10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 26, 2010

OR

oTRANSITION 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

INVENTURE FOODS, 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.)

5415 East High Street, Suite #350 Phoenix, Arizona	85054
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 17,920,238 as of July 30, 2010.

Table of Contents

Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements - Unaudited
	Condensed consolidated balance sheets as of June 26, 2010 and December 26, 2009		3
	Condensed consolidated statements of income for the quarters and six months ended June 26, 2010 and June 27, 2009		4
	Condensed consolidated statements of cash flows for the six months ended June 26, 2010 and June 27, 2009		5
	Notes to unaudited condensed consolidated financial statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		18
Item 4.	Controls and Procedures		18
Part II.	OTHER INFORMATION
Item 1.		Legal Proceedings	18
Item 1A.		Risk Factors	18
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.		Defaults Upon Senior Securities	19
Item 5.		Other Information	19
Item 6.		Exhibits	19

PART I.                 FINANCIAL INFORMATION

Item 1.                    Financial Statements

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	June 26,			December 26,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	1,275,759		$	1,102,689
Accounts receivable, net of allowance for doubtful accounts of $113,800 in 2010 and $101,076 in 2009	12,939,722			10,884,986
Inventories, net	18,707,379			17,445,163
Deferred income tax asset	609,480			651,761
Other current assets	808,462			1,045,797
Total current assets	34,340,802			31,130,396
Property and equipment, net	25,457,510			23,734,921
Goodwill	11,616,225			11,616,225
Trademarks and other intangibles, net	2,736,160			2,757,161
Other assets	658,026			596,157
Total assets	$	74,808,723		$	69,834,860
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,302,097		$	6,751,612
Accrued liabilities	5,461,789			5,314,180
Current portion of long-term debt	1,194,409			1,204,475
Total current liabilities	18,958,295			13,270,267
Long-term debt, less current portion	9,435,495			10,037,902
Line of credit	5,974,206			9,870,590
Interest rate swaps	726,294			452,292
Deferred income tax liability	3,143,355			3,077,343
Other liabilities	1,021,230			219,903
Total liabilities	39,258,875			36,928,297
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock, $.01 par value; 50,000,000 shares authorized; 18,288,195 and 18,255,600 shares issued and outstanding at June 26, 2010 and December 26, 2009	182,883			182,557
Additional paid-in capital	26,211,462			26,025,511
Accumulated other comprehensive loss	(353,471		)	(188,429		)
Retained earnings	9,980,169			7,358,119
	36,021,043			33,377,758
Less: treasury stock, at cost: 367,957 shares at June 26, 2010 and December 26, 2009	(471,195		)	(471,195		)
Total shareholders’ equity	35,549,848			32,906,563
Total liabilities and shareholders’ equity	$	74,808,723		$	69,834,860

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

3

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Quarter Ended						Six Months Ended
	June 26,			June 27,			June 26,			June 27,
	2010			2009			2010			2009
Net revenues	$	34,912,985		$	33,419,531		$	66,309,174		$	63,138,365
Cost of revenues	27,078,536			27,069,402			51,681,482			50,693,891
Gross profit	7,834,449			6,350,129			14,627,692			12,444,474
Selling, general and administrative expenses	5,418,114			4,390,600			9,925,449			8,866,301
Operating income	2,416,335			1,959,529			4,702,243			3,578,173
Interest expense, net	(181,479		)	(235,898		)	(397,862		)	(413,952		)
Income before income tax provision	2,234,856			1,723,631			4,304,381			3,164,221
Income tax provision	(859,203		)	(686,253		)	(1,682,331		)	(1,239,678		)
Net income	$	1,375,653		$	1,037,378		$	2,622,050		$	1,924,543
Earnings per common share:
Basic	$	0.08		$	0.06		$	0.15		$	0.11
Diluted	$	0.07		$	0.06		$	0.14		$	0.10
Weighted average number of common shares:
Basic	17,897,724			17,884,429			17,892,683			18,024,326
Diluted	18,516,077			17,955,071			18,471,104			18,530,386

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

4

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended
	June 26, 2010			June 27, 2009
Cash flows from operating activities:
Net income	$	2,622,050		$	1,924,543
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,839,146			1,622,491
Amortization	31,222			31,221
Provision for bad debts	12,724			9,173
Deferred income taxes	108,293			302,294
Share-based compensation expense	186,277			122,080
Loss on disposition of equipment	24,798			—
Change in operating assets and liabilities:
Accounts receivable	(2,067,459		)	(437,693		)
Inventories	(1,262,216		)	(2,624,842		)
Other assets and liabilities	274,050			(97,396		)
Accounts payable and accrued liabilities	5,807,053			5,379,272
Net cash provided by operating activities	7,575,938			6,231,143
Cash flows from investing activities:
Purchase of equipment	(3,457,230		)	(1,270,394		)
Net cash used in investing activities	(3,457,230		)	(1,270,394		)
Cash flows from financing activities:
Net borrowings on line of credit	(3,896,384		)	(3,038,044		)
Payments made on capital lease obligations	(15,085		)	—
Proceeds from lender for interim financing	578,304			—
Payments made on long-term debt	(612,473		)	(610,651		)
Proceeds from issuance of common stock	—			890
Treasury stock purchases	—			(471,195		)
Net cash used in financing activities	(3,945,638		)	(4,119,000		)
Net increase in cash and cash equivalents	173,070			841,749
Cash and cash equivalents at beginning of period	1,102,689			683,567
Cash and cash equivalents at end of period	$	1,275,759		$	1,525,316
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	176,492		$	221,173
Cash paid during the period for income taxes	$	1,136,329		$	698,000
Supplemental disclosures of non-cash investing and financing transactions:
Capital lease obligations incurred for the acquisition of property and equipment	$	129,303		$	—

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

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INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.            Organization and Summary of Significant Accounting Policies

Inventure Foods, Inc., a Delaware corporation (the “Company”), is a $120+ million leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. The Company changed its name in May 2010 to Inventure Foods, Inc. from The Inventure Group, Inc. to emphasize its focus as an innovative food maker and manufacturer.  The Company is headquartered in Phoenix, Arizona with plants in Arizona, Indiana and Washington.  The Company’s executive offices are located at 5415 East High Street, Suite 350, Phoenix, Arizona 85054, and its telephone number is (623) 932-6200.

The Company 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.  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 CanyonTM brand of totally natural potato chips.  In May 2007, the Company acquired Rader Farms, Inc., including a farming operation and a berry processing facility in Lynden, Washington.

The Company’s goal is to build a rapidly growing specialty brand company that specializes on evolving consumer eating habits in two primary product segments: 1) Healthy/Natural Food Products 2) Indulgent Specialty Snack Food Brands.  The Company sells its products nationally through a number of channels including: Grocery, Natural, Mass, Drug, Club, Vending, Food Service, Convenience Stores and International.

In the Healthy/Natural portfolio, products include Rader Farms frozen berries, Boulder Canyon Natural Foods™ brand kettle cooked potato chips, and Jamba™ branded blend-and-serve smoothie kits under license from Jamba Corporation.  In the Indulgent Specialty category, products include TGI Friday’s® brand snacks under license from TGI Friday’s Inc., BURGER KING™  brand snack products under license from Burger King Corporation, Poore Brothers® kettle cooked potato chips, Bob’s Texas Style® kettle cooked chips, Tato Skins® brand potato snacks and O’Boises® potato snacks.   The Company also manufactures private label snacks for certain grocery retail chains and distributes snack food products in Arizona that are manufactured by others.

The Company’s frozen berry products are manufactured by Rader Farms, Inc. (“Rader Farms”) a Washington corporation located in Whatcom County, and acquired by the Company in May of 2007.  Rader Farms grows, processes and markets premium berry blends, raspberries, blueberries, and rhubarb and purchases marionberries, cherries, cranberries, strawberries and other fruits from a select network of fruit growers for resale. The fruit is processed, frozen and packaged for sale and distribution to wholesale customers. The Company also uses third party processors for certain products.

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

The Company’s fiscal year ends on the last Saturday occurring in the month of December of each calendar year.  Accordingly, the second quarter of 2010 commenced March 28, 2010 and ended June 26, 2010.

Basis of Presentation

The condensed consolidated financial statements include the accounts of Inventure Foods, 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 26, 2009.  The results of operations for the quarter and six months ended June 26, 2010 are not necessarily indicative of the results expected for the full year.

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Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)  in an orderly transaction between market participants at the measurement date.  The Company classifies its investments based upon an established fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2	Quoted prices in markets that are not considered to be active or financial instruments without quoted market prices, but for which all significant inputs are observable, either directly or indirectly;
Level 3	Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

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

At June 26, 2010 and December 26, 2009, the carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate fair values since they are short-term in nature.  The carrying value of the long-term debt approximates fair-value based on the borrowing rates currently available to the Company for long-term borrowings with similar terms.

	Fair Value at June 26, 2010
	Level 1	Level 2		Level 3	Total
Liabilities:
Interest rate swaps	—	$	726,294	—	$	726,294

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

Adoption of New Accounting Pronouncements

In January 2010, the FASB issued an amendment to require new disclosures for fair value measurements and provide clarification for existing disclosure requirements. More specifically, this update requires (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This update clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The Company adopted this standard at the beginning of its 2010 fiscal year and it did not have a material impact on the Consolidated Financial Statement note disclosures.

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. Diluted earnings per share is calculated by including all dilutive common shares such as stock options and restricted stock. The total stock options of 185,000 and 315,000 were excluded from the weighted average per share calculation for the quarter and six months ended June 26, 2010, respectively, because inclusion of such would be anti-dilutive.  Total restricted shares outstanding of 299,334 were excluded from the weighted average per share calculation for the quarter and six months ended June 26, 2010, because inclusion of such would be anti-dilutive. Stock options outstanding of 1,175,500 and restricted shares outstanding of 89,000 were excluded from the weighted average per share calculation for the quarter and six months ended June 27, 2009 because inclusion of such would be anti-dilutive.  Exercises of outstanding stock

7

options or warrants 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 six months ended June 26, 2010 and June 27, 2009:

	Quarter Ended				Six Months Ended
	June 26, 2010		June 27, 2009		June 26, 2010		June 27, 2009
Basic Earnings Per Share:
Net income	$	1,375,653	$	1,037,378	$	2,622,050	$	1,924,543
Weighted average number of common shares	17,897,724		17,884,429		17,892,683		18,024,326
Earnings per common share	$	0.08	$	0.06	$	0.15	$	0.11
Diluted Earnings Per Share:
Net income	$	1,375,653	$	1,037,378	$	2,622,050	$	1,924,543
Weighted average number of common shares	17,897,724		17,884,429		17,892,683		18,024,326
Incremental shares from assumed conversions of stock options and non- vested shares of restricted stock	618,353		70,642		578,421		506,060
Adjusted weighted average number of common shares	18,516,077		17,955,071		18,471,104		18,530,386
Earnings per common share	$	0.07	$	0.06	$	0.14	$	0.10

Stock Options and Stock-Based Compensation

Stock options and other stock based compensation awards expense are adjusted for estimated forfeitures and are recognized on a straight-line basis over the requisite period of the award, which is currently five to ten years for stock options, and three years for restricted stock.  The Company estimates future forfeiture rates based on its historical experience.

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

See Footnote 8 “Stock Options, Stock-Based Compensation and Shareholder’s Equity” for additional information.

Deferred Compensation Plan

Effective January 1, 2007 the Company implemented a deferred compensation plan.  The assets are invested in mutual funds and are reflected in other current assets and the related obligation is reflected in accrued liabilities in the Company’s Condensed Consolidated Balance Sheets.

2.             Inventories

Inventories consisted of the following:

	June 26,		December 26,
	2010		2009
Finished goods	$	9,962,717	$	5,558,696
Raw materials	8,744,662		11,886,467
	$	18,707,379	$	17,445,163

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3.             Goodwill, Trademarks and Other Intangibles

Goodwill, trademarks and other intangibles, net consisted of the following: 

	Estimated Useful Life	June 26, 2010			December 26, 2009
Goodwill:
Inventure Foods, Inc.		$	5,986,252		$	5,986,252
Rader Farms, Inc.		5,629,973			5,629,973
Total Goodwill		$	11,616,225		$	11,616,225
Trademarks:
Inventure Foods, Inc.		$	1,535,659		$	1,535,659
Rader Farms, Inc.		1,070,000			1,070,000
Other intangibles:
Rader - Covenant-not-to-compete, gross carrying amount	5 years	160,000			160,000
Rader - Covenant-not-to-compete, accum. amortization		(98,678		)	(82,676		)
Rader - Customer relationship, gross carrying amount	10 years	100,000			100,000
Rader - Customer relationship, accum. amortization		(30,821		)	(25,822		)
Total Trademarks and other intangibles, net		$	2,736,160		$	2,757,161

Amortization expenses related to these intangibles were $10,500 and $21,001 for the quarters and six months, respectively, ended June 26, 2010 and June 27, 2009.

Goodwill and trademarks are reviewed for impairment annually in the fourth fiscal quarter, 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 reduces 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 carrying values were not impaired as of June 26, 2010.

4.         Accrued Liabilities

Accrued liabilities consisted of the following:

	June 26, 2010		December 26, 2009
Accrued payroll and payroll taxes	$	2,010,141	$	1,635,564
Accrued royalties and commissions	896,746		809,095
Accrued advertising and promotion	1,133,806		1,327,021
Accrued other	1,421,096		1,542,500
	$	5,461,789	$	5,314,180

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5.         Long-Term Debt

Long-term debt consisted of the following:

	June 26,			December 26,
	2010			2009
Mortgage loan due monthly through July, 2012; interest at 9.03%; collateralized by land and building in Goodyear, AZ	$	1,481,916		$	1,515,079
Mortgage loan due monthly through December, 2016; interest rate at 30 day LIBOR plus 165 basis points, fixed through a swap agreement to 6.85%; collateralized by land and building in Bluffton, IN	2,186,951			2,220,877
Equipment term loan due monthly through May, 2014; interest at LIBOR plus 165 basis points; collateralized by equipment at Rader Farms in Lynden, WA	3,428,571			3,857,143
Real Estate term loan due monthly through July, 2017; interest at LIBOR plus 165 basis points; fixed through a swap agreement to 4.28%; secured by a leasehold interest in the real property in Lynden, WA	3,522,051			3,612,125
Vehicle term loan and other miscellaneous loans due in various monthly installments through February, 2011; collateralized by vehicles	4,586			29,868
Office Equipment leases due June 2012	5,829			7,285
	10,629,904			11,242,377
Less current portion of long-term debt	(1,194,409		)	(1,204,475		)
Long-term debt, less current portion	$	9,435,495		$	10,037,902

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

·a $15,000,000 revolving line of credit maturing on June 30, 2011; $5,974,206 was outstanding at June 26, 2010.  Based on eligible assets, the amount available under the line of credit was $8,531,540 at June 26, 2010. As defined in the revolving credit facility note, all borrowings under the revolving line of credit will bear interest at either (i) the prime rate of interest announced by U.S. Bank from time to time or (ii) LIBOR plus the LIBOR Rate Margin.

·Equipment term loan due May 2014 noted above.

·Real estate term loan due July 2017 noted above.

U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. 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 June 26, 2010, the Company was in compliance with all of the financial covenants.

During the quarter ending June 26, 2010, the Company obtained $578,304 in interim financing from U.S. Bank in association with the purchase of certain capital equipment for its Bluffton, Indiana facility.  Conversion of this arrangement into a permanent capital lease obligation with US Bank is expected to be finalized before the end of the current fiscal year.

Interest Rate Swaps

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

The Company entered into an interest rate swap in 2006 to convert the interest rate of the mortgage to purchase the Bluffton, Indiana plant from the contractual rate of 30 day LIBOR plus 165 basis points to a fixed rate of 6.85%. On September 28, 2008, the Company’s first day of its fiscal fourth quarter, the Company prospectively redesignated the hedging relationship to a cash flow hedge.  The swap has a fixed pay-rate of 6.85% and a notional amount of approximately $2.2 million at June 26, 2010 and expires in December, 2016.  We evaluate the effectiveness of the hedge on a quarterly basis and at June 26, 2010 the hedge is

10

highly effective.  The interest rate swap had fair value of ($351,639) at June 26, 2010, which is recorded as a liability on the accompanying consolidated balance sheet.  The swap value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on June 26, 2010.

The Company entered into another interest rate swap in January 2008 to effectively convert the interest rate on the real estate term loan to a fixed rate of 4.28%.  The interest rate swap is structured with decreasing notional amounts to match the expected pay down of the debt.  The notional value of the swap at June 26, 2010 was $3.6 million.  The interest rate swap is accounted for as a cash flow hedge derivative and expires in July 2017.  We evaluate the effectiveness of the hedge on a quarterly basis and at June 26, 2010 the hedge is highly effective.  The interest rate swap had fair value of ($374,655) at June 26, 2010, which is recorded as a liability on the accompanying consolidated balance sheet.  This value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on June 26, 2010.

The only component of other comprehensive income/loss for the periods presented is the change in fair value of the interest rate swaps.  The effect of such is as follows:

	Quarter ended					Six Months Ended
	June 26, 2010			June 27, 2009		June 26, 2010			June 27, 2009
Net income	$	1,375,653		$	1,037,378	$	2,622,050		$	1,924,543
Change in fair value of interest rate swaps (net of tax)	(125,972		)	184,393		(165,042		)	238,747
Comprehensive Income	$	1,249,681		$	1,221,771	$	2,457,008		$	2,163,290

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 any such lawsuits, individually and in the aggregate,  will not have a material adverse effect on the Company’s financial position or results of operations.

7.            Business Segments

The Company’s operations consist of three reportable segments: manufactured snack products, berry products and distributed products.  The manufactured snack products segment produces potato chips, potato crisps, potato skins, pellet snacks and kettle chips for sale primarily to snack food distributors and retailers.  The berry products segment produces frozen berries for sale primarily to groceries and mass merchandisers.  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.  The majority of the Company’s revenues are attributable to external customers in the United States.  The Company does sell to external customers internationally in over 40 countries worldwide, however the revenues attributable to those customers are immaterial.  All of the Company’s assets are located in the United States.  The Company does not allocate any assets to the distributed products segment.

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

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	Manufactured Snack Products		Berry Products		Distributed Products		Consolidated
Quarter endedJune 26, 2010
Net revenues from external customers	$	22,106,916	$	11,850,092	$	955,977	$	34,912,985
Depreciation and amortization in segment gross profit	295,120		195,599		—		490,719
Segment gross profit	4,745,077		2,966,487		122,885		7,834,449
Goodwill	5,986,252		5,629,973		—		11,616,225
Quarter ended June 27, 2009
Net revenues from external customers	$	20,841,367	$	11,717,247	$	860,917	$	33,419,531
Depreciation and amortization in segment gross profit	258,525		155,537		—		414,062
Segment gross profit	4,644,353		1,461,146		244,630		6,350,129
Goodwill	5,986,252		5,629,973		—		11,616,225
Six months ended June 26, 2010
Net revenues from external customers	$	40,553,962	$	23,899,223	$	1,855,989	$	66,309,174
Depreciation and amortization in segment gross profit	596,395		373,534		—		969,929
Segment gross profit	7,774,520		6,721,851		131,321		14,627,692
Goodwill	5,986,252		5,629,973		—		11,616,225
Six months ended June 27, 2009
Net revenues from external customers	$	38,892,239	$	22,425,829	$	1,820,297	$	63,138,365
Depreciation and amortization in segment gross profit	511,188		309,314		—		820,502
Segment gross profit	7,448,532		4,559,549		436,393		12,444,474
Goodwill	5,986,252		5,629,973		—		11,616,225

The following table reconciles reportable segment gross profit to the Company’s consolidated income before income tax provision for the quarters and six months ended June 26, 2010 and June 27 2009:

	Quarter Ended						Six Months Ended
	June 26, 2010			June 27, 2009			June 26, 2010			June 27, 2009
Segment gross profit	$	7,834,449		$	6,350,129		$	14,627,692		$	12,444,474
Unallocated amounts:
Selling, general and administrative expenses	(5,418,114		)	(4,390,600		)	(9,925,449		)	(8,866,301		)
Interest expense, net	(181,479		)	(235,898		)	(397,862		)	(413,952		)
Income before income tax provision	$	2,234,856		$	1,723,631		$	4,304,381		$	3,164,221

8.             Stock Options, Stock-Based Compensation and Shareholders’ Equity

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 with 410,518 reserved but unissued shares of Common Stock available for issuance under the 1995 Plan, and was replaced by the Inventure Foods, 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 reserved for issuance that number of shares of Common Stock determined by adding (a) 410,518, which is the number of reserved but unissued shares available for issuance under the 1995 Plan, (b) 500,000, which is the number of additional shares approved by the stockholders on May 23, 2006 to be added to the 2005 Plan, (c) 500,000, which is the number of additional shares approved by the stockholders on May 19, 2008 to be added to the 2005 Plan and (d) 500,000, which is the number of additional shares approved by the stockholders on May 19, 2009 to be added to the 2005 Plan.  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 Plan.  The 2005 Plan expires in May 2015, and 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.  Prior to May 2008, all stock option grants had a five year term. The fair value of these stock option grants is amortized to expense over the vesting period, generally three years for employees and one year for the Board of Directors.  In May 2008, the Company’s Board of Directors approved a 10 year term for all future stock option grants, with vesting periods of five years and one year for employees and Board of Director members, respectively.

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The Company may grant restricted shares and restricted share units to eligible employees.  Such restricted shares and restricted share units are subject to forfeiture if certain employment conditions are not met.  Restricted share units generally vest in equal annual increments over a three year period with no performance criteria for employees, and a one year vesting period for Board of Director members.  However, the restricted stock units granted to all officers and senior management of the Company during the six months ending June 26, 2010 contain performance restrictions which are required to be achieved at each vesting period in order for the shares to be awarded.  The fair value of the restricted stock units is equal to the market price of our stock at the date of the grant.  Share-based compensation expense related to restricted stock awards is recognized on the straight-line method over the requisite vesting period, and the related share-based compensation expense is included in selling, general and administrative expenses.

Restricted stock and restricted stock unit activity for the six months ending June 26, 2010 was as follows:

	Plan Restricted Share Units
	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Balance, December 26, 2009	89,000		$	2.40
Granted	240,000		$	3.40
Vested	(29,666	)	$	2.40
Forfeited	—		$	—
Balance, June 26, 2010	299,334		$	3.20

During the six months ending June 26, 2010 and June 27, 2009, the total share-based compensation expense from restricted stock recognized in the financial statements was $71,614 and $5,909 respectively, and is included in selling, general and administrative expenses.  There were no share-based compensation costs which were capitalized.  As of June 26, 2010 and June 27, 2009 the total unrecognized costs related to non-vested restricted stock awards granted was $922,935 and $206,802, respectively.

During the six months ended June 26, 2010 and June 27, 2009, the Company recorded $114,663 and $116,171 of share-based compensation expense, respectively related to stock options.  During the quarters ended June 26, 2010 and June 27, 2009, the Company recorded $54,549 and $60,271 of share-based compensation expense, respectively, related to stock options.   There were 7,000 and -0- stock options exercised during the six months ended June 26, 2010 and June 27, 2009 respectively.

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 weighted-average assumptions for the quarter and six months ended:

	Quarter Ended				Six Months Ended
	June 26, 2010		June 27, 2009		June 26, 2010		June 27, 2009
Expected dividend yield	0	%	0	%	0	%	0	%
Expected volatility	73	%	73	%	73	%	73	%
Risk-free interest rate	3.2% - 3.7	%	3.3% - 3.7	%	3.2% - 3.7	%	2.9% - 3.7	%
Expected life	6.5 years		6.5 years		6.5 years		6.5 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.

As of June 26, 2010, the amount of unrecognized compensation expense related to stock options to be recognized over the next two years is approximately $0.4 million. This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future. Generally, the Company issues new shares upon the exercise of stock options as opposed to reissuing treasury shares.

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The following table summarizes stock option activity during the six months ended June 26, 2010:

	Plan Options
	Options Outstanding		Weighted Average Exercise Price
Balance, December 26, 2009	2,130,500		$	2.26
Granted	225,000		$	3.38
Forfeited	(10,000	)	$	2.05
Exercised	(7,000	)	$	2.18
Balance, June 26, 2010	2,338,500		$	2.37

The intrinsic value related to total stock options outstanding was $2,008,745 as of June 26, 2010 and $835,300 as of June 27, 2009.  The intrinsic value related to vested stock options outstanding was $1,014,263 as of June 26, 2010 and $147,043 as of June 27, 2009.  The aggregate intrinsic value is based on the exercise price and the Company’s closing stock price of $3.20 as of June 26, 2010 and $2.55 as of June 27, 2009.

Issuer Purchases of Equity Securities

The Company’s Board of Directors approved a stock re-purchase program that was publically announced on Form 8-K filed with the SEC on September 26, 2008 whereby up to $2 million of common stock could be purchased from time to time at the discretion of management (the “2008 program”).  The repurchased shares are generally held as treasury stock and are available for general corporate purposes unless and until such shares are retired by the Board.   The 2008 program expired August 23, 2009 and the Company continues to evaluate its share repurchase opportunities.  Below is a table showing repurchased shares for each month included in the period covered by this report:

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Period	Total Number of Shares Repurchased	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum that may yet be Purchased Under the 2008 Program
12/28/08 — 2/28/09	—	$	—	—	$	1,272,878
3/1/09 - 03/28/09	367,957	$	1.28	367,957	$	(471,195	)
3/29/09 - 8/23/09	—	$	—	—	$	—
Total					$	801,683

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”), Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and Inventure Foods, 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 without limitation general economic conditions, increases in cost or availability of ingredients, packaging, energy and employees, price competition and industry consolidation, ability to execute strategic initiatives, product recalls or safety concerns, disruptions of supply chain or information technology systems, customer acceptance of new products and changes in consumer preferences, food industry and regulatory factors, interest rate risks, dependence upon major customers, dependence upon existing and future license agreements, the possibility that we will need additional financing due to future operating losses or in order to implement the Company’s business strategy, acquisition-related risks, 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, 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’ Annual Report on Form 10-K for the fiscal year ended December 26, 2009 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 update or revise publicly any forward-looking statement whether as a result of new information, future developments or otherwise. 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 paragraph.

Results of Operations

Quarter ended June 26, 2010 compared to the quarter ended June 27, 2009

Net revenues for the second quarter of fiscal 2010 were $34.9 million, 4.5% higher than last year’s second quarter net revenues of $33.4 million.   Snack division net revenues were $23.1 million, up 6.3% over last year’s second quarter net revenues primarily due to the continued success of our Boulder Canyon brand, up 57% over last year’s second quarter net revenues .  Rader Farms net revenues were $11.9 million, up 1.3% over last year’s second quarter net revenues.  The Rader Farms increase was a result of the Jamba smoothie launch and continued increases in Rader Farms branded and private label business, achieved while absorbing fourth quarter 2009 sales price reductions in the market for berries and a significant investment in slotting fees related to the Jamba launch.

Gross profit for the quarter ended June 26, 2010 increased 23.4% or $1.5 million to $7.8 million, as compared to the quarter ended June 27, 2009, and also increased as a percentage of net revenues (22.4% of net revenue for 2010 and 19.0% of net revenue for 2009).  The increase in gross profit was primarily attributable to increased unit sales, improved plant performance and an overall lower cost of berries.  These gains were partially offset by the business mix in the snack division, the industry-wide impact of poor storage potatoes and the increase in slotting fee expenditure for the Jamba™ launch.

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Selling, general and administrative expenses were $5.4 million in the second quarter of 2010, or 15.5% of net revenues for the quarter, an increase of $1.0 million and 2.4 percentage points of net revenue, as a result of the increased marketing support for both the Jamba and Boulder brands.

Net income was $1.4 million, or $0.08 per basic and $0.07 per diluted share, compared to net income of $1.0 million, or $0.06 per basic and diluted share last year.

Six months ended June 26, 2010 compared to the six months ended June 27, 2009

For the six months ended June 26, 2010 net revenues increased $3.2 million or 5.0% to $66.3 million compared to $63.1 million in the first half of the previous year.   Snack division net revenues were $42.4 million, up 4.2% over last year’s first half net revenues,  led by the continued success of our Boulder Canyon products.  Rader Farms net revenues were $23.9 million, up 6.6% over last year’s first half net revenues.  The Rader Farms increase was a result of a strong volume increase achieved while absorbing fourth quarter 2009 sales price reductions in the market for berries and a significant investment in slotting fees related to the Jamba launch.

Gross profit for the six months ended June 26, 2010 was $14.6 million, or 22.1% of net revenues, compared to $12.4 million, or 19.7% of net revenues for the six months ended June 27, 2009.  This increase of $2.2 million, or 17.5%, was attributable to the revenue growth at both Snack and Rader divisions.

Selling, general and administrative expenses increased to $9.9 million for the six months ended June 26, 2010 from $8.9 million for the six months ended June 27, 2009.  Selling, general and administrative expenses were 15.0% of total net revenues for the six months ended June 26, 2010, up 1.0 percentage points from the prior year.  The increase is a result of the marketing support for both Jamba and Boulder brands.

Net income for the six months ended June 26, 2010 was $2.6 million, or $0.15 per basic share and $0.14 per diluted share, compared to net income of $1.9 million, or $0.11 per basic share and $0.10 per diluted share, in the prior period.

Liquidity and Capital Resources

Net working capital was $15.4 million (a current ratio of 1.8:1) at June 26, 2010 and $17.9 million (a current ratio of 2.35:1) at December 26, 2009.  For the six months ended June 26, 2010, the Company generated cash flow of $7.6 million from operating activities, invested $3.5 million in equipment, and utilized $3.9 million to pay down its line of credit and other debt.   For the six months ended June 27, 2009, the Company generated cash flow of $6.2 million from operating activities, invested $1.3 million in equipment and utilized $3.6 million to pay down its line of credit and other debt and purchased $0.5 million of treasury shares.

The Company’s Goodyear, Arizona manufacturing and distribution facility is subject to a $1.6 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 based on a twenty-year amortization period.

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

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

·a $15,000,000 revolving line of credit maturing on June 30, 2011; based on asset eligibility, there was $8.5 million of borrowing availability under the line of credit at June 26, 2010.

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

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·a real estate term loan, secured by a leasehold interest in the real property we are leasing from the former owners of Rader Farms in connection with the Acquisition, subject to a $4.0 million real estate term loan from U.S. Bank National Association, bears interest at the 30 day LIBOR plus 165 basis points.  The interest rate associated with this debt instrument was fixed to 4.28% via an interest rate swap agreement with U.S. Bank National Association in January 2008. The loan matures in July, 2017; however monthly principal and interest installments of $36,357 are determined based on a fifteen-year amortization period.

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

As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. 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 debt to equity ratio. At June 26, 2010, the Company was in compliance with all of the financial covenants.

During the quarter ending June 26, 2010, the Company obtained $578,304 in interim financing from U.S. Bank in association with the purchase of certain capital equipment for its Bluffton, Indiana facility.  Conversion of this arrangement into a permanent capital lease obligation with US Bank is expected to be finalized before the end of the current fiscal year.

Interest Rate Swaps

See Footnote 5 “Long-Term Debt” in the Company’s “Notes to Unaudited Condensed Consolidated Financial Statements”  for detail regarding the Company’s interest rate swaps.

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 June 26, 2010 there have been no material changes to the Company’s contractual obligations since its December 26, 2009 fiscal year end, other than scheduled payments.

The Company has plans to expand its Bluffton, Indiana manufacturing facility to add extruded snack production capabilities later this fiscal year.  The addition of the latest state-of-the-art extrusion technology will expand manufacturing capabilities to include sheeted dough, pellet and extruded baked snacks.  The $4 million expansion is expected to be complete by the third quarter of 2010.

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, including planned capital expenditures. The 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. For instance, if current general economic conditions continue or worsen, we believe that our sales forecasts may prove to be less reliable than they have in the past as consumers may change their buying habits with respect to snack food products. Unexpected price increases for commodities used in our snack products, or adverse weather conditions affecting our Rader Farms crop yield could also impact our financial condition.  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, will be on terms attractive to the Company.

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Critical Accounting Policies and Estimates

There have been no significant changes to the Company’s critical accounting policies and estimates since the filing of its Form 10-K for the year ended December 26, 2009.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

This information has been omitted pursuant to Item 305(e) of Regulation S-K, promulgated under the Securities Act of 1933, as amended.

Item 4.  Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covering this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Part II.  Other Information

Item 1.   Legal Proceedings

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 any such lawsuits, individually and in the aggregate, will not have a material adverse effect on the financial statements taken as a whole.

Item 1A. Risk Factors

During the quarter and six months ended June 26, 2010, 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 26, 2009.

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

None.

Item 3.   Defaults Upon Senior Securities

None.

Item 5.   Other Information

None.

Item 6.   Exhibits

(a)Exhibits:

3.6    —	Certificate of Amendment to the Certificate of Incorporation of The Inventure Group, Inc.
10.70 —	Form Amendment of Stock Option Agreement
10.71 —	Form Executive Stock Option Agreement — Amended and Restated 2005 Equity Incentive Plan
10.72 —	Form Performance Share Restricted Stock Agreement — Amended and Restated 2005 Equity Incentive Plan
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.

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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:	August 10, 2010	INVENTURE FOODS, INC.
		By:	/s/ Terry McDaniel
			Terry McDaniel
			Chief Executive Officer
			(Principal Executive Officer)

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EXHIBIT INDEX

3.6 —	Certificate of Amendment to the Certificate of Incorporation of the Inventure Group, Inc. (1)
10.70 —	Form Amendment of Stock Option Agreement (2)
10.71 —	Form Executive Stock Option Agreement — Amended and Restated 2005 Equity Incentive Plan (2)
10.72 —	Form Performance Share Restricted Stock Agreement — Amended and Restated 2005 Equity Incentive Plan
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.

(1)           Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 24, 2010.

(2)           Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 22, 2010.

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EX-10.72

Exhibit 10.72

INVENTURE FOODS, INC.

PERFORMANCE SHARE RESTRICTED STOCK AGREEMENT

Inventure Foods, Inc. (the “Company”) hereby grants you,                        (“Employee”), a grant of Performance Shares of Restricted Stock. The date of this Agreement is                          .  Subject to the provisions set forth in this Agreement and the provisions of the Company’s Amended and Restated 2005 Equity Incentive Plan, a copy of which is attached hereto as Exhibit A (the “Plan”), the principal features of this grant are as follows:

NUMBER OF PERFORMANCE SHARES:
PERFORMANCE PERIOD
PURCHASE PRICE PER SHARE:	$0.01
PURCHASE DATE:	On or before
PERFORMANCE-BASED VESTING SCHEDULE:

Unless accelerated as provided below, Performance Shares vest on                      (the “Vesting Date”) based upon achievement of cumulative Board-approved annual EBITDA targets, as follows                                                                                                 .  Except as specifically provided below, Employee must remain employed by the Company through the Vesting Date for any Performance Shares to vest.

The number of Performance Shares that vest on the Vesting Date will be determined linearly from a baseline of $                   from zero to 100%, and will be determined using the Company’s audited financial statements.

Vesting will accelerate in the following manner:

·If Employee’s employment is terminated by the Company during the Performance Period without “Cause” as defined below, or if Employee resigns for “Good Reason” as defined below, then, for each full fiscal year of the Performance Period completed prior to such termination,            of the Performance Shares shall be eligible for vesting, proportionately based upon cumulative performance for such completed periods, measured against the base line.  All unvested Performance Shares shall automatically be forfeited.

·If Employee’s employment ends for any other reason prior to completion of the Performance Period, then none of the Performance Shares will be eligible for vesting and all of the Performance Shares shall automatically be forfeited.

·If the Company is involved in a significant acquisition or divestiture that does not constitute a “Change in Control” as defined below, then a portion of the Performance Shares shall be vested as if Employee had been terminated by the Company without Cause as of the closing date of such transaction, and vesting of the remaining portion of the Performance Shares shall be subject to a revised vesting formula determined by the Committee.

·Upon the occurrence of a “Change in Control” as defined below, all unvested Performance Shares shall be eligible for immediate vesting proportionately based upon the cumulative performance for the most recently completed fiscal year during the period, except to the extent that the vesting would cause a “280G Event” as defined below.

·The Committee retains the ability, in its discretion, to adjust the targets based upon excess capital expenditures or other material unforeseen events or changes, but there are no commitments or assurances that any changes will be made.

·“Change of Control” means the consummation of any of the following:

·Any transaction or series of transactions, whereby any person (as that term is used in Section 13(d) and 14(d) of the Exchange Act), is or becomes the beneficial owner (as that term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing more than eighty percent (80%) of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors; provided, that for purposes of this paragraph, the term “person” shall exclude (A) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, (B) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership in the Company, and (C) any such person in connection with a Non-Control Transaction defined below;

·Other than a Non-Control Transaction, any merger, consolidation, or any other corporate reorganization of the Company pursuant to which shares of Stock would be converted into cash, securities, or other property (other than a merger, consolidation or other reorganization with a wholly owned Subsidiary), if more than eighty percent (80%) of the combined voting power of the continuing or surviving entity’s securities entitled to vote in the election of directors outstanding immediately after such merger, consolidation, or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation, or other reorganization;

·The sale, exchange, transfer, or other disposition of all or substantially all of the assets of the Company (other than a sale, exchange, transfer or other disposition to one or more Subsidiaries, or under conditions that would constitute a Non-Control Transaction), provided that such assets represent at least eighty percent (80%) of the Company’s consolidated revenue for the preceding twelve months and at least eighty percent (80%) of the Company’s consolidated net income for the preceding twelve months; or

·The liquidation or dissolution of the Company.

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·A “Non-Control Transaction” means any transaction the sole purpose of which is to change the jurisdiction of incorporation of the Company or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

·“280G Event” means any payment on account of acceleration under this Agreement to the extent that such payment or portion thereof made in accordance with this Agreement, when considered in combination with any other “payments in the nature of compensation contingent on a change in the ownership or control” of the Company (as defined in Section 280G of the Internal Revenue Code and the regulations adopted thereunder) payable to or for the benefit of Employee under this Agreement, or under any other bonus plan, agreement or arrangement, shall exceed the maximum amount which the Company may pay without loss of deduction under Section 280G of the Internal Revenue Code or which Employee may receive without becoming subject to the tax imposed by Section 4999 of the Internal Revenue Code. Nothing in this provision, however, is intended to imply that the benefits contemplated by this Agreement in fact constitute “payments in the nature of compensation contingent on a change in the ownership or effective control” of the Company, the nature of and the amount of which, either solely or in combination with any other benefits, would exceed amounts that the Company may pay without loss of deduction under Section 280G of the Internal Revenue Code or which Employee may receive without becoming subject to the tax imposed by Section 4999 of the Internal Revenue Code.

·“Cause” means (i) an act of fraud, intentional dishonesty or theft adversely affecting the Company by Employee, (ii) noncompliance by Employee with the reasonable directives of the Board or its designees (except by reason of death or Disability), (iii) an allegation against Employee of discrimination by Employee based on race, sex, national origin, religion, handicap or age which is prohibited by applicable law if the Company has reason to believe any material portion of the allegations after an investigation conducted in accordance with any applicable Company policy, (iv) material violation by Employee of previously published Company policies and procedures or the Plan or Employee’s agreements with the Company, or (v) Employee’s conviction of a felony; provided, however, in the case of (ii) or (iv) above, Employee shall be provided with thirty (30) days written notice of such event, and Employee shall have ten (10) days to respond and/or propose a cure in writing.  If such noncompliance or material violations are not capable of cure, or if such noncompliance or material violations have not been cured within fifteen (15) days after the date of such written proposal by Employee, Cause shall be deemed to exist.

·“Good Reason” means any of the following: (i) a material reduction in Employee’s title, status, authority, or responsibility at the Company; or (ii) a material reduction in the benefits in effect for Employee, and comparable reductions have not been made in the benefit of the other members of senior management of the Company; or (iii) except with Employee’s prior written consent, relocation of Employee’s principal place of employment to a location more than 30 miles from the Company’s executive offices in Phoenix, Arizona; or (iv) any breach by the Company of its material obligations under Employee’s agreements with the Company unless such breach is cured within 30 days after written notice of breach from Employee.

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Employee understands that under Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), as the Shares vest, the fair value of such Shares will be reportable as ordinary income at that time.  Employee further understands that instead of being taxed when and as the Shares vest, Employee may elect to be taxed as of the Purchase Date of the Shares with respect to the fair value of all Shares on such date less the purchase price paid for the Shares.  Such election may only be made under Section 83(b) of the Code with the I.R.S. within thirty (30) days after the Purchase Date.  The form for making this election may be provided by the Company for Employee’s convenience only.  Employee understands that failure to make this filing within the thirty (30) day period will result in the recognition of ordinary income as the Shares vest.  EMPLOYEE ACKNOWLEDGES THAT IT IS EMPLOYEE’S SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF EMPLOYEE REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON EMPLOYEE’S BEHALF.  EMPLOYEE IS RELYING SOLELY ON EMPLOYEE’S ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE AN 83(b) ELECTION.

Employee’s signature below indicates Employee’s agreement and understanding that this grant is subject to all of the terms and conditions contained in this Agreement and the Plan attached hereto as Exhibit A, including without limitation provisions relating to vesting and forfeiture of shares covered by this grant.  PLEASE BE SURE TO READ THIS AGREEMENT AND THE PLAN IN THEIR ENTIRETY.

INVENTURE FOODS, INC.	EMPLOYEE
By:
Print Name:	Print Name:
Print Title:	Date:
Date:

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TERMS AND CONDITIONS

1.             Incorporation of the Plan.  The Plan attached hereto is incorporated by reference into this Agreement, and any capitalized term not defined in this Agreement shall have the meaning ascribed to such term under the Plan.  To the extent that any provisions of this Agreement violates or is inconsistent with the Plan, the Plan shall govern and any inconsistent provision in this Agreement shall be of no force or effect.

2.             Grant.  The Company hereby grants to the Employee        Performance Shares (the “Shares”) of the Company’s Common Stock, $0.01 par value per share (the “Common Stock”) at a purchase price of $0.01 per Share, subject to all of the terms and conditions in this Agreement. The Employee has until                            to make such purchase after which date Employee will have no further right to purchase the Shares under this Agreement.  The date on which Employee timely purchases the Shares hereunder shall be referred to as the “Purchase Date”.

3.             Shares Held in Escrow. Unless and until the Shares have vested in the manner set forth in paragraphs 4 or 5, such Shares will be issued in the name of the Employee and held by the Secretary of the Company as escrow agent (the “Escrow Agent”), and cannot be sold, transferred or otherwise disposed of, nor pledged or otherwise hypothecated. The Company may instruct the transfer agent for its Common Stock to place a legend on the certificates representing the Shares or otherwise note its records as to the restrictions on transfer set forth in this Agreement. The certificate or certificates representing such Shares will not be delivered by the Escrow Agent to the Employee unless and until the Shares have vested and all other terms and conditions in this Agreement have been satisfied.

4.             Vesting Schedule. Except as provided in Section 5, and subject to Section 6, Shares subject to this grant will vest in accordance with the Performance-Based Vesting Schedule set forth on the facing page hereof.

5.             Board Discretion. The Board, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Shares at any time. If so accelerated, such Shares will be considered as having vested as of the date specified by the Board.

6.             Forfeiture.  Notwithstanding any contrary provision of this Agreement, the balance of the Shares that have not vested pursuant to paragraphs 4 or 5 will thereupon be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company upon the date the Employee’s employment with the Company terminates for any reason. The Employee will not be entitled to a refund of the price paid for any Shares returned to the Company pursuant to this paragraph 6. The Employee hereby appoints the Escrow Agent with full power of substitution, as the Employee’s true and lawful attorney-in-fact with irrevocable power and authority in the name and on behalf of the Employee to take any action and execute all documents and instruments, including, without limitation, stock powers which may be necessary to transfer the certificate or certificates evidencing such unvested Shares to the Company upon such termination.

7.             Death of Employee. Any distribution or delivery to be made to the Employee under this Agreement will, if the Employee is then deceased, be made to the Employee’s designated beneficiary, or if no beneficiary survives the Employee, to the administrator or executor of the Employee’s estate. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

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8.             Withholding.  Notwithstanding any contrary provision of this Agreement, no certificate representing the Shares may be released from the escrow established pursuant to paragraph 3 unless and until satisfactory arrangements (as determined by the Board) will have been made by the Employee with respect to the payment of income and employment taxes which the Company determines must be withheld with respect to such Shares.

9.             Rights as Shareholder.  Employee shall have all rights of a shareholder prior to the vesting of the Shares, including the right to vote the Shares and receive all dividends and other distributions paid or made with respect thereto.

10.           No Effect on Employment.  Only the terms of any written employment agreement between the Company and Employee (and not this Agreement) shall govern the terms of Employee’s employment, and nothing in this Agreement shall constitute any assurance of employment of Employee by the Company for any period, including any period necessary for the Shares to vest.  The Company will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Employee at any time for any reason whatsoever, with or without good cause, subject to the terms of any such written employment agreement.

11.           Entire Agreement; Amendment.  This Agreement embodies the entire understanding and agreement of the parties in relation to the subject matter hereof, and no promise, condition, representation or warranty, expressed or implied, not herein stated, shall bind either party hereto.  This Agreement may be amended only by a writing executed by the Company and Employee that specifically states that it is amending this Agreement.  Notwithstanding the foregoing, this Agreement may be amended solely by the Board by a writing which specifically states that it is amending this Agreement, so long as a copy of such amendment is delivered to Employee, and provided that no such amendment adversely affects the rights of Employee hereunder without Employee’s written consent.  Without limiting the foregoing, the Board reserves the right to change, by written notice to Employee, the provisions of the Shares or this Agreement in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, ruling or judicial decisions, provided that any such change shall be applicable only to the Shares which are then subject to restrictions as provided herein.

12.           Severability.  If all or any part of this Agreement is declared by any court or government authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement not declared to be unlawful or invalid.  Any Section of this Agreement so declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to the terms of such Section to the fullest extent possible while remaining lawful and valid.

13.           Binding Effect and Benefit.  This Agreement shall be binding upon and, subject to the conditions hereof, inure to the benefit of the Company, its successors and assigns, and Employee and Employee’s successors and assigns.

14.           Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Arizona without regard to principles of conflicts of law.

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EX-31.1

EXHIBIT 31.1

Certification of Chief Executive 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, Terry McDaniel, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of Inventure Foods, 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.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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

d)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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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 control over financial reporting which are reasonably 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 control over financial reporting.

Date: August 10, 2010

/s/ Terry McDaniel

Terry McDaniel

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of 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 Inventure Foods, 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.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls 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)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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

d)    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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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 control over financial reporting which are reasonably 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 control over financial reporting.

Date: August 10, 2010

/s/ Steve Weinberger

Steve Weinberger

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

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

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 Inventure Foods, Inc. (the “Company”), that, to his knowledge, the Quarterly Report of the Company on Form 10-Q for the period ended June 26, 2010, 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 operations 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: August 10, 2010

/s/ Terry McDaniel

Terry McDaniel

Chief Executive Officer

(Principal Executive Officer)

/s/ Steve Weinberger

Steve Weinberger

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)