Indulgent Specialty Snack Food Brands.  The company sells its products nationallythrough a number of channels including: Grocery, Natural, Mass, Drug, Club,Vending, Food Service, Convenience Stores and International.

 

In the Healthy/Natural portfolio, products include Rader Farms frozenberries and Boulder Canyon Natural FoodsTM brand kettle cooked potato chips. In theIndulgent Specialty category, products include TGI Friday’s® brand snacks underlicense from TGI Friday’s Inc., BURGER KINGTM brand snackproducts under license from Burger King Corporation, Poore Brothers® kettlecooked potato chips, Bob’s Texas Style® kettle cooked chips, Tato Skins® brandpotato snacks and O’Boises® potato snacks. The Company also manufactures private label snacks for certain groceryretail chains and distributes in Arizona snack food products that aremanufactured by others.

 

# The Inventure Group, Inc.’sfrozen berry products are manufactured by Rader Farms, Inc. (“RaderFarms”) a Washington corporation located in Whatcom County, and acquired by theCompany in May of 2007.   RaderFarms grows processes and markets premium berry blends, raspberries,blueberries, and rhubarb and purchases marionberries, cherries, cranberries,strawberries and other fruits from a select network of fruit growers forresale. The fruit is processed, frozen and packaged for sale and distributionto wholesale customers. The company also uses third party processors forcertain products.

#  

The Company’s snack products are manufactured at the Arizona andIndiana plants as well as some third party plants for certain products.

 

For the fiscal years 2008 and 2007, net revenues totaled $113,058,715and $90,910,580, respectively, and T.G.I. Friday’s® brand salted snacksrepresented 33% and 47%, respectively, of the Company’s total net revenues.

 

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| ** **                                            | ** ** | **Percent of Total Net Revenues** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                              | ** ** | **2007** | ** ** |
| Branded snack and berry products                      |       | 80                                                    | %          | 86 | % |
| Private label products                                |       | 17                                                    | %          | 11 | % |
| Total manufactured snack and berry products  revenues |       | 97                                                    | %          | 97 | % |
|                                                  |       |                                                  |       |   |   |
| Distributed products segment revenues                 |       | 3                                                     | %          | 3 | % |
|                                                  |       |                                                  |       |   |   |
| Total revenues                                        |       | 100                                                   | %          | 100 | % |

 

The Company produces T.G.I. Friday’s® brand snacks, BURGER KINGTM snack products, Tato Skins® brand potatosnacks, O’Boises® brand potato snacks and Boulder Canyon Natural FoodsTM Rice and Bean Snacks, utilizing a sheeting andfrying process that includes licensed technology. Each snack product is offeredin several different flavors and formulations. All of these products are manufactured at the Company-owned facility inBluffton, Indiana, except for Mozzarella Snack Sticks,  Hot Pepper Jack Cheese Fries, Onion Rings andFrench Toast products which are produced by contract manufacturers on behalf ofthe Company and sold under the T.G.I. Friday’s® and BURGER KINGTM brand name.

 

Poore Brothers®, Bob’s Texas Style® and Boulder Canyon Natural FoodsTM brand potato chips are manufactured with abatch-frying process that the Company believes produces potato chips withenhanced crispness and flavor. Poore Brothers®, Bob’s Texas Style® and BoulderCanyon Natural FoodsTM potato chips are each offered in a variety offlavors.  The Company also manufacturespotato chips for sale on contract manufacturing basis using a continuous fryingprocess.  The Company’s potato chips aremanufactured at a Company-owned facility in Goodyear, Arizona.  See “*Products*” and “*Marketing andDistribution.*”

 

At the Company-owned farming operations in Lynden, Washington, theCompany grows raspberries, blueberries and rhubarb which are individually quickfrozen on site to enhance shelf life. The Company also purchases marionberries, cherries, cranberries,strawberries and other fruit from a select network of fruit growers forresale.  The fruit is processed, frozenand packaged for sale and distribution nationally to wholesale customers underthe Rader Farms® brand, as well as co-branded with store brands.

 

The Company’s business objective is to build a diverse portfolio ofHealthy/Natural and Indulgent Specialty food brands that provide high qualityproducts at competitive prices that are superior in taste, texture, flavorvariety and brand personality to comparable products. A significant element ofthe Company’s growth strategy is to develop, acquire or license innovativeHealthy and or Natural food brands.   TheCompany also plans to increase sales of its existing brands and continue to improveprofit margins through increased operating efficiencies and manufacturingcapacity utilization.  See “*Business Strategy*.”

 

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

 

**Company History**

 

The Inventure Group, Inc., (“the Company”) a Delaware corporation,was formed in 1995 as a holding company to acquire a potato chip manufacturingand distribution business, which had been founded by Donald and James Poore in1986.  The Company changed its name fromPoore Brothers, Inc. to The Inventure Group, Inc. on May 23, 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 totally natural potato chips.  In May 2007, the Company acquired RaderFarms, Inc., including a farming operation and a berry processing facilityin 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, the Company launched its BURGER KINGTM snack productspursuant to a license agreement with Burger King Corporation, which expires in 2012.

 

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

 

### **Business Strategy**

### ** **

The Company’s business strategy is to continue building a diverseportfolio of Healthy/Natural (Rader Farms® and Boulder Canyon Natural FoodsTM) and Indulgent Specialty(T.G.I. Friday’s®, BURGER KINGTM,Poore Brothers®) food brands with annualized revenues of $5 million to $50million each through building existing brands, licensing, acquisition ordevelopment.  The goals of our strategyare to (i) capitalize on Healthy/Natural and Indulgent Specialty foodbrand opportunities, (ii) deliver incremental category growth forretailers, (iii) provide product innovation targeted to a defined consumersegment, (iv) complement, rather than compete directly against, largenational competitors with leading national brands, and (v) buildrelationships with major retailers in all channels of distribution by providingthem higher margins, excellent customer service and constant innovation.  The primary elements of the Company’slong-term business strategy are as follows:

 

*Develop,Acquire or License Innovative Healthy/Natural and IndulgentSpecialty Food Brands.*  Asignificant element of the Company’s business strategy is to develop, acquireor license new innovative Healthy/Natural and Indulgent Specialty food brandsthat provide strategic fit with our existing business and possess strongnational brand equity in order to expand, complement or diversify the Company’sexisting business. The Company initiated this element of its strategy in 2000by launching its first national niche brand, T.G.I. Friday’s® brand saltedsnacks, under an exclusive license from TGI Friday’s Inc. and in 2007 launchedits second national niche brand, BURGER KINGTM snack products pursuant to a license agreementwith Burger King Corporation.  TheCompany plans to continue developing, acquiring or licensing additionalspecialty food brands, though it intends to mitigate the financial impact oflaunching new brands by introducing new licensed products in small-scale testmarkets rather than large scale regional or national introductions.

 

*BroadenDistribution of Existing Brands.*  The Company plans to increase distributionand build the market share of its existing branded products through selectedtrade activity in various existing or new markets and channels.  For example, the Company has recentlyextended the shelf life of our Poore Brothers® brands in order for us to expandbeyond Arizona.  We are expanding thedistribution of our Boulder Canyon Natural FoodsTM brand nationally through the natural channelas well as through the natural segment in the grocery channel.  The Company is looking at expanding overseaswith the T.G.I. Friday’s® brand as well as BURGER KINGTM and Boulder Canyon Natural FoodsTM brands. Marketing efforts may include, amongother things, trade advertising and promotional programs with distributors andretailers, in-store advertisements, in-store displays and limited consumeradvertising, public relations and coupon programs.

 

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

 

*Develop NewProducts for Existing Brands.*  In addition, the Company plans to continueits innovation activities to identify and develop (i) new line extensionsfor its brands, such as new flavors or products, and (ii) new foodsegments in which to expand the brand’s presence.  We have launched a number of new items suchas: T.G.I. Friday’s® Buffalo Sticks, T.G.I. Friday’s® Kettle Chips, BURGER KINGTM Onion Rings, Poore Brothers® Sweet Chili &Red Pepper, Poore Brothers® 50% Reduced Salt, Boulder Canyon Natural FoodsTM Balsamic Vinegar & Rosemary, and BoulderCanyon Natural FoodsTM Rice & Adzuki Bean snack chips.

 

*LeverageInfrastructure and Capacity.*  The Company’s Indiana, Arizona and Washingtonfacilities are currently operating at approximately 40%, 80% and 50% of theirrespective manufacturing capacities.  TheCompany currently has arrangements with several grocery chains for themanufacture and distribution by the Company of their respective private labelsnacks and believes that additional contract manufacturing opportunitiesexist.  While such arrangements areextremely price competitive and can be short in duration, the Company believesthat they may provide a profitable opportunity for the Company to improve thecapacity utilization of its facilities. The Company intends to seek additional private label and contractmanufacturing customers located near its facilities who demand superior productquality at a reasonable price.  TheCompany also utilizes contract manufacturers’ excess capacity to produce itemsthat the Company does not have the equipment or ability to manufacture.

 

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*ImproveProfit Margins.* The Company plans to increase gross profit margins through increasedlong-term revenue growth, improved operating efficiencies, and higher marginnew products.  It believes thatadditional improvements to its manufactured products’ gross profit margins arepossible with the achievement of the business strategies discussed above.

 

#### **Products**

#### ** **

*Manufactured Snack Food Products*.  The Company produces T.G.I. Friday’s® brandPotato Skins snacks, BURGER KINGTM brand potato snack products , Tato Skins®brand potato snacks and O’Boises brand snacks utilizing a sheeting and fryingprocess.  All of these are offered inseveral different flavors and formulations and are manufactured at theCompany-owned facility in Bluffton, Indiana, except for Mozzarella SnackSticks,  Hot Pepper Jack Cheese Fries,Onion Rings and French Toast products which are produced by contractmanufacturers on behalf of the Company and sold under the T.G.I. Friday’s® andBURGER KINGTM brand name.

 

Poore Brothers®, Bob’s Texas Style®, and Boulder Canyon Natural FoodsTM brand potato chips are produced utilizing abatch-frying process and are marketed by the Company as premium products basedon their distinctive combination of cooking method and variety of distinctiveflavors.  Poore Brothers®, Bob’s TexasStyle® and Boulder Canyon Natural FoodsTM potato chips areeach offered in a variety of flavors. The Company currently has agreements with several grocery chainspursuant to which the Company produces their respective private label potatochips in the styles and flavors specified by each grocery chain.

 

*Distributed Snack Food Products*.  The Company purchases and resells throughoutArizona snack food products manufactured by others.  Such products include pretzels, popcorn, dipsand meat snacks.

 

*Berry Farming and Processing.*The Company grows raspberries, blueberries and rhubarb at its Company-ownedfarming operations in Lynden, Washington, which are individually quick frozenon site to enhance shelf life.  TheCompany also purchases marionberries, cherries, cranberries and strawberriesfrom a select network of fruit growers for resale.  The fruit is processed and packaged for saleand distribution nationally to wholesale customers under the Rader 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 Tato Skins® brand products. The Indiana facility is currently operating at approximately 40% ofcapacity.  Certain T.G.I. Friday’s®, BURGERKINGTM, Tato Skins® brand products andBoulder Canyon Natural FoodsTM Rice and Bean Snacks are produced utilizing asheeting and frying process that includes some licensed technology.  Some T.G.I. Friday’s® brand salted snackproducts are produced by contract manufacturers on behalf of the Company.  See “*Patents, Trademarks andLicenses*.” Recentlydeveloped technology at the Bluffton plant allows the Company to use existingequipment to make pellet snacks that are entirely different in appearance andtaste from its other product lines.  TheCompany believes this technology will help expand the T.G.I. Friday’s® andBURGER KINGTM product lines and facilitate the addition of new IndulgentSpecialty food brands**.**

** **

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 the Company’s useof certain cooking techniques and key ingredients in the manufacturing processto produce potato chips with improved flavor. These techniques currently involve two elements: the Company’s use of abatch-frying process, as opposed to the conventional continuous line cookingmethod, and the Company’s use of distinctive seasonings to produce potato chipsin a variety of flavors.  The Companybelieves that although the batch-frying process produces less volume, it issuperior to conventional continuous line cooking methods because it enhancescrispness and flavor through greater control over temperature and other cookingconditions.

 

The Company-owned manufacturing facility in Goodyear, Arizona has thecapacity to produce up to approximately 2,500 pounds of potato chips per hour,including 1,300 pounds of batch-fried branded potato chips per hour and 1,200pounds of continuous-fried private label potato chips per hour.  The Arizona facility is currently operatingat approximately 80% of capacity.

 

The Company-owned farming and facility in Lynden, Washington has thecapacity to produce up to eight million pounds of grown berries per year.  The individually quick frozen (“IQF”)processing facilities located at the same location 

 

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have the capacity to apply the IQF process to forty million pounds ofberries annually.  Overall, the farmingand processing facilities are operating at 75% and 50% of capacity,respectively.

 

There can be no assurance that the Company will obtain sufficient businessto recoup the Company’s investments in its manufacturing facilities or toincrease the utilization rates of such facilities.   See “*Item 2. Properties*.”

 

### **Marketing and Distribution**

### ** **

The Company’s T.G.I. Friday’s® brand snack food products have achievedsignificant market presence across a number of sales channels.  The Company attributes the success of itsproducts in these markets to consumer loyalty. The Company believes this loyalty results from the products’differentiated taste, texture and flavor variety which result from theCompany’s manufacturing processes.  TheCompany has retained various sales and marketing agencies with employees andoffices nationwide to represent T.G.I. Friday’s® brand snacks on behalf of theCompany in the grocery and convenience store channels.  The Company’s own sales organization, as wellas brokers, 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 chip brands are distributed to grocery and otherretailers primarily by a select group of independent distributors.  The Company’s Boulder Canyon Natural FoodsTM brand potato chip products have achievedsignificant market presence in Colorado and in natural food stores nationwideas well as other leading grocery retailers. Poore Brothers® brand potato chip products have achieved significantmarket presence in the southwest United States. The Company’s Bob’s Texas Style® brand potato chip products haveachieved significant market presence in south/central Texas.  The Company selects brokers and distributorsfor its branded products primarily on the basis of quality of service, callfrequency on customers, financial capability and relationships they have withall of the various channels in which we operate. The Company has also retainedan International broker to expand sales internationally.

 

The Company’s distribution network throughout Arizona includesapproximately 42 independently operated service routes.  Each route is operated by an independentdistributor who merchandises to major grocery store chains in Arizona, such asAlbertson’s, Basha’s, Fry’s and Safeway stores. In addition to servicing major supermarket chains, the Company’sindependent distributors service many smaller independent grocery stores, clubstores, 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 marketing of its berry products is essentially performedthrough brokerage 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 of the Company’s products depends, in part, uponobtaining adequate shelf or freezer space for such products, particularly insupermarkets, C-Stores, discount stores and the club channel 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 or maintainingmarket share in particular markets or channels. Any such costs may materially affect the Company’s financialperformance.

 

The Company’s marketing programs are designed to increase product trialand build brand awareness in core markets. Most of the Company’s marketing spending has traditionally been focusedon trade advertising and trade promotions designed to attract new consumers tothe products at a reduced retail price. The Company’s marketing programs also include selective event sponsorshipdesigned to increase brand awareness and to provide opportunities to masssample branded products.  The Companyalso invests marketing dollars in brand and category research.

 

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**Suppliers**

 

The principal raw materials used by the Company are potatoes, potatoflakes, wheat flour, corn, oils and berries. The Company believes that the raw materials it needs to produce itsproducts are readily available from numerous suppliers on commerciallyreasonable terms.  Potatoes, potatoflakes and corn are widely available year-round, although they are subject toseasonal price fluctuations.  The Companywill lock in prices as appropriate.  TheCompany uses a variety of oils in the production of its snack products and theCompany believes that alternative sources for such oils, as well as alternativeoils, are readily abundant and available. The Company also uses seasonings and packaging materials in its snackmanufacturing process.  Although theCompany produces many of its berry products in its own farms, it also augmentsthat production by purchasing additional berries to meet customer demands.

 

The Company chooses its suppliers based primarily on price,availability, service and quality. Although the Company believes that its required products and ingredientsare readily available, and that its business success is not dependent on anysingle supplier, the failure of certain suppliers to meet the Company’sperformance specifications, quality standards or delivery schedules could havea material adverse effect on the Company’s operations.  In particular, a sudden scarcity, asubstantial price increase, or an unavailability of product ingredients couldmaterially 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**

### ** **

Costco accounted for 24% of the Company’s 2008 net revenues.  The remainder of the Company’s revenues werederived from sales to a limited number of additional customers, either grocerychains, club stores or regional distributors, none of which individuallyaccounted for more than 10% of the Company’s net revenues in 2008.  A decision by any of the Company’s majorcustomers to cease or substantially reduce their purchases could have amaterial adverse effect on the Company’s business.

 

The majority of the Company’s revenues are attributable to externalcustomers in the United States.  TheCompany does sell to Canadian and international customers as well, however, therevenues attributable to Canadian and International customers isinsignificant.  All of the Company’sassets are located in the United States.

 

### **Competition**

### ** **

The Company’s snack products generally compete against other snackfoods, including potato chips and tortilla chips.  The snack food industry is large and highlycompetitive and is dominated by large food companies, including Frito-Lay, Inc.,a subsidiary of PepsiCo, Inc., Procter and Gamble and General Mills.  These companies possess substantially greaterfinancial, production, marketing, distribution and other resources than theCompany, and their brands are more widely recognized than the Company’sproducts.  Numerous other companies thatare actual or potential competitors of the Company offer products similar tothe Company’s, and some of these have greater financial and other resources(including more employees and more extensive facilities) than the Company.  In addition, many competitors offer a widerrange of products than offered by the Company. Local or regional markets often have significant smaller competitors,many of whom offer products similar to those of the Company.  Expansion of the Company’s operations intonew markets has and will continue to encounter significant competition fromnational, regional and local competitors that may be greater than thatencountered 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 products generally compete against other packagedberries on the basis of quality and price. Obtaining freezer space at supermarkets and club stores is tantamount tosuccessfully competing with other berry products, as supermarkets and clubstores will frequently only carry one brand of frozen berry products,contrasted to snack products where multiple brands are carried.

 

The principal competitive factors affecting the markets of theCompany’s products include product quality and taste, brand awareness amongconsumers, access to shelf or freezer space, price, advertising and promotion,varieties offered, nutritional content, product packaging and packagedesign.  The Company competes in itsmarkets principally on the basis of product quality and taste.  While products produced at the Company’sBluffton, Indiana facility involve the use of certain licensed technology andunique manufacturing processes, the taste and quality of products produced atthe Company’s Goodyear, Arizona facility are largely due to two elements of theCompany’s manufacturing process: its use of batch-frying

 

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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, labeling and distribution of the Company’s productsare subject to the rules and regulations of various federal, state andlocal health agencies, including the Food & Drug Administration(“FDA”).  In May 1994, regulationsissued under the Nutrition Labeling and Education Act of 1990 (“NLEA”), whichrequires specified nutritional information to be disclosed on all packagedfoods, concerning labeling of food products, including permissible use ofnutritional claims such as “fat-free” and “low-fat” became effective.  The Company believes that it is complying inall material respects with the NLEA regulations and closely monitors the fatcontent of its snack products through various testing and quality controlprocedures.  The Company does not believethat compliance with the NLEA regulations materially increases the Company’smanufacturing costs.

 

As a direct result of the September 11, 2001 terrorism attack, theFDA issued the Bioterrorism Act of 2002 (“the Act”) to protect the U.S. foodsupply.  While there are four parts tothe Act, only two of the provisions impact the Company.  One requirement for the Company wasregistration with the FDA as a U.S. Food Manufacturing Company, which theCompany completed prior to the required date of December 12, 2003.  The second of the Act’s provisions pertainingto the Company relates to record retention. The Company is required to retain records pertaining to its raw materials’immediate previous sources (“one back”) as well as its finished goods’subsequent recipients (“one up”) for twelve 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 TransFat Labeling requiring that food labels declare trans fats on or before January 1,2006.  This rule requires that transfat be declared on a separate line in the standard Nutrition Facts below totalfat and saturated fat and be calculated to the nearest 0.5 grams, unless it isless than 0.5 grams in which case it may be expressed as 0 grams.

 

There can be no assurance that new laws or regulations will not bepassed that could require the Company to alter the taste or composition of itsproducts or impose other obligations on the Company.  Such changes could affect sales of theCompany’s products and have a material adverse effect on the Company.

 

In addition to laws relating to food products, the Company’s operationsare governed by laws relating to environmental matters, workplace safety andworker 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 27, 2008, the Company had 374 full-time employees,including 323 in manufacturing and distribution, 24 in sales and marketing and27 in administration and finance.  TheCompany’s employees are not represented by any collective bargainingorganization, and the Company has never experienced a work stoppage.  The Company believes that its relations withits employees are good.

 

**Patents, Trademarks and Licenses**

 

The Company produces T.G.I. Friday’s® brand snacks, BURGER KINGTM brand potato snack products, Tato Skins® brandpotato crisps and Boulder Canyon Natural FoodsTM Riceand Beans Snacks utilizing a sheeting and frying process that includestechnology that the Company licenses from a third party.  Pursuant to the license agreement between theCompany and the third party, the Company has a royalty-bearing, exclusive rightlicense to use the technology in the United States, Canada, and Mexico untilsuch time the parties mutually agree to terminate the agreement and providewritten sixty (60) days notice to each other. In consideration for the use of this technology, the Company is requiredto make royalty payments on sales of products manufactured utilizing thetechnology 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 any manufacturer otherthan the 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 snacks trademark from T.G.I. Friday’s Inc. under a license agreement witha term expiring in 2014.  Pursuant to thelicense agreement, the Company is required to make royalty payments on sales ofT.G.I. Friday’s® brand snack products and is required to achieve certainminimum sales levels by certain dates during the contract term.

 

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The Company licenses the BURGERKINGTM brandsnacks trademark from Burger King Corporation under a 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 isrequired to achieve certain minimum sales levels by certain dates during thecontract term.

 

The Company continues toevaluate new licensing opportunities to broaden its product offeringand to complement the growth of its existing T.G.I. Friday’s® and BURGERKINGTM productlines through the introduction of new products in snack foods as well as otherconsumer product categories.

 

The Company owns the following trademarks inthe United States: Poore Brothers®, Rader FarmsTM, An Intensely Different Taste®, Texas Style®, Boulder Canyon®, TatoSkins®, O’Boisies®, Pizzarias®, Braids® and Knots®.

 

The Company considers its trademarks to be ofsignificant importance in the Company’s business.  The Company is not aware of any circumstancesthat would have a material adverse effect on the Company’s ability to use itstrademarks.  Anytermination of any of the Company’s license agreements, whether at theexpiration of its term or prior thereto, could have a material adverse effecton the Company’s financial condition and results of operations.

 

**Seasonality**

 

The food products industry is seasonal. Consumers tend to purchase our snack products at higher levels duringthe major summer holidays and also at times surrounding major sporting eventsthroughout the year.  Additionally, wemay face seasonal price increases for raw materials.

 

**Item 1A. Risk Factors**

 

Any one of the following factors could affect operating results.  You should read and carefully consider theserisk factors, and the entirety of this report, before you invest in oursecurities.

 

**Risks Related to Our Business**

 

*We may incur significant future expenses dueto the implementation of our business strategy.*

 

The Company is striving to achieve its long-term vision of being asignificant marketer of specialty food brands. Such action is subject to the substantial risks, expenses anddifficulties frequently encountered in the implementation of a businessstrategy.  Even if the Company issuccessful in developing, acquiring and/or licensing new brands, and increasingdistribution and sales volume of the Company’s existing products, it mayrequire the Company to incur substantial additional expenses, includingadvertising and promotional costs, “slotting” expenses (i.e., the cost ofobtaining shelf of freezer space in certain grocery stores), and integrationcosts of any future acquisitions. Accordingly, the Company may incur additionallosses in the future as a result of the implementation of the Company’sbusiness strategy, even if revenues increase significantly. There can be noassurance that the Company will be able to implement its strategic plan, thatits business strategy will prove successful or that it will be able to maintainprofitability during such implementation.

 

*We may not be able to obtain the additionalfinancing we need to implement our business strategy.*

 

A significant element of the Company’s business strategy is thedevelopment, acquisition and/or licensing of innovative specialty food brands,for the purpose of expanding, complementing and/or diversifying the Company’sbusiness. In connection with each of the Company’s previous acquisitions, theCompany borrowed funds or assumed additional indebtedness in order to satisfy asubstantial portion of the consideration required to be paid by theCompany.  The Company may, in the future,require additional third party financing (debt or equity) as a result of anyfuture operating losses, in connection with the expansion of the Company’sbusiness through non-acquisition means, in connection with any additionalacquisitions completed by the Company, or to provide working capital forgeneral corporate purposes.  There can beno assurance that any such required financing will be available or, ifavailable, be on terms attractive to the Company.  Any third party financing obtained by theCompany may result in dilution of the equity interests of the Company’sshareholders.

 

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*We expect some of our future growth to bederived in part, from acquisitions, but our acquisition strategy may not besuccessful, or we may not be successful integrating acquisitions.*

 

An element of the Company’s business strategy is the pursuit ofselected strategic acquisition opportunities for the purpose of expanding,complementing and/or diversifying the Company’s business.  However, no assurance can be given that theCompany will be able to identify, finance and complete additional suitableacquisitions on acceptable terms, or that future acquisitions, if completed,will be successful.  Any futureacquisitions could divert management’s attention from the daily operations ofthe Company and otherwise require additional management, operational andfinancial resources.  Moreover, there canbe no assurance that the Company will be able to successfully integrateacquired companies or their management teams into the Company’s operatingstructure, retain management teams of acquired companies on a long-term basis,or operate acquired companies profitably. Acquisitions may also involve anumber of other risks, including adverse short-term effects on the Company’soperating results, dependence on retaining key personnel and customers, andrisks associated with unanticipated liabilities or contingencies.

 

*We are subject to ongoing financial covenantsunder our main credit facility, and if we fail to meet those covenants orotherwise default on our credit facility, our lender may accelerate ourborrowings.*

 

At December 27, 2008, the Company had outstanding indebtedness inthe aggregate principal amount of $20.7 million.

 

We borrowed the principal amount of $16 million of our indebtednesspursuant to a credit agreement with U.S. Bank National Association (“U.S. Bank”)which is secured by substantially all assets of the Company.  At December 27, 2008, our line of creditbalance under the agreement was $8.2 million. The Company’s obligations under the Credit Agreement are guaranteed byeach of its subsidiaries.  The Company isrequired to comply with certain financial covenants pursuant to the U.S. BankCredit Agreement so long as 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 27, 2008, the Company was in compliance with allcovenants of the Credit Agreement.

 

$12.5 millionof the indebtedness is secured by the Company’s land and buildings at itsGoodyear, AZ, Bluffton, IN, and Lynden, WA facilities. 

 

As the Company implements its business strategy, there can be noassurance that the Company will remain in compliance with the financialcovenants in the future. Any acceleration of the borrowings under the CreditAgreement prior to the applicable maturity dates could have a material adverseeffect upon the Company. See “*Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources*.”

 

*We may not be able to successfully implementour strategy to expand our business internationally.*

 

The Company plans to expand sales to Canadian customers and isexploring other international market opportunities for its brands.  Such expansion may require significantmanagement attention and financial resources and may not produce desired levelsof revenue.  International business issubject to inherent risks, including longer accounts receivable collectioncycles, difficulties in managing operations across disparate geographicalareas, difficulties enforcing agreements and intellectual property rights,fluctuations in local economic, market and political conditions, compliancerequirements with U.S. and foreign export regulations, potential adverse taxconsequences and currency exchange rate fluctuations.

 

*We may incur material losses and costs as aresult of product liability claims that may be brought against us or anyproduct recalls we have to make*.

 

As a manufacturer and marketer of food products, the Company may besubjected to various product liability claims. There can be no assurance that the product liability insurancemaintained by the Company will be adequate to cover any loss or exposure forproduct liability, or that such insurance will continue to be available onterms acceptable to the Company.  Anyproduct liability claim not fully covered by insurance, as well as any adversepublicity from a product liability claim or product recall, could have amaterial adverse effect on the financial condition or results of operations ofthe Company.

 

*We are subject to numerous governmentalregulations, and our failure to comply with those regulations could result infines or penalties being imposed on us.*

 

The packaged food industry is subject to numerous federal, state andlocal governmental regulations, including those relating to the preparation,labeling and marketing of food products. The Company is particularly affected by the Nutrition Labeling andEducation Act of 1990 (“NLEA”), which requires specified nutritionalinformation to be disclosed on all packaged foods.

 

Additionally, as a direct result of the September 11, 2001terrorism attack, the FDA issued the Bioterrorism Act of 2002 (“the Act”) toprotect the U.S. food supply.  Whilethere are four parts to the Act, only two of the provisions impact the 

 

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Company.  One requirement thatapplied to the Company was registration with the FDA as a U.S. FoodManufacturing Company, which the Company completed prior to the required dateof December 12, 2003.  The second ofthe Act’s provisions pertaining to the Company relates to recordretention.  The Company is required toretain records pertaining to its raw materials’ immediate previous sources(“one back”) as well as its finished goods’ subsequent recipients (“one up”)for twelve months. The Act was effective January 1, 2005.

 

On July 11, 2003, the FDA published its final rule on TransFat Labeling requiring that food labels declare trans fats on or before January 1,2006.  This rule requires that transfat be declared on a separate line in the standard Nutrition Facts below totalfat and saturated fat and be calculated to the nearest 0.5 grams, unless it isless than 0.5 grams in which case it may be expressed as 0 grams.

 

We cannot assure you that we will not face fines or penalties if ourefforts to comply with these regulations are determined to be inadequate.

 

*Newly adopted governmental regulations couldincrease our costs or liabilities or impact the sale of our products.*

 

The food industry is highly regulated. We cannot assure you that new laws or regulations will not be passedthat could require the Company to alter the taste or composition of itsproducts or impose other obligations on the Company.  Such changes could affect sales of theCompany’s products and have a material adverse effect on the Company.

 

*We do not own the patents for the technologywe use to manufacture our T.G.I. Friday’s®, BURGER KING**TM and Tato Skins® brand products*.

 

The Company licenses technology from a third party in connection withthe manufacture of its T.G.I. Friday’s®, BURGER KINGTM and Tato Skins® brandproducts and has a royalty-bearing, exclusive right license to use thetechnology necessary to produce these products in the United States, Canada,and Mexico until such time the parties mutually agree to terminate theagreement and provide written sixty (60) days notice to each other.  In consideration for the use of thistechnology, the Company is required to make royalty payments to the third partyon sales of products manufactured utilizing the technology until suchtermination date.  The patents for thistechnology expired December 26, 2006. Since these patents expired, we no longer have exclusive rights to thistechnology and, as a result, may face additional competition that couldadversely affect our revenues.  Moreover,competitors of the Company, certain of which may have significantly greaterresources than the Company, may utilize different technology in the manufactureof products that are similar to those currently manufactured, or that may inthe future be manufactured, by the Company. The entry of any such products into the marketplace could have amaterial adverse effect on the Company’s sales of T.G.I. Friday’s®, BURGERKINGTM andTato Skins® brand products, as well as any such future products.

 

The taste and quality of Poore Brothers®, Bob’s Texas Style® andBoulder Canyon Natural FoodsTM brand potato chips is largely due to twoelements of the Company’s manufacturing process: its use of batch-frying andits use of distinctive seasonings to produce a variety of flavors.  The Company does not have exclusive rights tothe use of either element; consequently, competitors may incorporate suchelements into their own processes.

 

*The majority of our revenues are derived froma limited number of food brands.*

 

The Company derives a substantial portion ofits revenue from a limited number of snack food brands.  For the year ended December 27, 2008,76% of the Company’s net revenues were attributable to the T.G.I. Friday’s® brandproducts, the Boulder Canyon Natural FoodsTM brand products and Rader Farms® brandproducts.  A decrease in the popularityof these brands during any year could have a material adverse effect on theCompany’s business, financial condition and results of operations.  There can be no assurance that any of the Company’sfood brands will retain their historical levels of popularity or increase inpopularity.  Any impact to a licensedbrand’s reputation could also lead to an impact on the Company’s other snackfood products associated with that brand. Decreased sales from any one of our key food brands without acorresponding increase in sales from other existing or newly introducedproducts would have a material adverse effect on the Company’s financialcondition and results of operations.

 

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*We depend on a license agreement for theright to sell our T.G.I. Friday’s® brand and BURGER KING**TM brand products and we may rely on similarlicense agreements in the future.*

 

The T.G.I. Friday’s® brand products are manufactured and sold by theCompany pursuant to a license agreement by and between the Company and TGIFriday’s Inc. which expires in 2014. Pursuant to the license agreement, the Company is subject to variousrequirements and conditions (including, without limitation, minimum salestargets).  The failure of the Company tocomply with certain of such requirements and conditions could result in theearly termination of the license agreement by TGI Friday’s Inc.  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 BURGER KINGTM brandproducts are manufactured and sold by the Company pursuant to a licenseagreement by and between the Company and Burger King Corporation 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 earlytermination of the license agreement by Burger King Corporation.  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 introduce one or more new product lines in the future thatwill be manufactured and sold pursuant to additional license agreements by andbetween the Company and one or more third parties.  Pursuant to any such license agreements, theCompany will likely be subject to various requirements and conditions (includingminimum sales targets or royalty payments). The failure of the Company to comply with certain of such requirementsand conditions could result in the early termination of such additional licenseagreements.  Depending upon the successof any such new product lines, a termination of the applicable licenseagreements, whether at the expiration of their respective terms or priorthereto, could have a material adverse effect on the Company’s financialcondition and results of operations.

 

*The loss of one of our major customers couldhave a material adverse effect on our business*.

 

Costco accounted for 24% of the Company’s 2008 net revenues, with theremainder of the Company’s net revenues being derived from sales to a limitednumber of additional customers, either grocery chains or regional distributors,none of which individually accounted for more than 10% of the Company’srevenues for 2008.  A decision by anymajor customer to cease or substantially reduce its purchases could have amaterial adverse effect on the Company’s business.

 

*The loss of certain key employees couldadversely affect our business*.

 

The Company’s success is dependent in large part upon the abilities ofits executive officers, including Terry McDaniel, Chief Executive Officer andSteve Weinberger, Chief Financial Officer. The Company’s business strategy will challenge its executive officers,and the inability of such officers to perform their duties or the inability ofthe Company to attract and retain other highly qualified personnel could have amaterial adverse effect upon the Company’s business and prospects.

 

**Risks Related to the Snack Business**

 

*We may not be able to compete successfully inour highly competitive industry.*

 

The market for snack foods, such as those sold by us, including potatochips and meat snacks, is large and intensely competitive. Competitive factorsin the snack food industry include product quality and taste, brand awarenessamong consumers, access to supermarket shelf space, price, advertising andpromotion, variety of snacks offered, nutritional content, product packagingand package design. The Company competes in that market principally on thebasis of product taste and quality.

 

The snack food industry is dominated by large food companies, includingFrito-Lay, Inc., Procter and Gamble and others which have substantiallygreater financial and other resources than the Company and sell brands that aremore widely recognized than are the Company’s products. Numerous othercompanies that are actual or potential competitors of the Company, many withgreater financial and other resources (including more employees and moreextensive facilities) than the Company, offer products similar to those of theCompany. In addition, many of such competitors offer a wider range of productsthan that offered by the Company. Local or regional markets often havesignificant smaller competitors, many of whom offer products similar to thoseof the Company. With expansion of Company operations into new markets, the 

 

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Company has and will continue to encounter significant competition fromnational, regional and local competitors that may be greater than thatencountered by the Company in its existing markets. In addition, suchcompetitors may challenge the Company’s position in its existing markets. Therecan be no assurance of the Company’s ability to compete successfully.

 

*Unavailability of our necessary supplies, atreasonable prices, could materially adversely affect our operations.*

 

The Company’s manufacturing costs are subject to fluctuations in theprices of potatoes, potato flakes, wheat flour, corn and oil as well as otheringredients of the Company’s products. Potatoes, potato flakes, wheat flour and corn are widely availableyear-round, and the Company uses a variety of oils in the production of itsproducts.  Nonetheless, the Company isdependent on its suppliers to provide the Company with products and ingredientsin adequate supply and on a timely basis. The failure of certain suppliers to meet the Company’s performancespecifications, quality standards or delivery schedules could have a materialadverse effect on the Company’s operations. In particular, a sudden scarcity, a substantial price increase, or anunavailability of product ingredients could materially adversely affect theCompany’s operations.  There can be noassurance that alternative ingredients would be available when needed and oncommercially attractive terms, if at all.

 

*We may incur substantial costs in order tomarket our snacks.*

 

Successful marketing of snack products generally depends upon obtainingadequate retail shelf space for product display, particularly in supermarkets.Frequently, food manufacturers and distributors, such as the Company, incuradditional costs in order to obtain additional shelf space. Whether or not theCompany incurs such costs in a particular market is dependent upon a number offactors, including demand for the Company’s products, relative availability ofshelf space and general competitive conditions. The Company may incursignificant shelf space or other promotional costs as a necessary condition ofentering into competition or maintaining market share in particular markets orstores. If incurred, such costs may materially affect the Company’s financialperformance.

 

*Our business may be adversely affected byoversupply of snack products at the wholesale and retail levels and seasonalfluctuations.*

 

Profitability in the food product industry is subject to oversupply ofcertain snack products at the wholesale and retail levels, which can result inour products going out of date before they are sold.  The snack products industry is also seasonal.  Consumers tend to purchase our products athigher levels during the major summer holidays and also at times surroundingthe major sporting events throughout the year.

 

*We may not be able to respond successfully toshifting consumer tastes.*

 

Consumer preferences for snack foods are continually changing and areextremely difficult to predict.  Theability of the Company to generate revenues in new markets will depend uponcustomer acceptance of the Company’s products. The success of new products will be key to the success of the Company’sbusiness plan and there can be no assurance that the Company will succeed inthe development of any new products or that any new products developed by theCompany will achieve market acceptance or generate meaningful revenue for theCompany.

 

*Diet trends may adversely affect ourrevenues.*

 

Increased consumer concerns about nutrition and healthy diets and therisk that sales of our food product may decline due to perceived healthconcerns, changes in consumer tastes or other reasons beyond the control of theCompany may adversely affect our 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 operations. Our competitors may be affecteddifferently by such weather conditions and natural disasters depending on thelocation of their supplies or operations.

 

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*Revenues are derived fromone brand; the loss or impairment of this brand may have a material adverseeffect on 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. A decrease in thepopularity of frozen berries during any year could have a material adverseeffect on the Company’s business, financial condition and results ofoperations. There can be no assurance that the Rader Farms® brand will retain its historical level ofpopularity or increase in popularity. Decreased sales from the Rader Farms®brand of frozen berries would have a material adverse effect on the Company’sfinancial condition and results of operations.

 

*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 thegrowing, storage, handling or transportation phases; or improperly formulatedproducts. There can be no assurance that the product liability insurancemaintained by the Company will be adequate to cover any loss or exposure forproduct liability, or that such insurance will continue to be available onterms 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.

 

**Risks Related to Our Securities**

 

*The market price of our Common Stock isvolatile.*

 

The market price of our Common Stock has experienced a high level ofvolatility since the completion of the 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 Capital Market) on December 22,1998.  During fiscal 2008, the marketprice of the Common Stock (based on last reported sale price of the CommonStock on the Nasdaq Capital Market) ranged from a high of $2.23 per share to alow of $1.21 per share.  The lastreported sales price of the Common Stock on the Nasdaq Capital Market on December 27,2008 was $1.60 per 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 price sufficientto prevent our de-listing from the NASDAQ Capital Market.*”

 

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*Our CommonStock may not continue to trade at a market price sufficient to prevent ourde-listing from the NASDAQ Capital Market.*

 

In order for the Company’s Common Stock to continue to be listed on theNasdaq Capital Market, the Company is required to be in compliance with certaincontinued listing standards.  One of suchrequirements is that the bid price of listed securities be equal to or greaterthan $1.00.  If, in the future, theCompany’s Common Stock fails to be in compliance with the minimum closing bidprice requirement for at least thirty consecutive trading days or the Companyfails to be in compliance with any other Nasdaq continued listing requirements,then the Common Stock could be de-listed from the Nasdaq Capital 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.*”

 

*A significant amount of our Common Stock iscontrolled by individuals, and the interests of such individuals may conflictwith those of other shareholders.*

 

As a result of the Wabash Foods acquisition, Capital Foods, LLC(“Capital Foods”) (an affiliate of the former owner of Wabash Foods) became thesingle largest shareholder of the Company, holding approximately 23% of theoutstanding shares of Common Stock based on Capital Foods’ Schedule 13Gfiling.  Accordingly, Capital Foods is ina position to exercise substantial influence on the business and affairs of theCompany.  In addition, Heartland Advisors, Inc.(“Heartland”) and SRB Management, L.P. (“SRB”) are the beneficial owners ofapproximately 18% and 11%, respectively, of the outstanding shares of CommonStock at December 27, 2008 based on their Schedule 13G filings.  Capital Foods, Heartland and SRB arehereinafter referred to collectively as the “Significant Shareholders.”  There can be no assurance that one or more ofthe Significant Shareholder will not adopt or support a plan to undertake amaterial change in the management or business 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.

 

*A significant amount of our Common Stock issubject to registration rights, and the registration and sale of such sharescould negatively affect the market price of our Common Stock and impair ourability to obtain financing.*

 

Approximately 4.3 million shares of outstanding Common Stock issued bythe Company are subject to “piggyback” registration rights granted by theCompany, pursuant to which such shares of Common Stock may be registered underthe Securities Act and, as a result, become freely tradable in the future.  The Company will be required to pay all expensesrelating to any such registration, other than underwriting discounts, sellingcommissions and stock transfer taxes applicable to the shares, and any otherfees and expenses incurred by the holder(s) of the shares (including,without limitation, legal fees and expenses) in connection with theregistration.  All or a portion of suchshares may, at the election of the holders thereof, be included in a futureregistration statement of the Company and, upon the effectiveness thereof, maybe sold in the public markets.

 

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.

 

*Our Certificate of Incorporation authorizesus to issue preferred stock, and the rights of holders of Common Stock may beadversely affected by the rights of holders of any such preferred stock*.

 

The Company’s Certificate of Incorporation authorizes the issuance ofup to 50,000 shares of “blank check” preferred stock with such designations,rights and preferences as may be determined from time to time by the Board ofDirectors of the Company.  The Companymay issue such shares of preferred stock in the future without shareholderapproval.  The rights of the holders ofCommon Stock will be subject to, and may be adversely affected by, the rightsof the holders of any preferred stock that may be issued in the future.  The issuance of preferred stock, whileproviding desirable flexibility in connection with possible acquisitions andother corporate purposes, could have the effect of discouraging, delaying orpreventing a change of control of the Company, and preventing holders of CommonStock from realizing a 

 

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premium on their shares.  Inaddition, under Section 203 of the Delaware General Corporation Law (the“DGCL”), the Company is prohibited from engaging in any business combination(as defined in the DGCL) with any interested shareholder (as defined in theDGCL) unless certain conditions are met. This statutory provision could also have an anti-takeover effect.

 

### **Item 2. Properties**

### ** **

The Company owns a 140,000 square foot manufacturing facility locatedon 15 acres of land in Bluffton, Indiana, approximately 20 miles south of Ft.Wayne, Indiana.  The facility is financedby a mortgage with U.S. Bank National Association that matures in December,2016.  The Company produces its T.G.I.Friday’s® brand snacks, BURGER KINGTM brand snacks and Tato Skins® brand potatosnacks at the Bluffton, Indiana facility.

 

The Company owns a 60,000 square foot manufacturing facility located on7.7 acres of land in Goodyear, Arizona, approximately 15 miles west of Phoenix,Arizona.  The facility is financed by amortgage with Morgan Guaranty Trust Company of New York that matures in June 2012.  The Company produces its Poore Brothers®,Bob’s Texas Style® and Boulder Canyon Natural FoodsTM brand potato chips, as well as its privatelabel potato chips, at the Goodyear, Arizona facility.

 

The Company owns a farming, processing and storage facility located on696 acres of land in Lynden, Washington, which is leased from the UptrailsGroup LLC, owned by four members of the Rader family.  One of the four, Brad Rader, is a currentemployee of the Company and two of the others, Lyle and Sue Rader, were theformer owners of Rader Farms.  This leasecommenced on the acquisition date and is effect until May 17, 2017.  Lease payments are $43,500 per monththroughout the term of the lease.

 

The Company also leases one-half of a 200,000 square foot facility inBluffton, Indiana which is used as a distribution center.  The Company has entered into a lease, theinitial term expiring in November 2006, with respect to the facility andhas entered into the first of two three-year renewal options.  Current lease payments are approximately$32,500 per month.

 

The Company is responsible for all insurance costs, utilities and realestate taxes in connection with its facilities. The Company believes that itsfacilities are adequately covered by insurance.

 

### **Item 3.  LegalProceedings**

### ** **

The Company is periodically a party to various lawsuits arising in theordinary course of business.  Managementbelieves, based on discussions with legal counsel, that the resolution of suchlawsuits, individually and in the aggregate, will not have a material adverseeffect on the 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.  Settlement discussions areongoing.

 

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

### ** **

None.

 

#### **PART II**

#### ** **

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

#### ** **

The Company’s Common Stock is traded on the Nasdaq Capital Market tierof the Nasdaq Stock Market under the symbol “SNAK.”  There were approximately 206 shareholders ofrecord on March 26, 2009.  TheCompany believes the number of beneficial owners is substantially greater thanthe number of record holders because a large portion of the Common Stock isheld of record in broker “street names.”

 

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The Company has never declared or paid any dividends on the shares ofCommon Stock.  Management intends toretain any future earnings for the operation and expansion of the Company’sbusiness and does not anticipate paying any dividends at any time in theforeseeable future.  Additionally,certain debt agreements of the Company limit the Company’s ability to declareand pay dividends.

 

The following table sets forth the range of high and low sale prices ofthe Company’s Common Stock as reported on the Nasdaq Capital Market for eachquarter of the fiscal years ended December 27, 2008 and December 29,2007.

 
| ** **                        | ** ** | **Sales Prices** | ** ** |
|-----------------------------------|------------|-----------------------|------------|
| **Period of Quotation** | ** ** | **High**              | ** ** | **Low** | ** ** |
| **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 |   |
|                              |       |                  |       |   |   |
| **Fiscal 2008:**                  |       |                  |       |   |   |
| First Quarter                     |       | $                     | 2.23       |   | $ | 1.70 |   |
| Second Quarter                    |       | $                     | 2.03       |   | $ | 1.66 |   |
| Third Quarter                     |       | $                     | 2.13       |   | $ | 1.59 |   |
| Fourth Quarter                    |       | $                     | 1.95       |   | $ | 1.21 |   |

 

The information appearing under the heading “Securities Authorized forIssuance under Equity Compensation Plans” in the Company’s 2009 Proxy Statementis incorporated by reference in this section.

 

On December 27, 2008 the Company’s Board of Directors approved theretirement of all treasury stock shares purchased under its variousprograms.   A total of 1,933,827 shareswere retired at cost.  The Company’streasury stock balance as of December 27, 2008 was zero.  See Note 9 to our Financial Statements inthis Annual Report for a summary of stock repurchases made during 2008, 2007and 2006.

 

**Item 7.****           Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations (“MD&A”) should be read in conjunction with the othersections of this Annual Report on Form 10-K, including “Item 1.:  Business” and “Item 8.:  Financial Statements and Supplementary Data.”  The various sections of this MD&A containa number of forward-looking statements, all of which are based on our currentexpectations and could be affected by the uncertainties and risk factorsdescribed throughout this filing and particularly in “Item 1A.: Risk Factors.”  Accordingly, the Company’s actual futureresults may differ materially from historical results or those currentlyanticipated.

 

**Overview**

 

The Company’s net revenue increased 24.4% in fiscal 2008. Net revenuesfrom sales of T.G.I. Friday’s® snack products, which comprised 33% of total netrevenues, decreased 12.5%.  During our secondquarterly review, the Company identified the 20% volume decline in T.G.I.Friday’s® as a concern in the warehouse snack segment.  The Company madeprogress in the third quarter, as net revenues from this brand declined by only6%, and total Bluffton, Indiana produced products were up 9% for thequarter.  The Company continues to work with the T.G.I Friday’s® group toextend its’ product offerings into new categories and channels ofdistribution.  Additionally, the Company believes that the new T.G.I.Friday’s® branded products currently scheduled for roll out in first quarter2009 will strengthen this category.  Netrevenues from potato chips and other snacks increased 36.2% in 2008.  The table below highlights the changesbetween years:

 

**Net Revenues Comparison**

**($ in millions)**

** **
| ** **                    | ** ** | **2008** | ** ** | **2007** | ** ** | **% Change** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|-------------------|------------|
| T.G.I. Friday’s®    |       | $        | 37.6       |     | $          | 42.9              |       | (12.5 | )% |
| Potato Chips and Other Snacks |       | 37.1     |       | 27.2     |       | 36.2              | %          |
| Rader Farms Berry Products    |       | 38.4     |       | 20.8     |       | 84.6              | %          |
| Total                         |       | $        | 113.1      |     | $          | 90.9              |       | 24.4 | % |

 

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In connection with the implementation of the Company’s businessstrategy, the Company is likely to require future debt or equity financings(particularly in connection with future strategic acquisitions).  Expenditures stemming fromacquisition-related integration costs, trade and consumer marketing programsand new product development may adversely affect operating expenses andconsequently may adversely affect operating and net income.

 

**Key Trends**

 

*Retailer Consolidation*

 

The retail food environment continues to be influenced by consolidationas fewer large retailers, including Kroger, Safeway and Wal*Mart, are gaining alarger share of the grocery retail environment. These retailers are also consolidating their regional buying operationsinto singular national operations to improve efficiency.  This action creates opportunities for theCompany because brands like T.G.I. Friday’s® and BURGER KINGTM brand snack products are niche brands that canbe sold effectively on a national basis.

 

*Consumer Trends*

 

The snack industry has been heavily influenced in the past five yearsby a proliferation of new flavors and health focused snacks, with a rapidincrease in the number of low-fat, low-carb and all-natural and organicproducts.  Mainstream retailers such asSafeway have now created standalone natural and organic sections in theirstores.  The Company believes this trendfor healthier snacks will continue and will provide opportunities for its RaderFarms berry products to experience revenue growth.

 

*Raw Material and Freight Price Increases andSubsequent Retail Price Increases*

 

The snack foods industry has experienced higher costs as a result ofthe increase in the price of potatoes and oil. Additionally, both inbound transportation of raw materials and outboundtransportation of finished goods have experienced higher costs as a result offreight surcharges.  Nearly all rawmaterials have experienced higher pricing both as a result of higher freightcosts and certain products require oil based raw materials.  As a result of these raw material priceincreases, many companies, including us, have implemented price increases in2007 and 2008.

 

**Results of Operations**

 

The following discussion summarizes the significant factors affectingthe consolidated operating results, financial condition, liquidity and capitalresources of the Company.  Thisdiscussion should be read in conjunction with “Item 8.: Financial Statementsand Supplementary Data” and the “Cautionary Statement Regarding Forward-LookingStatements” on page 3.

 

*Year ended December 27, 2008 compared tothe year ended December 29, 2007*

 
| ** **                                    | ** ** | **2008** | ** ** | **2007**               | ** ** | **Difference** | ** ** |
|-----------------------------------------------|------------|----------|------------|------------------------|------------|----------------|------------|
| **(dollars in millions)**           | ** ** | **$**    | ** ** | **% of Rev** | ** ** | **$**          | ** ** | **% of Rev** | ** ** | **$** | ** ** | **%** | ** ** |
| Net revenues                                  |       | $        | 113.1      |                   | 100.0      | %              | $          | 90.9 |   | 100.0 | % | $ | 22.2 |   | 24.4 | % |
| Cost of revenues                              |       | 90.9     |       | 80.4                   |       | 75.3           |       | 82.8 |   | 15.6 |   | 20.7 |   |
| Gross profit                                  |       | 22.2     |       | 19.6                   |       | 15.6           |       | 17.2 |   | 6.6 |   | 42.3 |   |
| Selling, general and administrative  expenses |       | 16.8     |       | 14.9                   |       | 14.1           |       | 15.5 |   | 2.7 |   | 19.1 |   |
| Impairment of intangible asset                |       | —   |       | —                 |       | 2.7            |       | 3.0 |   | (2.7 | ) | (100.0 | ) |
| Operating income (loss)                       |       | 5.4      |       | 4.7                    |       | (1.2           | )          | (1.3 | ) | 6.6 |   | 550.0 |   |
| Interest income (expense), net                |       | (1.3     | )          | (1.1                   | )          | (1.0           | )          | (1.1 | ) | (0.3 | ) | 30.0 |   |
| Income (loss) before income taxes             |       | 4.1      |       | 3.6                    |       | (2.2           | )          | (2.4 | ) | 6.3 |   | 286.4 |   |
| Income tax benefit (provision)                |       | (1.7     | )          | (1.5                   | )          | 0.7            |       | 0.8 |   | (2.4 | ) | 342.9 |   |
| Net income (loss)                             |       | $        | 2.4        |                   | 2.1        | %              | $          | (1.5 | ) | (1.7 | )% | $ | 3.9 |   | 260.0 | % |

 

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For the fiscal year ended December 27, 2008, net revenuesincreased 24.4%, or $22.2 million, to $113.1 million compared with net revenuesof $90.9 million for the previous fiscal year.

 

The increase in Net Revenues were attributable to a number of factors;a full year of Rader Farms which was acquired in May 2007, a 29% increasein Boulder Canyon Natural FoodsTM brand kettle cooked chips, an increase of 18%in Poore Brothers® kettle cooked chips, an increase in Private Label snacks of82% which reflects the company’s strategy of moving into Premium Private Labelproducts to fill up the Indiana plant and BURGER KINGTM branded snacks sales of $5.5 million for theyear. These increase were partially offset by a 12.5% reduction in the TGIFriday’s® brand of snacks.

 

Gross profit for 2008 increased $6.6 million to $22.2 million, andincreased as a percentage of net revenues to 19.6% as compared to 17.2% in2007.  The primary cause of this increasewas the improvement in gross margin realized from our snack products, increasingto 19.8% as compared to 16.6% in the prior year, attributable to product priceincreases and cost reduction activities at our plants.  Rader Farms gross margin was 19.4%, comparedto 18.9% in the prior year.

 

Selling, general and administrative expenses were $16.8 million or14.9% of net revenues for the year versus $16.8 million or 18.5% of Net Revenuelast year. Last year’s expenses included a $2.7 million impairment chargerealized on the Bob’s Texas Style® and Tato Skins® trademarks. Excluding thesewrite downs, last year’s expenses would have been 15.5% of net revenues.

 

The Company’s effective income tax expense rate was 42.1% in 2008 whileits effective tax benefit rate was 32.1% in 2007.  The change in the effective rate is due todifferences in non-deductible expenses, primarily stock based compensationrelated to individual stock option grants.

 

Net income for 2008 was $2.4 million, representing a $3.9 millionincrease when compared to net loss of $1.5 million for 2007.   The net income for 2008 equated to $0.13 perbasic and diluted share, compared with $(0.08) per basic and diluted share, in2007.

 

**Liquidity and Capital Resources**

 

Net working capital was $4.5 million (a current ratio of 1.2:1) and$3.6 million (a current ratio of 1.2:1) at December 27, 2008 and December 29,2007, respectively.  For the fiscal yearended December 27, 2008, operating activities provided $5.4 million,primarily as a result of our generation of net income in fiscal year 2008,compared to a net loss in 2007, and an increase in accounts payable and accruedliabilities of $1.9 million.  Investingactivities utilized $3.9 million, primarily due to the purchase of fixedassets.  Financing activities utilized$1.3 million, largely due to the Company’s payments towards debt borrowings andpurchases of treasury stock.

 

For the fiscal year ended December 29, 2007, the Company utilized$0.7 million in operating activities primarily as a result of increasedinventories.  Investing activitiesutilized $23.4 million, primarily due to the acquisition of Rader Farms and thepurchase of fixed assets.  Financingactivities provided $15.9 million, largely due to debt borrowings and drawdowns on the Company’s line of credit.

 

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, (“U.S.Bank”) bears interest at the 30day LIBOR plus 165 basis points and is secured by the building and the land onwhich it is located. The interest rate associated with this debt instrument wasfixed to 6.85% via an interest rate swap agreement with U.S. Bank 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. Each ofour subsidiaries is a guarantor of the Loan Agreement, which is secured by apledge of all of the assets of our consolidated group. The borrowing capacityavailable to us under the Loan Agreement consists of notes representing:

 

·                  a $15,000,000 revolving line of creditmaturing on June 30, 2011; based on asset eligibility, there was $3.0

 

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million of borrowing availability under the line ofcredit at December 27, 2008.

·                  an equipment term loan, secured by theequipment acquired, subject to a $5.8 million mortgage loan from U.S. Bank,bears interest at the 30 day LIBOR plus 165 basis points. The loan matures inMay, 2014 and monthly principal installments are $71,429 plus 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, bears interest at the 30 day LIBOR plus165 basis points. The interest rate associated with this debt instrument wasfixed to 4.28% via an interest rate swap agreement with U.S. Bank inJanuary 2008. The loan matures in July, 2017; however monthly principaland interest installments of $36,357 are determined based on a fifteen-yearamortization period.

 

The Companybelieves that its current financing arrangement with U.S. Bank will provideadequate ability to finance future capital expenditures, including plannedimprovements to our Goodyear, AZ facility in 2009.

 

All borrowings under the revolving line of creditwill bear interest at either (i) the prime rate of interest announced by U.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 the expirationof an applicable cure period. The agreement requires the Company to maintaincompliance with certain financial covenants, including a minimum tangible networth, a minimum fixed charge coverage ratio and a debt to equity ratio. At December 27,2008, the Company was in compliance with all of the financial covenants.

 

At December 27, 2008, the Company had a net operating losscarryforward available for federal income taxes of approximately $0.6million.  The Company’s accumulated netoperating loss carryforward will begin to expire in 2023.

 

**Off-Balance Sheet Arrangements**

 

Under SEC regulations, in certain circumstances, the Company isrequired to make certain disclosures regarding the following off-balance sheetarrangements, if material:

 

·                  Any obligationunder certain guarantee contracts;

·                  Any retained orcontingent interest in assets transferred to an unconsolidated entity orsimilar arrangement that serves as credit, liquidity or market risk support tothat entity for such assets;

·                  Any obligationunder certain derivative instruments; and

·                  Any obligationarising out of a material variable interest held by us in an unconsolidatedentity that provides financing, liquidity, market risk or credit risk supportto us, or engages in leasing, hedging or research and development services withus.

 

The Company does not have any off-balance sheet arrangements that arerequired to be disclosed pursuant to these regulations, other than thosedescribed in the Notes to Consolidated Financial Statements.  The Company does not have, nor does it engagein, transactions with any special purpose entities.  Other than an interest rate swap, the Companyis not engaged in any derivative activities and had no forward exchangecontracts outstanding at December 27, 2008.  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 the implementation of the Company’s businessstrategy, the Company may incur operating losses in the future and may requirefuture debt or equity financings (particularly in connection with futurestrategic acquisitions, new brand introductions or capital expenditures).  Expenditures relating to acquisition-relatedintegration costs, market and territory expansion and new product developmentand introduction may adversely affect promotional and operating expenses andconsequently may adversely affect operating and net income.  These types of expenditures are expensed foraccounting purposes as incurred, while revenue generated from the result ofsuch expansion or new products may benefit future periods.  Management believes that the Company willgenerate positive cash flow from operations during the next twelve months,which, along with its existing working capital and borrowing facilities, willenable the Company to meet its operating cash requirements for the next twelvemonths.  The belief is based on currentoperating plans and certain assumptions, including those relating to theCompany’s future revenue levels and expenditures, industry and general economicconditions and other conditions. For instance, if current general economicconditions continue or worsen, we believe that our sales forecasts may prove tobe less reliable than they have in the past as consumers may change their buyinghabits with respect to snack food

 

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products. Unexpected price increases for commodities used in our snackproducts, or adverse weather conditions affecting our Rader Farms crop yieldcould also impact our financial condition. If any of these factors change, the Company may require future debt orequity financings to meet its business requirements. There can be no assurancethat any required financings will be available or, if available, will be onterms attractive to the Company.

 

**Critical Accounting Policies and Estimates**

 

The Securities and Exchange Commission indicated that a “criticalaccounting policy” is one which is both important to the portrayal of theCompany’s financial condition and results and requires management’s mostdifficult, subjective or complex judgments, often as a result of the need tomake estimates about the effect of matters that are inherently uncertain.  The Company believes that the followingaccounting policies fit this definition:

 

*Allowance for Doubtful Accounts. *The Companymaintains an allowance for doubtful accounts for estimated losses resultingfrom the inability of its customers to make required payments.  If the financial condition of the Company’scustomers were to deteriorate, resulting in an impairment of their ability tomake payments, additional allowances may be required.

 

*Inventories.*  The Company’s inventories are stated at thelower of cost (first-in, first-out) or market. The Company identifies slow moving or obsolete inventories and estimatesappropriate loss provisions related thereto. If actual market conditions are less favorable than those projected bymanagement, additional inventory write-downs may be required.

 

*Goodwill and 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.  In 2008, theCompany conducted a similar analysis, and believes the carrying values of itstrademarks are appropriate.

 

In determining that each of our trademarks has an indefinite life,management considered the factors found in paragraph 11 of SFAS No. 142.Management believes that each of these trademarks has the continued ability togenerate cash flows indefinitely. Management’s determination that thesetrademarks have indefinite lives includes an evaluation of historical cashflows and projected cash flows for each of these trademarks. The Companycontinues making investments to market and promote each of these brands, andmanagement continues to believe that the market opportunities and brandextension opportunities will generate cash flows for an indefinite period oftime. In addition, there are no legal, regulatory, contractual, economic orother factors to limit the useful life of these trademarks, and managementintends to renew each of these trademarks, which can be accomplished at littlecost.

 

*Advertising and Promotional Expenses andTrade 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:

 

·                  Demonstrations/Samples:  The Company periodically arrangesin-store product demonstrations with club stores (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 consumers in the stores receivesmall samples of our products, and consumers are not required to purchase ourproduct in order to receive the sample. The cost of product used in the demonstrations,which is insignificant, and the fee we pay to the independent third partyproviders who conduct the in-store demonstrations are recorded as a sales andmarketing expense in selling, general and

 

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administrative expenses. 

 

·                  Sponsorship:   The Company has a sponsorship with theArizona Diamondbacks Major League Baseball team.  The sponsorship involves using the ArizonaDiamondbacks team and Company marks inside and outside of the stadium to buildawareness for the Company brands.

 

*Income Taxes.*  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 $0.6 million at December 27, 2008.  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.  The Company expects to utilize its NOL infuture periods, and no valuation allowance is considered necessary.

 

*Revenue Recognition.  *In accordance with accounting principlesgenerally accepted in the United States, the Company recognizes operatingrevenues upon shipment of products to customers provided title and risk of losspass to its customers. In those instances where title and risk of loss does notpass until delivery, revenue recognition is deferred until delivery hasoccurred.  Revenue for products soldthrough our direct store delivery distributed product segment is recognizedwhen the product is received by the retailer. Provisions and allowances for sales returns, promotional allowances anddiscounts are also recorded as a reduction of revenues in the Company’sconsolidated financial statements

 

*Stock-BasedCompensation**. ***On January 1, 2006, we adoptedStatement of Financial Accounting Standards (SFAS) 123R,**“Share-BasedPayment”*,* under themodified prospective method.  SFAS 123Rrequires us to measure the cost of employee services received in exchange forstock options granted using 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. Prior to May 2008, all stock optiongrants had a 5-year term. The fair value of these stock option grants isamortized to expense over the vesting period, generally three years foremployees and one year for the Board of Directors.  In May 2008, the Company’s Board ofDirectors approved a 10 year term for all future stock option grants, withvesting periods of five years and one year for employees and Board of Directormembers, respectively.

 

The above listing is not intended to be a comprehensive list of all ofthe Company’s accounting policies.  Inmany cases the accounting treatment of a particular transaction is specificallydictated by generally accepted accounting principles, with no need formanagement’s judgment in their application. See the Company’s audited financial statements and notes theretoincluded in this Annual Report on Form 10-K which contain accountingpolicies and other disclosures required by accounting principles generallyaccepted in the United States.

 

**Recent Accounting Pronouncements**

 

In June 2006, the Financial Accounting Standards Board (FASB)issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes—an interpretation 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*(“SFAS No. 157”).  SFAS No. 157 defines fair value,establishes a framework for measuring fair value, and expands disclosures aboutfair value measurements.  While SFAS No. 157will not impact our valuation methods, it will expand our disclosures of assetsand liabilities which are recorded at fair value.  SFAS No. 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007 andinterim periods within those fiscal years. The Company adopted SFAS No. 157 effective January 1, 2008 andits adoption did not have a material impact on our financial position, resultsof operations, or cash flows.

 

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities*(“SFAS No. 159”).  SFAS No. 159allows entities to choose to measure eligible financial instruments at fairvalue

 

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with changes in fair value recognized in earnings of each subsequentreporting date.  The fair value electionis available for most financial assets and liabilities on aninstrument-by-instrument basis and is to be elected on the date the financialinstrument 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. 159 had noimpact on the Company’s financial position or statement of operations.

 

In December 2007, the FASB issued SFAS No. 141 (revised2007), “*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.

 

In December 2007, the FASB issued Statement of FinancialAccounting Standards No. 160, *NoncontrollingInterests in Consolidated Financial Statements — an amendment ofAccounting Research Bulletin No. 51*(“SFAS 160”).SFAS 160 establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. SFAS 160 also establishes disclosure requirements that clearlyidentify and distinguish between the controlling and noncontrolling interestsand requires the separate disclosure of income attributable to controlling andnoncontrolling interests. SFAS 160 is effective for fiscal years beginningafter December 15, 2008. The Company is currently evaluating the impactthat the adoption of SFAS 160 will have on its consolidated financialstatements.

 

In March 2008, the FASB issued Statement of Financial AccountingStandards No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities — an amendment of FASBStatement No. 133*(“SFAS 161”). SFAS 161 applies toall entities and requires specified disclosures for derivative instruments andrelated hedge items accounted for under SFAS 133, *Accountingfor Derivative Instruments and Hedging Activities*.   SFAS 161 requires enhanced disclosures abouthow and why an entity uses derivative instruments, how derivative instrumentsand related hedged items are accounted for and their effect on an entity’sfinancial position, financial performance, and cash flows. SFAS 161 iseffective for fiscal years and interim periods beginning after November 15,2008.  The adoption of SFAS 161 is notexpected to have a material impact on the Company’s financial position, resultsof operations or liquidity.

 

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**Item 8.    FinancialStatements and Supplementary Data**

 
| Report of Independent  Registered Public Accounting Firm                                                                      | 31 |
|-------------------------------------------------------------------------------------------------------------------------------|----|
| Consolidated  balance sheets as of December 27, 2008 and December 29, 2007                                          | 33 |
| Consolidated  statements of operations for the years ended December 27, 2008, and  December 29, 2007                | 34 |
| Consolidated  statements of shareholders’ equity for the years ended December 27,  2008, and December 29, 2007 | 35 |
| Consolidated  statements of cash flows for the years ended December 27, 2008, and  December 29, 2007                | 36 |
| Notes to  consolidated financial statements                                                                                   | 38 |

 

### **Item 9.        Changes in and Disagreements withAccountants on Accounting and Financial Disclosure**

### ** **

None.

 

**Item9A(T).           Controls and Procedures.**

 

**(a)****               Evaluation ofDisclosure Controls and Procedures**

 

The Company’s management, with the participation of the Company’s ChiefExecutive Officer and Chief Financial Officer, evaluated the effectiveness ofthe Company’s disclosure controls and procedures as of the end of the periodcovered by this report.  Based on thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures as of the end of theperiod covered by this report have been designed and are functioningeffectively to provide reasonable assurance that the information required to bedisclosed by the Company in reports filed under the Securities Exchange Act of1934 is recorded, processed, summarized and reported within the time periodspecified in the SEC’s rules and forms.

 

The Company’s Chief Executive Officer and Chief Financial Officer donot expect that the Company’s internal controls will prevent all errors and allfraud.  A control system, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that 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 of effectiveness to future periodsare subject to the risk that internal controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

No change occurred in our internal controls over financial reporting(as defined in Rule 13a-15(f) of the Exchange Act) during the threemonths ended December 27, 2008 that has materially affected, or isreasonably likely to materially affect our internal control over financialreporting.

 

**Management’s Report on Internal Control over Financial Reporting**

 

Our management is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rule 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934. Our internal controlover financial reporting is designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples. Our internal control over financial reporting includes thosepolicies and procedures 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 inherent limitations, internal control over financialreporting may not prevent or detect all misstatements or instances of fraud. Assuch, a control system, no matter how well conceived and operated, can provideonly reasonable assurance that the objectives of the control system are met.Also, projections of any evaluation of effectiveness to

 

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future periods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.

 

Management assessed the effectiveness of internal control overfinancial reporting as of December 27, 2008. In making this assessment,management used the criteria set forth by the Committee of SponsoringOrganizations 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 27, 2008.

 

This Annual Report does not include an attestation report of theCompany’s registered public accounting firm regarding internal control overfinancial reporting.  Management’s reportwas not subject to attestation by the Company’s registered public accountingfirm pursuant to temporary rules of the Securities and Exchange Commissionthat permit the Company to provide only management’s report in this AnnualReport.

 

**Item 9B.     Other Information.**

 

None.

 

**PART III**

 

**Item 10.     Directors, Executive Officers and CorporateGovernance**

 

**Code of Ethics**

 

Each of the Company’s directors, officers and employees are required tocomply with The Inventure Group, Inc. Code of Business Conduct and Ethicsadopted by the Company.  The Code ofBusiness Conduct and Ethics sets forth policies covering a broad range ofsubjects and requires strict adherence to laws and regulations applicable tothe Company’s business.  The Company hasalso adopted a Financial Code of Ethics for its Chief Executive Officer, ChiefFinancial Officer and all other finance managers.  The Financial Code of Ethics supplements theCode of Business Conduct and Ethics and is intended to emphasize the importanceof honest and ethical conduct in connection with the Company’s financialreporting obligations.  The Code ofBusiness Conduct and Ethics and the Financial Code of Ethics are available onthe Company’s website at www.inventuregroup.net, under the “Investors-Governance”captions.  Copies of these Codes may alsobe obtained, without charge, by any shareholder upon written request directedto the Secretary of the Company at 5050 N. 40th St. Suite #300, Phoenix, Arizona85018.  The Company will post to itswebsite any amendments to these Codes, or waiver from the provisions thereof,applicable to the Company’s directors or any principal executive officer,principal financial officer principal accounting officer or controller, or anyperson performing similar functions under the “Investors-Governance-Code ofBusiness Conduct-Waivers” caption.

 

The information regarding Directors and Executive Officers appearingunder the headings “Proposal 1: Election of Directors,” “Executive Officers,” “Meetingsand Committees of the Board of Directors” and “Section 16(a) BeneficialOwnership Reporting Compliance” of the Company’s 2009 Proxy Statement isincorporated by reference in this section.

 

**Item 11.     Executive Compensation**

 

The information appearing under the headings “Director Compensation,” “EmploymentAgreements,” “Compensation Committee Report on Executive Compensation” and “ExecutiveOfficer Compensation” of the Company’s 2009 Proxy Statement is incorporated byreference in this section.

 

**Item 12.     Security Ownership of Beneficial Owners andManagement and Related Stockholder Matters**

 

The information appearing under the headings “Security Ownership ofCertain Beneficial Owners and Management” and “Securities Authorized forIssuance Under Equity Compensation Plans” of the Company’s 2009 Proxy Statementis incorporated by reference in this section.

 

**Item 13.     Certain Relationships and RelatedTransactions, and Director Independence**

 

The information appearing under the heading “Meetings and Committees ofthe Board of Directors” and “Certain Relationships and Related Transactions” ofthe Company’s 2009 Proxy Statement is incorporated by reference in thissection.

 

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**Item 14.     Principal Accountant Fees and Services**

 

Information appearing under the heading “Independent Auditors” of theCompany’s 2009 Proxy Statement is incorporated by reference in this section.

 

**PART IV**

 

**Item 15.         Exhibits and Financial StatementSchedules:**

 

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

 

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

 

Reports of Independent Registered Public Accounting Firms

Consolidated balance sheets as of December 27, 2008 and December 29,2007

Consolidated statements of income for theyears ended December 27, 2008 and December 29, 2007

Consolidated statements of shareholders’ equity for the years ended December 27,2008 and December 29, 2007

Consolidated statements of cash flows for the years ended December 27,2008 and December 29, 2007

Notes to consolidated financial statements

 

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

 

Schedules have been omitted because of the absence of conditions underwhich they are required or because the information required is included in theCompany’s consolidated financial statements or notes thereto.

 

**3.****              Exhibits required byItem 601 of Regulation 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. (1)                                                         |
| 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. (1)                            |
| 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. (1)                          |
| 3.4                 | —     | By-Laws of the Company (as amended and restated on January 11,  2005). (2)                                                                                                                |
| 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 24, 2006. (1)                             |
| 4.1                 | —     | Specimen Certificate for shares of Common Stock. (3)                                                                                                                                           |
| 10.10               | —     | Fixed Rate Note dated June 4, 1997, by and between La Cometa  Properties, Inc. and Morgan Guaranty Trust Company of New York. (4)                                                    |
| 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. (4)                              |
| 10.12               | —     | Guaranty Agreement dated June 4, 1997, by and between the  Company and Morgan Guaranty Trust Company of New York. (4)                                                                     |
| 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. (5) |
| 10.18               | —     | Commercial Lease, dated May 1, 1998, by and between Wabash  Foods, LLC and American Pacific Financial Corporation. (6)                                                                    |

 

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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)                                                                                                                  |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.25   | — | 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.) (8)                                                                                      |
| 10.33   | — | Commercial Lease Agreement, dated May 22, 2003, by and between  the Company and Westland Park LLC (9)                                                                                                                                                                                                                                                                      |
| 10.34   | — | Warehouse Services Agreement, dated June 30, 2003, by and  between the Company and Customized Distribution Services, Inc. (9)                                                                                                                                                                                                                                         |
| 10.37 * | — | Form of Officer Nonstatutory Stock Option Agreement. (10)                                                                                                                                                                                                                                                                                                                  |
| 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. (11)                                                                                                                                                                                                                           |
| 10.41   | — | Security Agreement relating to the Loan Agreement dated August 19,  2005 between the Company and U.S. Bank National Association. (11)                                                                                                                                                                                                                                      |
| 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. (11)                                                                                                                                                                                                               |
| 10.43   | — | $756,603 Promissory Note (Facility 2 — Term Loan) dated August 19,  2005 between the Company and U.S. Bank National Association. (11)                                                                                                                                                                                                                                 |
| 10.44*  | — | Executive Employment Agreement dated August 1, 2005 between the  Company and Steven Sklar. (11)                                                                                                                                                                                                                                                                            |
| 10.45*  | — | Restricted Stock Agreement dated August 1, 2005 between the  Company and Steven Sklar. (11)                                                                                                                                                                                                                                                                                |
| 10.49*  | — | Poore Brothers, Inc. Amended and Restated 2005 Equity Incentive  Plan. (12)                                                                                                                                                                                                                                                                                                |
| 10.50*  | — | Form of Director Nonstatutory Stock Option Agreement — Amended and  Restated 2005 Equity Incentive Plan. (13)                                                                                                                                                                                                                                                         |
| 10.51*  | — | Form of Employee Incentive Stock Option Agreement — Amended and  Restated 2005 Equity Incentive Plan. (13)                                                                                                                                                                                                                                                            |
| 10.52*  | — | Executive  Employment Agreement by and between Poore Brothers, Inc. and Eric J.  Kufel, dated as of February 14, 2006. (14)                                                                                                                                                                                                                                           |
| 10.53*  | — | Executive  Employment Agreement by and between Poore Brothers, Inc. and Terry  McDaniel, dated as of April 17, 2006. (15)                                                                                                                                                                                                                                             |
| 10.54   | — | Commercial Lease Agreement, dated May 8, 2006, by and between  the Company and B.G. Associates, Inc. (16)                                                                                                                                                                                                                                                             |
| 10.57*  | — | Executive  Employment Agreement by and between the Company and Steve Weinberger, dated  as of July 27, 2006. (17)                                                                                                                                                                                                                                                          |
| 10.58*  |   | The  Inventure Group, Inc. Deferred Compensation Plan. (18)                                                                                                                                                                                                                                                                                                                |
| 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. (19)                                                                                                                                                                                                   |
| 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. (19)                                                                                                                                                                                                                  |
| 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. (19)                                                                                                                                                                                                |
| 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. (19)                                                                                                                                                                                                |
| 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. (19)                                                                                                                                                                                                                     |
| 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. (19) |
| 10.65   |   | Term Loan Agreement dated as of June 28, 2007, by and between  The Inventure Group, Inc. and U.S. Bank, National Association. (19)                                                                                                                                                                                                                                    |

 

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| 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. (19)                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.67  |   | Deed of Trust dated June 28, 2007, by and between Rader Farms  Acquisition Corp. and U.S. Bank National  Association. (19)                                                                                              |
| 10.68* |   | Letter Agreement effective as of May 19, 2008, by and between  the Company and Eric J. Kufel. (20)                                                                                                                      |
| 21.1   | — | List of Subsidiaries of the Company. (21)                                                                                                                                                                                    |
| 23.1   | — | Consent of Moss Adams LLP (22)                                                                                                                                                                                               |
| 23.2   | — | Consent of Deloitte & Touche LLP. (22)                                                                                                                                                                                   |
| 31.1   | — | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or  Rule 15(d)-14(a). (22)                                                                                                                |
| 31.2   | — | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or  Rule 15(d)-14(a) (22)                                                                                                            |
| 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. (22) |

 

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|  * | Management compensatory plan or arrangement. |
|---------|----------------------------------------------|

 
| (1)  | Incorporated by reference to the Company’s Current Report on  Form 8-K filed on May 23, 2006.                                                           |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | Incorporated by reference to the Company’s Current Report on Form 8-K  filed on January 12, 2005.                                                  |
| (3)  | Incorporated by reference to the Company’s Registration Statement on  Form SB-2, Registration No. 333-5594-LA.                                     |
| (4)  | Incorporated by reference to the Company’s Quarterly Report on  Form 10-QSB for the quarter ended June 30, 1997.                                   |
| (5)  | Incorporated by reference to the Company’s definitive Proxy Statement  on Schedule 14A filed with the Commission on September 19, 1999.                 |
| (6)  | Incorporated by reference to the Company’s Annual Report on  Form 10-KSB for the year ended December 31, 1999.                                     |
| (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 September 30, 2001.                              |
| (9)  | Incorporated by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 27, 2003.                                |
| (10) | Incorporated by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 25, 2004.                                |
| (11) | Incorporated by reference to the to the Company’s Quarterly Report on  10-Q for the quarter ended October 1, 2005.                                      |
| (12) | Incorporated by reference to the Company’s definitive Proxy Statement  on Schedule 14A filed with the Securities and Exchange Commission on April 18,  2008. |
| (13) | Incorporated by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2005.                                |
| (14) | Incorporated by reference to the Company’s Current Report on  Form 8-K/A filed on February 16, 2006.                                               |
| (15) | Incorporated by reference to the Company’s Current Report on  Form 8-K filed on April 17, 2006.                                                    |
| (16) | Incorporated by reference to the Company’s Quarterly Report on 10-Q  for the quarter ended April 1, 2006.                                               |
| (17) | Incorporated by reference to the Company’s Current Report on Form 8-K  field on July 27, 2006.                                                               |
| (18) | Incorporated by reference to the Company’s Current Report on  Form 8-K as filed on January 23, 2007.                                               |
| (19) | By reference to the Company’s Quarterly Report on Form 10-Q for  the quarter ended June 30, 2007.                                                  |
| (20) | Incorporated by reference to the Company’s Current Report on  Form 8-K filed on May 9, 2008.                                                       |
| (21) | Incorporated by reference to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 29, 2007.                                |
| (22) | Filed herewith.                                                                                                                                                   |

 

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** **

**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 27, 2009 | THE INVENTURE GROUP, INC. |
|---------------------------------------------------------------|---------------------------|
|                                                          |                      |
|                                                          | By:                       | /s/ Terry McDaniel       |
|                                                          | Terry McDaniel            |
|                                                          | 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/ Terry McDaniel       |       | Chief Executive Officer and Director                     |       | March 27, 2009 |
| Terry McDaniel           |       | (Principal Executive Officer)                            |       |                |
|                     |       |                                                     |       |                |
| /s/ Steve Weinberger     |       | Chief Financial Officer,  Secretary & Treasurer |       | March 27, 2009 |
| Steve Weinberger         |       | (Principal Financial and Accounting  Officer)            |       |                |
|                     |       |                                                     |       |                |
| /s/ Larry R. Polhill     |       | Chairman and Director                                    |       | March 27, 2009 |
| Larry R. Polhill         |       |                                                     |       |                |
|                     |       |                                                     |       |                |
| /s/ Ashton D. Asensio    |       | Director                                                 |       | March 27, 2009 |
| Ashton D. Asensio        |       |                                                     |       |                |
|                     |       |                                                     |       |                |
| /s/ Mark S. Howells      |       | Director                                                 |       | March 27, 2009 |
| Mark S. Howells          |       |                                                     |       |                |
|                     |       |                                                     |       |                |
| /s/ Macon Bryce Edmonson |       | Director                                                 |       | March 27, 2009 |
| Macon Bryce Edmonson     |       |                                                     |       |                |
|                     |       |                                                     |       |                |
| /s/ Ronald Kesselman     |       | Director                                                 |       | March 27, 2009 |
| Ronald Kesselman         |       |                                                     |       |                |
|                     |       |                                                     |       |                |
| /s/ Itzhak Reichman      |       | Director                                                 |       | March 27, 2009 |
| Itzhak Reichman          |       |                                                     |       |                |

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

** **

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

 

We have audited the accompanying consolidated balance sheet of TheInventure Group, Inc. and subsidiaries (the “Company”) as of December 27,2008 and the related consolidated statements of operations, stockholders’equity and cash flows for the year then ended. These financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statementsbased on our audit.

 

We conducted our audit 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 audit 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 audit provides 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.as of December 27, 2008, and the results of their operations and theircash flows for the year then ended, in conformity with accounting principlesgenerally accepted in the United States of America.

 

*/s/ MOSS ADAMS LLP*

 

Scottsdale, ArizonaMarch 27, 2009

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Boardof Directors and Stockholders ofThe Inventure Group, Inc.Phoenix, AZ

 

We haveaudited the accompanying consolidated balance sheet of The Inventure Group, Inc.and subsidiaries (f.k.a. Poore Brothers, Inc. and Subsidiaries) (the “Company”)as of December 29, 2007, and the related consolidated statements ofoperations, stockholders’ equity, and cash flows for the year ended December 29,2007.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on the financial statements based on our audit.

 

We conductedour audit in accordance with the standards of the Public Company AccountingOversight 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 tohave, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audit included consideration of internal control overfinancial reporting as a basis for designing audit procedures that are appropriatein the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly,we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.

 

In ouropinion, such consolidated financial statements present fairly, in all materialrespects, the financial position of The Inventure Group, Inc. (f.k.a.Poore Brothers, Inc. and Subsidiaries) as of December 29, 2007, andthe results of their operations and their cash flows for the year ended December 29,2007, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

*/s/DELOITTE & TOUCHE LLP*

 

Phoenix, ArizonaMarch 27, 2009

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                    | ** ** | **December 27,  2008** | ** ** | **December 29,  2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                    |       |                        |       |                        |       |
| Current assets:                                                                                                                                                                               |       |                        |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                     |       | $                           | 683,567    |                        | $          | 494,918 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $80,740 in 2008 and $29,161 in 2007                                                                                      |       | 9,767,750                   |       | 8,604,741                   |       |
| Inventories, net                                                                                                                                                                              |       | 13,979,526                  |       | 11,585,597                  |       |
| Deferred income tax asset                                                                                                                                                                     |       | 831,779                     |       | 1,180,349                   |       |
| Other current assets                                                                                                                                                                          |       | 777,192                     |       | 707,093                     |       |
| Total current assets                                                                                                                                                                          |       | 26,039,814                  |       | 22,572,698                  |       |
|                                                                                                                                                                                          |       |                        |       |                        |       |
| Property and equipment, net                                                                                                                                                                   |       | 24,548,060                  |       | 23,436,752                  |       |
| Goodwill, net                                                                                                                                                                                 |       | 11,616,225                  |       | 11,589,988                  |       |
| Trademarks and other intangibles, net                                                                                                                                                         |       | 2,799,160                   |       | 2,827,742                   |       |
| Other assets                                                                                                                                                                                  |       | 257,783                     |       | 263,539                     |       |
| Total assets                                                                                                                                                                                  |       | $                           | 65,261,042 |                        | $          | 60,690,719 |   |
|                                                                                                                                                                                          |       |                        |       |                        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                |       |                        |       |                        |       |
| Current liabilities:                                                                                                                                                                          |       |                        |       |                        |       |
| Accounts payable                                                                                                                                                                              |       | $                           | 7,629,321  |                        | $          | 6,001,136 |   |
| Line of credit                                                                                                                                                                                |       | 8,188,990                   |       | 7,452,309                   |       |
| Accrued liabilities                                                                                                                                                                           |       | 4,520,347                   |       | 4,206,078                   |       |
| Current portion of long-term debt                                                                                                                                                             |       | 1,204,080                   |       | 1,181,888                   |       |
| Current portion of accrued costs related to  brand discontinuance and other exit cost accruals                                                                                           |       | —                      |       | 97,229                      |       |
| Total current liabilities                                                                                                                                                                     |       | 21,542,738                  |       | 18,938,640                  |       |
|                                                                                                                                                                                          |       |                        |       |                        |       |
| Long-term debt, less current portion                                                                                                                                                          |       | 11,251,510                  |       | 12,445,383                  |       |
| Interest rate swaps                                                                                                                                                                           |       | 886,222                     |       | —                      |       |
| Deferred income tax liability                                                                                                                                                                 |       | 2,529,266                   |       | 1,574,727                   |       |
| Total liabilities                                                                                                                                                                             |       | 36,209,736                  |       | 32,958,750                  |       |
|                                                                                                                                                                                          |       |                        |       |                        |       |
| 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 27, 2008  and December 29, 2007                                             |       | —                      |       | —                      |       |
| Common stock, $.01 par value; 50,000,000  shares authorized; 18,232,586 and 20,186,213 shares issued and outstanding at  December 27, 2008 and December 29, 2007, respectively |       | 182,525                     |       | 201,863                     |       |
| Additional paid-in capital                                                                                                                                                                    |       | 25,740,911                  |       | 29,304,491                  |       |
| Accumulated other comprehensive income                                                                                                                                                        |       | (448,610                    | )          | —                      |       |
| Retained earnings                                                                                                                                                                             |       | 3,576,480                   |       | 1,207,189                   |       |
|                                                                                                                                                                                          |       | 29,051,306                  |       | 30,713,543                  |       |
| Less : treasury stock, at cost: -0- shares  at December 27, 2008 and 1,345,398 shares at December 29, 2007                                                                     |       | —                      |       | (2,981,574                  | )          |
| Total shareholders’ equity                                                                                                                                                               |       | 29,051,306                  |       | 27,731,969                  |       |
| Total liabilities and shareholders’ equity                                                                                                                                               |       | $                           | 65,261,042 |                        | $          | 60,690,719 |   |

 

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

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                    | ** ** | **December 27,  2008** | ** **  | **December 29,  2007** | ** ** |
|-----------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
|                                          |       |                        |        |                        |       |
| Net revenues                                  |       | $                           | 113,058,715 |                        | $          | 90,910,580 |   |
|                                          |       |                        |        |                        |       |
| Cost of revenues                              |       | 90,864,406                  |        | 75,331,567                  |       |
|                                          |       |                        |        |                        |       |
| Gross profit                                  |       | 22,194,309                  |        | 15,579,013                  |       |
|                                          |       |                        |        |                        |       |
| Selling, general and administrative  expenses |       | 16,827,692                  |        | 14,146,981                  |       |
| Impairment of intangible assets               |       | —                      |        | 2,671,372                   |       |
|                                          |       |                        |        |                        |       |
| Operating income (loss)                       |       | 5,366,617                   |        | (1,239,340                  | )          |
|                                          |       |                        |        |                        |       |
| Interest expense, net                         |       | (1,275,535                  | )           | (974,223                    | )          |
|                                          |       |                        |        |                        |       |
| Income (loss) before income tax provision     |       | 4,091,082                   |        | (2,213,563                  | )          |
|                                          |       |                        |        |                        |       |
| Income tax benefit (provision)                |       | (1,721,791                  | )           | 710,090                     |       |
|                                          |       |                        |        |                        |       |
| Net income (loss)                             |       | $                           | 2,369,291   |                        | $          | (1,503,473 | ) |
|                                          |       |                        |        |                        |       |
| Earnings (loss) per common share:             |       |                        |        |                        |       |
| Basic                                         |       | $                           | 0.13        |                        | $          | (0.08 | ) |
| Diluted                                       |       | $                           | 0.13        |                        | $          | (0.08 | ) |
|                                          |       |                        |        |                        |       |
| Weighted average number of common shares:     |       |                        |        |                        |       |
| Basic                                         |       | 18,736,331                  |        | 19,206,344                  |       |
| Diluted                                       |       | 18,736,331                  |        | 19,206,344                  |       |

 

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

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

 
| ** **                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Accumulated  Other** | ** ** | ** **                   | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                       | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Treasury**           | ** ** | ** **                   | ** ** |
| ** **                                                       | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income (Loss)** | ** ** | **Stock, at Cost** | ** ** | **Total**  | ** ** |
|                                                             |       |                  |       |        |       |           |       |              |       |                   |       |                         |       |       |       |
| 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 | )          |
| Other comprehensive loss                                         |       | —                |       | —      |       | —         |       | —            |       | —                 |       | —                       |       | —     |       |
| 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 |   |
| Net income                                                       |       |                  |       |        |       |           |       | 2,369,291         |       |                   |       |                         |       | 2,369,291  |       |
| Other comprehensive loss, net of tax                             |       |                  |       |        |       |           |       |              |       | (448,610               | )          |                         |       | (448,610   | )          |
| Comprehensive income                                             |       |                  |       |        |       |           |       |              |       |                   |       |                         |       | 1,920,681  |       |
|                                                             |       |                  |       |        |       |           |       |              |       |                   |       |                         |       |       |       |
| Restricted stock and  related compensation expense          |       | —                |       | —      |       | 31,812         |       | —            |       | —                 |       | —                       |       | 31,812     |       |
| Stock-based compensation expense                            |       | —                |       | —      |       | 260,925        |       | —            |       | —                 |       | —                       |       | 260,925    |       |
| Purchase of treasury stock, at cost                         |       | —                |       | —      |       | —         |       | —            |       | —                 |       | (894,081                     | )          | (894,081   | )          |
| Retirement of treasury stock, at cost                       |       | (1,933,827            | )          | (19,338     | )          | (3,856,317     | )          | —            |       | —                 |       | 3,875,655                    |       | —     |       |
| Balance, December 27, 2008                                  |       | 18,252,386            |       | $           | 182,525    |           | $          | 25,740,911        |       | $                      | 3,576,480  |                         | $          | (448,610   | )          | $ | — |   | $ | 29,051,306 |   |
|                                                                  |            |                       |            |             |            |                |            |                   |            |                        |            |                              |            |            |            |  |  |  |  |  |  |  |

 

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

 

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**THE INVENTURE GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                          | ** ** | **December 27,  2008** | ** ** | **December 29,  2007** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Cash flows provided by (used in) operating activities:**       | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Net income (loss)                                                                                   |       | $                           | 2,369,291  |                        | $          | (1,503,473 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities: |       |                        |       |                        |       |
| Depreciation                                                                                        |       | 2,737,526                   |       | 2,054,013                   |       |
| Amortization                                                                                        |       | 49,025                      |       | 52,273                      |       |
| Impairment of trademark                                                                             |       | —                      |       | 2,671,372                   |       |
| Provision for bad debts                                                                             |       | 83,794                      |       | 84,346                      |       |
| Deferred income taxes                                                                               |       | 1,602,186                   |       | (702,672                    | )          |
| Share-based compensation expense                                                                    |       | 260,925                     |       | 312,479                     |       |
| Restricted stock compensation expense                                                               |       | 31,812                      |       | 60,793                      |       |
| Excess tax benefit from exercise of stock  options                                                  |       | —                      |       | (5,827                      | )          |
| (Gain on sale)/loss on disposition of  equipment                                                    |       | 1,360                       |       | (2,760                      | )          |
| Change in assets and liabilities:                                                                   |       |                        |       |                        |       |
| Accounts receivable                                                                                 |       | (1,246,803                  | )          | (463,903                    | )          |
| Inventories                                                                                         |       | (2,393,928                  | )          | (2,460,997                  | )          |
| Other assets and liabilities                                                                        |       | (41,716                     | )          | (347,233                    | )          |
| Accounts payable and accrued liabilities                                                            |       | 1,914,452                   |       | (445,882                    | )          |
| Net cash provided by (used in) operating  activities                                                |       | 5,367,924                   |       | (697,471                    | )          |
| **Cash flows used in investing activities:**                                                        |       |                        |       |                        |       |
| Purchase of land, building and equipment                                                            |       | (3,850,964                  | )          | (2,494,203                  | )          |
| Purchase of Rader Farms, Inc.                                                                  |       | —                      |       | (20,938,678                 | )          |
| Proceeds from disposition of equipment                                                              |       | 770                         |       | 13,000                      |       |
| Net cash used in investing activities                                                               |       | (3,850,194                  | )          | (23,419,881                 | )          |
| **Cash flows provided by (used in) financing  activities:**                                         |       |                        |       |                        |       |
| Net borrowings (repayments) on Line of  credit                                                      |       | 736,681                     |       | 7,452,309                   |       |
| Proceeds from issuance of common stock                                                              |       | —                      |       | 77,331                      |       |
| Debt borrowings                                                                                     |       | —                      |       | 10,166,133                  |       |
| Payments made on long term debt                                                                     |       | (1,171,681                  | )          | (624,436                    | )          |
| Excess tax benefit from exercise of stock  options                                                  |       | —                      |       | 5,827                       |       |
| Treasury stock purchases                                                                            |       | (894,081                    | )          | (1,136,153                  | )          |
| Net cash provided by (used in) financing  activities                                                |       | (1,329,081                  | )          | 15,941,011                  |       |
| Net increase (decrease) in cash and cash  equivalents                                               |       | 188,649                     |       | (8,176,341                  | )          |
| Cash and cash equivalents at beginning of  year                                                     |       | 494,918                     |       | 8,671,259                   |       |
| Cash and cash equivalents at end of year                                                            |       | $                           | 683,567    |                        | $          | 494,918 |   |

 

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

 

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

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                       | ** ** | **Year Ended**         | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                       | ** ** | **December 27,  2008** | ** ** | **December 29,  2007** | ** ** |
| **Supplemental disclosure of cash flow  information:**           | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Cash paid during the period for interest                         |       | $                           | 1,134,900  |   | $ | 992,735 |   |
| Cash paid during the period for income  taxes                    |       | 8,717                       |       | — |   |
| ** **                                                       | ** ** | ** **                  | ** ** | ** ** | ** ** |
| **Supplemental disclosure of non-cash  investing transactions:** | ** ** | ** **                  | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | ** **                  | ** ** | ** ** | ** ** |
| 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.

 

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** **

**THEINVENTURE GROUP, INC. AND SUBSIDIARIES**

**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 company to acquire a potato chip manufacturingand distribution business, which had been founded by Donald and James Poore in1986.  The Company changed its name fromPoore Brothers, Inc. to The Inventure 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 manufacturingoperation and assumed all of Wabash Foods’ liabilities.  In June 2000, the Company acquiredBoulder Natural Foods, Inc. (“Boulder”) and the Boulder Canyon NaturalFoodsTM brand of totally natural potato chips.

 

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 May 2007, the Company acquired Rader Farms,Inc. including the Rader Farms® trademark and the Lynden, Washington frozenfruit processing operation, for a total cost of $20.9 million.  See Note 2 to the Consolidated FinancialStatements for additional information.

 

In October 2007, theCompany launched its BURGER KINGTM brand snack products pursuant to a licenseagreement with Burger King Corporation, which expires in 2012.

 

The Company’s fiscal year ends on the lastSaturday occurring in the month of December of each calendar year.  Accordingly, fiscal 2008 commenced December 30,2007 and ended December 27, 2008. Our fiscal year ends on the last Saturday of each December, resulting inan additional week of results every five or six years.

 

***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 and Internationally.  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 under license from BurgerKing Corporation.  The Company currently (i) manufacturesand sells its own brands of snack food products, including Poore Brothers®, Bob’sTexas Style® and Boulder Canyon Natural FoodsTM brand batch-fried potato chips, Tato Skins®brand potato snacks and O’Boises® potato snacks. (ii) manufactures privatelabel snacks for grocery and various other retail chains 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 mass merchandisers,grocery, club and drug stores directly and to primarily convenience stores andvend 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, strawberries, and other fruits froma select network of fruit growers for resale. The fruit is processed, frozen and packaged for sale and distributionnationally to wholesale customers under the Rader Farms® brand, as well asthrough store brands.

 

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***Principles of Consolidation***

 

The consolidated financial statements includethe accounts of The Inventure Group, Inc. and all of its wholly ownedsubsidiaries.  All significantintercompany 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 27,2008 and December 29, 2007, 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 27, 2008 and December 29,2007.  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 utilizesinterest rate swaps in the management of its variable interest rate exposureand does not enter into derivatives for trading purposes.  All derivatives are measured at fairvalue.  The Company’s interest rate swapsare classified as cash flow hedges.

 

***Cash and Cash Equivalents***

 

The Company considers allhighly liquid investments purchased with an original maturity of three monthsor less to be cash equivalents. 

 

***Accounts Receivable ***

 

Accounts receivableconsist primarily of receivables from customers and distributors for productspurchased.    Receivable are past duewhen they are unpaid greater than thirty days. The Company determines any required reserves by considering a number offactors, including the length of time the accounts receivable have beenoutstanding, and the Company’s loss history. The Company maintains an allowance for doubtful accounts for estimatedlosses resulting from the inability of its customers to make required payments.

 

***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 related thereto.  If actual market conditions are lessfavorable than those projected by management, additional inventory write-downsmay be required.

 

***Property and Equipment***

 

Property and equipment are recorded at cost.  Cost includes expenditures for majorimprovements and replacements. Maintenance and repairs are charged to operations when incurred.  When assets are retired or otherwise disposedof, the related costs and accumulated depreciation are removed from theappropriate accounts, and the resulting gain or loss is recognized.  Depreciation expense is computed using thestraight-line method over the estimated useful lives of the assets, rangingfrom 2 to 30 years.  We capitalizecertain computer software and software development costs incurred in connectionwith developing or obtaining computer software for internal use. Capitalizedsoftware costs are included in property, plant and equipment and amortized on astraight-line basis when placed into service over three years.

 

In accordance withFinancial Accounting Standards Board (“FASB”) Statement of Financial AccountingStandards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,”, the Company evaluates the recoverability of property andequipment not held for sale by comparing the carrying amount of the asset orgroup of assets against the estimated undiscounted future cash flows expectedto result from the use of the asset or group of assets and their eventualdisposition. If the undiscounted future cash flows are less than the carryingvalue of the asset or group of assets being evaluated, an impairment loss isrecorded. The loss is measured as the difference between the fair value andcarrying value of the asset or group of assets being evaluated. Assets to bedisposed of are reported at the lower of the carrying amount or the fair valueless cost to sell. The estimated fair value would be based on the bestinformation available under the circumstances, including prices for similarassets or the results of valuation techniques, including the present value ofexpected future cash flows using a discount rate commensurate with the risksinvolved.

 

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***IntangibleAssets***

 

Goodwill and trademarks are reviewed for impairment annually, or morefrequently if impairment indicators arise. Goodwill, by reporting unit, 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.   Amortizable intangible assetsare amortized using the straight-line method over their estimated useful lives,which is the estimated period over which economic benefits are expected to beprovided.

 

In determining that each of our trademarks has an indefinite life,management considered the factors found in paragraph 11 of SFAS No. 142.Management believes that each of our trademarks has the continued ability togenerate cash flows indefinitely. Management’s determination that ourtrademarks have indefinite lives includes an evaluation of historical cashflows and projected cash flows for each of these trademarks. In addition, thereare no legal, regulatory, contractual, economic or other factors to limit theuseful life of these trademarks, and management intends to renew each of thesetrademarks, which can be accomplished at little cost.

 

During 2007, the Company determined the carrying values of twotrademarks were impaired and recorded a $2.7 million charge.  In 2008, the Company conducted its annualreview of intangible assets and believes the carrying values are appropriate.

 

***Self-Insurance Reserves ***

 

The Company is partially self-insured for the purposes of providinghealth care benefits to employees covered by its insurance plan.  The plan covers all full-time employees ofthe Company on the first day of the month after hiring date for salariedemployees, and the first day of the month following the ninetieth day ofservice for hourly employees.  The plancovers the employee’s dependents, if elected by the employee.  The company has contracted with an insurancecarrier for stop loss coverage that comments when $75,000 in claims is paidannually for a covered participant.  Inaddition, the Company has contracted for aggregate stop loss insurance whichprovides coverage after the maximum amount paid by the Company exceedsapproximately $1.5 million.   Estimatedunpaid claims included in accrued liabilities amount to $275,877 and $321,241at December 27, 2008 and December 29, 2007 respectively.   These amounts represents management’s bestestimate of amounts that have not been paid prior to the year-end dates.  It is reasonably possible that the expensethe Company will ultimately incur could differ.

 

***Advertising and Promotional Expenses andTrade Spending****.*

 

The Company expenses production costs of advertising the first time theadvertising takes place, except for cooperative advertising costs which areexpensed when the related sales are recognized. Costs associated with obtainingshelf space (i.e., “slotting fees”) are accounted for as a reduction of revenuein the period in which such costs are incurred by the Company. Anytime theCompany offers consideration (cash or credit) as a trade advertising orpromotional allowance to a purchaser of products at any point along thedistribution chain, the amount is accrued and recorded as a reduction inrevenue when the transaction occurs. Marketing programs that deal directly with the consumer, primarilyconsisting of in-store demonstration/samples and a sponsorship with aprofessional baseball team, are recorded as a marketing expense in selling,general and administrative expenses. Further discussion of these marketingprograms is expanded upon below:

 

·    Demonstrations/Samples:   The Company willperiodically arrange in-store product demonstrations with club stores (i.e.Sam’s, Costco or BJ’s) or grocery retailers. Product demonstrations areconducted by independent third party providers designated by the various retaileror club chains. During the in-store demonstrations the consumers in the storesreceive small samples of our products, and consumers are not required topurchase our product in order to receive the sample. The cost of product usedin the demonstrations, which is insignificant, and the fee paid to theindependent third party providers who conduct the in-store demonstrations arerecorded as a sales and marketing expense in selling, general andadministrative expenses.

 

·           Sponsorship:   The Company has a sponsorship with theArizona Diamondbacks Major League Baseball team.  The sponsorship involves using the ArizonaDiamondbacks team and Company marks inside and outside of the stadium to buildawareness for the Company brands.

 

***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.  Revenue forproducts sold through our direct store delivery distributed product segment isrecognized when the product is received by the retailer.  Provisions and allowances for sales returns,promotional allowances and discounts are also recorded as a reduction ofrevenues in the Company’s consolidated financial statements.

 

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***IncomeTaxes***

 

We account forincome taxes under the asset and liability method, which requires therecognition of deferred tax assets and liabilities for the expected future taxconsequences of events that have been included in the financial statements.Under this method, deferred tax assets and liabilities are determined based onthe differences between the financial statements and tax basis of assets andliabilities using enacted tax rates in effect for the year in which thedifferences are expected to reverse. The effect of a change in tax rates ondeferred tax assets and liabilities is recognized in income in the period thatincludes the enactment date.

 

We record netdeferred tax assets to the extent we believe these assets will more likely thannot be realized. In making such determination, we consider all availablepositive and negative evidence, including future reversals of existing taxabletemporary differences, projected future taxable income, tax planning strategiesand recent financial operations.

 

In July 2006,the Financial Accounting Standards Board (“FASB”) issued FinancialInterpretation (“FIN”) 48, “Accounting for Uncertainty in Income Taxes,” whichclarifies the accounting for uncertainty in income taxes recognized in thefinancial statements in accordance with Statement of Financial AccountingStandards (“SFAS”) 109, “Accounting for Income Taxes.” FIN 48 provides that atax benefit from an uncertain tax position may be recognized when it is more likelythan not that the position will be sustained upon examination, includingresolutions of any related appeals or litigation processes, based on thetechnical merits. Income tax positions must meet a more-likely-than-notrecognition threshold at the effective date to be recognized upon the adoptionof FIN 48 and in subsequent periods. This interpretation also provides guidanceon measurement, derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. We adopted FIN 48effective January 1, 2007.

 

It is theCompany’s policy to recognize interest and penalties accrued on anyunrecognized tax benefits as a component of income tax expense. As of the dateof adoption of FIN 48, the Company did not have any accrued interest orpenalties associated with any unrecognized tax benefits, nor was any interestor penalties recorded during the years ended December 27, 2008 and December 29,2007.

 

The Company files income tax returns in the U.S. federal jurisdictionand various state jurisdictions. The Company’s U.S. federal income tax returnsfor years 2005 through 2008 remain open to examination by the Internal RevenueService. The Company’s state tax returns for years 2004 through 2008 remainopen to examination by the state.

 

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

 

The Company’s 1995 Stock Option Plan (the “1995 Plan”), as amended,provided for the issuance of options to purchase 3,500,000 shares of CommonStock. The options granted pursuant to the 1995 Plan expire over a five-yearperiod and generally vest over three years. In addition to options grantedunder the 1995 Plan, the Company also issued non-qualified options (non-planoptions) to purchase Common Stock to certain Directors and Officers which areexercisable and expire either five or ten years from date of grant. All optionsare issued at an exercise price of fair market value of the underlying commonstock on the date of grant and are non-compensatory. The 1995 Plan expired inMay 2005 with 410,518 reserved but unissued shares of Common Stock availablefor issuance under the 1995 Plan, 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 2005 Annual Meeting ofShareholders and reserved for issuance that number of shares of Common Stockdetermined by adding (a) 410,518, which is the number of reserved but unissuedshares available for issuance under the 1995 Plan, (b) 500,000, which is thenumber of additional shares approved by the stockholders on May 23, 2006 to beadded to the 2005 Plan, and (c) 500,000, which is the number of additionalshares approved by the stockholders on May 19, 2008 to be added to the 2005Plan.  If any shares of Common Stock subjectto awards granted under the 1995 Plan or the 2005 Plan are canceled, thoseshares will be available for future awards under the 2005 Plan.  The 2005 Plan expires in May 2015, and awardsgranted under the 2005 Plan may include nonqualified stock options, incentivestock options, restricted stock, restricted stock units, stock appreciationrights, performance units and stock-reference awards.  Prior to May 2008, all stock option grantshad a 5-year term. The fair value of these stock option grants is amortized toexpense over the vesting period, generally three years for employees and oneyear for the Board of Directors.  In May2008, the Company’s Board of Directors approved a 10 year term for all futurestock option grants, with vesting periods of five years and one year foremployees and Board of Director members, respectively.

 

In December 2004, the Financial Accounting Standards Board(“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123(revised 2004), “Share-Based Payment,” which requires that compensation costrelated to all share-based payment arrangements, including employee stockoptions, be recognized in the financial statements based on the fair valuemethod of accounting. In addition, SFAS No. 123R requires that excess taxbenefits related to share-based payment arrangements be classified as cashinflows from financing activities and cash outflows from operating activities.SFAS No. 123R is a revision of SFAS No. 123, “Accounting forStock-Based Compensation,” and supersedes Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations.

 

As originally permitted by SFAS 123, the Company had previously electedto apply the guidance in APB Opinion No. 25, which allowed companies touse the intrinsic value method of accounting to measure the value ofshare-based 

 

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payment transactions with employees. Based on this method, the Companyhad not previously recognized the compensation cost related to employee stockoptions in the financial statements as the stock options granted had anexercise price equal to the fair market value of the underlying common stock onthe date of grant. Effective January 1, 2006, the Company adopted theprovisions of SFAS 123R using the modified prospective application method.Accordingly, prior period amounts have not been restated. Under the modified prospectiveapplication method, the compensation cost related to the unvested stock optionsgranted prior to the adoption of SFAS No. 123R, and all new awards will berecognized in the financial statements over the requisite service period basedon the fair value of the awards.

 

During the years ended December 27, 2008 and December 29,2007, the total share-based compensation expense from restricted stockrecognized in the financial statements was $31,812 and $60,793, respectively.There were no share-based compensation costs which were capitalized. As of December 27,2008 and December 29, 2007 the total unrecognized costs related tonon-vested restricted stock awards granted was $0 and $38,810, respectively.The Company expects to recognize such costs in the financial statements over aweighted-average period of three years.

 

Total share-based compensation expense from vested options recognizedin the financial statements was $260,925 in 2008 and $312,479 in 2007 whichreduced income from operations accordingly. There were no share-basedcompensation costs which were capitalized.

 

There were no stock options exercised during the year ended December 27,2008.  The Company received $77,331 incash from the exercise of stock options during the year ended December 29,2007.  The excess tax benefit realizedfor the tax deductions from the exercise of options of the share-based paymentarrangements for the year ended December 29, 2007 was $5,827.

 

For purposes of applying SFAS 123R, the fair value of each stock optionaward that was granted prior to the effective date continues to be accountedfor in accordance with SFAS 123 except that amounts must be recognized inthe income statement. The fair value of each stock option grant was estimatedon the date of grant using the Black-Scholes option pricing model with thefollowing weighted-average assumptions for the years ended:

 
| ** **                                      | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|-------------------------------------------------|------------|-----------|------------|-----------|------------|
| Expected dividend yield                         |       | 0         | %          | 0         | %          |
| Expected volatility                             |       | 46        | %          | 47        | %          |
| Risk-free interest rate                         |       | 1% - 3    | %          | 4% - 5    | %          |
| Expected life – Employees options          |       | 3.5 years |       | 1.8 years |       |
| Expected life – Board of directors options |       | 1.4 years |       | 1.6 years |       |

 

The expected dividend yield was based on the Company’s expectation offuture dividend payouts. The volatility assumption was based on historical volatilityduring the time period that corresponds to the expected life of the option. Theexpected life (estimated period of time outstanding) of stock options grantedwas estimated based on historical exercise activity. The risk-free interestrate assumption was based on the interest rate of U.S. Treasuries on the datethe option was granted.

 

As of December 27, 2008, the amount ofunrecognized compensation expense to be recognized over the next two years, inaccordance with SFAS 123R, is approximately $0.2 million. This expectedcompensation expense does not reflect any new awards, or modifications toexisting awards, that could occur in the future. Generally, the Company issuesnew shares upon the exercise of stock options as opposed to reissuing treasuryshares.

 

***Earnings Per 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. Diluted earnings pershare is calculated by including all dilutive common shares such as stockoptions and restricted stock. The total stock options outstanding of 2,223,833and restricted shares outstanding of 35,853 were excluded from the weightedaverage per share calculation for the year ended December 27, 2008 becauseinclusion of such would be anti-dilutive. Exercises of outstanding stockoptions or warrants are assumed to occur for purposes of calculating dilutedearnings per share for periods in which their effect would not beanti-dilutive. No exercises were assumed for the years ended December 27,2008 and December 29, 2007 because they would be anti-dilutive. Earningsper common share was computed as follows for the years ended December 27,2008 and December 29, 2007:

 

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| ** **                                                                        | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Basic Earnings Per Common Share:**                                              |       |       |       |       |       |
| Net income (loss)                                                                 |       | $          | 2,369,291  |       | $          | (1,503,473 | ) |
|                                                                              |       |       |       |       |       |
| Weighted average number of common shares                                          |       | 18,736,331 |       | 19,206,344 |       |
| Earnings (loss) per common share                                                  |       | $          | 0.13       |       | $          | (0.08 | ) |
|                                                                              |       |       |       |       |       |
| **Diluted Earnings Per Common Share:**                                            |       |       |       |       |       |
| Net income (loss)                                                                 |       | $          | 2,369,291  |       | $          | (1,503,473 | ) |
|                                                                              |       |       |       |       |       |
| Weighted average number of common shares                                          |       | 18,736,331 |       | 19,206,344 |       |
| Incremental shares from assumed conversions  - Stock options and restricted stock |       | —     |       | —     |       |
| Adjusted weighted average number of common  shares                                |       | 18,736,331 |       | 19,206,344 |       |
|                                                                              |       |       |       |       |       |
| Earnings (loss) per common share                                                  |       | $          | 0.13       |       | $          | (0.08 | ) |

 

***Recent Accounting Pronouncements***

 

In June 2006, the Financial Accounting Standards Board (FASB)issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109*(FIN 48)*,* which clarifies theaccounting for uncertainty in tax positions. FIN 48 requires that the Companyrecognize in its financial statements the impact of a tax position if thatposition is more likely than not of being sustained on audit, based on thetechnical merits of the position. The provisions of FIN 48 are effective as ofthe beginning of the 2007 fiscal year, with the cumulative effect of the changein accounting principle recorded as an adjustment to opening retained earnings.The Company’s adoption of FIN 48 did not affect the financial statements.

 

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS No. 157”)*,* which clarifies the definition of fair value wheneveranother standard requires or permits assets or liabilities to be measured atfair value. Specifically, the standard clarifies that fair value should bebased on the assumptions market participants would use when pricing the assetor liability, and establishes a fair value hierarchy that prioritizes theinformation used to develop those assumptions. SFAS No. 157 also requiresexpanded financial statement disclosures about fair value measurements,including disclosure of the methods used and the effect on earnings. SFAS No. 157is effective for fiscal years beginning after November 15, 2007. Theadoption of SFAS No. 157 had no impact on the Company’s financial positionor statement of operations.

 

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities* (“SFAS No. 159”). SFAS No. 159allows entities to choose to measure eligible financial instruments at fairvalue with changes in fair value recognized in earnings of each subsequentreporting date. The fair value election is available for most financial assetsand liabilities on an instrument-by-instrument basis and is to be elected onthe date the financial instrument is initially recognized. SFAS 159 iseffective for all entities as of the beginning of a reporting entity’s firstfiscal year that begins after November 15, 2007 (with earlier applicationpermitted under certain circumstances). The adoption of SFAS No. 159 hadno impact on the Company’s financial position or statement of operations.

 

In December 2007, the FASB issuedSFAS No. 141 (revised 2007), “*BusinessCombinations*” (“SFAS No. 141(R)”), which replacesSFAS 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).

 

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In December 2007, the FASB issued Statement of FinancialAccounting Standards No. 160, *NoncontrollingInterests in Consolidated Financial Statements — an amendment ofAccounting Research Bulletin No. 51*(“SFAS 160”).SFAS 160 establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. SFAS 160 also establishes disclosure requirements that clearlyidentify and distinguish between the controlling and noncontrolling interestsand requires the separate disclosure of income attributable to controlling andnoncontrolling interests. SFAS 160 is effective for fiscal years beginningafter December 15, 2008. The Company is currently evaluating the impactthat the adoption of SFAS 160 will have on its consolidated financialstatements.

 

In March 2008, the FASB issued Statement of Financial AccountingStandards No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities — an amendment of FASBStatement No. 133*(“SFAS 161”). SFAS 161 applies toall entities and requires specified disclosures for derivative instruments andrelated hedge items accounted for under SFAS 133, *Accountingfor Derivative Instruments and Hedging Activities*.   SFAS 161 requires enhanced disclosures abouthow and why an entity uses derivative instruments, how derivative instrumentsand related hedged items are accounted for and their effect on an entity’sfinancial position, financial performance, and cash flows. SFAS 161 iseffective for fiscal years and interim periods beginning after November 15,2008.  The adoption of SFAS 161 is notexpected to have a material impact on the Company’s financial position, resultsof operations or liquidity.

 

**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.

 

Theacquisition was accounted for as a purchase pursuant to Statement of FinancialAccounting Standards No. 141, *Business Combinations*(“SFAS No. 141”), and accordingly, the operating results of Rader Farms areincluded in our consolidated financial statements from the date of acquisition.The purchase price was determined through an arms-length negotiation betweenthe parties, and has been allocated to the underlying assets based on anestimate of fair values and remaining economic lives. Adjustments have beenmade to the original purchase price allocation to adjust inventory and accountsreceivables acquired at the purchase date. The estimated amortization periodfor the intangibles acquired and valued to date in this transaction consist ofthe customer relationship amortized over 10 years and the covenant-not-to-competeamortized over 5 years. The Goodwill recognized in the transaction isessentially equivalent for both book and tax purposes.

 

The following table summarizes the fair valuefor the assets acquired and liabilities assumed at the 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 following unaudited pro-formaconsolidated results of operations for the year ended December 29, 2007 assumesthe Rader Farms acquisition occurred as of the beginning of the year. Thepro-forma results are not necessarily indicative of the actual results thatwould have occurred had the acquisition been completed as of the beginning ofthe period presented, nor is it necessarily indicative of future consolidatedresults.

 
| ** **                        | ** ** | **Year Ended**             | ** **  |
|-----------------------------------|------------|---------------------------------|-------------|
| ** **                        | ** ** | **December 29, 2007** | ** **  |
|                              |       |                            |        |
| Total revenues                    |       | $                               | 105,732,297 |   |
| Net income (loss)                 |       | $                               | (763,832    | ) |
| Basic earnings (loss) per share   |       | $                               | (0.04       | ) |
| Diluted earnings (loss) per share |       | $                               | (0.04       | ) |

 

**3.     Goodwilland Trademarks:**

 

Goodwill, trademarks and other intangibles, netconsisted of the followingas of December 27, 2008 and December 29, 2007:

 

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| ** **                                              | ** ** | **Estimated  Useful Life** | ** ** | **December 27,  2008** | ** ** | **December 29,  2007** | ** ** |
|---------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Goodwill:                                               |       |                            |       |                        |       |                        |       |
| The Inventure Group, Inc.                          |       |                            |       | $                           | 5,986,252  |                        | $          | 5,986,252 |   |
| Rader Farms, Inc.                                  |       |                            |       | 5,629,973                   |       | 5,603,736                   |       |
|                                                    |       |                            |       |                        |       |                        |       |
| Total goodwill, net                                     |       |                            |       | $                           | 11,616,225 |                        | $          | 11,589,988 |   |
|                                                    |       |                            |       |                        |       |                        |       |
| Trademarks:                                             |       |                            |       |                        |       |                        |       |
| The Inventure Group, Inc.                          |       |                            |       | $                           | 1,535,659  |                        | $          | 1,535,659 |   |
| Rader Farms, Inc.                                  |       |                            |       | 1,070,000                   |       | 1,070,000                   |       |
|                                                    |       |                            |       |                        |       |                        |       |
| Other intangibles:                                      |       |                            |       |                        |       |                        |       |
| Rader - Covenant-not-to-compete, gross  carrying amount |       | 5 years                         |       | 160,000                     |       | 160,000                     |       |
| Rader - Covenant-not-to-compete, accum.  amortization   |       |                            |       | (50,673                     | )          | (18,667                     | )          |
| Rader - Customer relationship, gross  carrying amount   |       | 10 years                        |       | 100,000                     |       | 100,000                     |       |
| Rader - Customer relationship, accum.  amortization     |       |                            |       | (15,826                     | )          | (19,250                     | )          |
|                                                    |       |                            |       |                        |       |                        |       |
| Total trademarks and other intangibles, net             |       |                            |       | $                           | 2,799,160  |                        | $          | 2,827,742 |   |

 

The weighted average useful life ofamortizable intangible assets is 6.92 years. Amortization expense for the years ending December 27, 2008 and December 29,2007 was $49,025 and $52,273, respectively. As of December 27, 2008, weexpect amortization expense on these intangible assets over the next five yearsto be as follows:

 
| 2009 |   | $ | 42,000 |   |
|------|--------|---|--------|--------|
| 2010 |   | $ | 42,000 |   |
| 2011 |   | $ | 42,000 |   |
| 2012 |   | $ | 23,327 |   |
| 2013 |   | $ | 10,000 |   |

 

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. The Company believes the carrying values of its intangibleassets are appropriate.

 

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

 

Accruedliabilities consisted of the following as of December 27, 2008 and December 29,2007:

 
| ** **                        | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|-----------------------------------|------------|-----------|------------|-----------|------------|
| Accrued payroll and payroll taxes |       | $         | 1,531,079  |      | $          | 1,385,596 |   |
| Accrued royalties and commissions |       | 679,152   |       | 561,458   |       |
| Accrued advertising and promotion |       | 669,256   |       | 1,022,639 |       |
| Accrued other                     |       | 1,640,860 |       | 1,236,385 |       |
|                              |       | $         | 4,520,347  |      | $          | 4,206,078 |   |

 

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

 

Inventoriesconsisted of the following as of December 27, 2008 and December 29,2007:

 
| ** **     | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|----------------|------------|-----------|------------|-----------|------------|
| Finished goods |       | $         | 6,133,453  |      | $          | 3,838,344 |   |
| Raw materials  |       | 7,846,073 |       | 7,747,253 |       |
|           |       | $         | 13,979,526 |      | $          | 11,585,597 |   |

 

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**6.     Property and Equipment:**

 

Property andequipment consisted of the following as of December 27, 2008 and December 29,2007:

 
| ** **                                      | ** ** | **Useful Lives** | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|-------------|------------|-------------|------------|
| Buildings and improvements                      |       | 20 – 30 years    |       | $           | 10,797,734 |        | $          | 10,799,281 |   |
| Equipment                                       |       | 7 – 15 years     |       | 23,444,317  |       | 20,402,765  |       |
| Land                                            |       | —                |       | 346,506     |       | 346,506     |       |
| Vehicles                                        |       | 5 years               |       | 117,918     |       | 268,330     |       |
| Furniture and office equipment                  |       | 2 – 5 years      |       | 4,133,450   |       | 3,174,208   |       |
|                                            |       |                  |       | 38,839,925  |       | 34,991,090  |       |
| Less accumulated depreciation and  amortization |       |                  |       | (14,291,865 | )          | (11,554,338 | )          |
|                                            |       |                  |       | $           | 24,548,060 |        | $          | 23,436,752 |   |

 

**7.     Long-Term Debt and Line of Credit:**

 

Long-term debt consisted of the following as of December 27, 2008and December 29, 2007:

 
| ** **                                                                                                                                                                                                              | ** ** | **December 27,  2008** | ** ** | **December 29,  2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Mortgage loan due monthly through July,  2012; interest at 9.03%; collateralized by land and building in  Goodyear, AZ                                                                                             |       | $                           | 1,577,093  |                        | $          | 1,633,771 |   |
| 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             |       | 2,284,909                   |       | 2,344,220                   |       |
| Equipment term loan due monthly through  May, 2104; interest at LIBOR plus 165 basis points; collateralized by  equipment at Rader Farms in Lynden, WA                                                             |       | 4,714,286                   |       | 5,571,429                   |       |
| Real Estate term loan due monthly through  July, 2017; interest at LIBOR plus 165 basis points;  fixed through a swap agreement to 4.28%; secured  by a leasehold interest in the real property in Lynden, WA |       | 3,780,919                   |       | 3,937,763                   |       |
| Vehicle term loan and other miscellaneous loans  due in various monthly installments through February, 2011; collateralized by  vehicles                                                                                |       | 88,183                      |       | 140,088                     |       |
| Office Equipment leases due June 2012                                                                                                                                                                              |       | 10,200                      |       | —                      |       |
|                                                                                                                                                                                                                    |       | 12,455,590                  |       | 13,627,271                  |       |
| Less current portion of long-term debt                                                                                                                                                                                  |       | (1,204,080                  | )          | (1,181,888                  | )          |
| Long-term debt, less current portion                                                                                                                                                                                    |       | $                           | 11,251,510 |                        | $          | 12,445,383 |   |

 

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Annual maturities of long-term debt as of December 27,2008 are as follows:

 
| **Year**   | ** ** | ** ** | ** ** |
|------------|------------|------------|------------|
| 2009       |       | $          | 1,204,082  |   |
| 2010       |       | 1,202,516  |       |
| 2011       |       | 1,216,446  |       |
| 2012       |       | 1,226,236  |       |
| 2013       |       | 1,254,188  |       |
| Thereafter |       | 6,352,123  |       |
|       |       | $          | 12,455,591 |   |

 

To fund the acquisition of Rader Farms, the Company entered into a LoanAgreement (the “Loan Agreement”) with U.S. Bank National Association (“U.S.Bank”). Each of our subsidiaries is a guarantor of the Loan Agreement, which issecured by a pledge of all of the assets of our consolidated group. Theborrowing capacity available to us under the Loan Agreement consists of notesrepresenting:

 

·                  a $15,000,000revolving line of credit maturing on June 30, 2011; $8,188,990 wasoutstanding at December 27, 2008. Based on eligible assets, the amountavailable under the line of credit was $3,042,003 at December 27, 2008. 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.  The rate at December 27, 2008 was 3.25%

·                  Equipment termloan due May 2014 noted above.

·                  Real estate termloan 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 of default(as defined 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 minimum currentratio. At December 27, 2008, 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.

 

Interest income (expense), net consisted ofthe following for the fiscal years ended December 27, 2008 and December 29,2007:

 
| ** **                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Interest expense                |       | $        | (1,275,872 | )        | $          | (1,172,989 | ) |
|                            |       |     |       |     |       |
| Interest income                 |       | 337      |       | 198,766  |       |
|                            |       |     |       |     |       |
| Interest  income (expense), net |       | $        | (1,275,535 | )        | $          | (974,223 | ) |

 

***Interest Rate Swaps***

 

Tomanage exposure to changing interest rates, the Company selectively enters intointerest rate swap agreements.  TheCompany’s interest rate swaps qualify for and are designated as cash flowhedges.  Changes in the fair value of aswap that is highly effective and that is designated and qualifies as a cashflow hedge to the extent that the hedge is effective, are recorded in othercomprehensive income (loss).

 

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%. OnSeptember 28, 2008, the Company’s first day of its fiscal fourth quarter, theCompany prospectively redesignated the hedging relationship to a cash flowhedge.   The swap has a fixed pay-rate of6.85% and a notional amount of approximately $2.3 million at December 27,2008 and expires in December, 2016.  Weevaluate the effectiveness of the hedge on a quarterly basis and at December 27,2008 the hedge is highly effective.  Theinterest rate swap had fair value of ($425,726) at December 27, 2008,which is recorded as a liability on the accompanying consolidated balancesheet.   The swap value was determined inaccordance with SFAS No. 157 using Level 2 observable inputs andapproximates the net loss that would have 

 

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beenrealized if the contract had been settled on December 27, 2008.  An unrealized loss of $138,528 was recordedas interest expense in the Company’s condensed, consolidated statement ofoperations during the three quarters ending September 27, 2008, associatedwith this swap.

 

TheCompany entered into another interest rate swap in January 2008 toeffectively convert the interest rate of the real estate term loan to a fixedrate of 4.28%.  The interest rate swap isstructured with a decreasing notional amounts to match the expected pay down ofthe debt.  The notional value of the swapat December 27, 2008 was $3.8 million. The interest rate swap is effective through December 27, 2008 andis accounted for as a cash flow hedge derivative.  We evaluate the effectiveness of the hedge ona quarterly basis and during the year ended December 27, 2008 the hedge ishighly effective.  The interest rate swaphad fair value of ($460,496) at December 27, 2008, which is recorded as aliability on the accompanying consolidated balance sheet, and was recorded in“Accumulated other comprehensive income,” all of which represents the change infair value for the year ended December 27, 2008.  This value was determined in accordance withSFAS No. 157 using Level 2 observable inputs and approximates the net lossthat would have been realized if the contract had been settled on December 27,2008.

 

**8.     Commitments and Contingencies:**

 

The Company is periodically a party to various lawsuits arising in theordinary course of business. Management believes, based on discussions withlegal counsel, that the resolution of such lawsuits, individually and in theaggregate, will not have a material adverse effect on the Company’s financialposition or results of operations. See Note 12, “Litigation”.

 

The Company leases one-half of a 200,000 square foot facility inBluffton, Indiana which is used as a distribution center. The Company enteredinto an operating 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 payments are approximately $32,500 per month. TheCompany also has entered into a service agreement expiring in December 2009with a third party for warehousing services. The service agreement includescertain minimum monthly usage commitments amounting to $1,188,000 in each of2008 and 2009.

 

The Company owns a farming, processing and storage facility located on696 acres of land in Lynden, Washington, which is leased from the UptrailsGroup LLC, owned by four members of the Rader family. One of the four, BradRader, is a current employee of the Company and two of the others, Lyle and SueRader, were the former owners of Rader Farms. This operating lease commenced onthe acquisition date and is effect until May 17, 2017. Lease payments are$43,500 per month throughout the term of the lease.

 

In addition to the Company’s facility andland leases, the Company has entered into a variety of operating leases forequipment and vehicles.  Rental expenseunder all operating leases was $2,111,242 and $1,658,886 for fiscal 2008 and2007, respectively.  Minimum futurerental commitments under non-cancelable leases as of December 27, 2008 areas follows:

 
| **Year**   | ** ** | **Operating  Leases** | ** ** |
|------------|------------|-----------------------|------------|
| 2009       |       | $                     | 1,581,000  |   |
| 2010       |       | 1,260,000             |       |
| 2011       |       | 1,027,000             |       |
| 2012       |       | 925,000               |       |
| 2013       |       | 564,000               |       |
| Thereafter |       | 1,948,000             |       |
| Total      |       | $                     | 7,305,000  |   |
|            |            |                       |            |  |  |

 

The Company licenses technology from a thirdparty in connection with the manufacture of its T.G.I. Friday’s® and TatoSkins® brand products and has a royalty-bearing, exclusive right license to usethe technology in the United States, Canada, and Mexico until such time theparties 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. However,should products substantially similar to Tato Skins® , O’Boisies® andPizzarias® 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.

 

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The Companylicenses the T.G.I. Friday’s® brand snacks trademark from TGI Friday’s Inc.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.

 

The Companylicenses the BURGER KINGTM brand snacks trademark from BURGER KINGCorporation under a license agreement witha term expiring in 2012.  Pursuant to thelicense agreement, the Company is required to make royalty payments on sales ofBURGER KINGTM brand snack products and is required toachieve certain minimum sales levels by certain dates during the contract term.

 

**9.     Shareholders’Equity:**

 

***Common Stock***

 

Approximately 4.3 million shares of outstanding Common Stock issued bythe Company are subject to “piggyback” registration rights granted by theCompany, pursuant to which such shares of Common Stock may be registered underthe Securities Act and, as a result, become freely tradable in the future.  The Company will be required to pay allexpenses relating to any such registration, other than underwriting discounts,selling commissions and stock transfer taxes applicable to the shares, and anyother fees and expenses incurred by the holder(s) of the shares(including, without limitation, legal fees and expenses) in connection with theregistration.  All or a portion of suchshares may, at the election of the holders thereof, be included in any futureregistration statement of the Company and, upon the effectiveness thereof, maybe sold in the public markets.

 

On August 1, 2005, the Company issued to its Senior Vice Presidentof Marketing 35,353 shares of restricted stock under the Company’s 2005 EquityIncentive Plan, subject to vesting in equal annual installments over threeyears.  The restricted stock was valuedat the fair market value of the Common Stock on the date of grant, and theresulting unearned compensation expense was $175,000.  During 2008 and 2007, amortization expense of$38,812 and $58,215, respectively, related to this grant is included inselling, general and administrative expenses.

 

***Preferred Stock***

 

The Company has authorized 50,000 shares of$100 par value Preferred Stock, none of which is outstanding.  The Company may issue such shares ofPreferred Stock in the future without shareholder approval.

 

***Stock Options***

 

 The Company’s 1995 Stock Option Plan (the“1995 Plan”), as amended, provided for the issuance of options to purchase3,500,000 shares of Common Stock.  Theoptions granted pursuant to the 1995 Plan expire over a five-year period andgenerally vest over three years.  Inaddition to options granted under the 1995 Plan, the Company also issuednon-qualified options (non-plan options) to purchase Common Stock to certainDirectors and Officers which are exercisable and expire either five or tenyears from date of grant.  All options areissued at an exercise price of fair market value at the date of grant and arenon-compensatory.  The 1995 Plan expiredin May 2005 with 410,518 reserved but unissued shares of Common Stock availablefor issuance under the 1995 Plan, and was replaced by the Inventure Group, Inc.2005 Equity Incentive Plan (the “2005 Plan”) as described below.

 

The 2005 Planwas approved at the Company’s 2005 Annual Meeting of Shareholders and reservedfor issuance that number of shares of Common Stock determined by adding (a)410,518, which is the number of reserved but unissued shares available forissuance under the 1995 Plan, (b) 500,000, which is the number of additionalshares approved by the stockholders on May 23, 2006 to be added to the 2005Plan, and (c) 500,000, which is the number of additional shares approved by thestockholders on May 19, 2008 to be added to the 2005 Plan.  If any shares of Common Stock subject toawards granted under the 1995 Plan or the 2005 Plan are canceled, those shareswill be available for future awards under the 2005 Plan.  The 2005 Plan expires in May 2015, and awardsgranted under the 2005 Plan may include: nonqualified stock options, incentivestock options, restricted stock, restricted stock units, stock appreciationrights, performance units and stock-reference awards..  Prior to May 2008, all stock option grantshad a 5-year term. The fair value of these stock option grants is amortized toexpense over the vesting period, generally three years for employees and oneyear for the Board of Directors.  In May2008, the Company’s Board of Directors approved a 10 year term for all futurestock option grants, with vesting periods of five years and one year foremployees and Board of Director members, respectively.  As of December 27, 2008, there were 3,032shares of Common Stock available for Awards under the 2005 Plan.

 

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During fiscal years 2007 and 2008, stock optionactivity was as follows:

 
| ** **                      | ** ** | **Plan Options**    | ** ** | **Non-Plan Options**                  | ** ** |
|---------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| 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 |   |
| Granted                         |       | 1,000,000                |       | 1.83                                       |       | — |   | — |   |
| Canceled                        |       | (418,667                 | )          | 2.66                                       |       | (45,000 | ) | 3.60 |   |
| Exercised                       |       | —                   |       | —                                     |       | — |   | — |   |
| Balance, December 27, 2008 |       | 2,223,833                |       | $                                          | 2.34       |   | — |   | $ | — |   |

 

The following table summarizes informationabout stock options outstanding and exercisable at December 27, 2008:

 
| **Range of   Exercise Prices** | ** ** | **Options  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Life  (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|-----------------------------------------------|------------|--------------------------|------------|------------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
| $ 1.59 - $1.94                           |       | 1,000,000                |       | 7.5                                                                          |       | $                                      | 1.83       |                     | —     |                                   | $          | — |   |
| $ 2.10 - $2.99                           |       | 1,126,833                |       | 2.3                                                                          |       | $                                      | 2.70       |                     | 692,167    |                                   | $          | 2.70 |   |
| $ 3.08 - $3.60                           |       | 82,000                   |       | 3.4                                                                          |       | $                                      | 3.12       |                     | 50,667     |                                   | $          | 3.12 |   |
| $ 4.20 - $5.00                           |       | 15,000                   |       | 1.6                                                                          |       | $                                      | 5.00       |                     | 15,000     |                                   | $          | 5.00 |   |
|                                          |       | 2,223,833                |       | 4.6                                                                          |       | $                                      | 2.34       |                     | 757,834    |                                   | $          | 2.77 |   |

 

The following table summarizes informationabout stock options outstanding and exercisable at December 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 below summarizes the number ofexercisable options outstanding and the weighted average exercise prices foreach 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 27, 2008 |       | 757,834                                   |       | $                                              | 2.77       |   | — |   | $ | — |   |
| December 29, 2007 |       | 264,999                                   |       | $                                              | 2.42       |   | 45,000 |   | $ | 3.60 |   |

 

The weighted average grant-date fair value of options granted duringthe years ending December 27, 2008 and December 29, 2007 was $0.53 and $0.91respectively.

 

The total intrinsic value related to stock options exercisable andoutstanding was zero as of December 27, 2008 and as of December 29,2007.  The aggregate intrinsic value isbased on the exercise price and the Company’s closing stock price of $1.60 asof December 27, 2008. and $2.05 as of December 29, 2007.

 

***Treasury Stock***

*** ***

In September 2008, the Company’s Boardof Directors approved a stock re-purchase program whereby up to $2 million ofcommon stock could be purchased from time to time at the discretion ofmanagement (the “2008 program”).  Therepurchased shares were held as treasury stock and are available for generalcorporate purposes.   The program expiresAugust 23, 2009 and the Company continues to evaluate its share repurchaseopportunities.

 

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| **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 2008 Program** | ** ** |
|--------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
|               |       |                                               |       |                                                   |       |                                                                                                              |       |                                                                                          |       |
| 9/24/08 Approved   |       |                                               |       |                                                   |       |                                                                                                              |       | $                                                                                             | 2,000,000  |   |
|               |       |                                               |       |                                                   |       |                                                                                                              |       |                                                                                          |       |
| 9/24/08 - 12/27/08 |       | 498,029                                            |       | $                                                      | 1.46       |                                                                                                              | 498,029    |                                                                                          | 498,029    |   |
| Program Remaining  |       |                                               |       |                                                   |       |                                                                                                              |       | $                                                                                             | 1,501,971  |   |
|                    |            |                                                    |            |                                                        |            |                                                                                                                   |            |                                                                                               |            |  |  |

 

In August, 2007 the Company’s Board ofDirectors approved a stock re-purchase program whereby up to $3 million ofcommon stock could be purchased from time to time at the discretion ofmanagement (the “2007 program”).    Therepurchased shares were held as treasury stock and were available for generalcorporate purposes.  On July 29,2008, the Company repurchased 90,000 shares at $1.80 per share for a total costof $162,000 from Eric J. Kuefel, the Company’s former Chief Executive Officer,on the open market through M.S. Howells & Co., a broker-dealer inwhich Mark S. Howells, a director of the Company, is a principal.  M.S. Howells & Co. received abrokerage fee of $1,800, or $0.02 per share in connection with thistransaction.  The 2007 program expired on August 23, 2008.

 

In May, 2006 the Company’s Board of Directorsapproved a stock re-purchase program whereby up to $3 million of common stockcould be purchased from time to time at the discretion of management (the “2006program”).  The 2006 program expired on February 14,2007.  The repurchased shares wereheld as treasury stock and were available for general corporate purposes.

 

A summary of common stock repurchases underthe 2006-2008 programs is set forth in the following table. All shares ofcommon stock were repurchased pursuant to open market transactions.  Common stock held in the Company’s treasuryhas been recorded at cost.

 
| **Period**              | ** ** | **Program** | ** ** | **Total Number  of Shares  Repurchased** | ** ** | **Weighted  Average  Price Paid  Per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Programs** | ** ** | **Amount  Repurchased Under  the Program** | ** ** |
|-------------------------|------------|-------------|------------|----------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
|                    |       |        |       |                                               |       |                                                   |       |                                                                                                              |       |                                                 |       |
| 9/24/08 – 12/27/08 |       | 2008        |       | 498,029                                            |       | $                                                      | 1.46       |                                                                                                              | 498,029    |                                                 | $          | 729,553 |   |
|                    |       |        |       |                                               |       |                                                   |       |                                                                                                              |       |                                                 |       |
| 12/30/07 – 8/23/08 |       | 2007        |       | 90,400                                             |       | 1.82                                                   |       | 90,400                                                                                                            |       | 164,528                                              |       |
|                    |       |        |       |                                               |       |                                                   |       |                                                                                                              |       |                                                 |       |
| 8/31/07 – 12/29/07 |       | 2007        |       | 526,658                                            |       | 2.16                                                   |       | 526,658                                                                                                           |       | 1,136,153                                            |       |
|                    |       |        |       |                                               |       |                                                   |       |                                                                                                              |       |                                                 |       |
| 8/1/06 – 11/30/06  |       | 2006        |       | 818,740                                            |       | 2.25                                                   |       | 818,740                                                                                                           |       | 1,845,421                                            |       |
|                    |       |        |       |                                               |       |                                                   |       |                                                                                                              |       |                                                 |       |
| Totals                  |       |        |       | 1,933,827                                          |       | $                                                      | 2.00       |                                                                                                              | 1,933,827  |                                                 | $          | 3,875,655 |   |

 

On December 27, 2008 the Company’s Boardof Directors approved the retirement of all treasury stock shares purchasedunder the 2006, 2007, and 2008 programs.  A total of 1,933,827 shares were retired at cost.  The Company’s treasury stock balance ofshares held as of December 27, 2008 was zero.

 

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

** **

The benefit(or provision) for income taxes consisted of the following for the years ended December 27,2008 and December 29, 2007:

 

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| ** **                                 | ** ** | **2008**   | ** ** | **2007** | ** ** |
|--------------------------------------------|------------|------------|------------|----------|------------|
| Current:                                   |       |       |       |     |       |
| Federal                                    |       | $          | 2,709      |     | $          | — |   |
| State                                      |       | (122,314   | )          | 7,418    |       |
|                                       |       | (119,605   | )          | 7,418    |       |
| Deferred:                                  |       |       |       |     |       |
| Federal                                    |       | (1,460,881 | )          | 589,143  |       |
| State                                      |       | (141,305   | )          | 113,529  |       |
|                                       |       | (1,602,186 | )          | 702,672  |       |
| Total benefit (provision) for income taxes |       | $          | (1,721,791 | )        | $          | 710,090 |   |

 

The following table provides reconciliationbetween the amount determined by applying the statutory federal income tax rateto the pretax income amount for the years ended December 27, 2008 and December 29,2007:

 
| ** **                            | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Benefit (provision) at statutory rate |       | $        | (1,390,946 | )        | $          | 752,509 |   |
| State tax benefit (provision), net    |       | (217,734 | )          | 110,664  |       |
| Nondeductible expenses and other      |       | (113,111 | )          | (153,083 | )          |
| Income tax benefit (provision)        |       | $        | (1,721,791 | )        | $          | 710,090 |   |

 

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 27,2008 and December 29, 2007:

 
| ** **                                                | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|
| **Deferred Tax Asset – current** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net operating loss carryforward                           |       | $          | 196,046    |       | $          | 664,333 |   |
| Allowance for doubtful accounts                           |       | 31,488     |       | 11,373     |       |
| Accrued liabilities                                       |       | 510,864    |       | 344,524    |       |
| Other                                                     |       | 93,381     |       | 160,119    |       |
|                                                      |       | 831,779    |       | 1,180,349  |       |
| **Deferred Tax Liability – noncurrent**              |       |       |       |       |       |
| Depreciation and amortization                             |       | (2,859,733 | )          | (1,606,117 | )          |
| AMT minimum tax credit carryforward                       |       | 31,390     |       | 31,390     |       |
| Unrealized loss on interest rate swap                     |       | 299,077    |       | —     |       |
|                                                      |       | (2,529,266 | )          | (1,574,727 | )          |
| Net deferred tax liability                                |       | $          | (1,697,487 | )          | $          | (394,378 | ) |

 

The Company has recorded a deferred tax assetof $196,046 reflecting the benefit of approximately $577,000 in loss carryforwards.  Such deferred tax assets expire between 2023and 2025. Realization of the tax benefit is dependent on generating sufficienttaxable income prior to expiration of the loss carryforwards.  Although realization is not assured,management believes it is more likely than not that all of the deferred taxasset will be realized. The amount of the deferred tax asset consideredrealizable, however, could be reduced in the near term if estimates of futuretaxable income during the carryforward period are reduced.  The Company also has an alternative minimumtax (“AMT”) credit carryforward for federal income tax purposes of $31,390 at December 27,2008.

 

Generally accepted accounting principlesrequire that a valuation allowance be established when it is more-likely-than-notthat all or a portion of a deferred tax asset will not be realized.  Changes in valuation allowances from periodto period are included in the tax provision in the period of change.  In determining whether a valuation allowanceis required, the Company takes into account all positive and negative evidencewith regard to the utilization of a deferred tax asset including our pastearnings history, expected future earnings, the character and jurisdiction ofsuch earnings, unsettled circumstances that, if unfavorably resolved, wouldadversely affect utilization of a deferred tax asset, carryback andcarryforward 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 42% under current tax rates.

 

**11.  BusinessSegments and Significant Customers:**

 

For the years ended December 27, 2008 and December 29, 2007,Costco was the only customer accounting for more than 10% of total Company netrevenue.  Costco accounted for$27,160,000 or 24% and $13,620,000 or 15%, for fiscal years 2008 and 2007,respectively.

 

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The Company’s operations consist of three reportable segments:manufactured snack products, berry products and distributed products.  The manufactured products segment producespotato chips, potato crisps and potato skins for sale primarily to snack fooddistributors and retailers.  The berryproducts segment produces frozen berries for sale primarily to groceries andmass merchandisers.  The distributedproducts segment sells snack food products manufactured by other companies tothe Company’s Arizona snack food distributors. The Company’s reportable 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 customers in Canada,the United Kingdom, Mexico, Japan, and Argentina as well, however the revenuesattributable to those customers is immaterial. All of the Company’s assets are located in the United States.  The Company does not allocate any assets tothe distributed products segment.

 
| ** **                                          | ** ** | **Percent of Net Revenues** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                                   | ** ** | **2007** | ** ** |
| Branded snack products                              |       | 59                                         | %          | 71 | % |
| Private label snack products                        |       | 4                                          | %          | 3 | % |
| Total manufactured snack products segment  revenues |       | 63                                         | %          | 74 | % |
|                                                |       |                                       |       |   |   |
| Berry products                                      |       | 34                                         | %          | 23 | % |
| Distributed products segment revenues               |       | 3                                          | %          | 3 | % |
|                                                |       |                                       |       |   |   |
| Total revenues                                      |       | 100                                        | %          | 100 | % |

 

In fiscal years 2008 and 2007, the T.G.I.Friday’s® brand snacks represented 33% and 47%, respectively, of the Company’stotal net revenues.

 

The accounting policies of the segments arethe same as those described in the Summary of Significant Accounting Policies(Note 1).  The Company does not allocateassets, selling, general and administrative expenses, income taxes or otherincome and expense to segments.

 
| ** **                                                      | ** ** | **Manufactured  Snack  Products** | ** ** | **Berry  Products** | ** ** | **Distributed  Products** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------|------------|---------------------|------------|---------------------------|------------|------------------|------------|
| **2008**                                                        | ** ** | ** **                        | ** ** | ** **          | ** ** | ** **                | ** ** | ** **       | ** ** |
| Net revenues from external customers                            |       | $                                 | 71,732,580 |                | $          | 38,404,530                |       | $                | 2,921,604  |   | $ | 113,058,715 |   |
| Depreciation and amortization included in  segment gross profit |       | 889,057                           |       | 393,285             |       | —                    |       | 1,282,342        |       |
| Segment gross profit                                            |       | 14,307,658                        |       | 7,440,169           |       | 446,482                   |       | 22,194,309       |       |
| Goodwill                                                        |       | 5,986,252                         |       | 5,629,973           |       | —                    |       | 11,616,225       |       |
| ** **                                                      | ** ** | ** **                        | ** ** | ** **          | ** ** | ** **                | ** ** | ** **       | ** ** |
| **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       |       |
|                                                                 |            |                                   |            |                     |            |                           |            |                  |            |  |  |  |  |

 

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The following table reconciles reportablesegment gross profit to the Company’s consolidated income before income taxbenefit (provision) for the years ended December 27, 2008 and December 29,2007:

 
| ** **                     | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|--------------------------------|------------|-------------|------------|-------------|------------|
| Segment gross profit           |       | $           | 22,194,309 |        | $          | 15,579,013 |   |
| Unallocated amounts:           |       |        |       |        |       |
| Operating expenses             |       | (16,827,692 | )          | (16,818,353 | )          |
| Interest income (expense), net |       | (1,275,535  | )          | (974,223    | )          |
| Income before income taxes     |       | $           | 4,091,082  |        | $          | (2,213,563 | ) |

 

**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.  Settlement discussions areongoing.

 

**13.  Related Party Transactions:**

 

The Company owns the farming operations and the processing and storagefacility located on 696 acres of land in Lynden, Washington, which is leasedfrom the Uptrails Group LLC, owned by four members of the Rader family.  One of the four, Brad Rader, is a currentemployee of the Company and two of the others, Lyle and Sue Rader, were theformer owners of Rader Farms.  Thisoperating lease commenced on the acquisition date and is effect until May 17,2017.  Lease payments are $43,500 permonth throughout the term of the lease.

 

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

 

The results for anysingle quarter are not necessarily indicative of the Company’s results for anyother quarter or the full year.  The sumof quarterly earnings (loss) per share information may not agree to the annualamount due to rounding and use of the treasury stock method of calculatingearnings (loss) per share.

 

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| **(in 000’s, except for share and  per share data)** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full Year** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| **Fiscal 2008**                                                                              |       |               |       |                |       |               |       |                |       |               |       |
| Net revenues                                                                                 |       | $                  | 26,171     |                | $          | 29,249             |       | $                   | 29,822     |               | $          | 27,817 |   | $ | 113,059 |   |
| Gross profit                                                                                 |       | 5,075              |       | 5,301               |       | 7,112              |       | 4,706               |       | 22,194             |       |
| Operating income (loss)                                                                      |       | 1,259              |       | 1,336               |       | 2,118              |       | 654                 |       | 5,367              |       |
| Net income (loss)                                                                            |       | $                  | 411        |                | $          | 723                |       | $                   | 1,103      |               | $          | 132 |   | $ | 2,369 |   |
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| Earnings (loss) per common share:                                                            |       |               |       |                |       |               |       |                |       |               |       |
| Basic                                                                                        |       | $                  | 0.02       |                | $          | 0.04               |       | $                   | 0.06       |               | $          | 0.01 |   | $ | 0.13 |   |
| Diluted                                                                                      |       | $                  | 0.02       |                | $          | 0.04               |       | $                   | 0.06       |               | $          | 0.01 |   | $ | 0.13 |   |
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| Weighted average number of common shares:                                                    |       |               |       |                |       |               |       |                |       |               |       |
| Basic                                                                                        |       | 18,810,994         |       | 18,840,415          |       | 18,750,919         |       | 18,452,948          |       | 18,736,331         |       |
| Diluted                                                                                      |       | 18,811,208         |       | 18,840,415          |       | 18,750,919         |       | 18,452,948          |       | 18,736,331         |       |

 
| **(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         |       |

 

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

 

(2) The Company recorded an impairmentcharge of $2.7 million in the fourth quarter.

 

**15.  Accounts Receivable Allowance:**

 

Changes to the allowancefor doubtful accounts during the each of the two fiscal years ended December 27,2008 are summarized below:

 
| ** **  | ** ** | **Balance at  beginning of period** | ** ** | **Charges  (Reductions) to  Expense** | ** ** | **(Write-offs)  Collections** | ** ** | **Balance at end  of period** | ** ** |
|-------------|------------|----------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------|------------|----------------------------------------------|------------|
| Fiscal 2007 |       | $                                                  | 26,452     |                                       | 84,346     |                          | (81,637    | )                                            | $          | 29,161 |   |
| Fiscal 2008 |       | $                                                  | 29,161     |                                       | 83,794     |                          | (32,215    | )                                            | $          | 80,740 |   |

 

**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.

 

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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 2008 and 2007, 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 27,2008 and December 29, 2007, three customers accounted for 30% and 26% ofaccounts receivable, respectively.

 

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** **

**EXHIBIT INDEX**

 
| 23.1   | — | Consent of Moss Adams LLP.                                                                                                                                                                                                                                |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                      |
| 23.2   | — | 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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