Collaborative Arragements

3 Months Ended

Jan. 01, 2012

Collaborative Arragements[ Abstract]

Collaborative Arragements [Text Block]

12.       COLLABORATIVE ARRANGEMENT

On November 4, 2010, the Company entered into an exclusive license agreement with Boston Market Corporation, whereby the Company has the right to manufacture, sell and distribute Boston Market frozen food products. The license agreement was effective July 1, 2011. However, due to the fact that a majority of the Boston Market sales were geographically located east of the Mississippi River, the Company determined that it needed to have a distribution facility near the east coast in order to minimize freight expenses. The Company also needed access to a national sales force and broker network for retail sales. Therefore, on August 4, 2011, the Company entered into a Co-Manufacturing, Sales and Distribution Agreement with Bellisio Foods, Inc. (“Bellisio”).  Bellisio operates a manufacturing and storage facility in Jackson, OH and has a sales force in place to manage a consumer brand and sell into 25,000 retail supermarkets.

The agreement covers a collaborative arrangement between the Company and Bellisio regarding the co-manufacture, sale and distribution of Boston Market products. The agreement provides that the Company and Bellisio will each manufacture approximately 50% of the total production volume of current and future Boston Market products during the term of the agreement. The Company began its manufacturing in June, 2011 and Bellisio began its manufacturing in August, 2011 at its Jackson, Ohio facility.

In addition to its co-manufacturing responsibilities during the term of the agreement, Bellisio will be responsible for all sales and distribution responsibilities for all Boston Market products produced by both the Company and Bellisio. These responsibilities include marketing, sales, warehousing and handling, product distribution and all billing and collection activities. The Company has final approval rights for all sales and marketing promotion plans and expenses. Pursuant to the agreement, the Company will be responsible for development of all new items for the Boston Market line as well as maintaining the quality and consistency of all products produced. In addition, the Company maintains exclusive control and rights of the license.

The Company and Bellisio will share equally in the first $2 million of aggregate profits from the co-manufactured products, with the percentage shifting to 60% to the Company and 40% to Bellisio for any profits in excess of $2 million. Profits will be calculated after deducting from gross revenues: pre-established labor, material overhead costs relating to manufacturing of the products, all pre-approved sales and promotion expenses including a fixed sales and administrative fee charged by Bellisio as a percentage of sales; pre-negotiated warehouse charges; actual freight costs; interest expense on working capital; and any legitimate invoice deduction from retailers for spoilage, cash discounts, if any, or defective products. The Company has elected to recognize any settlements of profit or loss from this arrangement as net revenue in the statement of income.

The agreement is for an initial term of two years commencing effective July 1, 2011 and automatically renews for additional one-year periods unless either party provides notice of termination at least six months prior to the next one-year renewal date.

The Company recognizes revenue and expenses related to the collaborative arrangement in accordance with authoritative guidance, which directs participants in collaborative arrangements to report costs incurred and revenue generated from transactions with third parties (that is, parties that do not participate in the arrangement) in each entity's respective income statement line items for revenues and expenses. Revenues from the collaborative arrangement consist of sales to third party supermarkets.

The following table illustrates the income statement classification and activities attributable to transactions arising from the agreement for the quarter ended January 1, 2012:

		For the Quarter Ended
		January 1, 2012
Net Revenues	$	6,421,159
Cost of Sales	$	5,943,092
Gross Profit	$	478,067
Selling, general and administrative expenses	$	638,555
Net loss	$	(160,488)

In addition to the expenses noted above, during the first quarter of fiscal year 2012 the Company incurred marketing expenses of $78,000.