Inventure Foods (SNAK) 10-Q 2011 Q2 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 25, 2011
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from                to

Commission File Number: 1-14556

INVENTURE FOODS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	86-0786101
(State or Other Jurisdiction of Incorporation or	(I.R.S. Employer
Organization)	Identification No.)
5415 East High Street, Suite #350 Phoenix, Arizona	85054
(Address of Principal Executive Offices)	(Zip Code)

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 18,128,592 as of August 1, 2011.

Table of Contents

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements - Unaudited
Condensed consolidated balance sheets as of June 25, 2011 and December 25, 2010		3
Condensed consolidated statements of income for the quarters and six months ended June 25, 2011 and June 26, 2010		4
Condensed consolidated statements of cash flows for the six months ended June 25, 2011 and June 26, 2010		5
Notes to unaudited condensed consolidated financial statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		19
Item 4. Controls and Procedures		19
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 5.	Other Information	19
Item 6.	Exhibits	20

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	June 25,			December 25,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	1,396,468		$	980,547
Accounts receivable, net of allowance for doubtful accounts of $132,725 in 2011 and $109,142 in 2010	16,843,098			11,703,056
Inventories	25,255,892			21,814,930
Deferred income tax asset	549,100			621,801
Other current assets	689,958			1,295,837
Total current assets	44,734,516			36,416,171
Property and equipment, net	32,454,027			28,007,869
Goodwill	11,616,225			11,616,225
Trademarks and other intangibles, net	2,054,160			2,075,160
Other assets	742,539			705,442
Total assets	$	91,601,467		$	78,820,867
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,322,194		$	7,707,475
Accrued liabilities	7,308,195			6,452,845
Current portion of long-term debt	1,721,646			1,692,193
Total current liabilities	22,352,035			15,852,513
Long-term debt, less current portion	10,756,277			11,567,800
Line of credit	13,163,156			9,096,892
Deferred income tax liability	3,335,036			3,337,290
Interest rate swaps	674,222			649,389
Other liabilities	660,908			527,325
Total liabilities	50,941,634			41,031,209
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock, $.01 par value; 50,000,000 shares authorized; 18,496,549 and 18,372,824 shares issued and outstanding at June 25, 2011 and December 25, 2010	184,966			183,729
Additional paid-in capital	27,174,845			26,557,191
Accumulated other comprehensive loss	(321,684		)	(306,902		)
Retained earnings	14,092,901			11,826,835
	41,131,028			38,260,853
Less: treasury stock, at cost: 367,957 shares at June 25, 2011 and December 25, 2010	(471,195		)	(471,195		)
Total shareholders’ equity	40,659,833			37,789,658
Total liabilities and shareholders’ equity	$	91,601,467		$	78,820,867

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

3

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Quarter Ended						Six Months Ended
	June 25,			June 26,			June 25,			June 26,
	2011			2010			2011			2010
Net revenues	$	43,609,336		$	34,912,985		$	80,250,018		$	66,309,174
Cost of revenues	35,511,783			26,972,353			64,221,969			51,522,670
Gross profit	8,097,553			7,940,632			16,028,049			14,786,504
Selling, general and administrative expenses	6,544,826			5,524,297			12,054,085			10,084,261
Operating income	1,552,727			2,416,335			3,973,964			4,702,243
Interest expense, net	(199,021		)	(181,479		)	(417,731		)	(397,862		)
Income before income tax provision	1,353,706			2,234,856			3,556,233			4,304,381
Income tax provision	(493,822		)	(859,203		)	(1,290,167		)	(1,682,331		)
Net income	$	859,884		$	1,375,653		$	2,266,066		$	2,622,050
Earnings per common share:
Basic	$	0.05		$	0.08		$	0.13		$	0.15
Diluted	$	0.05		$	0.07		$	0.12		$	0.14
Weighted average number of common shares:
Basic	18,067,391			17,897,724			18,039,030			17,892,683
Diluted	18,719,203			18,516,077			18,692,532			18,471,104

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

4

INVENTURE FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended
	June 25, 2011			June 26, 2010
Cash flows from operating activities:
Net income	$	2,266,066		$	2,622,050
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,184,203			1,839,146
Amortization	33,048			31,222
Provision for bad debts	23,583			12,724
Deferred income taxes	70,446			108,293
Share-based compensation expense	545,210			186,277
Loss on disposition of equipment	2,570			24,798
Change in operating assets and liabilities:
Accounts receivable	(5,302,755		)	(2,067,459		)
Inventories	(3,440,962		)	(1,262,216		)
Other assets and liabilities	700,370			274,050
Accounts payable and accrued liabilities	6,470,070			5,807,053
Net cash provided by operating activities	3,551,849			7,575,938
Cash flows from investing activities:
Purchase of equipment	(6,564,931		)	(3,457,230		)
Net cash used in investing activities	(6,564,931		)	(3,457,230		)
Cash flows from financing activities:
Net borrowings on line of credit	4,066,264			(3,896,384		)
Proceeds from exercise of stock options	73,680			—
Payments made on capital lease obligations	(249,823		)	(15,085		)
Proceeds from capital lease financing	139,130			578,304
Payments made on long-term debt	(600,248		)	(612,473		)
Net cash provided by (used in) financing activities	3,429,003			(3,945,638		)
Net increase in cash and cash equivalents	415,921			173,070
Cash and cash equivalents at beginning of period	980,547			1,102,689
Cash and cash equivalents at end of period	$	1,396,468		$	1,275,759
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	424,130		$	176,492
Cash paid during the period for income taxes	$	1,288,215		$	1,136,329
Supplemental disclosures of non-cash investing and financing transactions:
Capital lease obligations incurred for the acquisition of property and equipment	$	68,000		$	129,303

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

5

INVENTURE FOODS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.             Organization and Summary of Significant Accounting Policies

Inventure Foods, Inc., a Delaware corporation (the “Company,” referred to as “we” “our” or “us”), is a $130+ million leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. We are headquartered in Phoenix, Arizona with plants in Arizona, Indiana and Washington.  Our executive offices are located at 5415 East High Street, Suite 350, Phoenix, Arizona 85054, and our telephone number is (623) 932-6200.

The Company was formed in 1995 as a holding company to acquire a potato chip manufacturing and distribution business, which had been founded by Donald and James Poore in 1986.  In December 1996, we completed an initial public offering of our Common Stock.  In November 1998, we acquired the business and certain assets (including the Bob’s Texas Style® potato chip brand) of Tejas Snacks, L.P. (“Tejas”), a Texas-based potato chip manufacturer.  In October 1999, we acquired Wabash Foods, LLC (“Wabash”) including the Tato Skins®, O’Boisies®, and Pizzarias® trademarks and the Bluffton, Indiana manufacturing operation and assumed all of Wabash Foods’ liabilities.  In June 2000, we acquired Boulder Natural Foods, Inc. (“Boulder”) and the Boulder CanyonTM brand of totally natural potato chips.  We changed our name from Poore Brothers, Inc. to The Inventure Group, Inc. on May 23, 2006.  In May 2007, we acquired Rader Farms, Inc., including a farming operation and a berry processing facility in Lynden, Washington.  In May 2010, we changed our name from The Inventure Group, Inc. to Inventure Foods, Inc.

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

We are engaged in the development, production, marketing and distribution of innovative snack food products and frozen berry products that are sold primarily through grocery retailers, mass merchandisers, club stores, convenience stores, dollar stores and vend distributors across the United States and internationally.  We currently manufacture and sell nationally T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s Inc. and BURGER KING TM brand snack products under license from Burger King Corporation.  We currently (i) manufacture and sell our own brands of snack food products, including Poore Brothers®, Bob’s Texas Style® and Boulder CanyonTM Natural Foods brand batch-fried potato chips, Tato Skins® brand potato snacks and O’Boises® potato snacks (ii) manufacture private label snacks for grocery and various other retail chains and (iii) distribute in Arizona snack food products that are manufactured by others.  We sell our T.G.I. Friday’s® brand snack products and BURGER KING TM brand snack products to mass merchandisers, grocery, club and drug stores directly and to primarily convenience stores and vend operators through independent distributors.  Our other brands are also sold through independent distributors.

In addition, we grow, process and market premium berry blends, raspberries, blueberries, and rhubarb and purchases marionberries, cherries, cranberries, strawberries, and other fruits from a select network of fruit growers for resale.  The fruit is processed, frozen and packaged for sale and distribution nationally to wholesale customers under the Rader Farms® brand, as well as through store brands.  In 2009, we entered into a license agreement with Jamba Juice Company and launched in 2010 a line of Jamba® branded blend-and-serve smoothie kits with all natural vitamin and mineral boosts and a variety of fresh-frozen, whole fruit pieces, including raspberries and blueberries from Rader Farms.

Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year.  Accordingly, the second quarter of 2011 commenced March 27, 2011 and ended June 25, 2011.

Basis of Presentation

The consolidated financial statements include the accounts of Inventure Foods, Inc. and all of our wholly owned subsidiaries.  All significant intercompany amounts and transactions have been eliminated.  The financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all the information and footnotes required by accounting principles generally accepted in the United States of America.  In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary in order to make the 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 Annual Report on Form 10-K for the fiscal year ended December 25, 2010.  The results of operations for the quarter and six months ended June 25, 2011 are not necessarily indicative of the results expected for the full year.

6

Reclassifications

Certain 2010 amounts have been reclassified to conform to the 2011 presentation.  Specifically, we reclassified $0.1 million and $0.2 million of product development expense from Cost of Revenues to Selling General and Administrative expense on our consolidated statement of income for the quarter and six months ending June 26, 2010, respectively.  In addition, we have also renamed our Berry Products segment to “Frozen Products.”  See Footnote 7 “Business Segments.”

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 measurements). 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 June 25, 2011 and December 25, 2010, the carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate fair values since they are short-term in nature.  The carrying value of the long-term debt approximates fair-value based on the borrowing rates currently available to us for long-term borrowings with similar terms.

	Fair Value at June 25, 2011
	Level 1	Level 2		Level 3	Total
Liabilities:
Interest rate swaps	—	$	674,222	—	$	674,222

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

7

Income taxes

The following table provides reconciliation between the amount determined by applying the statutory federal income tax rate to the pre tax income amount for the quarter and six months ended June 25, 2011 and June 26, 2010:

	Quarter Ended									Six Months Ended
	June 25, 2011					June 26, 2010				June 25, 2011					June 26, 2010
(dollars in thousands)	$			% of Rev		$		% of Rev		$			% of Rev		$			% of Rev
Provision at statutory rate	$	462		34.0	%	$	760	34.0	%	$	1,209		34.0	%	$	1,463		34.0	%
State tax provision, net	52			3.8		81		3.6		139			3.9		160			3.7
Non-deductible expenses and other	70			5.3		18		0.8		121			3.5		63			1.5
Research Credits	(49		)	(3.6	)	—		—		(74		)	(2.1	)	—			—
Domestic Production Benefits	(41		)	(3.0	)	—		—		(105		)	(3.0	)	(4		)	(0.1	)
Income tax provision	$	494		36.5	%	$	859	38.4	%	$	1,290		36.3	%	$	1,682		39.1	%

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by including all dilutive common shares such as stock options and restricted stock. Options to purchase 214,500 shares of our Common Stock were excluded from the computation of diluted earnings per share for both the quarter and six months ending June 25, 2011.   Options to purchase 235,500 and 315,000 shares of our Common Stock were excluded from the computation of diluted earnings per share for the quarter and six months ending June 26, 2010, respectively.  These exclusions were made because the options’ exercise prices were greater than the average market price of our common stock for those periods.  Exercises of outstanding stock options or warrants are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be anti-dilutive.  Earnings per common share was computed as follows for the quarter and six months ended June 25, 2011 and June 26, 2010:

	Quarter Ended				Six Months Ended
	June 25, 2011		June 26, 2010		June 25, 2011		June 26, 2010
Basic Earnings Per Share:
Net income	$	859,884	$	1,375,653	$	2,226,066	$	2,622,050
Weighted average number of common shares	18,067,391		17,897,724		18,039,030		17,892,683
Earnings per common share	$	0.05	$	0.08	$	0.13	$	0.15
Diluted Earnings Per Share:
Net income	$	859,884	$	1,375,653	$	2,226,066	$	2,622,050
Weighted average number of common shares	18,067,391		17,897,724		18,039,030		17,892,683
Incremental shares from assumed conversions of stock options and non- vested shares of restricted stock	651,812		618,353		653,502		578,421
Adjusted weighted average number of common shares	18,719,203		18,516,077		18,692,532		18,471,104
Earnings per common share	$	0.05	$	0.07	$	0.12	$	0.14

8

Stock Options and Stock-Based Compensation

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

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

See Footnote 8 “Shareholder’s Equity” for additional information.

Adoption of New Accounting Pronouncements

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

2.             Inventories

Inventories consisted of the following:

	June 25,		December 25,
	2011		2010
Finished goods	$	10,999,916	$	6,576,130
Raw materials	14,255,976		15,238,800
	$	25,255,892	$	21,814,930

3.             Goodwill, Trademarks and Other Intangibles

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

	Estimated Useful Life	June 25, 2011			December 25, 2010
Goodwill:
Inventure Foods, Inc.		$	5,986,252		$	5,986,252
Rader Farms, Inc.		5,629,973			5,629,973
Total Goodwill		$	11,616,225		$	11,616,225
Trademarks:
Inventure Foods, Inc.		$	895,659		$	895,659
Rader Farms, Inc.		1,070,000			1,070,000
Other intangibles:
Rader - Covenant-not-to-compete, gross carrying amount	5 years	160,000			160,000
Rader - Covenant-not-to-compete, accum. Amortization		(130,682		)	(114,681		)
Rader - Customer relationship, gross carrying amount	10 years	100,000			100,000
Rader - Customer relationship, accum. amortization		(40,817		)	(35,818		)
Total Trademarks and other intangibles, net		$	2,054,160		$	2,075,160

9

Amortization expense related to these intangibles was $10,500 and $21,000 for the quarter and six months ended June 25, 2011 respectively, and $10,500 and $21,000 for the quarter and six months ended June 26, 2010, respectively.

Goodwill and trademarks are reviewed for impairment annually in the fourth fiscal quarter, or more frequently if impairment indicators arise. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduces the fair value of a reporting unit below its carrying value. Intangible assets with indefinite lives are required to be tested for impairment between the annual tests if an event occurs or circumstances change indicating that the asset might be impaired.  We believe the carrying values of our intangible assets are appropriate as of June 25, 2011.

4.             Accrued Liabilities

Accrued liabilities consisted of the following:

	June 25, 2011		December 25, 2010
Accrued payroll and payroll taxes	$	1,418,463	$	1,697,932
Accrued royalties and commissions	1,097,062		732,817
Accrued advertising and promotion	2,322,861		1,049,888
Accrued other	2,469,809		2,972,208
	$	7,308,195	$	6,452,845

5.             Long-Term Debt

Long-term debt consisted of the following:

	June 25,			December 25,
	2011			2010
Mortgage loan due monthly through July, 2012; interest at 9.03%; collateralized by land and building in Goodyear, AZ	$	1,410,943		$	1,447,228
Mortgage loan due monthly through December, 2016; interest rate at 30 day LIBOR plus 165 basis points, fixed through a swap agreement to 6.85%; collateralized by land and building in Bluffton, IN	2,115,916			2,152,254
Equipment term loan due monthly through May, 2014; interest at LIBOR plus 165 basis points; collateralized by equipment at Rader Farms in Lynden, WA	2,571,429			3,000,000
Real Estate term loan due monthly through July, 2017; interest at LIBOR plus 165 basis points; fixed through a swap agreement to 4.28%; secured by a leasehold interest in the real property in Lynden, WA	3,334,293			3,430,943
Capital Lease Obligations, primarily due September 2017	3,045,342			3,228,427
Vehicle term loan and other miscellaneous loans due in various monthly installments through February, 2011; collateralized by vehicles	—			1,141
	12,477,923			13,259,993
Less current portion of long-term debt	(1,721,646		)	(1,692,193		)
Long-term debt, less current portion	$	10,756,277		$	11,567,800

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

·a $25.0 million revolving line of credit maturing on July 30, 2014; $13.2 million was outstanding at June 25, 2011. Based on eligible assets, there was $7.3 million of borrowing availability under the line of credit at June 25, 2011.  All borrowings under the revolving line of credit will bear interest at either (i) the prime rate of interest announced by U.S. Bank from time to time or (ii) LIBOR, plus the LIBOR Rate Margin (as defined in the revolving credit facility note as adjusted).  On March 21, 2011, we entered into an amended revolving line of credit agreement with U.S. Bank extending our line from $15.0 million up to $25.0 million, maturing in July 2014.  The minimum fixed charge coverage ratio and maximum leverage ratio were modified and the minimum tangible net worth covenant was removed.  Aside from the covenant changes, the terms of the equipment term loan and real estate term loan were not materially modified.

10

·Equipment term loan due May 2014 noted above.

·Real estate term loan due July 2017 noted above.

As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. The agreement, as modified, requires us to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio and a leverage ratio. At June 25, 2011, we were in compliance with all of the financial covenants.

Interest Rate Swaps

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

We entered into an interest rate swap in 2006 to convert the interest rate of the mortgage to purchase the Bluffton, Indiana plant from the contractual rate of 30 day LIBOR plus 165 basis points to a fixed rate of 6.85%. On September 28, 2008, our first day of our fiscal fourth quarter, we prospectively redesignated the hedging relationship to a cash flow hedge.  The swap has a fixed pay-rate of 6.85% and a notional amount of approximately $2.1 million at June 25, 2011 and expires in December 2016.  We evaluate the effectiveness of the hedge on a quarterly basis and at June 25, 2011 the hedge is highly effective.  The interest rate swap had fair value of ($324,509) at June 25, 2011, which is recorded as a liability on the accompanying consolidated balance sheet.  The swap value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on June 25, 2011.

We entered into another interest rate swap in January 2008 to effectively convert the interest rate on the real estate term loan to a fixed rate of 4.28%.  The interest rate swap is structured with decreasing notional amounts to match the expected pay down of the debt.  The notional value of the swap at June 25, 2011 was $3.3 million.  The interest rate swap is accounted for as a cash flow hedge derivative and expires in July 2017.  We evaluate the effectiveness of the hedge on a quarterly basis and at June 25, 2011 the hedge is highly effective.  The interest rate swap had fair value of ($349,713) at June 25, 2011, which is recorded as a liability on the accompanying consolidated balance sheet.  This value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled on June 25, 2011.

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

	Quarter ended						Six Months Ended
	June 25, 2011			June 26, 2010			June 25, 2011			June 26, 2010
Net income	$	859,884		$	1,375,653		$	2,266,066		$	2,622,050
Change in fair value of interest rate swaps (net of tax)	(56,974		)	(125,972		)	(14,782		)	(165,042		)
Comprehensive Income	$	802,910		$	1,249,681		$	2,251,284		$	2,457,008

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6.Litigation

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.

7.Business Segments

Our operations consist of two reportable segments: snack products and frozen products.  We determined in June 2011 to change the name of our Berry Products segment to Frozen Products to reflect the breadth of the segement which also reports results from our smoothie beverage product line.  The change was in name only, as the product lines included in both the snack and frozen products segment remain the same.

The snack products segment produces potato chips, potato crisps, potato skins, pellet snacks, kettle chips, and extruded product for sale primarily to snack food distributors and retailers.  This segment includes a limited number of snack food products purchased and sold through our local distribution network in Arizona.  The frozen products segment produces frozen fruit products, such as berries and smoothies, for sale primarily to club stores, groceries and mass merchandisers.  Our reportable segments offer different products and services.  The majority of our revenues are attributable to external customers in the United States.  We sell to external customers internationally in over 40 countries worldwide, however the revenues attributable to those customers are immaterial.  All of our assets are located in the United States.

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

	Snack Products		Frozen Products		Consolidated
Quarter ended June 25, 2011
Net revenues from external customers	$	24,920,265	$	18,689,071	$	43,609,336
Depreciation and amortization included in segment gross profit	440,316		210,823		651,139
Segment gross profit	5,236,241		2,861,312		8,097,553
Goodwill	5,986,252		5,629,973		11,616,225
Quarter ended June 26, 2010
Net revenues from external customers	$	23,062,893	$	11,850,092	$	34,912,985
Depreciation and amortization included in segment gross profit	295,120		195,599		490,719
Segment gross profit	4,974,145		2,966,487		7,940,632
Goodwill	5,986,252		5,629,973		11,616,225
Six months ended June 25, 2011
Net revenues from external customers	$	46,663,310	$	33,586,708	$	80,250,018
Depreciation and amortization included in segment gross profit	854,145		417,769		1,271,914
Segment gross profit	9,612,468		6,415,581		16,028,049
Goodwill	5,986,252		5,629,973		11,616,225
Six months ended June 26, 2010
Net revenues from external customers	$	42,409,951	$	23,899,223	$	66,309,174
Depreciation and amortization included in segment gross profit	596,395		373,534		969,929
Segment gross profit	8,064,653		6,721,851		14,786,504
Goodwill	5,986,252		5,629,973		11,616,225

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The following table reconciles reportable segment gross profit to our consolidated income before income tax provision for the quarters and six months ended June 25, 2011 and June 26, 2010:

	Quarter Ended						Six Months Ended
	June 25, 2011			June 26, 2010			June 25, 2011			June 26, 2010
Segment gross profit	$	8,097,553		$	7,940,632		$	16,028,049		$	14,786,504
Unallocated amounts:
Selling, general and administrative expenses	(6,544,826		)	(5,524,297		)	(12,054,085		)	(10,084,261		)
Interest expense, net	(199,021		)	(181,479		)	(417,731		)	(397,862		)
Income before income tax provision	$	1,353,706		$	2,234,856		$	3,556,233		$	4,304,381

8.Shareholders’ Equity

Our 1995 Stock Option Plan (the “1995 Plan”), as amended, provided for the issuance of options to purchase 3,500,000 shares of Common Stock.  The 1995 Plan expired in May 2005 with 410,518 reserved but unissued shares of Common Stock available for issuance under the 1995 Plan, and was replaced by the Inventure Group, Inc. 2005 Equity Incentive Plan (the “2005 Plan”) as described below.  No awards remain outstanding under the 1995 Plan.

The 2005 Plan was approved at our 2005 Annual Meeting of Shareholders and initially reserved for issuance 410,518 shares of Common Stock, which is the number of reserved but unissued shares available for issuance under the 1995 Plan.  The number of shares of Common Stock reserved for issuance has been increased since 2005 to a total of 2,710,518 as of the date of this filing, pursuant to a series of amendments to the 2005 Plan approved by our shareholders.  If any shares of Common Stock subject to awards granted under the 2005 Plan are canceled, those shares will be available for future awards under the 2005 Plan.  The 2005 Plan expires in May 2015, and awards granted under the 2005 Plan may include: nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and stock-reference awards.  Prior to May 2008, all stock option grants had a five year term. The fair value of these stock option grants is amortized to expense over the vesting period, generally five years for employees and one year for the Board of Directors.  In May 2008, our Board of Directors approved a 10 year term for all future stock option grants, with vesting periods of five years and one year for employees and Board of Director members, respectively.

Restricted share activity for the six months ending June 25, 2011 was as follows:

	Plan Restricted Shares
	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Balance, December 25, 2010	299,334		$	3.20
Granted	176,000		4.09
Vested	(69,667	)	3.00
Forfeited	—		—
Balance, June 25, 2011	405,667		$	3.62

During the six months ending June 25, 2011 and June 26, 2010, the total share-based compensation expense from restricted stock recognized in the financial statements was $0.2 million and $0.07 million respectively, which reduced income from operations accordingly.  There were no share-based compensation costs which were capitalized.  As of June 25, 2011 and June 26, 2010 the total unrecognized costs related to non-vested restricted stock awards granted was $1.2 million and $0.9 million respectively.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.  All restricted stock awards vest three years from the date of grant for employees, and one year for Board of Directors. Share-based compensation expense related to restricted stock awards is recognized on the straight-line method over the requisite vesting period, and the related share-based compensation expense is included in selling, general and administrative expenses.

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The following table summarizes stock option activity during the six months ended June 25, 2011:

	Plan Options
	Options Outstanding		Weighted Average Exercise Price
Balance, December 25, 2010	2,145,500		$	2.37
Granted	214,500		4.17
Forfeited	(79,500	)	1.90
Cancelled	—		—
Exercised	(89,000	)	2.50
Balance, June 25, 2011	2,191,500		$	2.56

During the six months ending June 25, 2011 and June 26, 2010, the total share-based compensation expense from stock options recognized in the financial statements was $0.3 million and $0.1 million respectively, which reduced income from operations accordingly.  There were no share-based compensation costs which were capitalized.  As of June 25, 2011 and June 26, 2010 the total unrecognized costs related to non-vested stock option awards granted was $0.8 million and $0.7 million respectively.  We expect to recognize such costs in the financial statements over a weighted average period of 5.0 years.  This expected compensation expense does not reflect any new awards, or modifications to existing awards, that could occur in the future.  Generally, we issue new shares upon the exercise of stock options, as opposed to reissuing treasury shares.

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the quarters and six months ended:

	Quarter Ended				Six Months Ended
	June 25, 2011		June 26, 2010		June 25, 2011		June 26, 2010
Expected dividend yield	0	%	0	%	0	%	0	%
Expected volatility	58	%	73	%	58	%	73	%
Risk-free interest rate	3.2	%	3.2% - 3.7	%	3.2% - 3.5	%	3.2% - 3.7	%
Expected life	6.5 years		6.5 years		6.5 years		6.5 years

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

The intrinsic value related to total stock options outstanding was $3.2 million as of June 25, 2011 and $2.0 million as of June 26, 2010.  The intrinsic value related to vested stock options outstanding was $2.3 million as of June 25, 2011 and $1.0 million as of June 26, 2010.  The aggregate intrinsic value is based on the exercise price and our closing stock price of $3.98 as of June 25, 2011 and $3.20 as of June 26, 2010.

Issuer Purchases of Equity Securities

The Company’s Board of Directors approved a stock re-purchase program that was publically announced on Form 8-K filed with the SEC on June 21, 2011 whereby up to $3 million of common stock could be purchased from time to time at the discretion of management (the “2011 program”).  Repurchased shares under such a program are generally held as treasury stock and are available for general corporate purposes unless and until such shares are retired by the Board.  The 2011 program expires on June 20, 2012.  No shares have been repurchased under the 2011 program through the date of this filing.  We continue to evaluate our share repurchase opportunities.

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

This Quarterly Report on Form 10-Q, including all documents incorporated by reference, includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and Inventure Foods, Inc. desires to take advantage of the “safe harbor” provisions thereof.  Therefore, we are including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all of such forward-looking statements. In this Quarterly Report on Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “will likely result,” “will continue,” “future” and similar terms and expressions identify forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including without limitation general economic conditions, increases in cost or availability of ingredients, packaging, energy and employees, price competition and industry consolidation, ability to execute strategic initiatives, product recalls or safety concerns, disruptions of supply chain or information technology systems, customer acceptance of new products and changes in consumer preferences, food industry and regulatory factors, interest rate risks, dependence upon major customers, dependence upon existing and future license agreements, the possibility that we will need additional financing due to future operating losses or in order to implement our business strategy, acquisition-related risks, volatility of the market price of the our common stock, par value $.01 per share, and those other risks and uncertainties discussed herein, that could cause actual results to differ materially from historical results or those anticipated.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Quarterly Report on Form 10-Q will in fact transpire or prove to be accurate.  Readers are cautioned to consider the specific risk factors described herein and in “Risk Factors” in the our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof.  We undertake 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.

Results of Operations

Our operations consist of two reportable segments:  snack products and frozen products.  We renamed our Berry Products segment Frozen Products in June, 2011.  See Footnote 7 to our Financial Statements “Business Segments.”  The snack products segment includes manufactured potato chips, kettle chips, potato crisps, potato skins, pellet snacks and extruded product for sale primarily to snack food distributors and retailers.  This segment includes a limited number of snack food products purchased and sold through our local distribution network in Arizona.  The frozen products segment produces frozen fruit products, such as berries and smoothies, for sale primarily to groceries and mass merchandisers.

Quarter ended June 25, 2011 compared to the quarter ended June 26, 2010

	2011				2010				Difference
(dollars in millions)	$		% of Rev		$		% of Rev		$			%
Net revenues	$	43.6	100.0	%	$	34.9	100.0	%	$	8.7		24.9	%
Cost of revenues	35.5		81.4		27.0		77.3		8.5			31.7
Gross profit	8.1		18.6		7.9		22.7		0.2			2.0
Selling, general and administrative expenses	6.5		15.0		5.5		15.8		1.0			18.5
Operating income	1.6		3.6		2.4		6.9		(0.8		)	(35.7	)
Interest expense, net	0.2		0.5		0.2		0.6		0.0			0.0
Income before income taxes	1.4		3.1		2.2		6.4		(0.9		)	(39.4	)
Income tax provision	0.5		1.1		0.9		2.5		0.4			42.5
Net income	$	0.9	2.0	%	$	1.4	3.9	%	$	(0.5	)	(37.5	)%

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Quarter ended June 25, 2011 compared to the quarter ended June 26, 2010

Net revenues increased 24.9%, or $8.7 million, to $43.6 million for the quarter ended June 25, 2011 compared with net revenues of $34.9 million for the second quarter in 2010.  Snack products segment net revenues were $24.9 million, up $1.9 million and 8.1% from prior year.  Snack products segment growth was driven by net revenue increases of 23.9% for Boulder Canyon™, 17.0% for T.G.I.Fridays®, and 48.2% for private label, primarily driven by pricing increases and volume growth.  Frozen products segment net revenues were $18.7 million, an increase of $6.8 million or 57.7%.  The frozen products segment revenue increase was driven by the continued roll-out of our Jamba® All Natural Smoothies.  Jamba® net revenue for the quarter was $6.3 million.  Excluding Jamba® net revenues, frozen products segment net revenues were up 11.1% for the quarter.

Gross profit for the quarter increased $0.2 million or 2.0% to $8.1 million, and decreased as a percentage of net revenues to 18.6% for the quarter ended June 25, 2011 as compared to 22.7% in the second quarter of 2010.  Snack products segment gross profit of $5.2 million increased $0.3 million or 5.3% and decreased as a percentage of net revenues to 21.0% as compared to 21.6% in 2010.  The price increases taken late in the second quarter were partially offset by increases in our revenue reduction tradespend to promote Boulder Canyon™ growth and increased freight costs borne by higher fuel prices.  The frozen products segment gross profit of $2.9 million was down $0.1 million or 3.5%, and decreased as a percentage of net revenues to 15.3% from 25.0%.  The decrease in gross profit dollars and net revenue percentages for the quarter are primarily attributable to the trade promotion and related expenditures incurred for our Jamba® Smoothies national roll-out, including a national coupon program executed at a major warehouse retailer during the quarter.  Additionly, the frozen products segment was impacted by the higher cost of berries relative to the prior year, which benefited from the exceptional 2009 berry harvest.

Selling, general and administrative (“SG&A”) expenses were $6.5 million or 15.0% of net revenues for the quarter ended June 25, 2011, an increase of $1.0 million and down 0.8 percentage points from 15.8% of net revenues compared to the second quarter of 2010.  The increase in SG&A expenses were primarily driven by increased sales and marketing expenses of approximately $1.1 million primarily driven by our continued investment in Jamba® and Boulder Canyon™ through additional hiring, marketing, sampling and sales commission expense.

The income tax provision of $0.5 million is $0.4 million less than the income tax provision of $0.9 million in the second quarter of 2010.  Our effective income tax expense rate was 36.5% in the second quarter of 2011 compared to 38.4% in the second quarter of 2010.  The change in the effective rate is due to the impact of domestic production activity deductions of $0.04 million, representing a 3.0% reduction in the effective rate, research and development tax credits of $0.05 million, representing a 3.6% reduction in the effective rate, offset by a $0.07 million increase in tax-effected equity compensation costs and other items, representing a 4.7% increase in the effective rate.

Consolidated net income for the quarter ended June 25, 2011 was $0.9 million, representing a $0.5 million or 37.5% decrease when compared to $1.4 million for the prior year quarter as a result of the factors discussed above.  The net income for the second quarter of 2011 equated to $0.05 per basic share and fully diluted share, compared with $0.08 per basic share and $0.07 per fully diluted share in the second quarter of 2010.

Six months ended June 25, 2011 compared to the six months ended June 26, 2010

	2011				2010				Difference
(dollars in millions)	$		% of Rev		$		% of Rev		$			%
Net revenues	$	80.3	100.0	%	$	66.3	100.0	%	$	13.9		21.0	%
Cost of revenues	64.2		80.0		51.5		77.7		12.7			24.6
Gross profit	16.0		20.0		14.8		22.3		1.2			8.4
Selling, general and administrative expenses	12.1		15.0		10.1		15.2		2.0			19.5
Operating income	4.0		5.0		4.7		7.1		(0.7		)	(15.5	)
Interest expense, net	0.4		0.5		0.4		0.6		0.0			5.0
Income before income taxes	3.6		4.4		4.3		6.5		(0.7		)	(17.4	)
Income tax provision	1.3		1.6		1.7		2.5		0.4			23.3
Net income	$	2.3	2.8	%	$	2.6	4.0	%	$	(0.4	)	(13.6	)%

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For the six months ended June 25, 2011 net revenues increased $13.9 million or 21.0% to $80.3 million compared to $66.3 million in the first half of the previous year.  Snack product segment net revenues were $46.7 million, up 10.0% over last year’s first half net revenues, led by growth in our Boulder Canyon™, T.G.I.Friday’s®, and private label products, resultant of pricing and volume increases.  Frozen product segment net revenues were $33.6 million, up 40.5% over last year’s first half net revenues.  The frozen products segment increase was primarily driven by our Jamba® smoothies national roll-out.  Jamba® Smoothies totaled $8.4 million in net revenues for the first half of 2011, compared to $0.7 million in the previous year.  Excluding Jamba® net revenues, the frozen products segment net revenue was up 8.8% for the first half of 2011.

Gross profit for the six months ended June 25, 2011 was $16.0 million, or 20.0% of net revenues, compared to $14.8 million, or 22.3% of net revenues, for the prior year.  Snack products segment gross profit of $9.6 million increased $1.5 million or 19.2% and increased as a percentage of net revenues to 20.6% as compared to 19.0% in 2010.  Snack products segment gross profit growth for the first half was driven primarily by strong volumes in our more profitable brands and channels.  The frozen products segment gross profit of $6.4 million was down $0.3 million or 4.6%, and decreased as a percentage of net revenues to 19.1% from 28.1%.  The decrease in gross profit dollars and net revenue percentages for the first half are primarily attributable to our increased spending on trade promotion, slotting fees, and coupon expense supporting the Jamba® Smoothies national rollout.  The frozen products segment was also impacted by the higher cost of berries relative to the prior year, which benefited from the exceptional 2009 berry harvest

Selling, general and administrative expenses increased to $12.1 million for the first half of 2011, up $2.0 million from the prior year.  Selling, general and administrative expenses were 15.0% of total net revenues for the first half of 2011, a 0.2 percentage decrease compared to the first half of 2010.  The dollar increase is primarily related to the additional promotional support of our Jamba® and Boulder Canyon™ products, including demonstration and marketing expenses, as well as increased additional sales and marketing personnel supporting the Jamba® and Boulder Canyon™ brands.

The income tax provision of $1.3 million is $0.4 million less than the $1.7 million of tax provision in the first half of 2010.  Our effective income tax expense rate was 36.3% in the first half of 2011 compared to 39.1% in the first half of 2010.  The change in the effective rate is due to the impact of domestic production activity deductions of $0.1 million, representing a 2.9% reduction in the effective rate, research and development tax credits of $0.07 million, representing a 2.1% reduction in the effective rate, offset by a $0.09 million increase in tax-effected equity compensation costs and other items, representing a 2.2% increase in the effective rate.

Consolidated net income for the first half ended June 25, 2011 was $2.3 million, representing a $0.4 million or 13.6% decrease when compared to $2.6 million for the prior year first half, as a result of the factors discussed above.  The net income for the first half of 2011 equated to $0.13 per basic share and $0.12 per fully diluted share, compared with $0.15 per basic share and $0.14 per fully diluted share in the first half of 2010.

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.  Sufficient liquidity is expected to be available to enable us to meet these demands.  Net working capital was $22.4 million (a current ratio of 2.0:1) and $20.6 million (a current ratio of 2.3:1) at June 25, 2011 and December 25, 2010, respectively.

Operating Cash Flows

Net cash provided by operating activities was $3.6 million for the six months ended June 25, 2011 and $7.6 million for the six months ended June 26, 2010. The overall $4.0 million decrease was primarily a result of our increases in accounts receivable of $5.3 million in the first six months of 2011, compared to $2.1 million in the same period in 2010, and attributable to our net revenue growth.  In addition, cash used to build inventory in the first six months of 2011 was $3.4 million compared to $1.3 million in the same period in 2010.  The $2.1 million year-over-year increase in inventory was the primary driver of the $0.7 million year over year increase in accounts payable and accrued liabilities.

17

Investing Cash Flows

Net cash used in investing activities, all representing capital expenditures, was $6.6 million in the first six months of 2011 compared to $3.5 million in the first six months of 2010.  Capital expenditures of $6.6 million in 2011 relate to the purchase of manufacturing equipment of $5.1 million, primarily at our Goodyear facility for new kettles and packaging, $0.9 million of building improvements, and $0.6 million in furniture and office equipment.  Capital expenditures of $3.5 million in the first six months of 2010 relates to manufacturing equipment of $2.8 million, primarily relating to the installation of the Jamba line, building improvements of $0.5 million and $0.2 million in furniture and office equipment.  In 2011, we plan to spend approximately $10.0 million in capital expenditures, primarily at our manufacturing facilities.  Capital expenditures are funded primarily by net cash flow from operating activities, cash on hand, and available credit from our credit facility.

Financing Cash Flows

Net cash provided by financing activities for the first six months of 2011 was $3.4 million compared to net cash used of $3.9 million in the first six months of 2010.  The $7.3 million increase in net cash provided by financing activities was primarily a result of additional borrowings of $8.0 million on our revolving line of credit year over year.  The increase of borrowings on our credit facility is due to our capital expenditure initiatives in progress at our Goodyear facility, increased accounts receivables generated from higher net revenues, and planned build-up of inventories for our national Jamba® Smoothies launch.

Debt and Capital Resources

As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period.  The agreement requires us to maintain compliance with certain financial covenants, including a minimum tangible net worth, a minimum fixed charge coverage ratio and a leverage ratio. At June 25, 2011, we were in compliance with all of the financial covenants.

Outlook

We believe that our current financing arrangement with U.S. Bank will provide adequate ability to finance future capital expenditures. We anticipate 2011 capital expenditures of approximately $10.0 million, funded through working capital and various purchase or leasing arrangements. Our plans are not expected to materially affect our financial ratios or liquidity.  In connection with the implementation of the our business strategy, we may incur operating losses in the future and may require future debt or equity financings (particularly in connection with future strategic acquisitions, new brand introductions or capital expenditures).  Expenditures relating to acquisition-related integration costs, market and territory expansion and new product development and introduction may adversely affect promotional and operating expenses and consequently may adversely affect operating and net income.  These types of expenditures are expensed for accounting purposes as incurred, while revenue generated from the result of such expansion or new products may benefit future periods.  Management believes that we will generate positive cash flow from operations during the next twelve months, which, along with our existing working capital and borrowing facilities, will enable us to meet our operating cash requirements for the next twelve months.  The belief is based on current operating plans and certain assumptions, including those relating to our future revenue levels and expenditures, industry and general economic conditions and other conditions.  For instance, if current general economic conditions continue or worsen, we believe that our sales forecasts may prove to be less reliable than they have in the past as consumers may change their buying habits with respect to snack food products.  Unexpected price increases for commodities used in our snack products, or adverse weather conditions affecting our Rader Farms crop yield could also impact our financial condition.  If any of these factors change, we may require future debt or equity financings to meet our business requirements.  Any required financings may not be available or, if available, may not be on terms attractive to us.

Interest Rate Swaps

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

18

Contractual Obligations

Our future contractual obligations consist principally of long-term debt, operating leases, minimum commitments regarding third party warehouse operations services, remaining minimum royalty payments due licensors pursuant to brand licensing agreements and severance charges to terminated executives.  As of June 25, 2011 there have been no material changes to our contractual obligations since our December 25, 2010 fiscal year end, other than scheduled payments.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates since the filing of our Form 10-K for the year ended December 25, 2010.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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

Item 4.  Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective 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 of 1934 (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

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

Part II.Other Information

Item 1.Legal Proceedings

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 the financial statements taken as a whole.

Item 1A. Risk Factors

During the quarter and six months ended June 25, 2011, there were no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 25, 2010.

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

None.

Item 3.Defaults Upon Senior Securities

None.

Item 5.Other Information

None.

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Item 6.Exhibits

(a)Exhibits:

10.80 —*	Inventure Foods, Inc. Amended and Restated 2005 Equity Incentive Plan (1)
31.1 —	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
31.2 —	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
32.1 —	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Incorporated by reference to the Company’s definitive Proxy Statement on Schedule 14A filed on April 15, 2011.
*	Management compensatory plan or arrangement.

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SIGNATURES

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

Dated:	August 4, 2011	INVENTURE FOODS, INC.
		By:	/s/ Terry McDaniel
			Terry McDaniel
			Chief Executive Officer
			(Principal Executive Officer)

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EXHIBIT INDEX

10.80—*	Inventure Foods, Inc. Amended and Restated 2005 Equity Incentive Plan (1)
31.1 —	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
31.2 —	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a).
32.1 —	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Incorporated by reference to the Company’s definitive Proxy Statement on Schedule 14A filed on April 15, 2011.
*	Management compensatory plan or arrangement.

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