Summary of significant accounting policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. There were no cash equivalents as of June 30, 2011 or December 31, 2010.

Accounts Receivable

Accounts receivable are carried at original invoice amount less allowances for cash discounts and doubtful receivables based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. The Company does not charge interest on past due receivables.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and consist primarily of finished goods.

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from 3 to 10 years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the improvement. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance of these assets may not be recoverable. When deemed necessary, the Company completes this evaluation by comparing the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. If such evaluations indicate that the future undiscounted cash flows of amortizable long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their estimated fair values.

Goodwill

Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that impairment may have occurred. The impairment analysis for goodwill includes a comparison of the Company’s carrying value (including goodwill) to the Company’s estimated fair value. If the fair value of the Company does not exceed its carrying value, then an additional analysis would be performed to allocate the fair value to all assets and liabilities of the Company as if the Company had been acquired in a business combination and the fair value was its purchase price. If the excess of the fair value of the Company over the fair value of its identifiable assets and liabilities is less than the carrying value of recorded goodwill, an impairment charge is recorded for the difference. At June 30, 2011, the Company reviewed its assessment of fair value and made a determination that there was no indication of impairment. At June 30, 2010, the Company concluded that its estimated fair value was less than the carrying value of the recorded goodwill, and, accordingly, recorded an impairment loss of $130,000 (see footnote 5 for further details).

Intangible Assets

Other intangible assets are comprised of both finite and indefinite life intangible assets. Indefinite life intangible assets are not amortized but are tested annually for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. In assessing the recoverability of indefinite life intangible assets, the Company must make assumptions about the estimated future cash flows and other factors to determine the fair value of these assets.

An intangible asset is determined to have an indefinite useful life when there are no legal, regulatory, contractual, competitive, economic, or any other factors that may limit the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the Company. In each reporting period, the Company also evaluates the remaining useful life of an intangible asset that is not being amortized to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is determined to have a finite useful life, the asset will be amortized prospectively over the estimated remaining useful life and accounted for in the same manner as intangible assets subject to amortization.

The Company has determined that its Smart Balance® and Earth Balance® trademarks have indefinite lives and these assets are not being amortized. The Company has performed its annual assessment of its indefinite lived intangible assets for impairment at June 30, 2011 and 2010 and determined there was no impairment. Certain other assets acquired, primarily patent technology, have been determined to have finite lives ranging from 10 to 20 years and their costs are being amortized over their expected useful lives.

The Company generally expenses legal and related costs incurred in defending or protecting its intellectual property unless it can be established that such costs have added economic value to the business enterprise, in which case the Company capitalizes the costs incurred as part of intangible assets. The primary consideration in making the determination of whether to capitalize the costs is whether the Company can prove that it has been successful in defending its intellectual property. The second consideration for capitalization is whether such costs have, in fact, increased the economic value of the Company’s intellectual property. Legal defense costs that do not meet the considerations described above are expensed as incurred. Recovery of legal expenses as part of a settlement agreement will be recorded as a reduction of capitalized legal fees if previously capitalized with any excess recorded as income.

Shipping and Handling Costs

Shipping and handling costs to external customers for the three months ended June 30, 2011 and 2010 were $3,889 and $3,622, respectively, and were included in selling expense. Shipping and handling costs to external customers for the six months ended June 30, 2011 and 2010 were $7,814 and $7,658, respectively. Internal shipping and handling costs are capitalized within inventory and recognized within costs of goods sold in the consolidated statements of operations when related products are sold to external customers.

Deferred Compensation Plan

The Company's deferred compensation plan is funded by whole life insurance in which employee participants elect to defer a certain portion of their base salary and/or bonus. The participant's cash deferrals earn a return based on the participant's investment in several investment options.

As of June 30, 2011, the plan assets were less than the liability by $55 due to slightly lower returns on plan assets and the up-front cost of life insurance and thus compensation expense was increased by this amount. The total of participant deferrals, which is reflected in long-term employee related liabilities and other, was $887 at June 30, 2011.

Deferred Costs

Deferred loan costs associated with the Company’s secured debt financing are being amortized over the term of the loan, using the effective interest method or straight-line method, as appropriate.

Revenue Recognition

Revenue is recognized when the earnings process is complete and the risks and rewards of ownership have transferred to the customer, which is generally considered to have occurred upon the receipt of product by the customer. The earnings process is complete once the customer order has been placed and approved and the product shipped has been received by the customer. Product is sold to customers on credit terms established on an individual basis. The credit factors used include historical performance, current economic conditions and the nature and volume of the product.

The Company offers its customers and consumers a variety of sales and incentive programs, including discounts, allowances, coupons, slotting fees, and co-op advertising; such amounts are estimated and recorded as a reduction in revenue. For interim reporting, the Company estimates the total annual sales incentives for most programs and records a pro rata share in proportion to forecasted annual revenue. As a result, the Company has recorded a prepaid asset at June 30, 2011 of $3,685 which will be charged to expense over the remaining two quarters. The Company sells its products to customers without a right of return and is not obligated to accept any returns.

Earnings per Share of Common Stock

Basic earnings per share (EPS) is computed by dividing net income applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share is computed by dividing net income by the number of weighted-average shares outstanding adjusted for any additional common shares that would have been outstanding if all of the potential dilutive common shares had been issued. Potential dilutive common shares outstanding include stock options. The following table summarizes stock options not included in the computation of diluted earnings per share:



	Three Months Ended June 30,		Six Months Ended June 30,
	2011	2010	2011	2010
Stock options excluded due to option price being greater than market value	7,405,000	11,076,625	7,406,875	11,142,875
Stock options excluded due to anti-dilution	1,740,959	208,750	1,744,305	142,500

Segment

Authoritative accounting guidance requires segment information to be prepared using the “management” approach. The management approach is based on the method that management organizes the segments within the Company for making operating decisions and assessing performance. The Company evaluates all products, makes operating decisions and performance assessments based on a total company approach and therefore considers itself as having only one segment. The Company’s buttery spreads category, marketed under Smart Balance®, Earth Balance®, Bestlife™, Smart Beat® and Nucoa®, is by far the most developed and accounted for approximately 70% and 71% of revenue for the three and six months ended June 30, 2011 and 69% and 72% of revenue for the three and six months ended June 30, 2010, respectively.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, short term trade receivables, payables, note payables and accrued expenses. The carrying value of cash and cash equivalents, short term receivables and payables and accrued expenses approximate fair value because of their short maturities. The Company’s debt bears interest at a variable interest rate plus an applicable margin and, therefore, approximates fair value. The Company measures fair value based on authoritative accounting guidance for “Fair Value Measurements”, which requires a three-tier fair value hierarchy that prioritizes inputs to measure fair value. These tiers include: Level 1, defined as inputs, such as unadjusted quoted prices in an active market for identical assets or liabilities; Level 2, defined as inputs other than quoted market prices in active markets that are either directly or indirectly observable; or Level 3, defined as unobservable inputs for use when little or no market value exists therefore requiring an entity to develop its own assumptions. When available, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company measures fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters.

At June 30, 2011 and December 31, 2010, information about inputs into the fair value measurements of the Company’s assets and liabilities that are made on a recurring basis was as follows:



	As of June 30, 2011
	Fair Value Measurements at Reporting Date Using
	Total Fair Value and Carrying Value on Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Deferred compensation ⁽¹⁾	832		—		832		—
Derivative assets ⁽²⁾	954		—		954		—
Total assets	$	1,786	$	—	$	1,786	$	—

Liabilities:
Deferred compensation ⁽¹⁾	$	887	$	—	$	887	$	—



	As of December 31, 2010
	Fair Value Measurements at Reporting Date Using
	Total Fair Value and Carrying Value on Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Deferred compensation ⁽¹⁾	1,013		—		1,013		—
Derivative assets ⁽²⁾	287		—		287		—
Total assets	$	1,300	$	—	$	1,300	$	—

Liabilities:
Deferred compensation⁽¹⁾	$	1,196	$	—	$	1,196	$	—

⁽¹⁾ Deferred compensation assets are recorded in "Other assets" and deferred compensation liabilities are recorded in "Other liabilities" in the Consolidated Balance Sheets.

⁽²⁾ Derivative assets are recorded in "Accounts receivable - other" in the Consolidated Balance Sheets.

Derivative

The Company uses derivative financial instruments, principally commodity exchange contracts, to manage risks from fluctuations in commodity costs. Derivative financial instruments are not used for the purpose of creating speculative positions or for trading purposes. Related contracts are recorded in the balance sheet at fair value using market prices prevailing at the balance sheet date obtained from independent commodity exchanges. Changes in the fair value are recognized through earning in the period in which they occur. Contracts are entered into having maturities of no more than twelve months.

Research and Development

Research and development expenses are charged to operations when incurred and amounted to $201 and $392 for the three and six months ended June 30, 2011 and $249 and $435 for the three and six months ended June 30, 2010, respectively.

Income Taxes

Deferred income taxes are provided for the differences between the basis of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. As of June 30, 2011, there was a valuation allowance of $161 recorded for certain state tax

purposes, the realization of which is not determined to be "more likely than not".

The Company records a liability for all tax positions if it is not "more likely than not" that the position is sustainable based on its technical merits.

Advertising

Advertising costs are charged to operations (classified as marketing expenses) when incurred and amounted to $3,214 and $6,365 for the three and six months ended June 30, 2011 and $6,154 and $13,261 for the three and six months ended June 30, 2010, respectively.

Share-Based Compensation Expense

The Company records share-based compensation in accordance with ASC Topic 718, "Compensation - Stock Compensation", which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options based on estimated fair values. Employee share-based compensation expense was $1,347 and $3,113 for the three and six months ended June 30, 2011 and $1,763 and $5,541 for the three and six months ended June 30, 2010, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade receivables. The Company maintains the majority of its cash and cash equivalents in the form of demand deposits with financial institutions that management believes are creditworthy. At June 30, 2011, the cash balances in these institutions were insured in full by the Federal Deposit Insurance Corporation. Concentrations of credit risk relative to trade receivables are limited due to our diverse client base. The Company does have one customer that accounted for approximately 19% and 20% of sales during the three and six months ended June 30, 2011, respectively. The aggregate accounts receivable from this customer amounted to approximately 21% of the accounts receivable balance outstanding at June 30, 2011. The Company also has one product, “spreads,” which accounted for approximately 70% and 71% of total revenue for the three and six months ended June 30, 2011, respectively. Approximately 69% and 71% of the Company’s revenues during the three and six months ended June 30, 2011, respectively, came from products utilizing licenses from Brandeis University.

Recently Issued Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (Topic 220), requiring companies to present items of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements of net income and other comprehensive income. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. These provisions will become effective for us beginning with our quarterly report for the period ended March 31, 2012.