6. Long-Term Debt and Line of Credit:

Long-term debt consisted of the following as of December 29, 2012 and December 31, 2011:

	December 29, 2012			December 31, 2011
Mortgage loan due monthly through July 2012; interest at 9.03%; collateralized by land and building in Goodyear, AZ	$	—		$	1,372,989
Mortgage loan due monthly through December 2016; interest rate at 30 day LIBOR plus 165 basis points, fixed through a swap agreement to 6.85%; collateralized by land and building in Bluffton, IN	2,000,306			2,078,710
Equipment term loan due monthly through May 2014; interest at LIBOR plus 165 basis points; collateralized by equipment at Rader Farms in Lynden, WA	1,285,714			2,142,857
Real Estate term loan due monthly through July 2017; interest at LIBOR plus 165 basis points; fixed through a swap agreement to 4.28%; secured by a leasehold interest in the real property in Lynden, WA	3,028,474			3,236,533
Capital lease obligations	2,229,002			2,787,573
Office Equipment leases due June 2012	—			1,458
	8,543,496			11,620,120
Less current portion of long-term debt	(1,646,175		)	(3,025,011		)
Long-term debt, less current portion	$	6,897,321		$	8,595,109

Annual maturities of long-term debt as of December 29, 2012 are as follows:

Year	Capital Lease Obligations			Debt
2013	$	554,621		$	1,165,315
2014	544,219			759,186
2015	533,714			354,632
2016	533,714			2,004,427
2017	394,364			2,030,934
Thereafter	—			—
Subtotal	2,560,632			6,314,494
Less: Amount representing interest	(331,630		)	—
Total	$	2,229,002		$	6,314,494

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

· a revolving line of credit up to $25 million maturing on July 30, 2014; At December 29, 2012, $10.1 million was outstanding and, based on eligible assets, $10.3 million was available under the line of credit. All borrowings under the revolving line of credit bear interest at either (i) the prime rate of interest announced by U.S. Bank from time to time or (ii) LIBOR, plus the LIBOR Rate Margin (as defined in the revolving credit facility note as adjusted.)

· Equipment term loan due May 2014.

· Real estate term loan due July 2017.

As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. The agreement requires us to maintain compliance with certain financial covenants, including a minimum fixed charge coverage ratio and a leverage ratio. At December 29, 2012, we were in compliance with all of the financial covenants.

In June 2012, we paid off the remaining balance of $1.3 million on the maturing mortgage loan on the Goodyear facility using working capital.

Net interest expense consisted of the following for the fiscal years ended December 29, 2012 and December 31, 2011:

	2012			2011
Interest expense	$	(764,252	)	$	(885,238	)
Interest income	186			328
Interest expense, net	$	(764,066	)	$	(884,910	)

Interest Rate Swaps

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

We entered into an interest rate swap in 2006 to convert the interest rate of the mortgage to purchase the Bluffton, Indiana plant from the contractual rate of 30 day LIBOR plus 165 basis points to a fixed rate of 6.85%. The swap has a fixed pay-rate of 6.85% and a notional value of approximately $2.0 million and $2.1 million at December 29, 2012 and December 31, 2011, respectively, and expires in December 2016. We evaluate the effectiveness of the hedge on a quarterly basis and at December 29, 2012 the hedge is highly effective. The interest rate swap had a fair value of $343,710 and $385,899 at December 29, 2012 and December 31, 2011, respectively, which were recorded as a liability on the accompanying consolidated balance sheets. The swap value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled at the end of the fiscal period.

We entered into another interest rate swap in January 2008 to effectively convert the interest rate on the real estate term loan to a fixed rate of 4.28%. The interest rate swap is structured with decreasing notional values to match the expected pay down of the debt. The notional value of the swap was $3.0 million and $3.2 million at December 29, 2012 and December 31, 2011, respectively. The interest rate swap is accounted for as a cash flow hedge derivative and expires in July 2017. We evaluate the effectiveness of the hedge on a quarterly basis and during the year ended December 29, 2012 the hedge is highly effective. The interest rate swap had fair value of $422,508 and $457,735 at December 29, 2012 and December 31, 2011, respectively, which were recorded as a liability on the accompanying consolidated balance sheet. This value was determined in accordance with the fair value measurement guidance discussed earlier using Level 2 observable inputs and approximates the loss that would have been realized if the contract had been settled at the end of the fiscal period.