0001104659-06-074183.txt : 20061113 0001104659-06-074183.hdr.sgml : 20061110 20061113101947 ACCESSION NUMBER: 0001104659-06-074183 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061113 DATE AS OF CHANGE: 20061113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVENTURE GROUP, INC. CENTRAL INDEX KEY: 0000944508 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 860786101 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14556 FILM NUMBER: 061206064 BUSINESS ADDRESS: STREET 1: 3500 S LA COMETA DR CITY: GOODYEAR STATE: AZ ZIP: 85338 BUSINESS PHONE: 6239326200 MAIL ADDRESS: STREET 1: 3500 S LA COMETA DR CITY: GOODYEAR STATE: AZ ZIP: 85338 FORMER COMPANY: FORMER CONFORMED NAME: POORE BROTHERS INC DATE OF NAME CHANGE: 19960926 10-Q 1 a06-21541_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number: 1-14556

THE INVENTURE GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		86-0786101
(State or Other Jurisdiction of Incorporation or		(I.R.S. Employer
Organization)		Identification No.)

5050 N. 40th St., Suite 300, Phoenix, Arizona		85018
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (623) 932-6200

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 19,505,400 as of September 30, 2006.

Table of Contents

Part I.		FINANCIAL INFORMATION

Item 1.		Financial Statements — Unaudited

		Condensed consolidated balance sheets as of September 30, 2006 and December 31, 2005
		Condensed consolidated statements of income for the quarters and nine months ended September 30, 2006 and October 1, 2005
		Condensed consolidated statements of cash flows for the nine months ended September 30, 2006 and October 1, 2005
		Notes to unaudited condensed consolidated financial statements

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Item 4.		Controls and Procedures

Part II.		OTHER INFORMATION

Item 1.		Legal Proceedings

Item 1A.		Risk Factors

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.		Defaults Upon Senior Securities

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

Item 5.		Other Information

Item 6.		Exhibits

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE INVENTURE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30,			December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	9,353,735		$	9,695,245
Accounts receivable, net of allowance of $156,000 in 2006 and $187,000 in 2005	6,183,388			6,671,521
Inventories	2,753,140			2,816,246
Deferred income tax asset	1,267,778			1,806,718
Other current assets	924,174			422,065
Total current assets	20,482,215			21,411,795

Property and equipment, net	9,447,656			10,109,654
Goodwill	5,986,252			5,986,252
Trademarks	4,207,032			4,207,032
Other assets	82,732			88,836
Total assets	$	40,205,887		$	41,803,569
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,602,618		$	3,309,591
Accrued liabilities	3,360,268			3,506,332
Current portion of long-term debt	51,031			529,176
Current portion of accrued costs related to brand discontinuance and other exit cost accruals	98,400			177,424
Total current liabilities	6,112,317			7,522,523

Long-term debt, less current portion	1,642,732			1,681,432
Non-current portion of accrued costs related to brand discontinuance and other exit cost accruals	89,141			179,617
Deferred income tax liability	2,177,140			2,177,140
Total liabilities	10,021,330			11,560,712

Commitments and contingencies (Note 6)

Shareholders’ equity:
Preferred stock, $100 par value; 50,000 shares authorized; no shares issued or outstanding at September 30, 2006 and December 31, 2005	—			—
Common stock, $.01 par value; 50,000,000 shares authorized 20,106,140 and 20,077,080 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively	201,061			200,771
Additional paid-in capital	28,784,114			28,424,817
Retained earnings	2,557,843			1,617,269
	31,543,018			30,242,857
Less: repurchased common stock, at cost: 600,740 shares at September 30, 2006 and no shares at December 31, 2005, respectively	(1,358,461		)	—
Total shareholders’ equity	30,184,557			30,242,857
Total liabilities and shareholders’ equity	$	40,205,887		$	41,803,569

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE INVENTURE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Quarter Ended						Nine Months Ended
	September 30,			October 1,			September 30,			October 1,
	2006			2005			2006			2005


Net revenues	$	17,576,141		$	18,625,985		$	53,669,053		$	58,316,381

Cost of revenues	13,929,567			16,095,991			43,224,109			46,528,681

(Gain) on sale of equipment	—			(194,359		)	—			(194,359		)

Gross profit	3,646,574			2,724,353			10,444,944			11,982,059

Selling, general and administrative expenses	3,166,404			3,233,188			9,053,623			9,875,876

Operating income (loss)	480,170			(508,835		)	1,391,321			2,106,183
Interest income, net	73,356			68,998			176,953			94,728

Income (loss) before income tax provision	553,526			(439,837		)	1,568,274			2,200,911

Income tax (provision) benefit	(224,100		)	171,302			(627,700		)	(854,008		)

Net income (loss)	$	329,426		$	(268,535	)	$	940,574		$	1,346,903
Earnings (loss) per common share:
Basic	$	0.02		$	(0.01	)	$	0.05		$	0.07
Diluted	$	0.02		$	(0.01	)	$	0.05		$	0.07

Weighted average number of common shares:
Basic	19,505,400			19,842,862			19,489,637			19,728,863
Diluted	19,625,173			19,842,862			19,595,364			20,018,528

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE INVENTURE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended
	September 30, 2006			October 1, 2005

Cash flows provided by operating activities:
Net income	$	940,574		$	1,346,903
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	937,616			906,296
Amortization	4,376			4,377
Provision for bad debts	28,965			55,277
Deferred income taxes	538,940			259,567
Share-based compensation expense	153,992			—
Amortization of deferred compensation expense	45,862			4,851
Loss on disposition of equipment	22,056			(174,476		)
Tax benefit from exercise of stock options	(8,916		)	175,928
Change in operating assets and liabilities:
Accounts receivable	459,168			(647,736		)
Inventories	63,106			(825,925		)
Other assets and liabilities	(669,881		)	(597,305		)
Accounts payable and accrued liabilities	(853,037		)	1,489,005
Net cash provided by operating activities	1,662,821			1,996,762

Cash flows used in investing activities:
Purchase of equipment	(302,174		)	(386,819		)
Proceeds from sale of fixed assets	4,500			280,050
Net cash used in investing activities	(297,674		)	(106,769		)

Cash flows used in financing activities:
Proceeds from issuance of common stock	159,733			253,734
Increase in treasury stock	(1,358,461		)	—
Payments made on long-term debt	(516,845		)	(772,218		)
Tax benefit from exercise of stock options	8,916			—
Net cash used in financing activities	(1,706,657		)	(518,484		)
Net increase (decrease) in cash and cash equivalents	(341,510		)	1,371,509
Cash and cash equivalents at beginning of period	9,695,245			9,675,490
Cash and cash equivalents at end of period	$	9,353,735		$	11,046,999

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	136,302		$	97,519
Cash paid during the period for taxes	—			—

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE INVENTURE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies:

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

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

The Company manufactures, markets, sells and distributes its own branded products, in addition to non-branded products consisting of private label products and products sold under third-party brands. Private label products are sold to retailers or distributors using their controlled brand. Third-party brands consist of products manufactured and sold pursuant to license agreements we have signed with other branded companies. As we sign new licensing agreements we determine their viability by test marketing products under the third-party branded name.

In October 2000, the Company launched its T.G.I. Friday’s® brand salted snacks pursuant to a license agreement with TGI Friday’s Inc., which expires in 2014, representing approximately 67% of total net revenue.

In June 2003, the Company launched its Crunch Toons® brand potato snacks, initially featuring characters pursuant to a multi-year license agreement with Warner Bros. Consumer Products. The Company decided to discontinue the brand in June 2004 and ceased using its license agreements with Warner Bros. Consumer Products. Future minimum royalty payments remain related to this discontinuance, as disclosed in Note 5 “Brand Discontinuance”.

In April 2005, the Company launched its Cinnabon® brand pursuant to a license agreement with Cinnabon, Inc. We have decided the Cinnabon® brand license does not currently fit into our strategic plan and therefore the Company is terminating the agreement as disclosed in Note 9 “Special Events”.

Business

The Company is engaged in the development, production, marketing and distribution of innovative snack food products that are sold primarily through grocery retailers, mass merchandisers, club stores, convenience stores and vend distributors across the United States. The Company currently manufactures and sells nationally T.G.I. Friday’s® brand snacks under license from TGI Friday’s Inc., in addition to distributing Braids and pretzels. The Company also currently (i) manufactures and sells its own brands of snack food products, including Poore Brothers®, Bob’s Texas Style®, and Boulder Canyon Natural FoodsTM brand batch-fried potato chips and Tato Skins® brand potato snacks, (ii) manufactures private label potato chips for grocery retail chains in the southwest, and (iii) distributes in Arizona snack food products that are manufactured by others. The Company sells its T.G.I. Friday’s® brand products to mass merchandisers, grocery, club and drug stores directly and to convenience stores and vend operators through independent distributors. The Company’s other brands are also sold through independent distributors.

Basis of Presentation

The condensed consolidated financial statements include the accounts of The Inventure Group, Inc. and all of its wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. The financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary in order to make the condensed consolidated financial statements not misleading. A description of the Company’s accounting policies and other financial information is included in the audited financial statements filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. The results of operations for the quarter and nine months ended September 1, 2006 are not necessarily indicative of the results expected for the full year. In 2005, we had an additional week of results (53rd) week. Our fiscal year ends on the last Saturday of each December, resulting in an additional week of results every five or six years. In these condensed consolidated financial statements, the additional week of results occurred in the third quarter of 2005.

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the period. Exercises of outstanding stock options are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be anti-dilutive. Earnings per common share was computed as follows for the quarters and nine months ending September 30, 2006 and October 1, 2005:

	Quarter Ended					Nine Months Ended
	Sept. 30, 2006		October 1, 2005			Sept. 30, 2006		October 1, 2005

Basic Earnings (Loss) Per Share:
Net income (loss)	$	329,426	$	(268,535	)	$	940,574	$	1,346,903
Weighted average number of common shares	19,505,400		19,842,862			19,489,637		19,728,863
Earnings (loss) per common share	$	0.02	$	(0.01	)	$	0.05	$	0.07

Diluted Earnings (Loss) Per Share:
Net Income (loss)	$	329,426	$	(268,535	)	$	940,574	$	1,346,903

Weighted average number of common shares	19,505,400		19,842,862			19,489,637		19,728,863
Incremental shares from assumed conversions-Stock options	119,773		—			105,727		289,665
Adjusted weighted average number of common shares	19,625,173		19,842,862			19,595,364		20,018,528
Earnings (loss) per common share	$	0.02	$	(0.01	)	$	0.05	$	0.07

Stock Options and Stock-Based Compensation

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

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

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

As originally permitted by SFAS 123, the Company had previously elected to apply the guidance in APB Opinion No. 25, which allowed companies to use the intrinsic value method of accounting to measure the value of share-based payment transactions with employees. Based on this method, the Company had not previously recognized the compensation cost related to employee stock options in the financial statements as the stock options granted had an exercise price equal to the fair market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the provisions of SFAS 123R using the modified prospective application method. Accordingly, prior period amounts have not been restated. Under the modified prospective application method, the compensation cost related to the unvested portion of all awards (including stock options) granted prior to the adoption of SFAS No. 123R, and all new awards will be recognized in the financial statements over the requisite service period based on the fair value of the awards.

During the nine months ended September 30, 2006 and October 1, 2005, the total share-based compensation expense from restricted stock recognized in the financial statements was $45,862 and $4,851, respectively. There were no share-based compensation costs which were capitalized. As of September 30, 2006, the total unrecognized costs related to non-vested restricted stock awards granted was $135,780. The Company expects to recognize such costs in the financial statements over a weighted-average period of three years.

During the nine months ended September 30, 2006 and October 1, 2005, the total share-based compensation expense from vested options recognized in the financial statements was $153,992 and $0, respectively. There were no share-based compensation costs which were capitalized. As of September 30, 2006, the total unrecognized costs related to non-vested options granted were $266,796. The Company expects to recognize such costs in the financial statements over a weighted-average period of approximately three years. The weighted-average grant-date fair value of all stock option awards granted during the nine months ended September 30, 2006 was approximately $0.80 per share.

During the nine months ended September 30, 2006, the adoption of SFAS 123R resulted in incremental share-based compensation expense (and a reduction of income before taxes) of $153,992. Furthermore, net income was reduced by approximately $93,000, and both diluted and basic net income per share was not reduced.

Prior to January 1, 2006, the Company’s stock-based compensation plan was accounted for under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company had also adopted the disclosure-only provisions of SFAS 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. Accordingly, no compensation cost was previously recognized for stock option grants. The following table illustrates the effect on net income and earnings per share if the fair value method required by SFAS 123R had been applied to all outstanding and unvested awards for the quarter and nine months ended October 1, 2005, using the Black-Scholes valuation model.

	Quarter Ended			Nine Months Ended
	October 1, 2005			October 1, 2005

Net income (loss) as reported	$	(268,535	)	$	1,346,903
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects	(51,733		)	(172,982		)
Pro forma net income (loss)	$	(320,268	)	$	1,173,921

Under the modified prospective method, awards that are granted, modified or settled after the date of adoption should be measured and accounted for in accordance with SFAS 123R.

For purposes of applying SFAS 123R, the fair value of each stock option award that was granted prior to the effective date continues to be accounted for in accordance with SFAS 123 except that amounts must be recognized in the income statement. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for the nine month periods ended:

	September 30, 2006		October 1, 2005
Expected dividend yield	0	%	0	%
Expected volatility	50	%	62	%
Risk-free interest rate	5.16	%	3.15	%
Expected life — Employees Options	3 years		3 years
Expected life — Board of Directors Options	3 years		3 years

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

Stock options become exercisable, based on a three-year vesting schedule, in annual increments of thirty-three percent beginning one year after grant date and become fully exercisable after three years from the date of grant. Share-based compensation expense related to stock option awards is recognized on the straight-line method over the requisite service period.

The following table summarizes stock option activity during the nine months ended September 30, 2006:

	Plan Options				Non-Plan Options
	Options Outstanding		Weighted Average Exercise Price		Options Outstanding		Weighted Average Exercise Price
Balance, January 1, 2006	783,333		$	3.04	142,500		$	3.38
Granted	—		—		—		—
Forfeited	(205,000	)	3.22		(7,500	)	3.60
Exercised	(38,333	)	2.46		—		—
Balance, April 1, 2006	540,000		$	3.01	135,000		$	3.37
Granted	422,000		2.81		—		—
Forfeited	(86,667	)	3.16		—		—
Exercised	(23,333	)	2.41		—		—
Balance, July 1, 2006	852,000		$	2.91	135,000		$	3.37
Granted	60,000		2.32		—		—
Forfeited	(120,000	)	3.29		(25,000	)	3.08
Exercised	—		—		—		—
Balance, September 30, 2006	792,000		$	2.81	110,000		$	3.43

The table below summarizes information about stock options outstanding and exercisable at September 30, 2006:

Range of Exercise Prices	Options Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
$2.10 - $2.99	762,000	3.4	$	2.71	315,000	$	2.61
$3.08 - $3.60	110,000	1.3	$	3.49	101,667	3.50
$4.20 - $5.00	30,000	3.6	$	4.91	21,667	4.92
	902,000	3.2	$	2.88	438,334	$	2.93

The table below summarizes the number of exercisable options outstanding and the weighted average exercise price as of September 30, 2006:

	Plan Options		Non-Plan Options
	Exercisable Options Outstanding	Weighted Average Exercise Price	Exercisable Options Outstanding	Weighted Average Exercise Price
September 30, 2006	338,334	$2.74	100,000	$3.60

During the nine months ended September 30, 2006 and October 1, 2005, the Company received cash proceeds from the exercise of stock options of $159,733 and $253,734, respectively. The actual tax benefits realized for the tax deductions related to the exercise of stock options was $8,916 and $175,928, respectively.

On July 26, 2006, the Company issued 12,000 shares of restricted stock under the Company’s 2005 Equity Incentive Plan, subject to vesting in equal annual installments over three years. The restricted stock was valued at the fair market value of the Company’s common stock on the date of grant, and the resulting deferred compensation expense of $26,520 will be amortized over the vesting period. All restricted stock awards vest three years from the date of grant. Share-based compensation expense related to restricted stock awards is recognized on the straight-line method over the requisite service period, which is approximately three years.

Future vesting of restricted stock is generally subject to continued employment with the Company. The following table summarizes restricted stock activity during the nine months ended September 30, 2006:

	Restricted Stock
	Shares		Weighted Grant Date Fair Value
Balance, January 1, 2006	35,353		$	2.21
Granted	—		—
Vested	(10,802	)	2.21
Forfeited	—		—
Balance, July 1, 2006	24,551		$	2.21
Granted	12,000		.76
Vested	(3,945	)	(1.84		)
Forfeited	—		—
Balance, September 30, 2006	32,606		$	1.72

2. Accrued Liabilities:

Accrued liabilities consisted of the following as of September 30, 2006 and December 31, 2005:

	September 30, 2006		December 31, 2005
Accrued payroll and payroll taxes	$	1,059,743	$	1,454,697
Accrued royalties and commissions	529,202		554,434
Accrued advertising and promotion	1,241,810		1,368,929
Accrued other	529,513		128,272
	$	3,360,268	$	3,506,332

During the fourth quarter of 2005, the Company announced the departure of two executives and recorded charges consisting of severance and certain other personnel costs. The amount owed on these severance agreements was $74,000 and $491,000 at September 30, 2006 and December 31, 2005, respectively, and is included in accrued payroll and payroll taxes above.

3. Inventories:

Inventories consisted of the following as of September 30, 2006 and December 31, 2005:

	September 30, 2006		December 31, 2005
Finished goods	$	1,559,476	$	1,731,531
Raw materials	1,193,664		1,084,715
	$	2,753,140	$	2,816,246

During the first quarter of 2006 the Company reversed a $0.3 million pre-tax fourth quarter 2005 Cinnabon® branded product charge associated with slow-moving new product that was subsequently able to be sold in the first quarter of 2006.

4. Long-Term Debt:

The Company’s Goodyear, Arizona manufacturing and distribution facility is subject to a $1.7 million mortgage loan from Morgan Guaranty Trust Company of New York, bears interest at 9.03% per annum and is secured by the building and the land on which it is located. The loan matures on July 1, 2012; however, monthly principal and interest installments of $16,825 are determined on a twenty-year amortization period.

The Company has a $5.0 million Line of Credit and had a Term Loan with U.S. Bancorp (collectively, the “Credit Agreement”). The Line of Credit bears interest at the prime rate less 0.5% (7.75% at September 30, 2006) and matures on June 30, 2008. Interest is due monthly, with the outstanding principal balance due in full at the maturity date. At September 30, 2006, there was no outstanding balance on the Line of Credit and the Term Loan was paid in full in June 2006.

The Credit Agreement is secured by substantially all assets of the Company. The Company’s obligations under the Credit Agreement are guaranteed by each of its subsidiaries. The agreement requires the Company to maintain compliance with certain financial covenants, including a minimum tangible net worth, a minimum fixed charge coverage ratio and a minimum current ratio. At September 30, 2006, the Company was in compliance with all of the financial covenants.

5. Brand Discontinuance:

On June 11, 2004, the Company discontinued its Crunch Toons® brand. The Company negotiated amendments to its license agreements with Warner Bros. Consumer Products pursuant to which the Agreements will remain in effect, but will become non-exclusive. However, because the Company ceased using the Crunch Toons® brand in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, the Company recorded a liability for the estimated fair value of the remaining guaranteed future minimum payments under the agreements by computing the present value of the future cash payments. The following table summarizes the activity of the accrued costs related to the brand discontinuance and other liabilities for the quarter ended September 30, 2006:

	July 1, 2006 Accrued Expense Balance		Accreted Interest/ (Payments)		Sept. 30, 2006 Accrued Expense Balance
Present value of guaranteed minimum royalty payments	$	185,254	$	2,287	$	187,541	(1)

(1) These amounts are reflected in the Consolidated Balance Sheets as “Current and Non-current portions of accrued costs related to brand discontinuance and other exit cost accruals”. In accordance with SFAS No. 146, interest accretion was recorded for the period and future royalty payments will be made in accordance with the amended agreements.

6. Litigation:

The Company is periodically a party to various lawsuits 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 on the Company’s financial position or results of operations.

The Inventure Group, Inc. is one of eight companies sued by the Environmental Law Foundation in August, 2006 in the Superior Court for the State of California for the County of Los Angeles by the Attorney General of the State of California for alleged violations of California Proposition 65. California Proposition 65 is a state law that, in part, requires companies to warn California residents if a product contains chemicals listed within the statute. The plaintiff seeks injunctive relief and penalties but has made no specific demands. We intend to vigorously defend this suit.

7. Business Segments:

The Company’s operations consist of two segments: manufactured products and distributed products. The manufactured products segment produces snack food products, for sale primarily to snack food distributors and retailers. The distributed products segment sells snack food products manufactured by other companies to the Company’s Arizona snack food distributors. The Company’s reportable segments offer different products and services. All of the Company’s revenues are attributable to external customers in the United States and Canada and all of its assets are located in the United States. All long-lived, assets, trademarks, and goodwill are associated exclusively with the Company’s manufactured products segment with no such assets being allocated to the distributed products segment. The Company does not allocate selling, general and administrative expenses, income taxes or other income and expense to its segments.

The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies included in Note 1 to the audited financial statements filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

	Manufactured Products		Distributed Products		Consolidated
Quarter ended September 30, 2006	$	17,018,387	$	557,754	$	17,576,141
Net revenues from external customers
Depreciation and amortization in segment gross profit	216,923		—		216,923
Segment gross profit	3,598,491		48,083		3,646,574

Quarter ended October 1, 2005
Net revenues from external customers	$	17,716,891	$	909,094	$	18,625,985
Depreciation and amortization in segment gross profit	208,229		—		208,229
Gain on sale of equipment	194,359		—		194,359
Segment gross profit	2,571,843		152,510		2,724,353

Nine months ended September 30, 2006
Net revenues from external customers	$	51,403,843	$	2,265,210	$	53,669,053
Depreciation and amortization in segment gross profit	648,144		—		648,144
Segment gross profit	10,185,850		259,094		10,444,944

Nine months ended October 1, 2005
Net revenues from external customers	$	55,833,936	$	2,482,445	$	58,316,381
Depreciation and amortization in segment gross profit	631,441		—		631,441
Gain on sale of equipment	194,359		—		194,359
Segment gross profit	11,604,268		377,791		11,982,059

The following table reconciles reportable segment gross profit to the Company’s consolidated income before income tax provision.

	Quarter Ended						Nine Months Ended
	Sept. 30, 2006			October 1, 2005			Sept. 30, 2006			October 1, 2005

Segment gross profit	$	3,646,574		$	2,724,353		$	10,444,944		$	11,982,059
Unallocated amounts:
Selling, general and administrativeexpenses	(3,166,404		)	(3,233,188		)	(9,053,623		)	(9,875,876		)
Interest income (expense), net	73,356			68,998			176,953			94,728
Income before income tax provision	$	553,526		$	(439,837	)	$	1,568,274		$	2,200,911

8. Income Taxes:

The Company accounts for income taxes using a balance sheet approach whereby deferred tax assets and liabilities are determined based on the differences in financial reporting and income tax basis of assets and liabilities. The differences are measured using the income tax rate in effect during the year of measurement.

The Company experienced significant net losses in prior fiscal years resulting in a net operating loss (“NOL”) carryforward for federal income tax purposes of approximately $2.4 million at December 31, 2005. The Company’s NOL will begin to expire in varying amounts between 2010 and 2020.

Generally accepted accounting principles require that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account all positive and negative evidence with regard to the utilization of a deferred tax asset including our past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of a deferred tax asset, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The Company provides for income taxes at a rate equal to the combined federal and state effective rates, which approximated 40% under current tax rates.

In June 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” This interpretation clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This statement sets forth criteria to recognize, derecognize, and measure benefits related to income taxes and establishes disclosure requirements pertaining to uncertainty in income tax assets and liabilities. FIN No. 48 becomes effective for the Company beginning January 1, 2007. We are assessing the impact of the adoption of FIN No. 48 and are evaluating the impact that it will have on our financial condition, results of operations and cash flows.

9. Special Events:

The Company has terminated its agreement and license to sell product under the Cinnabon® brand effective November 8, 2006. In April 2005, the Company launched its Cinnabon® brand pursuant to a license agreement with Cinnabon, Inc. However, we have decided the Cinnabon® brand license does not currently fit into our strategic plan and, as such, the agreement has been terminated. Net revenues of Cinnabon® product were $0.5 million for the nine months ended September, 2006, compared to last year’s Cinnabon® product net revenues of $2.6 million for the comparative nine month period in 2005. In addition, during the first quarter of 2006 the Company recognized a $0.3 million pre-tax reversal of a fourth quarter 2005 Cinnabon® branded product charge. This reversal was associated with identified slow-moving new product at December 31, 2005 that was subsequently able to be sold in the first quarter of 2006. There are no additional costs or contingencies in exiting the relationship with Cinnabon, Inc. and no inventories of raw materials or finished goods exist.

On November 8, 2006, the Company entered into a Purchase and Sale Agreement with Lincoln Estates, LLC, the landlord of the Company’s 140,000 square foot facility located on 15 acres of land in Bluffton, Indiana, approximately 20 miles south of Ft. Wayne, Indiana. Under the agreement, the Company agrees to purchase this facility for a purchase price equal to $3 million at an expected closing to be held on or before December 15, 2006, upon the Company’s satisfactory review of a preliminary title report, due diligence and property inspections. The Company’s Board of Directors identified the transaction as a related party transaction because Larry Polhill, a Director of the Company, owns 50% of Capital Foods LLC, which is the largest single shareholder of the Company and an affiliate of Lincoln Estates, LLC. The transaction was reviewed and unanimously approved by the Board, including all of the Company’s disinterested Directors.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q, including all documents incorporated by reference, includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and The Inventure Group, Inc. (the “Company”) desires to take advantage of the “safe harbor” provisions thereof. Therefore, the Company is including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all of such forward-looking statements. In this Quarterly Report on Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “will likely result,” “will continue,” “future” and similar terms and expressions identify forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including specifically the possibility that the Company will need additional financing due to future operating losses or in order to implement the Company’s business strategy, the possible diversion of management resources from the day-to-day operations of the Company as a result of strategic acquisitions, potential difficulties resulting from the integration of acquired businesses with the Company’s business, other acquisition-related risks, lack of consumer acceptance of existing and future products, dependence upon key license agreements, dependence upon major customers, significant competition, risks related to the food products industry, volatility of the market price of the Company’s common stock, par value $.01 per share (the “Common Stock”), the possible de-listing of the Common Stock from the Nasdaq Capital Market if the Company fails to satisfy the applicable listing criteria (including a minimum share price) in the future and those other risks and uncertainties discussed herein and in the Company’s other periodic reports filed with the Securities and Exchange Commission, that could cause actual results to differ materially from historical results or those anticipated. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Quarterly Report on Form 10-Q will in fact transpire or prove to be accurate. Readers are cautioned to consider the specific risk factors described herein and in “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that may arise after the date hereof. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this section.

Results of Operations

Quarter ended September 30, 2006 compared to the quarter ended October 1, 2005 (See reference to our 53rd week calendar in Note 1 “Organization and Summary of Significant Accounting Policies — Basis of Presentation”).

Net revenues for the third quarter of fiscal 2006 were $17.6 million, compared to last year’s third quarter net revenues of $18.6 million. Third quarter 2005 net revenues included an extra week of revenue. Normalizing revenue to account for the additional week, the Company delivered modest net revenue growth despite significantly decreasing its promotional spending. This growth was due to increased base business on the Company’s potato chip brands and several new T.G.I. Friday’s® brand snack customers. T.G.I. Friday’s® brand salted snack net revenue, currently representing 67% of total net revenue for the quarter, had an overall decline of 5% in the third quarter of fiscal 2006 as compared to 2005. Normalizing revenue to account for the additional week, the Company delivered modest net revenue growth in its T.G.I. Friday’s® brand, as referred to above, by doing business with several new T.G.I. Friday’s® brand snack customers including Home Depot and several large Canadian retailers. We anticipate test marketing several new T.G.I. Friday’s® snack brand products during the remainder of the year. Although net revenue from distributed products declined $0.3 million in the third quarter of 2006, compared to last year’s third quarter, the decline was partially offset by $0.2 million of added contract manufacturing revenue that began in the third quarter of 2006 in order to leverage our excess capacity. In addition, net revenue generated by our Tato Skins® brand increased 4% in the third quarter of 2006 compared to last year’s third quarter net revenues.

Gross profit for the quarter ended September 30, 2006 was $3.6 million (or 20.7% of net revenue) compared to $2.7 million (or 14.6% of net revenue), in the same quarter of 2005. Excluding a gain on sale of equipment that occurred in the third quarter of 2005 of $0.2 million, gross profit margins would have been approximately 13.6% of net revenue for the nine months ended October 1, 2005. The very substantial improvement in gross profit dollars and percentage during the third quarter of 2006 was attributable to significantly lower promotional spending activity, in addition to a modest improvement in freight costs as compared to the same quarter of 2005.

Total selling, general and administrative expenses were flat comparing the third quarter of 2006 to 2005. Selling, general and administrative expenses for the quarter ended September 30, 2006 were $3.2 million, or 18.0% of net revenues compared to $3.2 million, or 17.4% of net revenues in the same quarter of 2005.

Net interest income was $73,000 in the third quarter of 2006 compared to $69,000 in the third quarter of 2005 due to higher interest rates on cash and cash equivalents.

Net income was $0.3 million, or $0.02 per basic and diluted share, compared to a net loss of $(0.3) million, or $(0.01) per basic and diluted share last year. Excluding the gain on sale of equipment that occurred in the third quarter of 2005, the net loss would have been $(0.4) million or $(0.02) per basic and diluted share last year.

Nine months ended September 30, 2006 compared to the nine months ended October 1, 2005 (See reference to our 53rd week calendar in Note 1 “Organization and Summary of Significant Accounting Policies — Basis of Presentation”).

For the nine months ended September 30, 2006 net revenue decreased 8.0% to $53.7 million, compared with net revenue of $58.3 million for the respective nine months of the previous year. Most of the decrease came from lower than expected results from our Cinnabon® brand products (See Note 9 “Special Events”), with the potato chip products decreasing 2.6%, and T.G.I. Friday’s® brand salted snack net revenue declining 5.5%. We expected this decline, which resulted from our continued discipline on new product and trade promotion processes and our conscious decisions to repair or exit unprofitable customer relationships. We are about to begin test marketing several new products, including: new T.G.I. Friday’s® brand products such as Pizza chips and a new version of Quesadilla snack chips; new Boulder Canyon Natural FoodsTM products such as Spinach and Artichoke flavor chips; and new Poore Brothers® brand products such as Sweet Maui Onion and Three Cheese Jalapeno, in addition to introducing some products that will be “better-for-you” items. We continue to conduct product development work on all brands and are contemplating several new licensing opportunities. We have also added a contract manufacturing customer, to leverage our excess capacity, and we expect to grow our contract manufacturing base.

Gross profit for the nine months ended September 30, 2006 was $10.4 million (or 19.5% of net revenue), compared to $12.0 million (or 20.5% of net revenue), in the same period of 2005. Excluding a gain on sale of equipment that occurred in the third quarter of 2005 of $0.2 million, gross profit margins would have been approximately 20.2% of net revenue for the nine months ended October 1, 2005. The remaining increase in cost of revenues is primarily due to higher freight costs offset by a $0.3 million pre-tax reversal of a fourth quarter 2005 Cinnabon® branded product charge associated with slow-moving new product that was subsequently able to be sold in the first quarter of 2006.

Total selling, general and administrative expenses decreased to $9.1 million (or 16.9% of net revenue) for the nine months ended September 30, 2006 from $9.9 million (or 16.9% of net revenue), as a result of our continued efforts on cost reduction.

Net interest income was $177,000 for the nine months ended September 30, 2006 compared to net interest income of $95,000 in the same quarter of 2005 due to higher interest rates on cash and cash equivalents. The Company’s effective income tax rate was approximately 40% in 2006 and 39% in 2005.

Net income for the nine months ended September 30, 2006 was $0.9 million, or $0.05 per basic and diluted share, compared with net income of $1.3 million, or $0.07 per basic and diluted share, in the prior-year period.

Liquidity and Capital Resources

Net working capital was $14.4 million (a current ratio of 3.4:1) at September 30, 2006 and $13.9 million (a current ratio of 2.8:1) at December 31, 2005. For the nine months ended September 30, 2006, the Company provided cash flow from operating activities of $1.7 million, invested $0.3 million in equipment, made $0.5 million in payments on long-term debt, repurchased $1.4 million of common stock held in treasury and realized cash flow from common stock option exercises of $0.2 million.

In May, 2006 the Company’s Board of Directors approved a stock re-purchase program whereby up to $3 million of common stock may be purchased from time to time at the discretion of management. Since inception of the program, we have repurchased $1,358,461, leaving $1,651,539 of remaining authorization. During the quarter ended September 30, 2006 the Company purchased 600,740 shares at a total cost of $1,358,461. The repurchased shares are held as treasury stock and are available for general corporate purposes. Common stock held in the Company’s treasury has been recorded at cost. We continue to evaluate our share repurchase opportunities.

A summary of our common stock repurchases under the $3 million repurchase program is set forth in the following table. All shares of common stock were repurchased pursuant to open market transactions.

Period	Total Number of Shares Repurchased	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum that may yet be Purchased Under the Program
5/2006 Approved					$	3,000,000

8/1/06 - 8/22/06	600,740	$	2.26	600,740	1,358,461

Remaining					$	1,641,539

Contractual Obligations

The Company’s future contractual obligations consist principally of long-term debt, operating leases, minimum commitments regarding third party warehouse operations services, remaining minimum royalty payments due licensors pursuant to brand licensing agreements and severance charges to terminated executives. As of September 30, 2006 there have been no material changes to the Company’s contractual obligations since its December 31, 2005 fiscal year end, other than scheduled payments referred to above. Under the amendments to the license agreements with Warner Bros. Consumer Products, the remaining minimum royalty payments will continue to be due throughout the remaining term of the agreements. The Company currently has no material marketing or capital expenditure commitments.

Management’s Plans

In connection with the implementation of the Company’s business strategy, the Company may incur operating losses in the future and may require future debt or equity financings (particularly in connection with future strategic acquisitions, new brand introductions or capital expenditures). Expenditures relating to acquisition-related integration costs, market and territory expansion and new product development and introduction may adversely affect promotional and operating expenses and consequently may adversely affect operating and net income. These types of expenditures are expensed for accounting purposes as incurred, while revenue generated from the result of such expansion or new products may benefit future periods. Management believes that the Company will generate positive cash flow from operations during the next twelve months, which, along with its existing working capital and borrowing facilities, will enable the Company to meet its operating cash requirements for the next twelve months. This belief is based on current operating plans and certain assumptions, including those relating to the Company’s future revenue levels and expenditures, industry and general economic conditions and other conditions. If any of these factors change, the Company may require future debt or equity financings to meet its business requirements. There can be no assurance that any required financings will be available or, if available, on terms attractive to the Company.

Critical Accounting Policies and Estimates

Critical accounting policies are both important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes that the following accounting policies fit this definition:

Allowance for Doubtful Accounts. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts was $156,000 at September 30, 2006 and $187,000 at December 31, 2005, respectively.

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

Goodwill and Trademarks. Goodwill and trademarks are reviewed for impairment annually, or more frequently if impairment indicators arise. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduce the fair value of a reporting unit below its carrying value. Intangible assets with indefinite lives are required to be tested for impairment between the annual tests if an event occurs or circumstances change indicating that the asset

might be impaired. The Company believes at this time that the carrying values continue to be appropriate. Further discussion of goodwill and trademarks is expanded upon below:

· The Company’s Bob’s Texas Style potato chip brand was acquired in 1998 when the business of Tejas Snacks, L.P. was acquired. The Bob’s Texas Style trademark has a carrying value of approximately $1.2 million.

· The Company’s Tato Skins potato chip brand was acquired in 1999 when the business of Wabash Foods was acquired. The Wabash - Tato Skins trademark has a carrying value of approximately $2.1 million.

· The Company’s Boulder Canyon potato chip brand was acquired in 2000 when the business of Boulder Natural Foods, Inc. was acquired. The Boulder Canyon trademark has a carrying value of $0.9 million.

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

The Company recorded goodwill for each of the three acquisitions noted above. The acquired businesses were fully integrated into and are included in the Company’s Branded Products business segment. Consequently, all goodwill is attributable to the Company’s Manufactured Products business segment.

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

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

· Sponsorship: We have one sponsorship with the Arizona Diamondbacks Major League Baseball team which takes place during their baseball season. We do not sell product to the Arizona Diamondbacks, and the sponsorship clearly involves an identifiable benefit to us as the fans at the stadium see our name on the main scoreboard during each game and the value is reasonably estimated due to the fact that the team charges us a fixed amount per game which we record as a sales and marketing expense in selling, general and administrative expenses.

Income Taxes. The Company has been profitable since 1999; however, it experienced significant net losses in prior fiscal years resulting in a net operating loss (“NOL”) carryforward for federal income tax purposes of approximately $2.4 million at December 31, 2005. Generally accepted accounting principles require that the Company record a valuation allowance against the deferred tax asset associated with this NOL if it is “more likely than not” that the Company will not be able to utilize it to offset future taxes.

Stock-Based Compensation. On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) 123R, “Share-Based Payment”, under the modified prospective method. Under SFAS 123R, actual tax benefits recognized in excess of tax benefits previously established upon grant are reported as a financing cash inflow. Prior to adoption, such excess tax benefits were reported as an increase to operating cash flows. We account for our stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock option fair values at the date of grant. All stock option grants have a 5-year term. The fair value of stock option grants is amortized to expense over the vesting period, generally three years for employees and one year for the Board of Directors.

The above listing is not intended to be a comprehensive list of all of the Company’s accounting policies. In many cases the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. See the Company’s audited financial statements for the fiscal year ended December 31, 2005 and the notes thereto included in the Company’s Annual Report on Form 10-K with respect to such period, which contain a description of the Company’s accounting policies and other disclosures required by accounting standards generally accepted in the United States of America.

New Accounting Policies

In June 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” This interpretation clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This statement sets forth criteria to recognize, derecognize, and measure benefits related to income taxes and establishes disclosure requirements pertaining to uncertainty in income tax assets and liabilities. FIN No. 48 becomes effective for the Company beginning January 1, 2007. We are still assessing the impact of the adoption of FIN No. 48 and are evaluating the impact that it will have on our financial condition, results of operations and cash flows.

In September 2006, the Securities and Exchange Commission issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” This interpretation provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment effective for any report for an interim period of the first fiscal year ending after November 15, 2006. We are still assessing whether adoption of SAB 108 applies to us and are evaluating the impact that it will have on our financial condition, results of operations and cash flows.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The principal market risks to which the Company is exposed that may adversely impact the Company’s results of operations and financial position are changes in certain raw material prices and interest rates. The Company has no market risk sensitive instruments held for trading purposes.

Raw materials used by the Company are exposed to the impact of changing commodity prices. The Company’s most significant raw material requirements include potatoes, potato flakes, wheat flour, corn and oil. The Company attempts to minimize the effect of future price fluctuations related to the purchase of raw materials primarily through forward purchasing to cover future manufacturing requirements, generally for periods from one to 12 months. Futures contracts are not used in combination with the forward purchasing of these raw materials. The Company’s procurement practices are intended to reduce the risk of future price increases, but also may potentially limit the ability to benefit from possible price decreases. Inflation and changing prices have not had a material impact on the Company’s net revenues and net income. Increased transportation costs, driven by higher fuel prices, could result in higher commodity costs in the future.

The Company has no interest rate risk with respect to interest expense on variable rate debt.

The Company’s primary concentration of credit risk is related to certain trade accounts receivable. In the normal course of business, the Company extends unsecured credit to its customers. Substantially all of the Company’s customers are distributors or retailers whose sales are concentrated in the grocery industry, throughout the United States. The Company investigates a customer’s credit worthiness before extending credit. Two customers (Wal*Mart and Vistar) accounted for approximately 22% of the Company’s net revenues for the quarter ended September 30, 2006 and for approximately 19% of the Company’s accounts receivable balance at the end of the quarter.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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

(b) Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s principal executive officer and principal financial officer do not expect that the Company’s internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Part II. Other Information

Item 1. Legal Proceedings

Item 1A. Risk Factors

During the quarter ended September 30, 2006, there were no material changes from the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

(a) The Company has terminated its agreement and license to sell product under the Cinnabon® brand effective November 8, 2006. In April 2005, the Company launched its Cinnabon® brand pursuant to a license agreement with Cinnabon, Inc. However, we have decided the Cinnabon® brand license does not currently fit into our strategic plan and, as such, the agreement has been terminated. Net revenues of Cinnabon® product were $0.5 million for the nine months ended September, 2006, compared to last year’s Cinnabon® product net revenues of $2.6 million for the comparative nine month period in 2005. In addition, during the first quarter of 2006 the Company recognized a $0.3 million pre-tax reversal of a fourth quarter 2005 Cinnabon® branded product charge. This reversal was associated with identified slow-moving new product at December 31, 2005 that was subsequently able to be sold in the first quarter of 2006. There are no additional costs or contingencies in exiting the relationship with Cinnabon, Inc. and no inventories of raw materials or finished goods exist.

(b) On November 8, 2006, the Company entered into a Purchase and Sale Agreement with Lincoln Estates, LLC the landlord of the Company’s 140,000 square foot facility located on 15 acres of land in Bluffton, Indiana, approximately 20 miles south of Ft. Wayne, Indiana. Under the agreement, the Company agrees to purchase this facility for a purchase price equal to $3 million at an expected closing to be held on or before December 15, 2006, upon the Company’s satisfactory review of a preliminary title report, due diligence and property inspections. The Company’s Board of Directors identified the transaction as a related party transaction because Larry Polhill, a Director of the Company, owns 50% of Capital Foods LLC, which is the largest single shareholder of the Company and an affiliate of Lincoln Estates, LLC. The transaction was reviewed and unanimously approved by the Board, including all of the Company’s disinterested Directors.

(c) In May, 2006 the Company’s Board of Directors approved a stock re-purchase program whereby up to $3 million of common stock may be purchased from time to time at the discretion of management. Since inception of the program, we have repurchased $1,358,461, leaving $1,651,539 of remaining authorization. During the quarter ended September 30, 2006 the Company purchased 600,740 shares at a total cost of $1,358,461. The repurchased shares are held as treasury stock and are available for general corporate purposes. Common stock held in the Company’s treasury has been recorded at cost. We continue to evaluate our share repurchase opportunities.

		Weighted		Total Number of	Maximum that
	Total Number	Average		Shares Purchased as	may yet be
	of Shares	Price Paid		Part of Publicly	Purchased Under
Period	Repurchased	Per Share		Announced Programs	the Program
5/2006 Approved					$	3,000,000

8/1/06 - 8/22/06	600,740	$	2.26	600,740	1,358,461

Remaining					$	1,641,539

Item 6. Exhibits

10.1	—	Executive Employment Agreement dated as of July 27, 2006 between The Inventure Group, Inc. and Steve Weinberger, incorporated by reference to Exhibit 99.3 to Form 8-K filed with the SEC on July 27, 2006

10.2	—	Purchase and Sale Agreement dated as of November 8, 2006 between The Inventure Group, Inc. and Lincoln Estates, LLC

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).

32.1	—	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.

SIGNATURES

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

Dated: November 10, 2006	THE INVENTURE GROUP, INC.


	By:	/s/ Eric J. Kufel
		Eric J. Kufel
		Chief Executive Officer
		(principal executive officer)


	By:	/s/ Steve Weinberger
		Steve Weinberger
		Senior Vice President, Chief Financial Officer,
		Treasurer and Secretary
		(principal financial and accounting officer)

EXHIBIT INDEX

10.1	—	Executive Employment Agreement dated as of July 27, 2006 between The Inventure Group, Inc. and Steve Weinberger, incorporated by reference to Exhibit 99.3 to Form 8-K filed with the SEC on July 27, 2006

10.2	—	Purchase and Sale Agreement dated as of November 8, 2006 between The Inventure Group, Inc. and Lincoln Estates, LLC*

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).*

32.1	—	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.*

*— Filed Herewith

EX-10.2 2 a06-21541_1ex10d2.htm EX-10

EXHIBIT 10.2

PURCHASE AND SALE AGREEMENT

AND

ESCROW INSTRUCTIONS

Date: November 08, 2006

Ref. No. 705 W. Dustman Street, Bluffton, Indiana 46714

THIS AGREEMENT is entered into by and between La Cometa Properties, Inc., (a wholly owned subsidiary of The Inventure Group, Inc.) an Arizona Corporation, or nominee, hereinafter referred to as “Buyer” and Lincoln Estates, LLC a Delaware Limited Liability Company, hereinafter referred to as “Seller”, for the purpose of setting forth the terms and conditions of the transaction described below.

The subject of the within agreement is the acquisition by Buyer of a 100% interest in and to the real property described as:

705 W. Dustman Street, City of Bluffton, County of Wells, State of Indiana

Tax Parcel Nos. : 0120986200; 0120974101; 0050320803

Legal Description attached hereto as Exhibit “A” (the “Property”).

PURCHASE PRICE: The purchase price for the Property shall be Three Million and 00/100 Dollars ($3,000,000.00), payable as follows:

Earnest Money Deposit with Escrow Holder:	$	100,000.00
First Lien / New Loan — Conventional Financing	$	2,400,000.00
Cash at Closing:	$	500,000.00
Total Purchase Price:	$	3,000,000.00

PROPERTY TAXES: Any bonds and assessments that are associated with the Property and are collected with the property taxes shall be assumed by the Buyer.

TRANSFER OWNERSHIP: Title to the Property shall be conveyed by Warranty Deed vested to: La Cometa Properties, Inc., an Arizona Corporation, or assignee, subject only to those matters disclosed by the preliminary title report described below.

Title to any personal property shall be conveyed to Buyer by Bill of Sale on the Closing Date, free and clear of all encumbrances (except those approved by Buyer). The price of said items

shall be included in the Purchase Price for the Property and Buyer agrees to accept all such personal property in its “as is” condition.

ESCROW AGENT / TITLE INSURANCE: The parties agree to open an escrow account with a mutually agreeable escrow agent for the County of Wells, State of Indiana. The escrow agent shall deliver to Buyer and Seller a preliminary title report together with copies of all documents affecting Title. Seller shall provide a CLTA Standard policy of title insurance for the Property, as Seller’s expense. Buyer may elect to obtain additional ALTA coverage and endorsements at Buyer’s expense. Title Insurance Company to be Seller’s choice.

CLOSE OF ESCROW: The parties agree to close escrow on or before December 15, 2006. It shall be a condition of closing that the title insurer shall be prepared to issue an owner’s policy of title insurance to Buyer consistent with the preliminary title report issued during the Inspection Period. If the title insurer is not so prepared, Buyer may waive such requirement and close escrow without reduction in the purchase price, or may terminate this Agreement in which case Buyer’s earnest money deposit shall be returned and the parties shall have no further obligation hereunder.

DEED OF TRUST/PROMISSORY NOTE: Buyer shall obtain a loan from U S Bank for the purchase of the Property, which, when recorded, shall be a first lien against the Property, or Buyer may at Buyer’s election pay cash.

PERSONAL PROPERTY: The purchase price set forth hereinabove does include personal property described in Exhibit “B” attached hereto and made a part hereof.

COSTS AND CHARGES: Buyer agrees to pay the following costs and charges: One-half of the escrow fee, recording fees, all fees and charges associated with obtaining the loan, all fees associated with its own due diligence efforts, fee for ALTA loan policy of title insurance, Buyer’s attorney fees.

Seller agrees to pay the following costs and charges: One-half of the escrow fee, documentary transfer tax, if applicable, fee for title insurance for standard coverage CLTA owner’s policy of title insurance, Seller’s attorney fees.

PRO-RATIONS AND ADJUSTMENTS: The Property is subject to a NNN (triple net) lease in which the lessee is responsible for paying the property taxes and premiums on hazard and liability insurance. Buyer assumes all responsibility for any adjustment of property taxes that may be changed with a regular or supplemental tax bill delivered to Buyer after the closing date. Rents shall be prorated as of close of escrow. Security deposits, advance rentals, and the amount of any future lease credits shall be credited to Buyer. Delinquent or unpaid rents, if any, shall be handled outside of escrow between Buyer and Seller.

HAZARD INSURANCE: Buyer has the option of obtaining its own policy of hazard and liability insurance at Buyer’s expense.

LEASE/TENANTS: Buyer shall have until the expiration of the Inspection Period (as defined below) to investigate the financial condition, business prospects and prospective continued

occupancy of any tenant of the Property. Seller shall cooperate with Buyer and shall provide Buyer in writing with all such information in Seller’s possession, but shall not be responsible for any tenant’s refusal to provide such information. Seller agrees to assign all of Seller’s interest and rights under the terms of the existing lease, and any amendments thereto, to Buyer.

“AS-IS CONDITION”: The parties to this agreement hereby understand and acknowledge that Seller has not made any representations or warranties of any kind whatsoever, either express or implied, with respect to the Property or any such related matter, except as expressly set forth in this Agreement, and Buyer is acquiring the Property in an “As-Is” condition with faults.

Except as expressly set forth herein, Seller makes no representations or warranties with respect to the use and/or condition, including without limitation, the condition or safety of the Property and any improvements thereon, electrical, plumbing, heating, sewage, roof, insulation, air conditioning, if any, foundations and utilities, or that the same are in working order; the condition of the soils or groundwater of the Property and the presence or absence of toxic materials or hazardous substances on or under the Property; compliance with applicable statutes, laws, codes, ordinances, regulations or requirements relating to leasing, zoning, subdivision, planning, building, fire, safety, health or environmental matters, persons with disabilities; compliance with covenants, conditions and restrictions, whether or not of record; other local, municipal, regional, state or federal requirements, or other statutes, laws, codes, ordinances, regulations or requirements.

The closing of this transaction shall constitute an acknowledgement by Buyer that the Property was accepted without representation or warranty of any kind or nature and in an “As-Is” condition based solely on Buyer’s own inspection, except as otherwise expressly provided herein.

Buyer has conducted Buyer’s own investigation with regard to possible infestation and/or infection by wood-destroying pests or organisms and agrees to purchase the Property in its present condition. Buyer acknowledges that Buyer is not relying upon any representations or warranties made by Seller regarding the presence or absence of such infestation or infection.

DUE DILIGENCE: Buyer shall have until 3:00 p.m. on the 20th calendar day after the mutual execution of this Agreement to complete its review of the preliminary title report, due diligence and all inspections of the Property, including without limitation, information relative to utilities and services, zoning and land use, surveys, plans and engineering studies, hazardous materials and soil conditions (the “Inspection Period”).

In the event that Buyer requires additional time to complete its due diligence, and if Buyer desires to obtain an additional 20 calendar day extension of the Inspection Period, Buyer, on or before 3:00 p.m. on the 20th day from the mutual execution of this Agreement, will deposit into Escrow an Extension Fee of an additional $10,000.00 which will immediately become non-refundable to Buyer, earned by Seller, and will not apply to the Purchase Price. Escrow Agent is hereby instructed to transfer said Extension Fee to Seller immediately.

In the event that Buyer terminates this Agreement before the expiration of the Inspection Period, if and as extended, Buyer’s earnest money deposit shall be refunded and neither party shall have any further obligation to the other by reason of this Agreement.

Seller agrees to provide to Buyer the items listed below within ten (10) calendar days following the opening date:

a. All rental agreements, leases, service contracts, insurance policies, latest tax bills and other written agreements, written code violations or other notices which affect the Property;

b. Copies of any documentation in possession of the Seller, and not otherwise protected by privacy agreements and/or rights, regarding the financial condition, business prospects or prospective continued occupancy of any tenant;

c. Complete and current rent roll, including a schedule of all tenant deposits and fees;

d. A written inventory of all items of personal property to be conveyed to Buyer and included as a part of the purchase price at the close of escrow;

e. Any and all documents of any type or nature that in any way reference the existence of mold or mold-related problems with the Property;

f. Any and all documents of any type or nature that in any way reference the existence of lead-based paint or lead-based paint problems with the Property;

g. Any and all documents of any type or nature that in any way reference the existence of litigation affecting the Property;

h. Any environmental reports, construction site plans, licenses or permits required of owners for operation of the Property; and

i. Any existing surveys or environmental studies of the Property.

REPRESENTATIONS AND WARRANTIES/SELLER: Seller makes the following representations and warranties which shall be true and correct as of the date hereof and the date of close of escrow (regardless of any investigations Buyer shall have made with respect thereto prior to the close of escrow) and which shall survive the close of escrow through the close of business on the date six (6) months after the close of escrow. In the event that, during the period between the date hereof and the close of escrow, Seller learns, or has a reason to believe, that any of the following representations and warranties may cease to be true, Seller hereby covenants to give written notice thereof to Buyer as soon as is reasonably possible.

(a) There are no claims, actions, suits, condemnation actions or other proceedings pending or to the best of Seller’s knowledge overtly threatened which could affect the Property, and Seller has not received notice of any currently uncured violation of any law, statute,

government regulation, zoning ordinance, use permit, order, judgment or requirement, that in any manner or to any extent may materially affect the Property.

(b) Except for the leases furnished to Buyer and except for the use of approximately 2.3 acres of the Property by Brian Tonner Farms, Inc., the Property is not subject to any contract, right of first refusal, option, lease or other possessary interest.

(c) To the actual knowledge of Seller, (i) there exist no adverse claims or encroachments by any person or persons with respect to the Property, and (ii) no improvement on the Property encroaches an adjacent property or on any public easement or right-of-way.

(d) To the best of Seller’s actual knowledge, the copies of the documents to be furnished to Buyer are true, correct and complete copies of authentic originals thereof, and no such documents have been knowingly withheld by Seller.

(e) Seller is the owner of the Property and has full power and authority to enter into and perform this Agreement in accordance with its terms and there is no other person or entity who has an ownership interest in the Property.

(f) The individual executing this Agreement on behalf of Seller is authorized to do so and, upon executing this Agreement, this Agreement shall be binding and enforceable upon Seller in accordance with its terms.

(g) Seller has not received notice of any discharge of hazardous materials on, at or under the Property which would constitute a violation of any rule, regulation, law or order, or which requires remediation. To the best of Seller’s knowledge, there is not now and has never been an underground storage tank located on or under the Property.

REPRESENTATIONS AND WARRANTIES/BUYER: Buyer makes the following representations and warranties which shall be true and correct as of the date hereof and the date of the close of escrow. In the event that during the period between the date hereof and the close of escrow, Buyer learns or has reason to believe that any of the following representations and warranties may cease to be true, Buyer hereby covenants to give written notice thereof to Seller as soon as is reasonably possible.

(a) Buyer has the legal power, right and authority to enter into this Agreement and the instruments referenced herein, and to consummate the transaction contemplated hereby. All requisite action (corporate or otherwise) has been taken by Buyer in connection with the entering into this Agreement and the instruments referenced herein, and the consummation of the transactions contemplated hereby. The individuals executing this Agreement and the instruments referenced herein on behalf of Buyer and the officers of Buyer have the legal power, right, and actual authority to bind Buyer to the terms and conditions hereof and thereof. This Agreement and all documents required hereby to be executed by Buyer are and shall be valid, legally binding obligations of and enforceable against Buyer in accordance with their terms, subject only to applicable bankruptcy, insolvency, reorganization, moratorium laws or similar laws or equitable principals affecting or limiting the rights of contracting parties generally.

CONTRACTS / MATERIAL CHANGES: Seller shall not enter into any new leases or service or tenant contracts that cannot be cancelled with 30-days notice and without penalty. Seller shall not make any material changes to the Property, do any act, or enter into any agreements of any kind that materially changes the value of the Property, the rights of the Buyer as they relate to the Property, or the condition of title to the Property.

RISK OF LOSS: Risk of loss to the Property shall be borne by Seller until title has been conveyed to Buyer. In the event that the improvements on the Property are destroyed or materially damaged between the Opening Date of this Agreement and the date title is conveyed to Buyer, Buyer shall have the option of demanding and receiving the entire earnest money deposit and being released from all obligations hereunder, or alternatively, taking such improvements as Seller can deliver together with an assignment of any casualty proceeds payable on account of such damage or destruction.. Upon Buyer’s physical inspection and approval of the Property, Seller shall maintain the Property through close of escrow in the same condition and repair as approved, reasonable wear and tear excepted.

DEFAULT: In the event Buyer defaults hereunder and fails to cure said default within ten (10) days of written demand, Seller may terminate this Agreement in which case Buyer’s earnest money deposit shall be forfeited as Seller’s sole and exclusive remedy. In the event Seller defaults hereunder and fails to cure said default within ten (10) days of written demand, Buyer may exercise any remedy available at law or in equity.

SUCCESSORS AND ASSIGNS: This Agreement and any addenda hereto shall be binding upon and inure to the benefit of the heirs, successors, agents, representatives and assigns of the parties hereto.

ATTORNEY’S FEES: In any litigation, arbitration or other legal proceedings which may arise between the parties hereto, the prevailing party shall be entitled to recover its costs, including costs of arbitration, and reasonable attorney’s fees in addition to any other relief to which such party may be entitled.

NOTICES: All notices required or permitted hereunder shall be given to the parties in writing at their respective addresses as set forth below. Should the date upon which any act required to be performed by this Agreement fall on a Saturday, Sunday or holiday, the time for performance shall be extended to the next business day.

GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana.

AGENCY DISCLOSURE: The parties acknowledge that they are not represented by any real estate agent or broker and that there will be no commissions paid to any party at the Closing of this transaction.

CLOSING DATE: Closing of this transaction shall occur on or before December 15, 2006, or as soon as possible thereafter.

BUYER:

La Cometa Properties, Inc.,
an Arizona Corporation



By:
Name:			Date:
Title:
Address: 3500 S. La Cometa Drive, Goodyear, AZ 85338
Phone: (623) 932-6249

SELLER:

Lincoln Estates, LLC,
a Delaware Limited Liability Company



By:
Name: Larry R. Polhill			Date:
Title: Manager
Address: 7380 S. Eastern St., #150, Las Vegas, NV 89123
Phone: (702) 494-8878

EXHIBIT ‘A’

LEGAL DESCRIPTION

705 W. Dustman Street, Bluffton, IN 46714

TRACT 1:

A part of the southeast quarter of Section 28, Township 27 North, Range 12 East, Lancaster Township, Wells County, Indiana, beginning where the east right of way line of the Nickel Plate Railroad intersects the south line of said section; thence east on the section line a distance of 264 feet; thence north a distance of 200 feet; thence east a distance of 136 feet; thence north on a line parallel with the east line of said railroad right of way a distance of 700 feet; thence west to the east line of said railroad right of way a distance of 400 feet; thence south along the east line of said railroad right of way a distance of 900 feet to the place of beginning, containing approximately 7.65 acres, more or less.

TRACT 2:

Part of the south half of Section 28, Township 27 North, Range 12 East, Lancaster Township, Wells County, Indiana, and being more particularly described as follows: Commencing at the point where the centerline of the Norfolk & Southern Railroad intersects with the centerline of State Road 116, which is also the south line of Section 28, Township 27 North, Range 12 East; thence east on and along said south line of Section 28, a distance of 468.0 feet to a point; thence in a northerly direction on the east property line of King property a distance of 200.0 feet to a steel rod for the place of beginning; thence west (which is parallel to the south line of said Section 28), a distance of 128.0 feet to a point; thence north (which is parallel to the east right-of-way line of the Norfolk & Southern Railroad) a distance of 700.0 feet to a point; thence west (which is parallel to the south line of said Section 28) a distance of 400.0 feet to a point on the east right-of-way line of the Norfolk & Southern Railroad; thence north on and along said east line of said railroad a distance of 200.0 feet to a point; thence east (which is parallel to the south line of Section 28) a distance of 528.0 feet to a point; thence south and parallel to the east right-of-way line of the Norfolk & Southern Railroad a distance of 900.0 feet to the place of beginning, containing 4.48 acres, more or less.

TRACT 3:

Part of the southeast quarter of Section 28, Township 27 North, Range 12 East, Lancaster Township, Wells County, Indiana, described as follows: Starting at the southeast corner of said southeast quarter found per record witness; thence westerly 2,277.36 feet along the south lien of said southeast quarter to a P.K. nail set, which shall be the place of beginning; thence continuing westerly 132.0 feet along the south line of said southeast quarter to a P.K. nail set; thence northerly deflecting right 89 degrees 40 minutes, 200.0 feet to a pipe stake found; thence easterly, deflecting right 90 degrees 20 minutes, 132.0 feet parallel with the south line of said southeast quarter to a 5/8” rebar stake set; thence southerly, deflecting right 89 degrees 40 minutes, 200.0 feet to the place of beginning, containing 0.61 acres, more or less.

TRACT 4:

An easement, right of way and right of ingress and egress to and from, and for the purpose of constructing, inspecting, repairing, operating, changing the size of, in whole or in part, a tile drain, the following described land:

A part of the east half of the southwest quarter and of the west half of the southeast quarter of Section twenty-eight (28), Township twenty-seven (27) North, Range twelve (12) East, bounded and described as follows: Beginning at the intersection of the east right of way line of the Nickel Plate Railroad and the south section line of said Section 28, thence north along the east right-of-way line of said railroad right of way a distance of 1,100 feet, which shall be the place of beginning; thence northerly along said east right-of-way line of said railroad approximately 800 feet ad to the center of an open ditch, thence easterly along the meanderings of said ditch to a point 50 feet at right angles east of said railroad right-of-way line, thence south and parallel to said east right-of-way line 800 feet and to the north line of the land described in Deed Record 125 on page 365 of the Wells County Records; thence westerly on said north line 50 feet to the place of beginning; which such easement, right-of-way and right is granted by that certain Right-of-Way Grant dated and recorded August 1, 1979 in Miscellaneous Book 50 Page 676 and that certain Right-of-Way Grant dated August 6, 1979 and recorded August 10, 1979 in Miscellaneous Book 50 Page 687, in the Wells County, Indiana Records (the south 200 feet of said Right-of-Way is excluded from this description as it is contained within the description of Tract 2 shown above).

NOTE: The acreage indicated in the legal description is solely for the purpose of identifying the said tract and should not be construed as insuring the quantity of land.

EXHIBIT ‘B’

PERSONAL PROPERTY

[Fixtures to Property only.]

EX-31.1 3 a06-21541_1ex31d1.htm EX-31

EXHIBIT 31.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Securities and Exchange Commission Rules 13a-14(a) and 15(d)-14(a)

under the Securities Exchange Act of 1934

CERTIFICATION

I, Eric J. Kufel, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The Inventure Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. As the registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities and Exchange Commission Rules 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure control s and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report the conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affec ted, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. As the registrant’s certifying officer, I have disclosed, based on the most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: November 10, 2006

/s/ Eric J. Kufel
Eric J. Kufel
Chief Executive Officer
(principal executive officer)

EX-31.2 4 a06-21541_1ex31d2.htm EX-31

EXHIBIT 31.2

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Securities and Exchange Commission Rules 13a-14(a) and 15(d)-14(a)

under the Securities Exchange Act of 1934

CERTIFICATION

I, Steve Weinberger, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The Inventure Group, Inc.;

a) Designed such disclosure controls and procedures, or caused such disclosure cont rols and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially af fected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

Date: November 10, 2006

/s/ Steve Weinberger
Steve Weinberger
Senior Vice President, Chief Financial Officer, Treasurer and Secretary
(principal financial and accounting officer)

EX-32.1 5 a06-21541_1ex32d1.htm EX-32

EXHIBIT 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

CERTIFICATION

Each of the undersigned hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of The Inventure Group, Inc. (the “Company”), that, to his knowledge, the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2006 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-Q. A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


Date: November 10, 2006	By:	/s/ Eric J. Kufel

		Eric J. Kufel Chief Executive Officer (principal executive officer)

Date: November 10, 2006	By:	/s/ Steve Weinberger

		Steve Weinberger
		Senior Vice President, Chief Financial Officer
		Treasurer and Secretary
		(principal financial and accounting officer)