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 June 26, 2010

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

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.

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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.

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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.

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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

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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

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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 ended June 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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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.

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.

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

	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

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.

Dated:	August 10, 2010	INVENTURE FOODS, INC.


		By:	/s/ Terry McDaniel
			Terry McDaniel
			Chief Executive Officer
			(Principal Executive Officer)

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.