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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** |
|-------|------------------------------------------------------------------------------------------------------|

 

**Forthe fiscal year ended December 26, 2009**

 

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

 

**For thetransition period from                to                 **

 

**CommissionFile Number: 1-14556**

 

**THEINVENTURE GROUP, INC.**

(Exact name of registrantas specified in its charter)

 

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

 

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

**Phoenix,Arizona 85018**

(Address of principalexecutive offices) (Zip Code)

 

Registrant’s telephonenumber, including area code:  **(623)932-6200**

 

Securities registeredpursuant to Section 12(b) of the Act:

 

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

 

Securities registeredpursuant to Section 12(g) of the Act:  **None**

 

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

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes  o  No  x

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files).  Yes  o  No  o

 

Indicate by check mark if disclosure of delinquentfilers in response to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of Registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of theExchange 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 markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct).  Yes  o  No  x

 

The aggregate market value of the voting stock (CommonStock, $.01 par value) held by non-affiliates of the Registrant wasapproximately $46.5  million based uponthe closing market price on June 27, 2009, the last business day of theRegistrant’s most recently completed second fiscal quarter.

 

The number of issued and outstanding shares of CommonStock, $.01 par value, as of March 1, 2010 was 17,887,643.

 

DOCUMENTS INCORPORATED BYREFERENCE

 

Portions of the Proxy Statement for the Registrant’sAnnual Meeting of Shareholders to be held on May 20, 2010 are incorporatedby reference into Part III of this Form 10-K.

 

EXCHANGE ACT REPORTSAVAILABLE ON COMPANY WEBSITE

 

Under “SEC Filings” on the “Investors” page ofthe Company’s website located at www.inventuregroup.net, the following filingsare made available as soon as reasonably practicable after they areelectronically filed with or furnished to the Securities and ExchangeCommission (the “SEC”): the Company’s Annual Report on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, ProxyStatement on Schedule 14A related to the Company’s Annual Shareholders Meeting,and any amendments to those reports or statements filed or furnished pursuantto Section 13(a) or 15(d) of the Securities Exchange Act of1934.  You may also read and copy any materials we file with the SEC atthe SEC’s Public Reference Room at 100 F Street, NE, Washington, DC20549.  You may obtain information on the operation of the PublicReference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintainsan Internet website located at http://www.sec.gov that contains the informationwe file or furnish electronically with the SEC.

 

 

 

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**TABLE OFCONTENTS**

 
|        |   | **PART I**                                                                                                     |   |   |
|-------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|--------|
|        |   |                                                                                                                |   |   |
| Item 1.     |   | Business                                                                                                            |   | 3      |
| Item 1A.    |   | Risk Factors                                                                                                        |   | 9      |
| Item  2.    |   | Properties                                                                                                          |   | 15     |
| Item  3.    |   | Legal  Proceedings                                                                                                  |   | 15     |
|        |   |                                                                                                                |   |   |
|        |   |                                                                                                                |   |   |
|        |   | **PART II**                                                                                                    |   | 15     |
|        |   |                                                                                                                |   |   |
| Item 5.     |   | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |   | 15     |
| Item 7.     |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |   | 16     |
| Item 8.     |   | Financial  Statements and Supplementary Data                                                                        |   | 21     |
| Item 9.     |   | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |   | 21     |
| Item 9A(T). |   | Controls and  Procedures                                                                                            |   | 21     |
| Item 9B.    |   | Other Information                                                                                                   |   | 22     |
|        |   |                                                                                                                |   |   |
|        |   | **PART III**                                                                                                   |   | 22     |
|        |   |                                                                                                                |   |   |
| Item 10.    |   | Directors,  Executive Officers and Corporate Governance                                                             |   | 22     |
| Item 11.    |   | Executive  Compensation                                                                                             |   | 22     |
| Item 12.    |   | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |   | 22     |
| Item 13.    |   | Certain  Relationships and Related Transactions, and Director Independence                                          |   | 22     |
| Item 14.    |   | Principal  Accounting Fees and Services                                                                             |   | 22     |
|        |   |                                                                                                                |   |   |
|        |   | **PART IV**                                                                                                    |   | 23     |
|        |   |                                                                                                                |   |   |
| Item 15.    |   | Exhibits,  Financial Statement Schedules                                                                            |   | 23     |

 

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**CAUTIONARYSTATEMENT 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 includingthis statement for the express purpose of availing itself of the protections ofthe safe harbor with respect to all of such forward-looking statements. In thisAnnual Report on Form 10-K, the words “anticipates,” “believes,” “expects,”“intends,” “estimates,” “projects,” “will likely result,” “will continue,” “future”and similar terms and expressions identify forward-looking statements. Theforward-looking statements in this Annual Report on Form 10-K reflect theCompany’s current views with respect to future events and financialperformance. These forward-looking statements are subject to certain risks anduncertainties, including specifically the possibility that the Company willneed additional financing due to future operating losses or in order toimplement the Company’s business strategy, the possible diversion of managementresources from the day-to-day operations of the Company as a result ofstrategic acquisitions, potential difficulties resulting from the integrationof acquired businesses with the Company’s business, other acquisition-relatedrisks, lack of consumer acceptance of existing and future products, dependenceupon key license agreements, dependence upon major customers, significantcompetition, risks related to the food products industry, volatility of themarket price of the Company’s common stock, par value $.01 per share (the “CommonStock”), the possible de-listing of the Common Stock from the Nasdaq CapitalMarket if the Company fails to satisfy the applicable listing criteria(including a minimum share price) in the future and those other risks anduncertainties discussed herein, that could cause actual results to differmaterially from historical results or those anticipated.  In light ofthese 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 toconsider the specific risk factors described herein and in “Risk Factors,” andnot to place undue reliance on the forward-looking statements contained herein,which speak only as of the date hereof. The Company undertakes no obligation topublicly revise these forward-looking statements to reflect events orcircumstances that may arise after the date hereof. All subsequent written ororal forward-looking statements attributable to the Company or persons actingon its behalf are expressly qualified in their entirety by this section.

 

**Item 1.  Business**

 

**General**

 

The Inventure Group, Inc., a Delaware corporation(the “Company”), is a $120+ million leading marketer and manufacturer ofhealthy/all natural and indulgent specialty snack food brands. The Company isheadquartered in Phoenix, Arizona with plants in Arizona, Indiana andWashington.  The Company’s executive offices are located at 5050 N. 40th Street, Suite 300 Phoenix, Arizona 85018, and its telephone numberis (623) 932-6200.  Shortly after thefiling of this report, the Company will be moving its offices to 5415 East HighStreet, Suite 350, Phoenix, Arizona 85054, and its telephone number at thenew address will not change.

 

The Company was formed in 1995 as a holding company toacquire a potato chip manufacturing and distribution business, which had beenfounded by Donald and James Poore in 1986.  In December 1996, theCompany completed an initial public offering of its Common Stock.  In November 1998,the Company acquired the business and certain assets (including the Bob’s TexasStyle® potato chip brand) of Tejas Snacks, L.P. (“Tejas”), a Texas-based potatochip manufacturer.  In October 1999, the Company acquired WabashFoods, LLC (“Wabash”) including the Tato Skins®, O’Boisies®, and Pizzarias®trademarks and the Bluffton, Indiana manufacturing operation and assumed all ofWabash Foods’ liabilities.  In June 2000, the Company acquiredBoulder Natural Foods, Inc. (“Boulder”) and the Boulder CanyonTM brand of totally natural potato chips.  TheCompany changed its name from Poore Brothers, Inc. to The Inventure Group, Inc.on May 23, 2006.  In May 2007,the Company acquired Rader Farms, Inc., including a farming operation anda berry processing facility in Lynden, Washington.

 

**Products**

 

In the Company’s healthy/all natural category,products include Rader Farms® frozen berries and Boulder CanyonTM Natural Foodsbrand kettle cooked potato chips. In the Company’s indulgent specialtycategory, products include T.G.I. Friday’s® brand snacks, BURGER KING TM  brandsnack products, Poore Brothers® kettle cooked potato chips, Bob’s Texas Style®kettle cooked chips, Tato Skins® brand potato snacks and O’Boises® potatosnacks.

 

*Manufactured Snack Food Products**.*  The Company’s snack products aremanufactured at the Arizona and Indiana plants as well as some third partyplants for certain products.

 

Bluffton, Indiana Plant.  The Companyproduces T.G.I. Friday’s® brand Potato Skins snacks, BURGER KING TM brand potatosnack products, Tato Skins® brand potato snacks, O’Boises® brand potato snacksand Boulder CanyonTMNatural Foods Riceand Bean snacks, utilizing a sheeting and frying process.  All of theseare offered in several different flavors and formulations and are manufacturedat the Company-owned facility in Bluffton, Indiana, except for Mozzarella andBuffalo Snack Sticks, Hot Pepper Jack Cheese Fries, Onion Rings and FrenchToast products, which are currently produced by contract manufacturers onbehalf of the Company and sold under the T.G.I. Friday’s® and BURGER KING TM  brandnames.  The Company also produces privatelabel sheeted dough products.

 

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Goodyear, Arizona Plant.  PooreBrothers®, Bob’s Texas Style®, Boulder CanyonTM Natural Foods, and private label brandedpotato chips are produced in a variety of flavors utilizing a batch-fryingprocess at the Company-owned facility in Goodyear, Arizona.   While conventional continuous line cookingmethods may produce higher production volume, the Company believes that itsbatch-frying process is superior and produces premium potato chip products withenhanced crispness and distinctive flavor.

 

Licensed Snack Brands*. *In 2000, the Company launched its T.G.I. Friday’s®brand snacks pursuant to a license agreement with T.G.I. Friday’s Inc., whichexpires in 2014.  In 2007, the Company launched its BURGERKINGTM snack products pursuant to a license agreement with Burger KingCorporation, which expires in 2012. In  2009, the Company entered intoa license agreement with Bruce Foods Corporation which the Company expects toresult in a 2010 launch of a new line of Hot Fries snacks under the LouisianaHot Sauce brand.

 

Private Label Products.  The Companycurrently has arrangements with several grocery chains and natural stores forthe manufacture and distribution by the Company of their respective privatelabel snacks and believes that additional contract manufacturing opportunitiesexist.  While such arrangements are extremely price competitive and can beshort in duration, the Company believes that they may provide a profitableopportunity for the Company to improve the capacity utilization of itsfacilities.  The Company intends to seek additional private label andcontract manufacturing customers located near its facilities who demandsuperior product quality at a reasonable price.

 

During 2009, the Company launched a number of newitems under its existing brands such as: Boulder CanyonTM Natural Foods Sun Dried Tomato &Basil Rice & Bean, Sweet Lemon & Cracked Pepper Rice &Bean, Honey BBQ Canyon Cut, and Lemon Pepper; T.G.I. Friday’s® Spicy BuffaloSticks and Jalapeno Cheddar Potato Skins; BURGER KING TM Spicy Onionrings, Hot Fries and Cheesy Fries; and, Poore Brothers® Mole and Habanero.

 

*Berry Products**. *Rader Farms grows, processes and markets premium berryblends, raspberries, blueberries, and rhubarb and purchases marionberries,cherries, cranberries, strawberries and other fruits from a select network offruit 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. The Company also uses third party processors for certain products.  In 2009, the Company entered into a licenseagreement with Jamba Juice that expires in 2014, which the Company expects toresult in a 2010 launch of JambaTM branded blend-and-serve smoothie kits withall natural vitamin and mineral boosts and a variety of fresh-frozen, wholefruit pieces, including raspberries and blueberries from Rader Farms.

 

*Distributed  Products**.*  The Company purchases and resellsthroughout Arizona snack food products manufactured by others.  Suchproducts include pretzels, popcorn, dips and meat snacks.

 

For the fiscal years 2009 and 2008, net revenuestotaled $121.0 million and $113.1 million, respectively, and T.G.I. Friday’s®brand salted snacks represented 33% of the Company’s total net revenues in both2009 and 2008.

 

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| ** **                                            | ** ** | **Percent of Total Net Revenues** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                            | ** ** | **2009**                                              | ** ** | **2008** | ** ** |
| Branded snack and berry  products                     |       | 78                                                    | %          | 80 | % |
| Private label products                                |       | 19                                                    | %          | 17 | % |
| Total manufactured  snack and berry products revenues |       | 97                                                    | %          | 97 | % |
|                                                  |       |                                                  |       |   |   |
| Distributed products  segment revenues                |       | 3                                                     | %          | 3 | % |
|                                                  |       |                                                  |       |   |   |
| Total revenues                                        |       | 100                                                   | %          | 100 | % |

 

**Business Strategy**

 

The Company’s business strategy is to continuebuilding a diverse portfolio of high quality, competitively priced healthy/allnatural food brands (Rader Farms® and Boulder CanyonTM Natural Foods ) and indulgent specialty foodbrands (T.G.I. Friday’s®, BURGER KING TM,Poore Brothers®) with annualized target revenues between $5 million and $50million each through expansion of existing brands, licensing, acquisition anddevelopment.  The goals of our strategy are to (i) capitalize onhealthy/all natural and indulgent specialty food brand opportunities, (ii) deliverincremental category growth for retailers, (iii) provide productinnovation targeted to a defined consumer segment, (iv) complement, ratherthan compete directly against, large national competitors with leading nationalbrands, and (v) build relationships with major retailers in all channelsof distribution by providing them higher margins, excellent customer serviceand constant innovation.  The Companyplans to mitigate the financial impact of launching new products by introducingthem in small-scale test markets rather than large scale regional or nationalintroductions, and to continue to improve profit margins through increasedoperating efficiencies and manufacturing capacity utilization. The primaryelements of the Company’s long-term business strategy are as follows:

 

*Develop,Acquire or License Innovative Healthy/Natural and Indulgent**Specialty FoodBrands.*  A significant element of the Company’s business strategy is to develop,acquire or license new innovative Healthy/Natural and Indulgent Specialty foodbrands that provide strategic fit with our existing business and possess strongnational brand equity in order to expand, complement or diversify the Company’sexisting business.

 

*BroadenDistribution of Existing Brands.*   The Company plans to increase distribution andbuild the market share of its existing branded products through selected tradeactivity in various existing or new markets and channels.  Marketingefforts may include, among other things, trade advertising and promotionalprograms with distributors and retailers, in-store advertisements, in-storedisplays and limited consumer advertising, public relations and couponprograms.

 

*PursueAcquisitions.*  The Company continues to evaluate acquisition opportunities in thespecialty food area where we can use our competencies in Operations, Sales,Marketing and Distribution in order to drive revenue and profit growth.

 

*DevelopNew Products for Existing Brands.*   The Company plans to continue its innovationactivities to identify and develop (i) new line extensions for its brands,such as new flavors or products, and (ii) new food segments in which toexpand the brand’s presence.

 

*LeverageInfrastructure and Capacity.*   The Company’s Indiana, Arizona and Washingtonfacilities are currently operating at approximately 40%, 75% and 50% of theirrespective manufacturing capacities.  The Company continues to secure new manufacturing opportunities inprivate label and co-packing arrangements, as well as expand upon its own brandedproduct lines.  In addition, the Companyplans to continue capital investment in its plants and drive operatingefficiencies.

 

*ImproveProfit Margins.*  The Company plans to increase gross profit margins through increasedlong-term revenue growth, improved operating efficiencies, and higher marginnew products.  It believes that additional improvements to itsmanufactured products’ gross profit margins are possible with the achievementof the business strategies discussed above.

 

**Manufacturing**

 

The Company-owned manufacturing facility in Bluffton,Indiana includes three fryer lines that can produce an aggregate of up toapproximately 9,000 pounds per hour of T.G.I. Friday’s®, BURGER KINGTM, and Tato Skins® brand products.  The Indiana facility is currentlyoperating at approximately 40% of capacity. Recently introduced production capabilities at the Bluffton plant allowthe Company to use existing equipment to make additional snacks that areentirely different in appearance and taste from its other product lines. The Company believes this technology will help expand its product lines andfacilitate growth.  During 2010, theCompany plans to further invest in new equipment to expand and diversify itsproduction capabilities.

 

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The Company-owned manufacturing facility in Goodyear,Arizona has the capacity to produce up to approximately 2,800 pounds of potatochips per hour, including 1,860 pounds of batch-fried branded potato chips perhour and 940 pounds of continuous-fried private label potato chips perhour.  The Arizona facility is currently operating at approximately 75% ofcapacity.  During 2009, the Company spentapproximately $1.2 million in capital at the Goodyear facility in order toincrease capacity and improve efficiencies. The investment included additional high capacity kettle cookingequipment, increasing our high speed packaging machines, and installing automatedcase packing machines.  The installationwas completed by the end of the second quarter in 2009.

 

The Company-owned Radar Farms facilities in Lynden,Washington have the capacity to produce up to eight million pounds of grownberries per year.  The individually quick frozen (“IQF”) processingfacilities located at the same location have the capacity to apply the IQFprocess to forty million pounds of berries annually.  Overall, theprocessing facility is operating at 50% of capacity.    Rader Farms had an exceptional 2009 harvestalong with the rest of the industry as a result of favorable farming andweather conditions.  The Company hasinvested in new packaging equipment to accommodate the forthcoming JambaTMsmoothie launch.

 

There can be no assurance that the Company will obtainsufficient business to recoup the Company’s investments in its manufacturingfacilities or to increase the utilization rates of such facilities.

 

**Marketing and Distribution**

 

The Company sells its products nationally andinternationally through a number of channels including: Grocery, Natural, Mass,Drug, Club, Vending, Food Service, Convenience Stores and International.

 

The Company’s licensed T.G.I. Friday’s® brand snackfood products have achieved significant market presence across a number ofsales channels.  The Company attributes the success of its products inthese markets to consumer loyalty.  The Company believes this loyaltyresults from the products’ differentiated taste, texture and flavor varietywhich result from the Company’s manufacturing processes.  The Company hasretained various sales and marketing agencies with employees and officesnationwide to represent T.G.I. Friday’s® brand snacks on behalf of the Companyin the grocery and convenience store channels.  The Company’s own salesorganization, as well as brokers, sells T.G.I. Friday’s® brand snacks in themass, club and drug channels.  The Company also obtains significant saleson T.G.I. Friday’s® brand snacks in the vending channel nationwide through anindependent network of brokers and distributors.

 

The Company’s potato chip brands are distributed togrocery and other retailers directly, through brokers, and a select group ofindependent distributors in Arizona. The Company’s Boulder CanyonTM Natural Foods brand potato chip products have achieved significant market presence inColorado and in natural food stores nationwide as well as other leading groceryretailers.  Poore Brothers® brand potato chip products have achievedsignificant market presence in the southwest United States.  The Company’sBob’s Texas Style® brand potato chip products have achieved significant marketpresence in south/central Texas.  The Company selects brokers anddistributors for its branded products primarily on the basis of quality ofservice, call frequency on customers, financial capability and relationshipsthey have with all of the various channels in which we operate. The Companycurrently retains a Canadian sales and marketing agency to sell to Canadiancustomers. The Company has also retained an international broker to expandsales.

 

The Company’s distribution network throughout Arizonaincludes approximately 42 independently operated service routes.  Eachroute is operated by an independent distributor who merchandises to majorgrocery store chains in Arizona, such as Albertson’s, Basha’s, Fry’s andSafeway stores.  The Company’s independent distributors also service manysmaller independent grocery stores, club stores, and military facilitiesthroughout Arizona.  In addition to Poore Brothers® brand products, theCompany distributes throughout Arizona a wide variety of snack food itemsmanufactured by other companies, including pretzels, popcorn, dips, and meatsnacks.  

 

The Company’s marketing of its berry products isessentially performed through brokerage arrangements with whom the Company hasrelationships.   Similar to its snack business, the Company selectsbrokers 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.  The JambaTM blend and serve smoothie kits willlaunch through retail grocery distribution, as well as other channels.

 

Successful marketing of the Company’s productsdepends, in part, upon obtaining adequate shelf or freezer space for suchproducts, particularly in supermarkets, C-Stores, discount stores and the clubchannel for both snacks and berry products and vending machines forsnacks.  Frequently, the Company incurs additional marketing costs inorder to obtain additional shelf space.  Whether or not the Company willcontinue to incur such costs in the future will depend upon a number of factorsincluding, demand for the Company’s products, relative availability of shelfspace and general competitive conditions.  The Company may incursignificant shelf space, consumer marketing or other promotional costs as anecessary condition of entering into competition or maintaining market share inparticular markets or channels.  Any such costs may materially affect theCompany’s financial performance.

 

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The Company’smarketing programs are designed to increase product trial and build brandawareness in core markets.  Most of the Company’s marketing spending hastraditionally been focused on trade advertising and trade promotions designedto attract new consumers to the products at a reduced retail price.  TheCompany’s marketing programs also include selective event sponsorship designedto increase brand awareness and to provide opportunities to mass sample brandedproducts.  The Company also invests marketing dollars in brand andcategory research, coupons, customer consumer programs, Facebook, Twitter, andother social media.

 

The Company continues to focus on expanding thedistribution of our Boulder CanyonTM Natural Foods brand nationally through thenatural channel and the natural segment in the grocery channel, as well as clubstores, drug, and C-stores.  We alsocontinue to evaluate expansion opportunities overseas with the T.G.I. Friday’s®brand as well as BURGER KINGTM and Boulder CanyonTM Natural Foods brands.  BURGER KINGTM line of ready-to-eat snack chipsare already sold in over 30 countries, and plans are in place to expanddistribution to 17 new countries throughout Asia, Europe and the Middle Eastduring 2010.  The new target marketsinclude China, Singapore, Malaysia, Turkey and Scandinavia.

 

**Suppliers**

 

The principal raw materials used by the Company arepotatoes, potato flakes, wheat flour, corn, oils and berries.  The Companybelieves that the raw materials it needs to produce its products are readilyavailable from numerous suppliers on commercially reasonable terms. Potatoes, potato flakes and corn are widely available year-round, although theyare subject to seasonal price fluctuations.  The Company uses a variety ofoils and seasonings in the production of its snack products and believes thatalternative sources for such oils and seasonings, as well as alternative oilsand seasonings, are readily abundant and available.  The Company may lockin prices for raw materials, such as oils, as it deems appropriate. Although the Company produces many of its berry products in its own farms, italso augments that production by purchasing additional berries to meet customerdemands.  The Company purchases bothfresh berries from local farmers and already frozen berries for its repackagingbusiness.   The Company uses packagingmaterials in its snack manufacturing and berry distribution business.

 

The Company chooses its suppliers based primarily onprice, availability, service and quality.  Although the Company believesthat its required products and ingredients are readily available, and that itsbusiness success is not dependent on any single supplier, the failure ofcertain suppliers to meet the Company’s performance specifications, qualitystandards or delivery schedules could have a material adverse effect on theCompany’s operations.  In particular, a sudden scarcity, a substantialprice increase, or an unavailability of product ingredients could materiallyadversely affect the Company’s operations.  There can be no assurance thatalternative ingredients would be available when needed and on commerciallyattractive terms, if at all.

 

**Customers**

 

Costco accounted for 23% and 24% of the Company’s 2009and 2008 net revenues, respectively.** **The remainder of the Company’srevenues was derived from sales to a number of additional customers, eithergrocery chains, club stores or regional distributors, none of whichindividually accounted for more than 10% of the Company’s net revenues in2009.  A decision by any of the Company’s major customers to cease orsubstantially reduce their purchases could have a material adverse effect onthe Company’s business.

 

The majority of the Company’s revenues areattributable to external customers in the United States.  The Company doessell to Canadian and international customers as well, however, the revenuesattributable to these customers are immaterial.  All of the Company’sassets are located in the United States.

 

**Competition**

 

The Company’s snack products generally compete againstother snack foods, including potato chips and tortilla chips.  The snackfood industry is large and highly competitive and is dominated by large foodcompanies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc.,Procter and Gamble and General Mills.  These companies possesssubstantially greater financial, production, marketing, distribution and otherresources than the Company, and their brands are more widely recognized thanthe Company’s products.  Numerous other companies that are actual orpotential competitors of the Company offer products similar to the Company’s,and some of these have greater financial and other resources (including moreemployees and more extensive facilities) than the Company.  In addition,many competitors offer a wider range of products than offered by theCompany.  Local or regional markets often have significant smallercompetitors, many of whom offer products similar to those of the Company. Expansion of the Company’s operations into new markets has and will continue toencounter significant competition from national, regional and local competitorsthat may be greater than that encountered by the Company in its existingmarkets.  In addition, such competitors may challenge the Company’sposition in its existing markets.  While the Company believes that it hasinnovative products and methods of operation that will enable it to competesuccessfully, there can be no assurance of its ability to do so.

 

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The Company’s berry products generally compete againstother packaged berries on the basis of quality and price.  Key competitorsinclude Townsend Farms, Sunopta, and Dole. 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 themarkets of the Company’s products include product quality and taste, brandawareness among consumers, access to shelf or freezer space, price, advertisingand promotion, varieties offered, nutritional content, product packaging andpackage design.  The Company competes in its markets principally on thebasis of product quality and taste.  While products produced at theCompany’s Bluffton, Indiana facility involve the use of certain licensedtechnology and unique manufacturing processes, the taste and quality ofproducts produced at the Company’s Goodyear, Arizona facility are largely dueto two elements of the Company’s manufacturing process: its use of batch-fryingand its use of distinctive seasonings to produce a variety of flavors. The Company does not have exclusive rights to the use of either element;consequently, competitors may incorporate such elements into their ownprocesses.

 

**Government Regulation**

 

The manufacture, labeling and distribution of theCompany’s products are subject to the rules and regulations of variousfederal, state and local health agencies, including the Food & DrugAdministration (“FDA”).  In May 1994, regulations issued under theNutrition Labeling and Education Act of 1990 (“NLEA”), which requires specifiednutritional information to be disclosed on all packaged foods, concerninglabeling of food products, including permissible use of nutritional claims suchas “fat-free” and “low-fat” became effective.  The Company believes thatit is complying in all material respects with the NLEA regulations and closelymonitors the fat content of its snack products through various testing andquality control procedures.  The Company does not believe that compliancewith the NLEA regulations materially increases the Company’s manufacturingcosts.

 

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.  While there are four parts to the Act, onlytwo of the provisions impact the Company.  One requirement for the Companywas registration 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 pertaining to the Company relates to recordretention.  The Company is required to retain records pertaining to itsraw materials’ immediate previous sources (“one back”) as well as its finishedgoods’ subsequent recipients (“one up”) for twelve months.  The Act waseffective January 1, 2005, and the Company believes it is currentlycompliant with this provision.

 

On July 11, 2003, the FDA published its final rule onTrans Fat Labeling requiring that food labels declare trans fats on or before January 1,2006.  This rule requires that trans fat be declared on a separateline in the standard Nutrition Facts below total fat and saturated fat and becalculated to the nearest 0.5 grams, unless it is less than 0.5 grams in whichcase it may be expressed as 0 grams.  TheCompany believes it is currently compliant with these requirements.

 

There can be no assurance that new laws or regulationswill not be passed that could require the Company to alter the taste orcomposition of its products or impose other obligations on the Company. Such changes could affect sales of the Company’s products and have a materialadverse effect on the Company.

 

In addition to laws relating to food products, theCompany’s operations are governed by laws relating to environmental matters,workplace safety and worker health, principally the Occupational Safety andHealth Act.  The Company believes that it presently complies in allmaterial respects with such laws and regulations.

 

**Employees**

 

As of December 26, 2009, the Company had 372total employees, all full-time, including 311 in manufacturing anddistribution, 26 in sales and marketing and 35 in administration and finance.** **The Company’semployees are not represented by any collective bargaining organization and theCompany has never experienced a work stoppage.  The Company believes thatits relations with its 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®brand potato crisps and Boulder CanyonTM Natural Foods  Rice and Bean snacksutilizing a sheeting and frying process that includes technology that theCompany licenses from a third party.  Pursuant to the license agreementbetween the Company and the third party, the Company has a royalty-bearing,exclusive right license to use the technology in the United States, Canada, andMexico until such time the parties mutually agree to terminate the agreementand provide written sixty (60) days notice to each other.  Even though thepatents for this technology expired December 26, 2006, in consideration for theuse of this technology, the Company is required to make royalty payments onsales of products manufactured utilizing the technology until such terminationdate.  However, should products substantially similar to Tato Skins®, O’Boisies®and Pizzarias® become available for any reason in the marketplace by anymanufacturer other than the Company which results in a sales decline of 10% ormore, any royalty obligation for the respective product(s) shall cease.

 

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TheCompany owns the following trademarks in the United States: Poore Brothers®,Rader Farms®, Intensely Different®, Texas Style®, Boulder Canyon®, Canyon Cut®,Tato Skins®, O’Boisies®, Pizzarias®, and Braids®.  The Company considersits trademarks to be of significant importance in the Company’s business. The Company is not aware of any circumstances that would have a materialadverse effect on the Company’s ability to use its trademarks.  From timeto time, the Company enters into licenses with owners of distinctive brands toproduce branded snack food products.  Generally, the licenses require theCompany to make royalty payments on sales and to achieve certain minimum saleslevels by certain dates during the contract term.  Any termination of anyof the Company’s license agreements, whether at the expiration of its term orprior thereto, could have a material adverse effect on the Company’s financialcondition and results of operations.

 

**Seasonality**

 

The food products industry is seasonal.  Consumerstend to purchase our snack products at higher levels during the major summerholidays and also at times surrounding major sporting events throughout theyear.  Consumers also tend to purchase fresh berries while in season andtherefore we see a decline in frozen berry revenue in the summer months.  Additionally, we may face seasonal priceincreases for raw materials.

 

**Item 1A.  Risk Factors**

 

In addition to the other information in this report,any one of the following factors could materially adversely affect ourbusiness, financial condition or operating results.  You should read andcarefully consider these risk factors, and the entirety of this report, beforeyou invest in our securities.

 

**Risks Related to Our Business**

 

*We may incur significant futureexpenses due to the implementation of our business strategy.*

 

The Company is striving to achieve its long-termvision of being a leading marketer and manufacturer of healthy/all natural andindulgent specialty snack food brands.  Such action is subject to thesubstantial risks, expenses and difficulties frequently encountered in theimplementation of a business strategy.  Even if the Company is successfulin 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 or 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 theadditional financing we need to implement our business strategy.*

 

A significant element of the Company’s businessstrategy is the development, acquisition and/or licensing of innovativespecialty food brands, for the purpose of expanding, complementing and/ordiversifying the Company’s business. In connection with each of the Company’sprevious acquisitions, the Company borrowed funds or assumed additionalindebtedness in order to satisfy a substantial portion of the considerationrequired to be paid by the Company.  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 be no assurance that any suchrequired financing will be available or, if available, be on terms attractiveto the Company.  Any third party financing obtained by the Company mayresult in dilution of the equity interests of the Company’s shareholders.

 

*We expect some of our future growthto be derived in part, from acquisitions, but our acquisition strategy may notbe successful, or we may not be successful integrating acquisitions.*

 

An element of the Company’s business strategy is thepursuit of selected strategic acquisition opportunities for the purpose ofexpanding, complementing and/or diversifying the Company’s business. However, no assurance can be given that the Company will be able toidentify, finance and complete additional suitable acquisitions on acceptableterms, or that future acquisitions, if completed, will be successful.  Anyfuture acquisitions could divert management’s attention from the dailyoperations of the Company and otherwise require additional management,operational and financial resources.  Moreover, there can be no assurancethat the Company will be able to successfully integrate acquired companies ortheir management teams into the Company's operating structure, retainmanagement teams of acquired companies on a long-term basis, or operateacquired companies profitably. Acquisitions may also involve a number of otherrisks, including adverse short-term effects on the Company's operating results,dependence on retaining key personnel and customers, and risks associated withunanticipated liabilities or contingencies.

 

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*We are subject to ongoing financialcovenants under our main credit facility, and if we fail to meet thosecovenants or otherwise default on our credit facility, our lender mayaccelerate our borrowings.*

 

At December 26, 2009, the Company had outstandingindebtedness in the aggregate principal amount of $21.1 million.

 

Our credit agreement with U.S. Bank NationalAssociation (“U.S. Bank”) is secured by substantially all assets of theCompany.  The Company’s obligations under the Credit Agreement areguaranteed by each of its subsidiaries.  The Company is required to complywith certain financial covenants pursuant to the U.S. Bank Credit Agreement solong as borrowings from U.S. Bank remain outstanding.  Should the Companybe in default under any of such covenants, U.S. Bank shall have the right, uponwritten notice and after the expiration of any applicable period during whichsuch default may be cured, to demand immediate payment of all of the thenunpaid principal and accrued but unpaid interest under the CreditAgreement.  At December 26, 2009, the Company was in compliance withall covenants of the Credit Agreement.

 

As the Company implements its business strategy, therecan be no assurance that the Company will remain in compliance with thefinancial covenants in the future. Any acceleration of the borrowings under theCredit Agreement prior to the applicable maturity dates could have a materialadverse effect upon the Company. See “*Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Liquidity and Capital Resources*.”

 

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

 

The Company plans to expand sales to Canadiancustomers and is exploring other international market opportunities for itsbrands.  Such expansion may require significant management attention andfinancial resources and may not produce desired levels of revenue. International business is subject to inherent risks, including longer accountsreceivable collection cycles, difficulties in managing operations acrossdisparate geographical areas, difficulties enforcing agreements andintellectual property rights, fluctuations in local economic, market andpolitical conditions, compliance requirements with U.S. and foreign exportregulations, potential adverse tax consequences and currency exchange ratefluctuations.

 

*We 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*.

 

As a manufacturer and marketer of food products, theCompany may be subjected to various product liability claims.  There canbe no assurance that the product liability and product recall 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 fullycovered by insurance, as well as any adverse publicity from a product liabilityclaim or product recall, could have a material adverse effect on the financialcondition or results of operations of the 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 numerousfederal, state and local governmental regulations, including those relating tothe preparation, labeling and marketing of food products.  The Company isparticularly affected by the Nutrition Labeling and Education Act of 1990 (“NLEA”),which requires specified nutritional information to be disclosed on allpackaged foods.  Additionally, as adirect result of the September 11, 2001 terrorism attack, the FDA issuedthe Bioterrorism Act of 2002 (“the Act”) to protect the U.S. food supply. While there are four parts to the Act, only two of the provisions impact theCompany.  One requirement that applied to the Company was registrationwith the FDA as a U.S. Food Manufacturing Company, which the Company completedprior to the required date of December 12, 2003.  The second of theAct’s provisions pertaining to 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.

 

On July 11, 2003, the FDA published its final rule onTrans Fat Labeling requiring that food labels declare trans fats on or before January 1,2006.  This rule requires that trans fat be declared on a separateline in the standard Nutrition Facts below total fat and saturated fat and becalculated to the nearest 0.5 grams, unless it is less than 0.5 grams in whichcase it may be expressed as 0 grams.

 

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We cannot assure you that we will not face fines orpenalties if our efforts to comply with these regulations are determined to beinadequate.

 

*Newly adopted governmentalregulations could increase our costs or liabilities or impact the sale of ourproducts.*

 

The food industry is highly regulated.  We cannotassure you that new laws or regulations will not be passed that could requirethe Company to alter the taste or composition of its products or impose otherobligations 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 thetechnology we 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 inconnection with the manufacture of its T.G.I. Friday’s®, BURGER KINGTM and Tato Skins®brand products 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.  Eventhough the patents for this technology expired December 26, 2006, 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.   Since these patents expired, we no longerhave exclusive rights to this technology and, as a result, may face additionalcompetition that could adversely affect our revenues.  Moreover,competitors of the Company, 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 suchproducts into the marketplace could have a material adverse effect on theCompany’s sales of T.G.I. Friday’s®, BURGER KING TM  and TatoSkins® brand products, as well as any such future products.

 

*The majority of our revenues arederived from a limited number of food brands.*

 

The Company derives a substantial portion of its revenuefrom a limited number of snack food brands.  For the year ended December 26,2009, 74% of the Company’s net revenues were attributable to the T.G.I. Friday’s®brand products, the Boulder Canyontm Natural Foods brand products and Rader Farms®brand products.  A decrease in the popularity of these brands during anyyear could have a material adverse effect on the Company’s business, financialcondition and results of operations.  There can be no assurance that anyof the Company’s food brands will retain their historical levels of popularityor increase in popularity.  Any impact to a licensed brand’s reputationcould also lead to an impact on the Company’s other snack food productsassociated with that brand.  Decreased sales from any one of our key foodbrands without a corresponding increase in sales from other existing or newlyintroduced products would have a material adverse effect on the Company’sfinancial condition and results of operations.

 

*We depend on a license agreement forthe right to sell our T.G.I. Friday’s® brand.*

 

For the year ended December 26, 2009, 33% of theCompany’s net revenues were attributable to the T.G.I. Friday’s® brandproducts, which are manufactured and sold by the Company pursuant to a licenseagreement by and between the Company and T.G.I. Friday’s Inc. that expires in2014.  Pursuant to the license agreement, the Company is subject tovarious requirements and conditions (including, without limitation, minimumsales targets).  The failure of the Company to comply with certain of suchrequirements and conditions could result in the early termination of thelicense agreement by T.G.I. Friday’s Inc.  Any termination of the T.G.I.Friday’s license agreement, whether at the expiration of its term or priorthereto, could have a material adverse effect on the Company’s financialcondition and results of operations.

 

*The loss of one of our majorcustomers could have a material adverse effect on our business*.

 

Costco accounted for 23% of the Company’s 2009 netrevenues, with the remainder of the Company’s net revenues being derived fromsales to a number of additional customers, either grocery chains or regionaldistributors, none of which individually accounted for more than 10% of theCompany’s revenues for 2009.  A decision by any major customer to cease orsubstantially reduce its purchases could have a material adverse effect on theCompany’s business.

 

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*The loss of certain key employeescould adversely affect our business*.

 

The Company’s success is dependent in large part uponthe abilities of its executive officers, including Terry McDaniel, ChiefExecutive Officer and Steve Weinberger, Chief Financial Officer.  TheCompany’s business strategy will challenge its executive officers, and theinability of such officers to perform their duties or the inability of theCompany 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 competesuccessfully in our highly competitive industry.*

 

The market for snack foods, such as those sold by us,including potato chips and meat snacks, is large and intensely competitive.Competitive factors in the snack food industry include product quality andtaste, brand awareness among consumers, access to supermarket shelf space,price, advertising and promotion, variety of snacks offered, nutritionalcontent, product packaging and package design. The Company competes in thatmarket principally on the basis of product taste and quality.

 

The snack food industry is dominated by large foodcompanies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc.,Procter and Gamble, General Mills and others which have substantially greaterfinancial and other resources than the Company and sell brands that are morewidely recognized than are the Company’s products. Numerous other companiesthat are actual or potential competitors of the Company, many with greaterfinancial and other resources (including more employees and more extensivefacilities) than the Company, offer products similar to those of the Company.In addition, many of such competitors offer a wider range of products than thatoffered by the Company. Local or regional markets often have significantsmaller competitors, many of whom offer products similar to those of theCompany. With expansion of Company operations into new markets, the Company hasand will continue to encounter significant competition from national, regionaland local competitors that may be greater than that encountered by the Companyin its existing markets. In addition, such competitors may challenge theCompany’s position in its existing markets. There can be no assurance of theCompany’s ability to compete successfully.

 

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

 

The Company’s manufacturing costs are subject tofluctuations in the prices of potatoes, potato flakes, wheat flour, corn andoil as well as other ingredients of the Company’s products.  Potatoes,potato flakes, wheat flour and corn are widely available year-round, and the Companyuses a variety of oils in the production of its products.  Nonetheless,the Company is dependent on its suppliers to provide the Company with productsand ingredients in adequate supply and on a timely basis.  The failure ofcertain suppliers to meet the Company’s performance specifications, qualitystandards or delivery schedules could have a material adverse effect on theCompany’s operations.  In particular, a sudden scarcity, a substantialprice increase, or an unavailability of product ingredients could materiallyadversely affect the Company’s operations.  There can be no assurancethat alternative ingredients would be available when needed and on commerciallyattractive terms, if at all.  From timeto time, the Company may lock in prices for raw materials, such as oils, as itdeems appropriate, and such strategies may result in the Company paying pricesfor raw materials that are above market at the time of purchase.

 

*We may incur substantial costs inorder to market our snacks.*

 

Successful marketing of snack products generallydepends upon obtaining adequate retail shelf space for product display,particularly in supermarkets. Frequently, food manufacturers and distributors,such as the Company, incur additional costs in order to obtain additional shelfspace. Whether or not the Company incurs such costs in a particular market isdependent upon a number of factors, including demand for the Company’sproducts, relative availability of shelf space and general competitiveconditions. The Company may incur significant shelf space or other promotionalcosts as a necessary condition of entering into competition or maintainingmarket share in particular markets or stores. If incurred, such costs maymaterially affect the Company’s financial performance.

 

*Our business may be adverselyaffected by oversupply of snack products at the wholesale and retail levels andseasonal fluctuations.*

 

Profitability in the food product industry is subjectto oversupply of certain snack products at the wholesale and retail levels,which can result in our products going out of date before they are sold. The snack products industry is also seasonal.  Consumers tend to purchaseour products at higher levels during the major summer holidays and also attimes surrounding the major sporting events throughout the year.

 

*We may not be able to respondsuccessfully to shifting consumer tastes.*

 

Consumer preferences for snack foods are continuallychanging and are extremely difficult to predict.  The ability of theCompany to generate revenues in new markets will depend upon customeracceptance of the Company’s products.  The success of new products will bekey to the success of the Company’s business plan and there can be no assurancethat the Company will succeed in the development of any new products or thatany new products developed by the Company will achieve market acceptance orgenerate meaningful revenue for the Company.

 

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**Risks Related to the Rader FarmsBusiness**

 

*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 that generally relate to the agricultural industry.Change in weather conditions and natural disasters, such as earthquakes,droughts, extreme cold or pestilence, may affect the planting, growing anddelivery of crops, reduce sales stock, interrupt distribution, and have amaterial adverse impact on our business, financial condition and results ofoperations. Our competitors may be affected differently by such weatherconditions and natural disasters depending on the location of their supplies oroperations.

 

*Revenuesare derived from one brand; the loss or impairment of this brand may have amaterial adverse effect on operating results*.

 

Rader Farms derives the majority of its revenue fromthe sales of one brand. The Company’s net revenues are predominantlyattributable 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 retainits historical level of popularity or increase in popularity. Decreased salesfrom the Rader Farms® brand of frozen berries would have a material adverseeffect on the Company’s financial condition and results of operations.

 

*Unavailability of purchased berries,at reasonable prices, could materially adversely affect our operations.*

 

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 and productrecall insurance maintained by the Company will be adequate to cover any lossor exposure for product liability, or that such insurance will continue to beavailable on terms acceptable to the Company. Any product liability claim notfully covered by insurance, as well as any adverse publicity from a productliability claim or product recall, could have a material adverse effect on thefinancial condition or results of operations of the Company.

 

**Risks Related to Our Securities**

 

*The market price of our Common Stockis volatile.*

 

The market price of our Common Stock has experienced ahigh level of volatility since the completion of the Company’s initial publicoffering in December 1996.  Commencing with an offering price of$3.50 per share in the initial public offering, the market price of the CommonStock experienced a substantial decline, reaching a low of $0.50 per share(based on last reported sale price of the Common Stock on the Nasdaq CapitalMarket) on December 22, 1998.  During fiscal 2009, the market priceof the Common Stock (based on last reported sale price of the Common Stock onthe Nasdaq Capital Market) ranged from a high of $3.03 per share to a low of$1.17 per share.  The last reported sales price of the Common Stock on theNasdaq Capital Market on December 26, 2009 was $2.32 per share. There canbe no assurance as to the future market price of the Common Stock.  See “*Our Common Stock may not continue to trade at amarket price sufficient to prevent our de-listing from the NASDAQ CapitalMarket.*”

 

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

 

In order for the Company’s Common Stock to continue tobe listed on the Nasdaq Capital Market, the Company is required to be incompliance with certain continued listing standards.  One of suchrequirements is that the bid price of listed securities be equal to or greaterthan $1.00.  If, in the future, the Company’s Common Stock fails to be incompliance with the minimum closing bid price requirement for at least thirtyconsecutive trading days or the Company fails to be in compliance with anyother Nasdaq continued listing requirements, then the Common Stock could bede-listed from the Nasdaq Capital Market.  Upon any such de-listing,trading, if any, in the Common Stock would thereafter be conducted in theover-the-counter market on the so-called “pink sheets” or the “ElectronicBulletin Board” of the National Association of Securities Dealers, Inc. (“NASD”). As a consequence of any such de-listing, an investor could find it moredifficult to dispose of, or to obtain accurate quotations as to the price of,the Company’s Common Stock.  See “*The market price of our Common Stock is volatile.*”

 

*A significant amount of our CommonStock is controlled by a small number of shareholders, and the interests ofsuch  shareholders may conflict withthose of other shareholders.*

 

As of December 26,2009, Capital Foods, LLC, an affiliate of our Chairman Larry Polhill (“CapitalFoods”), beneficially owned 23.7% of the Company’s outstanding shares, andHeartland Advisors, Inc. (“Heartland”) beneficially owned 19.8% of theCompany’s outstanding shares.  Capital Foods and Heartland are hereinafterreferred to collectively as the “Significant Shareholders.”  There can beno assurance that one or more of the Significant Shareholders will not adopt orsupport a plan to undertake a material change in the management or business ofthe Company.

 

Apart from transfer restrictions arising underapplicable provisions of the securities laws, there are no restrictions on theability of the Significant Shareholders to transfer any or all of theirrespective shares of Common Stock at any time.  One or more of such transferscould have the effect of transferring effective control of the Company,including to one or more parties not currently known to the Company.

 

*A significant amount of our CommonStock is subject to registration rights, and the registration and sale of suchshares could negatively affect the market price of our Common Stock and impairour ability to obtain financing.*

 

Approximately 4.3 million shares of outstanding CommonStock issued by the Company are subject to “piggyback” registration rightsgranted by the Company, pursuant to which such shares of Common Stock may beregistered under the Securities Act and, as a result, become freely tradable inthe future.  The Company will be required to pay all expenses relating toany such registration, other than underwriting discounts, selling commissionsand stock transfer taxes applicable to the shares, and any other fees andexpenses incurred by the holder(s) of the shares (including, withoutlimitation, legal fees and expenses) in connection with the registration. All or a portion of such shares may, at the election of the holders thereof, beincluded in a future registration statement of the Company and, upon theeffectiveness thereof, may be sold in the public markets.

 

No prediction can be made as to the effect, if any,that future sales of shares of Common Stock will have on the market price ofthe Common Stock prevailing from time to time.  Sales of substantialamounts of Common Stock, or the perception that these sales could occur, couldadversely affect prevailing market prices for the Common Stock and could impairthe ability of the Company to raise additional capital through the sale of itsequity securities or through debt financing.

 

*Our Certificate of Incorporationauthorizes us to issue preferred stock, and the rights of holders of CommonStock may be adversely affected by the rights of holders of any such preferredstock*.

 

The Company’s Certificate of Incorporation authorizesthe issuance of up to 50,000 shares of “blank check” preferred stock with suchdesignations, rights and preferences as may be determined from time to time bythe Board of Directors of the Company.  The Company may issue such sharesof preferred stock in the future without shareholder approval.  The rightsof the holders of Common Stock will be subject to, and may be adverselyaffected by, the rights of the holders of any preferred stock that may beissued in the future.  The issuance of preferred stock, while providingdesirable flexibility in connection with possible acquisitions and othercorporate purposes, could have the effect of discouraging, delaying orpreventing a change of control of the Company, and preventing holders of CommonStock from realizing a premium on their shares.  In addition, under Section 203of the Delaware General Corporation Law (the “DGCL”), the Company is prohibitedfrom engaging in any business combination (as defined in the DGCL) with anyinterested shareholder (as defined in the DGCL) unless certain conditions aremet.  This statutory provision could also have an anti-takeover effect.

 

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**Item2.  Properties**

 

The Company owns a 140,000 square foot manufacturingfacility located on 15 acres of land in Bluffton, Indiana, approximately 20miles south of Ft. Wayne, Indiana.  The facility is financed by a mortgagewith U.S. Bank National Association that matures in December, 2016.  TheCompany produces its T.G.I. Friday’s® brand snacks, BURGER KING TM brand snacksand Tato Skins® brand potato snacks at the Bluffton, Indiana facility.

 

The Company owns a 60,000 square foot manufacturingfacility located on 7.7 acres of land in Goodyear, Arizona, approximately 15 mileswest of Phoenix, Arizona.  The facility is financed by a mortgage withMorgan Guaranty Trust Company of New York that matures in June 2012. The Company produces its Poore Brothers®, Bob’s Texas Style® and Boulder CanyonTM Natural Foods brand potato chips, as well as its private label potato chips, at theGoodyear, Arizona facility.

 

The Company owns a farming, 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 current employee of the Company and two ofthe others, Lyle and Sue Rader, were the former owners of Rader Farms. This lease commenced on the acquisition date and is effect until May 17,2017.  Lease payments are $43,500 per month throughout the term of thelease.

 

The Company also leases one-half of a 200,000 squarefoot facility in Bluffton, Indiana which is used as a distributioncenter.  The Company has entered into a lease, the initial term expiringin November 2006, with respect to the facility and has entered into the secondof two three-year renewal options.  Current lease payments areapproximately $32,500 per month.

 

The Company also leases approximately 15,500 squarefeet of warehouse space in Phoenix, Arizona, which is used as a distributioncenter.  The lease expires March 31,2013 and current lease payments are approximately $7,700 per month.

 

The Company is responsible for all insurance costs,utilities and real estate taxes in connection with its facilities. The Companybelieves that its facilities are adequately covered by insurance.

 

**Item3.  Legal Proceedings**

 

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

 

The Company was one of eight companies sued by theEnvironmental Law Foundation in August, 2006 in the Superior Court for theState of California for the County of Los Angeles by the Attorney General ofthe State of California for alleged violations of California Proposition 65.  California Proposition 65 is a state lawthat, in part, requires companies to warn California residents if a productcontains chemicals listed within the statute. The matter was resolved in March 2009,at which time the Company incurred a settlement liability of $0.2 million.

 

**PART II**

 

**Item5.  Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities**

 

The Company’s Common Stock is traded on the NasdaqCapital Market tier of the Nasdaq Stock Market under the symbol “SNAK.” There were approximately 200 shareholders of record on March 26,2010.  The Company believes the number of beneficial owners issubstantially greater than the number of record holders because a large portionof the Common Stock is held of record in broker “street names.”

 

The Company has never declared or paid any dividendson the shares of Common Stock.  Management intends to retain any futureearnings for the operation and expansion of the Company’s business and does notanticipate paying any dividends at any time in the foreseeable future. Additionally, certain debt agreements of the Company limit the Company’sability to declare and pay dividends.

 

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The following table sets forth the range of high andlow sale prices of the Company’s Common Stock as reported on the Nasdaq CapitalMarket for each quarter of the fiscal years ended December 26, 2009 and December 27,2008.

 
| ** **                        | ** ** | **Sales Prices** | ** ** |
|-----------------------------------|------------|-----------------------|------------|
| **Period of Quotation** | ** ** | **High**              | ** ** | **Low** | ** ** |
| **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 |   |
| **Fiscal  2009:**                 |       |                  |       |   |   |
| First Quarter                     |       | $                     | 1.97       |   | $ | 1.17 |   |
| Second Quarter                    |       | $                     | 2.58       |   | $ | 1.31 |   |
| Third Quarter                     |       | $                     | 3.03       |   | $ | 2.18 |   |
| Fourth Quarter                    |       | $                     | 2.91       |   | $ | 2.29 |   |

 

The information appearing under the heading “SecuritiesAuthorized for Issuance under Equity Compensation Plans” in the Company’s 2010Proxy Statement is incorporated by reference in this section.

 

See Note 8 to our Financial Statements in this annualreport for a summary of treasury stock repurchases and retirements executed in2009 and 2008.

 

**Item7.****          Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

Management’s Discussion and Analysis of FinancialCondition and Results of Operations (“MD&A”) should be read in conjunctionwith the other sections of this Annual Report on Form 10-K, including “Item1.:  Business” and “Item 8.:  Financial Statements and SupplementaryData.”  The various sections of this MD&A contain a number offorward-looking statements, all of which are based on our current expectationsand could be affected by the uncertainties and risk factors describedthroughout this filing and particularly in “Item 1A.: Risk Factors.” Accordingly, the Company’s actual future results may differ materially fromhistorical results or those currently anticipated.

 

**Overview**

 

The Company’s net revenue increased 7.0% in fiscal2009.  Net revenues from sales of T.G.I.Friday’s® snack products, which comprised 33% of total net revenues, increased5.9% partially due to new T.G.I. Friday’s® branded products.  Key revenuegrowth drivers also included Boulder CanyonTM Natural Foods brand kettle cooked chips, whichincreased 15.0%, and private label snacks growth of 89.7%.  Rader Farms berry products net revenuesincreased 5.5% despite an exceptional industry-wide 2009 harvest placingsubstantial downward pressure on the wholesale price of berries.  Net revenues from potato chips and othersnacks increased 9.7% in 2009.  The table below highlights the changesbetween years:

 

**NetRevenues Comparison**

**($ inmillions)**

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** | **% Change** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|-------------------|------------|
| T.G.I. Friday’s®     |       | $        | 39.7       |     | $          | 37.5              |       | 5.9 | % |
| Potato Chips and Other  Snacks |       | 40.8     |       | 37.2     |       | 9.7               | %          |
| Rader Farms Berry  Products    |       | 40.5     |       | 38.4     |       | 5.5               | %          |
| Total                          |       | $        | 121.0      |     | $          | 113.1             |       | 7.0 | % |

 

In connection with the implementation of the Company’sbusiness strategy, the Company is likely to require future debt or equityfinancings (particularly in connection with future strategicacquisitions).  Expenditures stemming from acquisition-related integrationcosts, trade and consumer marketing programs and new product development mayadversely affect operating expenses and consequently may adversely affectoperating and net income.

 

**Key Trends**

 

*Retailer Consolidation*

 

The retail food environment continues to be influencedby consolidation as fewer large retailers, including Kroger, Safeway andWal*Mart, are gaining a larger share of the grocery retail environment. These retailers are also consolidating their regional buying operations intosingular national operations to improve efficiency.  This action createsopportunities for the Company because brands like T.G.I. Friday’s® and BURGERKING TM  brand snack products are niche brandsthat can be sold effectively on a national basis.

 

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*Consumer Trends*

 

The snack industry has been heavily influenced in thepast five years by a proliferation of new flavors and health focused snacks,with a rapid increase in the number of low-fat, low-carb and all-natural andorganic products.  Mainstream retailers such as Safeway have now createdstandalone natural and organic sections in their stores.  The Companybelieves this trend for healthier snacks will continue and will provideopportunities for its Rader Farms® and Boulder CanyonTM products toexperience revenue growth.  Also, giventhe current economic environment, more consumers are moving towards thediscount channel, which continues to be an opportunity for the Company.

 

**Results of Operations**

 

The following discussion summarizes the significantfactors affecting the consolidated operating results, financial condition,liquidity and capital resources of the Company.  This discussion should beread in conjunction with “Item 8.: Financial Statements and Supplementary Data”and the “Cautionary Statement Regarding Forward-Looking Statements” on page 3.

 

*Year ended December 26, 2009compared to the year ended December 27, 2008*

 
| ** **                                    | ** ** | **2009** | ** ** | **2008**               | ** ** | **Difference** | ** ** |
|-----------------------------------------------|------------|----------|------------|------------------------|------------|----------------|------------|
| **(dollars in millions)**           | ** ** | **$**    | ** ** | **% of Rev** | ** ** | **$**          | ** ** | **% of Rev** | ** ** | **$** | ** ** | **%** | ** ** |
| Net revenues                                  |       | $        | 121.0      |                   | 100.0      | %              | $          | 113.1 |   | 100.0 | % | $ | 7.9 |   | 7.0 | % |
| Cost of revenues                              |       | 97.2     |       | 80.3                   |       | 90.9           |       | 80.4 |   | 6.3 |   | 6.9 |   |
| Gross profit                                  |       | 23.8     |       | 19.7                   |       | 22.2           |       | 19.6 |   | 1.6 |   | 7.3 |   |
| Selling, general and  administrative expenses |       | 16.7     |       | 13.8                   |       | 16.8           |       | 14.9 |   | (0.1 | ) | (0.6 | ) |
| Operating income                              |       | 7.1      |       | 5.9                    |       | 5.4            |       | 4.7 |   | 1.7 |   | 31.5 |   |
| Interest expense, net                         |       | 0.9      |       | 0.7                    |       | 1.3            |       | 1.1 |   | (0.4 | ) | (30.8 | ) |
| Income before income  taxes                   |       | 6.2      |       | 5.1                    |       | 4.1            |       | 3.6 |   | 2.1 |   | 51.2 |   |
| Income tax provision                          |       | 2.4      |       | 2.0                    |       | 1.7            |       | 1.5 |   | 0.7 |   | 41.2 |   |
| Net income                                    |       | $        | 3.8        |                   | 3.1        | %              | $          | 2.4 |   | 2.1 | % | $ | 1.4 |   | 59.6 | % |

 

For the fiscal year ended December 26, 2009, netrevenues increased 7.0%, or $7.9 million, to $121.0 million compared with netrevenues of $113.1 million for the previous fiscal year.  The increase in net revenues wereattributable to a number of factors, including a 15.0% increase in BoulderCanyonTM Natural Foods  brand kettle cooked chips,an increase of 5.9% in T.G.I. Friday’s® brand of snacks, an increase of 89.7%in Private Label snacks which reflects the Company’s strategy of moving intopremium private label snack products to utilize the capacity we have at theIndiana plant and an increase of 5.5% in Rader Farms berries despite adouble-digit price decline as a result of market pricing pressures due to theexceptional 2009 harvest for most of the industry.

 

Gross profit for 2009 increased $1.6 million or 7.3%to $23.8 million, and increased as a percentage of net revenues to 19.7% ascompared to 19.6% in 2008.  The increase in both gross profit dollars andmargin was achieved without the benefit of any price increases and with theaforementioned Rader Farms price reduction in the fourth quarter.

 

Selling, general and administrative expenses were$16.7 million or 13.8% of net revenues for the year, which is relatively flatin dollars versus 2008, but down 1.1 percentage points from 14.9% of netrevenue last year.  The improvementrepresents the Company’s ability to drive top-line growth while containingcosts.

 

The Company’s effective income tax expense rate was39.0% in 2009 compared to 42.1% in 2008.  The change in the effective rateis due to differences in non-deductible expenses, primarily stock basedcompensation related to individual stock option grants.  During 2009, the Company utilized theremaining $0.6 million in net operating losses.

 

Net income for 2009 was $3.8 million, representing a$1.4 million or 59.6% increase when compared to $2.4 million for2008.   The net income for 2009 equated to $0.21 per basic anddiluted share, compared with $0.13 per basic and diluted share in 2008.

 

**Liquidity and Capital Resources**

 

Net working capital was $8.0 million (a current ratioof 1.3:1) and $4.5 million (a current ratio of 1.2:1) at December 26, 2009and December 27, 2008, respectively.  For the fiscal year ended December 26,2009, operating activities provided $3.0 million, primarily as a result of ourgeneration of net income partially offset by changes in working capital of $5.3million, primarily due to increases in inventory. Investing activities utilized$2.6 million for the purchase of fixed assets.  Financing activities wererelatively flat as a result of additional borrowings on our line of credit,offset by principal payments on debt and purchases of treasury stock.

 

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For the fiscal year ended December 27, 2008,operating activities provided $5.4 million, primarily as a result of ourgeneration of net income in fiscal year 2008, compared to a net loss in 2007,and an increase in accounts payable and accrued liabilities of $1.9million.  Investing activities utilized $3.9 million, primarily due to thepurchase of fixed assets.  Financing activities utilized $1.3 million,largely due to the Company’s payments towards debt borrowings and purchases oftreasury stock.

 

The Company’s Goodyear, Arizona manufacturing anddistribution facility is subject to a $1.5 million mortgage loan from MorganGuaranty Trust Company of New York, which bears interest at 9.03% per annum andis secured by the building and the land on which it is located. The loanmatures on July 1, 2012; however monthly principal and interestinstallments of $16,825 are determined based on a twenty-year amortizationperiod.

 

The Company’s Bluffton, Indiana manufacturing anddistribution facility was purchased for $3.0 million in December, 2006. Thefacility is subject to a $2.2 million mortgage loan from U.S. Bank NationalAssociation, (“U.S. Bank”), which bears interest at the 30 day LIBOR plus 165basis points and is secured by the building and the land on which it islocated. The interest rate associated with this debt instrument was fixed to6.85% via an interest rate swap agreement with U.S. Bank in December 2006. The loan matures in December, 2016; however monthly principal and interestinstallments of $18,392 are determined based on a twenty-year amortizationperiod.

 

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 revolvingline of credit maturing on June 30, 2011; based on asset eligibility,there was $5.1 million of borrowing availability under the line of credit at December 26,2009.

·         an equipment term loan,secured by the equipment acquired, subject to a $3.9 million mortgage loan fromU.S. Bank, bears interest at the 30 day LIBOR plus 165 basis points. The loanmatures in May, 2014 and monthly principal installments are $71,429 plusinterest and

·         a real estate term loan,secured by a leasehold interest in the real property we are leasing from theformer owners of Rader Farms in connection with the Acquisition, subject to a$3.6 million real estate term loan from U.S. Bank, bears interest at the 30 dayLIBOR plus 165 basis points. The interest rate associated with this debtinstrument was fixed to 4.28% via an interest rate swap agreement with U.S.Bank in January 2008. The loan matures in July, 2017; however monthlyprincipal and interest installments of $36,357 are determined based on afifteen-year amortization period.

 

The Company believes that its current financingarrangement with U.S. Bank will provide adequate ability to finance futurecapital expenditures. We anticipate 2010 capital expenditures of approximately$5.0 million, funded through working capital and various purchase or leasing arrangements.Our plans are not expected to materially affect our financial ratios orliquidity.

 

All borrowings under the revolving line of credit willbear 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 leverage ratio. At December 26,2009, the Company was in compliance with all of the financial covenants.

 

**Off-Balance Sheet Arrangements**

 

Under SEC regulations, in certain circumstances, theCompany is required to make certain disclosures regarding the followingoff-balance sheet arrangements, if material:

 

·         Any obligation undercertain 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 obligation undercertain derivative instruments; and

·          Anyobligation arising out of a material variable interest held by us in anunconsolidated entity that provides financing, liquidity, market risk or creditrisk support to us, or engages in leasing, hedging or research and developmentservices with us.

 

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The Company does not have any off-balance sheetarrangements that are required to be disclosed pursuant to these regulations,other than those described in the Notes to Consolidated FinancialStatements.  The Company does not have, nor does it engage in,transactions with any special purpose entities.  Other than an interestrate swap, the Company is not engaged in any derivative activities and had no forwardexchange contracts outstanding at December 26, 2009.  In the ordinarycourse of business, the Company enters into operating lease commitments,purchase commitments and other contractual 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’sbusiness strategy, the Company may incur operating losses in the future and mayrequire future debt or equity financings (particularly in connection withfuture strategic acquisitions, new brand introductions or capitalexpenditures).  Expenditures relating to acquisition-related integrationcosts, market and territory expansion and new product development andintroduction may adversely affect promotional and operating expenses andconsequently may adversely affect operating and net income.  These typesof expenditures are expensed for accounting purposes as incurred, while revenuegenerated from the result of such expansion or new products may benefit futureperiods.  Management believes that the Company will generate positive cashflow from operations during the next twelve months, which, along with its existingworking capital and borrowing facilities, will enable the Company to meet itsoperating cash requirements for the next twelve months.  The belief isbased on current operating plans and certain assumptions, including thoserelating to the Company’s future revenue levels and expenditures, industry andgeneral economic conditions and other conditions. For instance, if currentgeneral economic conditions continue or worsen, we believe that our salesforecasts may prove to be less reliable than they have in the past as consumersmay change their buying habits with respect to snack food products. Unexpectedprice increases for commodities used in our snack products, or adverse weatherconditions affecting our Rader Farms crop yield could also impact our financialcondition.  If any of these factors change, the Company may require futuredebt or equity financings to meet its business requirements. There can be noassurance that any required financings will be available or, if available, willbe on terms attractive to the Company.

 

**Critical Accounting Policies andEstimates**

 

The Securities and Exchange Commission indicated thata “critical accounting policy” is one which is both important to the portrayalof the Company’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 following accounting policies fit thisdefinition:

 

*Allowance for DoubtfulAccounts. *The Company maintains an allowance for doubtful accounts for estimated lossesresulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resultingin an impairment of their ability to make payments, additional allowances maybe required.  We record specificallowances for receivable balances that are considered at higher risk due toknown facts regarding the customer.

 

*Inventories.*   The Company’s inventories arestated at the lower of cost (first-in, first-out) or market.  The Companyidentifies slow moving or obsolete inventories and estimates appropriate lossprovisions related thereto.  If actual market conditions are less favorablethan those projected by management, additional inventory write-downs may berequired.

 

*Goodwill and Trademarks.*   Goodwill and trademarks arereviewed for impairment annually, or more frequently if impairment indicatorsarise.  Goodwill is required to be tested for impairment between theannual tests if an event occurs or circumstances change thatmore-likely-than-not reduce the fair value of a reporting unit below itscarrying value.  Intangible assets with indefinite lives are required tobe tested for impairment between the annual tests if an event occurs orcircumstances change indicating that the asset might be impaired.  During2007, the Company determined the carrying values of two trademarks wereimpaired following the completion of a discounted cash flow analysis andrecorded a $2.7 million charge as a result.  In 2009 and 2008, the Companyconducted a similar analysis, and believes the carrying values of itstrademarks are appropriate.

 

Management believes that each of our trademarks hasthe continued ability to generate cash flows indefinitely, and therefore eachof our trademarks has been determined to have an indefinite life.  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.

 

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*Advertising and Promotional Expensesand Trade Spending. * The Company expenses production costs of advertising the first timethe advertising takes place, except for cooperative advertising costs which areexpensed when the related sales are recognized.  Costs associated withobtaining shelf space (i.e., “slotting fees”) are accounted for as a reductionof revenue in the period in which such costs are incurred by the Company. Anytime the Company offers consideration (cash or credit) as a tradeadvertising or promotional allowance to a purchaser of products at any pointalong the distribution chain, the amount is accrued and recorded as a reductionin revenue.  Marketing programs that deal directly with the consumer,primarily consisting of in-store demonstrations/samples, are recorded as amarketing expense in selling, general and administrative expenses. Further discussion of these marketing programs is expanded upon below:

 

·      Demonstrations/Samples :   The Company periodicallyarranges in-store product demonstrations with club stores (i.e. Sam’s, Costcoor BJ’s) or grocery retailers.  Product demonstrations are conducted byindependent third party providers designated by the various retailer or clubchains.  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 used inthe demonstrations, which is insignificant, and the fee we pay 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 is a nationalco-sponsor of American Rivers, a leading conservationorganization protecting and restoring America’s rivers.  The Companydonates a portion of each Boulder Canyon bag sold and is allowed to use theAmerican Rivers mark on packaging and printed materials as well as directlypromote products to members and river cleanup volunteers.

 

*Income Taxes.*   We estimate valuation allowanceson deferred tax assets for the portions that we do not believe will be fullyutilized based on projected earnings and usage.  Our effective taxrate is based on the level and mix of income of our separate legal entities,statutory tax rates and tax planning opportunities available in the variousjurisdictions in which we operate.  Significant judgment is requiredin evaluating tax positions that affect the annual taxrate.  Unrecognized tax benefits for uncertain tax positions areestablished when, despite the fact that the tax return positions aresupportable, we believe these positions may be challenged and the results areuncertain.  We adjust these liabilities in light of changing factsand circumstances.

 

*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 sold through our direct store deliverydistributed product segment is recognized when the product is received by theretailer.  Provisions and allowances for sales returns, promotionalallowances and discounts are also recorded as a reduction of revenues in theCompany’s consolidated financial statements. These allowances are estimated based on a percentage of sales returnsusing historical and current market information.

 

*Stock-Based Compensation**. *** 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 stockoption grants had a five year term. The fair value of these stock option grantsis amortized to expense over the vesting period, generally three years foremployees and one year for the Board of Directors.  In May 2008, theCompany’s Board of Directors approved a ten year term for all future employee stockoption grants and a five year term for Board of Directors stock option grants. Thestock option grants have vesting periods of five years and one year foremployees and Board of Director members, respectively.

 

The above listing is not intended to be acomprehensive list of all of the Company’s accounting policies.  In manycases 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 auditedfinancial statements and notes thereto included in this Annual Report on Form 10-Kwhich contain accounting policies and other disclosures required by accountingprinciples generally accepted in the United States.

 

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**Item 8.    FinancialStatements and Supplementary Data**

 
| Report of Independent Registered Public Accounting  Firm                                                                     | 27 |
|------------------------------------------------------------------------------------------------------------------------------|----|
| Consolidated balance sheets as of December 26,  2009 and December 27, 2008                                         | 28 |
| Consolidated statements of operations for the years  ended December 26, 2009, and December 27, 2008                | 29 |
| Consolidated statements of shareholders’ equity for  the years ended December 26, 2009, and December 27, 2008 | 30 |
| Consolidated statements of cash flows for the years  ended December 26, 2009, and December 27, 2008                | 31 |
| Notes to consolidated financial statements                                                                                   | 32 |

 

**Item9.        Changes in and Disagreements withAccountants on Accounting and Financial Disclosure**

 

None.

 

**Item9A(T).           Controls andProcedures.**

 

**Disclosure Controls and Procedures**

 

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

 

The Company’s Chief Executive Officer and ChiefFinancial Officer do not expect that the Company’s internal controls willprevent all errors and all fraud.  A control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met.  Further, the design ofa control system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs. Because ofthe inherent limitations in all control systems, no evaluation of internalcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within the Company have been detected.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that internal controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

 

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

 

Our management is responsible for establishing andmaintaining adequate internal 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 regardingthe reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally acceptedaccounting principles. Our internal control over financial reporting includesthose policies 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 controlover financial reporting may not prevent or detect all misstatements orinstances of fraud.  As such, a controlsystem, no matter how well conceived and operated, can provide only reasonableassurance that the objectives of the control system are met.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

Management assessed the effectiveness of internalcontrol over financial reporting as of December 26, 2009. In making thisassessment, management used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in InternalControl-Integrated Framework. Based on our assessment and those criteria,management believes that we maintained effective internal control overfinancial reporting as of December 26, 2009.

 

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

 

**Changes in Internal Control Over FinancialReporting**

 

No change occurred in our internal controls overfinancial reporting (as defined in Rule 13a-15(f) of the ExchangeAct) during the three months ended December 26, 2009 that has materiallyaffected, or is reasonably likely to materially affect our internal controlover financial reporting.

 

**Item 9B.    Other Information.**

 

None.

 

**PART III**

 

**Item 10.    Directors, Executive Officers and Corporate Governance**

 

**Code of Ethics**

 

Each of the Company’s directors, officers andemployees are required to comply with The Inventure Group, Inc. Code ofBusiness Conduct and Ethics adopted by the Company.  The Code of BusinessConduct and Ethics sets forth policies covering a broad range of subjects andrequires strict adherence to laws and regulations applicable to the Company’sbusiness.  The Company has also adopted a Financial Code of Ethics for itsChief Executive Officer, Chief Financial Officer and all other financemanagers.  The Financial Code of Ethics supplements the Code of BusinessConduct and Ethics and is intended to emphasize the importance of honest andethical conduct in connection with the Company’s financial reportingobligations.  The Code of Business Conduct and Ethics and the FinancialCode of Ethics are available on the Company’s website atwww.inventuregroup.net, under the “Investors-Governance” captions.  Copiesof these Codes may also be obtained, without charge, by any shareholder uponwritten request directed to the Secretary of the Company at 5050 N. 40 th St. Suite #300, Phoenix, Arizona 85018.  The Company will postto its website any amendments to these Codes, or waiver from the provisionsthereof, applicable to the Company’s directors or any principal executiveofficer, principal financial officer principal accounting officer orcontroller, or any person performing similar functions under an “Investors-Governance-Codeof Business Conduct-Waivers” caption.

 

The information regarding Directors and ExecutiveOfficers appearing under the headings “Proposal 1: Election of Directors,” “ExecutiveOfficers,” “Meetings and Committees of the Board of Directors” and “Section 16(a) BeneficialOwnership Reporting Compliance” of the Company’s 2010 Proxy Statement isincorporated by reference in this section.

 

**Item 11.    Executive Compensation**

 

The information appearing under the headings “DirectorCompensation,” “Employment Agreements,” “Compensation Committee Report onExecutive Compensation” and “Executive Officer Compensation” of the Company’s2010 Proxy Statement is incorporated by reference in this section.

 

**Item 12.    Security Ownership of Beneficial Owners and Management and Related StockholderMatters**

 

The information appearing under the headings “SecurityOwnership of Certain Beneficial Owners and Management” and “SecuritiesAuthorized for Issuance Under Equity Compensation Plans” of the Company’s 2010Proxy Statement is incorporated by reference in this section.

 

**Item 13.    Certain Relationships and Related Transactions, and Director Independence**

 

The information appearing under the heading “Meetingsand Committees of the Board of Directors” and “Certain Relationships andRelated Transactions” of the Company’s 2010 Proxy Statement is incorporated byreference in this section.

 

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

 

Information appearing under the heading “IndependentAuditors” of the Company’s 2010 Proxy Statement is incorporated by reference inthis section.

 

22

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**PART IV**

 

**Item15.         Exhibits and FinancialStatement Schedules:**

 

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

 

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

 
| Reports of Independent Registered Public Accounting  Firms                                                                                           |
|------------------------------------------------------------------------------------------------------------------------------------------------------|
| Consolidated balance sheets as of December 26,  2009 and December 27, 2008                                                                 |
| Consolidated statements of operations for the years  ended December 26, 2009 and December 27, 2008                                         |
| Consolidated statements of shareholders’ equity and comprehensive  income for the years ended December 26, 2009 and December 27, 2008 |
| Consolidated statements of cash flows for the years  ended December 26, 2009 and December 27, 2008                                         |
| Notes to consolidated financial statements                                                                                                           |

 

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

 

Schedules have been omitted because of the absence ofconditions under which they are required or because the information required isincluded in the Company’s consolidated financial statements or notes thereto.

 

**3.****             Exhibits required by Item 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)                                                                                                                                                                    |
| 10.23               |       | —     | License Agreement, dated April 3, 2000, by and  between the Company and T.G.I. 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 T.G.I. 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)                                                                                                                                                                                           |

 

23

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| 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)                                                                                                                                                                                                                                    |
| 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)                                                                                                                                                                                                                                                                          |
| 10.69* |   |   | Form of Employee  Restricted Stock Award Agreement — Amended and Restated 2005 Equity Incentive  Plan. (21)                                                                                                                                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                             |
| 21.1   |   | — | List of Subsidiaries of the Company. (22)                                                                                                                                                                                                                                                                                                                                        |
| 23.1   |   | — | Consent of Moss Adams LLP (23)                                                                                                                                                                                                                                                                                                                                                   |
| 31.1   |   | — | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) or Rule 15(d)-14(a). (23)                                                                                                                                                                                                                                                                    |
| 31.2   |   | — | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) or Rule 15(d)-14(a) (23)                                                                                                                                                                                                                                                                |
| 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. (23)                                                                                                                                                    |

 

----

|  * |   | 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.                                                    |

 

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| (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) |   | Incorporated 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 Quarterly  Report on Form 10-Q for the quarter ended June 27, 2009.      |
| (22) |   | Incorporated by reference to the Company’s Annual  Report on Form 10-K for the fiscal year ended December 29, 2007. |
| (23) |   | Filed herewith.                                                                                                                    |

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
| Dated:      March 26,  2010 | THE INVENTURE GROUP, INC. |
|----------------------------------------------------------------|---------------------------|
|                                                           |                      |   |
|                                                           | By:                       | /s/ Terry McDaniel |
|                                                           |                      | Terry McDaniel |
|                                                           |                      | Chief Executive Officer |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant, in the capacities and on the datesindicated.

 
| **Signature**             | ** ** | **Title**                                                | ** ** | **Date**            |
|---------------------------|------------|----------------------------------------------------------|------------|---------------------|
|                      |       |                                                     |       |                |
| /s/ Terry McDaniel        |       | Chief Executive Officer  and Director                    |       | March 26, 2010 |
| Terry McDaniel            |       | (Principal Executive  Officer)                           |       |                |
|                      |       |                                                     |       |                |
| /s/ Steve Weinberger      |       | Chief Financial  Officer, Secretary & Treasurer |       | March 26, 2010 |
| Steve Weinberger          |       | (Principal Financial  and Accounting Officer)            |       |                |
|                      |       |                                                     |       |                |
| /s/ Larry R. Polhill      |       | Chairman and Director                                    |       | March 26, 2010 |
| Larry R. Polhill          |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Ashton D. Asensio     |       | Director                                                 |       | March 26, 2010 |
| Ashton D. Asensio         |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Mark S. Howells       |       | Director                                                 |       | March 26, 2010 |
| Mark S. Howells           |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Macon Bryce  Edmonson |       | Director                                                 |       | March 26, 2010 |
| Macon Bryce Edmonson      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Ronald Kesselman      |       | Director                                                 |       | March 26, 2010 |
| Ronald Kesselman          |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Itzhak Reichman       |       | Director                                                 |       | March 26, 2010 |
| 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 balancesheets of The Inventure Group, Inc. and subsidiaries (the “Company”) as ofDecember 26, 2009 and December 27, 2008 and the related consolidatedstatements of operations, stockholders’ equity and comprehensive income andcash flows for each of the years in the two-year period ended December 26,2009. These financial statements are the responsibility of the Company’smanagement.  Our responsibility is to express an opinion on the financialstatements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  The Company is not required to have, nor were weengaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, 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 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.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, such consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of The Inventure Group, Inc. as of December 26, 2009 and December 27,2008, and the results of their operations and their cash flows for each of theyears in the two-year period ended December 26, 2009, in conformity withaccounting principles generally accepted in the United States of America.

 

*/s/ MOSS ADAMS LLP*

 

Scottsdale, ArizonaMarch 26, 2010

 

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**THEINVENTURE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                     | ** ** | **December 26,  2009** | ** ** | **December 27,  2008** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                     |       |                        |       |                        |       |
| Current assets:                                                                                                                                                                                |       |                        |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                     |       | $                           | 1,102,689  |                        | $          | 683,567 |   |
| Accounts receivable,  net of allowance for doubtful accounts of $101,076 in 2009 and $80,740  in 2008                                                                                     |       | 10,884,986                  |       | 9,767,750                   |       |
| Inventories, net                                                                                                                                                                               |       | 17,445,163                  |       | 13,979,526                  |       |
| Deferred income tax  asset                                                                                                                                                                     |       | 651,761                     |       | 831,779                     |       |
| Other current assets                                                                                                                                                                           |       | 1,045,797                   |       | 638,923                     |       |
| Total current assets                                                                                                                                                                           |       | 31,130,396                  |       | 25,901,545                  |       |
|                                                                                                                                                                                           |       |                        |       |                        |       |
| Property and equipment,  net                                                                                                                                                                   |       | 23,734,921                  |       | 24,548,060                  |       |
| Goodwill                                                                                                                                                                                       |       | 11,616,225                  |       | 11,616,225                  |       |
| Trademarks and other  intangibles, net                                                                                                                                                         |       | 2,757,161                   |       | 2,799,160                   |       |
| Other assets                                                                                                                                                                                   |       | 596,157                     |       | 396,052                     |       |
| Total assets                                                                                                                                                                                   |       | $                           | 69,834,860 |                        | $          | 65,261,042 |   |
|                                                                                                                                                                                           |       |                        |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                  |       |                        |       |                        |       |
| Current liabilities:                                                                                                                                                                           |       |                        |       |                        |       |
| Accounts payable                                                                                                                                                                               |       | $                           | 6,751,612  |                        | $          | 7,629,321 |   |
| Line of credit                                                                                                                                                                                 |       | 9,870,590                   |       | 8,188,990                   |       |
| Accrued liabilities                                                                                                                                                                            |       | 5,314,180                   |       | 4,382,078                   |       |
| Current portion of  long-term debt                                                                                                                                                             |       | 1,204,475                   |       | 1,204,080                   |       |
| Total current  liabilities                                                                                                                                                                     |       | 23,140,857                  |       | 21,404,469                  |       |
|                                                                                                                                                                                           |       |                        |       |                        |       |
| Long-term debt, less  current portion                                                                                                                                                          |       | 10,037,902                  |       | 11,251,510                  |       |
| Interest rate swaps                                                                                                                                                                            |       | 452,292                     |       | 886,222                     |       |
| Deferred income tax  liability                                                                                                                                                                 |       | 3,077,343                   |       | 2,529,266                   |       |
| Other liabilities                                                                                                                                                                              |       | 219,903                     |       | 138,269                     |       |
| Total liabilities                                                                                                                                                                              |       | 36,928,297                  |       | 36,209,736                  |       |
|                                                                                                                                                                                           |       |                        |       |                        |       |
| Commitments and  contingencies (Notes 7 and 11)                                                                                                                                                |       |                        |       |                        |       |
|                                                                                                                                                                                           |       |                        |       |                        |       |
| Shareholders’ equity:                                                                                                                                                                     |       |                        |       |                        |       |
| Preferred stock, $100  par value; 50,000 shares authorized; no shares issued or outstanding at  December 26, 2009 and December 27, 2008                                              |       | —                      |       | —                      |       |
| Common stock, $.01 par  value; 50,000,000 shares authorized; 18,255,600 and 18,252,386 shares issued  and outstanding at December 26, 2009 and December 27, 2008,  respectively |       | 182,557                     |       | 182,525                     |       |
| Additional paid-in  capital                                                                                                                                                                    |       | 26,025,511                  |       | 25,740,911                  |       |
| Accumulated other  comprehensive loss                                                                                                                                                          |       | (188,429                    | )          | (448,610                    | )          |
| Retained earnings                                                                                                                                                                              |       | 7,358,119                   |       | 3,576,480                   |       |
|                                                                                                                                                                                           |       | 33,377,758                  |       | 29,051,306                  |       |
| Less : treasury stock,  at cost: 367,957 shares at December 26, 2009 and -0- shares at  December 27, 2008                                                                       |       | (471,195                    | )          | —                      |       |
| Total shareholders’  equity                                                                                                                                                               |       | 32,906,563                  |       | 29,051,306                  |       |
| Total liabilities and  shareholders’ equity                                                                                                                                               |       | $                           | 69,834,860 |                        | $          | 65,261,042 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

28

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**THE INVENTURE GROUP, INC. ANDSUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                    | ** ** | **December 26,  2009** | ** **  | **December 27,  2008** | ** ** |
|-----------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
|                                          |       |                        |        |                        |       |
| Net revenues                                  |       | $                           | 121,011,309 |                        | $          | 113,058,715 |   |
|                                          |       |                        |        |                        |       |
| Cost of revenues                              |       | 97,189,028                  |        | 90,864,406                  |       |
|                                          |       |                        |        |                        |       |
| Gross profit                                  |       | 23,822,281                  |        | 22,194,309                  |       |
|                                          |       |                        |        |                        |       |
| Selling, general and  administrative expenses |       | 16,746,148                  |        | 16,827,692                  |       |
|                                          |       |                        |        |                        |       |
| Operating income                              |       | 7,076,133                   |        | 5,366,617                   |       |
|                                          |       |                        |        |                        |       |
| Interest expense, net                         |       | (878,807                    | )           | (1,275,535                  | )          |
|                                          |       |                        |        |                        |       |
| Income before income  tax provision           |       | 6,197,326                   |        | 4,091,082                   |       |
|                                          |       |                        |        |                        |       |
| Income tax provision                          |       | (2,415,687                  | )           | (1,721,791                  | )          |
|                                          |       |                        |        |                        |       |
| Net income                                    |       | $                           | 3,781,639   |                        | $          | 2,369,291 |   |
|                                          |       |                        |        |                        |       |
| Earnings per common  share:                   |       |                        |        |                        |       |
| Basic                                         |       | $                           | 0.21        |                        | $          | 0.13 |   |
| Diluted                                       |       | $                           | 0.21        |                        | $          | 0.13 |   |
|                                          |       |                        |        |                        |       |
| Weighted average number  of common shares:    |       |                        |        |                        |       |
| Basic                                         |       | 17,955,165                  |        | 18,736,331                  |       |
| Diluted                                       |       | 18,239,380                  |        | 18,736,331                  |       |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

29

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**THEINVENTURE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME**

 
| ** **                                                   | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Accumulated  Other** | ** ** | ** **                   | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                   | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Treasury**           | ** ** | ** **                   | ** ** |
| ** **                                                   | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income (Loss)** | ** ** | **Stock, at Cost** | ** ** | **Total**  | ** ** |
|                                                         |       |                  |       |        |       |           |       |              |       |                   |       |                         |       |       |       |
| 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  |       |
| Net unrealized losses on  derivative instruments, net of tax |       | —                |       | —      |       | —         |       | —            |       | (448,610               | )          | —                       |       | (448,610   | )          |
| Total 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 |   |
| Net income                                                   |       |                  |       |        |       |           |       | 3,781,639         |       |                   |       |                         |       | 3,781,639  |       |
| Other comprehensive  income, net of tax                      |       | —                |       | —      |       | —         |       | —            |       | 260,181                |       | —                       |       | 260,181    |       |
| Total comprehensive  income                                  |       |                  |       |        |       |           |       |              |       |                   |       |                         |       | 4,041,820  |       |
|                                                         |       |                  |       |        |       |           |       |              |       |                   |       |                         |       |       |       |
| Restricted stock and  related compensation expense           |       | —                |       | —      |       | 41,360         |       | —            |       | —                 |       | —                       |       | 41,360     |       |
| Stock-based  compensation expense                       |       | —                |       | —      |       | 242,382        |       | —            |       | —                 |       | —                       |       | 242,382    |       |
| Purchase of treasury  stock, at cost                    |       | —                |       | —      |       | —         |       | —            |       | —                 |       | (471,195                     | )          | (471,195   | )          |
| Exercise of stock  options and issuance of restricted stock  |       | 3,214                 |       | 32          |       | 858            |       |              |       |                   |       |                         |       | 890        |       |
| Balance, December 26, 2009                    |       | 18,255,600            |       | $           | 182,557    |           | $          | 26,025,511        |       | $                      | 7,358,119  |                         | $          | (188,429   | )          | $ | (471,195 | ) | $ | 32,906,563 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

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**THEINVENTURE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **December 26,  2009** | ** ** | **December 27,  2008** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Cash flows provided by operating activities:**          | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Net income                                                                         |       | $                           | 3,781,639  |                        | $          | 2,369,291 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                        |       |                        |       |
| Depreciation                                                                       |       | 3,413,943                   |       | 2,737,526                   |       |
| Amortization                                                                       |       | 62,442                      |       | 49,025                      |       |
| Provision for bad debts                                                            |       | 95,994                      |       | 83,794                      |       |
| Deferred income taxes                                                              |       | 728,095                     |       | 1,602,186                   |       |
| Share-based  compensation expense                                                  |       | 242,382                     |       | 260,925                     |       |
| Restricted stock  compensation expense                                             |       | 41,360                      |       | 31,812                      |       |
| Loss on disposition of  equipment                                                  |       | —                      |       | 1,360                       |       |
| Change in assets and  liabilities:                                                 |       |                        |       |                        |       |
| Accounts receivable                                                                |       | (1,213,230                  | )          | (1,246,803                  | )          |
| Inventories                                                                        |       | (3,465,637                  | )          | (2,393,928                  | )          |
| Other assets and  liabilities                                                      |       | (545,787                    | )          | (41,716                     | )          |
| Accounts payable and  accrued liabilities                                          |       | (119,356                    | )          | 1,914,452                   |       |
| Net cash provided by  operating activities                                         |       | 3,021,845                   |       | 5,367,924                   |       |
| **Cash  flows used in investing activities:**                                      |       |                        |       |                        |       |
| Purchase of land,  building and equipment                                          |       | (2,600,805                  | )          | (3,850,964                  | )          |
| Proceeds from  disposition of equipment                                            |       | —                      |       | 770                         |       |
| Net cash used in  investing activities                                             |       | (2,600,805                  | )          | (3,850,194                  | )          |
| **Cash  flows used in financing activities:**                                      |       |                        |       |                        |       |
| Net borrowings on line  of credit                                                  |       | 1,681,600                   |       | 736,681                     |       |
| Proceeds from issuance  of restricted stock                                        |       | 890                         |       | —                      |       |
| Payments made on long  term debt                                                   |       | (1,213,213                  | )          | (1,171,681                  | )          |
| Treasury stock  purchases                                                          |       | (471,195                    | )          | (894,081                    | )          |
| Net cash used in  financing activities                                             |       | (1,918                      | )          | (1,329,081                  | )          |
| Net increase in cash  and cash equivalents                                         |       | 419,122                     |       | 188,649                     |       |
| Cash and cash  equivalents at beginning of year                                    |       | 683,567                     |       | 494,918                     |       |
| Cash and cash  equivalents at end of year                                          |       | $                           | 1,102,689  |                        | $          | 683,567 |   |

 
| **Supplemental  disclosure of cash flow information:** |   |      |    |   |   |
|--------------------------------------------------------|--------|-----------|---------|--------|--------|
| Cash paid during the  period for interest              |   | $         | 864,725 |   | $      | 1,134,900 |   |
| Cash paid during the  period for income taxes          |   | 2,115,600 |    | 8,717  |   |
|                                                        |        |           |         |        |        |  |  |

 

The accompanying notes are an integralpart of these consolidated financial statements.

 

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**THEINVENTURE GROUP, INC. AND SUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

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

 

The Inventure Group, Inc., (“the Company”) aDelaware corporation, was formed in 1995 as a holding company to acquire apotato chip manufacturing and distribution business, which had been founded byDonald and James Poore in 1986.  The Company changed its name from PooreBrothers, Inc. to The Inventure Group, Inc. on April 10, 2006.

 

In December 1996, the Company completed aninitial public offering of its Common Stock.  In November 1998, theCompany acquired the business and certain assets (including the Bob’s TexasStyle® potato chip brand) of Tejas Snacks, L.P. (“Tejas”), a Texas-based potatochip manufacturer.  In October 1999, the Company acquired WabashFoods, LLC (“Wabash”) including the Tato Skins®, O’Boisies®, and Pizzarias®trademarks and the Bluffton, Indiana manufacturing operation and assumed all ofWabash Foods’ liabilities.  In June 2000, the Company acquiredBoulder Natural Foods, Inc. (“Boulder”) and the Boulder CanyonTM NaturalFoods brand of totally natural potato chips.

 

In October 2000, the Company launched its T.G.I.Friday’s® brand snacks pursuant to a license agreement with T.G.I. Friday’sInc., which expires in 2014.

 

In May 2007, the Company acquired Rader Farms, Inc.including the Rader Farms® trademark and the Lynden, Washington frozen fruitprocessing operation, for a total cost of $20.9 million.

 

In October 2007, the Company launched its BURGERKING TM brand snack products pursuant to a licenseagreement with Burger King Corporation, which expires in 2012.

 

In August 2009, the Company entered into alicense agreement with Jamba Juice to develop JambaTM branded blend-and-servesmoothie kits, which are expected to launch in early 2010.

 

The Company’s fiscal year ends on the last Saturdayoccurring in the month of December of each calendar year. Accordingly, fiscal 2009 commenced December 28, 2008 and ended December 26,2009.  The fiscal year end dates result in an additional week of resultsevery five or six years.

 

***Business***

 

The Company is engaged in the development, production,marketing and distribution of innovative snack food products and frozen berryproducts that are sold primarily through grocery retailers, mass merchandisers,club stores, convenience stores and vend distributors across the United Statesand internationally.  The Company currently manufactures and sellsnationally T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’sInc. and BURGER KING TM  brand snack products under license fromBurger King Corporation.  The Company currently (i) manufactures andsells its own brands of snack food products, including Poore Brothers®, Bob’s TexasStyle® and Boulder CanyonTM Natural Foods brand batch-fried potatochips, Tato Skins® brand potato snacks and O’Boises® potato snacks (ii) manufacturesprivate label snacks for grocery and various other retail chains and (iii) distributesin Arizona snack food products that are manufactured by others.  TheCompany sells its T.G.I. Friday’s® brand snack products and BURGER KING TM  brand snack products to massmerchandisers, grocery, club and drug stores directly and to primarilyconvenience stores and vend operators through independent distributors. The Company’s other brands are also sold through independent distributors.

 

In addition, with the acquisition of Rader Farms, theCompany 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 anddistribution nationally to wholesale customers under the Rader Farms® brand, aswell as through store brands.

 

***Principles ofConsolidation***

 

The consolidated financial statements include theaccounts of The Inventure Group, Inc. and all of its wholly ownedsubsidiaries.  All significant intercompany amounts and transactions havebeen eliminated.

 

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***Use of Estimates***

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities, disclosure of contingent assets and liabilities atthe date of the financial statements, and the reported amounts of revenues andexpenses during the reporting period.  The Company routinely evaluates itsestimates, including those related to accruals for customer programs andincentives, product returns, brand discontinuance costs, bad debts, incometaxes, long-lived assets, inventories, stock based compensation, interest rateswap valuations, accrued broker commissions and contingencies.  The Companybases its estimates on historical experience and on various other assumptionsthat are believed to be reasonable under the circumstances.  Actualresults could differ from those estimates.

 

***Reclassifications***

 

Certain 2008 amounts have been reclassified to conformto the 2009 presentation.

 

***Fair Value ofFinancial Instruments***

 

Fairvalue is defined as the price that would be received to sell an asset or paidto transfer a liability (i.e., the “exit price”)  in an orderly transaction between marketparticipants at the measurement date.  The Company classifies its investmentsbased upon an established fair value hierarchy that prioritizes the inputs tovaluation techniques used to measure fair value. The hierarchy gives thehighest priority to unadjusted quoted prices in active markets for identicalassets or liabilities (Level 1 measurement) and the lowest priority tounobservable inputs (Level 3 measurements). The three levels of the fair valuehierarchy are described as follows:

 

**Level 1**                Unadjusted quoted prices in active markets that are accessible at themeasurement date for identical, unrestricted assets or liabilities;

 

**Level 2**                   Quoted prices in markets that are notconsidered to be active or financial instruments without quoted market prices,but for which all significant inputs are observable, either directly orindirectly;

 

**Level 3****                  **Prices or valuations that require inputsthat are both significant to the fair value measurement and unobservable.

 

A financial instrument’slevel within the fair value hierarchy is based on the lowest level of any inputthat is significant to the fair value measurement.

 

At December 26, 2009 and December 27, 2008,the carrying value of cash, accounts receivable, accounts payable and accruedliabilities approximate fair values since they are short-term in nature. The carrying 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 $1.2 million and $1.3 million at December 26,2009 and December 27, 2008 respectively.  

 
| ** **          | ** ** | **Fair Value at December 26, 2009** | ** ** |
|---------------------|------------|------------------------------------------|------------|
| ** **          | ** ** | **Level 1**                              | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| Liabilities:        |       |                                     |       |   |   |   |   |   |   |
| Interest rate swaps |       |                                     |       | $ | 452,292 |   |   |   | $ | 452,292 |   |
|                     |            |                                          |            |  |  |  |  |  |  |  |  |

 

Considerable judgment is required in interpretingmarket data to develop the estimate of fair value of our derivative instruments. Accordingly, the estimate may not be indicative of the amounts that the Companycould realize in a current market exchange.  The use of different marketassumptions or valuation methodologies could have a material effect on theestimated fair value amounts.

 

***DerivativeFinancial Instruments***

 

The Company utilizes interest rate swaps in themanagement of its variable interest rate exposure and does not enter intoderivatives for trading purposes.  All derivatives are measured at fairvalue.  The Company’s interest rate swaps are classified as cash flowhedges.

 

***Cash and CashEquivalents***

 

The Company considers all highly liquid investmentspurchased with an original maturity of three months or less to be cashequivalents.

 

***Accounts Receivable***

 

Accounts receivable consist primarily of receivablesfrom customers and distributors for products purchased.   Receivableare past due when they are unpaid greater than thirty days.  The Companydetermines any required reserves by considering a number of factors, includingthe length of time the accounts receivable have been outstanding, and theCompany’s loss history.  The Company maintains an allowance for doubtfulaccounts for estimated losses resulting from the inability of its customers tomake required payments.

 

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***Inventories***

 

Inventories are stated at the lower of cost (first-in,first-out) or market.  The Company identifies slow moving or obsoleteinventories and estimates appropriate write-down provisions relatedthereto.  If actual market conditions are less favorable than thoseprojected by management, additional inventory write-downs may be required.

 

***Property andEquipment***

 

Property and equipment are recorded at cost. Cost includes expenditures for major improvements and replacements. Maintenance and repairs are charged to operations when incurred.  Whenassets are retired or otherwise disposed of, the related costs and accumulateddepreciation are removed from the appropriate accounts, and the resulting gainor loss is recognized.  Depreciation expense is computed using thestraight-line method over the estimated useful lives of the assets, rangingfrom two to thirty years.  We capitalize certain computer software andsoftware development costs incurred in connection with developing or obtainingcomputer software for internal use. Capitalized software costs are included inproperty, plant and equipment and amortized on a straight-line basis whenplaced into service over three years.

 

The Company evaluates the recoverability of propertyand equipment not held for sale by comparing the carrying amount of the assetor group of assets against the estimated undiscounted future cash flowsexpected to result from the use of the asset or group of assets and theireventual disposition, in accordance with relevant authoritative guidance. Ifthe undiscounted future cash flows are less than the carrying value of theasset or group of assets being evaluated, an impairment loss is recorded. Theloss is measured as the difference between the fair value and carrying value ofthe asset or group of assets being evaluated. Assets to be disposed of arereported at the lower of the carrying amount or the fair value less cost tosell. The estimated fair value would be based on the best information availableunder the circumstances, including prices for similar assets or the results ofvaluation techniques, including the present value of expected future cash flowsusing a discount rate commensurate with the risks involved.

 

***Intangible Assets***

 

Goodwill and trademarks are reviewed for impairmentannually, or more frequently if impairment indicators arise. Goodwill, byreporting unit, is required to be tested for impairment between the annualtests if an event occurs or circumstances change that more-likely-than-notreduces the fair value of a reporting unit below its carrying value. Intangibleassets with indefinite lives are required to be tested for impairment betweenthe annual tests if an event occurs or circumstances change indicating that theasset might be impaired.   Amortizable intangible assets areamortized using the straight-line method over their estimated useful lives,which is the estimated period over which economic benefits are expected to beprovided.

 

Management believes that each of our trademarks hasthe continued ability to generate cash flows indefinitely, and therefore eachof our trademarks has been determined to have an indefinite life. Management’sdetermination that our trademarks have indefinite lives includes an evaluationof historical cash flows and projected cash flows for each of these trademarks.In addition, there are no legal, regulatory, contractual, economic or otherfactors to limit the useful life of these trademarks, and management intends torenew each of these trademarks, which can be accomplished at little cost.

 

In 2009 and 2008, the Company conducted its annualreview of intangible assets and believes the carrying values are appropriate.

 

***Self-InsuranceReserves***

 

The Company is partially self-insured for the purposesof providing health care benefits to employees covered by its insuranceplan.  The plan covers all full-time employees of the Company on the firstday of the month after hiring date for salaried employees, and the first day ofthe month following the ninetieth day of service for hourly employees. The plan covers the employee’s dependents, if elected by the employee. The Company has contracted with an insurance carrier for stop loss coveragethat comments when $75,000 in claims is paid annually for a coveredparticipant.  In addition, the Company has contracted for aggregate stoploss insurance which provides coverage after the maximum amount paid by theCompany exceeds approximately $1.5 million.   Estimated unpaid claimsincluded in accrued liabilities amount to $187,774 and $275,877 at December 26,2009 and December 27, 2008 respectively.   These amountsrepresents management’s best estimate of amounts that have not been paid priorto the year-end dates.  It is reasonably possible that the expense theCompany will ultimately incur could differ.

 

***Revenue Recognition***

 

In accordance with accounting principles generallyaccepted in the United States, the Company recognizes operating revenues uponshipment of products to customers provided title and risk of loss pass to itscustomers. In those instances where title and risk of loss does not pass untildelivery, revenue recognition is deferred until delivery has occurred. Revenue for products sold through our direct store delivery distributed productsegment is recognized when 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.

 

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***Advertising andPromotional Expenses and Trade Spending***

 

The Company expenses production costs of advertisingthe first time the advertising takes place, except for cooperative advertisingcosts which are expensed when the 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 offers consideration (cash or credit) as a tradeadvertising or promotional allowance to a purchaser of products at any pointalong the distribution chain, the amount is accrued and recorded as a reductionin revenue when the transaction occurs.  Marketing programs that dealdirectly with the consumer, primarily consisting of in-storedemonstration/samples, are recorded as a marketing expense in selling, generaland administrative expenses. Further discussion of these marketing programs isexpanded upon below:

 

·      Demonstrations/Samples:   The Company will periodically arrange in-store productdemonstrations with club stores (i.e. Sam’s, Costco or BJ’s) or groceryretailers. Product demonstrations are conducted by independent third partyproviders designated by the various retailer or club chains. During thein-store demonstrations the consumers in the stores receive small samples ofour products, and consumers are not required to purchase our product in orderto receive the sample. The cost of product used in the demonstrations, which isinsignificant, and the fee paid to the independent third party providers whoconduct the in-store demonstrations are recorded as a sales and marketingexpense in selling, general and administrative expenses.

 

·      Sponsorships :   The Company is a nationalco-sponsor of American Rivers, a leading conservationorganization protecting and restoring America’s rivers.  The Companydonates a portion of each Boulder Canyon bag sold and is allowed to use theAmerican Rivers mark on packaging and printed materials as well as directlypromote products to members and river cleanup volunteers.

 

***Shipping andHandling***

 

Shipping and handlingcosts are included in cost of revenues.  The Company does not billcustomers for freight.

 

***Income Taxes***

 

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

 

We record net deferredtax assets to the extent we believe these assets will more likely than not berealized. In making such determination, we consider all available positive andnegative evidence, including future reversals of existing taxable temporarydifferences, projected future taxable income, tax planning strategies andrecent financial operations.  Failure toachieve forecasted taxable income in applicable tax jurisdictions could affectthe ultimate realization of deferred tax assets and could result in an increasein the Company’s effective tax rate on future earnings.  A valuation allowance is provided when it ismore likely than not that some portion or all of the deferred tax assets willnot be realized.  The authoritativeguidance provides that a tax benefit from an uncertain tax position may berecognized when it is more likely than not that the position will be sustainedupon examination, including resolutions of any related appeals or litigationprocesses, based on the technical merits.  The tax benefit is measuredbased on the largest benefit that has a greater than 50% likelihood of beingrealized upon ultimate settlement*.*

 

It is the Company’s policy to recognize interest andpenalties accrued on any unrecognized tax benefits as a component of income taxexpense. The Company does not have any accrued interest or penalties associatedwith any unrecognized tax benefits, nor was any interest or penalties recordedduring the years ended December 26, 2009 and December 27, 2008.

 

The Company files income tax returns in the U.S.federal jurisdiction and various state jurisdictions. The Company’s U.S.federal income tax returns for years 2006 through 2009 remain open toexamination by the Internal Revenue Service. The Company’s state tax returnsfor years 2005 through 2009 remain open to examination by the state.

 

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***Stock Options andStock-Based Compensation***

 

Stock options and other stock based compensationawards expense are adjusted for estimated forfeitures and are recognized on astraight-line basis over the requisite period of the award, which is currentlyfive to ten years for stock options, and three years for restricted stock.  The Company estimates future forfeiture ratesbased on its historical experience.

 

Compensation costs related to all share-based paymentarrangements, including employee stock options, are recognized in the financialstatements based on the fair value method of accounting. Excess tax benefitsrelated to share-based payment arrangements be classified as cash inflows fromfinancing activities and cash outflows from operating activities.

 

See Footnote 8 “Shareholder’s Equity” for additionalinformation.

 

***Earnings Per CommonShare***

 

Basic earnings per common share is computed by dividingnet income by the weighted average number of shares of common stock outstandingduring the period. Diluted earnings per share is calculated by including alldilutive common shares such as stock options and restricted stock. The totalstock options outstanding of 2,130,500 and restricted shares outstanding of124,353 were excluded from the weighted average per share calculation for theyear ended December 26, 2009 because inclusion of such would beanti-dilutive.  The total stock optionsoutstanding of 2,223,833 and restricted shares outstanding of 35,853 wereexcluded from the weighted average per share calculation for the year ended December 27,2008 because inclusion of such would be anti-dilutive.  Exercises of outstanding stock options orwarrants are assumed to occur for purposes of calculating diluted earnings pershare for periods in which their effect would not be anti-dilutive. Earningsper common share was computed as follows for the years ended December 26,2009 and December 27, 2008:

 
| ** **                                                                        | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Basic  Earnings Per Common Share:**                                             |       |       |       |       |       |
| Net income                                                                        |       | $          | 3,781,639  |       | $          | 2,369,291 |   |
|                                                                              |       |       |       |       |       |
| Weighted average number  of common shares                                         |       | 17,955,165 |       | 18,736,331 |       |
| Earnings per common  share                                                        |       | $          | 0.21       |       | $          | 0.13 |   |
|                                                                              |       |       |       |       |       |
| **Diluted  Earnings Per Common Share:**                                           |       |       |       |       |       |
| Net income                                                                        |       | $          | 3,781,639  |       | $          | 2,369,291 |   |
|                                                                              |       |       |       |       |       |
| Weighted average number  of common shares                                         |       | 17,955,165 |       | 18,736,331 |       |
| Incremental shares from  assumed conversions - stock options and restricted stock |       | 284,215    |       | —     |       |
| Adjusted weighted  average number of common shares                                |       | 18,239,380 |       | 18,736,331 |       |
|                                                                              |       |       |       |       |       |
| Earnings per common  share                                                        |       | $          | 0.21       |       | $          | 0.13 |   |

 

***SubsequentEvents***

 

Subsequentevents are events or transactions that occur after the balance sheet date butbefore financial statements are issued. The Company recognizes in the financialstatements the effects of all subsequent events that provide additionalevidence about conditions that existed at the date of the balance sheet,including the estimates inherent in the process of preparing the financialstatements. The Company’s financial statements do not recognize subsequentevents that provide evidence about conditions that did not exist at the date ofthe balance sheet but arose after the balance sheet date and before financialstatements are issued. The Company has evaluated subsequent events throughMarch 26, 2010, which is the date the financial statements were issued. 

 

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***Recent AccountingPronouncements***

 

In August 2009, the Financial AccountingStandards Board (“FASB”) issued guidance on the measurement of liabilities atfair value. The guidance provides clarification that in circumstances in whicha quoted market price in an active market for an identical liability is notavailable, an entity is required to measure fair value using a valuationtechnique that uses the quoted price of an identical liability when traded asan asset or, if unavailable, quoted prices for similar liabilities or similarassets when traded as assets. If none of this information is available, anentity should use a valuation technique in accordance with existing fairvaluation principles. The Company adopted this guidance in the quarter ended September 26,2009 and there was no material impact on the Company’s financial position,results of operations or liquidity.

 

In June 2009, the FASB issued guidance related tothe FASB Accounting Standards Codification (“ASC”). Effective for interim orannual financial periods ending after September 15, 2009, the ASC is thesingle source of authoritative generally accepted accounting principles in theUnited States of America (“U.S. GAAP”) and changes the referencing ofaccounting standards. The ASC is not intended to change or alter existing U.S.GAAP; however the way authoritative literature is referred to has changedeffective in the third quarter of 2009. The Company has adopted the provisionsof the ASC effective September 26, 2009 and there was no material impacton the Company’s financial position, results of operations or liquidity.

 

In May 2009, the FASB issued guidelines onsubsequent  event accounting which defines subsequent events as events ortransactions that occur after the balance sheet date but before financialstatements are issued or are available to be issued, and establishes generalstandards of accounting for and disclosure of subsequent events. The newguidance also includes a required disclosure of the date through which anentity has evaluated subsequent events, which for public entities is the dateupon which the financial statements are issued. The guidance is effective forinterim or annual financial periods ending after June 15, 2009, and shallbe applied prospectively. The Company adopted this guidance for the interimperiod ended June 27, 2009 and there was no material impact on the Company’sfinancial position, results of operations or liquidity.

 

In April 2009, the FASB issued three related setsof accounting guidance which sets forth rules related to determining thefair value of financial assets and financial liabilities when the activitylevels have significantly decreased in relation to the normal market, guidancerelated to the determination of other-than-temporary impairments to include theintent and ability of the holder as an indicator in the determination ofwhether an other-than-temporary impairment exists and interim disclosurerequirements for the fair value of financial instruments.  The adoption ofthe three sets of accounting guidance did not have a material impact on theCompany’s financial position, results of operations or liquidity.

 

In March 2008, the FASB issued new disclosurerequirements regarding derivative instruments and hedging activities. The newguidance applies to all entities and requires enhanced disclosures about howand why an entity uses derivative instruments, how derivative instruments andrelated hedged items are accounted for and their effect on an entity’sfinancial position, financial performance, and cash flows. This guidance iseffective for fiscal years and interim periods beginning after November 15,2008 and the adoption of this guidance had no impact on the Company’s financialposition, results of operations or liquidity.

 

In December 2007, the FASB issued new guidance onnon-controlling interests in consolidated financial statements.  Thisguidance establishes accounting and reporting standards for the non-controllinginterest in a subsidiary and for the deconsolidation of a subsidiary.  Italso establishes disclosure requirements that clearly identify and distinguishbetween the controlling and non-controlling interests and requires the separatedisclosure of income attributable to controlling and non-controlling interests.The guidance is effective for fiscal years and interim periods beginning after December 15,2008 and the adoption had no impact on the Company’s financial position,results of operations or liquidity.

 

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**2.     Goodwill,Trademarks, and Other Intangible Assets:**

 

Goodwill, trademarks and other intangibles, netconsisted of the following as of December 26, 2009 and December 27,2008:

 
| ** **                                              | ** ** | **Estimated  Useful Life** | ** ** | **December 26,  2009** | ** ** | **December 27,  2008** | ** ** |
|---------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Goodwill:                                               |       |                            |       |                        |       |                        |       |
| The Inventure  Group, Inc.                         |       |                            |       | $                           | 5,986,252  |                        | $          | 5,986,252 |   |
| Rader Farms, Inc.                                  |       |                            |       | 5,629,973                   |       | 5,629,973                   |       |
|                                                    |       |                            |       |                        |       |                        |       |
| Total goodwill                                          |       |                            |       | $                           | 11,616,225 |                        | $          | 11,616,225 |   |
|                                                    |       |                            |       |                        |       |                        |       |
| 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   |       |                            |       | (82,676                     | )          | (50,673                     | )          |
| Rader - Customer  relationship, gross carrying amount   |       | 10 years                        |       | 100,000                     |       | 100,000                     |       |
| Rader - Customer  relationship, accum. amortization     |       |                            |       | (25,822                     | )          | (15,826                     | )          |
|                                                    |       |                            |       |                        |       |                        |       |
| Total trademarks and  other intangibles, net            |       |                            |       | $                           | 2,757,161  |                        | $          | 2,799,160 |   |

 

The weighted average useful life of amortizableintangible assets is 6.92 years.  The trademarks are deemed to have anindefinite useful life because they are expected to generate cash flowsindefinitely.  Amortization expense forthe years ending December 26, 2009 and December 27, 2008 was $41,999and $28,582, respectively. As of December 26, 2009, we expect amortizationexpense on these intangible assets over the next five years to be as follows:

 
| 2010 |   | $ | 42,000 |   |
|------|--------|---|--------|--------|
| 2011 |   | $ | 42,000 |   |
| 2012 |   | $ | 23,324 |   |
| 2013 |   | $ | 10,000 |   |
| 2014 |   | $ | 10,000 |   |

 

Goodwill and trademarks are reviewed for impairmentannually in the second fiscal quarter, or more frequently if impairmentindicators arise. Goodwill is required to be tested for impairment between theannual tests if an event occurs or circumstances change thatmore-likely-than-not reduces the fair value of a reporting unit below itscarrying value. Intangible assets with indefinite lives are required to betested for impairment between the annual tests if an event occurs orcircumstances change indicating that the asset might be impaired. The Companybelieves the carrying values of its intangible assets are appropriate.

 

**3.****     ****AccruedLiabilities:**

 

Accrued liabilities consisted of the following as of December 26,2009 and December 27, 2008:

 
| ** **                         | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|------------------------------------|------------|-----------|------------|-----------|------------|
| Accrued payroll and  payroll taxes |       | $         | 1,635,564  |      | $          | 1,531,079 |   |
| Accrued royalties and  commissions |       | 809,095   |       | 679,152   |       |
| Accrued advertising and  promotion |       | 1,327,021 |       | 669,256   |       |
| Accrued other                      |       | 1,542,500 |       | 1,502,591 |       |
|                               |       | $         | 5,314,180  |      | $          | 4,382,078 |   |

 

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**4.****    ****Inventories:**

 

Inventories consisted of thefollowing as of December 26, 2009 and December 27, 2008:

 
| ** **     | ** ** | **2009**   | ** ** | **2008**  | ** ** |
|----------------|------------|------------|------------|-----------|------------|
| Finished goods |       | $          | 5,558,696  |      | $          | 4,615,228 |   |
| Raw materials  |       | 11,886,467 |       | 9,364,298 |       |
|           |       | $          | 17,445,163 |      | $          | 13,979,526 |   |

 

**5.     Propertyand Equipment:**

 

Property and equipment consisted of the following asof December 26, 2009 and December 27, 2008:

 
| ** **                                      | ** ** | **Useful Lives** | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|-------------|------------|-------------|------------|
| Buildings and improvements                      |       | 20 – 30 years    |       | $           | 11,371,130 |        | $          | 10,797,734 |   |
| Equipment                                       |       | 7 – 15 years     |       | 25,278,715  |       | 23,444,317  |       |
| Land                                            |       | —                |       | 346,506     |       | 346,506     |       |
| Vehicles                                        |       | 5 years               |       | 61,689      |       | 117,918     |       |
| Furniture and office  equipment                 |       | 2 – 5 years      |       | 4,382,689   |       | 4,133,450   |       |
|                                            |       |                  |       | 41,440,729  |       | 38,839,925  |       |
| Less accumulated  depreciation and amortization |       |                  |       | (17,705,808 | )          | (14,291,865 | )          |
|                                            |       |                  |       | $           | 23,734,921 |        | $          | 24,548,060 |   |

 

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

 

Long-term debt consisted of the following as of December 26,2009 and December 27, 2008:

 
| ** **                                                                                                                                                                                                         | ** ** | **December 26,  2009** | ** ** | **December 27,  2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Mortgage loan due  monthly through July, 2012; interest at 9.03%; collateralized by land  and building in Goodyear, AZ                                                                                        |       | $                           | 1,515,079  |                        | $          | 1,577,093 |   |
| 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        |       | 2,220,877                   |       | 2,284,909                   |       |
| Equipment term loan due  monthly through May, 2014; interest at LIBOR plus 165 basis points;  collateralized by equipment at Rader Farms in Lynden, WA                                                        |       | 3,857,143                   |       | 4,714,286                   |       |
| 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 |       | 3,612,125                   |       | 3,780,919                   |       |
| Vehicle term loan and  other miscellaneous loans due in various monthly installments through  February, 2011; collateralized by vehicles                                                                           |       | 29,868                      |       | 88,183                      |       |
| Office Equipment leases  due June 2012                                                                                                                                                                        |       | 7,285                       |       | 10,200                      |       |
|                                                                                                                                                                                                               |       | 11,242,377                  |       | 12,455,590                  |       |
| Less current portion of  long-term debt                                                                                                                                                                            |       | (1,204,475                  | )          | (1,204,080                  | )          |
| Long-term debt, less  current portion                                                                                                                                                                              |       | $                           | 10,037,902 |                        | $          | 11,251,510 |   |

 

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Annual maturities of long-term debt as of December 26,2009 are as follows:

 
| **Year**   |   |      |       |
|------------|--------|-----------|------------|
| 2010       |   | $         | 1,204,475  |   |
| 2011       |   | 1,207,360 |       |
| 2012       |   | 1,226,846 |       |
| 2013       |   | 1,254,856 |       |
| 2014       |   | 857,156   |       |
| Thereafter |   | 5,491,684 |       |
|       |   | $         | 11,242,377 |   |

 

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

 

·         a $15,000,000revolving line of credit maturing on June 30, 2011; $9,870,590 wasoutstanding at December 26, 2009. Based on eligible assets, the amountavailable under the line of credit was $5,129,410 at December 26, 2009. Asdefined in the revolving credit facility note, all borrowings under therevolving line of credit will bear interest at either (i) the prime rateof interest announced by U.S. Bank from time to time or (ii) LIBOR plusthe LIBOR Rate Margin.  The rate at December 26, 2009 was 3.25%.

·         Equipment term loandue May 2014 noted above.

·         Real estate term loandue July 2017 noted above.

 

U.S. Bank may terminate its commitments and acceleratethe repayment of amounts outstanding and exercise other remedies upon theoccurrence of an event of default (as defined in the Loan Agreement), subject,in certain instances, to the expiration of an applicable cure period. Theagreement requires the Company to maintain compliance with certain financialcovenants, including a minimum tangible net worth, a minimum fixed chargecoverage ratio and a minimum current ratio. At December 26, 2009, theCompany was in compliance with all of the financial covenants. Deferredfinancing fees totaling $119,744, which are included in Other Assets, wererecorded in connection with the Loan Agreement and are being amortized over thelife of the loan.

 

Interest income (expense), net consisted of thefollowing for the fiscal years ended December 26, 2009 and December 27,2008:

 
| ** **            | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
| Interest expense      |       | $        | (879,332   | )        | $          | (1,275,872 | ) |
|                  |       |     |       |     |       |
| Interest income       |       | 525      |       | 337      |       |
|                  |       |     |       |     |       |
| Interest expense, net |       | $        | (878,807   | )        | $          | (1,275,535 | ) |

 

***Interest Rate Swaps***

 

To manage exposure to changing interest rates, theCompany selectively enters into interest rate swap agreements.  TheCompany’s interest rate swaps qualify for and are designated as cash flowhedges.  Changes in the fair value of a swap that is highly effective andthat is designated and qualifies as a cash flow hedge to the extent that thehedge is effective, are recorded in other comprehensive income (loss).

 

The Company entered into an interest rate swap in 2006to convert the interest rate of the mortgage to purchase the Bluffton, Indianaplant from the contractual rate of 30 day LIBOR plus 165 basis points to afixed rate of 6.85%. On September 28, 2008, the Company’s first day of itsfiscal fourth quarter, the Company prospectively redesignated the hedgingrelationship to a cash flow hedge.  The swap has a fixed pay-rate of6.85% and a notional amount of approximately $2.2 million at December 26,2009 and expires in December, 2016.  We evaluate the effectiveness of thehedge on a quarterly basis and at December 26, 2009 the hedge is highlyeffective.  The interest rate swap had fair value of ($244,442) at December 26,2009, which is recorded as a liability on the accompanying consolidated balancesheet.  The swap value was determined in accordance with the fairvalue measurement guidance discussed earlier using Level 2 observable inputsand approximates the loss that would have been realized if the contract hadbeen settled on December 26, 2009.  An unrealized loss of $138,528was recorded as interest expense in the Company’s condensed, consolidatedstatement of operations during the three quarters ending September 27,2008, associated with this swap.

 

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The Company entered into another interest rate swap inJanuary 2008 to effectively convert the interest rate on the real estateterm loan to a fixed rate of 4.28%.  The interest rate swap is structuredwith decreasing notional amounts to match the expected pay down of thedebt.  The notional value of the swap at December 26, 2009 was $3.6million.  The interest rate swap is accounted for as a cash flow hedgederivative and expires in July 2017.  We evaluate the effectiveness of thehedge on a quarterly basis and during the year ended December 26, 2009 thehedge is highly effective.  The interest rate swap had fair value of($207,850) at December 26, 2009, which is recorded as a liability on theaccompanying consolidated balance sheet, and was recorded in “Accumulated othercomprehensive income,” all of which represents the change in fair value for theyear ended December 26, 2009.  This value was determined inaccordance with the fair value measurement guidance discussed earlier usingLevel 2 observable inputs and approximates the loss that would have beenrealized if the contract had been settled on December 26, 2009.

 

**7.    Commitments and Contingencies:**

 

The Company is periodically a party to variouslawsuits arising in the ordinary course of business. Management believes, basedon discussions with legal counsel, that the resolution of such lawsuits,individually and in the aggregate, will not have a material adverse effect onthe Company’s financial position or results of operations. See Note 11, “Litigation”.

 

The Company leases one-half of a 200,000 square footfacility in Bluffton, Indiana which is used as a distribution center. TheCompany entered into an operating lease, the initial term expiring in November 2006,with respect to the facility and has entered into the second of two three-yearrenewal options. Current lease payments are approximately $32,500 per month.The Company also has entered into a service agreement expiring in December 2010with 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 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 ofthe four, Brad Rader, is a current employee of the Company and two of the others,Lyle and Sue Rader, were the former owners of Rader Farms. This operating leasecommenced on the acquisition date and is effect until May 17, 2017. Leasepayments are $43,500 per month throughout the term of the lease.

 

In addition to the Company’s facility and land leases,the Company has entered into a variety of operating leases for equipment andvehicles.  Rental expense under all operating leases was $2,176,797 and$2,111,242 for fiscal 2009 and 2008, respectively.  Minimum future rentalcommitments under non-cancelable leases as of December 26, 2009 are asfollows:

 
| **Year**   | ** ** | **Operating  Leases** | ** ** |
|------------|------------|-----------------------|------------|
| 2010       |       | $                     | 1,355,000  |   |
| 2011       |       | 1,230,000             |       |
| 2012       |       | 1,282,000             |       |
| 2013       |       | 908,000               |       |
| 2014       |       | 921,000               |       |
| Thereafter |       | 2,397,000             |       |
| Total      |       | $                     | 8,093,000  |   |

 

The Company licenses technology from a third party inconnection with the manufacture of its T.G.I. Friday’s® and Tato Skins® brandproducts and has a royalty-bearing, exclusive right license to use thetechnology in the United States, Canada, and Mexico until such time the partiesmutually agree to terminate the agreement and provide written sixty (60) daysnotice to each other.  Even though the patent for this technology expiredDecember 26, 2006, in consideration for the use of this technology, the Companyis required to make royalty payments to the third party on sales of productsmanufactured utilizing the technology until such termination date. 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.

 

The Company licenses the T.G.I. Friday’s® brand snackstrademark from T.G.I. Friday’s Inc. under a license agreement with a termexpiring in 2014.  Pursuant to the license agreement, the Company isrequired to make royalty payments on sales of T.G.I. Friday’s® brand snackproducts and is required to achieve certain minimum sales levels by certaindates during the contract term.

 

The Company licenses the BURGER KING TM brand snacks trademark from Burger KingCorporation under a license agreement with a term expiring in 2012. Pursuant to the license agreement, the Company is required to make royaltypayments on sales of BURGER KING TM brandsnack products and is required to achieve certain minimum sales levels bycertain dates during the contract term.

 

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**8.    Shareholders’ Equity:**

 

***Common Stock***

 

Approximately 4.3 million shares of outstanding CommonStock issued by the Company are subject to “piggyback” registration rightsgranted by the Company, pursuant to which such shares of Common Stock may beregistered under the Securities Act and, as a result, become freely tradable inthe future.  The Company will be required to pay all expenses relating toany such registration, other than underwriting discounts, selling commissionsand stock transfer taxes applicable to the shares, and any other fees andexpenses incurred by the holder(s) of the shares (including, withoutlimitation, legal fees and expenses) in connection with the registration. All or a portion of such shares may, at the election of the holders thereof, beincluded in any future registration statement of the Company and, upon theeffectiveness thereof, may be sold in the public markets.

 

On June 1, 2009, the Company issued to its ChiefExecutive Officer 52,000 shares of restricted stock under the Company’s 2005Equity Incentive Plan, subject to vesting in equal installments over threeyears.  The restricted stock was valued at the fair market value of theCommon Stock on the close of business of the day prior to the date of grant,and the resulting deferred compensation expense of $124,280 is being amortizedover the vesting period.  For the year ended December 26, 2009,compensation expense related to this award of $24,165 is included in selling,general, and administrative expenses.

 

On June 1, 2009, the Company issued to its ChiefFinancial Officer 37,000 shares of restricted stock under the Company’s 2005Equity Incentive Plan, subject to vesting in equal installments over threeyears.  The restricted stock was valued at the fair market value of theCommon Stock on the close of business of the day prior to the date of grant,and the resulting deferred compensation expense of $88,430 is being amortizedover the vesting period.  As of December 26, 2009, compensationexpense related to this award of $17,195 is included in selling, general, andadministrative expenses.

 

On August 1, 2005, the Company issued to itsSenior Vice President of Marketing 35,353 shares of restricted stock under theCompany’s 2005 Equity Incentive Plan, subject to vesting in equal annualinstallments over three years.  The restricted stock was valued at thefair market value of the Common Stock on the date of grant, and the resultingdeferred compensation expense was $175,000.  During 2009 and 2008,compensation expense of $-0- and $31,812, respectively, related to this awardis included in selling, general and administrative expenses.

 

During the years ended December 26, 2009 and December 27,2008, the total share-based compensation expense from restricted stockrecognized in the financial statements was $41,360 and $31,182, respectively.There were no share-based compensation costs which were capitalized. As of December 26,2009 and December 27, 2008 the total unrecognized costs related tonon-vested restricted stock awards granted were $171,350 and $0, respectively.The Company expects to recognize such costs in the financial statements over aweighted-average period of three years.

 

***Preferred Stock***

 

The Company has authorized 50,000 shares of $100 parvalue Preferred Stock, none of which is outstanding.  The Company mayissue such shares of Preferred Stock in the future without shareholderapproval.

 

***Stock Options***

 

The Company’s 1995 Stock Option Plan (the “1995 Plan”),as amended, provided for the issuance of options to purchase 3,500,000 sharesof Common Stock.  The options granted pursuant to the 1995 Plan expireover a five-year period and generally vest over three years.  In additionto options granted under the 1995 Plan, the Company also issued non-qualifiedoptions (non-plan options) to purchase Common Stock to certain Directors andOfficers which are exercisable and expire either five or ten years from date ofgrant.  All options are issued at an exercise price of fair market valueat the date of grant and are non-compensatory.  The 1995 Plan expired in May 2005with 410,518 reserved but unissued shares of Common Stock available forissuance 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 2005Annual Meeting of Shareholders and reserved for issuance that number of sharesof Common Stock determined by adding (a) 410,518, which is the number of reservedbut unissued shares available for issuance under the 1995 Plan, (b) 500,000,which is the number of additional shares approved by the stockholders on May 23,2006 to be added to the 2005 Plan, (c) 500,000, which is the number ofadditional shares approved by the stockholders on May 19, 2008 to be addedto the 2005 Plan and (d) 500,000, which is the number of additional sharesapproved by the stockholders on May 19, 2009 to be added to the 2005Plan.  If any shares of Common Stocksubject to awards granted under the 1995 Plan or the 2005 Plan are canceled,those shares will be available for future awards under the 2005 Plan.  The2005 Plan expires in May 2015, and awards granted under the 2005 Plan mayinclude: nonqualified stock options, incentive stock options, restricted stock,restricted stock units, stock appreciation rights, performance units andstock-reference awards.  Prior to May 2008, all stock option grantshad a five year term. The fair value of these stock option grants is amortizedto expense over the vesting period, generally three years for employees and oneyear for the Board of Directors.

 

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In May 2008, the Company’s Board of Directorsapproved a ten year term for all future employee stock option grants and a fiveyear term for all future Board of Director grants. The vesting periods forthese stock option grants are five years and one year for employees and Boardof Director members, respectively.  As of December 26, 2009, therewere 501,892 shares of Common Stock available for Awards under the 2005 Plan.

 

Total share-based compensation expense from vestedoptions recognized in the financial statements was $242,382 in 2009 and$260,925 in 2008 which reduced income from operations accordingly. There wereno share-based compensation costs which were capitalized.

 

There were 5,473 and -0- stock options exercisedduring the year ended December 26, 2009 and December 27, 2008respectively.

 

The fair value of each stock option grant wasestimated on the date of grant using the Black-Scholes option pricing modelwith the following weighted-average assumptions for the years ended:

 
| ** **                                       | ** ** | **2009**   | ** ** | **2008**  | ** ** |
|--------------------------------------------------|------------|------------|------------|-----------|------------|
| Expected dividend yield                          |       | 0          | %          | 0         | %          |
| Expected volatility                              |       | 73         | %          | 46        | %          |
| Risk-free interest rate                          |       | 2.9% - 3.7 | %          | 1% - 3    | %          |
| Expected life –  Employees options          |       | 6.5 years  |       | 3.5 years |       |
| Expected life – Board  of directors options |       | 3.0 years  |       | 1.4 years |       |

 

The expected dividend yield was based on the Company’sexpectation of future dividend payouts. The volatility assumption was based onhistorical volatility during the time period that corresponds to the expectedlife of the option. The expected life (estimated period of time outstanding) ofstock options granted was estimated based on the average of the contractualterm of the options and the weighted average vesting period for all optiontranches. The risk-free interest rate assumption was based on the interest rateof U.S. Treasuries on the date the option was granted.

 

As of December 26, 2009, the amount ofunrecognized compensation expense to be recognized over the next two years isapproximately $0.3 million. This expected compensation expense does not reflectany new awards, or modifications to existing awards, that could occur in thefuture. Generally, the Company issues new shares upon the exercise of stockoptions as opposed to reissuing treasury shares.

 

During fiscal years 2008 and 2009, stock optionactivity was as follows:

 
| ** **                       | ** ** | **Plan Options**    | ** ** | **Non-Plan Options**                  | ** ** |
|----------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| 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       |   | — |   | $ | 3.60 |   |
| Granted                          |       | 375,000                  |       | 2.20                                       |       | — |   | — |   |
| Canceled                         |       | (462,860                 | )          | 2.59                                       |       | — |   | — |   |
| Exercised                        |       | (5,473                   | )          | 2.10                                       |       | — |   | — |   |
| Balance,  December 26, 2009 |       | 2,130,500                |       | $                                          | 2.26       |   | — |   | $ | — |   |

 

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The following table summarizes information about stockoptions outstanding and exercisable at December 26, 2009:

 
| **Range of  Exercise Prices** | ** ** | **Options  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Life  (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|------------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
| $1.24 - $1.94                           |       | 990,000                  |       | 6.6                                                                          |       | $                                      | 1.79       |                     | 280,667    |                                   | $          | 1.84 |   |
| $2.26 - $2.82                           |       | 1,050,500                |       | 3.9                                                                          |       | $                                      | 2.60       |                     | 573,833    |                                   | $          | 2.70 |   |
| $3.12 - $5.00                           |       | 90,000                   |       | 2.2                                                                          |       | $                                      | 3.33       |                     | 70,000     |                                   | $          | 3.39 |   |
|                                    |       | 2,130,500                |       | 5.1                                                                          |       | $                                      | 2.26       |                     | 924,500    |                                   | $          | 2.49 |   |

 

The following table summarizes information about stockoptions 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 table below summarizes the number of exercisableoptions outstanding and the weighted average exercise prices for each of theprevious two fiscal years:

 
| ** **             | ** ** | **Plan Options**                     | ** ** | **Non-Plan Options**                      | ** ** |
|------------------------|------------|-------------------------------------------|------------|------------------------------------------------|------------|
| ** **             | ** ** | **Exercisable Options  Outstanding** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Exercisable Options  Outstanding** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| December 26, 2009 |       | 924,500                                   |       | $                                              | 2.49       |   | — |   | $ | — |   |
| December 27, 2008 |       | 757,834                                   |       | $                                              | 2.77       |   | — |   | $ | — |   |

 

The weighted average grant-date fair value of optionsgranted during the years ending December 26, 2009 and December 27,2008 was $1.44 and $0.53 respectively.

 

The intrinsic value related to total stock optionsoutstanding was $527,500 as of December 26, 2009 and zero as of December 27,2008.  The intrinsic value related to vested stock options outstanding was$134,273 as of December 26, 2009 and zero as of December 27,2008.  The aggregate intrinsic value is based on the exercise price andthe Company’s closing stock price of $2.32 as of December 26, 2009 and$1.60 as of December 27, 2008.

 

***Treasury Stock***

 

In September 2008, the Company’s Board ofDirectors 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”).  The repurchased shares were held astreasury stock and are available for general corporate purposes.  Theprogram expired August 23, 2009 and the Company continues to evaluate itsshare repurchase opportunities.  Below isa table showing repurchased shares under the 2008 program:

 
| **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    |                                                                                          | (729,553   | ) |
|               |       |                                               |       |                                                   |       |                                                                                                              |       |                                                                                          |       |
| 12/28/08 - 3/28/09 |       | 367,957                                            |       | $                                                      | 1.28       |                                                                                                              | 367,957    |                                                                                          | (471,195   | ) |
|               |       |                                               |       |                                                   |       |                                                                                                              |       |                                                                                          |       |
| 3/29/09 - 12/26/09 |       |                                               |       |                                                   |       |                                                                                                              |       |                                                                                          |       |
| Program Remaining  |       |                                               |       |                                                   |       |                                                                                                              |       | $                                                                                             | 799,252    |   |

 

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In August 2007 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 “2007program”).  The repurchased shares were held as treasury stock andwere available for general corporate purposes.  On July 29, 2008, theCompany repurchased 90,000 shares at $1.80 per share for a total cost of$162,000 from Eric J. Kuefel, the Company’s former Chief Executive Officer, onthe open market through M.S. Howells & Co., a broker-dealer in whichMark S. Howells, a director of the Company, is a principal.  M.S. Howells &Co. received a brokerage fee of $1,800, or $0.02 per share in connection withthis transaction.  The 2007 program expired on August 23, 2008.

 

In May, 2006 the Company’s Board of Directors approveda stock re-purchase program whereby up to $3 million of common stock could bepurchased from time to time at the discretion of management (the “2006 program”). The 2006 program expired on February 14, 2007.  The repurchasedshares were held as treasury stock and were available for general corporatepurposes.

 

On December 27, 2008 the Company’s Board ofDirectors approved the retirement of all treasury stock shares purchased underthe 2006, 2007, and 2008 programs.  A total of 1,933,827 shares wereretired at cost.  The Company’s treasury stock balance of shares held asof December 27, 2008 was zero.  Asummary of the retired shares is set forth in the following table.

 
| **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 |   |

 

All shares of common stock were repurchased pursuantto open market transactions.  Common stock held in the Company’s treasuryhas been recorded at cost.

 

**9.****                 ****Income Taxes:**

 

The provision for income taxes consisted of thefollowing for the years ended December 26, 2009 and December 27,2008:

 
| ** **                        | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-----------------------------------|------------|------------|------------|------------|------------|
| Current:                          |       |       |       |       |       |
| Federal                           |       | $          | (1,508,876 | )          | $          | 2,709 |   |
| State                             |       | (355,425   | )          | (122,314   | )          |
|                              |       | (1,864,301 | )          | (119,605   | )          |
| Deferred:                         |       |       |       |       |       |
| Federal                           |       | (619,478   | )          | (1,460,881 | )          |
| State                             |       | 68,092     |       | (141,305   | )          |
|                              |       | (551,386   | )          | (1,602,186 | )          |
| Total provision for  income taxes |       | $          | (2,415,687 | )          | $          | (1,721,791 | ) |

 

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The following table provides reconciliation betweenthe amount determined by applying the statutory federal income tax rate to thepretax income amount for the years ended December 26, 2009 and December 27,2008:

 
| ** **                        | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Provision at statutory  rate      |       | $        | (2,107,091 | )        | $          | (1,390,946 | ) |
| State tax provision,  net         |       | (242,567 | )          | (217,734 | )          |
| Nondeductible expenses  and other |       | (66,029  | )          | (113,111 | )          |
| Income tax provision              |       | $        | (2,415,687 | )        | $          | (1,721,791 | ) |

 

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 26,2009 and December 27, 2008:

 
| ** **                                                | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|
| **Deferred Tax Asset — current** |       |       |       |       |       |
| Net operating loss  carryforward                          |       | $          | —     |       | $          | 196,046 |   |
| Allowance for doubtful  accounts                          |       | 39,419     |       | 31,488     |       |
| Accrued liabilities                                       |       | 492,289    |       | 510,864    |       |
| Other                                                     |       | 120,053    |       | 93,381     |       |
|                                                      |       | 651,761    |       | 831,779    |       |
| **Deferred  Tax Liability — noncurrent**             |       |       |       |       |       |
| Depreciation and  amortization                            |       | (3,253,737 | )          | (2,859,733 | )          |
| AMT minimum tax credit  carryforward                      |       | —     |       | 31,390     |       |
| Unrealized loss on  interest rate swap                    |       | 122,368    |       | 299,077    |       |
| Other                                                     |       | 54,026     |       | —     |       |
|                                                      |       | (3,077,343 | )          | (2,529,266 | )          |
| Net deferred tax  liability                               |       | $          | (2,425,582 | )          | $          | (1,697,487 | ) |

 

The Company experienced significant net losses inprior fiscal years resulting in regular and alternative minimum tax (“AMT”) netoperating loss (“NOL”) carryforwards for federal income tax purposes ofapproximately $0.6 million and $1.1 million at December 27, 2008,respectively.  The Company used allremaining NOL carryforwards during the current year and the regular and AMT NOLcarryforward balances at December 26, 2009 are both $0.  The Company had federal income taxesreceivables of $399,571 and $50,000 as of December 26, 2009 and December 27,2008, respectively.  The Company hadstate income taxes payables of $110,506 and $81,778 as of December 26,2009 and December 27, 2008, respectively.

 

Generally accepted accounting principles require thata valuation allowance be established when it is more-likely-than-not that allor 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 39% under current tax rates.

 

**10.  Business Segments andSignificant Customers:**

 

For the years ended December 26, 2009 and December 27,2008, Costco was the only customer accounting for more than 10% of totalCompany net revenue.  Costco accounted for $27,462,000 or 23% and$27,160,000 or 24%, for fiscal years 2009 and 2008, respectively.

 

The Company’s operations consist of three reportablesegments: manufactured snack products, berry products and distributedproducts.  The manufactured snack products segment produces potato chips,potato crisps and potato skins for sale primarily to snack food distributorsand retailers.  The berry products segment produces frozen berries forsale primarily to groceries and mass merchandisers.  The distributedproducts segment sells snack food products manufactured by other companies tothe Company’s Arizona snack food distributors.  The Company’s reportablesegments offer different products and services.  The majority of theCompany’s revenues are attributable to external customers in the UnitedStates.  The Company does sell tocustomers in Mexico, Canada, the Caribbean, Latin America, South America, theMiddle East, Malta, Germany, India, Hong Kong, Japan, Singapore, Malaysia,Thailand, Taiwan, Philippines, and the United Kingdom as well, however therevenues attributable to those customers are immaterial.  In October 2009,the Company expanded overseas distribution of the snacks it produces underitsBURGERKING TM licensing agreement.  The snacks will be available in 17 newcountries in Asia, Europe, and the Middle East, including China, Turkey, andthe Scandinavian countries.  All of theCompany’s assets are located in the United States.  The Company does notallocate any assets to the distributed products segment.

 

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| ** **                                          | ** ** | **Percent of Net Revenues** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
| Branded snack products                              |       | 57                                         | %          | 59 | % |
| Private label snack  products                       |       | 7                                          | %          | 4 | % |
| Total manufactured  snack products segment revenues |       | 64                                         | %          | 63 | % |
|                                                |       |                                       |       |   |   |
| Berry products                                      |       | 33                                         | %          | 34 | % |
| Distributed products  segment revenues              |       | 3                                          | %          | 3 | % |
|                                                |       |                                       |       |   |   |
| Total revenues                                      |       | 100                                        | %          | 100 | % |

 

In fiscal years 2009 and 2008, the T.G.I. Friday’s®brand snacks represented 33% of the Company’s total net revenues.

 

The accounting policies of the segments are the sameas those described in the Summary of Significant Accounting Policies (Note1).  The Company does not allocate assets, selling, general andadministrative expenses, income taxes or other income and expense to segments.

 
| ** **                                                      | ** ** | **Manufactured  Snack  Products** | ** ** | **Berry  Products** | ** ** | **Distributed  Products** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------|------------|---------------------|------------|---------------------------|------------|------------------|------------|
| **2009**                                                        |       |                              |       |                |       |                      |       |             |       |
| Net revenues from  external customers                           |       | $                                 | 77,054,992 |                | $          | 40,454,978                |       | $                | 3,501,339  |   | $ | 121,011,309 |   |
| Depreciation and  amortization included in segment gross profit |       | 1,086,517                         |       | 601,158             |       | —                    |       | 1,687,675        |       |
| Segment gross profit                                            |       | 16,026,415                        |       | 7,677,178           |       | 118,688                   |       | 23,822,281       |       |
| Goodwill                                                        |       | 5,986,252                         |       | 5,629,973           |       | —                    |       | 11,616,225       |       |
|                                                            |       |                              |       |                |       |                      |       |             |       |
| **2008**                                                        |       |                              |       |                |       |                      |       |             |       |
| Net revenues from  external customers                           |       | $                                 | 71,421,874 |                | 38,404,530 |                      | $          | 3,232,311        |       | $ | 113,058,715 |   |
| Depreciation and  amortization included in segment gross profit |       | 889,057                           |       | 393,285             |       | —                    |       | 1,282,342        |       |
| Segment gross profit                                            |       | 14,445,447                        |       | 7,440,169           |       | 308,693                   |       | 22,194,309       |       |
| Goodwill                                                        |       | 5,986,252                         |       | 5,629,973           |       | —                    |       | 11,616,225       |       |
|                                                                 |            |                                   |            |                     |            |                           |            |                  |            |  |  |  |  |

 

The following table reconciles reportable segmentgross profit to the Company’s consolidated income before income tax provisionfor the years ended December 26, 2009 and December 27, 2008:

 
| ** **                          | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|-------------------------------------|------------|-------------|------------|-------------|------------|
| Segment gross profit                |       | $           | 23,822,281 |        | $          | 22,194,309 |   |
| Unallocated amounts:                |       |        |       |        |       |
| Operating expenses                  |       | (16,746,148 | )          | (16,827,692 | )          |
| Interest expense, net               |       | (878,807    | )          | (1,275,535  | )          |
| Income before income  tax provision |       | $           | 6,197,326  |        | $          | 4,091,082 |   |

 

**11.  Litigation:**

 

The Company is periodically a party to variouslawsuits arising in the ordinary course of business.  Management believes,based on discussions with legal counsel, that the resolution of any suchlawsuits, individually and in the aggregate, will not have a materialadverse effect on the financial statements taken as a whole.

 

The Inventure Group, Inc. was one of eightcompanies sued by the Environmental Law Foundation in August, 2006 in theSuperior Court for the State of California for the County of Los Angeles by theAttorney General of the State of California for alleged violations ofCalifornia Proposition 65. California Proposition 65 is a state law that, inpart, requires companies to warn California residents if a product containschemicals listed within the statute.  The matter was resolved in March 2009,and the Company incurred a settlement liability of $0.2 million.

 

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**12.  Related Party Transactions:**

 

The Company owns the farming operations and theprocessing and storage facility located on 696 acres of land in Lynden,Washington, which is leased from the Uptrails Group LLC, owned by four membersof the Rader family.  One of the four, Brad Rader, is a current employeeof the Company and two of the others, Lyle and Sue Rader, were the formerowners of Rader Farms.  This operating lease commenced on the acquisitiondate and is effect until May 17, 2017.  Lease payments are $43,500per month throughout the term of the lease.

 

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**13.  Accounts ReceivableAllowance:**

 

Changes to the allowance for doubtful accounts duringthe each of the two fiscal years ended December 26, 2009 and December 27,2008 are summarized below:

 
| ** **  | ** ** | **Balance at  beginning of period** | ** ** | **Charges  (Reductions) to  Expense** | ** ** | **(Write-offs)  Collections** | ** ** | **Balance at end  of period** | ** ** |
|-------------|------------|----------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------|------------|----------------------------------------------|------------|
| Fiscal 2009 |       | $                                                  | 80,740     |                                       | 95,994     |                          | (75,658    | )                                            | $          | 101,076 |   |
| Fiscal 2008 |       | $                                                  | 29,161     |                                       | 83,794     |                          | (32,215    | )                                            | $          | 80,740 |   |

 

**14.  Concentrations of CreditRisk:**

 

The Company maintains most of its cash with onefinancial institution.  As of November 1,2008 the FDIC introduced the transaction guarantee program which guaranteednon-interest bearing accounts without limit. The FDIC program is temporary andonly offered through participating financial institutions.  The Company’s primary financial institutionparticipated in this program and therefore all cash balances held with thisinstitution as of December 26, 2009 are insured.

 

The Company’s primary concentration of credit risk isrelated to certain trade accounts receivable.  In the normal course ofbusiness, the Company extends unsecured credit to its customers.  In 2009and 2008, substantially all of the Company’s customers were distributors orretailers whose sales were concentrated in the grocery industry, throughout theUnited States.  The Company investigates a customer’s credit worthinessbefore extending credit.  At December 26, 2009 and December 27,2008, three customers accounted for 29% and 30% of accounts receivable,respectively.

 

**15.  Deferred Compensation Plans**

 

The Company has contributory401(k) plans covering substantially all employees.  The Company may contribute amounts not inexcess of the lesser of the maximum deductions allowable for income taxpurposes or a specific percentage of the of the operating profits of theCompany, as defined in the plan.  TheCompany made contributions totaling $326,637 and $83,957 during the year endedDecember 26, 2009 and December 27, 2008, respectively.

 

The Company also sponsors atrusteed, nonqualified savings plan for employees whose contributions to a taxqualified 401(k) plan would be limited by provisions of the Internal RevenueCode.  The plan allows participants todefer receipt of a portion of their salary and incentive compensation.  The plan was amended in 2009 and the Companyno longer matches any employee contributions to this plan.  During 2008, the Company’s match resulted incompensation expense of $22,130. Participants earn a return on their deferred compensation based oninvestment earnings of participant-selected mutual funds.  Deferred compensation, including accumulatedearnings on the participant-directed investment selections, is distributable incash at participant-specified dates or upon retirement, death, disability ortermination of employments.  At December26, 2009 and December 27, 2008, the plan’s assets and the Company’s liabilityto participants of the deferred compensation plans was $0.2 million and $0.1million, respectively, and is recorded in other assets and other liabilities inthe Consolidated Balance Sheets.

 

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

 

The results for any single quarter are not necessarilyindicative of the Company’s results for any other quarter or the fullyear.  The sum of quarterly earnings per share information may not agreeto the annual amount due to rounding and use of the treasury stock method ofcalculating earnings per share.

 
| **(in 000’s, except for share and  per share data)** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full Year** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| **Fiscal  2009**                                                                             |       |               |       |                |       |               |       |                |       |               |       |
| Net revenues                                                                                 |       | $                  | 29,719     |                | $          | 33,420             |       | $                   | 29,937     |               | $          | 27,935 |   | $ | 121,011 |   |
| Gross profit                                                                                 |       | 6,094              |       | 6,350               |       | 6,723              |       | 4,655               |       | 23,822             |       |
| Operating income                                                                             |       | 1,649              |       | 1,960               |       | 2,440              |       | 1,027               |       | 7,076              |       |
| Net income                                                                                   |       | $                  | 887        |                | $          | 1,037              |       | $                   | 1,304      |               | $          | 554 |   | $ | 3,782 |   |
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| Earnings per common  share:                                                                  |       |               |       |                |       |               |       |                |       |               |       |
| Basic                                                                                        |       | $                  | 0.05       |                | $          | 0.06               |       | $                   | 0.07       |               | $          | 0.03 |   | $ | 0.21 |   |
| Diluted                                                                                      |       | $                  | 0.05       |                | $          | 0.06               |       | $                   | 0.07       |               | $          | 0.03 |   | $ | 0.21 |   |
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| Weighted average number  of common shares:                                                   |       |               |       |                |       |               |       |                |       |               |       |
| Basic                                                                                        |       | 18,164,223         |       | 17,884,429          |       | 17,885,440         |       | 17,887,580          |       | 17,955,165         |       |
| Diluted                                                                                      |       | 18,164,223         |       | 17,955,071          |       | 18,041,679         |       | 18,007,819          |       | 18,239,380         |       |

 
| **(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                                                                             |       | 1,259              |       | 1,336               |       | 2,118              |       | 654                 |       | 5,367              |       |
| Net income                                                                                   |       | $                  | 411        |                | $          | 723                |       | $                   | 1,103      |               | $          | 132 |   | $ | 2,369 |   |
|                                                                                         |       |               |       |                |       |               |       |                |       |               |       |
| Earnings 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         |       |

 

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**EXHIBITINDEX**

 
| 23.1   |   | — |   | Consent of Moss Adams 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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