SNAK Inventure Foods, Inc. (MM)

PART I

In our indulgent specialty snack food category, products include 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® kettle cooked potato chips, Bob’s Texas Style® kettle cooked chips and Tato Skins® brand potato snacks. We also manufacture private label snack chip products for several grocery chains and natural stores and co-pack products for other snack manufacturers.  While extremely price competitive, we believe that such arrangements provide a profitable opportunity for us to improve the capacity utilization of our manufacturing facilities. For fiscal 2016, 2015 and 2014, net revenues of our indulgent specialty snack category totaled $38.2 million, $44.5 million and $49.1 million, respectively.

During fiscal 2016 and 2015, we launched the following new products under our existing brands:

The contributions of each product segment to net revenues from external customers are set forth in Note 12 “Business Segments and Significant Customers” to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

Business Strategy

Our business strategy is to continue building a diverse portfolio of high quality, competitively priced healthy/natural food brands and indulgent specialty snack food brands through expansion of existing brands, licensing and through acquisitions.  Our goals are to (i) capitalize on healthy/natural consumer trends, (ii) capture the market segment of consumers interested in indulgent specialty snacks, (iii) deliver incremental category growth for retailers, (iv) drive innovation in our brands and each consumer segment, (v) build relationships with major retailers in all channels of distribution by providing them higher margins, unique product offerings and excellent customer service, and (vi) maintain a diverse set of brands, products, customers and channels.  The primary elements of our long-term business strategy are as follows:

Develop, Promote, Acquire or License Innovative Healthy/Natural and Indulgent Specialty Snack Food Brands .  A significant element of our business strategy is to develop, promote, acquire or license new innovative healthy/natural frozen and snack brands as well as build our indulgent specialty snack food brands.  Our focus is on our stronger, faster growing national brands in order to expand, complement and diversify our business. Our primary focus is to promote products under brands which we own.

Broaden Distribution of Existing Brands.  We plan to increase distribution and market share of our existing branded products through additional market penetration and consumer and trade activity supporting the brands within various existing markets, new markets and channels. Marketing efforts may include, among other things, trade advertising and promotional programs with distributors and retailers, in-store advertisements, in-store displays and limited consumer advertising, public relations social media and coupon programs. We believe growth opportunities exist to increase the distribution of our (i) Boulder Canyon®, Fresh Frozen™ and Radar Farms products in grocery stores, which have all-commodity volumes, or ACVs, in such stores of less than 50% for Boulder Canyon®, less than 9% for Fresh Frozen™ and less than 23% for Radar Farms, (ii) Boulder Canyon® and Fresh Frozen™     products in mass merchandise stores, (iii) Boulder Canyon® and Radar Farms products in club stores, and (iv) Boulder Canyon® products in natural food store, vending, foodservice, drug and convenience stores. Our Boulder Canyon® products have an ACV of approximately 88% in natural food stores.

Broaden Distribution of Private Label .  We plan to increase distribution of our private label products to existing and new customers.  This will help leverage our infrastructure and capacity and is expected to improve profit margins as there are no related advertising and promotional costs with the customers.  Our manufacturing and distribution of private label products enhances our ability to partner and grow our branded business with key retailers.

Develop New Products for Existing Brands .  We plan to continue our innovation activities to identify and develop (i) new product forms and formats within our brands, (ii) add new line extensions for our brands, such as new flavors or products, and (iii) explore new food categories to expand the presence of our brands.

Leverage Infrastructure and Capacity.  Our Bluffton, Indiana, Goodyear, Arizona, Lynden, Washington, Salem, Oregon, Jefferson, Georgia, and Thomasville, Georgia facilities operated at approximately 25%, 71%, 67%, 75%, 50% and 33% of their respective manufacturing capacities as of December 31, 2016.  We intend to continue to expand our branded product lines, as well as secure new manufacturing opportunities in private label and co-packing arrangements. In addition, we plan to continue capital investment in our plants and improve operating efficiencies.

Improve Profit Margins.  We plan to increase our profit margins through increased long-term revenue growth, improved operating efficiencies, higher margin new products and high-growth product categories. For example, we believe the following margin improvement initiatives are important elements of our strategy: rationalization of unprofitable customers, improved product mix and channel flow, expanded sales growth, improved operating efficiencies and leverage and higher margin new product introductions. We believe that improved profit margins are possible with the achievement of the business strategies discussed above.

Manufacturing

Our Company-owned manufacturing facility in Bluffton, Indiana produces snack products utilizing a sheeting and frying process with three fryer lines that can produce up to approximately 9,000 pounds per hour, two extruded lines capable of producing up to 4,000 pounds per hour, and in 2016, the installation of four batch-frying kettles which extended the Company’s kettle potato chip production beyond our plant in Goodyear, Arizona. Previously introduced production capabilities at our Bluffton, Indiana facility allow us to use existing equipment to make additional snacks, including pellet snacks, which are entirely different in appearance and taste from our other product lines. We believe this technology will help expand our product lines and facilitate growth. In fiscal 2016, the Company installed the aforementioned four batch-frying kettles to expand the geographical manufacturing capabilities for our growing kettle potato chip products including Boulder Canyon® Authentic Foods.  This marks the first time the Company has self-manufactured kettle potato chips outside of the Goodyear, Arizona facility.   Our Indiana facility is operating at approximately 21% of sheeted processing capacity, 12% of extruded capacity, and 54% of kettle potato chip capacity as of December 31, 2016.

Our Company-owned manufacturing facility in Goodyear, Arizona has the capacity to produce up to approximately 5,800 pounds of potato chips per hour, including 3,700 pounds of batch-fried potato chips per hour and 2,100 pounds of continuous-fried potato chips per hour. Poore Brothers®, Bob’s Texas Style®, Boulder Canyon® Authentic Foods, co-packing and private label branded potato chips are produced in a variety of flavors utilizing a batch-frying process. While conventional continuous line cooking methods may produce higher production volume, we believe that our batch-frying process is superior and produces premium potato chip products with enhanced crispness and distinctive flavor. In the fourth quarter of fiscal 2015 and first quarter of 2016 we installed a total of four additional batch-frying kettles and additional packaging equipment in our Goodyear, Arizona facility.  This facility is operating at approximately 70% of packaging capacity as of December 31, 2016. 

Our Company-owned Rader Farms farming facility in Lynden, Washington has the capacity to grow up to eight million pounds of raspberries and blueberries annually.  Rader Farms grows, processes and markets premium berry blends, raspberries, blueberries, and rhubarb and purchases marionberries, cherries, cranberries, strawberries and other fruits from a select network of fruit growers for resale. The fruit is processed and packaged for sale and distribution nationally to wholesale customers under the Rader Farms® brand, as well as through store brands. We also use third-party processors for certain products. Our individually quick frozen, or IQF, processing facilities located at the same location have the capacity to apply the IQF process to 55 million pounds of berries annually.  In fiscal 2013, we invested in new processing equipment to more effectively and efficiently cool the fruit after being harvested, thereby increasing quality. In May of 2016, we moved our packaging equipment for our Lynden, Washington facility to a leased facility adjacent to our largest fruit distribution center in Bellingham, Washington.   We expect this move to help lower freight costs and enhance the capacity and productivity of our IQF operations. Our Washington processing facility is operating at approximately 67% of packaging capacity as of December 31, 2016.

Willamette Valley Fruit Company has two plants in Salem, Oregon. Both plants occupy leased facilities and process and package marionberries, other blackberries, blueberries, strawberries, cranberries, rhubarb, and other fruits and vegetables for industrial customers, as well as contract manufacturing and private label brands. The processing facility has four IQF lines capable of freezing 35,000 pounds per hour of fruit during peak production. As this plant is seasonal with the fruit harvests, it operates at approximately 100% of capacity in the peak production months of June through September and at approximately 20% of capacity the remainder of the year. The packaging plant has the ability to package up to approximately 19 million pounds annually and is operating at 75% of capacity as of December 31, 2016.

Fresh Frozen Foods has two plants located in Jefferson, Georgia and Thomasville, Georgia that process and package IQF vegetables, beans and other items sold under the Fresh Frozen™ brand. The Jefferson plant operates as a packaging facility capable of packaging approximately 95 million pounds of products annually. This plant is operated at approximately 50% of capacity as of December 31, 2016. The Thomasville facility is a processing facility which has one

IQF line capable of producing approximately 77 million pounds of IQF carrots, peas, potatoes, onions and other vegetables and fruits annually. This plant is operating at approximately 33% of capacity as of December 31, 2016.

Marketing and Distribution

We conduct our marketing efforts through the following principal sets of activities: (i) consumer sampling and marketing in print, digital and social media, (ii) consumer incentives such as coupons, (iii) trade promotions to support price features, displays and other merchandising of our products by our customers, and (iv) public relations.

Our products are sold 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 products are distributed through Company-owned and third-party warehouses, direct store delivery, distribution centers and other facilities.

Suppliers

The principal raw materials we utilize are potatoes, potato flakes, potato starch, corn, oils, seasonings, berries and vegetables. We believe that the raw materials we need to produce our products are readily available from numerous suppliers on commercially reasonable terms. Potatoes, potato flakes and corn are widely available year-round, although they are subject to seasonal price fluctuations. We use a variety of oils and seasonings in the production of our snack products and believe that alternative sources for such oils and seasonings, as well as alternative oils and seasonings, are readily abundant and available. We may lock in prices for raw materials, such as oils, as we deem appropriate. We freeze an average of approximately 60% of our total annual berry requirements and approximately 35% of our total annual vegetable requirements in our own processing facilities, and augment that production by purchasing additional frozen berries and vegetables to meet customer demand. We purchase both fresh berries and vegetables from local farmers and already frozen berries and vegetables for our repackaging business, and we purchase yogurt in cube form from a third-party company for use in our at home smoothie kits. We use packaging materials in our snack and frozen businesses.

We choose our suppliers based primarily on price, quality, availability and service. Although we believe that our required products and ingredients are readily available, and that our business success is not dependent on any single supplier, the failure of certain suppliers to meet our performance specifications, quality standards or delivery schedules could have a material adverse effect on our business and results of operations. In particular, a sudden scarcity, a substantial price increase, or an unavailability of product ingredients could materially adversely affect our business and results of operations. In such circumstances, alternative ingredients may not be available when needed or, if available, on terms acceptable to the Company.

Customers

Costco accounted for approximately 19%, 23% and 26% of the Company’s 2016, 2015 and 2014 net revenues, respectively. The remainder of our revenues were derived from sales to customers, grocery chains, club stores, regional distributors and other manufacturers, none of which individually accounted for more than 10% of our net revenues in fiscal 2016.  A decision by any of our major customers to cease or substantially reduce their purchases could have a material adverse effect on our business.

The majority of our revenues are attributable to external customers in the United States.  We do sell to Canadian and international customers as well, however, the revenues attributable to these customers are immaterial.  All of our assets are located in the United States.

Competition

Our snack products generally compete against other snack foods, including potato chips, tortilla chips, popcorn, cheese snacks and other specialty snack brands. The snack food industry is large and highly competitive and is dominated by large food companies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc., The Kellogg Company, ConAgra Foods, Inc., Diamond Foods, Inc., General Mills, Inc. and Snyder’s-Lance, Inc. These companies possess

substantially greater financial, production, marketing, distribution and other resources than we do, and their brands are more widely recognized than our products.  Numerous other companies that are actual or potential competitors offer products similar to ours, and some of these have greater financial and other resources (including more employees and more extensive facilities) than we have. In addition, many competitors offer a wider range of products than we offer. Local or regional markets often have significant smaller competitors, many of whom offer products similar to ours. Expansion of our operations into new markets has and will continue to encounter significant competition from national, regional and local competitors that may be greater than that encountered by us in our existing markets. In addition, such competitors may challenge our position in our existing markets. While we believe that we have innovative products and methods of operation that will enable us to compete successfully, no assurance can be given that we will be able to do so when faced with such competition.

Our frozen berry products generally compete against other packaged berries on the basis of quality and price. Key competitors include Townsend Farms, Inc., Sunopta Inc., Cascadia Farm of Small Planet Foods, Inc., Wyman’s of Maine, Dole Food Company, Inc., Frozen Foods Inc., Stahlbush Island Farms Inc. and other regional IQF and bagging fruit operations.  Obtaining freezer space at grocery stores and club stores is critical to successfully compete with other berry products, as such stores will frequently only carry one brand of frozen berry products, contrasted to snack products where multiple brands are typically carried.

Our frozen vegetable products generally compete against other packaged vegetables on the basis of quality and price. Key competitors include the Birds Eye Frozen division of Pinnacle Foods, Inc., B&G Foods, The Pictsweet Company and Hanover Foods Corp. Obtaining freezer space at grocery stores and club stores is also critical to successfully compete with other vegetable products, as grocery stores and club stores will frequently only carry a few brands of frozen vegetable products.

Our smoothie kits generally compete against other packaged smoothie kits on the basis of quality and price. Key competitors include Dole Food Company, Inc. smoothies and a number of smaller competing brands. Obtaining freezer space at grocery stores, mass merchandiser and club stores is critical to successfully compete with other smoothie products, as grocery stores, mass merchandiser and club stores will frequently only carry two to three brands of frozen smoothie products, contrasted to snack products where multiple brands are typically carried.

The principal competitive factors affecting the markets in which we compete include product quality and taste, brand awareness among consumers, access to shelf or freezer space, price, advertising and promotion, varieties offered, nutritional content, product packaging and package design. We compete in our markets principally on the basis of product quality and taste. Frozen products are produced at our Lynden, Washington, Salem, Oregon and Thomasville, Georgia facilities utilizing IQF technology, for which we do not have exclusive rights.  However, we have patent pending technology to apply nutrients sourced from fruits and vegetables to boost the nutrition level in our fortified fruit products.  Products produced at our Bluffton, Indiana facility involve the use of unique technology including sheeted dough and pellet snacks. We do not have exclusive rights for this technology either. The taste and quality of the products we produce at our Goodyear, Arizona facility is largely attributable to three elements of our manufacturing process: batch-frying, distinctive seasonings and frying in unique oils to produce a variety of flavors. We do not have exclusive rights to the use of either element. Consequently, competitors may incorporate such elements into their own processes.

Government Regulation

The manufacture, labeling and distribution of our products are subject to the rules and regulations of a variety of federal, state and other governmental agencies.  There can be no assurance that new laws or regulations will not be passed that could require us to alter the taste or composition of our products or impose other obligations on us.  New or increased government regulation of the food industry, including, but not limited to, laws or regulations related to food safety, chemical composition, production processes, traceability, product quality, packaging, labeling and product recalls, could adversely impact our results of operations by increasing production costs, or restricting our methods of operation and distribution.  Such changes could also affect sales of our products and have a material adverse effect on our business, financial condition and results of operations.  These regulations may address food industry or society factors, such as obesity, nutritional and environmental concerns and diet trends.  In addition to laws relating to food

products, our operations are governed by laws relating to, among other things, environmental matters, workplace safety and worker health.  We believe that we presently comply in all material respects with such laws and regulations.

Employees

As of December 31, 2016, we had 687 total employees.  There are 583 employees in manufacturing and distribution, composed of 521 full-time and 62 part-time.  There are 41 employees in sales and marketing, and 63 in administration and finance.  Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage.  We believe that our relations with our employees are good.

Patents, Trademarks and Licenses

We own the following trademarks in the United States: Boulder Canyon®, Canyon Cut®, Rader Farms®, Poore Brothers®, Intensely Different®, Texas Style®, Tato Skins®, O’Boisies®, Pizzarias®, Braids®, Willamette Valley Fruit Company™, Fresh Frozen™ and Sin In A Tin™. We consider our trademarks to be of significant importance in our business. We are not aware of any circumstances that would have a material adverse effect on our ability to use our trademarks.

From time to time, we enter into licenses with owners of distinctive brands to produce branded snack food products. These licenses may require us to make royalty payments on sales and to achieve certain minimum sales levels by certain dates during the contract term.  The termination of any of our license agreements, whether at the expiration of their term or prior thereto, could have a material adverse effect on our business, financial condition and results of operations.

In 2000, we launched our T.G.I. Friday’s® brand snack products under a license agreement with T.G.I. Friday’s, which expires in December 2019, subject to automatic renewal for an additional five year term unless we provide notice of nonrenewal on or prior to July 1, 2019.  In July 2009, we entered into a license agreement with Jamba Juice, which expires in 2035, and, in 2010, launched a line of Jamba® branded blend-and-serve smoothie kits.  In January 2011, we entered into a license agreement with Nathan’s Famous Corporation, which expires in 2031, and launched a line of Crunchy Crinkle Fries. In June 2012, we entered into a license agreement with Vidalia Brands, Inc. that expires in 2019 and launched a line of onion flavored snacks. In November 2012, we entered into a license agreement with Seattle’s Best Coffee LLC, with an initial term expiring in November 2017 and an automatic five-year extension upon meeting certain minimum sales targets, and created a line of blend-and-serve frozen coffee drink kits.

We produce T.G.I. Friday’s® brand snack products, Tato Skins® brand potato crisps and Boulder Canyon® Authentic Foods Rice and Bean and Ancient Grains utilizing a sheeting and frying process that includes technology that we license from a third party. Under the terms of such license agreement, we have a royalty-bearing license to use the technology in the United States, Canada and Mexico until such time as the parties mutually agree to terminate the license agreement. Even though the patents for this technology expired in December 2006, in consideration for the use of this technology, we are required to make royalty payments on sales of products manufactured utilizing the technology until the termination date of such agreement. However, should products substantially similar to Tato Skins®, O’Boisies® and Pizzarias® become available for any reason in the marketplace by any manufacturer other than us which results in a sales decline of 10% or more, any royalty obligation for the respective products will cease.

In 2014, we introduced Rader Farms® Fruit PLUS Vitamins™, the first-ever fortified whole frozen fruit product.  Using proprietary technology and topical nutrients sourced from whole fruits and vegetables, Fruit PLUS Vitamins builds on naturally occurring vitamins found within whole strawberries, blueberries and blackberries and boosts the nutrition level with five additional vitamins: B1, B6, D, E and K.  We currently have a patent for this technology.

Seasonality

Sales of certain of our products tend to be seasonal and may be influenced by holidays, changes in seasons/weather or certain other annual events. Consumers tend to purchase our snack products at higher levels during

the major summer holidays and also at times surrounding major sporting events throughout the year.  Sales variation may also be affected by significant sales promotion activity or club channel rotations that might not occur at the same time each year. 

We farm or purchase fresh berries during the summer months and fresh vegetables during the spring and fall and freeze the fruit or vegetables for our retail or industrial products sold throughout the year.  Additionally, we may face seasonal price increases for raw materials.

Industry Practices

Our agreements with customers are generally short-term, primarily due to the nature of our products, industry practices and fluctuations in supply, demand and price for such products. In certain instances where we are selling further processed products to large customers, we may enter into written agreements whereby we will act as the exclusive or preferred supplier to the customer, with pricing terms that are either fixed or variable.

Research and Development

We incur research and development costs to support growth through the introduction of new products and the improvement in quality of existing products.  We recorded $0.2 million, $0.4 million and $0.3 million in fiscal 2016, 2015 and 2014, respectively, for research and development costs.

Available Information

Our Internet address is www.inventurefoods.com. We make available at this address, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). In this Form 10-K, we incorporate by reference as identified herein certain information from parts of our proxy statement for the 2017 annual meeting of stockholders, which we will file with the SEC and will be available free of charge on our website. Reports of our executive officers, directors and any other persons required to file securities ownership reports under Section 16(a) of the Exchange Act are also available through our website. Information contained on our website is not part of this Form 10-K.

You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet website located at http://www.sec.gov that contains the information we file or furnish electronically with the SEC.

thereto, and (ii) a five-year $85.0 million term loan facility (with all related loan documents, and as amended from time to time, the “Term Loan Credit Facility”), with BSP Agency, LLC (“BSP), as administrative agent, and the other lenders party thereto, which facilities replaced our prior credit agreement with U.S. Bank National Association (“U.S. Bank”) dated November 8, 2013 (with all related loan documents, and as amended from time to time, the “Prior Credit Facility”).  The ABL Credit Facility and the Term Loan Credit Facility are collectively referred to in this Form 10-K as the “Credit Facilities” and individually as a “Credit Facility.”

Under the terms of the Term Loan Credit Facility, we are required to comply with leverage ratio and fixed charge coverage ratio covenants by the end of the second quarter of fiscal 2017 and a minimum EBITDA target by the fiscal month ending April 30, 2017 (the “Minimum EBITDA Covenant”).  Absent a waiver from our Term Loan Credit Facility lenders or an amendment deferring compliance with the Minimum EBITDA Covenant, we will not be in compliance with this covenant at April 30, 2017.  Further, absent the completion by the end of our second fiscal quarter of a transaction yielding sufficient cash proceeds to pay down or refinance the Term Loan Credit Facility, or the receipt of a waiver from the lenders thereunder or a further amendment to the Term Loan Credit Facility, we will not be able to comply with the leverage ratio and fixed charge coverage ratio covenants. 

Further, under the terms of the ABL Credit Facility, we are required to comply with a fixed charge coverage ratio if our liquidity as of the date of any determination is less than the greater of (i) 12.5% of the Maximum Revolver Amount ($50,000,000) and (ii) $6,125,000, subject to certain conditions. As of March 31, 2017, we would not be able to comply with this ratio if our liquidity were to fall below the applicable threshold. Should the lenders under our Credit Facilities demand immediate repayment of all of our obligations, we will likely be unable to pay such obligations. In such event, we may have to recapitalize, refinance, raise additional liquidity by selling some or all of our assets or seek to reorganize under Chapter 11 of the United States Bankruptcy Code.   

Our Credit Facilities also require 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 included herein contain a “going concern” explanatory paragraph.  We have obtained a temporary waiver of the going concern qualification until May 15, 2017 from each of the lenders under our Credit Facilities.  Absent the completion by May 15, 2017 of a transaction yielding sufficient cash proceeds to pay down or refinance our debt, or receipt of further waivers from our lenders, we will be in default of the Credit Facilities as a result of the expiration of the temporary going concern waivers. 

Failure to meet any financial covenant under the Credit Facilities or the existence of a going concern opinion that has not been waived by our lenders would result in an event of default thereunder and, to the extent the applicable lenders so elect, an acceleration of the Company’s existing indebtedness, causing such debt of approximately $122.1 million at December 31, 2016 (including $5.2 million of other equipment financing indebtedness that includes cross-default provisions) to be immediately due and payable.  In such event, our lenders could foreclose on any of our assets securing such debt.  The Company does not have sufficient liquidity to repay all of its outstanding debt in full if such debt were accelerated.  It could also result in the termination of all commitments to extend further credit under our ABL Credit Facility.  Should the lenders under our Credit Facilities accelerate our debt and demand immediate repayment of all of our obligations, we may have to seek to reorganize under Chapter 11 of the United States Bankruptcy Code.    These events could materially adversely affect our business, results of operations and financial condition.  See also “Risks Related to Our Indebtedness, the Economy and the Credit Markets.”

In the future, it may be necessary for the Company to seek bankruptcy protection, which may harm our business, impact our creditors and place our equity holders at significant risk of losing some or all of their interests in our business.

If we are not able to timely complete a strategic transaction or obtain additional waivers from our lenders under the Credit Facilities or a further amendment thereto to defer compliance with our financial covenant requirements, we may seek protection under Chapter 11 of the United States Bankruptcy Code. Seeking bankruptcy protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. So long as a proceeding related to a Chapter 11 bankruptcy is ongoing, our senior management would be required to spend a significant amount of

time and effort dealing with the reorganization instead of focusing exclusively on our business operations. Bankruptcy protection also might make it more difficult to retain management and other key personnel necessary to the success and growth of our business. In addition, the longer a proceeding related to a bankruptcy continues, the more likely it is that our customers and suppliers would lose confidence in our ability to reorganize our businesses successfully and would seek to establish alternative commercial relationships or request financial assurances such as letters of credit and cash deposits.

It is not possible to predict the outcome of any bankruptcy proceeding that may be required. In the event of a bankruptcy proceeding, there can be no assurance that we would be able to restructure as a going concern or successfully propose or implement a plan of reorganization that provides for the continuation of the business post-bankruptcy. Moreover, we have a significant amount of secured indebtedness that is senior to our existing common shares.  As a result, we believe that if we are subject to a bankruptcy court proceeding, it is likely that holders of claims and interests with respect to our equity securities would be entitled to little or no recovery, and those claims and interests would likely be canceled for little or no consideration.

Material weaknesses can exist in our system of internal control over financial reporting, which could have a material impact on our business .  

Our ability to implement our business plan and comply with regulations requires an effective planning and management process. We expect that we will need to improve existing operational and financial systems, procedures and controls, and implement new ones, to manage our future business effectively.

Furthermore, we are required to maintain internal control over financial reporting adequate to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) . In connection with preparing this Form 10-K, we determined that we had a material weakness, as of December 31, 2016, in our controls over accounting for and reporting of our trade spend liabilities.

As a result of the material weakness in internal control over financial reporting as set forth above, we have concluded that, as of December 31, 2016, our internal controls over financial reporting were not effective. Until the evaluation and review of this material weakness is fully remediated, our ability to report results accurately and on time could be impaired.

Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional significant deficiencies or material weaknesses, cause us to fail to timely meet our periodic reporting obligations, or result in material misstatements in our consolidated financial statements. Any such failure could adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding disclosure controls and the effectiveness of our internal control over financial reporting, cause us to incur unforeseen costs, negatively impact our results of operations, or cause the market price of our Common Stock to decline.

We may incur losses and costs as a result of any product recalls we are required to make or product liability claims that may be brought against us .

We may need to recall some of our products if they become adulterated or if they are mislabeled.  We may also be liable if the consumption of any of our products causes injury.  Such injury could result from tampering by unauthorized third parties; product contamination (such as listeria, e-coli, and salmonella) or spoilage; the presence of foreign objects, substances, chemicals, and other agents; residues introduced during the growing, storage, handling or transportation phases; or improperly formulated products.  A widespread product recall could result in significant and unexpected expenditures and losses due to the costs of a recall, the destruction of product inventory and lost sales due to the unavailability of product for a period of time.  We could also suffer losses from a significant product liability judgment against us.  The product liability and product recall insurance maintained by us may not be adequate to cover any loss or exposure for product liability, and such insurance may not continue to be available on terms acceptable to us.  Any product liability claim not fully covered by insurance, as well as any adverse publicity resulting from a product liability claim or product recall, could have a material adverse effect on our operating results, and could also result in

adverse publicity, damage to our reputation and a loss of consumer confidence in our products.  In addition, our results could be adversely affected if consumers lose confidence in the safety and quality of our products, ingredients or packaging, even in the absence of a recall or a product liability case.

Concerns with the safety and quality of our food products or ingredients could negatively impact our brand image and profitability .

Our success depends on our ability to maintain consumer confidence in the safety and quality of our products or ingredients.  Our success also depends on our ability to maintain the brand image of our existing products, build up brand image for new products and brand extensions, and maintain our corporate reputation.  We cannot assure you, however, that our commitment to product safety and quality and our continuing investment in advertising and marketing will have the desired impact on our products’ brand image and on consumer preferences. Product safety or quality issues, actual or perceived, or allegations of product contamination, even when false or unfounded, could tarnish the image of the affected brands and may cause consumers to choose other products.  Allegations of product safety or quality issues or contamination, even if untrue, may require us from time to time to recall a product from all of the markets in which the affected production was distributed.  Such issues or recalls could negatively affect our profitability and brand image.

A significant portion of our revenues are derived from one customer.

Overall, Costco accounted for approximately 19% of our 2016 net revenues.  A decision by Costco to no longer carry certain frozen berry products could have a material adverse impact on our Frozen business.  A decision by any major customer to cease or substantially reduce its purchases, or a decrease in the popularity of frozen berries during any year, could have a material adverse effect on our operating results, and such decision by Costco would have a material adverse effect on our business, financial condition and results of operations.

We depend on a license agreement for the right to sell our T.G.I. Friday’s® and Jamba® brands.

For the year ended December 31, 2016, approximately 11.5% of our net revenues were attributable to the T.G.I. Friday’s® brand products, which are manufactured and sold by us under our license agreement with T.G.I. Friday’s that expires in December 2019, subject to one five year renewal period.  The license agreement imposes certain requirements and conditions on us (including, without limitation, minimum sales targets).  Our failure to comply with these requirements and conditions could result in the early termination of this license agreement by T.G.I. Friday’s.  If we are unsuccessful in negotiating an extension of this license agreement, or the license agreement is not renewed at the expiration of its term or is terminated prior thereto, our business, financial condition and results of operations would be materially and adversely affected.

For the year ended December 31, 2016, approximately 4.4% of our net revenues were attributable to the Jamba® brand products, which are manufactured and sold by us under our license agreement with Jamba Juice Company that expires in 2035.  Pursuant to the license agreement, we are required to make royalty payments on sales of Jamba® products and are required to achieve certain minimum sales levels by certain dates during the contract term.  Our failure to comply with these requirements and conditions could result in the early termination of this license agreement by Jamba Juice Company.  If this license is terminated early, our business, financial condition and results of operations would be materially and adversely affected.

Our business may be adversely affected by oversupply of snack and frozen products at the wholesale and retail levels.

Profitability in the food product industry is subject to oversupply of certain snack and frozen products at the wholesale and retail levels, which can result in our products going out of date before they are sold. 

We may incur substantial costs in order to market our products.

Successful marketing of our products generally depends upon obtaining adequate retail shelf space for product display, particularly in grocery stores.  Frequently, food manufacturers and distributors, incur costs in order to obtain additional shelf space.  Whether or not we incur such costs in a particular market is dependent upon a number of factors, including demand for our products, relative availability of shelf space and general competitive conditions.  We may incur significant shelf space or other promotional costs as a necessary condition of entering into competition or maintaining market share in particular markets or stores.  If incurred, such costs may have a material adverse effect on our results of operations.

We may not be able to respond successfully to shifting consumer preferences.

Consumer preferences evolve over time and are extremely difficult to predict.  Our success depends in part on our ability to timely respond to current market trends and anticipate changing consumer tastes and dietary habits and to develop and license new products that appeal to such preferences, including concerns of consumers regarding health and wellness, obesity, product attributes, and ingredients.  Introduction of new products and product extensions requires significant development and marketing investment.  If our products fail to meet consumer preferences, or we fail to introduce new and improved products on a timely basis, then the return on that investment will be less than anticipated and our strategy to grow sales and profits with investments in marketing and innovation will be less successful.  Similarly, demand for our products could be affected by increased attention to nutritional values, such as the sodium, fat, protein, or calorie content of different products, or concerns regarding the health effects of specific ingredients, such as gluten, soybeans, nuts, and oils.  If consumer demand for our products declines, our sales volumes and our business could be negatively affected.

We rely on information technology in our operations, and any material failure, inadequacy, interruption or breach of security of that technology could harm our ability to effectively operate our business.

We rely on information systems across our operations, including for management, sales, and order processing. Our ability to effectively manage our business and coordinate the sales and delivery of our products depends significantly on the reliability and capacity of these systems.  Like other companies, our information technology systems may be vulnerable to a variety of interruptions due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues.  The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, a material network breach in the security of these systems as a result of cyber-attack or computer hacking, or any other failure to maintain a continuous and secure cyber network could result in substantial harm or inconvenience to us or our customers.  This could include the theft of our intellectual property or trade secrets, or the improper use of personal information or other “identity theft.”  Each of these situations or data privacy breaches may cause delays in customer service, reduce efficiency in our operations, require significant capital investments to remediate the problem, or result in negative publicity that could harm our reputation and results.

The costs to eliminate or address the foregoing security threats and vulnerabilities before or after a cyber incident could be significant. The Company’s remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential suppliers or customers. In addition, breaches of the Company’s security measures and the unauthorized dissemination of sensitive personal, proprietary or confidential information about the Company, its business partners or other third parties could expose the Company to significant potential liability and reputational harm. As threats related to cyber-attacks develop and grow, the Company may also find it necessary to make further investments to protect its data and infrastructure, which may impact the Company’s profitability. Although the Company has insurance coverage for protecting against cyber-attacks, it may not be sufficient to cover all possible claims, and the Company may suffer losses that could have a material adverse effect on its business.

Changes in the legal and regulatory environment in which we operate could limit our business activities, increase our operating costs, reduce demand for our products or result in litigation.

The conduct of our businesses, including the production, storage, distribution, sale, display, advertising, marketing, labeling, health and safety practices, transportation and use of many of our products, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States, as well as to laws and regulations administered by government entities and agencies outside the United States in markets in which our products are made, manufactured or sold.  These laws and regulations and interpretations thereof may change, sometimes dramatically, as a result of a variety of factors, including political, economic or social events.  Such changes may include changes in: food and drug laws; laws related to product labeling, advertising and marketing practices; laws regarding the import or export of our products or ingredients used in our products; laws and programs restricting the sale and advertising of certain of our products; laws and programs aimed at reducing, restricting or eliminating ingredients present in certain of our products; laws and programs aimed at discouraging the consumption or altering the package or portion size of certain of our products; increased regulatory scrutiny of, and increased litigation involving, product claims and concerns regarding the effects on health of ingredients in, or attributes of, certain of our products; state consumer protection laws; taxation requirements, including the imposition or proposed imposition of new or increased taxes or other limitations on the sale of our products; competition laws; anti-corruption laws; employment laws; privacy laws; laws regulating the price we may charge for our products; and environmental laws.  New laws, regulations or governmental policy and their related interpretations, or changes in any of the foregoing, including taxes or other limitations on the sale of our products, ingredients contained in our products or commodities used in the production of our products, may alter the environment in which we do business and, therefore, may impact our operating results or increase our costs or liabilities.

We may incur significant future expenses in connection with the implementation of our business strategy.

We strive to achieve our long-term vision of being a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands. Our efforts are subject to the substantial risks, expenses and difficulties frequently encountered in the implementation of a business strategy. If we are unsuccessful in developing, acquiring and/or licensing new brands, and increasing distribution and sales volume of our existing products, our operating results could be negatively impacted. Even if we are successful, this business strategy may require us to incur substantial additional expenses, including advertising and promotional costs, “slotting” expenses (i.e., the cost of obtaining shelf or freezer space in certain grocery stores), and integration costs of any future acquisitions. We also may be unsuccessful at integrating any future acquisitions.

We may not be successful in our future acquisition or other strategic transaction endeavors, if any, which could have an adverse effect on our business and results of operations.

A material element of our business strategy is the development, acquisition and/or licensing of innovative specialty food brands, for the purpose of expanding, complementing and/or diversifying our business. We may in the future engage in acquisitions or other strategic transactions, such as joint ventures or investments in other entities to facilitate this business strategy. We may be unable to identify suitable targets, opportunistic or otherwise, for acquisitions or other strategic transactions in the future. If we identify a suitable candidate, our ability to successfully implement the strategic transaction would depend on a variety of factors, including our ability to obtain financing on acceptable terms and comply with the restrictions contained in our debt agreements. If we need to obtain our lenders’ consent to a strategic transaction, they may refuse to provide such consent or condition their consent on our compliance with additional restrictive covenants that limit our operating flexibility. Strategic transactions involve risks, including those associated with integrating the operations or maintaining the operations as separate (as applicable), financial reporting, disparate technologies and personnel of acquired companies, joint ventures or related companies; managing geographically dispersed operations, joint ventures or other strategic investments; the diversion of management’s attention from other business concerns; the inherent risks in entering markets or lines of business in which we have either limited or no direct experience; and the potential loss of key employees, customers and strategic partners of acquired companies, joint ventures or companies in which we may make strategic investments. We may not successfully integrate any businesses or technologies we may acquire or strategically develop in the future and may not achieve anticipated revenue and cost benefits relating to any such strategic transactions. Strategic transactions may be expensive, time consuming and may strain our resources. Strategic transactions may not be accretive to our earnings and may negatively impact our results of operations as a result of, among other things, the incurrence of debt, one-time write-offs

of goodwill and amortization expenses of other intangible assets. In addition, strategic transactions that we may pursue could result in dilutive issuances of equity securities.

Risks Related to Our Indebtedness, the Economy and the Credit Markets

We are required to comply with certain ongoing financial and other covenants under our Credit Facilities, and if we fail to meet those covenants or otherwise suffer a default thereunder, our lenders may accelerate the payment of such indebtedness.

On November 18, 2015, we entered into the ABL Credit Facility and the Term Loan Credit Facility, which facilities replaced our Prior Credit Facility.  Our obligations under the ABL Credit Facility and the Term Loan Credit Facility are secured by substantially all of our assets and are guaranteed by our subsidiaries.  We are required to comply with certain financial and other restrictive covenants pursuant to these two Credit Facilities so long as borrowings remain outstanding thereunder. 

Absent the completion of a transaction yielding sufficient cash proceeds to pay down or refinance our debt, or  receipt of waivers from our lenders   or a further amendment to the Term Loan Credit Facility , we will not be able to comply with the financial covenants under our Credit Facilities when required to do so.  Failure to meet these covenants would result in an Event of Default (as defined in the applicable Credit Facility ) and, to the extent the applicable lenders so elect, an acceleration of the Company’s existing indebtedness following the expiration of any applicable cure periods, causing such debt of approximately $122.1 million at December 31, 2016 (including $32.8 million under our ABL Credit Facility and $5.2 million of equipment lease financing indebtedness with cross-default provisions) to be immediately due and payable.  It could also result in the termination of all commitments to extend further credit under our ABL Credit Facility. As of the date of this Form 10-K, the Company does not have sufficient liquidity to repay all of its outstanding debt in full if such debt were accelerated.  In such event, our lenders could foreclose on any of our assets securing such debt.  These events could materially adversely affect our business, results of operations and financial condition.     See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”  If we are not able to timely, successfully or efficiently implement one or more of the strategic transactions that we are pursuing, we may need to seek voluntary protection under Chapter 11 of the U.S. Bankruptcy Code.

Our substantial indebtedness could adversely affect our operations and financial condition.

Our operations are capital intensive, and we operate with a high amount of debt relative to our size. At December 31, 2016, we had (i) $32.8 million in aggregate principal amount of indebtedness outstanding under our ABL Credit Facility, and (ii) $84.2 million in aggregate principal amount of indebtedness outstanding under our Term Loan Credit Facility.  Our level of indebtedness could have important consequences, such as:

Covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions.

The Credit Facilities require us, under certain limited circumstances, to maintain certain financial ratios and limit our ability to make capital expenditures.  As discussed above under the risk factor “There is substantial doubt as to our ability to continue as a going concern, ” our Term Loan Credit Facility and related governing documents require us to comply with leverage ratio and fixed charge coverage ratio covenants by the end of the second quarter of fiscal 2017 and a minimum EBITDA target by the fiscal month ending April 30, 2017.  Under our ABL Credit Facility we are required to comply with a fixed charge coverage ratio if our liquidity as of the date of any determination is less than the greater of (i) 12.5% of the Maximum Revolver Amount ($50,000,000) and (ii) $6,125,000, subject to certain conditions. These covenants and ratios could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities and to fund our operations.   Moreover, absent the completion of a transaction yielding sufficient cash proceeds to pay down or refinance our debt, or receipt of waivers from our lenders    or a further amendment to our Term Loan Credit Facility, we will not be able to comply with the covenants under our Term Loan Credit Facility.  Breach of a covenant in the Credit Facilities could cause acceleration of a significant portion of our outstanding indebtedness. Any future debt could also contain financial and other covenants more restrictive than those imposed under the Credit Facilities.

A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to cross-default and cross-acceleration provisions, could result in a default under our other debt instruments. Upon the occurrence of an event of default under the ABL Credit Facility, Term Loan Credit Facility or any other debt instrument, the lenders could elect to declare all amounts outstanding to be immediately due and payable and, in the case of the ABL Credit Facility, terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure the indebtedness. If the lenders under our current or future indebtedness accelerate the payment of the indebtedness, we cannot assure you that our assets or cash flow would be sufficient to repay in full our outstanding indebtedness.

The amount we can borrow under our ABL Credit Facility depends in part on the value of certain pledged collateral. If the value of such collateral declines under appraisals our lenders receive, the amount we can borrow will similarly decline. If the amount we can borrow declines as a result of the foregoing, we may be required to repay certain outstanding borrowings in order to remain in compliance with the covenants under the ABL Credit Facility.  In such event, we cannot assure you our cash flow would be sufficient to repay such indebtedness.

We may not be able to generate sufficient cash to service all of our debt, and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our obligations under our debt will depend on our financial and operating performance and that of our subsidiaries, which, in turn, will be subject to prevailing economic and competitive conditions and to financial and business factors, many of which may be beyond our control. See the table under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Contractual Obligations” for disclosure regarding the amount of cash required to service our debt.

We may not maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our debt. Such alternative measures may not be successful and may not enable us to meet our scheduled debt service obligations. We may not be able to refinance any of our indebtedness or obtain additional financing, particularly because of our anticipated high levels of debt and the debt incurrence restrictions imposed by the agreements governing our debt, as well as prevailing market conditions. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations

to meet our debt service and other obligations. The instruments governing our indebtedness restrict our ability to dispose of assets and use the proceeds from any such dispositions. We may not be able to consummate those sales, or if we do, at an opportune time, or the proceeds that we realize may not be adequate to meet debt service obligations when due.

Global capital and credit market conditions could have an adverse effect on our ability to access the capital and credit markets, including our revolving credit facility.

Disruptions in the global credit markets that materially impact liquidity in the debt market, making financing terms for borrowers less attractive or, in some cases, unavailable altogether, have occurred in the past and may occur again in the future. Such a disruption could result in the unavailability of certain types of debt financing, including access to revolving lines of credit. We engage in borrowing and repayment activities under our revolving credit facility on an almost daily basis and have not had any disruption in our ability to access our revolving credit facility as needed. However, future credit market conditions could increase the likelihood that one or more of our lenders may be unable to honor its commitments under our revolving credit facility, which could have an adverse effect on our business, financial condition and results of operations.

Additionally, in the future we may need to raise additional funds to, among other things, fund our existing operations, improve or expand our operations, respond to competitive pressures, or make acquisitions. If adequate funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete effectively. If we raise additional funds by issuing equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of the Common Stock. If we raise additional funds by issuing debt, we may be subject to further limitations on our operations arising out of the agreements governing such debt. If we fail to raise capital when needed, our business will be negatively affected.

Our business is subject to the general health of the economy, including consumer spending, and any slowdowns or decreases in the U.S. economy could materially affect our revenue and operating results.

An economic slowdown in the U.S., including consumer spending, may cause substantial volatility in the stock market and layoffs and other restrictions on spending by companies in almost every business sector could impact our business in a variety of ways, including:

Without similar changes in expenses, which may be difficult to achieve, our margins will contract if revenue falls, and ultimately may result in having a material adverse effect on our financial condition and results of operations.

Risks Related to the Frozen Products Segment

Farming is subject to numerous inherent risks, including changes in weather conditions and natural disasters, that can have an adverse impact on crop production and materially affect our results of operations.

We are subject to the risks that generally relate to the agricultural industry.  Adverse changes in weather conditions and natural disasters, such as windstorms, floods, earthquakes, droughts, extreme temperatures or pestilence, may affect the crop quality and size.  In extreme cases, entire harvests may be lost in some geographic areas.  These factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material

adverse effect on our business, results of operations and financial condition.  Fresh berries and vegetables are also vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions.  These infestations can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.  Our competitors may be affected differently by such weather conditions and natural disasters depending on the location of their supplies or operations.

Unavailability of purchased berries and vegetables, at reasonable prices, could adversely affect operations.

Our manufacturing costs are subject to fluctuations in certain commodity prices. Berries and vegetables are not readily available year-round.  Therefore, we use the IQF technique to freeze the berries and vegetables harvested for use during the year to meet processing demands.  In addition to freezing our own home-grown berries, we also purchase a substantial amount of berries from outside suppliers to meet customer demands. We are dependent on our suppliers to provide us with an adequate supply of vegetables and berries on a timely basis. The failure of certain suppliers to meet our performance specifications, quality standards or delivery schedules could have a material adverse effect on our operating results.  To the extent that certain types of berries or vegetables become scarce, substantially increase in price, or become unavailable or unavailable on commercially attractive terms, our operating results could be materially and adversely affected.

Risks Related to the Snack Product Segment

We may not be able to compete successfully in the highly competitive snack food industry.

The market for snack foods, such as those sold by us, is large and intensely competitive.  Competitive factors in the snack food industry include product quality and taste, brand awareness among consumers, access to grocery store shelf space, price, advertising and promotion, variety of snacks offered, nutritional content, product packaging and package design.  We compete in that market principally on the basis of product taste and quality.

The snack food industry is dominated by large food companies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc., The Kellogg Company, ConAgra Foods, Inc., Diamond Foods, Inc., General Mills, Inc., Snyder’s-Lance, Inc. and others which have substantially greater financial and other resources than us and sell brands that are more widely recognized than our products. Numerous other companies that are actual or potential competitors of ours, many with greater financial and other resources (including more employees and more extensive facilities) than us, offer products similar to ours. In addition, many of our competitors offer a wider range of products than that offered by us.  Local or regional markets often have a significant number of smaller competitors, many of whom offer products similar to ours. With the expansion of our operations into new markets, we have and will continue to encounter significant competition from national, regional and local competitors that may be greater than that encountered by us in our existing markets. In addition, such competitors may challenge our position in our existing markets.

A disruption in the performance of our suppliers could have an adverse effect on our operations.

Our manufacturing costs are subject to fluctuations in the prices of potatoes, potato flakes, potato starch, corn and oil, as well as other ingredients used in our products.  Potatoes, potato flakes, potato starch and corn are widely available year-round, and we use a variety of oils in the production of our products.  Nonetheless, we are dependent on our suppliers to provide us with products and ingredients in adequate supply and on a timely basis.  The failure of certain suppliers to meet our performance specifications, quality standards or delivery schedules could have a material adverse effect on our operating results.  Changing suppliers can require long lead times. The failure of our suppliers to meet our needs could occur for many reasons, including fires, natural disasters, weather, manufacturing problems, disease, crop failure, strikes, transportation interruption, government regulation, political instability and terrorism.  A failure of supply could also occur due to suppliers’ financial difficulties, including bankruptcy.  Any significant interruption to supply or cost increase could substantially harm our business and financial performance.  To the extent that product ingredients become scarce, substantially increase in price, or become unavailable or unavailable on commercially attractive terms, our operating results could be materially and adversely affected.  From time to time, we may lock in prices for raw

materials, such as oils, as we deem appropriate, and such strategies may result in us paying prices for raw materials that are above market at the time of purchase.

We do not own the patents for the technology we use to manufacture certain T.G.I. Friday’s®, Boulder Canyon® and Tato Skins® brand products, as well as certain private label branded products.

We license technology from a third party in connection with the manufacture of certain T.G.I. Friday’s®, Boulder Canyon® and Tato Skins® brand products, as well as certain private label branded products, and have a royalty-bearing, exclusive right license to use the technology necessary to produce these products in the United States, Canada, and Mexico until such time as the parties mutually agree to terminate the agreement. Even though the patents for this technology expired in December 2006, in consideration for the use of this technology, we are required to make royalty payments to the third party on sales of products manufactured utilizing the technology until the termination of such license agreement.  Since these patents have expired, we no longer have exclusive rights to this technology and, as a result, may face additional competition that could adversely affect our revenues. Moreover, our competitors, some of which may have significantly greater resources than us, may utilize different technology in the manufacture of products that are similar to those we currently manufacture, or that we may manufacture in the future. The entry of any such products into the marketplace could have a material adverse effect on our sales of certain T.G.I. Friday’s®, Boulder Canyon® and Tato Skins® brand products, certain private label branded products, as well as any such future products.

We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.

Our ability to compete effectively depends in part upon our ability to protect our rights to trademarks, copyrights and other intellectual property we own or license. Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property and other proprietary rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our services or our use of intellectual property infringe their intellectual property rights.  Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources.  A successful claim of trademark, copyright or other intellectual property infringement against us could prevent us from providing services, which could have a material adverse effect on our business, financial condition or results of operations. In addition, a breakdown in our internal policies and procedures may lead to an unintentional disclosure of our proprietary, confidential or material non-public information, which could in turn harm our business, financial condition or results of operations.

Risks Related to Our Securities

Our shares of common stock would likely be delisted from trading on the NASDAQ Global Select Market following a Chapter 11 bankruptcy filing.

NASDAQ rules provide that securities of a company that trades on NASDAQ may be delisted in the event that such company seeks bankruptcy protection. In response to a Chapter 11 bankruptcy filing by us, NASDAQ would likely issue a delisting letter immediately following such a filing. If NASDAQ issued such a letter, our common stock would soon thereafter be delisted and there would be a very limited market or no market at all, in which its securities would be traded.

Substantial sales of our Common Stock by our stockholders could depress the market price of our Common Stock regardless of our operating results.

Sales of substantial amounts of our Common Stock in the public market, particularly sales by our directors, executive officers, employees and significant stockholders, or the perception that these sales could occur, could adversely affect the market price of our Common Stock and impair our ability to raise capital through offerings of our Common Stock.  All of our outstanding shares are either freely tradable, without restriction, in the public market or eligible for sale in the public market at various times, subject, in some cases, to volume limitations under Rule 144 of the Securities Act. Substantial sales of our Common Stock may make it more difficult for us to sell equity or equity-linked

securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our Common Stock.

Our stock price has fluctuated, and may continue to fluctuate, and may decline regardless of our financial performance.

The market price of our Common Stock has fluctuated and may continue to fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of publicly traded companies.  Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against such a company. If securities class action litigation is instituted against us, it could result in substantial costs and a diversion of our management’s attention and resources and could materially adversely affect our operating results.

Anti-takeover provisions contained in our amended certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our amended certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could have the effect of delaying, preventing or rendering more difficult an acquisition of us if such acquisition is

deemed undesirable by our Board.  Among other things, our amended certificate of incorporation and amended and restated bylaws include provisions:

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents certain stockholders holding more than 15% of our outstanding Common Stock from engaging in certain business combinations without approval of our Board and the holders of at least two-thirds of our outstanding Common Stock not held by such 15% or greater stockholder.

Any provision of our amended certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock, and could also affect the price that some investors are willing to pay for our Common Stock.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, if they change their recommendations regarding our stock adversely, or if our operating or financial results do not meet expectations, our stock price and trading volume could decline.

The trading market for our Common Stock is influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors.  If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline.  If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets.  In addition, if our operating or financial results do not meet analysts’ expectations, our stock price or trading volume could decline. Any of these factors could cause you to lose part or all of you investment in our Common Stock.

We do not expect to declare any dividends in the foreseeable future.

We do not anticipate declaring any cash dividends to holders of our Common Stock in the foreseeable future. In addition, certain debt agreements of ours limit our ability to declare and pay cash dividends, and any future financing agreements may prohibit us from paying any type of dividends. Consequently, investors may need to rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our Common Stock.