10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2017

or

☐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: 001-14556

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 mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒               No ☐

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒               No ☐

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

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐               No ☒

As of November 6, 2017, the total number of shares outstanding of the registrant’s Common Stock was 19,827,000 shares.

INVENTURE FOODS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

Table of Contents

Part I — FINANCIAL INFORMATION
Item 1. Financial Statements.
	Condensed Consolidated Balance Sheets  – September 30, 2017 (Unaudited) and December 31, 2016	1
	Condensed Consolidated Statements of Operations (Unaudited) – quarters and nine months ended September 30, 2017 and September 24, 2016	2
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2017 and September 24, 2016	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		35
Item 4. Controls and Procedures		35
Part II — OTHER INFORMATION
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 6. Exhibits		37
Signatures		39

INVENTURE FOODS, INC. AND SUBSIDIARIES

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this Quarterly Report on Form 10-Q (“Form 10-Q”), including all documents incorporated by reference, contains “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 (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995.  From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements.  We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “project,” “may,” “should,” “will,” “likely,” “will likely result,” “will continue,” “future,” “plan,” “target,” “forecast,” “goal,” “observe,” “seek,” “strategy” and other words and terms of similar meaning.  The forward-looking statements in this Form 10-Q reflect the Company’s current views with respect to future events and financial performance.

Forward-looking statements are neither historical facts nor assurances of future performance.  Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to certain risks and uncertainties, including, without limitation, our ability to continue as a going concern, 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 and/or to refinance our existing indebtedness due to future operating losses, inability to meet the financial covenants under our term loan facility, or in order to implement our business strategy, acquisition and divestiture-related risks, volatility of the market price of our common stock, par value $.01 per share (“Common Stock”), statements regarding the proposed transaction between the Company and Utz Quality Foods, LLC and the expected timetable for completing the transaction, and those other risks and uncertainties discussed herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2017 (“2016 Form 10-K”) and any subsequent Form 10-Q 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 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 “Item 1A. Risk Factors” of our 2016 Form 10-K, 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 publicly revise 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.  You are advised, however, to consult any further disclosures we make on related subjects in our subsequently filed Form 10-Qs and Current Reports on Form 8-K and our other filings with the SEC.  Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business in the “Risk Factors” section of our 2016 Form 10-K.  We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995.  You should understand it is not possible to predict or identify all such factors.

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements.

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

	September 30,		December 31,
	2017		2016
ASSETS
Current assets:
Cash and cash equivalents	$	2,159	$	776
Accounts receivable, net of allowance for doubtful accounts of $108 and $120 at September 30, 2017 and December 31, 2016, respectively		8,834		8,941
Inventories		13,608		13,398
Other current assets		4,712		2,578
Current assets held for sale		—		66,821
Total current assets		29,313		92,514
Property and equipment, net of accumulated depreciation of $32,713 and $30,396 at September 30, 2017 and December 31, 2016, respectively		32,352		34,367
Goodwill		5,986		5,986
Trademarks		896		896
Other assets		797		785
Noncurrent assets held for sale		—		46,932
Total assets	$	69,344	$	181,480
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,720	$	18,725
Accrued liabilities		4,596		6,190
Line of credit		—		32,761
Current portion of term debt		60,608		79,883
Current liabilities held for sale		—		16,576
Total current liabilities		81,924		154,135
Deferred income tax liability		1,959		1,376
Other liabilities		810		759
Noncurrent liabilities held for sale		—		1,521
Total liabilities		84,693		157,791
Commitments and contingencies (see Note 7)
Stockholders’ equity:
Common stock, $.01 par value; 50,000 shares authorized; 20,194 and 20,040 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		202		200
Additional paid-in capital		37,109		35,721
Accumulated deficit		(52,189)		(11,761)
		(14,878)		24,160
Less: treasury stock, at cost: 368 shares at September 30, 2017 and December 31, 2016		(471)		(471)
Total stockholders’ equity		(15,349)		23,689
Total liabilities and stockholders’ equity	$	69,344	$	181,480

See accompanying notes to condensed consolidated financial statements (unaudited).

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INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Quarter Ended				Nine Months Ended
	September 30,		September 24,		September 30,		September 24,
	2017		2016		2017		2016
Net revenues	$	27,428	$	28,587	$	84,248	$	80,956
Cost of revenues		23,951		23,534		70,493		65,988
Gross profit		3,477		5,053		13,755		14,968
Operating expenses:
Selling, general and administrative expenses		7,100		6,706		20,156		18,678
Operating loss		(3,623)		(1,653)		(6,401)		(3,710)
Non-operating expense:
Interest expense		1,839		1,376		5,221		4,010
Loss from continuing operations before income tax expense		(5,462)		(3,029)		(11,622)		(7,720)
Income tax expense (benefit)		10		(1,298)		31		(2,783)
Net loss from continuing operations		(5,472)		(1,731)		(11,653)		(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Income (loss) per common share:
Basic loss from continuing operations	$	(0.28)	$	(0.09)	$	(0.59)	$	(0.25)
Basic income (loss) from discontinued operations		(1.00)		(0.04)		(1.46)		0.05
Basic loss	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)
Diluted loss from continuing operations	$	(0.28)	$	(0.09)	$	(0.59)	$	(0.25)
Diluted income (loss) from discontinued operations		(1.00)		(0.04)		(1.46)		0.05
Diluted loss	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)
Weighted average number of common shares:
Basic		19,790		19,671		19,735		19,634
Diluted		19,790		19,671		19,735		19,634

See accompanying notes to condensed consolidated financial statements (unaudited).

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INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	September 30,		September 24,
	2017		2016
Cash flows from operating activities:
Net loss	$	(40,428)	$	(3,860)
Net income (loss) from discontinued operations		(28,775)		1,077
Net loss from continuing operations		(11,653)		(4,937)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:
Depreciation		2,340		2,351
Deferred financing fee amortization		1,360		1,030
Provision for bad debts		(12)		64
Deferred income taxes		583		(2,072)
Stock-based compensation expense		1,297		1,217
Gain on disposition of equipment		5		—
Changes in assets and liabilities:
Accounts receivable		(2,279)		(705)
Inventories		(211)		(1,826)
Other assets and liabilities		(2,095)		2,870
Accounts payable and accrued liabilities		383		(4,872)
Net cash used in operating activities - continuing operations		(10,282)		(6,880)
Net cash provided by operating activities - discontinued operations		12,060		13,193
Net cash provided by operating activities		1,778		6,313
Cash flows from investing activities:
Purchase of property and equipment		(749)		(8,549)
Net cash used in investing activities - continuing operations		(749)		(8,549)
Net cash provided by (used in) investing activities - discontinued operations		59,687		(3,458)
Net cash provided by (used in) investing activities		58,938		(12,007)
Cash flows from financing activities:
Net borrowings on Wells Fargo line of credit		(32,761)		5,680
Payments made on capital lease obligations		(14)		(15)
Borrowings on term loans		5,031		1,097
Repayments made on long term debt		(30,710)		(1,283)
Payment of loan financing fees		(579)		(1,107)
Proceeds from issuance of common stock under equity award plans		—		187
Payment of payroll taxes on stock-based compensation through shares withheld		(300)		(228)
Net cash provided by (used in) financing activities - continuing operations		(59,333)		4,331
Net cash used in financing activities - discontinued operations		—		—
Net cash provided by (used in) financing activities		(59,333)		4,331
Net increase (decrease) in cash and cash equivalents		1,383		(1,363)
Cash and cash equivalents at beginning of year period		776		2,319
Cash and cash equivalents at end of year period	$	2,159	$	956
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	6,431	$	6,090
Cash paid (refunded) during the period for income taxes	$	61	$	(3,503)

See accompanying notes to condensed consolidated financial statements (unaudited).

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INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.Organization and Summary of Significant Accounting Policies

Inventure Foods, Inc., a Delaware corporation (referred to herein as the “Company,” “Inventure Foods,” “we,” “our” or “us”), is a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands with more than $269 million in annual net revenues for fiscal 2016.

On September 22, 2017, the Company sold certain assets, properties and rights related to its frozen fruits, vegetable blends and beverages, and frozen desserts business (the “Frozen Fruit Business”) of the Company and its wholly owned subsidiaries, Rader Farms, Inc. (“Rader”) and Willamette Valley Fruit Company (“Willamette”),  to Oregon Potato Company (“OPC”) pursuant to an Asset Purchase Agreement, dated as of September 8, 2017, by and among the Company, Rader, Willamette, and OPC ( the “OPC Purchase Agreement”).  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory (the “Frozen Fruit Asset Sale”).

We specialize in two primary product categories: healthy/natural food products and indulgent specialty snack products.  We sell our products nationally through a number of channels including: grocery stores, natural food stores, mass merchandisers, drug and convenience stores, club stores, value, vending, food service, industrial and international.  Our goal is to have a diversified portfolio of brands, products, customers and distribution channels.

In our healthy/natural food category, products include Boulder Canyon® brand kettle cooked potato chips, other snack and food items, private label healthy/natural snacks and, prior to September 22, 2017, all of the products included in the Frozen Fruit Asset Sale.

In our indulgent specialty snack food category, products include T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s Inc. (“T.G.I. Friday’s”), Nathan’s Famous® brand snack products under license from Nathan’s Famous Corporation, Vidalia® brand snack products under license from Vidalia Brands, Inc., Poore Brothers® brand kettle cooked potato chips, Bob’s Texas Style® brand kettle cooked chips, and Tato Skins® brand potato snacks.  We also manufacture private label snacks for certain grocery retail chains and co-pack products for other snack manufacturers.

Prior to the Frozen Fruit Asset Sale, we operated in two segments: frozen products and snack products.  In September 2017, the Company completed the Frozen Fruit Asset Sale, which consisted of the sale of our remaining operations of the frozen products segment. All products sold under our frozen products segment were considered part of the healthy/natural food category.   The frozen products segment included frozen fruits, fruit and vegetable blends, beverages, side dishes and desserts for sale primarily to grocery stores, club stores and mass merchandisers.  The snack products segment includes potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, popcorn and extruded products for sale primarily to snack food distributors and retailers. The products sold under our snack products segment include products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.

On September 22, 2017, we entered into a License and Distribution Agreement with OPC (the “OPC License Agreement”), pursuant to which the Company granted OPC an exclusive, revocable license to use certain Boulder Canyon Authentic Foods trademarks in connection with the manufacture, distribution, sale, advertising and promotion of conventional and organic frozen riced vegetable products and bowls consisting of fruit, vegetables and grains in agreed upon distribution channels, as set forth in the OPC License Agreement.  The OPC License Agreement has a term of three years and requires OPC to pay the Company a royalty of 3% of OPC’s Gross Sales (as defined in the OPC License Agreement) during the term of such agreement.

Following the Frozen Fruit Asset Sale, we operate manufacturing facilities in three locations.  Our snack products are manufactured at our Phoenix, Arizona and Bluffton, Indiana facilities, as well as select third-party facilities for certain products.

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Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year.  Accordingly, the third quarter of fiscal 2017 commenced July 2, 2017 and ended September 30, 2017.

Strategic and Financial Review Process

In July 2016, we announced that our Board of Directors (“Board”) had commenced a strategic and financial review of the Company with the objective to increase shareholder value.  We engaged Rothschild Inc. to serve as our financial advisor and assist us in this process.

On March 23, 2017, the Company soldcertain  assets, properties and rights (the “Fresh Frozen Foods Business”) of our wholly owned subsidiary, Fresh Frozen Foods, Inc. (“Fresh Frozen Foods”), to The Pictsweet Company (“Pictsweet”) pursuant to an Asset Purchase Agreement, dated as of such date, among the Company, Fresh Frozen Foods and Pictsweet (the “Pictsweet Purchase Agreement”).  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory (the “Fresh Frozen Asset Sale”).  As consideration for the acquisition, Pictsweet paid the Company $23.7 million in cash.  The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, and were used to pay down amounts outstanding under the Credit Facilities (defined below).

On September 22, 2017, the Company sold the Frozen Fruit Business of the Company and its wholly owned subsidiaries, Rader and Willamette, to OPC pursuant to the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, and were used to repay in full the indebtedness under the ABL Credit Facility (defined below) and to pay down indebtedness under the Term Loan Credit Facility (defined below), as required under such Credit Facilities.  On September 22, 2017, $2.0 million of the net proceeds were held in escrow to be released upon final determination of the working capital adjustment. 

On October 25, 2017, the Company entered into an Agreement and Plan of Merger (the “Utz Merger Agreement”) with Utz Quality Foods, LLC, a Delaware limited liability company (“Utz”), and Heron Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).  Pursuant to the Utz Merger Agreement, and upon the terms and subject to the conditions described therein, Merger Sub will (and Utz will cause Merger Sub to) commence a tender offer (the “Offer”) to purchase any and all of the Company’s outstanding shares of common stock, par value $0.01 per share, at a price per share of $4.00, net to the seller in cash, without interest and subject to any required withholding of taxes.  Following the consummation of the Offer, subject to the satisfaction or waiver of certain customary conditions set forth in the Utz Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Utz (the “Utz Merger”).

Since entering into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives. There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms.

In determining to proceed with entering into the Utz Merger Agreement, the Company’s board of directors considered a number of factors, including the following:

· The Company has incurred recurring losses from operations in each of the quarterly periods since its voluntary product recall in April 2015 and its dependence on additional financing to fund its ongoing operations;

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· The Company is currently operating under a limited waiver of certain covenants required by the lenders under its Term Loan Credit Facility, which waiver expires on January 15, 2018.  This waiver was granted by such lenders concurrently with the Company’s execution of the Utz Merger Agreement.  The prior waiver was due to expire on October 31, 2017;

· The Company has previously required six amendments and waivers to the Term Loan Credit Facility in consecutive periods dating back to March 2016, which were necessitated by the Company’s failure (or anticipated failure) to meet certain financial covenants (the “Prior Waivers”), and absent the Prior Waivers or amendments, the Company would have been in default under the BSP Credit Facility and would not have had sufficient liquidity to operate its business; and

· The fact that the Company has, despite thorough and extensive efforts, been unsuccessful in obtaining additional funding from private or public financing sources (including both debt and equity), and its limited financial resources greatly reduce its ability to continue operations and invest in its sales, research and development and other aspects of the Company’s business as needed.

Going Concern Uncertainty

We have incurred losses from operations in each of the quarterly periods since our voluntary product recall in April 2015 of certain varieties of the Company’s Fresh FrozenTM brand of frozen vegetables, as well as select varieties of our Jamba® “At Home” line of smoothie kits.  This fact, together with the projected near term outlook for our business and our inability to complete a strategic transaction (other than the Fresh Frozen Asset Sale and the Frozen Fruit Asset Sale) by the end of our fiscal year 2016 or that a transaction was imminent, raised substantial doubt about our ability to continue as a going concern as of the end of our 2016 fiscal year.  We reported this going concern conclusion in our 2016 Form 10-K filed with the SEC on March 31, 2017, together with the following specific conditions considered by management at such time in reaching such conclusion:

· Our five-year, $85.0 million term loan credit agreement with BSP Agency, LLC (“BSP”), as administrative agent, and the other lenders party thereto (the “BSP Lenders”) (with all related loan documents, and as amended from time to time, the “Term Loan Credit Facility”) required us to, among other things, comply with Total Leverage Ratio and Fixed Charge Coverage Ratio (each as defined in the Term Loan Credit Facility) covenants by the end of the second quarter of fiscal 2017 and a minimum EBITDA target covenant (the “EBITDA Covenant”) by the month ended April 30, 2017, which target we did not meet (the “EBITDA Covenant Default”).  As discussed below, we received temporary waivers of such default.  The Total Leverage Ratio, measured at the end of our second fiscal quarter in 2017 was required to be 4.25:1, and the Fixed Charge Coverage Ratio, measured at the end of our second fiscal quarter in 2017 for the four quarterly periods then ended, was required to be 1.1:1.  We previously reported that absent the completion of a strategic transaction yielding sufficient cash proceeds (in addition to the proceeds received from the Fresh Frozen Asset Sale in March 2017 and the Frozen Fruit Asset Sale in September 2017) to pay down debt, waivers or amendments by our lenders, or a refinancing of our debt, we would not be able to comply with these covenants when required to do so.  And we reported that the failure to meet these covenants would result in a default under such credit facility and, to the extent the applicable lenders so elected, an acceleration of the Company’s existing indebtedness, causing such debt of approximately $63.7 million at September 30, 2017 (including $2.3 million of other equipment financing indebtedness that includes cross-default provisions) to be immediately due and payable.  At such time the Company did not have, and does not currently have, sufficient liquidity to repay all of its outstanding debt in full if such debt were accelerated.

· Prior to the pay-off of our ABL Credit Facility (defined below) on September 22, 2017 with the proceeds from the Frozen Fruit Asset Sale, our five-year, $50.0 million revolving credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the other lenders party thereto (the “Wells Fargo Lenders”) (with all related loan documents, and as amended from time to time, the “ABL Credit Facility” and, together with the Term Loan Credit Facility, the “Credit Facilities”), required us to, among other things, comply with a Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility) if our liquidity as of the date of any determination was less than

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the greater of (i) 12.5% of the Maximum Revolver Amount and (ii) $6.125 million, subject to certain conditions.

· The Term Loan Credit Facility also required (and the previous ABL Credit Facility required) us to furnish our audited financial statements without a “going concern” uncertainty paragraph in the auditor’s opinion.  Our consolidated financial statements for the fiscal year ended December 31, 2016 in our 2016 Form 10-K contained a “going concern” explanatory paragraph.  Under the Credit Facilities, a going concern opinion with respect to our audited financial statements was (and is) an event of default (the “Going Concern Covenant Default”).  As of the date our 2016 Form 10-K was filed with the SEC, we had obtained temporary waivers of the Going Concern Covenant Default until May 15, 2017. 

· On May 10, 2017, we entered into a Limited Waiver and Third Amendment to the Credit Agreement with the BSP Lenders (the “Term Loan Third Amendment”).  Under the terms of the Term Loan Third Amendment, the BSP Lenders granted the Company (i) an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017, and (ii) a temporary waiver of the EBITDA Covenant Default until July 17, 2017. The Term Loan Third Amendment also required that the Company comply with the EBITDA Covenant commencing with the fiscal month ending June 30, 2017, measured over the 12-months then ended, and increased the Company’s prepayment fees in the event of a payment or prepayment of principal under the Term Loan Credit Facility (excluding regularly scheduled principal payments).

· On May 15, 2017, we entered into a First Amendment to Credit Agreement and Limited Waiver, effective as of May 12, 2017, with Wells Fargo and the Wells Fargo Lenders (the “ABL First Amendment”). Under the terms of the ABL First Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017.  In addition, the terms of the ABL First Amendment provided for, among other things, (i) an increase in the Company’s Applicable Margin for Base Rate and Libor Rate Loans (as such terms are defined in the ABL Credit Facility) effective May 1, 2017 by 100 basis points, (ii) additional financial and collateral reporting obligations and projection requirements, (iii) the immediate right of the Agent (as defined in the ABL Credit Agreement) or the Wells Fargo Lenders to exercise all rights and remedies under the ABL Credit Facility (in lieu of waiting until the earlier of ten business days after the date on which financial statements are required to be delivered for an applicable fiscal month), and (iv) the elimination of the right to issue curative equity.

· On July 17, 2017, we entered into a letter agreement with BSP and the BSP Lenders (the “BSP Letter Agreement”), pursuant to which the BSP Lenders granted the Company (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017, and (ii) a temporary waiver of the financial covenants the Company was required to comply with under the Term Loan Credit Facility (the “Term Loan Financial Covenant Default”) until July 24, 2017.

· On July 17, 2017, we also entered into a Second Amendment to Credit Agreement (the “ABL Second Amendment”) with Wells Fargo and the Wells Fargo Lenders. Under the terms of the ABL Second Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017.  In addition, the ABL Second Amendment provided for, among other things, additional reporting obligations, a reduced revolver commitment over a period of time ($49.0 million prior to the effective date of the ABL Second Amendment; $40.0 million from and after the ABL Second Amendment date through August 1, 2017; and $35.0 million from and after August 1, 2017), and adjusted advance rates.

· On July 20, 2017, we entered into a Limited Waiver and Fourth Amendment to Credit Agreement with BSP and the BSP Lenders (the “Term Loan Fourth Amendment”).  Under the terms of the Term Loan Fourth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until August 31, 2017.  In addition, the BSP Lenders agreed to provide $5.0 million of additional financing to the Company in the form of a term loan, payable in equal monthly installments of $12,500 commencing on September 30, 2017, with the

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balance due and payable on November 17, 2020, which is the maturity date of the Term Loan Credit Facility.  The net proceeds of this new $5.0 million loan were used for working capital purposes, subject to certain restrictions in the Term Loan Credit Facility, and is subject to the terms and conditions of the Term Loan Credit Facility.

· On July 20, 2017, we also entered into a Third Amendment to Credit Agreement (the “ABL Third Amendment”) with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017.

· On August 31, 2017, we entered into a Limited Waiver and Fifth Amendment to Credit Agreement with BSP, which further amended the Term Loan Credit Facility (the “Term Loan Fifth Amendment”).  Under the terms of the Term Loan Fifth Amendment the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until September 30, 2017.

· On August 31, 2017, we also entered into a Fourth Amendment to Credit Agreement (the “ABL Fourth Amendment”) with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017.

· On September 22, 2017, the net proceeds from Frozen Fruit Asset Sale were used to repay in full the indebtedness under the ABL Credit Facility, as required under such facility.

· On September 29, 2017, we entered into a Limited Waiver and Sixth Amendment to Credit Agreement with which further amended the Term Loan Credit Facility (the “Term Loan Sixth Amendment”).  Under the terms of the Term Loan Sixth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from September 30, 2017 to October 31, 2017, (ii) a temporary waiver of the Term Loan Financial Covenant Default until October 31, 2017, and (iii) amend certain other provisions of the Term Loan Credit Facility.

· On October 25, 2017, we entered into a Limited Waiver, Consent and Seventh Amendment to Credit Agreement with BSP, which further amended the Term Loan Credit Facility (the “Term Loan Seventh Amendment”).  Under the terms of the Term Loan Seventh Amendment, the BSP Lenders (i) agreed to a further extension of the temporary waiver of the Going Concern Covenant Default from October 31, 2017 to the Waiver Deadline (as defined below),  (ii) agreed to a temporary waiver of the Term Loan Financial Covenant Default until the Waiver Deadline, (iii) agreed to amend certain other provisions of the Term Loan Credit Facility, and (iv) consented to the Company’s entering into the Utz Merger Agreement and consummation of the Offer and the Utz Merger, provided that the net proceeds are applied to prepay in full the loans and all other amounts due under the Term Loan Credit Facility.  The Waiver Deadline is the earliest to occur of January 15, 2018, the occurrence of an event of default under the Term Loan Credit Facility and the termination of the Utz Merger Agreement.  In addition, the BSP Lenders agreed to provide the Company $5 million of additional financing in the form of a term loan, payable in equal monthly installments of $12,500, commencing on December 30, 2017, with the balance due and payable on December 29, 2020. The net proceeds of this new $5 million loan will be used for paying interest on outstanding indebtedness under the Term Loan Credit Facility and payment of trade payables in the ordinary course of business, subject to certain restrictions in the Term Loan Credit Facility.

Since we entered into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives.  There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms.  As a result, our liquidity and ability to timely pay our obligations when due could be adversely affected. 

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The accompanying condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about our ability to continue as a going concern, other than the reclassification of certain long-term debt and the related debt issuance costs to current liabilities and current assets, respectively.

Our lenders may resist renegotiation or lengthening of payment and other terms through legal action or otherwise if we are unsuccessful in our efforts to complete a strategic transaction.  If we are not able to timely, successfully or efficiently implement the strategies that we are pursuing, we may need to seek voluntary protection under Chapter 11 of the U.S. Bankruptcy Code.

Basis of Presentation

The condensed consolidated financial statements for the fiscal quarter ended September 30, 2017 are unaudited and include the accounts of Inventure Foods and all of its wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. The condensed consolidated financial statements, including the December 31, 2016 consolidated balance sheet data which was derived from audited 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 (“GAAP”).  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 our accounting policies and other financial information is included in the audited financial statements filed with our 2016 Form 10-K. The results of operations for the fiscal quarter ended September 30, 2017 are not necessarily indicative of the results expected for the full year.  

Discontinued Operations

On March 23, 2017, the Company sold its Fresh Frozen Foods Business to Pictsweet pursuant to the Pictsweet Purchase Agreement.  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory.  As consideration for this acquisition, Pictsweet paid the Company $23.7 million in cash.  The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, which were used to pay down amounts outstanding under the Credit Facilities.  The results of operations for the Fresh Frozen Foods Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in the Fresh Frozen Asset Sale have been presented as held for sale as of December 31, 2016.  As required by the terms of the Pictsweet Purchase Agreement, we have changed the name of our Fresh Frozen Foods subsidiary from Fresh Frozen Foods, Inc. to Inventure – GA, Inc.

On September 22, 2017, the Company sold its Frozen Fruit Business to OPC pursuant the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, which were used to repay in full the indebtedness under the ABL Credit Facility and to pay down indebtedness under the Term Loan Credit Facility, as required under such Credit Facilities.  Also on September 22, 2017, $2.0 million of the net proceeds were placed in escrow to be released upon final determination of the working capital adjustment required under the OPC Purchase Agreement.  The results of operations for the Frozen Fruit Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in the Frozen Fruit Asset Sale have been presented as held for sale as of December 31, 2016.  As required by the terms of the OPC Purchase Agreement, we have changed the names of our Rader subsidiary to Inventure – WA, Inc. and our Willamette subsidiary to Inventure – OR, Inc.

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.  We classify our investments

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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 measurement).  The three levels of the fair value hierarchy are described as follows:

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

Level 2Quoted 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 3Prices 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 September 30, 2017 and December 31, 2016, 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 term debt approximates fair value based on the borrowing rates currently available to us for long-term borrowings with similar terms.  The following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis  at the respective dates set forth below (in thousands):

		September 30, 2017				December 31, 2016
		Non-qualified				Non-qualified
		Deferred		Earn-out		Deferred		Earn-out
		Compensation		Contingent		Compensation		Contingent
		Plan		Consideration		Plan		Consideration
Balance Sheet Classification		Investments		Obligation		Investments		Obligation
Other assets	Level 1	$	742	$	—	$	650	$	—
Current liabilities held of sale	Level 3		—		—		—		(270)
Noncurrent liabilities held of sale	Level 3		—		—		—		(1,521)
		$	742	$	—	$	650	$	(1,791)

Considerable judgment is required in interpreting market data to develop the estimate of fair value of our assets and liabilities.  Accordingly, the estimate may not be indicative of the amounts that we 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.

The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets.

The earn-out consideration obligations relate to the acquisitions of Sin In A TinTM in September 2014 and Willamette in May 2013 and were assumed by OPC as part of the Frozen Fruit Asset Sale in September 2017.  Prior to the Frozen Fruit Asset Sale, the fair value measurement of the earn-out contingent consideration obligations were included in accrued liabilities and other long-term liabilities in the consolidated balance sheets.  The fair value measurement is based upon significant inputs not observable in the market.  Changes in the value of the obligation are recorded as income or expense in our consolidated statements of operations.  To determine the fair value, we valued the contingent consideration liability based on the expected probability weighted earn-out payments corresponding to the performance thresholds agreed to under the applicable purchase agreements.  The expected earn-out payments were then present valued by applying a discount rate that captures a market participants view of the risk associated with the expected earn-out payments. 

A summary of the activity of the fair value of the measurements using unobservable inputs (Level 3 liabilities) for the nine months ended September 30, 2017 is as follows (in thousands):

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	Level 3
Balance at December 31, 2016	$	1,791
Earn-out compensation paid to Willamette		(230)
Earn-out compensation paid to Sin In A Tin		(9)
Contingent consideration assumed by OPC in Frozen Fruit Asset Sale		(1,552)
Balance at September 30, 2017	$	—

Income Taxes

Income tax expense was $10,000  for the fiscal quarter ended September 30, 2017, compared to a tax benefit of $1.3 million for the fiscal quarter ended September 24, 2016.  Our effective tax rate was (0.2)% and 42.9% for the fiscal quarters ended September 30, 2017 and September 24, 2016, respectively.

Income tax expense was $31,000 for the nine months ended September 30, 2017, compared to a tax benefit of $2.8 million for the nine months ended September 24, 2016.  Our effective tax rate was (0.3)% and 36.0% for the nine months ended September 30, 2017 and September 24, 2016, respectively.

Income tax expense for the fiscal quarter and nine months ended September 30, 2017 was impacted by the full valuation allowance which was initially recorded in the fourth quarter of 2016.  Therefore, income tax expenses was a result of certain state minimum taxes and deferred tax liabilities not subject to the valuation allowance.

Loss Per Common Share

Basic loss per common share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period.  Diluted loss per share is calculated by including all dilutive common shares, such as stock options and restricted stock.  Unvested restricted stock grants that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, require loss per share to be presented pursuant to the two-class method.  However, the application of this method would have no effect on basic and diluted loss per common share and is therefore not presented. 

For the fiscal quarter and nine months ended September 30, 2017, diluted loss per share is the same as basic loss per share, as the inclusion of potentially issuable Common Stock would be antidilutive. During the fiscal quarter and nine months ended September 30, 2017, 0.6 million shares of Common Stock underlying stock options and restricted stock units were not included in the computation of diluted earnings (loss) per share because inclusion of such shares would be antidilutive.  For the fiscal quarter and nine months ended September 24, 2016, 0.5 million shares of Common Stock underlying stock options and restricted stock units were not included in the computation of diluted earnings (loss) per share because inclusion of such shares would be antidilutive. Exercises of outstanding stock options are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be antidilutive. 

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Loss per common share was computed as follows for the fiscal quarters and nine months ended September 30, 2017 and September 24, 2016 (in thousands, except per share data):

	Quarter Ended				Nine Months Ended
	September 30,		September 24,		September 30,		September 24,
	2017		2016		2017		2016
Basic Earnings (Loss) Per Share:
Net loss from continuing operations	$	(5,472)	$	(1,731)	$	(11,653)	$	(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Weighted average number of common shares		19,790		19,671		19,735		19,634
Loss per common share	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)
Diluted Earnings (Loss) Per Share:
Net loss from continuing operations	$	(5,472)	$	(1,731)	$	(11,653)	$	(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Weighted average number of common shares		19,790		19,671		19,735		19,634
Incremental shares from assumed conversions of stock options and non-vested shares of restricted stock		—		—		—		—
Adjusted weighted average number of common shares		19,790		19,671		19,735		19,634
Loss per common share	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)

Stock-Based Compensation

Compensation expense for restricted stock and stock option awards is adjusted for estimated attainment thresholds and forfeitures and is recognized on a straight-line basis over the requisite period of the award, which is currently one to five years.  We estimate future forfeiture rates based on our historical experience.

Compensation costs related to all stock-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 stock-based payment arrangements are classified as cash inflows from financing activities and cash outflows from operating activities.  See “Note 9 - Stockholders’ Equity” for additional information.

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standards updates (“ASU”) to the FASB’s Accounting Standards Codification.

We consider the applicability and impact of all ASUs.  ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

In May 2014, the FASB issued new guidance related to revenue recognition.  This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance.  The new revenue recognition standard provides a unified model to determine when and how revenue is recognized.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  This guidance will be effective at the beginning of our 2018 fiscal year and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  As of September 30, 2017, we have not evaluated the impact of this new accounting standard on our financial statements.

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In July 2015, the FASB issued an ASU to simplify the measurement of inventory.  This ASU requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.”  This ASU is effective for reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted. We adopted this guidance in the first quarter of fiscal 2017, and it had no impact on our financial statements and disclosure.

In February 2016, the FASB issued new guidance related to accounting for leases. The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted.  As of September 30, 2017, we have not evaluated the impact of this new accounting standard on our financial statements.

In March 2016, the FASB issued an ASU intended to simplify various aspects of the accounting for share-based payments. Excess tax benefits for share-based payments will be recorded as a reduction of income taxes and reflected in operating cash flows upon the adoption of this ASU. Excess tax benefits are currently recorded in equity and as financing activity under the current rules. This guidance is effective for reporting periods beginning after December 15, 2016. We adopted this guidance in the first quarter of fiscal 2017, and the adoption did not have a material impact on our financial statements and disclosure.

2.Discontinued Operations

On March 23, 2017, the Company sold its Fresh Frozen Foods Business, to Pictsweet pursuant to the Pictsweet Purchase Agreement.  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory.  As consideration for the acquisition, Pictsweet paid the Company $23.7 million in cash. The Fresh Frozen Foods Business was part of the Company’s frozen products segment.  The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, which were used to pay down amounts outstanding under the Credit Facilities.  As of December 31, 2016, total assets and total liabilities related to the Fresh Frozen Foods Business were $32.2 million and $2 million, respectively.  The activity included in discontinued operations in the fiscal quarter ended September 30, 2017, related to the changes in estimated accruals that were settled during the period. The results of operations for the Fresh Frozen Foods Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in Fresh Frozen Asset Sale have been presented as held for sale as of December 31, 2016.

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The summary comparative financial results of the Fresh Frozen Foods Business, included within discontinued operations, were as follows (in thousands):

	Quarter Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Net revenues	$	—	$	10,388	$	8,734	$	34,529
Cost of revenues		5		9,051		8,606		33,091
Gross profit		(5)		1,337		128		1,438
Operating expenses:
Selling, general and administrative expenses		-		890		668		2,730
Operating income (loss)		(5)		447		(540)		(1,292)
Loss on sale of Fresh Frozen Foods		174		—		10,257		—
Interest expense, net		—		354		331		1,062
Income (loss) before income taxes		(179)		93		(11,128)		(2,354)
Income tax expense (benefit)		—		226		1,909		(786)
Net loss from discontinued operations	$	(179)	$	(133)	$	(13,037)	$	(1,568)

On September 22, 2017, the Company sold its Frozen Fruit Business to OPC pursuant the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, and were used to repay in full the indebtedness under the ABL Credit Facility and to pay down indebtedness under the Term Loan Credit Facility, as required under such Credit Facilities.  Also on the September 22, 2017, $2.0 million of the net proceeds were placed in escrow to be released upon final determination of the working capital adjustment required under the OPC Purchase Agreement.  The results of operations for the Frozen Fruit Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in Frozen Fruit Asset Sale have been presented as held for sale as of December 31, 2016.

The summary comparative financial results of the Frozen Fruit Business, included within discontinued operations, were as follows (in thousands):

	Quarter Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Net revenues	$	20,228	$	27,554	$	64,383	$	90,162
Cost of revenues		17,154		26,021		52,961		79,561
Gross profit		3,074		1,533		11,422		10,601
Operating expenses:
Selling, general and administrative expenses		1,115		1,592		3,983		4,383
Operating income (loss)		1,959		(59)		7,439		6,218
Loss on sale of Frozen Fruit Business		22,460		—		22,460		—
Interest expense, net		641		658		2,046		1,992
Income (loss) before income taxes		(21,142)		(717)		(17,067)		4,226
Income tax expense (benefit)		(1,421)		(17)		(1,329)		1,581
Net income (loss) from discontinued operations	$	(19,721)	$	(700)	$	(15,738)	$	2,645

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The summary of the assets and liabilities of both the Fresh Frozen Foods Business and the Frozen Fruit Business that were included as assets and liabilities held for sale as of December 31. 2016, were as follows (in thousands):

	December 31,
	2016
Current assets:
Accounts receivable, net of allowance for doubtful accounts	$	7,394
Inventories		58,791
Other current assets		636
Total current assets held for sale	$	66,821
Property and equipment, net of accumulated depreciation		31,117
Goodwill		8,999
Trademarks and other intangibles, net		6,347
Other assets		469
Total noncurrent assets held for sale	$	46,932
Current liabilities:
Accounts payable	$	10,737
Accrued liabilities		3,342
Line of credit		—
Current portion of term debt		2,497
Total current liabilities held for sale	$	16,576
Other liabilities		1,521
Total noncurrent liabilities held of sale	$	1,521

3.Inventories

Inventories consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Finished goods	$	4,685	$	4,345
Raw materials		8,923		9,053
Inventories	$	13,608	$	13,398

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4.Goodwill and Trademarks

Goodwill and trademarks, consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Goodwill:
Goodwill - Inventure Foods	$	5,986	$	5,986
Trademarks:
Trademarks - Inventure Foods	$	896	$	896

 The trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely.  Goodwill and trademarks are reviewed for impairment annually in the fourth fiscal quarter, or more frequently if impairment indicators arise. We believe the carrying values of our goodwill and trademarks are not impaired as of September 30, 2017.

5.Accrued Liabilities

Accrued liabilities consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Accrued payroll and payroll taxes	$	1,542	$	1,460
Accrued royalties and commissions		608		1,401
Accrued advertising and promotion		527		1,305
Accrued other		1,919		2,024
Accrued liabilities	$	4,596	$	6,190

6.Term Debt and Line of Credit

ABL Credit Facility

On November 18, 2015, the Company entered into the ABL Credit Facility. The ABL Credit Facility provided for a five-year, $50.0 million senior secured revolving credit facility.  Borrowings under the ABL Credit Facility incurred interest, at the Company’s option, at a base rate or the London interbank offered rate (“LIBOR”) plus, in each case, an applicable margin.  The ABL Credit Facility was scheduled to mature on November 17, 2020.

Events of default under the ABL Credit Facility included customary events such as a cross-default provision with respect to other material debt.  The ABL Credit Facility required us to, among other things, comply with a Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility) if our liquidity as of the date of any determination is less than the greater of (i) 12.5% of the Maximum Revolver Amount and (ii) $6.125 million, subject to certain conditions.  

On May 15, 2017, the Company entered into the ABL First Amendment, pursuant to which the Wells Fargo Lenders granted the Company an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017.  In addition, the terms of the ABL First Amendment provided for, among other things, (i) an increase in the Company’s Applicable Margin for Base Rate and Libor Rate Loans (as such terms are defined in the ABL Credit Facility) effective May 1, 2017 by 100 basis points, (ii) additional financial and collateral reporting obligations and projection requirements, (iii) the immediate right of the Agent (as defined in the ABL Credit Agreement) or the Wells Fargo Lenders to exercise all rights and remedies under the ABL Credit Facility (in lieu of waiting until the earlier of ten business days after the date on which financial statements are required to be delivered for an applicable fiscal month), and (iv) the elimination of the right to issue curative equity.

On July 17, 2017, the Company entered into the ABL Second Amendment with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017.  In addition, the ABL Second Amendment provided for, among other things, additional reporting obligations, a reduced revolver commitment over a

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period of time ($49.0 million prior to the effective date of the ABL Second Amendment; $40.0 million from and after the ABL Second Amendment date through August 1, 2017; and $35.0 million from and after August 1, 2017), and adjusted advance rates.

On July 20, 2017, the Company entered into the ABL Third Amendment with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017. 

On August 31, 2017, we entered into the ABL Fourth Amendment with Wells Fargo and the Wells Fargo Lenders. Under the terms of the ABL Fourth Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017.

On September 22, 2017, in connection with the Frozen Fruit Asset Sale, the Company repaid in full the indebtedness under the ABL Credit Facility, as required under such facility.  As such, the ABL Credit Facility has been extinguished.

Term debt consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Term loan credit facility through November 2020	$	61,395	$	84,150
Equipment term loan, Goodyear, Arizona, due monthly through April 2021		2,308		2,759
Capital lease obligations, primarily due May 2022		12		21
Long-term debt		63,715		86,930
Less: deferred financing fees, net		(3,107)		(7,047)
Less: current portion of long-term debt		(60,608)		(79,883)
Long-term debt, less current portion	$	—	$	—

Term Loan Credit Facility

On November 18, 2015 and concurrent with the execution of the ABL Credit Facility, the Company entered into the Term Loan Credit Facility.  The Term Loan Credit Facility provided for a $85.0 million senior secured term loan that matures on November 17, 2020  The Term Loan Credit Facility also provided that, under certain conditions, we may increase the aggregate principal amount of term loans outstanding thereunder by up to $25.0 million.  Borrowings under the Term Loan Credit Facility bear interest, at the Company’s option, at a base rate or LIBOR plus, in each case, an applicable margin.

The Term Loan Credit Facility contains customary negative covenants and also requires the Company, together with its subsidiaries, to comply with a Fixed Charge Coverage Ratio and a Total Leverage Ratio. The first Fixed Charge Coverage Ratio and Total Leverage Ratio measurement period was the end of the first quarter of fiscal 2016.  On March 9, 2016, the Company entered into that certain First Amendment to Credit Agreement, with BSP, as administrative agent, and the BSP Lenders (the “Term Loan First Amendment”).  The Term Loan First Amendment amended the Term Loan Credit Facility to defer the Company’s obligation to comply with the Total Leverage Ratio until the end of the third quarter of fiscal 2016.

On September 27, 2016, the Company entered into that certain Second Amendment to Credit Agreement with BSP, as administrative agent, and the BSP Lenders (the “Term Loan Second Amendment”). The Term Loan Second Amendment deferred compliance with the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio covenants until the second quarter of fiscal 2017, required the Company to comply with the EBITDA Covenant commencing with the month ended April 30, 2017, and increased the Base Rate Margin and the Libor Rate Margin (each as defined in the Term Loan Credit Facility) thereunder by 100 basis points.  The Term Loan Second Amendment also amended the fees payable to the lenders in the event of prepayment and restricts the Company’s ability to raise Curative Equity (as defined in the Term Loan Second Amendment) until the fourth quarter of fiscal 2017.

We did not meet the EBITDA Covenant (the “EBITDA Covenant Default”) for the month ended April 30, 2017.  On May 10, 2017, the Company entered into the Term Loan Third Amendment, pursuant to which the lenders

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granted the Company (i) an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017, and (ii) a temporary waiver of the EBITDA Covenant Default, until July 17, 2017.  The Term Loan Third Amendment also required that the Company comply with the EBITDA Covenant commencing with the fiscal month ending June 30, 2017, measured over the 12-months then ended, and increased the Company’s prepayment fees in the event of a payment or prepayment of principal under the Term Loan Credit Facility (excluding regularly scheduled principal payments).

On July 17, 2017, the Company entered into the BSP Letter Agreement, pursuant to which the BSP Lenders granted the Company (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until July 24, 2017.

On July 20, 2017, the Company entered into the Term Loan Fourth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until August 31, 2017.  In addition, the BSP Lenders agreed to provide $5.0 million of additional financing to the Company in the form of a term loan, payable in equal monthly installments of $12,500 commencing on September 30, 2017, with the balance due and payable on November 17, 2020, which is the maturity date of the Term Loan Credit Facility.  The net proceeds of the $5.0 million loan were used for working capital purposes, subject to certain restrictions in the Term Loan Credit Facility, and is subject to the terms and conditions of the Term Loan Credit Facility.

On August 31, 2017, the Company entered into the Term Loan Fifth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until September 30, 2017.

On September 29, 2017, the Company entered into Term Loan Sixth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from September 30, 2017 to October 31, 2017, (ii) a temporary waiver of the Term Loan Financial Covenant Default until October 31, 2017, and (iii) amend certain other provisions of the Term loan Credit Facility.

On October 25, 2017, the Company entered into the Term Loan Seventh Amendment, pursuant to which the BSP Lenders (i) agreed to a further extension of the temporary waiver of the Going Concern Covenant Default from October 31, 2017 to the Waiver Deadline (as defined below), , (ii) agreed to a temporary waiver of the Term Loan Financial Covenant Default until the Waiver Deadline, (iii) agreed to amend certain other provisions of the Term Loan Credit Facility, and (iv) consented to the Company’s entering into the Utz Merger Agreement and consummation of the Offer and the Utz Merger, provided that the net proceeds are applied to prepay in full the loans and all other amounts due under the Term Loan Credit Facility. The Waiver Deadline is the earliest to occur of January 15, 2018, the occurrence of an event of default under the Term Loan Credit Facility and the termination of the Utz Merger Agreement.  In addition, the BSP Lenders agreed to provide the Company $5 million of additional financing in the form of a term loan, payable in equal monthly installments of $12,500, commencing on December 30, 2017, with the balance due and payable on December 29, 2020. The net proceeds of this new $5 million loan will be used for paying interest on outstanding indebtedness under the Term Loan Credit Facility and payment of trade payables in the ordinary course of business, subject to certain restrictions in the Term Loan Credit Facility,

Absent the Term Loan Seventh Amendment, the Going Concern Covenant Default would have been reinstated, and the Company would have been in default under the Term Loan Credit Facility as of the date this Form 10-Q was filed with the SEC.

Equipment Loans

In August 2015, we entered into an equipment term loan with Banc of America Leasing & Capital LLC for $3.1 million to finance new kettles and related equipment for our Goodyear, Arizona facility.  The equipment term loan accrues interest at a rate of 3.07% and will be repaid over 60 recurring monthly payments commencing May 2016. 

In August 2014, we entered into two separate equipment term loans with Banc of America Leasing & Capital LLC. One for $2.6 million to finance equipment to be used at the Company’s Rader Farms facility, and the other for $1.9 million to finance equipment to be used at Willamette.  Both of these equipment term loans accrue interest at a rate of

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2.35% and will be repaid over 60 recurring monthly payments commencing September 15, 2014.  In connection with the Frozen Fruit Asset Sale, on September 22, 2017, the Company paid off all the outstanding balance of these two equipment term loans.

Debt Classification

In accordance with FASB Accounting Standard Codification (“ASC”) 470-10-45 on Debt Presentation, all of the Company’s outstanding debt has been reclassified in the accompanying condensed consolidated balance sheet as a current liability as of September 30, 2017 and December 31, 2016.  Absent the Term Loan Sixth Amendment, the Company would not have been in compliance with the Total Leverage Ratio and Fixed Charge Ratio covenants as of September 30, 2017.  Further, absent the Term Loan Seventh Amendment, the Company would not have been in compliance with the financial covenants under the Term Loan Credit Facility as of the date this Form 10-Q was filed with the SEC.  Unless we engage in a strategic transaction that enables us to pay down or refinance our debt, or we secure a waiver from our lenders or a further loan amendment to the Term Loan Credit Facility, we will not be in compliance with our financial covenants as of the Waiver Deadline (as required by the Term Loan Seventh Amendment).  As previously announced, the Company commenced a comprehensive strategic and financial review of the Company’s operations and engaged Rothschild Inc. to serve as its financial advisor to assist the Company in this process, including the pursuit of value-enhancing initiatives including, a sale of the Company, a sale of assets of the Company or other strategic business combination, or other capital structure optimization opportunities. Entry into the Utz Merger Agreement on October 25, 2017 is the result of this over 14 month long comprehensive strategic and financial review.  There can be no assurances that the transactions contemplated by the Utz Merger Agreement will be completed, or, if it is completed, that it will be on the terms currently contemplated in such Utz Merger Agreement.  A default under the Term Loan Credit Facility would trigger a default under certain of our equipment lease financing arrangements, as these facilities each contain cross-default provisions. As such, we classified all of our outstanding debt as a current liability.

7.Commitments and Contingencies

Contractual

Our future contractual obligations consist principally of long-term debt, operating leases, minimum commitments regarding third-party warehouse operations services, forward purchase agreements and remaining minimum royalty payments due to licensors pursuant to brand licensing agreements. 

In order to mitigate the risks of volatility in commodity markets to which we are exposed, we have entered into forward purchase agreements with certain suppliers based on market prices, forward price projections and expected usage levels.  Our purchase commitments for certain ingredients, packaging materials and energy are generally less than 12 months.

Legal Proceedings

We are 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 our financial position or results of operations.

Litigation

On April 4, 2016, a purported class action captioned Westmoreland County Employee Retirement Fund (“Westmoreland”) v. Inventure Foods, Inc. et al., Case No. CV2016-002718, was filed in the Superior Court in Maricopa County, Arizona. Additional defendants are the Company’s Chief Executive Officer and Chief Financial Officer, and the underwriters of the secondary securities offering that closed September 14, 2014 (the “September 2014 Offering”).  The class action complaint, which was amended a second time on March 27, 2017, alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act and focuses on the conditions at the former frozen food facility in Jefferson, Georgia formerly owned by a subsidiary of the Company.  Westmoreland seeks certification as a class action, unspecified compensatory damages, rescission or a rescissory measure of damages, attorneys’ fees and costs, and other relief deemed appropriate by the court.  The Company, its Chief Executive Officer, its Chief Financial Officer and the September 2014 Offering underwriters have answered and moved to dismiss the second amended complaint. On August 8, 2017, the

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court granted in part and denied in part the motion to dismiss, which was converted to a motion for judgment on the pleadings.  The parties participated in a mediation on August 24, 2017, and continue to work with the mediator in an effort to explore possible settlement of the dispute.  A second case management conference was held with the court telephonically on October 17, 2017, at which time the Company, its Chief Executive Officer, and its Chief Financial Officer informed the court of their plan, if settlement is not reached, to file a motion to stay the action pending the U.S. Supreme Court’s decision in Cyan, Inc. v. Beaver County Retirement Fund, U.S. Supreme Court No. 15-1439.  This Supreme Court ruling will resolve a split among lower courts as to the appropriate subject matter jurisdiction and removability of cases asserting the Securities Act claims at issue in this lawsuit.  The court ordered defendants to file the motion to stay no later than October 30, 2017.  Plaintiffs’ response is due November 13, 2017, and oral argument will be held on November 17, 2017.  The Company intends to vigorously defend against the claims.

On November 10, 2016, the Center for Environmental Health (“CEH”), represented by Howard Hirsch of Lexington Law Group, filed a lawsuit against the Company under the California Safe Drinking Water and Toxic Enforcement Act (the “Act”).  CEH contends that the Company’s potato-based chip products contain amounts of acrylamide in excess of what is permitted under the Act.  Two customers of the Company, Bristol Farms and Vistar/Performance Food Group, have, demanded indemnity in relation to the litigation.  The Company has answered the complaint and intends to vigorously defend the lawsuit.

On November 14, 2016, Michelle Blair (represented by Matthew Armstrong of Armstrong Law Firm LLC and Stuart Cochran of Cochran Law PLLC) filed a putative class action against the Company in St. Louis City Circuit Court.  Ms. Blair purports to represent a class of consumers who purchased one of nine Boulder Canyon® brand products listing “evaporated cane juice” as an ingredient.  Ms. Blair contends that the use of “evaporated cane juice” was misleading because evaporated cane juice is sugar.  In the complaint, Ms. Blair advances claims for violation of Missouri’s Merchandising Practices Act, Mo. Rev. Stat. § 407.020, et seq. and 15 C.S.R. 60-8.020, et seq., and unjust enrichment.  On February 3, 2017, the Company removed the action to the Eastern District of Missouri. Plaintiff dismissed the removed action without prejudice and refiled a substantially similar complaint in the Southern District of Illinois. The new complaint is brought by Ms. Blair and a new plaintiff, Shannah Burton, and asserts a nationwide putative class, as well as a putative class of Illinois and Missouri purchasers. Ms. Burton alleges claims under the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat. Ann. 505/2, et seq. Both plaintiffs also assert claims for unjust enrichment and breach of express warranty. On April 24, 2017, the Company filed a motion to dismiss the complaint. On October 17, 2017, the parties entered into a Confidential Settlement Agreement and Release, pursuant to which the plaintiffs will move to dismiss their complaint with prejudice.

On March 9, 2017, a verified stockholder derivative complaint was filed under seal in the U.S. District Court for the District of Arizona.  The case has since been unsealed and is captioned  Robert Hutton Derivatively on Behalf of Inventure Foods, Inc. v.  Terry McDaniel et al., Case No. 2:17-cv-00727.  The named defendants include certain of the Company’s current and former officers and directors —Terry McDaniel, Steve Weinberger, Timothy A. Cole, Ashton D. Asensio, Macon Bryce Edmonson, Paul J. Lapadat, Harold S. Edwards, David I. Meyers, and Itzhak Reichman.  The lawsuit also names the Company as a nominal defendant.  The complaint focuses on the conditions at the Company’s former frozen food facility in Jefferson, Georgia and the Company’s 2015 and 2016 proxy statements.  The plaintiff purports to derivatively assert on behalf of the Company claims for alleged violation of Section 14(a) of the Exchange Act, breach of fiduciary duty, waste of corporate assets and unjust enrichment.  According to the complaint, the plaintiff seeks an unspecified award of actual or compensatory damages in favor of the Company; an order directing the Company to take certain actions concerning its corporate governance and internal procedures, including putting forward certain proposals concerning its corporate governance policies and amendments to the Company’s Bylaws and Certificate of Incorporation for a stockholder vote; an award of extraordinary equitable and/or injunctive relief concerning the defendants’ trading activities or their assets; restitution from defendants to Inventure Foods consisting of a disgorgement of all profits, benefits and other compensation obtained by defendants; costs and disbursements of the action, including attorneys, accountant and experts’ fees, costs and expenses; and other and further relief as the court deems just and proper. The defendants have moved to dismiss the complaint or, in the alternative, stay the matter pending resolution of the putative class action brought by Westmoreland (identified above) is resolved. The court granted the motion to dismiss on August 28, 2017.  Hutton filed an amended complaint, which the defendants have moved to dismiss. The defendants intend to vigorously defend the lawsuit.

On March 27, 2017, a putative securities class action was filed by Glenn Schoenfeld in the U.S. District Court for the District of Arizona, Case No. 2:17-cv-00910, against the Company, its Chief Executive Officer, and its Chief Financial Officer (the “Schoenfeld Lawsuit”). On April 27, 2017, John Robinson filed a putative securities class action

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in the U.S. District Court for the District of Arizona, Case No. 2:17-cv-01258, against the Company, its Chief Executive Officer, and its Chief Financial Officer (the “Robinson Lawsuit”).  On June 23, 2017, the court consolidated the Robinson Lawsuit with the Schoenfeld Lawsuit, and the caption was changed to In re Inventure Foods, Inc. Securities Litigation, Case No. 2:17-cv-0910.  On June 27, 2017, the court appointed lead plaintiffs and lead counsel.  Lead plaintiffs’ consolidated amended complaint is due August 26, 2017. The original complaints in the Schoenfeld Lawsuit and Robinson Lawsuit were  purportedly filed on behalf of all persons and entities that acquired the Company’s securities between March 3, 2016 and March 16, 2017, and asserted claims for alleged violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and focused on the Company’s internal controls over accounting and financial reporting, its statements of operations for fiscal year 2015, and public statements in press releases and SEC filings between March 3, 2016 and March 16, 2017.  Mr. Schoenfeld sought certification as a class action, unspecified compensatory damages, attorneys’ fees, costs and expenses incurred in the action, and other relief deemed appropriate by the court.  Mr. Robinson sought certification as a class action, unspecified damages, prejudgment and post-judgment interest, reasonable attorneys’ fees, expert fees and other costs, and such other and further relief as the court may deem just and proper.  In lieu of lead plaintiffs filing their consolidated amended complaint, on August 28, 2017, the parties jointly filed a stipulated motion for dismissal of the entire consolidated action with the Company, its Chief Executive Officer and its Chief Financial Officer, agreeing not to pursue any claims for attorneys’ fees and costs against lead plaintiffs in exchange for lead plaintiffs’ dismissing their claims with prejudice.  The original plaintiffs in the Schoenfeld Lawsuit and Robinson Lawsuit did not oppose dismissal of the entire consolidated action.  On September 13, 2017, the court granted the parties stipulated motion for dismissal and entered an order dismissing the entire consolidated case with prejudice as to lead plaintiffs, but without prejudice as to all other putative class members. 

8.Business Segments

Prior to the Frozen Fruit Asset Sale, our operations consisted of two reportable segments: frozen products and snack products.  The frozen products segment included frozen fruits, fruit and vegetable blends, beverages, side dishes and desserts for sale primarily to grocery stores, club stores and mass merchandisers.  The snack products segment produces potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, popcorn and extruded products for sale primarily to snack food distributors and retailers.  Our reportable segments offer different products and services.  The majority of our revenues are attributable to external customers in the United States.  We also sell to external customers internationally. However, the revenues attributable to such customers are immaterial.  All of our assets are located in the United States.

All products sold under our frozen products segment are considered part of the healthy/natural food category.  The products sold under our snack products segment include products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.

In September 2017, the Company completed the Frozen Fruit Asset Sale, which consisted of the sale of the remaining operations of our frozen products segment. Therefore, the results of the frozen products segment have been reflected as discontinued operations for all periods presented.

For the fiscal quarters ended September 30, 2017 and September 24, 2016, net revenues of our healthy/natural food category totaled $18.4 million and $19.4 million, respectively. For the fiscal quarters ended September 30, 2017 and September 24, 2016, net revenues of our indulgent specialty snack food category totaled $9.0 million and $9.2 million, respectively.

For the nine months ended September 30, 2017 and September 24, 2016, net revenues of our healthy/natural food category totaled $56.2 million and $52.0 million, respectively.  For the nine months ended September 30, 2017 and September 24, 2016, net revenues of our indulgent specialty snack food category totaled $28.1 million and $29.0 million, respectively.

Indulgent specialty snacks includes T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s, Nathan’s Famous® brand snack products under license from Nathan’s Famous Corporation, Vidalia® brand snack products under license from Vidalia Brands, Inc., Poore Brothers® brand kettle cooked potato chips, Bob’s Texas Style® brand kettle cooked chips, and Tato Skins® brand potato snacks. Healthy/natural snacks includes Boulder Canyon® brand kettle cooked potato chips, other snack and food items and private label healthy/natural snacks.

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9.Stockholders’ Equity

The Company’s 2015 Equity Incentive Plan (the “2015 Plan”) was approved at our 2015 annual meeting of stockholders. Under the 2015 Plan, we are authorized to issue up to 1,400,560 shares of our Common Stock, which number may be increased by up to 250,000 shares subject to any option or award outstanding under the Amended and Restated 2005 Equity Incentive Plan that are canceled or forfeited for any reason.  If any shares of our Common Stock subject to awards granted under the 2015 Plan are canceled, those shares will be available for future awards under such plan.   Awards granted under the 2015 Plan may include: nonqualified stock options, incentive stock options, restricted stock, restricted stock units, performance shares, performance units, and other stock-based awards and cash-based awards.  The 2015 Plan has a term of ten years and expires in May 2025.  As of September 30, 2017, there were 577,375 shares of Common Stock available for awards under the 2015 Plan.

Restricted Common Stock

We have issued shares of restricted Common Stock in the form of restricted stock awards and restricted stock units as incentives to certain employees, officers and members of our Board.  Restricted stock awards and restricted stock units granted to members of the Board are granted with a one-year service period.  Restricted stock awards and restricted stock units granted to the Company’s officers vest over three years and typically contain performance conditions that are required to be achieved over a three-year measurement period in order for the shares to be released.  The number of performance-based restricted stock awards and units that ultimately vest depend on whether we achieve certain financial results.  Restricted stock units granted to non-officer employees generally vest over three or five years.  We record compensation expense each period based on (i) the market price of our Common Stock at the time of grant, and (ii) for performance-based restricted stock awards and units, our estimate of the most probable number of shares that will ultimately be released.  The related stock-based compensation expense is included in selling, general and administrative expenses.  Additionally, the compensation expense is adjusted for our estimate of forfeitures.  Recipients of restricted stock awards are entitled to receive any dividends declared on our Common Stock and have voting rights, regardless of whether such shares have vested.  Recipients of restricted stock units have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of Common Stock are issued in settlement of such awards.

During the fiscal quarters ended September 30, 2017 and September 24, 2016, the total stock-based compensation expense from restricted Common Stock recognized in the continuing operations was $0.5 million and $0.3 million, respectively. During the nine months ended September 30, 2017 and September 24, 2016, the total stock-based compensation expense from restricted common stock recognized in continuing operations was $1.2 million and $1.1 million, respectively. There was no stock-based compensation costs capitalized. 

The following table summarizes activities related to restricted stock awards for the nine months ended September 30, 2017:

		Weighted
		Average Grant
	Number	Date Fair Value
Nonvested balance at December 31, 2016	8,333	$	12.78
Granted	—	$	—
Vested and released	(8,333)	$	12.78
Forfeited	—	$	—
Nonvested balance at September 30, 2017	—	$	—

As of September 30, 2017, there was no unrecognized costs related to non-vested restricted stock awards.

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The following table summarizes activities related to restricted stock units for the nine months ended September 30, 2017:

		Weighted
		Average Grant
	Number	Date Fair Value
Nonvested balance at December 31, 2016	541,346	$	8.40
Granted	485,554	$	4.05
Vested and released	(222,324)	$	8.18
Forfeited	(39,208)	$	10.26
Nonvested balance at September 30, 2017	765,368	$	5.61

As of September 30, 2017, the total unrecognized costs related to non-vested restricted stock units was $2.6 million, which is expected to be recognized over a weighted average period of 1.8 years.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future. 

Stock Options

Stock-based compensation expense from stock options recognized in continuing operations totaled $0.1 million and $0.1 million for the fiscal quarters and nine months ended September 30, 2017 and September 24, 2016, respectively.  There was no stock-based compensation costs capitalized.

The following table summarizes stock option activity during the nine months ended September 30, 2017:

				Aggregate		Weighted Average
		Weighted		Intrinsic Value		Remaining
	Options	Average		(in-the-money		Contractual Life
	Outstanding	Exercise Price		options)		(in years)
Outstanding at December 31, 2016	567,602	$	5.23
Granted	—	$	—
Exercised	—	$	—
Forfeited or expired	(16,780)	$	10.90
Outstanding at September 30, 2017	550,822	$	5.06	$	587,207	3.58

As of September 30, 2017, the total unrecognized costs related to non-vested stock options granted were $0.1 million.  We expect to recognize such costs in the financial statements over a weighted average period of 0.9 years.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future. 

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the closing price of $4.69 of our Common Stock as of September 30, 2017, which would have been received by the option holders had all option holders exercised options and sold the underlying shares on that date.  The intrinsic value related to vested stock options outstanding was $0.5 million as of September 30, 2017 based on the exercise price and closing price of $4.69 of our Common Stock as of September 30, 2017.

The following table summarizes information about stock options outstanding and exercisable at September 30, 2017:

						Weighted
						Average
						Remaining	Weighted			Weighted
						Contractual	Average			Average
Range of					Options	Life	Exercise		Options	Exercise
Exercise Prices					Outstanding	(in years)	Price		Exercisable	Price
$	1.70	-	$	1.86	138,600	1.0	$	1.75	138,600	$	1.75
$	2.4	-	$	4.16	156,450	2.9	$	3.55	156,450	$	3.55
$	4.28	-	$	7.21	213,400	5.2	$	6.88	191,300	$	6.84
$	7.61	-	$	13.21	42,372	6.6	$	12.30	31,372	$	12.29
					550,822	3.8	$	5.06	517,722	$	4.81

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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 service period, generally five years for employees and one year for members of the Board.  In May 2008, our Board approved a 10-year term for all future stock option grants, with service periods of five years for employees and one year for members of the Board.  We issue new shares upon the exercise of stock options, as opposed to reissuing treasury shares.

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

For a description of the Company’s critical accounting policies and an understanding of the significant factors that influenced the Company’s performance during the fiscal quarter and nine months ended September 30, 2017, this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the other sections of this Form 10-Q, including the condensed consolidated financial statements and related notes appearing in Part I, Item 1, as well as  our 2016 Form 10-K.  The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described in the “Risk Factors” section of our 2016 Form 10-K.  Accordingly, the Company’s actual future results may differ materially from historical results or those currently anticipated.

Executive Overview

We are a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands.  Our products have been  marketed under a strong portfolio of brands, including Boulder Canyon®, , T.G.I. Friday’s®, Vidalia®, Poore Brothers®, Nathan’s Famous®, Bob’s Texas Style® and Tato Skins®.  T.G.I. Friday’s®, Nathan’s Famous® and Vidalia® are licensed brand names.  We complement our branded product retail sales with private label retail sales and co-packing arrangements.

Prior to the Frozen Fruit Asset Sale, our operations consisted of two reportable segments: frozen products and snack products. The frozen products segment included frozen fruits, beverages fruit and vegetable blends, beverages, side dishes and desserts for sale primarily to grocery stores, club stores and mass merchandisers. The snack products segment includes potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, popcorn and extruded products for sale primarily to snack food distributors and retailers.

All products sold under our frozen products segment were considered part of the healthy/natural food category.  The products sold under our snack products segment include products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.

In September 2017, we completed the Frozen Fruit Asset Sale which consisted of the sale of our remaining operations of the frozen products segment. Therefore, the results of the frozen products segment have been reflected as discontinued operations for all periods presented.

For the fiscal quarters ended September 30, 2017 and September 24, 2016, net revenues of our healthy/natural food category totaled $18.4 million and $19.4 million, respectively.  For the fiscal quarters ended September 30, 2017 and September 24, 2016, net revenues of our indulgent specialty snack food category totaled $9.0 million and $9.2 million, respectively.

This MD&A is intended to assist in the understanding of our condensed consolidated financial statements, the changes in certain key items in those condensed consolidated financial statements from period to period and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our condensed consolidated financial statements.

Strategic and Financial Review Process

In July 2016, we announced that our Board had commenced a strategic and financial review of the Company, with the objective to increase shareholder value.  We engaged Rothschild Inc. to serve as our financial advisor and to assist us in this process.  As reported in our 2016 Form 10-K, we have been actively involved in this process and were continuing to pursue various strategic alternatives until we entered into the Utz Merger Agreement.  No assurance can be given as to the outcome or timing of the transactions contemplated by the Utz Merger Agreement.

Recent Developments

On March 23, 2017, we announced the sale ofFresh Frozen Foods to Pictsweet pursuant to the Pictsweet Purchase Agreement.  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory.  The Fresh Frozen Foods facilities processed and

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packaged IQF vegetables and fruits sold primarily under the Fresh Frozen™ brand. As consideration for the acquisition, Pictsweet paid the Company $23.7 million in cash.  The Company’s net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses.  These proceeds were used to pay down amounts then outstanding under the Credit Facilities.

On September 22, 2017, the Company sold its Frozen Business  to OPC pursuant to the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and other transaction expenses, and were used to repay in full the indebtedness under the ABL Credit Facility and to pay down indebtedness under the Term Loan Credit Facility, as required under such Credit Facilities.  Also on such date, $2.0 million of the net proceeds under the OPC Purchase Agreement were placed in escrow to be released upon final determination of the working capital adjustment required thereunder.   

On October 25, 2017, the Company entered into the Utz Merger Agreement with Utz and Merger Sub.  Pursuant to the Utz Merger Agreement, and upon the terms and subject to the conditions described therein, Merger Sub has agreed to (and Utz will cause Merger Sub to) commence the Offer to purchase any and all of the Company’s outstanding shares of Common Stock, at a price per share of $4.00, net to the seller in cash, without interest and subject to any required withholding of taxes (the “Offer”).  Following the consummation of the Offer, subject to the satisfaction or waiver of certain customary conditions set forth in the Utz Merger Agreement, the Utz Merger will occur.  The Offer has not yet commenced. This communication is not an offer to buy nor a solicitation of an offer to sell any securities of the Company. The solicitation and the offer to buy shares of the Company’s Common Stock will only be made pursuant to a tender offer statement on Schedule TO, including an offer to purchase, a letter of transmittal and other related materials that Utz, intends to file with the SEC. In addition, the Company will file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer. The Company and Utz intend to mail these documents to the Company’s stockholders. In addition, once filed, investors will be able to obtain the tender offer statement on Schedule TO, the offer to purchase, the Solicitation/Recommendation Statement of the Company on Schedule 14D-9 and related materials with respect to the Offer and the Merger free of charge at the SEC’s website at www.sec.gov. Investors may also obtain, at no charge, any such documents filed with or furnished to the SEC by the Company under the “Investor Relations” section of the Company’s website at www.inventurefoods.com. Investors are advised to read these documents when they become available, including the Solicitation/Recommendation Statement of the Company and any amendments thereto, as well as any other documents relating to the Offer and the merger that are filed with the SEC, carefully and in their entirety prior to making any decision with respect to the Offer because they contain important information, including the terms and conditions of the Offer.

Since we entered into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives. There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms.

Going Concern Uncertainty

We have incurred losses from operations in each of the quarterly periods since our voluntary product recall in April 2015 of certain varieties of the Company’s Fresh FrozenTM brand of frozen vegetables, as well as select varieties of our Jamba® “At Home” line of smoothie kits.  This fact, together with the projected near term outlook for our business and our inability to complete a strategic transaction (other than the Fresh Frozen Asset Sale and the Frozen Fruit Asset Sale) by year end or demonstrate that such a transaction is imminent, raise substantial doubt about our ability to continue as a going concern.  We reported this going concern conclusion in our 2016 Form 10-K, together with the following specific conditions considered by management in reaching such conclusion:

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· Our five-year, $85.0 million Term Loan Credit Facility with BSP and the BSP Lenders requires us to, among other things, comply with Total Leverage Ratio and Fixed Charge Coverage Ratio (each as defined in the Term Loan Credit Facility) covenants by the end of the second quarter of fiscal 2017 and the EBITDA Covenant by the month ended April 30, 2017, which target we did not meet and, as discussed below, we received temporary waivers of such default.  The Total Leverage Ratio, measured at the end of our second fiscal quarter in 2017 was required to be 4.25:1, and the Fixed Charge Coverage Ratio, measured at the end of our second fiscal quarter in 2017 for the four quarterly periods then ended, was required to be 1.1:1.  We previously reported that absent the completion of a strategic transaction yielding sufficient cash proceeds (in addition to the proceeds received from the sale of certain assets, properties and rights of our wholly owned subsidiary, Fresh Frozen Foods, in March 2017) to pay down debt, waivers or amendments by our lenders, or a refinancing of our debt, we would not be able to comply with these covenants when required to do so.  And we reported that failure to meet these covenants would result in a default under such credit facility and, to the extent the applicable lenders so elect, an acceleration of the Company’s existing indebtedness, causing such debt of approximately $63.7 million at September 30, 2017 (including $2.3 million of other equipment financing indebtedness that includes cross-default provisions) to be immediately due and payable.  At such time, the Company did not have, and does not currently have, sufficient liquidity to repay all of its outstanding debt in full if such debt were accelerated.

· Prior to the pay-off of our ABL Credit Facility on September 22, 2017 with our proceeds from the Frozen Fruit Asset Sale, our five-year, $50.0 million ABL Credit Facility with Wells Fargo and the Wells Fargo Lenders (required us to, among other things, comply with a Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility)) if our liquidity as of the date of any determination is less than the greater of (i) 12.5% of the Maximum Revolver Amount and (ii) $6.125 million, subject to certain conditions. 

· The Term Loan Credit Facility also required (and the previous ABL Credit Facility required)  us to furnish our audited financial statements without a “going concern” uncertainty paragraph in the auditor’s opinion.  Our consolidated financial statements for the fiscal year ended December 31, 2016 in our 2016 Form 10-K contained a “going concern” explanatory paragraph.  Under the Credit Facilities, a going concern opinion with respect to our audited financial statements was (and is) an event of default.  As of the date our 2016 Form 10-K was filed with the SEC, we obtained a temporary waiver of the Going Concern Covenant Default until May 15, 2017 from the applicable lenders under the Credit Facilities. 

· On May 10, 2017, we entered into the Term Loan Third Amendment.  Under the terms of the Term Loan Third Amendment, the BSP Lenders granted the Company (i) an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017, and (ii) a temporary waiver of the EBITDA Covenant Default until July 17, 2017. The Term Loan Third Amendment also required that the Company comply with the EBITDA Covenant commencing with the fiscal month ending June 30, 2017, measured over the 12-months then ended, and increased the Company’s prepayment fees in the event of a payment or prepayment of principal under the Term Loan Credit Facility (excluding regularly scheduled principal payments).

· On May 15, 2017, we entered into the ABL First Amendment, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017.  In addition, the terms of the ABL First Amendment provided for, among other things, (i) an increase in the Company’s Applicable Margin for Base Rate and Libor Rate Loans (as such terms are defined in the ABL Credit Facility) effective May 1, 2017 by 100 basis points, (ii) additional financial and collateral reporting obligations and projection requirements, (iii) the immediate right of the Agent (as defined in the ABL Credit Agreement) or the Wells Fargo Lenders to exercise all rights and remedies under the ABL Credit Facility (in lieu of waiting until the earlier of ten business days after the date on which financial statements are required to be delivered for an applicable fiscal month), and (iv) the elimination of the right to issue curative equity.

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· On July 17, 2017, we entered into the BSP Letter Agreement, pursuant to which the BSP Lenders granted the Company (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until July 24, 2017.

· On July 17, 2017, we also entered into the ABL Second Amendment with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017.  In addition, the ABL Second Amendment provided for, among other things, additional reporting obligations, a reduced revolver commitment over a period of time ($49.0 million prior to the effective date of the ABL Second Amendment; $40.0 million from and after the ABL Second Amendment date through August 1, 2017; and $35.0 million from and after August 1, 2017), and adjusted advance rates.

· On July 20, 2017, we entered into the Term Loan Fourth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until August 31, 2017.  In addition, the BSP Lenders agreed to provide $5.0 million of additional financing to the Company in the form of a term loan, payable in equal monthly installments of $12,500 commencing on September 30, 2017, with the balance due and payable on November 17, 2020, which is the maturity date of the Term Loan Credit Facility.  The net proceeds of the $5.0 million loan were used for working capital purposes, subject to certain restrictions in the Term Loan Credit Facility, and is subject to the terms and conditions of the Term Loan Credit Facility.

· On July 20, 2017, we also entered into the ABL Third Amendment, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017.

· On August 31, 2017, we entered into the Term Loan Fifth Amendment.  Under the terms of the Term Loan Fifth Amendment the BSP Lenders, pursuant to which the Wells Fargo Lenders granted the Company (i) a further extension of the temporary waiver of Going Concern Covenant from August 31, 2017 to September 30, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until September 30, 2017.

· On August 31, 2017, we also entered into the ABL Fourth Amendment with the Wells Fargo and the Wells Fargo Lenders. Under the terms of the ABL Fourth Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017.

· On September 22, 2017, the net proceeds from Frozen Fruit Asset Sale were used to repay in full the indebtedness under the ABL Credit Facility, as required under such facility.

· On September 29, 2017, we entered into the Term Loan Sixth Amendment.  Under the terms of the Term Loan Sixth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from September 30, 2017 to October 31, 2017, (ii) a temporary waiver of the Term Loan Financial Covenant Default until October 31, 2017, and (iii) amend certain other provisions of the Term Loan Credit Facility.

· On October 25, 2017, we entered into the Term Loan Seventh Amendment.  Under the terms of the Term Loan Seventh Amendment, the BSP Lenders (i) agreed to a further extension of the temporary waiver of the Going Concern Covenant Default from October 31, 2017 to the Waiver Deadline (as defined below), (ii) agreed to a temporary waiver of the Term Loan Financial Covenant Default until the Waiver Deadline, (iii) agreed to amend certain other provisions of the Term Loan Credit Facility, and (iv) consented to the Company’s entering into the Utz Merger Agreement and consummation of the Offer and the Utz Merger, provided that the net proceeds are applied to prepay in full the loans and all other amounts due under the Term Loan Credit Facility. The Waiver Deadline is the earliest to occur of January 15, 2018, the occurrence of an event of default under the Term Loan Credit Facility

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and the termination of the Utz Merger Agreement.   In addition, the BSP Lenders agreed to provide the Company $5 million of additional financing in the form of a term loan, payable in equal monthly installments of $12,500, commencing on December 30, 2017, with the balance due and payable on December 29, 2020. The net proceeds of this new $5 million loan will be used for paying interest on outstanding indebtedness under the Term Loan Credit Facility and payment of trade payables in the ordinary course of business, subject to certain restrictions in the Term Loan Credit Facility.

As previously disclosed and as noted above and as more fully described under “Liquidity and Capital Resources” below, the Company’s Board and management have been exploring various strategic alternatives since they announced this initiative in July 2016.  There can be no assurance that we will be successful in our pursuit of any strategic transaction, including the Utz Merger or the transactions contemplated by the Utz Merger Agreement, or that we will be able to consummate the Utz Merger or another strategic transaction in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete a strategic transaction it will be on commercially reasonable terms.  As a result, our liquidity and ability to timely pay our obligations when due could be adversely affected.   

The accompanying condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about our ability to continue as a going concern, other than the reclassification of certain long-term debt and the related debt issuance costs to current liabilities and current assets, respectively.  

Our lenders may resist renegotiation or lengthening of payment and other terms through legal action or otherwise if we are unsuccessful in our efforts to complete a strategic transaction.  If we are not able to timely, successfully or efficiently implement the strategies that we are pursuing, we may need to seek voluntary protection under Chapter 11 of the U.S. Bankruptcy Code.

Results of Operations

In addition to focusing on measurements calculated in accordance with GAAP, we focus on “selling, general and administrative expenses, excluding strategic review professional fees and legal settlement gains,” which is a non-GAAP financial measure.  As such, we include in this Form 10-Q a reconciliation to its most directly comparable GAAP financial measure.  Non-GAAP financial measures have certain limitations as analytical tools and should not be used as substitutes for measurements prepared in accordance with GAAP.   This reconciliation and a description of the limitations of this non-GAAP financial measure are included in “Non-GAAP Data and Reconciliations” below.

The following table sets forth for the periods presented certain financial data as a percentage of net sales for the fiscal quarters and nine months ended September 30, 2017 and September 24, 2016:

	Quarter Ended				Nine Months Ended
	September 30,		September 24,		September 30,		September 24,
	2017		2016		2017		2016
Net revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	87.3		82.3		83.7		81.5
Gross profit	12.7		17.7		16.3		18.5
Selling, general and administrative expenses	25.9		23.5		23.9		23.1
Operating loss	(13.2)		(5.8)		(7.6)		(4.6)
Interest expense	6.7		4.8		6.2		5.0
Loss before income taxes	(19.9)		(10.6)		(13.8)		(9.6)
Income tax expense (benefit)	0.1		(4.5)		—		(3.5)
Net loss from continuing operations	(20.0)	%	(6.1)	%	(13.8)	%	(6.1)	%

Net Revenues.  Consolidated net revenues from continuing operations decreased 4.1% to $27.4 million in the fiscal quarter ended September 30, 2017, a decrease of $1.2 million, compared to $28.6 million in the fiscal quarter ended September 24, 2016.  This decrease was driven by a $2.9 million, or 21.5%, decline in the sales of Boulder

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Canyon® branded snacks primarily due to timing of rotations in the club channel offset by a $1.9 million, or 31.3%, increase in private label sales as a result of new distribution.    

Net revenues for the nine months ended September 30, 2017 increased 4.1% to $84.2 million, compared to $81.0 million during the nine months ended September 24, 2016. This increase was driven by a $5.1 million, or 30.2%, increase in private label sales as a result of new distribution, partially offset by lower sales of licensed and Boulder Canyon® branded snacks as a result of reduced promotion and sampling activity.    

Gross Profit.  Gross profit from continuing operations was $3.5 million for the fiscal quarter ended September 30, 2017, compared to $5.1 million for the fiscal quarter ended September 24, 2016.  As a percentage of net revenues, gross margin decreased 500 basis points to 12.7% for the fiscal quarter ended September 30, 2017, compared to 17.7% for the fiscal quarter ended September 24, 2016.  This decrease in gross margin was primarily a result of product sales mix due to increased sales of lower margin private label business and reduced sales of higher margin branded sales. 

Gross profit from continuing operations was $13.8 million for the nine months ended September 30, 2017, compared to $15.0 million for the nine months ended September 24, 2016. As a percentage of net revenues, gross margin decreased 220 basis points to 16.3% for the fiscal quarter ended September 30, 2017, compared to 18.5% for the fiscal quarter ended September 24, 2016.  This decrease in gross margin was primarily a result of product sales mix due to increased sales of lower margin private label business and reduced higher margin branded sales. 

Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses was $7.1 million for the fiscal quarter ended September 30, 2017, compared to $6.7 million the fiscal quarter ended September 24, 2016.  Excluding the $0.7 million for professional fees related to the Company’s ongoing strategic review, Adjusted SG&A expenses (as discussed below in “Non-GAAP Data and Reconciliations”) decreased $0.4 million for the fiscal quarter ended September 30, 2017 compared to the prior-year period and, as a percentage of net revenues, decreased 30 basis points to 23.2% compared to 23.5% for the prior-year period.  The decrease is primarily due to reductions in sales and marketing expenses, including reduced travel and sampling costs.

For the nine months ended September 30, 2017, SG&A expenses was $20.2 million, compared to $18.7 million during the nine months ended September 24, 2016.  Excluding the $1.8 million for professional fees related to the Company’s ongoing strategic review and the benefit of the $1.2 million legal settlement gain recorded in SG&A in the first nine months of fiscal 2017, Adjusted SG&A expenses (as discussed below in “Non-GAAP Data and Reconciliations”) increased $0.9 million for the nine months ended September 24, 2016, compared to the prior-year period and as a percentage of net revenues increased 20 basis points to 23.3% compared to 23.1% for the prior-year period.  This increase is primarily due to increased expenses associated with other legal, medical and accrued bonus costs, partially offset by reduced sales and marketing expenses.

Interest Expense.  Interest expense was $1.8 million for the fiscal quarter ended September 30, 2017, compared to $1.4 million for the fiscal quarter ended September 24, 2016.  For the nine months ended September 30, 2017, interest expense was $5.2 million, compared to $4.0 million during the nine months ended September 24, 2016. These increases in interest expense were primarily due to higher interest rates under our Credit Facilities as a result of the ABL Second Amendment and Term Loan Second Amendment..

Income Tax Benefit. Our effective tax rate was (0.2)% and 42.9% for the fiscal quarters ended September 30, 2017 and September 24, 2016, respectively.  For the nine months ended September 30, 2017 our effective tax rate was (0.3)% compared to 36.0% for the nine months ended September 24, 2016.  Income tax expense for the fiscal quarter and nine months ended September 30, 2017 was impacted by the full valuation allowance which was initially recorded in the fourth quarter of fiscal 2016. Therefore, income tax expenses was a result of certain state minimum taxes and deferred tax liabilities not subject to the valuation allowance.

Discontinued Operations. Discontinued operations represents the Fresh Frozen Foods Business that was sold on March 23, 2017 and the Frozen Fruit Business that was sold on September 22, 2017.  Discontinued operations generated a net loss of $19.9 million for the fiscal quarter ended September 30, 2017, compared to a net loss of $0.8 million for the prior-year period.  The fiscal quarter ended September 30, 2017 includes a loss on the Frozen Fruit Business of $22.5 million.  Discontinued operations generated a net loss of $28.8 million for the nine months ended September 30, 2017 compared to net income $1.1 million for the nine months September 24, 2016, respectively.  The nine months ended September 30, 2017 includes a loss on the Fresh Frozen Asset Sale of $10.3 million and a loss on the

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Frozen Fruit Business of $22.5 million. See “Note 2 -  Discontinued Operations" in the condensed consolidated financial statements for more information.

Non-GAAP Data and Reconciliations

“Adjusted Selling, general and administrative expenses” or “Adjusted SG&A expenses” is defined as SG&A expenses less professional fees associated with the Company’s strategic review and gains from a legal settlement with the previous owners of Fresh Frozen Foods over purchase price hold back funds held in escrow.We present Adjusted SG&A expenses because we believe it provides useful information regarding the Company’s normal operating results and allows for better comparability with current period operating results.    

A reconciliation of Adjusted SG&A expenses to SG&A expenses is as follows (in thousands):

	Quarter Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Adjusted Selling, general and administrative expenses	$	6,355	$	6,706	$	19,595	$	18,678
Strategic review professional fees		745		—		1,797
Gain from legal settlement		—		—		(1,236)		—
Selling, general and administrative expense	$	7,100	$	6,706	$	20,156	$	18,678

Liquidity and Capital Resources

Liquidity represents our ability to generate sufficient cash flows from operating activities to satisfy obligations, as well as our ability to obtain appropriate financing.  Therefore, liquidity cannot be considered separately from capital resources that consist primarily of current and potentially available funds for use in achieving our objectives.  Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures and debt repayment.

Operating Cash Flows

Cash flows from operating activities reflect our net loss, adjusted for non-cash items such as depreciation, amortization, stock-based compensation expense, write-offs and write-downs of assets, as well as changes in accounts receivable, inventories, accounts payable and accrued liabilities, and other assets and liabilities.

Net cash provided by operating activities was $1.8 million for the nine months ended September 30, 2017, compared to net cash provided by operating activities of $6.3 million for the nine months ended September 24, 2016. The year-over-year decrease was primarily a result of an increase of the net loss in fiscal 2017 compared to fiscal 2016 along with additional interest expense in the first nine months of fiscal 2017 compared to the prior-year period.

Investing Cash Flows

Net cash provided by investing activities was $58.9 million for the fiscal quarter ended September 30, 2017, compared to cash used of $12.0 million for the fiscal quarter ended September 24, 2016.  The first nine months of fiscal 2017 included $19.5 million in proceeds from the Fresh Frozen Asset Sale and $38.9 million in proceeds from the Frozen Fruit Asset Sale.  Capital expenditures of $1.6 million in the first nine months of fiscal 2017 primarily relate to building improvements and manufacturing equipment, of which $0.9 million is included in discontinued operations.  Capital expenditures of $11.7 million in the first nine months of fiscal 2016 primarily relate to manufacturing equipment and enterprise resource planning system integration, of which $3.1 million is included in discontinued operations.  During fiscal 2017, we plan to make approximately $0.9 million in capital expenditures, primarily at our manufacturing facilities.  Capital expenditures are funded by net cash flow from operating activities and cash on hand.  Payments of contingent consideration related to the acquisition of Willamette Valley Fruit Company included in discontinued operations totaled $0.2 million during the nine months ended September 30, 2017, compared to $0.3 million during the prior-year period. 

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Financing Cash Flows

Net cash used in financing activities for the fiscal quarter ended September 30, 2017 was $59.3 million, compared to cash provided by financing activities of $4.3 million in the nine months ended September 24, 2016.  This year-over-year decrease in cash provided by financing activities was largely due to a pay down of the Term Loan Credit Facility of $27.8 million and the payoff of the ABL Credit Facility of $32.8 million, primarily from the proceeds of the Fresh Frozen Asset Sale and the Frozen Fruit Asset Sale.

Debt and Capital Resources

Our Term Loan Credit Facility requires us to comply with a Fixed Charge Coverage Ratio and Total Leverage Ratio (each as defined in the Term Loan Credit Facility) and the EBITDA Covenant.  We must comply with the Fixed Charge Coverage Ratio and Total Leverage Ratio beginning in the first quarter of fiscal 2018.  We were required to comply with the EBITDA Covenant commencing with the month ended April 30, 2017, which target we did not meet, and as discussed below, we received temporary waivers of such default.  Unless we engage in a strategic transaction that enables us to pay down our debt, or we secure a waiver or further loan amendment from our lender, we will not be in compliance with our financial covenants when required to meet such covenants.  Such a breach would constitute an Event of Default under (and as defined in) the Term Loan Credit Facility if it remained uncured or a modification or waiver is not agreed to (or, if applicable, extended) by the lenders under such credit facility.

The Term Loan Credit Facility also requires (and the ABL Credit Facility also required) us to furnish our audited financial statements without a “going concern” uncertainty paragraph in the auditor’s opinion.  Our consolidated financial statements for the fiscal year ended December 31, 2016 in our 2016 Form 10-K contained a “going concern” explanatory paragraph.  Under the Credit Facilities, a going concern opinion with respect to our audited financial statements is an event of default.  As of the date our 2016 Form 10-K was filed with the SEC, we obtained a temporary waiver of the Going Concern Covenant Default until May 15, 2017 from the applicable lenders under the Credit Facilities and, as discussed below, we received further temporary waivers of such default.

On May 10, 2017, we entered into the Term Loan Third Amendment, pursuant to which the BSP Lenders granted the Company (i) an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 until July 17, 2017, and (ii) a temporary waiver of the Minimum EBITDA Covenant Default until July 17, 2017.  The Term Loan Third Amendment also required that the Company comply with the EBITDA Covenant commencing with the fiscal month ending June 30, 2017, measured over the 12-months then ended, and increased the Company’s fees in the event of a payment or prepayment of principal under the Term Credit Facility (excluding regularly scheduled principal payments).

On May 15, 2017, we entered into the ABL First Amendment, pursuant to which the Wells Fargo Lenders granted the Company an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017.  In addition, the terms of the ABL First Amendment provided for, among other things, (i) an increase in the Company’s Applicable Margin for Base Rate and Libor Rate Loans (as such terms are defined in the ABL Credit Facility) effective May 1, 2017 by 100 basis points, (ii) additional financial and collateral reporting obligations and projection requirements, (iii) the immediate right of the Agent (as defined in the ABL Credit Agreement) or the Wells Fargo Lenders to exercise all rights and remedies under the ABL Credit Facility (in lieu of waiting until the earlier of ten business days after the date on which financial statements are required to be delivered for an applicable fiscal month), and (iv) the elimination of the right to issue curative equity.

On July 17, 2017, we entered into the BSP Letter Agreement, pursuant to which the BSP Lenders granted the Company (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until July 24, 2017.

On July 17, 2017, we also entered into the ABL Second Amendment, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017.  In addition, the ABL Second Amendment provided for, among other things, additional reporting obligations, a reduced revolver commitment over a period of time ($49.0 million prior to the effective date of the ABL Second Amendment; $40.0 million from and after the ABL Second Amendment date through August 1, 2017; and $35.0 million from and after August 1, 2017), and adjusted advance rates.

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On July 20, 2017, we entered into the Term Loan Fourth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until August 31, 2017.  In addition, the BSP Lenders agreed to provide $5.0 million of additional financing to the Company in the form of a term loan, payable in equal monthly installments of $12,500 commencing on September 30, 2017, with the balance due and payable on November 17, 2020, which is the maturity date of the Term Loan Credit Facility.  The net proceeds of the $5.0 million loan were used for working capital purposes, subject to certain restrictions in the Term Loan Credit Facility, and is subject to the terms and conditions of the Term Loan Credit Facility.

On July 20, 2017, we also entered into the ABL Third Amendment, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017.

On August 31, 2017, the Company entered into the Term Loan Fifth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until September 30, 2017.

On September 22, 2017, in connection with the Frozen Fruit Asset Sale, the Company paid off all the outstanding balance of the ABL Credit Facility, as required under such facility. As such, the ABL Credit Facility has been extinguished.

On September 29, 2017, the Company entered into Term Loan Sixth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from September 30, 2017 to October 31, 2017, (ii) a temporary waiver of the Term Loan Financial Covenant Default until October 31, 2017, and (iii) amend certain other provisions of the Credit Agreement.

On October 25, 2017, the Company entered into the Term Loan Seventh Amendment, pursuant to which the BSP Lenders (i) agreed to a further extension of the temporary waiver of the Going Concern Covenant Default from October 31, 2017 to the Waiver Deadline, (ii) agreed to a temporary waiver of the Term Loan Financial Covenant Default until the Waiver Deadline, (iii) agreed to amend certain other provisions of the Term Loan Credit Facility, and (iv) consented to the Company’s entering into the Utz Merger Agreement and consummation of the Offer and the Utz Merger, provided that the net proceeds are applied to prepay in full the loans and all other amounts due under the Term Loan Credit Facility. The Waiver Deadline is the earliest to occur of January 15, 2018, the occurrence of an event of default under the Term Loan Credit Facility and the termination of the Utz Merger Agreement.  In addition, the BSP Lenders agreed to provide the Company $5 million of additional financing in the form of a term loan, payable in equal monthly installments of $12,500, commencing on December 30, 2017, with the balance due and payable on December 29, 2020. The net proceeds of this new $5 million loan will be used for paying interest on outstanding indebtedness under the Term Loan Credit Facility and payment of trade payables in the ordinary course of business, subject to certain restrictions in the Term Loan Credit Facility.

A default under the Term Loan Credit Facility would trigger a default under certain of our equipment lease financing arrangements, as these facilities each contain cross-default provisions.  In the event of non-compliance and if we are unable to secure necessary waivers or modifications to the Term Loan Credit Facility, the lenders under such facility would have the right to accelerate the indebtedness thereunder.  In such an event, we would not have the liquidity sufficient to repay such indebtedness or meet our operating expenses, capital expenditures and other cash needs.

See “Note 6 - Term Debt and Line of Credit” of our condensed consolidated financial statements in Item 1 of this Form 10-Q for detail regarding our financing arrangements.

Outlook

All of the Company’s outstanding debt has been reclassified in the accompanying condensed consolidated balance sheet as a current liability as of September 30, 2017.  As previously reported, on July 27, 2016, the Company announced that it had commenced a strategic and financial review with the objective of increasing shareholder

33

value.  The Company and its advisors have been actively involved in this process since the date of such announcement, which process eventually resulted in the Company entering into the Utz Merger Agreement on October 25, 2017 as described below.  On March 23, 2017, the Company completed the Fresh Frozen Asset Sale, which yielded net proceeds to the Company of $19.5 million. On September 22, 2017, the Company completed the Frozen Fruit Asset Sale, which yielded net proceeds of $38.9.  Although such proceeds were used to repay in full the indebtedness under the ABL Credit Facility and to pay down indebtedness under the Term Loan Credit Facility, as required under such Credit Facilities, additional capital is required to ensure compliance with the Total Leverage Ratio and Fixed Charge Coverage Ratio covenants under our Term Loan Credit Facility by January 15, 2018.  

On October 25, 2017, the Company entered into the Utz Merger Agreement.  Pursuant to the Utz Merger Agreement, and upon the terms and subject to the conditions described therein, Merger Sub will (and Utz will cause Merger Sub to) commence an offer to purchase any and all of the Company’s outstanding shares of common stock, par value $0.01 per share, at a price per share of $4.00, net to the seller in cash, without interest and subject to any required withholding of taxes (the “Offer”).  Following the consummation of the Offer, subject to the satisfaction or waiver of certain customary conditions set forth in the Utz Merger Agreement, the Utz Merger will occur. No assurance can be given as to the timing of the Utz Merger or the transactions contemplated by the Utz Merger Agreement or that the Utz Merger will be consummated.

As of the date of the filing of this quarterly report on Form 10-Q, the Offer has not yet commenced. This communication is not an offer to buy nor a solicitation of an offer to sell any securities of the Company. The solicitation and the offer to buy shares of the Company’s Common Stock will only be made pursuant to a tender offer statement on Schedule TO, including an offer to purchase, a letter of transmittal and other related materials that Utz, intends to file with the SEC. In addition, the Company will file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer. The Company and Utz intend to mail these documents to the Company’s stockholders. In addition, once filed, investors will be able to obtain the tender offer statement on Schedule TO, the offer to purchase, the Solicitation/Recommendation Statement of the Company on Schedule 14D-9 and related materials with respect to the Offer and the Merger free of charge at the SEC’s website at www.sec.gov. Investors may also obtain, at no charge, any such documents filed with or furnished to the SEC by the Company under the “Investor Relations” section of the Company’s website at www.inventurefoods.com. Investors are advised to read these documents when they become available, including the Solicitation/Recommendation Statement of the Company and any amendments thereto, as well as any other documents relating to the Offer and the merger that are filed with the SEC, carefully and in their entirety prior to making any decision with respect to the Offer because they contain important information, including the terms and conditions of the Offer.

Absent the Term Loan Seventh Amendment, the Company would have been in breach of the requirement to deliver audited financial statements without a going concern opinion at and the EBITDA Covenant at October 31, 2017 under the Term Loan Credit Facility.  The waivers set forth in the Term Loan Seventh Amendment provide the Company with additional time to close the Utz Merger, but terminate if the Utz Merger Agreement is terminated.  However, unless we close the Utz Merger or engage in another strategic transaction that enables us to pay down our debt, or we secure additional waivers or further loan amendments from our lenders, we will not be in compliance with our financial covenants when required to meet such covenants.  A default under the Term Loan Credit Facility will trigger a default under certain of our equipment lease financing arrangements, as these facilities each contain cross-default provisions.

Our lenders may resist renegotiation or lengthening of payment and other terms through legal action or otherwise if we are unsuccessful in our efforts to complete a strategic transaction.  If we are not able to timely, successfully or efficiently implement the strategies that we are pursuing, we may need to seek voluntary protection under Chapter 11 of the U.S. Bankruptcy Code.

We anticipate fiscal 2017 capital expenditures of approximately $0.9 million, funded through working capital and various purchase or financing arrangements.

34

Contractual Obligations

There have been no material changes in our reported contractual obligations, as described under “Contractual Obligations” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of  the 2016 Form 10-K.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates since the filing of the 2016 Form 10-K.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes in our reported market risks, as described in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our 2016 Form 10-K.

Item 4.  Controls and Procedures. 

Evaluation of Disclosure Controls and Procedures

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the reporting period covered by this Form 10-Q.  Based upon that evaluation and as a result of the material weakness in internal control over financial reporting described in “Controls and Procedures” in Part II, Item 9A of the 2016 Form 10-K, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2017 for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Remediation Efforts to Address Material Weakness

As previously described in “Controls and Procedures” in Part II, Item 9A of the 2016 Form 10-K, the Company began implementing a remediation plan to address the control deficiency that led to the material weakness mentioned above. The remediation plan includes the following:

· An upgrade of the software used to help monitor trade spend liabilities.  This new software upgrade is already complete and pulls actual sales data into the sales volume input estimates for open sales promotion plans to improve the accuracy of sales volume estimates. 

· The creation of a Task Force to help identify further improvements, including a more diligent review of key critical accounts to validate sales plans are accurate. 

The Company’s enhanced review and control procedures were in place and operating during the first nine months of fiscal 2017. The Company is in the process of testing the newly implemented internal controls and related procedures. The material weakness cannot be considered remediated until the control has operated for a sufficient period of time and until management has concluded, through testing, that the control is operating effectively. Our goal is to remediate this material weakness by the end of fiscal 2017.

Changes in Internal Control Over Financial Reporting

Except as described above, there were no changes to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

35

PART II—OTHER INFORMATION

Item 1.Legal Proceedings.

For a discussion of legal proceedings, see “Note 7 - Commitments and Contingencies - Legal Proceedings” to our condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors.

During the fiscal quarter ended September 30, 2017, there were no material changes from the risk factors as previously disclosed in our  2016 Form 10-K.

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

The following table contains information for shares repurchased during the fiscal quarter ended September 30, 2017.

				Total number of	Approximate dollar
				shares purchased as	value of shares that
				part of publicly	may yet be
	Total number of	Average price paid		announced plans or	purchased under the
Fiscal period	shares purchased(1)	per share		programs	plans or programs
July 2, 2017 - August 5, 2017	—	$	—	—	$	—
August 6, 2017 - September 2, 2017	145	$	4.02	—	$	—
September 3, 2017 - September 30, 2017	21,548	$	4.66	—	$	—
Total	21,693	$	4.66	—	$	—

(1) Shares of restricted stock withheld, at the election of certain holders of restricted stock, by the Company from the vested portion of a restricted stock award with a market value approximating the amount of the withholding taxes due from such restricted stockholders.

36

Item 6.Exhibits.

2.1±	Asset Purchase Agreement, dated as of September 8, 2017, by and among Inventure Foods, Inc., Rader Farms, Inc., Willamette Valley Fruit Company and Oregon Potato Company, as amended by that certain Amendment No. 1 to Asset Purchase Agreement, dated as of September 22, 2017, by and among Inventure Foods, Inc., Rader Farms, Inc., Willamette Valley Fruit Company and Oregon Potato Company (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 28, 2017).
2.2±	Agreement and Plan of Merger, dated as of October 25, 2017, by and among Inventure Foods, Inc., Utz Quality Foods, LLC and Heron Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 26, 2017).
10.1	Letter Agreement, dated as of July 17, 2017, by and among the Company and certain of its subsidiaries, as the borrowers, each of the lenders from time to time a party thereto, and BSP Agency, LLC, as the administrative agent for each member of the Lender Group (as defined therein) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 21, 2017).
10.2	Limited Waiver and Fourth Amendment to Credit Agreement, dated as of July 21, 2017, by and among the Company and certain of its subsidiaries, as the borrowers, each of the lenders from time to time a party thereto, and BSP Agency, LLC, as the administrative agent for each member of the Lender Group (as defined therein) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 21, 2017).
10.3	Second Amendment to Credit Agreement and Limited Waiver, dated as of July 17, 2017, by and among the Company and certain of its subsidiaries, as the borrowers, each of the lenders from time to time a party thereto, and Well Fargo Bank, National Association, as the administrative agent for each member of the Lender Group and Bank Product Provisions (as such terms are defined therein) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 21, 2017).
10.4	Third Amendment to Credit Agreement and Limited Waiver, dated as of July 21, 2017, by and among the Company and certain of its subsidiaries, as the borrowers, each of the lenders from time to time a party thereto, and Well Fargo Bank, National Association, as the administrative agent for each member of the Lender Group and Bank Product Provisions (as such terms are defined therein) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 21, 2017).
10.5	Limited Waiver and Fifth Amendment to Credit Agreement, dated as of August 31, 2017, by and among Inventure Foods, Inc. and certain of its subsidiaries, as the borrowers, each of the lenders from time to time a party thereto, and BSP Agency, LLC, as the administrative agent for each member of the Lender Group (as defined therein) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 6, 2017).
10.6	Fourth Amendment to Credit Agreement and Limited Waiver, dated as of August 31, 2017, by and among Inventure Foods, Inc. and certain of its subsidiaries, as the borrowers, each of the lenders from time to time a party thereto, and Well Fargo Bank, National Association, as the administrative agent for each member of the Lender Group and Bank Product Provisions (as such terms are defined therein) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 6, 2017).
10.7	Limited Waiver and Sixth Amendment to Credit Agreement, dated as of September 29, 2017, by and among Inventure Foods, Inc. and certain of its subsidiaries, as the borrowers, each of the lenders from time to time a party thereto, and BSP Agency, LLC, as the administrative agent for each member of the Lender Group (as defined therein) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2017).

37

10.8	Limited Waiver, Consent and Seventh Amendment to Credit Agreement, dated as of October 25, 2017, by and among Inventure Foods, Inc. and certain of its subsidiaries, as the borrowers, each of the lenders from time to time a party thereto, and BSP Agency, LLC, as the administrative agent for each member of the Lender Group (as defined therein) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 26, 2017).
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
31.2 *		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
32**		Certification of Chief Executive Officer and Chief Financial Officer 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.
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Scheme Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

±     The schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  Inventure Foods, Inc. agrees to furnish supplementally a copy of such schedules and exhibits, or any section thereof, to the Securities and Exchange Commission upon request.

*     Filed herewith.

**   Furnished herewith.

38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:	November 9, 2017	INVENTURE FOODS, INC.
		By:	/s/ Steve Weinberger
			Steve Weinberger
			Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)

39

EX-31.1

EXHIBIT 31.1

Certification of Principal Executive Officer

Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a)

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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.

Pril

Date: November 9, 2017

/s/ Terry McDaniel

Terry McDaniel

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of Principal Financial Officer

Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a)

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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.

ugust

Date: November 9, 2017

/s/ Steve Weinberger

Steve Weinberger

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

EX-32

EXHIBIT 32

Certification of Principal Executive Officer and Principal Financial Officer

Pursuant to 18 U.S.C. Section 1350,

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

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certify, in his capacity as an officer of Inventure Foods, Inc. (the “Company”), that, to his knowledge:

1. The Quarterly Report on Form 10-Q for the period ended September 30, 2017 of the Company (the “Report”), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Ug

Date November 9, 2017

/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)

This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Inventure Foods, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that Section.  Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Inventure Foods, Inc. specifically incorporates it by reference.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Inventure Foods, Inc. and will be retained by Inventure Foods, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 06, 2017
Document and Entity Information
Entity Registrant Name	INVENTURE FOODS, INC.
Entity Central Index Key	0000944508
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-30
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		19,827,000
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 2,159	$ 776
Accounts receivable, net of allowance for doubtful accounts of $108 and $120 at September 30, 2017 and December 31, 2016, respectively	8,834	8,941
Inventories	13,608	13,398
Other current assets	4,712	2,578
Current assets held for sale		66,821
Total current assets	29,313	92,514
Property and equipment, net of accumulated depreciation of $32,713 and $30,396 at September 30, 2017 and December 31, 2016, respectively	32,352	34,367
Goodwill	5,986	5,986
Trademarks	896	896
Other assets	797	785
Noncurrent assets held for sale		46,932
Total assets	69,344	181,480
Current liabilities:
Accounts payable	16,720	18,725
Accrued liabilities	4,596	6,190
Line of credit		32,761
Current portion of term debt	60,608	79,883
Current liabilities held for sale		16,576
Total current liabilities	81,924	154,135
Deferred income tax liability	1,959	1,376
Other liabilities	810	759
Noncurrent liabilities held for sale		1,521
Total liabilities	84,693	157,791
Commitments and contingencies (see Note 7)
Stockholders' equity:
Common stock, $.01 par value; 50,000 shares authorized; 20,194 and 20,040 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	202	200
Additional paid-in capital	37,109	35,721
Accumulated deficit	(52,189)	(11,761)
Total stockholders' equity before treasury stock	(14,878)	24,160
Less: treasury stock, at cost: 368 shares at September 30, 2017 and December 31, 2016	(471)	(471)
Total stockholders' equity	(15,349)	23,689
Total liabilities and stockholders' equity	$ 69,344	$ 181,480

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 108	$ 120
Property and equipment, net of accumulated depreciation	$ 32,713	$ 30,396
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	50,000	50,000
Common stock, shares issued	20,194	20,040
Common stock, shares outstanding	20,194	20,040
Treasury stock, shares	368	368

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 24, 2016	Sep. 30, 2017	Sep. 24, 2016
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net revenues	$ 27,428	$ 28,587	$ 84,248	$ 80,956
Cost of revenues	23,951	23,534	70,493	65,988
Gross profit	3,477	5,053	13,755	14,968
Operating expenses:
Selling, general and administrative expenses	7,100	6,706	20,156	18,678
Operating loss	(3,623)	(1,653)	(6,401)	(3,710)
Non-operating expense:
Interest expense	1,839	1,376	5,221	4,010
Loss from continuing operations before income tax expense	(5,462)	(3,029)	(11,622)	(7,720)
Income tax expense (benefit)	10	(1,298)	31	(2,783)
Net loss from continuing operations	(5,472)	(1,731)	(11,653)	(4,937)
Net income (loss) from discontinued operations	(19,900)	(833)	(28,775)	1,077
Net loss	$ (25,372)	$ (2,564)	$ (40,428)	$ (3,860)
Income (loss) per common share:
Basic loss from continuing operations (in dollars per share)	$ (0.28)	$ (0.09)	$ (0.59)	$ (0.25)
Basic income (loss) from discontinued operations (in dollars per share)	(1.00)	(0.04)	(1.46)	0.05
Basic loss (in dollars per share)	(1.28)	(0.13)	(2.05)	(0.20)
Diluted loss from continuing operations (In dollars per share)	(0.28)	(0.09)	(0.59)	(0.25)
Diluted income ( loss) from discontinued operations (in dollars per share)	(1.00)	(0.04)	(1.46)	0.05
Diluted loss (in dollars per share)	$ (1.28)	$ (0.13)	$ (2.05)	$ (0.20)
Weighted average number of common shares:
Basic (in shares)	19,790	19,671	19,735	19,634
Diluted (in shares)	19,790	19,671	19,735	19,634

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 24, 2016
Cash flows from operating activities:
Net loss	$ (40,428)	$ (3,860)
Net income (loss) from discontinued operations	(28,775)	1,077
Net loss from continuing operations	(11,653)	(4,937)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities:
Depreciation	2,340	2,351
Deferred financing fee amortization	1,360	1,030
Provision for bad debts	(12)	64
Deferred income taxes	583	(2,072)
Stock-based compensation expense	1,297	1,217
Gain on disposition of equipment	5
Changes in assets and liabilities:
Accounts receivable	(2,279)	(705)
Inventories	(211)	(1,826)
Other assets and liabilities	(2,095)	2,870
Accounts payable and accrued liabilities	383	(4,872)
Net cash used in operating activities - continuing operations	(10,282)	(6,880)
Net cash provided by operating activities - discontinued operations	12,060	13,193
Net cash provided by operating activities	1,778	6,313
Cash flows from investing activities:
Purchase of property and equipment	(749)	(8,549)
Net cash used in investing activities - continuing operations	(749)	(8,549)
Net cash provided by (used in) investing activities - discontinued operations	59,687	(3,458)
Net cash provided by (used in) investing activities	58,938	(12,007)
Cash flows from financing activities:
Net borrowings on Wells Fargo line of credit	(32,761)	5,680
Payments made on capital lease obligations	(14)	(15)
Borrowings on term loans	5,031	1,097
Repayments made on long term debt	(30,710)	(1,283)
Payment of loan financing fees	(579)	(1,107)
Proceeds from issuance of common stock under equity award plans		187
Payment of payroll taxes on stock-based compensation through shares withheld	(300)	(228)
Net cash provided by (used in) financing activities - continuing operations	(59,333)	4,331
Net cash provided by (used in) financing activities	(59,333)	4,331
Net increase (decrease) in cash and cash equivalents	1,383	(1,363)
Cash and cash equivalents at beginning of year period	776	2,319
Cash and cash equivalents at end of year period	2,159	956
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	6,431	6,090
Cash paid (refunded) during the period for income taxes	$ 61	$ (3,503)

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Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2017

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

1.Organization and Summary of Significant Accounting Policies

Inventure Foods, Inc., a Delaware corporation (referred to herein as the “Company,” “Inventure Foods,” “we,” “our” or “us”), is a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands with more than $269 million in annual net revenues for fiscal 2016.

On September 22, 2017, the Company sold certain assets, properties and rights related to its frozen fruits, vegetable blends and beverages, and frozen desserts business (the “Frozen Fruit Business”) of the Company and its wholly owned subsidiaries, Rader Farms, Inc. (“Rader”) and Willamette Valley Fruit Company (“Willamette”),  to Oregon Potato Company (“OPC”) pursuant to an Asset Purchase Agreement, dated as of September 8, 2017, by and among the Company, Rader, Willamette, and OPC ( the “OPC Purchase Agreement”).  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory (the “Frozen Fruit Asset Sale”).

We specialize in two primary product categories: healthy/natural food products and indulgent specialty snack products.  We sell our products nationally through a number of channels including: grocery stores, natural food stores, mass merchandisers, drug and convenience stores, club stores, value, vending, food service, industrial and international.  Our goal is to have a diversified portfolio of brands, products, customers and distribution channels.

In our healthy/natural food category, products include Boulder Canyon® brand kettle cooked potato chips, other snack and food items, private label healthy/natural snacks and, prior to September 22, 2017, all of the products included in the Frozen Fruit Asset Sale.

In our indulgent specialty snack food category, products include T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s Inc. (“T.G.I. Friday’s”), Nathan’s Famous® brand snack products under license from Nathan’s Famous Corporation, Vidalia® brand snack products under license from Vidalia Brands, Inc., Poore Brothers® brand kettle cooked potato chips, Bob’s Texas Style® brand kettle cooked chips, and Tato Skins® brand potato snacks.  We also manufacture private label snacks for certain grocery retail chains and co-pack products for other snack manufacturers.

Prior to the Frozen Fruit Asset Sale, we operated in two segments: frozen products and snack products.  In September 2017, the Company completed the Frozen Fruit Asset Sale, which consisted of the sale of our remaining operations of the frozen products segment. All products sold under our frozen products segment were considered part of the healthy/natural food category.   The frozen products segment included frozen fruits, fruit and vegetable blends, beverages, side dishes and desserts for sale primarily to grocery stores, club stores and mass merchandisers.  The snack products segment includes potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, popcorn and extruded products for sale primarily to snack food distributors and retailers. The products sold under our snack products segment include products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.

On September 22, 2017, we entered into a License and Distribution Agreement with OPC (the “OPC License Agreement”), pursuant to which the Company granted OPC an exclusive, revocable license to use certain Boulder Canyon Authentic Foods trademarks in connection with the manufacture, distribution, sale, advertising and promotion of conventional and organic frozen riced vegetable products and bowls consisting of fruit, vegetables and grains in agreed upon distribution channels, as set forth in the OPC License Agreement.  The OPC License Agreement has a term of three years and requires OPC to pay the Company a royalty of 3% of OPC’s Gross Sales (as defined in the OPC License Agreement) during the term of such agreement.

Following the Frozen Fruit Asset Sale, we operate manufacturing facilities in three locations.  Our snack products are manufactured at our Phoenix, Arizona and Bluffton, Indiana facilities, as well as select third-party facilities for certain products.

Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year.  Accordingly, the third quarter of fiscal 2017 commenced July 2, 2017 and ended September 30, 2017.

Strategic and Financial Review Process

In July 2016, we announced that our Board of Directors (“Board”) had commenced a strategic and financial review of the Company with the objective to increase shareholder value.  We engaged Rothschild Inc. to serve as our financial advisor and assist us in this process.

On March 23, 2017, the Company soldcertain  assets, properties and rights (the “Fresh Frozen Foods Business”) of our wholly owned subsidiary, Fresh Frozen Foods, Inc. (“Fresh Frozen Foods”), to The Pictsweet Company (“Pictsweet”) pursuant to an Asset Purchase Agreement, dated as of such date, among the Company, Fresh Frozen Foods and Pictsweet (the “Pictsweet Purchase Agreement”).  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory (the “Fresh Frozen Asset Sale”).  As consideration for the acquisition, Pictsweet paid the Company $23.7 million in cash.  The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, and were used to pay down amounts outstanding under the Credit Facilities (defined below).

On September 22, 2017, the Company sold the Frozen Fruit Business of the Company and its wholly owned subsidiaries, Rader and Willamette, to OPC pursuant to the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, and were used to repay in full the indebtedness under the ABL Credit Facility (defined below) and to pay down indebtedness under the Term Loan Credit Facility (defined below), as required under such Credit Facilities.  On September 22, 2017, $2.0 million of the net proceeds were held in escrow to be released upon final determination of the working capital adjustment. 

On October 25, 2017, the Company entered into an Agreement and Plan of Merger (the “Utz Merger Agreement”) with Utz Quality Foods, LLC, a Delaware limited liability company (“Utz”), and Heron Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).  Pursuant to the Utz Merger Agreement, and upon the terms and subject to the conditions described therein, Merger Sub will (and Utz will cause Merger Sub to) commence a tender offer (the “Offer”) to purchase any and all of the Company’s outstanding shares of common stock, par value $0.01 per share, at a price per share of $4.00, net to the seller in cash, without interest and subject to any required withholding of taxes.  Following the consummation of the Offer, subject to the satisfaction or waiver of certain customary conditions set forth in the Utz Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Utz (the “Utz Merger”).

Since entering into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives. There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms.

In determining to proceed with entering into the Utz Merger Agreement, the Company’s board of directors considered a number of factors, including the following:

· The Company has incurred recurring losses from operations in each of the quarterly periods since its voluntary product recall in April 2015 and its dependence on additional financing to fund its ongoing operations;

· The Company is currently operating under a limited waiver of certain covenants required by the lenders under its Term Loan Credit Facility, which waiver expires on January 15, 2018.  This waiver was granted by such lenders concurrently with the Company’s execution of the Utz Merger Agreement.  The prior waiver was due to expire on October 31, 2017;

· The Company has previously required six amendments and waivers to the Term Loan Credit Facility in consecutive periods dating back to March 2016, which were necessitated by the Company’s failure (or anticipated failure) to meet certain financial covenants (the “Prior Waivers”), and absent the Prior Waivers or amendments, the Company would have been in default under the BSP Credit Facility and would not have had sufficient liquidity to operate its business; and

· The fact that the Company has, despite thorough and extensive efforts, been unsuccessful in obtaining additional funding from private or public financing sources (including both debt and equity), and its limited financial resources greatly reduce its ability to continue operations and invest in its sales, research and development and other aspects of the Company’s business as needed.

Going Concern Uncertainty

We have incurred losses from operations in each of the quarterly periods since our voluntary product recall in April 2015 of certain varieties of the Company’s Fresh FrozenTM brand of frozen vegetables, as well as select varieties of our Jamba® “At Home” line of smoothie kits.  This fact, together with the projected near term outlook for our business and our inability to complete a strategic transaction (other than the Fresh Frozen Asset Sale and the Frozen Fruit Asset Sale) by the end of our fiscal year 2016 or that a transaction was imminent, raised substantial doubt about our ability to continue as a going concern as of the end of our 2016 fiscal year.  We reported this going concern conclusion in our 2016 Form 10-K filed with the SEC on March 31, 2017, together with the following specific conditions considered by management at such time in reaching such conclusion:

· Our five-year, $85.0 million term loan credit agreement with BSP Agency, LLC (“BSP”), as administrative agent, and the other lenders party thereto (the “BSP Lenders”) (with all related loan documents, and as amended from time to time, the “Term Loan Credit Facility”) required us to, among other things, comply with Total Leverage Ratio and Fixed Charge Coverage Ratio (each as defined in the Term Loan Credit Facility) covenants by the end of the second quarter of fiscal 2017 and a minimum EBITDA target covenant (the “EBITDA Covenant”) by the month ended April 30, 2017, which target we did not meet (the “EBITDA Covenant Default”).  As discussed below, we received temporary waivers of such default.  The Total Leverage Ratio, measured at the end of our second fiscal quarter in 2017 was required to be 4.25:1, and the Fixed Charge Coverage Ratio, measured at the end of our second fiscal quarter in 2017 for the four quarterly periods then ended, was required to be 1.1:1.  We previously reported that absent the completion of a strategic transaction yielding sufficient cash proceeds (in addition to the proceeds received from the Fresh Frozen Asset Sale in March 2017 and the Frozen Fruit Asset Sale in September 2017) to pay down debt, waivers or amendments by our lenders, or a refinancing of our debt, we would not be able to comply with these covenants when required to do so.  And we reported that the failure to meet these covenants would result in a default under such credit facility and, to the extent the applicable lenders so elected, an acceleration of the Company’s existing indebtedness, causing such debt of approximately $63.7 million at September 30, 2017 (including $2.3 million of other equipment financing indebtedness that includes cross-default provisions) to be immediately due and payable.  At such time the Company did not have, and does not currently have, sufficient liquidity to repay all of its outstanding debt in full if such debt were accelerated.

· Prior to the pay-off of our ABL Credit Facility (defined below) on September 22, 2017 with the proceeds from the Frozen Fruit Asset Sale, our five-year, $50.0 million revolving credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the other lenders party thereto (the “Wells Fargo Lenders”) (with all related loan documents, and as amended from time to time, the “ABL Credit Facility” and, together with the Term Loan Credit Facility, the “Credit Facilities”), required us to, among other things, comply with a Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility) if our liquidity as of the date of any determination was less than the greater of (i) 12.5% of the Maximum Revolver Amount and (ii) $6.125 million, subject to certain conditions.

· The Term Loan Credit Facility also required (and the previous ABL Credit Facility required) us to furnish our audited financial statements without a “going concern” uncertainty paragraph in the auditor’s opinion.  Our consolidated financial statements for the fiscal year ended December 31, 2016 in our 2016 Form 10-K contained a “going concern” explanatory paragraph.  Under the Credit Facilities, a going concern opinion with respect to our audited financial statements was (and is) an event of default (the “Going Concern Covenant Default”).  As of the date our 2016 Form 10-K was filed with the SEC, we had obtained temporary waivers of the Going Concern Covenant Default until May 15, 2017. 

· On May 10, 2017, we entered into a Limited Waiver and Third Amendment to the Credit Agreement with the BSP Lenders (the “Term Loan Third Amendment”).  Under the terms of the Term Loan Third Amendment, the BSP Lenders granted the Company (i) an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017, and (ii) a temporary waiver of the EBITDA Covenant Default until July 17, 2017. The Term Loan Third Amendment also required that the Company comply with the EBITDA Covenant commencing with the fiscal month ending June 30, 2017, measured over the 12-months then ended, and increased the Company’s prepayment fees in the event of a payment or prepayment of principal under the Term Loan Credit Facility (excluding regularly scheduled principal payments).

· On May 15, 2017, we entered into a First Amendment to Credit Agreement and Limited Waiver, effective as of May 12, 2017, with Wells Fargo and the Wells Fargo Lenders (the “ABL First Amendment”). Under the terms of the ABL First Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017.  In addition, the terms of the ABL First Amendment provided for, among other things, (i) an increase in the Company’s Applicable Margin for Base Rate and Libor Rate Loans (as such terms are defined in the ABL Credit Facility) effective May 1, 2017 by 100 basis points, (ii) additional financial and collateral reporting obligations and projection requirements, (iii) the immediate right of the Agent (as defined in the ABL Credit Agreement) or the Wells Fargo Lenders to exercise all rights and remedies under the ABL Credit Facility (in lieu of waiting until the earlier of ten business days after the date on which financial statements are required to be delivered for an applicable fiscal month), and (iv) the elimination of the right to issue curative equity.

· On July 17, 2017, we entered into a letter agreement with BSP and the BSP Lenders (the “BSP Letter Agreement”), pursuant to which the BSP Lenders granted the Company (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017, and (ii) a temporary waiver of the financial covenants the Company was required to comply with under the Term Loan Credit Facility (the “Term Loan Financial Covenant Default”) until July 24, 2017.

· On July 17, 2017, we also entered into a Second Amendment to Credit Agreement (the “ABL Second Amendment”) with Wells Fargo and the Wells Fargo Lenders. Under the terms of the ABL Second Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017.  In addition, the ABL Second Amendment provided for, among other things, additional reporting obligations, a reduced revolver commitment over a period of time ($49.0 million prior to the effective date of the ABL Second Amendment; $40.0 million from and after the ABL Second Amendment date through August 1, 2017; and $35.0 million from and after August 1, 2017), and adjusted advance rates.

· On July 20, 2017, we entered into a Limited Waiver and Fourth Amendment to Credit Agreement with BSP and the BSP Lenders (the “Term Loan Fourth Amendment”).  Under the terms of the Term Loan Fourth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until August 31, 2017.  In addition, the BSP Lenders agreed to provide $5.0 million of additional financing to the Company in the form of a term loan, payable in equal monthly installments of $12,500 commencing on September 30, 2017, with the balance due and payable on November 17, 2020, which is the maturity date of the Term Loan Credit Facility.  The net proceeds of this new $5.0 million loan were used for working capital purposes, subject to certain restrictions in the Term Loan Credit Facility, and is subject to the terms and conditions of the Term Loan Credit Facility.

· On July 20, 2017, we also entered into a Third Amendment to Credit Agreement (the “ABL Third Amendment”) with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017.

· On August 31, 2017, we entered into a Limited Waiver and Fifth Amendment to Credit Agreement with BSP, which further amended the Term Loan Credit Facility (the “Term Loan Fifth Amendment”).  Under the terms of the Term Loan Fifth Amendment the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until September 30, 2017.

· On August 31, 2017, we also entered into a Fourth Amendment to Credit Agreement (the “ABL Fourth Amendment”) with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017.

· On September 22, 2017, the net proceeds from Frozen Fruit Asset Sale were used to repay in full the indebtedness under the ABL Credit Facility, as required under such facility.

· On September 29, 2017, we entered into a Limited Waiver and Sixth Amendment to Credit Agreement with which further amended the Term Loan Credit Facility (the “Term Loan Sixth Amendment”).  Under the terms of the Term Loan Sixth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from September 30, 2017 to October 31, 2017, (ii) a temporary waiver of the Term Loan Financial Covenant Default until October 31, 2017, and (iii) amend certain other provisions of the Term Loan Credit Facility.

· On October 25, 2017, we entered into a Limited Waiver, Consent and Seventh Amendment to Credit Agreement with BSP, which further amended the Term Loan Credit Facility (the “Term Loan Seventh Amendment”).  Under the terms of the Term Loan Seventh Amendment, the BSP Lenders (i) agreed to a further extension of the temporary waiver of the Going Concern Covenant Default from October 31, 2017 to the Waiver Deadline (as defined below),  (ii) agreed to a temporary waiver of the Term Loan Financial Covenant Default until the Waiver Deadline, (iii) agreed to amend certain other provisions of the Term Loan Credit Facility, and (iv) consented to the Company’s entering into the Utz Merger Agreement and consummation of the Offer and the Utz Merger, provided that the net proceeds are applied to prepay in full the loans and all other amounts due under the Term Loan Credit Facility.  The Waiver Deadline is the earliest to occur of January 15, 2018, the occurrence of an event of default under the Term Loan Credit Facility and the termination of the Utz Merger Agreement.  In addition, the BSP Lenders agreed to provide the Company $5 million of additional financing in the form of a term loan, payable in equal monthly installments of $12,500, commencing on December 30, 2017, with the balance due and payable on December 29, 2020. The net proceeds of this new $5 million loan will be used for paying interest on outstanding indebtedness under the Term Loan Credit Facility and payment of trade payables in the ordinary course of business, subject to certain restrictions in the Term Loan Credit Facility.

Since we entered into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives.  There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms.  As a result, our liquidity and ability to timely pay our obligations when due could be adversely affected. 

The accompanying condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about our ability to continue as a going concern, other than the reclassification of certain long-term debt and the related debt issuance costs to current liabilities and current assets, respectively.

Our lenders may resist renegotiation or lengthening of payment and other terms through legal action or otherwise if we are unsuccessful in our efforts to complete a strategic transaction.  If we are not able to timely, successfully or efficiently implement the strategies that we are pursuing, we may need to seek voluntary protection under Chapter 11 of the U.S. Bankruptcy Code.

Basis of Presentation

The condensed consolidated financial statements for the fiscal quarter ended September 30, 2017 are unaudited and include the accounts of Inventure Foods and all of its wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. The condensed consolidated financial statements, including the December 31, 2016 consolidated balance sheet data which was derived from audited 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 (“GAAP”).  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 our accounting policies and other financial information is included in the audited financial statements filed with our 2016 Form 10-K. The results of operations for the fiscal quarter ended September 30, 2017 are not necessarily indicative of the results expected for the full year.  

Discontinued Operations

On March 23, 2017, the Company sold its Fresh Frozen Foods Business to Pictsweet pursuant to the Pictsweet Purchase Agreement.  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory.  As consideration for this acquisition, Pictsweet paid the Company $23.7 million in cash.  The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, which were used to pay down amounts outstanding under the Credit Facilities.  The results of operations for the Fresh Frozen Foods Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in the Fresh Frozen Asset Sale have been presented as held for sale as of December 31, 2016.  As required by the terms of the Pictsweet Purchase Agreement, we have changed the name of our Fresh Frozen Foods subsidiary from Fresh Frozen Foods, Inc. to Inventure – GA, Inc.

On September 22, 2017, the Company sold its Frozen Fruit Business to OPC pursuant the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, which were used to repay in full the indebtedness under the ABL Credit Facility and to pay down indebtedness under the Term Loan Credit Facility, as required under such Credit Facilities.  Also on September 22, 2017, $2.0 million of the net proceeds were placed in escrow to be released upon final determination of the working capital adjustment required under the OPC Purchase Agreement.  The results of operations for the Frozen Fruit Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in the Frozen Fruit Asset Sale have been presented as held for sale as of December 31, 2016.  As required by the terms of the OPC Purchase Agreement, we have changed the names of our Rader subsidiary to Inventure – WA, Inc. and our Willamette subsidiary to Inventure – OR, Inc.

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.  We classify our 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 measurement).  The three levels of the fair value hierarchy are described as follows:

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

Level 2Quoted 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 3Prices 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 September 30, 2017 and December 31, 2016, 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 term debt approximates fair value based on the borrowing rates currently available to us for long-term borrowings with similar terms.  The following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis  at the respective dates set forth below (in thousands):

		September 30, 2017				December 31, 2016
		Non-qualified				Non-qualified
		Deferred		Earn-out		Deferred		Earn-out
		Compensation		Contingent		Compensation		Contingent
		Plan		Consideration		Plan		Consideration
Balance Sheet Classification		Investments		Obligation		Investments		Obligation
Other assets	Level 1	$	742	$	—	$	650	$	—
Current liabilities held of sale	Level 3		—		—		—		(270)
Noncurrent liabilities held of sale	Level 3		—		—		—		(1,521)
		$	742	$	—	$	650	$	(1,791)

Considerable judgment is required in interpreting market data to develop the estimate of fair value of our assets and liabilities.  Accordingly, the estimate may not be indicative of the amounts that we 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.

The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets.

The earn-out consideration obligations relate to the acquisitions of Sin In A TinTM in September 2014 and Willamette in May 2013 and were assumed by OPC as part of the Frozen Fruit Asset Sale in September 2017.  Prior to the Frozen Fruit Asset Sale, the fair value measurement of the earn-out contingent consideration obligations were included in accrued liabilities and other long-term liabilities in the consolidated balance sheets.  The fair value measurement is based upon significant inputs not observable in the market.  Changes in the value of the obligation are recorded as income or expense in our consolidated statements of operations.  To determine the fair value, we valued the contingent consideration liability based on the expected probability weighted earn-out payments corresponding to the performance thresholds agreed to under the applicable purchase agreements.  The expected earn-out payments were then present valued by applying a discount rate that captures a market participants view of the risk associated with the expected earn-out payments. 

A summary of the activity of the fair value of the measurements using unobservable inputs (Level 3 liabilities) for the nine months ended September 30, 2017 is as follows (in thousands):

	Level 3
Balance at December 31, 2016	$	1,791
Earn-out compensation paid to Willamette		(230)
Earn-out compensation paid to Sin In A Tin		(9)
Contingent consideration assumed by OPC in Frozen Fruit Asset Sale		(1,552)
Balance at September 30, 2017	$	—

Income Taxes

Income tax expense was $10,000  for the fiscal quarter ended September 30, 2017, compared to a tax benefit of $1.3 million for the fiscal quarter ended September 24, 2016.  Our effective tax rate was (0.2)% and 42.9% for the fiscal quarters ended September 30, 2017 and September 24, 2016, respectively.

Income tax expense was $31,000 for the nine months ended September 30, 2017, compared to a tax benefit of $2.8 million for the nine months ended September 24, 2016.  Our effective tax rate was (0.3)% and 36.0% for the nine months ended September 30, 2017 and September 24, 2016, respectively.

Income tax expense for the fiscal quarter and nine months ended September 30, 2017 was impacted by the full valuation allowance which was initially recorded in the fourth quarter of 2016.  Therefore, income tax expenses was a result of certain state minimum taxes and deferred tax liabilities not subject to the valuation allowance.

Loss Per Common Share

Basic loss per common share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period.  Diluted loss per share is calculated by including all dilutive common shares, such as stock options and restricted stock.  Unvested restricted stock grants that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, require loss per share to be presented pursuant to the two-class method.  However, the application of this method would have no effect on basic and diluted loss per common share and is therefore not presented. 

For the fiscal quarter and nine months ended September 30, 2017, diluted loss per share is the same as basic loss per share, as the inclusion of potentially issuable Common Stock would be antidilutive. During the fiscal quarter and nine months ended September 30, 2017, 0.6 million shares of Common Stock underlying stock options and restricted stock units were not included in the computation of diluted earnings (loss) per share because inclusion of such shares would be antidilutive.  For the fiscal quarter and nine months ended September 24, 2016, 0.5 million shares of Common Stock underlying stock options and restricted stock units were not included in the computation of diluted earnings (loss) per share because inclusion of such shares would be antidilutive. Exercises of outstanding stock options are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be antidilutive. 

Loss per common share was computed as follows for the fiscal quarters and nine months ended September 30, 2017 and September 24, 2016 (in thousands, except per share data):

	Quarter Ended				Nine Months Ended
	September 30,		September 24,		September 30,		September 24,
	2017		2016		2017		2016
Basic Earnings (Loss) Per Share:
Net loss from continuing operations	$	(5,472)	$	(1,731)	$	(11,653)	$	(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Weighted average number of common shares		19,790		19,671		19,735		19,634
Loss per common share	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)
Diluted Earnings (Loss) Per Share:
Net loss from continuing operations	$	(5,472)	$	(1,731)	$	(11,653)	$	(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Weighted average number of common shares		19,790		19,671		19,735		19,634
Incremental shares from assumed conversions of stock options and non-vested shares of restricted stock		—		—		—		—
Adjusted weighted average number of common shares		19,790		19,671		19,735		19,634
Loss per common share	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)

Stock-Based Compensation

Compensation expense for restricted stock and stock option awards is adjusted for estimated attainment thresholds and forfeitures and is recognized on a straight-line basis over the requisite period of the award, which is currently one to five years.  We estimate future forfeiture rates based on our historical experience.

Compensation costs related to all stock-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 stock-based payment arrangements are classified as cash inflows from financing activities and cash outflows from operating activities.  See “Note 9 - Stockholders’ Equity” for additional information.

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standards updates (“ASU”) to the FASB’s Accounting Standards Codification.

We consider the applicability and impact of all ASUs.  ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

In May 2014, the FASB issued new guidance related to revenue recognition.  This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance.  The new revenue recognition standard provides a unified model to determine when and how revenue is recognized.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  This guidance will be effective at the beginning of our 2018 fiscal year and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  As of September 30, 2017, we have not evaluated the impact of this new accounting standard on our financial statements.

In July 2015, the FASB issued an ASU to simplify the measurement of inventory.  This ASU requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.”  This ASU is effective for reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted. We adopted this guidance in the first quarter of fiscal 2017, and it had no impact on our financial statements and disclosure.

In February 2016, the FASB issued new guidance related to accounting for leases. The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted.  As of September 30, 2017, we have not evaluated the impact of this new accounting standard on our financial statements.

In March 2016, the FASB issued an ASU intended to simplify various aspects of the accounting for share-based payments. Excess tax benefits for share-based payments will be recorded as a reduction of income taxes and reflected in operating cash flows upon the adoption of this ASU. Excess tax benefits are currently recorded in equity and as financing activity under the current rules. This guidance is effective for reporting periods beginning after December 15, 2016. We adopted this guidance in the first quarter of fiscal 2017, and the adoption did not have a material impact on our financial statements and disclosure.

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Discontinued Operations

9 Months Ended

Sep. 30, 2017

Discontinued Operations

Discontinued Operations

2.Discontinued Operations

On March 23, 2017, the Company sold its Fresh Frozen Foods Business, to Pictsweet pursuant to the Pictsweet Purchase Agreement.  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory.  As consideration for the acquisition, Pictsweet paid the Company $23.7 million in cash. The Fresh Frozen Foods Business was part of the Company’s frozen products segment.  The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, which were used to pay down amounts outstanding under the Credit Facilities.  As of December 31, 2016, total assets and total liabilities related to the Fresh Frozen Foods Business were $32.2 million and $2 million, respectively.  The activity included in discontinued operations in the fiscal quarter ended September 30, 2017, related to the changes in estimated accruals that were settled during the period. The results of operations for the Fresh Frozen Foods Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in Fresh Frozen Asset Sale have been presented as held for sale as of December 31, 2016.

The summary comparative financial results of the Fresh Frozen Foods Business, included within discontinued operations, were as follows (in thousands):

	Quarter Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Net revenues	$	—	$	10,388	$	8,734	$	34,529
Cost of revenues		5		9,051		8,606		33,091
Gross profit		(5)		1,337		128		1,438
Operating expenses:
Selling, general and administrative expenses		-		890		668		2,730
Operating income (loss)		(5)		447		(540)		(1,292)
Loss on sale of Fresh Frozen Foods		174		—		10,257		—
Interest expense, net		—		354		331		1,062
Income (loss) before income taxes		(179)		93		(11,128)		(2,354)
Income tax expense (benefit)		—		226		1,909		(786)
Net loss from discontinued operations	$	(179)	$	(133)	$	(13,037)	$	(1,568)

On September 22, 2017, the Company sold its Frozen Fruit Business to OPC pursuant the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, and were used to repay in full the indebtedness under the ABL Credit Facility and to pay down indebtedness under the Term Loan Credit Facility, as required under such Credit Facilities.  Also on the September 22, 2017, $2.0 million of the net proceeds were placed in escrow to be released upon final determination of the working capital adjustment required under the OPC Purchase Agreement.  The results of operations for the Frozen Fruit Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in Frozen Fruit Asset Sale have been presented as held for sale as of December 31, 2016.

The summary comparative financial results of the Frozen Fruit Business, included within discontinued operations, were as follows (in thousands):

	Quarter Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Net revenues	$	20,228	$	27,554	$	64,383	$	90,162
Cost of revenues		17,154		26,021		52,961		79,561
Gross profit		3,074		1,533		11,422		10,601
Operating expenses:
Selling, general and administrative expenses		1,115		1,592		3,983		4,383
Operating income (loss)		1,959		(59)		7,439		6,218
Loss on sale of Frozen Fruit Business		22,460		—		22,460		—
Interest expense, net		641		658		2,046		1,992
Income (loss) before income taxes		(21,142)		(717)		(17,067)		4,226
Income tax expense (benefit)		(1,421)		(17)		(1,329)		1,581
Net income (loss) from discontinued operations	$	(19,721)	$	(700)	$	(15,738)	$	2,645

The summary of the assets and liabilities of both the Fresh Frozen Foods Business and the Frozen Fruit Business that were included as assets and liabilities held for sale as of December 31. 2016, were as follows (in thousands):

	December 31,
	2016
Current assets:
Accounts receivable, net of allowance for doubtful accounts	$	7,394
Inventories		58,791
Other current assets		636
Total current assets held for sale	$	66,821
Property and equipment, net of accumulated depreciation		31,117
Goodwill		8,999
Trademarks and other intangibles, net		6,347
Other assets		469
Total noncurrent assets held for sale	$	46,932
Current liabilities:
Accounts payable	$	10,737
Accrued liabilities		3,342
Line of credit		—
Current portion of term debt		2,497
Total current liabilities held for sale	$	16,576
Other liabilities		1,521
Total noncurrent liabilities held of sale	$	1,521

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Inventories

9 Months Ended

Sep. 30, 2017

Inventories

Inventories

3.Inventories

Inventories consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Finished goods	$	4,685	$	4,345
Raw materials		8,923		9,053
Inventories	$	13,608	$	13,398

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Goodwill and Trademarks

9 Months Ended

Sep. 30, 2017

Goodwill and Trademarks

Goodwill and Trademarks

4.Goodwill and Trademarks

Goodwill and trademarks, consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Goodwill:
Goodwill - Inventure Foods	$	5,986	$	5,986
Trademarks:
Trademarks - Inventure Foods	$	896	$	896

 The trademarks are deemed to have an indefinite useful life because they are expected to generate cash flows indefinitely.  Goodwill and trademarks are reviewed for impairment annually in the fourth fiscal quarter, or more frequently if impairment indicators arise. We believe the carrying values of our goodwill and trademarks are not impaired as of September 30, 2017.

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Accrued Liabilities

9 Months Ended

Sep. 30, 2017

Accrued Liabilities.

Accrued Liabilities

5.Accrued Liabilities

Accrued liabilities consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Accrued payroll and payroll taxes	$	1,542	$	1,460
Accrued royalties and commissions		608		1,401
Accrued advertising and promotion		527		1,305
Accrued other		1,919		2,024
Accrued liabilities	$	4,596	$	6,190

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Term Debt and Line of Credit

9 Months Ended

Sep. 30, 2017

Term Debt and Line of Credit

Term Debt and Line of Credit

6.Term Debt and Line of Credit

ABL Credit Facility

On November 18, 2015, the Company entered into the ABL Credit Facility. The ABL Credit Facility provided for a five-year, $50.0 million senior secured revolving credit facility.  Borrowings under the ABL Credit Facility incurred interest, at the Company’s option, at a base rate or the London interbank offered rate (“LIBOR”) plus, in each case, an applicable margin.  The ABL Credit Facility was scheduled to mature on November 17, 2020.

Events of default under the ABL Credit Facility included customary events such as a cross-default provision with respect to other material debt.  The ABL Credit Facility required us to, among other things, comply with a Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility) if our liquidity as of the date of any determination is less than the greater of (i) 12.5% of the Maximum Revolver Amount and (ii) $6.125 million, subject to certain conditions.  

On May 15, 2017, the Company entered into the ABL First Amendment, pursuant to which the Wells Fargo Lenders granted the Company an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017.  In addition, the terms of the ABL First Amendment provided for, among other things, (i) an increase in the Company’s Applicable Margin for Base Rate and Libor Rate Loans (as such terms are defined in the ABL Credit Facility) effective May 1, 2017 by 100 basis points, (ii) additional financial and collateral reporting obligations and projection requirements, (iii) the immediate right of the Agent (as defined in the ABL Credit Agreement) or the Wells Fargo Lenders to exercise all rights and remedies under the ABL Credit Facility (in lieu of waiting until the earlier of ten business days after the date on which financial statements are required to be delivered for an applicable fiscal month), and (iv) the elimination of the right to issue curative equity.

On July 17, 2017, the Company entered into the ABL Second Amendment with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017.  In addition, the ABL Second Amendment provided for, among other things, additional reporting obligations, a reduced revolver commitment over a period of time ($49.0 million prior to the effective date of the ABL Second Amendment; $40.0 million from and after the ABL Second Amendment date through August 1, 2017; and $35.0 million from and after August 1, 2017), and adjusted advance rates.

On July 20, 2017, the Company entered into the ABL Third Amendment with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017. 

On August 31, 2017, we entered into the ABL Fourth Amendment with Wells Fargo and the Wells Fargo Lenders. Under the terms of the ABL Fourth Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017.

On September 22, 2017, in connection with the Frozen Fruit Asset Sale, the Company repaid in full the indebtedness under the ABL Credit Facility, as required under such facility.  As such, the ABL Credit Facility has been extinguished.

Term debt consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Term loan credit facility through November 2020	$	61,395	$	84,150
Equipment term loan, Goodyear, Arizona, due monthly through April 2021		2,308		2,759
Capital lease obligations, primarily due May 2022		12		21
Long-term debt		63,715		86,930
Less: deferred financing fees, net		(3,107)		(7,047)
Less: current portion of long-term debt		(60,608)		(79,883)
Long-term debt, less current portion	$	—	$	—

Term Loan Credit Facility

On November 18, 2015 and concurrent with the execution of the ABL Credit Facility, the Company entered into the Term Loan Credit Facility.  The Term Loan Credit Facility provided for a $85.0 million senior secured term loan that matures on November 17, 2020  The Term Loan Credit Facility also provided that, under certain conditions, we may increase the aggregate principal amount of term loans outstanding thereunder by up to $25.0 million.  Borrowings under the Term Loan Credit Facility bear interest, at the Company’s option, at a base rate or LIBOR plus, in each case, an applicable margin.

The Term Loan Credit Facility contains customary negative covenants and also requires the Company, together with its subsidiaries, to comply with a Fixed Charge Coverage Ratio and a Total Leverage Ratio. The first Fixed Charge Coverage Ratio and Total Leverage Ratio measurement period was the end of the first quarter of fiscal 2016.  On March 9, 2016, the Company entered into that certain First Amendment to Credit Agreement, with BSP, as administrative agent, and the BSP Lenders (the “Term Loan First Amendment”).  The Term Loan First Amendment amended the Term Loan Credit Facility to defer the Company’s obligation to comply with the Total Leverage Ratio until the end of the third quarter of fiscal 2016.

On September 27, 2016, the Company entered into that certain Second Amendment to Credit Agreement with BSP, as administrative agent, and the BSP Lenders (the “Term Loan Second Amendment”). The Term Loan Second Amendment deferred compliance with the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio covenants until the second quarter of fiscal 2017, required the Company to comply with the EBITDA Covenant commencing with the month ended April 30, 2017, and increased the Base Rate Margin and the Libor Rate Margin (each as defined in the Term Loan Credit Facility) thereunder by 100 basis points.  The Term Loan Second Amendment also amended the fees payable to the lenders in the event of prepayment and restricts the Company’s ability to raise Curative Equity (as defined in the Term Loan Second Amendment) until the fourth quarter of fiscal 2017.

We did not meet the EBITDA Covenant (the “EBITDA Covenant Default”) for the month ended April 30, 2017.  On May 10, 2017, the Company entered into the Term Loan Third Amendment, pursuant to which the lenders granted the Company (i) an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017, and (ii) a temporary waiver of the EBITDA Covenant Default, until July 17, 2017.  The Term Loan Third Amendment also required that the Company comply with the EBITDA Covenant commencing with the fiscal month ending June 30, 2017, measured over the 12-months then ended, and increased the Company’s prepayment fees in the event of a payment or prepayment of principal under the Term Loan Credit Facility (excluding regularly scheduled principal payments).

On July 17, 2017, the Company entered into the BSP Letter Agreement, pursuant to which the BSP Lenders granted the Company (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until July 24, 2017.

On July 20, 2017, the Company entered into the Term Loan Fourth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until August 31, 2017.  In addition, the BSP Lenders agreed to provide $5.0 million of additional financing to the Company in the form of a term loan, payable in equal monthly installments of $12,500 commencing on September 30, 2017, with the balance due and payable on November 17, 2020, which is the maturity date of the Term Loan Credit Facility.  The net proceeds of the $5.0 million loan were used for working capital purposes, subject to certain restrictions in the Term Loan Credit Facility, and is subject to the terms and conditions of the Term Loan Credit Facility.

On August 31, 2017, the Company entered into the Term Loan Fifth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until September 30, 2017.

On September 29, 2017, the Company entered into Term Loan Sixth Amendment, pursuant to which the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from September 30, 2017 to October 31, 2017, (ii) a temporary waiver of the Term Loan Financial Covenant Default until October 31, 2017, and (iii) amend certain other provisions of the Term loan Credit Facility.

On October 25, 2017, the Company entered into the Term Loan Seventh Amendment, pursuant to which the BSP Lenders (i) agreed to a further extension of the temporary waiver of the Going Concern Covenant Default from October 31, 2017 to the Waiver Deadline (as defined below), , (ii) agreed to a temporary waiver of the Term Loan Financial Covenant Default until the Waiver Deadline, (iii) agreed to amend certain other provisions of the Term Loan Credit Facility, and (iv) consented to the Company’s entering into the Utz Merger Agreement and consummation of the Offer and the Utz Merger, provided that the net proceeds are applied to prepay in full the loans and all other amounts due under the Term Loan Credit Facility. The Waiver Deadline is the earliest to occur of January 15, 2018, the occurrence of an event of default under the Term Loan Credit Facility and the termination of the Utz Merger Agreement.  In addition, the BSP Lenders agreed to provide the Company $5 million of additional financing in the form of a term loan, payable in equal monthly installments of $12,500, commencing on December 30, 2017, with the balance due and payable on December 29, 2020. The net proceeds of this new $5 million loan will be used for paying interest on outstanding indebtedness under the Term Loan Credit Facility and payment of trade payables in the ordinary course of business, subject to certain restrictions in the Term Loan Credit Facility,

Absent the Term Loan Seventh Amendment, the Going Concern Covenant Default would have been reinstated, and the Company would have been in default under the Term Loan Credit Facility as of the date this Form 10-Q was filed with the SEC.

Equipment Loans

In August 2015, we entered into an equipment term loan with Banc of America Leasing & Capital LLC for $3.1 million to finance new kettles and related equipment for our Goodyear, Arizona facility.  The equipment term loan accrues interest at a rate of 3.07% and will be repaid over 60 recurring monthly payments commencing May 2016. 

In August 2014, we entered into two separate equipment term loans with Banc of America Leasing & Capital LLC. One for $2.6 million to finance equipment to be used at the Company’s Rader Farms facility, and the other for $1.9 million to finance equipment to be used at Willamette.  Both of these equipment term loans accrue interest at a rate of 2.35% and will be repaid over 60 recurring monthly payments commencing September 15, 2014.  In connection with the Frozen Fruit Asset Sale, on September 22, 2017, the Company paid off all the outstanding balance of these two equipment term loans.

Debt Classification

In accordance with FASB Accounting Standard Codification (“ASC”) 470-10-45 on Debt Presentation, all of the Company’s outstanding debt has been reclassified in the accompanying condensed consolidated balance sheet as a current liability as of September 30, 2017 and December 31, 2016.  Absent the Term Loan Sixth Amendment, the Company would not have been in compliance with the Total Leverage Ratio and Fixed Charge Ratio covenants as of September 30, 2017.  Further, absent the Term Loan Seventh Amendment, the Company would not have been in compliance with the financial covenants under the Term Loan Credit Facility as of the date this Form 10-Q was filed with the SEC.  Unless we engage in a strategic transaction that enables us to pay down or refinance our debt, or we secure a waiver from our lenders or a further loan amendment to the Term Loan Credit Facility, we will not be in compliance with our financial covenants as of the Waiver Deadline (as required by the Term Loan Seventh Amendment).  As previously announced, the Company commenced a comprehensive strategic and financial review of the Company’s operations and engaged Rothschild Inc. to serve as its financial advisor to assist the Company in this process, including the pursuit of value-enhancing initiatives including, a sale of the Company, a sale of assets of the Company or other strategic business combination, or other capital structure optimization opportunities. Entry into the Utz Merger Agreement on October 25, 2017 is the result of this over 14 month long comprehensive strategic and financial review.  There can be no assurances that the transactions contemplated by the Utz Merger Agreement will be completed, or, if it is completed, that it will be on the terms currently contemplated in such Utz Merger Agreement.  A default under the Term Loan Credit Facility would trigger a default under certain of our equipment lease financing arrangements, as these facilities each contain cross-default provisions. As such, we classified all of our outstanding debt as a current liability.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2017

Commitments and Contingencies

Commitments and Contingencies

7.Commitments and Contingencies

Contractual

Our future contractual obligations consist principally of long-term debt, operating leases, minimum commitments regarding third-party warehouse operations services, forward purchase agreements and remaining minimum royalty payments due to licensors pursuant to brand licensing agreements. 

In order to mitigate the risks of volatility in commodity markets to which we are exposed, we have entered into forward purchase agreements with certain suppliers based on market prices, forward price projections and expected usage levels.  Our purchase commitments for certain ingredients, packaging materials and energy are generally less than 12 months.

Legal Proceedings

We are 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 our financial position or results of operations.

Litigation

On April 4, 2016, a purported class action captioned Westmoreland County Employee Retirement Fund (“Westmoreland”) v. Inventure Foods, Inc. et al., Case No. CV2016-002718, was filed in the Superior Court in Maricopa County, Arizona. Additional defendants are the Company’s Chief Executive Officer and Chief Financial Officer, and the underwriters of the secondary securities offering that closed September 14, 2014 (the “September 2014 Offering”).  The class action complaint, which was amended a second time on March 27, 2017, alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act and focuses on the conditions at the former frozen food facility in Jefferson, Georgia formerly owned by a subsidiary of the Company.  Westmoreland seeks certification as a class action, unspecified compensatory damages, rescission or a rescissory measure of damages, attorneys’ fees and costs, and other relief deemed appropriate by the court.  The Company, its Chief Executive Officer, its Chief Financial Officer and the September 2014 Offering underwriters have answered and moved to dismiss the second amended complaint. On August 8, 2017, the court granted in part and denied in part the motion to dismiss, which was converted to a motion for judgment on the pleadings.  The parties participated in a mediation on August 24, 2017, and continue to work with the mediator in an effort to explore possible settlement of the dispute.  A second case management conference was held with the court telephonically on October 17, 2017, at which time the Company, its Chief Executive Officer, and its Chief Financial Officer informed the court of their plan, if settlement is not reached, to file a motion to stay the action pending the U.S. Supreme Court’s decision in Cyan, Inc. v. Beaver County Retirement Fund, U.S. Supreme Court No. 15-1439.  This Supreme Court ruling will resolve a split among lower courts as to the appropriate subject matter jurisdiction and removability of cases asserting the Securities Act claims at issue in this lawsuit.  The court ordered defendants to file the motion to stay no later than October 30, 2017.  Plaintiffs’ response is due November 13, 2017, and oral argument will be held on November 17, 2017.  The Company intends to vigorously defend against the claims.

On November 10, 2016, the Center for Environmental Health (“CEH”), represented by Howard Hirsch of Lexington Law Group, filed a lawsuit against the Company under the California Safe Drinking Water and Toxic Enforcement Act (the “Act”).  CEH contends that the Company’s potato-based chip products contain amounts of acrylamide in excess of what is permitted under the Act.  Two customers of the Company, Bristol Farms and Vistar/Performance Food Group, have, demanded indemnity in relation to the litigation.  The Company has answered the complaint and intends to vigorously defend the lawsuit.

On November 14, 2016, Michelle Blair (represented by Matthew Armstrong of Armstrong Law Firm LLC and Stuart Cochran of Cochran Law PLLC) filed a putative class action against the Company in St. Louis City Circuit Court.  Ms. Blair purports to represent a class of consumers who purchased one of nine Boulder Canyon® brand products listing “evaporated cane juice” as an ingredient.  Ms. Blair contends that the use of “evaporated cane juice” was misleading because evaporated cane juice is sugar.  In the complaint, Ms. Blair advances claims for violation of Missouri’s Merchandising Practices Act, Mo. Rev. Stat. § 407.020, et seq. and 15 C.S.R. 60-8.020, et seq., and unjust enrichment.  On February 3, 2017, the Company removed the action to the Eastern District of Missouri. Plaintiff dismissed the removed action without prejudice and refiled a substantially similar complaint in the Southern District of Illinois. The new complaint is brought by Ms. Blair and a new plaintiff, Shannah Burton, and asserts a nationwide putative class, as well as a putative class of Illinois and Missouri purchasers. Ms. Burton alleges claims under the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat. Ann. 505/2, et seq. Both plaintiffs also assert claims for unjust enrichment and breach of express warranty. On April 24, 2017, the Company filed a motion to dismiss the complaint. On October 17, 2017, the parties entered into a Confidential Settlement Agreement and Release, pursuant to which the plaintiffs will move to dismiss their complaint with prejudice.

On March 9, 2017, a verified stockholder derivative complaint was filed under seal in the U.S. District Court for the District of Arizona.  The case has since been unsealed and is captioned  Robert Hutton Derivatively on Behalf of Inventure Foods, Inc. v.  Terry McDaniel et al., Case No. 2:17-cv-00727.  The named defendants include certain of the Company’s current and former officers and directors —Terry McDaniel, Steve Weinberger, Timothy A. Cole, Ashton D. Asensio, Macon Bryce Edmonson, Paul J. Lapadat, Harold S. Edwards, David I. Meyers, and Itzhak Reichman.  The lawsuit also names the Company as a nominal defendant.  The complaint focuses on the conditions at the Company’s former frozen food facility in Jefferson, Georgia and the Company’s 2015 and 2016 proxy statements.  The plaintiff purports to derivatively assert on behalf of the Company claims for alleged violation of Section 14(a) of the Exchange Act, breach of fiduciary duty, waste of corporate assets and unjust enrichment.  According to the complaint, the plaintiff seeks an unspecified award of actual or compensatory damages in favor of the Company; an order directing the Company to take certain actions concerning its corporate governance and internal procedures, including putting forward certain proposals concerning its corporate governance policies and amendments to the Company’s Bylaws and Certificate of Incorporation for a stockholder vote; an award of extraordinary equitable and/or injunctive relief concerning the defendants’ trading activities or their assets; restitution from defendants to Inventure Foods consisting of a disgorgement of all profits, benefits and other compensation obtained by defendants; costs and disbursements of the action, including attorneys, accountant and experts’ fees, costs and expenses; and other and further relief as the court deems just and proper. The defendants have moved to dismiss the complaint or, in the alternative, stay the matter pending resolution of the putative class action brought by Westmoreland (identified above) is resolved. The court granted the motion to dismiss on August 28, 2017.  Hutton filed an amended complaint, which the defendants have moved to dismiss. The defendants intend to vigorously defend the lawsuit.

On March 27, 2017, a putative securities class action was filed by Glenn Schoenfeld in the U.S. District Court for the District of Arizona, Case No. 2:17-cv-00910, against the Company, its Chief Executive Officer, and its Chief Financial Officer (the “Schoenfeld Lawsuit”). On April 27, 2017, John Robinson filed a putative securities class action in the U.S. District Court for the District of Arizona, Case No. 2:17-cv-01258, against the Company, its Chief Executive Officer, and its Chief Financial Officer (the “Robinson Lawsuit”).  On June 23, 2017, the court consolidated the Robinson Lawsuit with the Schoenfeld Lawsuit, and the caption was changed to In re Inventure Foods, Inc. Securities Litigation, Case No. 2:17-cv-0910.  On June 27, 2017, the court appointed lead plaintiffs and lead counsel.  Lead plaintiffs’ consolidated amended complaint is due August 26, 2017. The original complaints in the Schoenfeld Lawsuit and Robinson Lawsuit were  purportedly filed on behalf of all persons and entities that acquired the Company’s securities between March 3, 2016 and March 16, 2017, and asserted claims for alleged violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and focused on the Company’s internal controls over accounting and financial reporting, its statements of operations for fiscal year 2015, and public statements in press releases and SEC filings between March 3, 2016 and March 16, 2017.  Mr. Schoenfeld sought certification as a class action, unspecified compensatory damages, attorneys’ fees, costs and expenses incurred in the action, and other relief deemed appropriate by the court.  Mr. Robinson sought certification as a class action, unspecified damages, prejudgment and post-judgment interest, reasonable attorneys’ fees, expert fees and other costs, and such other and further relief as the court may deem just and proper.  In lieu of lead plaintiffs filing their consolidated amended complaint, on August 28, 2017, the parties jointly filed a stipulated motion for dismissal of the entire consolidated action with the Company, its Chief Executive Officer and its Chief Financial Officer, agreeing not to pursue any claims for attorneys’ fees and costs against lead plaintiffs in exchange for lead plaintiffs’ dismissing their claims with prejudice.  The original plaintiffs in the Schoenfeld Lawsuit and Robinson Lawsuit did not oppose dismissal of the entire consolidated action.  On September 13, 2017, the court granted the parties stipulated motion for dismissal and entered an order dismissing the entire consolidated case with prejudice as to lead plaintiffs, but without prejudice as to all other putative class members. 

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Business Segments

9 Months Ended

Sep. 30, 2017

Business Segments and Significant Customers

Business Segments and Significant Customers

8.Business Segments

Prior to the Frozen Fruit Asset Sale, our operations consisted of two reportable segments: frozen products and snack products.  The frozen products segment included frozen fruits, fruit and vegetable blends, beverages, side dishes and desserts for sale primarily to grocery stores, club stores and mass merchandisers.  The snack products segment produces potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, popcorn and extruded products for sale primarily to snack food distributors and retailers.  Our reportable segments offer different products and services.  The majority of our revenues are attributable to external customers in the United States.  We also sell to external customers internationally. However, the revenues attributable to such customers are immaterial.  All of our assets are located in the United States.

All products sold under our frozen products segment are considered part of the healthy/natural food category.  The products sold under our snack products segment include products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.

In September 2017, the Company completed the Frozen Fruit Asset Sale, which consisted of the sale of the remaining operations of our frozen products segment. Therefore, the results of the frozen products segment have been reflected as discontinued operations for all periods presented.

For the fiscal quarters ended September 30, 2017 and September 24, 2016, net revenues of our healthy/natural food category totaled $18.4 million and $19.4 million, respectively. For the fiscal quarters ended September 30, 2017 and September 24, 2016, net revenues of our indulgent specialty snack food category totaled $9.0 million and $9.2 million, respectively.

For the nine months ended September 30, 2017 and September 24, 2016, net revenues of our healthy/natural food category totaled $56.2 million and $52.0 million, respectively.  For the nine months ended September 30, 2017 and September 24, 2016, net revenues of our indulgent specialty snack food category totaled $28.1 million and $29.0 million, respectively.

Indulgent specialty snacks includes T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s, Nathan’s Famous® brand snack products under license from Nathan’s Famous Corporation, Vidalia® brand snack products under license from Vidalia Brands, Inc., Poore Brothers® brand kettle cooked potato chips, Bob’s Texas Style® brand kettle cooked chips, and Tato Skins® brand potato snacks. Healthy/natural snacks includes Boulder Canyon® brand kettle cooked potato chips, other snack and food items and private label healthy/natural snacks.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2017

Stockholders' Equity

Stockholders' Equity

9.Stockholders’ Equity

The Company’s 2015 Equity Incentive Plan (the “2015 Plan”) was approved at our 2015 annual meeting of stockholders. Under the 2015 Plan, we are authorized to issue up to 1,400,560 shares of our Common Stock, which number may be increased by up to 250,000 shares subject to any option or award outstanding under the Amended and Restated 2005 Equity Incentive Plan that are canceled or forfeited for any reason.  If any shares of our Common Stock subject to awards granted under the 2015 Plan are canceled, those shares will be available for future awards under such plan.   Awards granted under the 2015 Plan may include: nonqualified stock options, incentive stock options, restricted stock, restricted stock units, performance shares, performance units, and other stock-based awards and cash-based awards.  The 2015 Plan has a term of ten years and expires in May 2025.  As of September 30, 2017, there were 577,375 shares of Common Stock available for awards under the 2015 Plan.

Restricted Common Stock

We have issued shares of restricted Common Stock in the form of restricted stock awards and restricted stock units as incentives to certain employees, officers and members of our Board.  Restricted stock awards and restricted stock units granted to members of the Board are granted with a one-year service period.  Restricted stock awards and restricted stock units granted to the Company’s officers vest over three years and typically contain performance conditions that are required to be achieved over a three-year measurement period in order for the shares to be released.  The number of performance-based restricted stock awards and units that ultimately vest depend on whether we achieve certain financial results.  Restricted stock units granted to non-officer employees generally vest over three or five years.  We record compensation expense each period based on (i) the market price of our Common Stock at the time of grant, and (ii) for performance-based restricted stock awards and units, our estimate of the most probable number of shares that will ultimately be released.  The related stock-based compensation expense is included in selling, general and administrative expenses.  Additionally, the compensation expense is adjusted for our estimate of forfeitures.  Recipients of restricted stock awards are entitled to receive any dividends declared on our Common Stock and have voting rights, regardless of whether such shares have vested.  Recipients of restricted stock units have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of Common Stock are issued in settlement of such awards.

During the fiscal quarters ended September 30, 2017 and September 24, 2016, the total stock-based compensation expense from restricted Common Stock recognized in the continuing operations was $0.5 million and $0.3 million, respectively. During the nine months ended September 30, 2017 and September 24, 2016, the total stock-based compensation expense from restricted common stock recognized in continuing operations was $1.2 million and $1.1 million, respectively. There was no stock-based compensation costs capitalized. 

The following table summarizes activities related to restricted stock awards for the nine months ended September 30, 2017:

		Weighted
		Average Grant
	Number	Date Fair Value
Nonvested balance at December 31, 2016	8,333	$	12.78
Granted	—	$	—
Vested and released	(8,333)	$	12.78
Forfeited	—	$	—
Nonvested balance at September 30, 2017	—	$	—

As of September 30, 2017, there was no unrecognized costs related to non-vested restricted stock awards.

The following table summarizes activities related to restricted stock units for the nine months ended September 30, 2017:

		Weighted
		Average Grant
	Number	Date Fair Value
Nonvested balance at December 31, 2016	541,346	$	8.40
Granted	485,554	$	4.05
Vested and released	(222,324)	$	8.18
Forfeited	(39,208)	$	10.26
Nonvested balance at September 30, 2017	765,368	$	5.61

As of September 30, 2017, the total unrecognized costs related to non-vested restricted stock units was $2.6 million, which is expected to be recognized over a weighted average period of 1.8 years.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future. 

Stock Options

Stock-based compensation expense from stock options recognized in continuing operations totaled $0.1 million and $0.1 million for the fiscal quarters and nine months ended September 30, 2017 and September 24, 2016, respectively.  There was no stock-based compensation costs capitalized.

The following table summarizes stock option activity during the nine months ended September 30, 2017:

				Aggregate		Weighted Average
		Weighted		Intrinsic Value		Remaining
	Options	Average		(in-the-money		Contractual Life
	Outstanding	Exercise Price		options)		(in years)
Outstanding at December 31, 2016	567,602	$	5.23
Granted	—	$	—
Exercised	—	$	—
Forfeited or expired	(16,780)	$	10.90
Outstanding at September 30, 2017	550,822	$	5.06	$	587,207	3.58

As of September 30, 2017, the total unrecognized costs related to non-vested stock options granted were $0.1 million.  We expect to recognize such costs in the financial statements over a weighted average period of 0.9 years.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future. 

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the closing price of $4.69 of our Common Stock as of September 30, 2017, which would have been received by the option holders had all option holders exercised options and sold the underlying shares on that date.  The intrinsic value related to vested stock options outstanding was $0.5 million as of September 30, 2017 based on the exercise price and closing price of $4.69 of our Common Stock as of September 30, 2017.

The following table summarizes information about stock options outstanding and exercisable at September 30, 2017:

						Weighted
						Average
						Remaining	Weighted			Weighted
						Contractual	Average			Average
Range of					Options	Life	Exercise		Options	Exercise
Exercise Prices					Outstanding	(in years)	Price		Exercisable	Price
$	1.70	-	$	1.86	138,600	1.0	$	1.75	138,600	$	1.75
$	2.4	-	$	4.16	156,450	2.9	$	3.55	156,450	$	3.55
$	4.28	-	$	7.21	213,400	5.2	$	6.88	191,300	$	6.84
$	7.61	-	$	13.21	42,372	6.6	$	12.30	31,372	$	12.29
					550,822	3.8	$	5.06	517,722	$	4.81

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 service period, generally five years for employees and one year for members of the Board.  In May 2008, our Board approved a 10-year term for all future stock option grants, with service periods of five years for employees and one year for members of the Board.  We issue new shares upon the exercise of stock options, as opposed to reissuing treasury shares.

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Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Organization and Summary of Significant Accounting Policies

Description of Business

Inventure Foods, Inc., a Delaware corporation (referred to herein as the “Company,” “Inventure Foods,” “we,” “our” or “us”), is a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands with more than $269 million in annual net revenues for fiscal 2016.

On September 22, 2017, the Company sold certain assets, properties and rights related to its frozen fruits, vegetable blends and beverages, and frozen desserts business (the “Frozen Fruit Business”) of the Company and its wholly owned subsidiaries, Rader Farms, Inc. (“Rader”) and Willamette Valley Fruit Company (“Willamette”),  to Oregon Potato Company (“OPC”) pursuant to an Asset Purchase Agreement, dated as of September 8, 2017, by and among the Company, Rader, Willamette, and OPC ( the “OPC Purchase Agreement”).  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory (the “Frozen Fruit Asset Sale”).

We specialize in two primary product categories: healthy/natural food products and indulgent specialty snack products.  We sell our products nationally through a number of channels including: grocery stores, natural food stores, mass merchandisers, drug and convenience stores, club stores, value, vending, food service, industrial and international.  Our goal is to have a diversified portfolio of brands, products, customers and distribution channels.

In our healthy/natural food category, products include Boulder Canyon® brand kettle cooked potato chips, other snack and food items, private label healthy/natural snacks and, prior to September 22, 2017, all of the products included in the Frozen Fruit Asset Sale.

In our indulgent specialty snack food category, products include T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s Inc. (“T.G.I. Friday’s”), Nathan’s Famous® brand snack products under license from Nathan’s Famous Corporation, Vidalia® brand snack products under license from Vidalia Brands, Inc., Poore Brothers® brand kettle cooked potato chips, Bob’s Texas Style® brand kettle cooked chips, and Tato Skins® brand potato snacks.  We also manufacture private label snacks for certain grocery retail chains and co-pack products for other snack manufacturers.

Prior to the Frozen Fruit Asset Sale, we operated in two segments: frozen products and snack products.  In September 2017, the Company completed the Frozen Fruit Asset Sale, which consisted of the sale of our remaining operations of the frozen products segment. All products sold under our frozen products segment were considered part of the healthy/natural food category.   The frozen products segment included frozen fruits, fruit and vegetable blends, beverages, side dishes and desserts for sale primarily to grocery stores, club stores and mass merchandisers.  The snack products segment includes potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, popcorn and extruded products for sale primarily to snack food distributors and retailers. The products sold under our snack products segment include products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.

On September 22, 2017, we entered into a License and Distribution Agreement with OPC (the “OPC License Agreement”), pursuant to which the Company granted OPC an exclusive, revocable license to use certain Boulder Canyon Authentic Foods trademarks in connection with the manufacture, distribution, sale, advertising and promotion of conventional and organic frozen riced vegetable products and bowls consisting of fruit, vegetables and grains in agreed upon distribution channels, as set forth in the OPC License Agreement.  The OPC License Agreement has a term of three years and requires OPC to pay the Company a royalty of 3% of OPC’s Gross Sales (as defined in the OPC License Agreement) during the term of such agreement.

Following the Frozen Fruit Asset Sale, we operate manufacturing facilities in three locations.  Our snack products are manufactured at our Phoenix, Arizona and Bluffton, Indiana facilities, as well as select third-party facilities for certain products.

Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year.  Accordingly, the third quarter of fiscal 2017 commenced July 2, 2017 and ended September 30, 2017.

Strategic and Financial Review Process

Strategic and Financial Review Process

In July 2016, we announced that our Board of Directors (“Board”) had commenced a strategic and financial review of the Company with the objective to increase shareholder value.  We engaged Rothschild Inc. to serve as our financial advisor and assist us in this process.

On March 23, 2017, the Company soldcertain  assets, properties and rights (the “Fresh Frozen Foods Business”) of our wholly owned subsidiary, Fresh Frozen Foods, Inc. (“Fresh Frozen Foods”), to The Pictsweet Company (“Pictsweet”) pursuant to an Asset Purchase Agreement, dated as of such date, among the Company, Fresh Frozen Foods and Pictsweet (the “Pictsweet Purchase Agreement”).  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory (the “Fresh Frozen Asset Sale”).  As consideration for the acquisition, Pictsweet paid the Company $23.7 million in cash.  The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, and were used to pay down amounts outstanding under the Credit Facilities (defined below).

On September 22, 2017, the Company sold the Frozen Fruit Business of the Company and its wholly owned subsidiaries, Rader and Willamette, to OPC pursuant to the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, and were used to repay in full the indebtedness under the ABL Credit Facility (defined below) and to pay down indebtedness under the Term Loan Credit Facility (defined below), as required under such Credit Facilities.  On September 22, 2017, $2.0 million of the net proceeds were held in escrow to be released upon final determination of the working capital adjustment. 

On October 25, 2017, the Company entered into an Agreement and Plan of Merger (the “Utz Merger Agreement”) with Utz Quality Foods, LLC, a Delaware limited liability company (“Utz”), and Heron Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).  Pursuant to the Utz Merger Agreement, and upon the terms and subject to the conditions described therein, Merger Sub will (and Utz will cause Merger Sub to) commence a tender offer (the “Offer”) to purchase any and all of the Company’s outstanding shares of common stock, par value $0.01 per share, at a price per share of $4.00, net to the seller in cash, without interest and subject to any required withholding of taxes.  Following the consummation of the Offer, subject to the satisfaction or waiver of certain customary conditions set forth in the Utz Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Utz (the “Utz Merger”).

Since entering into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives. There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms.

In determining to proceed with entering into the Utz Merger Agreement, the Company’s board of directors considered a number of factors, including the following:

· The Company has incurred recurring losses from operations in each of the quarterly periods since its voluntary product recall in April 2015 and its dependence on additional financing to fund its ongoing operations;

· The Company is currently operating under a limited waiver of certain covenants required by the lenders under its Term Loan Credit Facility, which waiver expires on January 15, 2018.  This waiver was granted by such lenders concurrently with the Company’s execution of the Utz Merger Agreement.  The prior waiver was due to expire on October 31, 2017;

· The Company has previously required six amendments and waivers to the Term Loan Credit Facility in consecutive periods dating back to March 2016, which were necessitated by the Company’s failure (or anticipated failure) to meet certain financial covenants (the “Prior Waivers”), and absent the Prior Waivers or amendments, the Company would have been in default under the BSP Credit Facility and would not have had sufficient liquidity to operate its business; and

· The fact that the Company has, despite thorough and extensive efforts, been unsuccessful in obtaining additional funding from private or public financing sources (including both debt and equity), and its limited financial resources greatly reduce its ability to continue operations and invest in its sales, research and development and other aspects of the Company’s business as needed.

Going Concern Uncertainty

Going Concern Uncertainty

We have incurred losses from operations in each of the quarterly periods since our voluntary product recall in April 2015 of certain varieties of the Company’s Fresh FrozenTM brand of frozen vegetables, as well as select varieties of our Jamba® “At Home” line of smoothie kits.  This fact, together with the projected near term outlook for our business and our inability to complete a strategic transaction (other than the Fresh Frozen Asset Sale and the Frozen Fruit Asset Sale) by the end of our fiscal year 2016 or that a transaction was imminent, raised substantial doubt about our ability to continue as a going concern as of the end of our 2016 fiscal year.  We reported this going concern conclusion in our 2016 Form 10-K filed with the SEC on March 31, 2017, together with the following specific conditions considered by management at such time in reaching such conclusion:

· Our five-year, $85.0 million term loan credit agreement with BSP Agency, LLC (“BSP”), as administrative agent, and the other lenders party thereto (the “BSP Lenders”) (with all related loan documents, and as amended from time to time, the “Term Loan Credit Facility”) required us to, among other things, comply with Total Leverage Ratio and Fixed Charge Coverage Ratio (each as defined in the Term Loan Credit Facility) covenants by the end of the second quarter of fiscal 2017 and a minimum EBITDA target covenant (the “EBITDA Covenant”) by the month ended April 30, 2017, which target we did not meet (the “EBITDA Covenant Default”).  As discussed below, we received temporary waivers of such default.  The Total Leverage Ratio, measured at the end of our second fiscal quarter in 2017 was required to be 4.25:1, and the Fixed Charge Coverage Ratio, measured at the end of our second fiscal quarter in 2017 for the four quarterly periods then ended, was required to be 1.1:1.  We previously reported that absent the completion of a strategic transaction yielding sufficient cash proceeds (in addition to the proceeds received from the Fresh Frozen Asset Sale in March 2017 and the Frozen Fruit Asset Sale in September 2017) to pay down debt, waivers or amendments by our lenders, or a refinancing of our debt, we would not be able to comply with these covenants when required to do so.  And we reported that the failure to meet these covenants would result in a default under such credit facility and, to the extent the applicable lenders so elected, an acceleration of the Company’s existing indebtedness, causing such debt of approximately $63.7 million at September 30, 2017 (including $2.3 million of other equipment financing indebtedness that includes cross-default provisions) to be immediately due and payable.  At such time the Company did not have, and does not currently have, sufficient liquidity to repay all of its outstanding debt in full if such debt were accelerated.

· Prior to the pay-off of our ABL Credit Facility (defined below) on September 22, 2017 with the proceeds from the Frozen Fruit Asset Sale, our five-year, $50.0 million revolving credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the other lenders party thereto (the “Wells Fargo Lenders”) (with all related loan documents, and as amended from time to time, the “ABL Credit Facility” and, together with the Term Loan Credit Facility, the “Credit Facilities”), required us to, among other things, comply with a Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility) if our liquidity as of the date of any determination was less than the greater of (i) 12.5% of the Maximum Revolver Amount and (ii) $6.125 million, subject to certain conditions.

· The Term Loan Credit Facility also required (and the previous ABL Credit Facility required) us to furnish our audited financial statements without a “going concern” uncertainty paragraph in the auditor’s opinion.  Our consolidated financial statements for the fiscal year ended December 31, 2016 in our 2016 Form 10-K contained a “going concern” explanatory paragraph.  Under the Credit Facilities, a going concern opinion with respect to our audited financial statements was (and is) an event of default (the “Going Concern Covenant Default”).  As of the date our 2016 Form 10-K was filed with the SEC, we had obtained temporary waivers of the Going Concern Covenant Default until May 15, 2017. 

· On May 10, 2017, we entered into a Limited Waiver and Third Amendment to the Credit Agreement with the BSP Lenders (the “Term Loan Third Amendment”).  Under the terms of the Term Loan Third Amendment, the BSP Lenders granted the Company (i) an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017, and (ii) a temporary waiver of the EBITDA Covenant Default until July 17, 2017. The Term Loan Third Amendment also required that the Company comply with the EBITDA Covenant commencing with the fiscal month ending June 30, 2017, measured over the 12-months then ended, and increased the Company’s prepayment fees in the event of a payment or prepayment of principal under the Term Loan Credit Facility (excluding regularly scheduled principal payments).

· On May 15, 2017, we entered into a First Amendment to Credit Agreement and Limited Waiver, effective as of May 12, 2017, with Wells Fargo and the Wells Fargo Lenders (the “ABL First Amendment”). Under the terms of the ABL First Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017.  In addition, the terms of the ABL First Amendment provided for, among other things, (i) an increase in the Company’s Applicable Margin for Base Rate and Libor Rate Loans (as such terms are defined in the ABL Credit Facility) effective May 1, 2017 by 100 basis points, (ii) additional financial and collateral reporting obligations and projection requirements, (iii) the immediate right of the Agent (as defined in the ABL Credit Agreement) or the Wells Fargo Lenders to exercise all rights and remedies under the ABL Credit Facility (in lieu of waiting until the earlier of ten business days after the date on which financial statements are required to be delivered for an applicable fiscal month), and (iv) the elimination of the right to issue curative equity.

· On July 17, 2017, we entered into a letter agreement with BSP and the BSP Lenders (the “BSP Letter Agreement”), pursuant to which the BSP Lenders granted the Company (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017, and (ii) a temporary waiver of the financial covenants the Company was required to comply with under the Term Loan Credit Facility (the “Term Loan Financial Covenant Default”) until July 24, 2017.

· On July 17, 2017, we also entered into a Second Amendment to Credit Agreement (the “ABL Second Amendment”) with Wells Fargo and the Wells Fargo Lenders. Under the terms of the ABL Second Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017.  In addition, the ABL Second Amendment provided for, among other things, additional reporting obligations, a reduced revolver commitment over a period of time ($49.0 million prior to the effective date of the ABL Second Amendment; $40.0 million from and after the ABL Second Amendment date through August 1, 2017; and $35.0 million from and after August 1, 2017), and adjusted advance rates.

· On July 20, 2017, we entered into a Limited Waiver and Fourth Amendment to Credit Agreement with BSP and the BSP Lenders (the “Term Loan Fourth Amendment”).  Under the terms of the Term Loan Fourth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until August 31, 2017.  In addition, the BSP Lenders agreed to provide $5.0 million of additional financing to the Company in the form of a term loan, payable in equal monthly installments of $12,500 commencing on September 30, 2017, with the balance due and payable on November 17, 2020, which is the maturity date of the Term Loan Credit Facility.  The net proceeds of this new $5.0 million loan were used for working capital purposes, subject to certain restrictions in the Term Loan Credit Facility, and is subject to the terms and conditions of the Term Loan Credit Facility.

· On July 20, 2017, we also entered into a Third Amendment to Credit Agreement (the “ABL Third Amendment”) with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017.

· On August 31, 2017, we entered into a Limited Waiver and Fifth Amendment to Credit Agreement with BSP, which further amended the Term Loan Credit Facility (the “Term Loan Fifth Amendment”).  Under the terms of the Term Loan Fifth Amendment the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until September 30, 2017.

· On August 31, 2017, we also entered into a Fourth Amendment to Credit Agreement (the “ABL Fourth Amendment”) with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017.

· On September 22, 2017, the net proceeds from Frozen Fruit Asset Sale were used to repay in full the indebtedness under the ABL Credit Facility, as required under such facility.

· On September 29, 2017, we entered into a Limited Waiver and Sixth Amendment to Credit Agreement with which further amended the Term Loan Credit Facility (the “Term Loan Sixth Amendment”).  Under the terms of the Term Loan Sixth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from September 30, 2017 to October 31, 2017, (ii) a temporary waiver of the Term Loan Financial Covenant Default until October 31, 2017, and (iii) amend certain other provisions of the Term Loan Credit Facility.

· On October 25, 2017, we entered into a Limited Waiver, Consent and Seventh Amendment to Credit Agreement with BSP, which further amended the Term Loan Credit Facility (the “Term Loan Seventh Amendment”).  Under the terms of the Term Loan Seventh Amendment, the BSP Lenders (i) agreed to a further extension of the temporary waiver of the Going Concern Covenant Default from October 31, 2017 to the Waiver Deadline (as defined below),  (ii) agreed to a temporary waiver of the Term Loan Financial Covenant Default until the Waiver Deadline, (iii) agreed to amend certain other provisions of the Term Loan Credit Facility, and (iv) consented to the Company’s entering into the Utz Merger Agreement and consummation of the Offer and the Utz Merger, provided that the net proceeds are applied to prepay in full the loans and all other amounts due under the Term Loan Credit Facility.  The Waiver Deadline is the earliest to occur of January 15, 2018, the occurrence of an event of default under the Term Loan Credit Facility and the termination of the Utz Merger Agreement.  In addition, the BSP Lenders agreed to provide the Company $5 million of additional financing in the form of a term loan, payable in equal monthly installments of $12,500, commencing on December 30, 2017, with the balance due and payable on December 29, 2020. The net proceeds of this new $5 million loan will be used for paying interest on outstanding indebtedness under the Term Loan Credit Facility and payment of trade payables in the ordinary course of business, subject to certain restrictions in the Term Loan Credit Facility.

Since we entered into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives.  There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms.  As a result, our liquidity and ability to timely pay our obligations when due could be adversely affected. 

The accompanying condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about our ability to continue as a going concern, other than the reclassification of certain long-term debt and the related debt issuance costs to current liabilities and current assets, respectively.

Our lenders may resist renegotiation or lengthening of payment and other terms through legal action or otherwise if we are unsuccessful in our efforts to complete a strategic transaction.  If we are not able to timely, successfully or efficiently implement the strategies that we are pursuing, we may need to seek voluntary protection under Chapter 11 of the U.S. Bankruptcy Code.

Basis of Presentation

Basis of Presentation

The condensed consolidated financial statements for the fiscal quarter ended September 30, 2017 are unaudited and include the accounts of Inventure Foods and all of its wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. The condensed consolidated financial statements, including the December 31, 2016 consolidated balance sheet data which was derived from audited 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 (“GAAP”).  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 our accounting policies and other financial information is included in the audited financial statements filed with our 2016 Form 10-K. The results of operations for the fiscal quarter ended September 30, 2017 are not necessarily indicative of the results expected for the full year.  

Discontinued Operations

Discontinued Operations

On March 23, 2017, the Company sold its Fresh Frozen Foods Business to Pictsweet pursuant to the Pictsweet Purchase Agreement.  In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory.  As consideration for this acquisition, Pictsweet paid the Company $23.7 million in cash.  The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, which were used to pay down amounts outstanding under the Credit Facilities.  The results of operations for the Fresh Frozen Foods Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in the Fresh Frozen Asset Sale have been presented as held for sale as of December 31, 2016.  As required by the terms of the Pictsweet Purchase Agreement, we have changed the name of our Fresh Frozen Foods subsidiary from Fresh Frozen Foods, Inc. to Inventure – GA, Inc.

On September 22, 2017, the Company sold its Frozen Fruit Business to OPC pursuant the OPC Purchase Agreement.  In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory.  As consideration for the acquisition, OPC paid the Company $50.0 million in cash.  The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, which were used to repay in full the indebtedness under the ABL Credit Facility and to pay down indebtedness under the Term Loan Credit Facility, as required under such Credit Facilities.  Also on September 22, 2017, $2.0 million of the net proceeds were placed in escrow to be released upon final determination of the working capital adjustment required under the OPC Purchase Agreement.  The results of operations for the Frozen Fruit Business have been classified as discontinued operations for all periods presented.  The assets and liabilities that were included in the Frozen Fruit Asset Sale have been presented as held for sale as of December 31, 2016.  As required by the terms of the OPC Purchase Agreement, we have changed the names of our Rader subsidiary to Inventure – WA, Inc. and our Willamette subsidiary to Inventure – OR, Inc.

Fair Value of Financial Instruments

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.  We classify our 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 measurement).  The three levels of the fair value hierarchy are described as follows:

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

Level 2Quoted 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 3Prices 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 September 30, 2017 and December 31, 2016, 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 term debt approximates fair value based on the borrowing rates currently available to us for long-term borrowings with similar terms.  The following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis  at the respective dates set forth below (in thousands):

		September 30, 2017				December 31, 2016
		Non-qualified				Non-qualified
		Deferred		Earn-out		Deferred		Earn-out
		Compensation		Contingent		Compensation		Contingent
		Plan		Consideration		Plan		Consideration
Balance Sheet Classification		Investments		Obligation		Investments		Obligation
Other assets	Level 1	$	742	$	—	$	650	$	—
Current liabilities held of sale	Level 3		—		—		—		(270)
Noncurrent liabilities held of sale	Level 3		—		—		—		(1,521)
		$	742	$	—	$	650	$	(1,791)

Considerable judgment is required in interpreting market data to develop the estimate of fair value of our assets and liabilities.  Accordingly, the estimate may not be indicative of the amounts that we 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.

The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets.

The earn-out consideration obligations relate to the acquisitions of Sin In A TinTM in September 2014 and Willamette in May 2013 and were assumed by OPC as part of the Frozen Fruit Asset Sale in September 2017.  Prior to the Frozen Fruit Asset Sale, the fair value measurement of the earn-out contingent consideration obligations were included in accrued liabilities and other long-term liabilities in the consolidated balance sheets.  The fair value measurement is based upon significant inputs not observable in the market.  Changes in the value of the obligation are recorded as income or expense in our consolidated statements of operations.  To determine the fair value, we valued the contingent consideration liability based on the expected probability weighted earn-out payments corresponding to the performance thresholds agreed to under the applicable purchase agreements.  The expected earn-out payments were then present valued by applying a discount rate that captures a market participants view of the risk associated with the expected earn-out payments. 

A summary of the activity of the fair value of the measurements using unobservable inputs (Level 3 liabilities) for the nine months ended September 30, 2017 is as follows (in thousands):

	Level 3
Balance at December 31, 2016	$	1,791
Earn-out compensation paid to Willamette		(230)
Earn-out compensation paid to Sin In A Tin		(9)
Contingent consideration assumed by OPC in Frozen Fruit Asset Sale		(1,552)
Balance at September 30, 2017	$	—

Income Taxes

Income Taxes

Income tax expense was $10,000  for the fiscal quarter ended September 30, 2017, compared to a tax benefit of $1.3 million for the fiscal quarter ended September 24, 2016.  Our effective tax rate was (0.2)% and 42.9% for the fiscal quarters ended September 30, 2017 and September 24, 2016, respectively.

Income tax expense was $31,000 for the nine months ended September 30, 2017, compared to a tax benefit of $2.8 million for the nine months ended September 24, 2016.  Our effective tax rate was (0.3)% and 36.0% for the nine months ended September 30, 2017 and September 24, 2016, respectively.

Income tax expense for the fiscal quarter and nine months ended September 30, 2017 was impacted by the full valuation allowance which was initially recorded in the fourth quarter of 2016.  Therefore, income tax expenses was a result of certain state minimum taxes and deferred tax liabilities not subject to the valuation allowance.

Loss Per Common Share

Loss Per Common Share

Basic loss per common share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period.  Diluted loss per share is calculated by including all dilutive common shares, such as stock options and restricted stock.  Unvested restricted stock grants that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, require loss per share to be presented pursuant to the two-class method.  However, the application of this method would have no effect on basic and diluted loss per common share and is therefore not presented. 

For the fiscal quarter and nine months ended September 30, 2017, diluted loss per share is the same as basic loss per share, as the inclusion of potentially issuable Common Stock would be antidilutive. During the fiscal quarter and nine months ended September 30, 2017, 0.6 million shares of Common Stock underlying stock options and restricted stock units were not included in the computation of diluted earnings (loss) per share because inclusion of such shares would be antidilutive.  For the fiscal quarter and nine months ended September 24, 2016, 0.5 million shares of Common Stock underlying stock options and restricted stock units were not included in the computation of diluted earnings (loss) per share because inclusion of such shares would be antidilutive. Exercises of outstanding stock options are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be antidilutive. 

Loss per common share was computed as follows for the fiscal quarters and nine months ended September 30, 2017 and September 24, 2016 (in thousands, except per share data):

	Quarter Ended				Nine Months Ended
	September 30,		September 24,		September 30,		September 24,
	2017		2016		2017		2016
Basic Earnings (Loss) Per Share:
Net loss from continuing operations	$	(5,472)	$	(1,731)	$	(11,653)	$	(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Weighted average number of common shares		19,790		19,671		19,735		19,634
Loss per common share	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)
Diluted Earnings (Loss) Per Share:
Net loss from continuing operations	$	(5,472)	$	(1,731)	$	(11,653)	$	(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Weighted average number of common shares		19,790		19,671		19,735		19,634
Incremental shares from assumed conversions of stock options and non-vested shares of restricted stock		—		—		—		—
Adjusted weighted average number of common shares		19,790		19,671		19,735		19,634
Loss per common share	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)

Stock-Based Compensation

Stock-Based Compensation

Compensation expense for restricted stock and stock option awards is adjusted for estimated attainment thresholds and forfeitures and is recognized on a straight-line basis over the requisite period of the award, which is currently one to five years.  We estimate future forfeiture rates based on our historical experience.

Compensation costs related to all stock-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 stock-based payment arrangements are classified as cash inflows from financing activities and cash outflows from operating activities.  See “Note 9 - Stockholders’ Equity” for additional information.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standards updates (“ASU”) to the FASB’s Accounting Standards Codification.

We consider the applicability and impact of all ASUs.  ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

In May 2014, the FASB issued new guidance related to revenue recognition.  This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance.  The new revenue recognition standard provides a unified model to determine when and how revenue is recognized.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  This guidance will be effective at the beginning of our 2018 fiscal year and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  As of September 30, 2017, we have not evaluated the impact of this new accounting standard on our financial statements.

In July 2015, the FASB issued an ASU to simplify the measurement of inventory.  This ASU requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.”  This ASU is effective for reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted. We adopted this guidance in the first quarter of fiscal 2017, and it had no impact on our financial statements and disclosure.

In February 2016, the FASB issued new guidance related to accounting for leases. The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted.  As of September 30, 2017, we have not evaluated the impact of this new accounting standard on our financial statements.

In March 2016, the FASB issued an ASU intended to simplify various aspects of the accounting for share-based payments. Excess tax benefits for share-based payments will be recorded as a reduction of income taxes and reflected in operating cash flows upon the adoption of this ASU. Excess tax benefits are currently recorded in equity and as financing activity under the current rules. This guidance is effective for reporting periods beginning after December 15, 2016. We adopted this guidance in the first quarter of fiscal 2017, and the adoption did not have a material impact on our financial statements and disclosure.

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Organization and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2017

Organization and Summary of Significant Accounting Policies

Summary of the valuation assets and liabilities measured at fair value on a recurring basis

The following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis  at the respective dates set forth below (in thousands):

		September 30, 2017				December 31, 2016
		Non-qualified				Non-qualified
		Deferred		Earn-out		Deferred		Earn-out
		Compensation		Contingent		Compensation		Contingent
		Plan		Consideration		Plan		Consideration
Balance Sheet Classification		Investments		Obligation		Investments		Obligation
Other assets	Level 1	$	742	$	—	$	650	$	—
Current liabilities held of sale	Level 3		—		—		—		(270)
Noncurrent liabilities held of sale	Level 3		—		—		—		(1,521)
		$	742	$	—	$	650	$	(1,791)

Activity of the fair value of the measurements using unobservable inputs (Level 3 Liabilities)

A summary of the activity of the fair value of the measurements using unobservable inputs (Level 3 liabilities) for the nine months ended September 30, 2017 is as follows (in thousands):

	Level 3
Balance at December 31, 2016	$	1,791
Earn-out compensation paid to Willamette		(230)
Earn-out compensation paid to Sin In A Tin		(9)
Contingent consideration assumed by OPC in Frozen Fruit Asset Sale		(1,552)
Balance at September 30, 2017	$	—

Schedules of basic and diluted earnings (loss) per common share

Loss per common share was computed as follows for the fiscal quarters and nine months ended September 30, 2017 and September 24, 2016 (in thousands, except per share data):

	Quarter Ended				Nine Months Ended
	September 30,		September 24,		September 30,		September 24,
	2017		2016		2017		2016
Basic Earnings (Loss) Per Share:
Net loss from continuing operations	$	(5,472)	$	(1,731)	$	(11,653)	$	(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Weighted average number of common shares		19,790		19,671		19,735		19,634
Loss per common share	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)
Diluted Earnings (Loss) Per Share:
Net loss from continuing operations	$	(5,472)	$	(1,731)	$	(11,653)	$	(4,937)
Net income (loss) from discontinued operations		(19,900)		(833)		(28,775)		1,077
Net loss	$	(25,372)	$	(2,564)	$	(40,428)	$	(3,860)
Weighted average number of common shares		19,790		19,671		19,735		19,634
Incremental shares from assumed conversions of stock options and non-vested shares of restricted stock		—		—		—		—
Adjusted weighted average number of common shares		19,790		19,671		19,735		19,634
Loss per common share	$	(1.28)	$	(0.13)	$	(2.05)	$	(0.20)

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Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2017

Fresh Frozen Foods

Schedule of comparative financial results of Fresh Frozen Foods Business included in discontinued operations

The summary comparative financial results of the Fresh Frozen Foods Business, included within discontinued operations, were as follows (in thousands):

	Quarter Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Net revenues	$	—	$	10,388	$	8,734	$	34,529
Cost of revenues		5		9,051		8,606		33,091
Gross profit		(5)		1,337		128		1,438
Operating expenses:
Selling, general and administrative expenses		-		890		668		2,730
Operating income (loss)		(5)		447		(540)		(1,292)
Loss on sale of Fresh Frozen Foods		174		—		10,257		—
Interest expense, net		—		354		331		1,062
Income (loss) before income taxes		(179)		93		(11,128)		(2,354)
Income tax expense (benefit)		—		226		1,909		(786)
Net loss from discontinued operations	$	(179)	$	(133)	$	(13,037)	$	(1,568)

Frozen Fruit Business

Schedule of comparative financial results of Fresh Frozen Foods Business included in discontinued operations

The summary comparative financial results of the Frozen Fruit Business, included within discontinued operations, were as follows (in thousands):

	Quarter Ended				Nine Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Net revenues	$	20,228	$	27,554	$	64,383	$	90,162
Cost of revenues		17,154		26,021		52,961		79,561
Gross profit		3,074		1,533		11,422		10,601
Operating expenses:
Selling, general and administrative expenses		1,115		1,592		3,983		4,383
Operating income (loss)		1,959		(59)		7,439		6,218
Loss on sale of Frozen Fruit Business		22,460		—		22,460		—
Interest expense, net		641		658		2,046		1,992
Income (loss) before income taxes		(21,142)		(717)		(17,067)		4,226
Income tax expense (benefit)		(1,421)		(17)		(1,329)		1,581
Net income (loss) from discontinued operations	$	(19,721)	$	(700)	$	(15,738)	$	2,645

Fresh Frozen Foods business and Frozen Fruit Business

Schedule of comparative financial results of Fresh Frozen Foods Business included in discontinued operations

The summary of the assets and liabilities of both the Fresh Frozen Foods Business and the Frozen Fruit Business that were included as assets and liabilities held for sale as of December 31. 2016, were as follows (in thousands):

	December 31,
	2016
Current assets:
Accounts receivable, net of allowance for doubtful accounts	$	7,394
Inventories		58,791
Other current assets		636
Total current assets held for sale	$	66,821
Property and equipment, net of accumulated depreciation		31,117
Goodwill		8,999
Trademarks and other intangibles, net		6,347
Other assets		469
Total noncurrent assets held for sale	$	46,932
Current liabilities:
Accounts payable	$	10,737
Accrued liabilities		3,342
Line of credit		—
Current portion of term debt		2,497
Total current liabilities held for sale	$	16,576
Other liabilities		1,521
Total noncurrent liabilities held of sale	$	1,521

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Inventories (Tables)

9 Months Ended

Sep. 30, 2017

Inventories

Schedule of inventories

Inventories consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Finished goods	$	4,685	$	4,345
Raw materials		8,923		9,053
Inventories	$	13,608	$	13,398

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Goodwill and Trademarks (Tables)

9 Months Ended

Sep. 30, 2017

Goodwill and Trademarks

Schedule of goodwill and trademarks

Goodwill and trademarks, consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Goodwill:
Goodwill - Inventure Foods	$	5,986	$	5,986
Trademarks:
Trademarks - Inventure Foods	$	896	$	896

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Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2017

Accrued Liabilities.

Schedule of accrued liabilities

Accrued liabilities consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Accrued payroll and payroll taxes	$	1,542	$	1,460
Accrued royalties and commissions		608		1,401
Accrued advertising and promotion		527		1,305
Accrued other		1,919		2,024
Accrued liabilities	$	4,596	$	6,190

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Term Debt and Line of Credit (Tables)

9 Months Ended

Sep. 30, 2017

Term Debt and Line of Credit

Schedule term debt

Term debt consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30,		December 31,
	2017		2016
Term loan credit facility through November 2020	$	61,395	$	84,150
Equipment term loan, Goodyear, Arizona, due monthly through April 2021		2,308		2,759
Capital lease obligations, primarily due May 2022		12		21
Long-term debt		63,715		86,930
Less: deferred financing fees, net		(3,107)		(7,047)
Less: current portion of long-term debt		(60,608)		(79,883)
Long-term debt, less current portion	$	—	$	—

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2017

Stockholders' Equity

Schedule of restricted share awards activity

		Weighted
		Average Grant
	Number	Date Fair Value
Nonvested balance at December 31, 2016	8,333	$	12.78
Granted	—	$	—
Vested and released	(8,333)	$	12.78
Forfeited	—	$	—
Nonvested balance at September 30, 2017	—	$	—

Summary of restricted stock units activity

		Weighted
		Average Grant
	Number	Date Fair Value
Nonvested balance at December 31, 2016	541,346	$	8.40
Granted	485,554	$	4.05
Vested and released	(222,324)	$	8.18
Forfeited	(39,208)	$	10.26
Nonvested balance at September 30, 2017	765,368	$	5.61

Summary of stock option activity

				Aggregate		Weighted Average
		Weighted		Intrinsic Value		Remaining
	Options	Average		(in-the-money		Contractual Life
	Outstanding	Exercise Price		options)		(in years)
Outstanding at December 31, 2016	567,602	$	5.23
Granted	—	$	—
Exercised	—	$	—
Forfeited or expired	(16,780)	$	10.90
Outstanding at September 30, 2017	550,822	$	5.06	$	587,207	3.58

Summary of stock options outstanding and exercisable

						Weighted
						Average
						Remaining	Weighted			Weighted
						Contractual	Average			Average
Range of					Options	Life	Exercise		Options	Exercise
Exercise Prices					Outstanding	(in years)	Price		Exercisable	Price
$	1.70	-	$	1.86	138,600	1.0	$	1.75	138,600	$	1.75
$	2.4	-	$	4.16	156,450	2.9	$	3.55	156,450	$	3.55
$	4.28	-	$	7.21	213,400	5.2	$	6.88	191,300	$	6.84
$	7.61	-	$	13.21	42,372	6.6	$	12.30	31,372	$	12.29
					550,822	3.8	$	5.06	517,722	$	4.81

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Organization and Summary of Significant Accounting Policies (Details) $ in Millions		9 Months Ended
	Sep. 22, 2017	Sep. 30, 2017 segment location	Sep. 30, 2017 product location	Sep. 30, 2017 item location	Dec. 31, 2016 USD ($)
Organization Consolidation and Summary of Significant Accounting Policies
Minimum annual net revenues | $					$ 269
Number of product categories | product			2
Number of reporting units		2		2
Number of locations in which manufacturing facilities are operated | location		3	3	3
OPC License Agreement
Organization Consolidation and Summary of Significant Accounting Policies
Agreement term	3 years
Royalty receivable (as percent)	3.00%

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Organization and Summary of Significant Accounting Policies - Strategic and Financial Review Process (Details) $ / shares in Units, $ in Millions			9 Months Ended
	Sep. 22, 2017 USD ($)	Mar. 23, 2017 USD ($)	Sep. 30, 2017 item $ / shares	Oct. 25, 2017 $ / shares	Dec. 31, 2016 $ / shares
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Common stock, par value (in dollars per share) | $ / shares			$ 0.01		$ 0.01
Number of amendments and waivers to the Term Credit Facility | item			6
Fresh Frozen Foods
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Consideration received		$ 23.7
Proceeds from sale of Fresh Frozen		$ 19.5
Frozen Fruit Business
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Consideration received	$ 50.0
Proceeds from sale of Fresh Frozen	38.9
Escrow deposit	$ 2.0
UTZ Merger Agreement
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Common stock, par value (in dollars per share) | $ / shares				$ 0.01
Share Price | $ / shares				$ 4.00

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Organization and Summary of Significant Accounting Policies - Going Concerns Uncertainty (Details)									9 Months Ended
	Oct. 25, 2017 USD ($)	Sep. 22, 2017 USD ($)	Jul. 20, 2017 USD ($)	Jul. 17, 2017 USD ($)	May 17, 2017	May 15, 2017	Sep. 27, 2016	Nov. 18, 2015 USD ($)	Sep. 30, 2017 USD ($)
Going Concerns
Leverage ratio									4.25
Fixed charge coverage ratio									1.1
Default amount									$ 63,700,000
Going Concerns | BSP Agency, LLC, a Delaware limited liability company
Debt instrument term									5 years
Maximum borrowing capacity									$ 85,000,000
Equipment Financing Debt | Going Concerns
Default amount									$ 2,300,000
ABL Credit Facility
Percentage of maximum revolver amount									12.50%
ABL Credit Facility | Wells Fargo Bank National Association And Other Lenders Party
Number of business day waiver						10 days
ABL Credit Facility | Going Concerns
Debt instrument term		5 years
Maximum borrowing capacity		$ 50,000,000
Percentage of maximum revolver amount		12.50%
ABL Credit Facility | Going Concerns | Wells Fargo Bank National Association And Other Lenders Party
Number of business day waiver					10 days
ABL Credit Facility | Prior to amendment
Maximum Revolver Amount				$ 49,000,000
ABL Credit Facility | After amendment through August 1, 2017
Maximum Revolver Amount				40,000,000
ABL Credit Facility | From and after August 1, 2017
Maximum Revolver Amount				$ 35,000,000
ABL Credit Facility | Maximum
Threshold Limit For Liquidity Amount									$ 6,125,000
ABL Credit Facility | Maximum | Going Concerns
Threshold Limit For Liquidity Amount		$ 6,125,000
Senior Secured Term Loan Due Quarterly Through November 2020
Maximum borrowing capacity								$ 85,000,000
Senior Secured Term Loan Due Quarterly Through November 2020 | Wells Fargo Bank National Association And Other Lenders Party
Debt instrument term								5 years
Maximum borrowing capacity								$ 50,000,000
Senior Secured Term Loan Due Quarterly Through November 2020 | BSP Agency, LLC, a Delaware limited liability company
Amount increase of maximum borrowing capacity			$ 5,000,000					$ 25,000,000	$ 25,000,000
Term loan, monthly installment			$ 12,500
Installments			monthly
Net borrowings on U.S Bank line of credit			$ 5,000,000
Senior Secured Term Loan Due Quarterly Through December 2020 | BSP Agency, LLC, a Delaware limited liability company
Amount increase of maximum borrowing capacity	$ 5,000,000
Term loan, monthly installment	$ 12,500
Installments	monthly
Net borrowings on U.S Bank line of credit	$ 5,000,000
Base Rate | ABL Credit Facility | Wells Fargo Bank National Association And Other Lenders Party
Basis points added to base rate (as a percent)						1.00%
Base Rate | ABL Credit Facility | Going Concerns | Wells Fargo Bank National Association And Other Lenders Party
Basis points added to base rate (as a percent)						1.00%
Base Rate | Senior Secured Term Loan Due Quarterly Through November 2020 | BSP Agency, LLC, a Delaware limited liability company
Basis points added to base rate (as a percent)							1.00%

XML

Organization and Summary of Significant Accounting Policies - Discontinued Operations (Details) - USD ($) $ in Millions	Sep. 22, 2017	Mar. 23, 2017
Fresh Frozen Foods
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Consideration received		$ 23.7
Proceeds from sale of Fresh Frozen		$ 19.5
Frozen Fruit Business
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Consideration received	$ 50.0
Proceeds from sale of Fresh Frozen	38.9
Escrow deposit	$ 2.0

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Organization and Summary of Significant Accounting Policies - Fair Value and Income Tax (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Assets:
Non-qualified Deferred Compensation Plan Investments	$ 742	$ 650
Liabilities:
Earn-out contingent consideration obligation		(1,791)
Fair Value, Inputs, Level 1 | Other Assets
Assets:
Non-qualified Deferred Compensation Plan Investments	$ 742	650
Level 3 | Current liabilities held of sale
Liabilities:
Earn-out contingent consideration obligation		(270)
Level 3 | Noncurrent liabilities held of sale
Liabilities:
Earn-out contingent consideration obligation		$ (1,521)

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Organization and Summary of Significant Accounting Policies - Fair Value Unobservable Inputs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 24, 2016	Sep. 30, 2017	Sep. 24, 2016
Income Taxes
Income tax expense (benefit)	$ 10	$ (1,298)	$ 31	$ (2,783)
Effective tax rate (as a percent)	(0.20%)	42.90%	(0.30%)	36.00%
Earn out Compensation due
Fair value of the measurements using unobservable inputs (Level 3 Liabilities)
Balance at beginning of period			$ 1,791
Earn out Compensation due | Willamette
Fair value of the measurements using unobservable inputs (Level 3 Liabilities)
Earn-out compensation paid			(230)
Earn out Compensation due | Sin In A Tin
Fair value of the measurements using unobservable inputs (Level 3 Liabilities)
Earn-out compensation paid			(9)
Earn out Compensation due | Frozen Fruit Business
Fair value of the measurements using unobservable inputs (Level 3 Liabilities)
Contingent consideration assumed			$ (1,552)

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Organization and Summary of Significant Accounting Policies - Earnings per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 24, 2016	Sep. 30, 2017	Sep. 24, 2016
Income (loss) per common share:
Anti-dilutive options excluded from computation of diluted earnings per share (in shares)	600	500	600	500
Basic Earnings (Loss) Per Share:
Net loss from continuing operation	$ (5,472)	$ (1,731)	$ (11,653)	$ (4,937)
Net income (loss) from discontinued operations	(19,900)	(833)	(28,775)	1,077
Net loss	$ (25,372)	$ (2,564)	$ (40,428)	$ (3,860)
Weighted average number of common shares	19,790	19,671	19,735	19,634
Loss per common share (in dollars per share)	$ (1.28)	$ (0.13)	$ (2.05)	$ (0.20)
Diluted Earnings (Loss) Per Share:
Net loss from continuing operation	$ (5,472)	$ (1,731)	$ (11,653)	$ (4,937)
Net income (loss) from discontinued operations	(19,900)	(833)	(28,775)	1,077
Net loss	$ (25,372)	$ (2,564)	$ (40,428)	$ (3,860)
Weighted average number of common shares	19,790	19,671	19,735	19,634
Adjusted weighted average number of common shares	19,790	19,671	19,735	19,634
Loss per common share (in dollars per share)	$ (1.28)	$ (0.13)	$ (2.05)	$ (0.20)

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Organization and Summary of Significant Accounting Policies - Stock-based Compensations and Accounting Standards Update (Details) - Restricted Stock	9 Months Ended
	Sep. 30, 2017
Minimum
Stock Options and Stock-Based Compensation
Requisite period of the award over which stock based compensation award expenses are recognized	1 year
Maximum
Stock Options and Stock-Based Compensation
Requisite period of the award over which stock based compensation award expenses are recognized	5 years

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Discontinued Operations (Details) - USD ($) $ in Thousands			3 Months Ended		9 Months Ended
	Sep. 22, 2017	Mar. 23, 2017	Sep. 30, 2017	Sep. 24, 2016	Sep. 30, 2017	Sep. 24, 2016	Dec. 31, 2016
Current assets:
Total current assets held for sale							$ 66,821
Total noncurrent liabilities held for sale							46,932
Current liabilities:
Total current liabilities held for sale							16,576
Total noncurrent liabilities held of sale							1,521
Total assets			$ 69,344		$ 69,344		181,480
Total liabilities			84,693		84,693		157,791
Operating expenses:
Net income (loss) from discontinued operations			(19,900)	$ (833)	(28,775)	$ 1,077
Fresh Frozen Foods
Current liabilities:
Consideration received		$ 23,700
Proceeds from sale of Fresh Frozen		$ 19,500
Total assets							32,200
Total liabilities							2,000
Comparative financial results
Net revenues				10,388	8,734	34,529
Cost of revenues			5	9,051	8,606	33,091
Gross profit			(5)	1,337	128	1,438
Operating expenses:
Selling, general and administrative expenses				890	668	2,730
Operating income (loss)			(5)	447	(540)	(1,292)
Loss (gain) on sale of Fresh Frozen Foods			174		10,257
Interest expense, net				354	331	1,062
Income (loss) before income taxes			(179)	93	(11,128)	(2,354)
Income tax expenses (benefit)				226	1,909	(786)
Net income (loss) from discontinued operations			(179)	(133)	(13,037)	(1,568)
Frozen Fruit Business
Current liabilities:
Consideration received	$ 50,000
Proceeds from sale of Fresh Frozen	38,900
Escrow deposit	$ 2,000
Comparative financial results
Net revenues			20,228	27,554	64,383	90,162
Cost of revenues			17,154	26,021	52,961	79,561
Gross profit			3,074	1,533	11,422	10,601
Operating expenses:
Selling, general and administrative expenses			1,115	1,592	3,983	4,383
Operating income (loss)			1,959	(59)	7,439	6,218
Loss (gain) on sale of Fresh Frozen Foods			22,460		22,460
Interest expense, net			641	658	2,046	1,992
Income (loss) before income taxes			(21,142)	(717)	(17,067)	4,226
Income tax expenses (benefit)			(1,421)	(17)	(1,329)	1,581
Net income (loss) from discontinued operations			$ (19,721)	$ (700)	$ (15,738)	$ 2,645
Fresh Frozen Foods business and Frozen Fruit Business
Current assets:
Accounts receivable, net of allowance for doubtful accounts							7,394
Inventories							58,791
Other current assets							636
Total current assets held for sale							66,821
Property and equipment, net of accumulated depreciation							31,117
Goodwill							8,999
Trademarks and other intangibles, net							6,347
Other assets							469
Total noncurrent liabilities held for sale							46,932
Current liabilities:
Accounts payable							10,737
Accrued liabilities							3,342
Current portion of term debt							2,497
Total current liabilities held for sale							16,576
Other liabilities							1,521
Total noncurrent liabilities held of sale							$ 1,521

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Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Inventories
Finished goods	$ 4,685	$ 4,345
Raw materials	8,923	9,053
Inventories	$ 13,608	$ 13,398

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Goodwill and Trademarks (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Goodwill and trademarks
Goodwill	$ 5,986	$ 5,986
Inventure Foods
Goodwill and trademarks
Goodwill	5,986	5,986
Inventure Foods | Trademarks
Goodwill and trademarks
Trademarks	$ 896	$ 896

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Accrued Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Accrued Liabilities.
Accrued payroll and payroll taxes	$ 1,542	$ 1,460
Accrued royalties and commissions	608	1,401
Accrued advertising and promotion	527	1,305
Accrued other	1,919	2,024
Accrued liabilities	$ 4,596	$ 6,190

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Term Debt and Line of Credit (Details)									9 Months Ended
	Oct. 25, 2017 USD ($)	Jul. 20, 2017 USD ($)	Jul. 17, 2017 USD ($)	May 15, 2017	Sep. 27, 2016	May 31, 2016	Nov. 18, 2015 USD ($)	Sep. 15, 2014	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)	Aug. 29, 2015 USD ($)	Aug. 30, 2014 USD ($) location
Long-term debt and line of credit
Long-term debt									$ 63,715,000	$ 86,930,000
Less: deferred financing fees, net									(3,107,000)	(7,047,000)
Less: current portion of long-term debt									$ (60,608,000)	(79,883,000)
Period time of strategic and financial review									14 months
Senior Secured Term Loan Due Quarterly Through November 2020
Long-term debt and line of credit
Long-term debt									$ 61,395,000	84,150,000
Maximum borrowing capacity							$ 85,000,000
Equipment Term Loan, Goodyear, Due Monthly Through March 2021
Long-term debt and line of credit
Long-term debt									2,308,000	2,759,000
Capital lease obligations, primarily due May 2022
Long-term debt and line of credit
Long-term debt									$ 12,000	$ 21,000
ABL Credit Facility
Long-term debt and line of credit
Percentage of maximum revolver amount									12.50%
ABL Credit Facility | Maximum
Long-term debt and line of credit
Threshold Limit For Liquidity Amount									$ 6,125,000
Wells Fargo Bank National Association And Other Lenders Party | Senior Secured Term Loan Due Quarterly Through November 2020
Long-term debt and line of credit
Debt instrument term							5 years
Maximum borrowing capacity							$ 50,000,000
Wells Fargo Bank National Association And Other Lenders Party | ABL Credit Facility
Long-term debt and line of credit
Number of business day waiver				10 days
Wells Fargo Bank National Association And Other Lenders Party | ABL Credit Facility | Base Rate
Long-term debt and line of credit
Basis points added to base rate (as a percent)				1.00%
BSP Agency, LLC, a Delaware limited liability company | Senior Secured Term Loan Due Quarterly Through November 2020
Long-term debt and line of credit
Term loan, monthly installment		$ 12,500
Installments		monthly
Net borrowings on U.S Bank line of credit		$ 5,000,000
Amount increase of maximum borrowing capacity		$ 5,000,000					$ 25,000,000		$ 25,000,000
BSP Agency, LLC, a Delaware limited liability company | Senior Secured Term Loan Due Quarterly Through November 2020 | Base Rate
Long-term debt and line of credit
Basis points added to base rate (as a percent)					1.00%
Variable rate basis							base rate		base rate
BSP Agency, LLC, a Delaware limited liability company | Senior Secured Term Loan Due Quarterly Through November 2020 | London Interbank Offered Rate (LIBOR) [Member]
Long-term debt and line of credit
Variable rate basis							LIBOR		LIBOR
BSP Agency, LLC, a Delaware limited liability company | Senior Secured Term Loan Due Quarterly Through December 2020
Long-term debt and line of credit
Term loan, monthly installment	$ 12,500
Installments	monthly
Net borrowings on U.S Bank line of credit	$ 5,000,000
Amount increase of maximum borrowing capacity	$ 5,000,000
Banc of America Leasing and Capital LLC
Long-term debt and line of credit
Number of manufacturing facilities containing equipment used to secure credit | location												2
Banc of America Leasing and Capital LLC | Equipment Term Loan, Goodyear, Due Monthly Through March 2021
Long-term debt and line of credit
Debt instrument term						60 months
Stated interest rate (as a percent)									3.07%		3.07%
Banc of America Leasing and Capital LLC | Equipment Term Loan, Goodyear, Due Monthly Through March 2021 | Maximum
Long-term debt and line of credit
Term loan amount											$ 3,100,000
Banc of America Leasing and Capital LLC | Equipment Term Loan For Rader Farms Facilities Due Monthly Through August 2019
Long-term debt and line of credit
Debt instrument term								60 months
Term loan amount												$ 2,600,000
Stated interest rate (as a percent)									2.35%			2.35%
Banc of America Leasing and Capital LLC | Equipment Term Loan For Willamette Valley Fruit Company Due Monthly Through August 2019
Long-term debt and line of credit
Debt instrument term								60 months
Term loan amount												$ 1,900,000
Stated interest rate (as a percent)									2.35%			2.35%
Prior to amendment | ABL Credit Facility
Long-term debt and line of credit
Maximum Revolver Amount			$ 49,000,000
After amendment through August 1, 2017 | ABL Credit Facility
Long-term debt and line of credit
Maximum Revolver Amount			40,000,000
From and after August 1, 2017 | ABL Credit Facility
Long-term debt and line of credit
Maximum Revolver Amount			$ 35,000,000

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Commitments and Contingencies (Details) - item	Nov. 14, 2016	Nov. 10, 2016
Center For Environmental Health Lawsuit
Loss Contingency [Abstract]
Number of customers demanded indemnity in relation to the litigation		2
Case of Michelle Blair Lawsuit
Loss Contingency [Abstract]
Number of product from the brand was purchased	1
Number of product types from the brand	9

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Business Segments - Reportable Segments Information (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 24, 2016 USD ($)	Sep. 30, 2017 segment	Sep. 30, 2017 item	Sep. 30, 2017 USD ($)	Sep. 24, 2016 USD ($)
Business segments revenue by products
Number of reportable segments			2	2
Net revenues from external customers	$ 27,428	$ 28,587			$ 84,248	$ 80,956
Healthy And Natural Food Product
Business segments revenue by products
Net revenues from external customers	18,400	19,400			56,200	52,000
Healthy Natural Snacks Product
Business segments revenue by products
Net revenues from external customers	$ 9,000	$ 9,200			$ 28,100	$ 29,000

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Stockholders' Equity (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2017	Sep. 24, 2016	Sep. 30, 2017	Sep. 24, 2016	Dec. 31, 2016
Equity Incentive 2015 Plan
Weighted Average Grant Date Fair Value Per Share
Number of shares available for awards	577,375		577,375
Expiration term of awards					10 years
Equity Incentive 2015 Plan | Maximum
Weighted Average Grant Date Fair Value Per Share
Number of shares authorized					1,400,560
Number of additional shares available for future issuance					250,000
Restricted Stock
Number of Shares
Nonvested at the beginning of the period (in shares)			8,333
Vested, including shares withheld to cover taxes (in shares)			(8,333)
Nonvested at the end of the period (in shares)					8,333
Weighted Average Grant Date Fair Value Per Share
Nonvested at the beginning of the period (in dollars per share)			$ 12.78
Vested, including shares withheld to cover taxes (in dollars per share)			$ 12.78
Nonvested at the end of the period (in dollars per share)					$ 12.78
Additional disclosures
Stock-based compensation costs which were capitalized			$ 0
Unrecognized costs related to non-vested stock options awards granted	$ 0		$ 0
Restricted Stock | Minimum
Shareholders equity
Vesting period			1 year
Restricted Stock | Maximum
Shareholders equity
Vesting period			5 years
Restricted Stock Units RSU
Number of Shares
Nonvested at the beginning of the period (in shares)			541,346
Granted (in shares)			485,554
Vested, including shares withheld to cover taxes (in shares)			(222,324)
Forfeited (in shares)			(39,208)
Nonvested at the end of the period (in shares)	765,368		765,368		541,346
Weighted Average Grant Date Fair Value Per Share
Nonvested at the beginning of the period (in dollars per share)			$ 8.40
Granted (in dollars per share)			4.05
Vested, including shares withheld to cover taxes (in dollars per share)			8.18
Forfeited (in dollars per share)			10.26
Nonvested at the end of the period (in dollars per share)	$ 5.61		$ 5.61		$ 8.40
Additional disclosures
Unrecognized costs related to non-vested stock awards granted	$ 2,600,000		$ 2,600,000
Weighted average period for recognition of unrecognized compensation costs			1 year 9 months 18 days
Restricted Stock Units RSU | Employees | Minimum
Shareholders equity
Vesting period			3 years
Restricted Stock Units RSU | Employees | Maximum
Shareholders equity
Vesting period			5 years
restricted stock awards and units
Additional disclosures
Stock-based compensation expense	$ 500,000	$ 300,000	$ 1,200,000	$ 1,100,000
restricted stock awards and units | Officers
Shareholders equity
Vesting period			3 years
restricted stock awards and units | Directors
Shareholders equity
Vesting period			1 year
Stock Options
Options Outstanding
Outstanding at the beginning of the period (in shares)			567,602
Forfeited or expired (in shares)			(16,780)
Outstanding at the end of the period (in shares)	550,822		550,822		567,602
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)			$ 5.23
Forfeited or expired (in dollars per share)			10.90
Outstanding at the end of the period (in dollars per share)	$ 5.06		$ 5.06		$ 5.23
Aggregate Intrinsic Value (in-the-money option)
Intrinsic value related to options outstanding	$ 587,207		$ 587,207
Closing stock price (in dollars per share)	$ 4.69		$ 4.69
Intrinsic value related to vested options outstanding	$ 500,000		$ 500,000
Weighted Average Remaining Contractual Life
Weighted Average Remaining Contractual Life			3 years 6 months 29 days
Additional disclosures
Stock-based compensation expense	100,000	$ 100,000	$ 100,000	$ 100,000
Stock-based compensation costs which were capitalized			0
Unrecognized costs related to non-vested stock options awards granted	$ 100,000		$ 100,000
Weighted average period for recognition of unrecognized compensation costs			10 months 24 days
Stock Options Prior to May 2008
Weighted Average Grant Date Fair Value Per Share
Expiration term of awards			5 years
Stock Options Prior to May 2008 | Employees
Shareholders equity
Amortization period for fair value of stock options granted (in years)			5 years
Stock Options Prior to May 2008 | Directors
Shareholders equity
Amortization period for fair value of stock options granted (in years)			1 year
Stock Options after May 2008
Weighted Average Grant Date Fair Value Per Share
Expiration term of awards			10 years
Stock Options after May 2008 | Employees
Shareholders equity
Vesting period			5 years
Stock Options after May 2008 | Directors
Shareholders equity
Vesting period			1 year

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Stockholders' Equity - Exercise Price (Details)	9 Months Ended
	Sep. 30, 2017 USD ($) $ / shares shares
Shareholders' Equity
Options Outstanding (in shares) | shares	550,822
Weighted Average Remaining Contractual Life	3 years 9 months 18 days
Weighted Average Exercise Price (in dollars per share)	$ 5.06
Options Exercisable (in shares) | shares	517,722
Weighted Average Exercise Price (in dollars per share)	$ 4.81
Stock Options
Intrinsic value
Intrinsic value related to vested options outstanding | $	$ 500,000
Intrinsic value related to options outstanding | $	$ 587,207
Closing stock price (in dollars per share)	$ 4.69
Stock Options | Exercise Price Range From Dollars 1.70 to Dollars 1.86
Shareholders' Equity
Exercise price, low end of range (in dollars per share)	1.70
Exercise price, high end of range (in dollars per share)	$ 1.86
Options Outstanding (in shares) | shares	138,600
Weighted Average Remaining Contractual Life	1 year
Weighted Average Exercise Price (in dollars per share)	$ 1.75
Options Exercisable (in shares) | shares	138,600
Weighted Average Exercise Price (in dollars per share)	$ 1.75
Stock Options | Exercise Price Range From Dollars 2.4 to Dollars 4.16
Shareholders' Equity
Exercise price, low end of range (in dollars per share)	2.40
Exercise price, high end of range (in dollars per share)	$ 4.16
Options Outstanding (in shares) | shares	156,450
Weighted Average Remaining Contractual Life	2 years 10 months 24 days
Weighted Average Exercise Price (in dollars per share)	$ 3.55
Options Exercisable (in shares) | shares	156,450
Weighted Average Exercise Price (in dollars per share)	$ 3.55
Stock Options | Exercise Price Range From Dollars 4.28 to Dollars 7.21
Shareholders' Equity
Exercise price, low end of range (in dollars per share)	4.28
Exercise price, high end of range (in dollars per share)	$ 7.21
Options Outstanding (in shares) | shares	213,400
Weighted Average Remaining Contractual Life	5 years 2 months 12 days
Weighted Average Exercise Price (in dollars per share)	$ 6.88
Options Exercisable (in shares) | shares	191,300
Weighted Average Exercise Price (in dollars per share)	$ 6.84
Stock Options | Exercise Price Range From Dollars 7.61 to Dollars 13.21
Shareholders' Equity
Exercise price, low end of range (in dollars per share)	7.61
Exercise price, high end of range (in dollars per share)	$ 13.21
Options Outstanding (in shares) | shares	42,372
Weighted Average Remaining Contractual Life	6 years 7 months 6 days
Weighted Average Exercise Price (in dollars per share)	$ 12.30
Options Exercisable (in shares) | shares	31,372
Weighted Average Exercise Price (in dollars per share)	$ 12.29