WWW.EXFILE.COM, INC. -- 888-775-4789 -- LIFEWAY FOODS, INC. -- FORM 10-Q/A
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q/A
AMENDMENT
NO. 1
______________________________________
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended: June 30, 2009
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from __________ to __________
Commission
File Number: 000-17363
______________________________________
LIFEWAY
FOODS, INC.
(Exact
Name of Registrant as Specified in its Charter)
______________________________________
Illinois
|
36-3442829
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
6431 West Oakton, Morton Grove, IL
60053
(Address
of Principal Executive Offices, Zip Code)
(847-967-1010)
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days. Yes o
No x
|
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data file
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files). Yes o
No o
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o
No x
|
|
As
of December 1, 2009, the issuer had 16,775,930 shares of common
stock, no par value, outstanding.
|
EXPLANATORY NOTE
This
amendment to the Quarterly Report on Form 10-Q for the quarter ended June 30,
2009 of Lifeway Foods, Inc. (as originally filed on August 14, 2009, the “Form
10-Q”) is being filed to correct typographical errors in the Form
10-Q. The Form 10-Q is restated herein in its entirety. The
disclosures in this amendment (the “Form 10-Q/A”) continue to speak as of the
date of the Form 10-Q, and do not reflect events occurring after the filing of
the Form 10-Q. Accordingly, this Form 10-Q/A should be read in conjunction with
our other filings made with the Securities and Exchange Commission subsequent to
the filing of the 10-Q, including any amendments to those filings. The filing of
this Form 10-Q/A shall not be deemed an admission that the Form 10-Q when made
included any untrue statement of a material fact or omitted to state a material
fact necessary to make a statement not misleading.
LIFEWAY
FOODS, INC.
CONTENTS
TO FORM 10-Q/A
PART
I —
|
FINANCIAL
INFORMATION
|
Page(s)
|
|
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS.
|
4
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
8
|
|
|
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
22
|
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
24
|
|
|
|
ITEM 4T.
|
CONTROLS
AND PROCEDURES.
|
24
|
|
|
|
PART
II —
|
OTHER
INFORMATION
|
25
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS.
|
25
|
|
|
|
ITEM 1A.
|
RISK
FACTORS.
|
25
|
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
25
|
|
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES.
|
25
|
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
25
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION.
|
27
|
|
|
|
ITEM
6.
|
EXHIBITS.
|
27
|
|
|
|
SIGNATURES
|
|
28
|
|
|
|
EXHIBIT
INDEX
|
|
29
|
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
JUNE
30, 2009 and 2008
AND
DECEMBER 31, 2008
PART
I — FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS.
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Consolidated
Statements of Financial Condition
June
30, 2009 and 2008 (Unaudited) and December 31, 2008
|
|
(Unaudited)
|
|
|
|
|
|
|
June
30
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
582,766
|
|
|
$
|
342,039
|
|
|
$
|
277,248
|
|
Marketable
securities
|
|
|
4,659,161
|
|
|
|
6,472,027
|
|
|
|
5,262,168
|
|
Inventories
|
|
|
3,817,195
|
|
|
|
3,851,725
|
|
|
|
3,097,542
|
|
Accounts
receivable, net of allowance for doubtful accounts of $110,011 and $35,011
at June 30, 2009 and 2008 and $110,011 at December 31,
2008
|
|
|
6,064,801
|
|
|
|
4,626,287
|
|
|
|
4,765,865
|
|
Prepaid
expenses and other current assets
|
|
|
55,669
|
|
|
|
12,582
|
|
|
|
23,226
|
|
Other
receivables
|
|
|
65,730
|
|
|
|
49,571
|
|
|
|
40,314
|
|
Deferred
income taxes
|
|
|
638,372
|
|
|
|
602,227
|
|
|
|
919,649
|
|
Refundable
income taxes
|
|
|
778,125
|
|
|
|
—
|
|
|
|
356,416
|
|
Total
current assets
|
|
|
16,661,819
|
|
|
|
15,956,458
|
|
|
|
14,742,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
13,793,929
|
|
|
|
10,769,676
|
|
|
|
11,062,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
and other non amortizable brand asset
|
|
|
12,154,091
|
|
|
|
5,414,858
|
|
|
|
5,414,858
|
|
Other
intangible assets, net of accumulated amortization of $1,260,810 and
$761,699 at June 30, 2009 and 2008 and $921,422 at December 31,
2008
|
|
|
6,596,829
|
|
|
|
3,095,939
|
|
|
|
2,936,216
|
|
Total
intangible assets
|
|
|
18,750,920
|
|
|
|
8,510,797
|
|
|
|
8,351,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
49,706,668
|
|
|
$
|
35,736,931
|
|
|
$
|
34,656,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
maturities of notes payable
|
|
$
|
6,219,788
|
|
|
$
|
1,130,612
|
|
|
$
|
928,444
|
|
Accounts
payable
|
|
|
2,024,313
|
|
|
|
1,873,644
|
|
|
|
2,260,272
|
|
Accrued
expenses
|
|
|
617,662
|
|
|
|
548,706
|
|
|
|
458,282
|
|
Margin
payable
|
|
|
—
|
|
|
|
407,479
|
|
|
|
—
|
|
Accrued
income taxes
|
|
|
—
|
|
|
|
395,093
|
|
|
|
—
|
|
Total
current liabilities
|
|
|
8,861,763
|
|
|
|
4,355,534
|
|
|
|
3,646,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
7,907,847
|
|
|
|
3,517,841
|
|
|
|
3,108,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
1,941,740
|
|
|
|
1,647,550
|
|
|
|
1,607,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, no par value; 20,000,000 shares authorized; 17,273,776 shares
issued; 16,812,955 shares outstanding at June 30, 2009; 17,273,776 shares
issued; 16,740,407 shares outstanding at June 30, 2008; and 17,273,776
shares issued; 16,724,467 shares outstanding at December 31,
2008
|
|
|
6,509,267
|
|
|
|
6,509,267
|
|
|
|
6,509,267
|
|
Paid-in-capital
|
|
|
1,912,845
|
|
|
|
1,149,068
|
|
|
|
1,202,009
|
|
Treasury
stock, at cost
|
|
|
( 3,353,490
|
)
|
|
|
( 3,110,637
|
)
|
|
|
( 3,302,025
|
)
|
Retained
earnings
|
|
|
26,463,077
|
|
|
|
22,271,730
|
|
|
|
22,383,707
|
|
Accumulated
other comprehensive loss, net of taxes
|
|
|
( 536,381
|
)
|
|
|
( 603,422
|
)
|
|
|
( 498,909
|
)
|
Total
stockholders’ equity
|
|
|
30,995,318
|
|
|
|
26,216,006
|
|
|
|
26,294,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
49,706,668
|
|
|
$
|
35,736,931
|
|
|
$
|
34,656,216
|
|
See
accompanying notes to financial statements
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Consolidated
Statements of Income and Comprehensive Income
For
the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)
and
the Year Ended December 31, 2008
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
Year
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
14,479,429
|
|
|
$
|
11,523,393
|
|
|
$
|
28,215,509
|
|
|
$
|
22,645,631
|
|
|
|
44,461,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
7,978,110
|
|
|
|
7,455,696
|
|
|
|
16,102,691
|
|
|
|
14,897,779
|
|
|
|
30,926,114
|
|
Depreciation
expense
|
|
|
353,654
|
|
|
|
195,128
|
|
|
|
570,428
|
|
|
|
384,552
|
|
|
|
777,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cost of goods sold
|
|
|
8,331,764
|
|
|
|
7,650,824
|
|
|
|
16,673,119
|
|
|
|
15,282,331
|
|
|
|
31,703,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
6,147,665
|
|
|
|
3,872,569
|
|
|
|
11,542,390
|
|
|
|
7,363,300
|
|
|
|
12,757,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
Expenses
|
|
|
1,386,815
|
|
|
|
1,154,126
|
|
|
|
2,694,740
|
|
|
|
2,213,292
|
|
|
|
4,098,176
|
|
General
and Administrative
|
|
|
1,437,505
|
|
|
|
1,092,420
|
|
|
|
2,810,103
|
|
|
|
2,077,466
|
|
|
|
4,149,010
|
|
Amortization
expense
|
|
|
168,698
|
|
|
|
79,862
|
|
|
|
339,388
|
|
|
|
159,723
|
|
|
|
319,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
2,993,018
|
|
|
|
2,326,408
|
|
|
|
5,844,231
|
|
|
|
4,450,481
|
|
|
|
8,566,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
3,154,647
|
|
|
|
1,546,161
|
|
|
|
5,698,159
|
|
|
|
2,912,819
|
|
|
|
4,190,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and dividend income
|
|
|
48,506
|
|
|
|
62,862
|
|
|
|
110,717
|
|
|
|
165,995
|
|
|
|
343,329
|
|
Rental
Income
|
|
|
11,947
|
|
|
|
11,647
|
|
|
|
21,294
|
|
|
|
23,294
|
|
|
|
48,886
|
|
Interest
expense
|
|
|
( 110,090
|
)
|
|
|
( 68,969
|
)
|
|
|
( 264,473
|
)
|
|
|
( 154,924
|
)
|
|
|
( 298,619
|
)
|
Impairment
of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
( 958,879
|
)
|
Loss
on Disposition of Equipment
|
|
|
( 2,825
|
)
|
|
|
—
|
|
|
|
( 2,825
|
)
|
|
|
—
|
|
|
|
—
|
|
Gain
(loss) on sale of marketable securities, net
|
|
|
53,638
|
|
|
|
( 87,174
|
)
|
|
|
( 96,152
|
)
|
|
|
( 36,145
|
)
|
|
|
( 733,647
|
)
|
Total
other income (Expense)
|
|
|
1,176
|
|
|
|
( 81,634
|
)
|
|
|
( 231,439
|
)
|
|
|
( 1,780
|
)
|
|
|
( 1,598,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
3,155,823
|
|
|
|
1,464,527
|
|
|
|
5,466,720
|
|
|
|
2,911,039
|
|
|
|
2,592,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
623,918
|
|
|
|
552,809
|
|
|
|
1,387,350
|
|
|
|
1,110,715
|
|
|
|
679,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,531,905
|
|
|
$
|
911,718
|
|
|
$
|
4,079,370
|
|
|
$
|
1,800,324
|
|
|
$
|
1,912,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per common share
|
|
|
0.15
|
|
|
|
0.05
|
|
|
|
0.24
|
|
|
|
0.11
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
16,823,691
|
|
|
|
16,765,094
|
|
|
|
16,823,691
|
|
|
|
16,789,727
|
|
|
|
16,765,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,531,905
|
|
|
$
|
911,718
|
|
|
$
|
4,079,370
|
|
|
$
|
1,800,324
|
|
|
$
|
1,912,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss), net
of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on marketable securities (net of tax
benefits)
|
|
|
306,293
|
|
|
|
( 233,221
|
)
|
|
|
( 37,472
|
)
|
|
|
( 415,596
|
)
|
|
|
( 720,517
|
)
|
Less
reclassification adjustment for (gains) losses included in net income (net
of taxes)
|
|
|
|
|
|
|
51,171
|
|
|
|
|
|
|
|
21,217
|
|
|
|
430,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
2,838,198
|
|
|
$
|
729,668
|
|
|
$
|
4,041,898
|
|
|
$
|
1,405,945
|
|
|
$
|
1,622,409
|
|
See
accompanying notes to financial statements
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders Equity
For
the Six Months Ended June 30, 2009 (Unaudited)
and the Year Ended December 31,
2008
|
|
|
|
|
Common
Stock,
No
Par Value
20,000,000
Shares
Authorized # of Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Income (Loss), Net of Tax
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2007
|
|
|
17,273,776
|
|
|
|
16,827,726
|
|
|
|
446,050
|
|
|
|
6,509,267
|
|
|
|
1,120,669
|
|
|
|
(2,078,165
|
)
|
|
|
20,471,432
|
|
|
|
(209,043
|
)
|
|
|
25,814,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of stock
|
|
|
—
|
|
|
|
(112,009
|
)
|
|
|
112,009
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,239,488
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,239,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of treasury stock for compensation
|
|
|
—
|
|
|
|
8,750
|
|
|
|
(8,750
|
)
|
|
|
—
|
|
|
|
81,340
|
|
|
|
15,628
|
|
|
|
—
|
|
|
|
—
|
|
|
|
96,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on securities, net of taxes and reclassification
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(289,866
|
)
|
|
|
(289,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,912,275
|
|
|
|
—
|
|
|
|
1,912,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2008
|
|
|
17,273,776
|
|
|
|
16,724,467
|
|
|
|
549,309
|
|
|
|
6,509,267
|
|
|
|
1,202,009
|
|
|
|
(3,302,025
|
)
|
|
|
22,383,707
|
|
|
|
(498,909
|
)
|
|
|
26,294,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of stock
|
|
|
—
|
|
|
|
(48,341
|
)
|
|
|
48,341
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(402,947
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(402,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of treasury stock for compensation
|
|
|
—
|
|
|
|
7,882
|
|
|
|
(7,882
|
)
|
|
|
—
|
|
|
|
66,098
|
|
|
|
16,220
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of treasury stock for Fresh Made acquisition
|
|
|
—
|
|
|
|
128,947
|
|
|
|
(128,947
|
)
|
|
|
—
|
|
|
|
644,738
|
|
|
|
335,262
|
|
|
|
—
|
|
|
|
—
|
|
|
|
980,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on securities, net of taxes and reclassification
adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(37,472
|
)
|
|
|
(37,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the six months ended June 30, 2009
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,079,370
|
|
|
|
—
|
|
|
|
4,079,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at June 30, 2009
|
|
|
17,273,776
|
|
|
|
16,812,955
|
|
|
|
460,821
|
|
|
$
|
6,509,267
|
|
|
$
|
1,912,845
|
|
|
$
|
(3,353,490
|
)
|
|
$
|
26,463,077
|
|
|
$
|
(536,381
|
)
|
|
$
|
30,995,318
|
|
See
accompanying notes to financial statements
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
For
the Six Months Ended June 30, 2009 and 2008 (Unaudited)
and
the Year Ended December 31, 2008
|
|
(Unaudited)
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,079,370
|
|
|
$
|
1,800,324
|
|
|
$
|
1,912,275
|
|
Adjustments
to reconcile net income to net cash flows from operating activities, net
of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
909,816
|
|
|
|
544,275
|
|
|
|
1,092,995
|
|
(Gain)Loss
on sale of marketable securities, net
|
|
|
96,152
|
|
|
|
36,145
|
|
|
|
733,647
|
|
Loss
on disposition of assets
|
|
|
2,825
|
|
|
|
—
|
|
|
|
—
|
|
Impairment
of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
958,879
|
|
Deferred
income taxes
|
|
|
179,796
|
|
|
|
( 78,035
|
)
|
|
|
( 509,386
|
)
|
Treasury
stock issued for compensation
|
|
|
82,318
|
|
|
|
34,650
|
|
|
|
96,968
|
|
Increase
(decrease) in allowance for doubtful accounts
|
|
|
—
|
|
|
|
( 4,449
|
)
|
|
|
70,551
|
|
(Increase)
decrease in operating assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
( 752,978
|
)
|
|
|
( 412,176
|
)
|
|
|
( 626,754
|
)
|
Other
receivables
|
|
|
( 25,416
|
)
|
|
|
( 6,460
|
)
|
|
|
2,797
|
|
Inventories
|
|
|
( 346,800
|
)
|
|
|
( 345,171
|
)
|
|
|
409,012
|
|
Refundable
income taxes
|
|
|
( 435,205
|
)
|
|
|
240,880
|
|
|
|
( 115,536
|
)
|
Prepaid
expenses and other current assets
|
|
|
5,029
|
|
|
|
8,950
|
|
|
|
( 1,973
|
)
|
Increase
(decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
( 440,911
|
)
|
|
|
279,314
|
|
|
|
665,942
|
|
Accrued
expenses
|
|
|
36,719
|
|
|
|
134,667
|
|
|
|
44,243
|
|
Margin
payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Accrued
income taxes
|
|
|
—
|
|
|
|
395,093
|
|
|
|
—
|
|
Net
cash provided by operating activities
|
|
|
3,390,715
|
|
|
|
2,628,007
|
|
|
|
4,733,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of marketable securities
|
|
|
( 3,342,662
|
)
|
|
|
( 3,490,650
|
)
|
|
|
( 5,782,452
|
)
|
Sale
of marketable securities
|
|
|
4,127,666
|
|
|
|
3,299,791
|
|
|
|
5,323,423
|
|
Increase
in margin
|
|
|
—
|
|
|
|
407,479
|
|
|
|
—
|
|
Purchases
of property and equipment
|
|
|
( 714,052
|
)
|
|
|
( 1,475,280
|
)
|
|
|
( 2,157,315
|
)
|
Acquisition
of Fresh Made, net of cash acquired
|
|
|
( 2,898,224
|
)
|
|
|
—
|
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
( 2,827,272
|
)
|
|
|
( 1,258,660
|
)
|
|
|
( 2,616,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
of note payable
|
|
|
1,742,085
|
|
|
|
—
|
|
|
|
—
|
|
Purchases
of treasury stock, net
|
|
|
( 402,947
|
)
|
|
|
( 1,038,723
|
)
|
|
|
( 1,239,488
|
)
|
Repayment
of notes payable
|
|
|
( 1,597,063
|
)
|
|
|
( 584,470
|
)
|
|
|
( 1,196,465
|
)
|
Net
cash provided (used) in financing activities
|
|
|
( 257,925
|
)
|
|
|
( 1,623,193
|
)
|
|
|
( 2,435,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
305,518
|
|
|
|
( 253,846
|
)
|
|
|
( 318,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the beginning of the period
|
|
|
277,248
|
|
|
|
595,885
|
|
|
|
595,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
582,766
|
|
|
$
|
342,039
|
|
|
$
|
277,248
|
|
See
accompanying notes to financial statements
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
1 – NATURE OF BUSINESS
Lifeway
Foods, Inc. (The “Company”) commenced operations in February 1986 and
incorporated under the laws of the state of Illinois on May 19, 1986. The
Company’s principal business activity is the production of dairy products.
Specifically, the Company produces Kefir, a drinkable product which is similar
to but distinct from yogurt, in several flavors sold under the name “Lifeway’s
Kefir;” a plain farmer’s cheese sold under the name “Lifeway’s Farmer’s Cheese;”
a fruit sugar-flavored product similar in consistency to cream cheese sold under
the name of “Sweet Kiss;” and a dairy beverage, similar to Kefir, with increased
protein and calcium, sold under the name “Basics Plus.” The Company
also produces several soy-based products under the name “Soy Treat” and a
vegetable-based seasoning under the name “Golden Zesta.” The Company currently
distributes its products throughout the Chicago Metropolitan area and various
cities in the East Coast through local food stores. In addition, the
products are sold throughout the United States and Ontario, Canada by
distributors. The Company also distributes some of its products to Eastern
Europe.
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary
of the significant accounting policies applied in the preparation of the
accompanying financial statements follows:
Principles of
consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, LFI Enterprises, Inc., Helios Nutrition, Ltd., Pride
of Main Street, L.L.C., Starfruit, L.L.C. and Fresh Made, Inc. All significant
intercompany accounts and transactions have been eliminated.
Use of
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Significant estimates made in preparing the consolidated
financial statements include the allowance for doubtful accounts, the valuation
of goodwill, intangible assets and deferred taxes.
Revenue
Recognition
Sales
represent sales of Company produced dairy products that are recorded at the time
of shipment and the following four criteria have been met: (i) The
product has been shipped and the Company has no significant remaining
obligations; (ii) Persuasive evidence of an agreement exists;
(iii) The price to the buyer is fixed or determinable and
(iv) Collection is probable. In addition, shipping costs
invoiced to the customers are included in net sales and the related cost in cost
of sales.
Cash and cash
equivalents
All
highly liquid investments purchased with an original maturity of three months or
less are considered to be cash equivalents.
The
Company maintains cash deposits at several institutions located in the greater
Chicago, Illinois and Philadelphia, Pennsylvania metropolitan
areas.
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Bank
balances of amounts reported by financial institutions are categorized as
follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Amounts
insured
|
|
$
|
1,411,079
|
|
|
$
|
251,589
|
|
|
$
|
847,711
|
|
Uninsured
and uncollateralized amounts
|
|
|
402,977
|
|
|
|
889,463
|
|
|
|
—
|
|
Total
bank balances
|
|
$
|
1,814,056
|
|
|
$
|
1,141,052
|
|
|
$
|
847,711
|
|
Marketable
securities
All
investment securities are classified as available-for-sale, are carried at fair
value or quoted market prices. Unrealized gains and losses on available-for-sale
securities are reported as a separate component of stockholders’ equity.
Amortization, accretion, interest and dividends, realized gains and losses, and
declines in value judged to be other-than-temporary on available-for-sale
securities are recorded in other income. All of the Company’s securities are
subject to a periodic impairment evaluation. This evaluation depends on the
specific facts and circumstances. Factors that we consider in determining
whether an other-than-temporary decline in value has occurred include: the
market value of the security in relation to its cost basis; the financial
condition of the investee; and the intent and ability to retain the investment
for a sufficient period of time to allow for possible recovery in the market
value of the investment.
Accounts
receivable
Credit
terms are extended to customers in the normal course of business. The
Company performs ongoing credit evaluations of its customers’ financial
condition and generally requires no collateral.
Accounts
receivable are recorded at invoice amounts, and reduced to their estimated net
realizable value by recognition of an allowance for doubtful
accounts. The Company’s estimate of the allowance for doubtful
accounts is based upon historical experience, its evaluation of the current
status of specific receivables, and unusual circumstances, if
any. Accounts are considered past due if payment is not made on a
timely basis in accordance with the Company’s credit terms. Accounts
considered uncollectible are charged against the allowance.
Inventories
Inventories
are stated at the lower of cost or market, cost being determined by the
first-in, first-out method.
Property and
equipment
Property
and equipment are stated at depreciated cost or fair value where depreciated
cost is not recoverable. Depreciation is computed using the
straight-line method. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts,
and any resulting gain or loss is recognized in income for the
period. The cost of maintenance and repairs is charged to income as
incurred; significant renewals and betterments are capitalized.
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Property
and equipment are being depreciated over the following useful
lives:
Category
|
|
Years
|
Buildings
and improvements
|
|
31
and 39
|
Machinery
and equipment
|
|
5 –
12
|
Office
equipment
|
|
5 –
7
|
Vehicles
|
|
5
|
Intangible
assets
The
Company accounts for intangible assets at historical cost. Intangible
assets acquired in a business combination are recorded under the purchase method
of accounting at their estimated fair values at the date of
acquisition. Goodwill represents the excess purchase price over the
fair value of the net tangible and other intangible assets
acquired. Goodwill is not amortized and is reviewed for impairment at
least annually. Brand assets represent the fair value of brands
acquired. Brand assets have an indefinite life, therefore are not
amortized, rather are reviewed periodically for impairment. The
Company amortizes other intangible assets over their estimated useful lives, as
disclosed in the table below.
The
Company reviews intangible assets and their related useful lives at least once a
year to determine if any adverse conditions exist that would indicate the
carrying value of these assets may not be recoverable. The
Company conducts more frequent impairment assessments if certain conditions
exist, including: a change in the competitive landscape, any internal
decisions to pursue new or different strategies, a loss of a significant
customer, or a significant change in the market place including changes in the
prices paid for the Company’s products or changes in the size of the market for
the Company’s products.
If the
estimate of an intangible asset’s remaining useful life is changed, the
remaining carrying amount of the intangible asset is amortized prospectively
over the revised remaining useful life.
Intangible
assets are being amortized over the following useful lives:
Category
|
|
Years
|
Recipes
|
|
4
|
Customer
lists and other customer related intangibles
|
|
7-10
|
Lease
agreement
|
|
7
|
Trade
names
|
|
15
|
Formula
|
|
10
|
Customer
relationships
|
|
12
|
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Income
taxes
Deferred
income taxes arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.
The
principal sources of temporary differences are different depreciation and
amortization methods for financial statement and tax purposes, unrealized gains
or losses related to marketable securities, capitalization of indirect costs for
tax purposes, and the recognition of an allowance for doubtful accounts for
financial statement purposes.
As of
January 1, 2007, the Company adopted FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an interpretation of FASB
Statement No. 109” (FIN 48), which clarifies the accounting and disclosure
for uncertainty in tax positions, as defined. Pursuant to FIN 48, the Company
has analyzed filing positions in all of the federal and state jurisdictions
where it is required to file income tax returns, as well as all open tax years
in these jurisdictions. The only periods subject to examination for the
Company’s federal return are the 2004 through 2007 tax years. The Company
believes that its income tax filing positions and deductions would be sustained
on audit and does not anticipate any adjustments that would result in a material
change to its financial position. Therefore, no reserves for uncertain income
tax positions have been recorded pursuant to FIN 48. In addition, the Company
did not record a cumulative effect adjustment related to the adoption of FIN
48.
The
Company’s policy for recording interest and penalties associated with audits is
to record such items as a component of income before taxes. There were no such
items during the periods covered in this report.
Treasury
stock
Treasury
stock is recorded using the cost method.
Advertising
costs
The
Company expenses advertising costs as incurred. During the year ended
December 31, 2008 and for the six months ended June 30, 2009 and 2008,
approximately $1,530,207, $780,116 and $893,710 of such costs respectively, were
expensed.
Earning per common
share
Earnings
per common share were computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during
the period. For the six months ended June 30, 2009 and 2008 and the
year ended December 31, 2008, diluted and basic earnings per share were the
same, as the effect of dilutive securities options outstanding was not
significant.
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
3 – ACQUISITION
On
February 6, 2009, Lifeway Foods, Inc., a Illinois corporation (“Lifeway”)
completed a Stock Purchase Agreement (the “Stock Agreement”) by and among
Lifeway, Ilya Mandel, an individual and Michael Edelson, an individual (each a
“Seller” and collectively “Sellers”).
Lifeway
purchased from Sellers all of the issued and outstanding stock (the “Shares”) of
Fresh Made, Inc., a Pennsylvania corporation (“Fresh”). The
consideration for the Shares was an aggregate of $8,048,000, less certain
offsets for any selling expenses in excess of certain limits set forth in the
Stock Agreement and other payments and funded debt all as set forth in the Stock
Agreement, a note in the principal amount of $2,735,000, due on February 6,
2011, 128,948 shares of common stock of Lifeway valued at a total of $980,000
(“Lifeway’s Common Stock”), the cancellation of a loan in the principal amount
of $265,000 and not more than $98,000 in funds held in Fresh’s two accounts with
Vist Financial Corp. The issuance of Lifeway’s Common Stock was
exempted from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended.
Also on
February 6, 2009, Lifeway entered into and consummated a Real Property Purchase
Agreement (the “Real Property Agreement”) by and among Sellers and
Lifeway. Pursuant to the Real Property Agreement, Lifeway acquired
1.1355 acres of land in Philadelphia, PA (the “Property”) from
Sellers. The consideration for the Property was approximately
$2,000,000.
The
acquisition was accounted for using the purchase accounting method of
accounting, and accordingly, the purchase price was allocated to assets acquired
and the liabilities assumed based on the fair value as of the merger
date. Acquisition costs for legal and professional fees have been
included in General and Administrative costs.
The
estimated fair value of assets acquired, including the real property, and
liabilities assumed consisted of the following:
Cash
and cash equivalents
|
|
$
|
226,000
|
|
Accounts
receivable (contractual amounts totaling $546,000)
|
|
|
546,000
|
|
Other
current assets
|
|
|
361,000
|
|
Building
and other fixed assets
|
|
|
2,617,000
|
|
Customer
list
|
|
|
4,000,000
|
|
Non
amortizable goodwill and brand asset
|
|
|
6,739,000
|
|
Current
liabilities
|
|
|
( 461,000
|
)
|
Total
fair value of assets acquired and liablities assumed
|
|
$
|
14,028,000
|
|
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
4 – INTANGIBLE ASSETS
Intangible
assets, and the related accumulated amortization, consist of the
following:
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
December
31, 2008
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
Recipes
|
|
$
|
43,600
|
|
|
$
|
43,600
|
|
|
$
|
43,600
|
|
|
$
|
40,420
|
|
|
$
|
43,600
|
|
|
$
|
43,600
|
|
Customer
lists and other customer related intangibles
|
|
|
4,305,200
|
|
|
|
385,166
|
|
|
|
305,200
|
|
|
|
162,228
|
|
|
|
305,200
|
|
|
|
182,938
|
|
Lease
acquisition
|
|
|
87,200
|
|
|
|
61,245
|
|
|
|
87,200
|
|
|
|
48,790
|
|
|
|
87,200
|
|
|
|
55,019
|
|
Other
|
|
|
6,638
|
|
|
|
6,638
|
|
|
|
6,638
|
|
|
|
3,984
|
|
|
|
6,638
|
|
|
|
4,647
|
|
Customer
relationship
|
|
|
985,000
|
|
|
|
239,410
|
|
|
|
985,000
|
|
|
|
157,327
|
|
|
|
985,000
|
|
|
|
198,368
|
|
Contractual
backlog
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
Trade
names
|
|
|
1,980,000
|
|
|
|
385,000
|
|
|
|
1,980,000
|
|
|
|
253,000
|
|
|
|
1,980,000
|
|
|
|
319,000
|
|
Formula
|
|
|
438,000
|
|
|
|
127,750
|
|
|
|
438,000
|
|
|
|
83,950
|
|
|
|
438,000
|
|
|
|
105,850
|
|
|
|
$
|
7,857,638
|
|
|
$
|
1,260,809
|
|
|
$
|
3,857,638
|
|
|
$
|
761,699
|
|
|
$
|
3,857,638
|
|
|
$
|
921,422
|
|
Amortization
expense is expected to be as follows for the 12 months ending June
30:
2010
|
|
$
|
672,250
|
|
2011
|
|
|
669,707
|
|
2012
|
|
|
658,288
|
|
2013
|
|
|
627,275
|
|
2014
|
|
|
624,550
|
|
Thereafter
|
|
|
3,344,759
|
|
|
|
$
|
6,596,829
|
|
Amortization
expense during the six months ended June 30, 2009 and 2008 and for the year
ended December 31, 2008 was $339,388, $159,723 and $319,446,
respectively.
Goodwill
and brand assets increased during the period ending June 30, 2009 due to the
acquisition of Fresh Made (See Note 3).
Note
5 – MARKETABLE SECURITIES
The cost
and fair value of marketable securities classified as available for sale are as
follows:
June 30,
2009
|
|
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
1,536,976
|
|
|
$
|
57,665
|
|
|
$
|
( 178,926
|
)
|
|
$
|
1,415,715
|
|
Mutual
Funds
|
|
|
617,082
|
|
|
|
842
|
|
|
|
( 267,818
|
)
|
|
|
350,106
|
|
Preferred
Securities
|
|
|
680,527
|
|
|
|
14,361
|
|
|
|
( 207,218
|
)
|
|
|
487,670
|
|
Corporate
Bonds
|
|
|
506,165
|
|
|
|
5,836
|
|
|
|
( 7,781
|
)
|
|
|
504,220
|
|
Government
agency Obligations
|
|
|
1,889,963
|
|
|
|
15,201
|
|
|
|
( 3,714
|
)
|
|
|
1,901,450
|
|
Total
|
|
$
|
5,230,713
|
|
|
$
|
93,905
|
|
|
$
|
( 665,457
|
)
|
|
$
|
4,659,161
|
|
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
5 – MARKETABLE SECURITIES - Continued
June 30,
2008
|
|
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
3,190,184
|
|
|
$
|
58,147
|
|
|
$
|
( 569,316
|
)
|
|
$
|
2,679,015
|
|
Mutual
Funds
|
|
|
827,737
|
|
|
|
4,371
|
|
|
|
( 138,044
|
)
|
|
|
694,064
|
|
Preferred
Securities
|
|
|
1,657,944
|
|
|
|
4,395
|
|
|
|
( 304,967
|
)
|
|
|
1,357,372
|
|
Corporate
Bonds
|
|
|
1,288,708
|
|
|
|
387
|
|
|
|
( 73,012
|
)
|
|
|
1,216,083
|
|
Municipal
Bonds
|
|
|
4,586
|
|
|
|
352
|
|
|
|
—
|
|
|
|
4,938
|
|
Government
agency Obligations
|
|
|
530,845
|
|
|
|
—
|
|
|
|
( 10,290
|
)
|
|
|
520,555
|
|
Total
|
|
$
|
7,500,004
|
|
|
$
|
67,652
|
|
|
$
|
( 1,095,629
|
)
|
|
$
|
6,472,027
|
|
December 31,
2008
|
|
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
2,116,004
|
|
|
$
|
75,333
|
|
|
$
|
( 279,487
|
)
|
|
$
|
1,911,850
|
|
Mutual
Funds
|
|
|
888,182
|
|
|
|
202
|
|
|
|
( 339,970
|
)
|
|
|
548,414
|
|
Preferred
Securities
|
|
|
1,541,423
|
|
|
|
13,075
|
|
|
|
( 308,963
|
)
|
|
|
1,245,535
|
|
Corporate
Bonds
|
|
|
783,761
|
|
|
|
1,559
|
|
|
|
( 19,289
|
)
|
|
|
766,031
|
|
Municipal
Bonds
|
|
|
4,586
|
|
|
|
414
|
|
|
|
—
|
|
|
|
5,000
|
|
Government
agency Obligations
|
|
|
778,140
|
|
|
|
8,668
|
|
|
|
( 1,470
|
)
|
|
|
785,338
|
|
Total
|
|
$
|
6,112,096
|
|
|
$
|
99,251
|
|
|
$
|
( 949,179
|
)
|
|
$
|
5,262,168
|
|
Proceeds
from the sale of marketable securities were $5,323,423, $4,127,666 and
$3,299,791 during the year ended December 31, 2008 and for the six months ended
June 30, 2009 and 2008 respectively.
Gross
gains of $384,574, $235,408 and $279,278 and gross losses of $1,118,221,
$331,562 and $366,452 were realized on these sales during the year ended
December 31, 2008 and for the six months ended June 30, 2009 and 2008,
respectively.
The
following table shows the gross unrealized losses and fair value of Company’s
investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position, at June 30, 2009:
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
5 – MARKETABLE SECURITIES - Continued
|
|
Less
Than 12 Months
|
|
|
12
Months or Greater
|
|
|
Total
|
|
Description
of Securities
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
537,047
|
|
|
$
|
( 113,772
|
)
|
|
$
|
270,700
|
|
|
$
|
( 65,154
|
)
|
|
$
|
807,747
|
|
|
$
|
( 178,926
|
)
|
Mutual
Funds
|
|
|
95,391
|
|
|
|
( 33,238
|
)
|
|
|
248,327
|
|
|
|
( 234,580
|
)
|
|
|
343,718
|
|
|
|
( 267,818
|
)
|
Preferred
Securities
|
|
|
21,527
|
|
|
|
( 3,368
|
)
|
|
|
365,740
|
|
|
|
( 203,850
|
)
|
|
|
387,267
|
|
|
|
( 207,218
|
)
|
Corporate
Bonds
|
|
|
—
|
|
|
|
—
|
|
|
|
212,531
|
|
|
|
( 7,781
|
)
|
|
|
212,531
|
|
|
|
( 7,781
|
)
|
Government
Agency Obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
202,046
|
|
|
|
( 3,714
|
)
|
|
|
202,046
|
|
|
|
( 3,714
|
)
|
|
|
$
|
653,965
|
|
|
$
|
( 150,378
|
)
|
|
$
|
1,299,344
|
|
|
$
|
( 515,079
|
)
|
|
$
|
1,953,309
|
|
|
$
|
( 665,457
|
)
|
For the
year ended December 31, 2008, we recorded other than temporary impairments
related to investments in marketable securities in certain investments of
$958,879. The impairments recognized relate to securities that were
in an unrealized loss position at December 31, 2008 that were subsequently sold
and equity holdings that we consider other than temporarily impaired due to the
recent performance of the issuers of those securities.
Equities,
Mutual Funds, Corporate Bonds and Government Agency Obligations - The Company’s
investments in equity securities, mutual funds, corporate bonds and government
agency obligations consist of investments in common stock, preferred stock and
debt securities of companies in various industries. The Company
evaluated the near-term prospects of the issuer in relation to the severity and
duration of the impairment. Based on that evaluation and the Company’s ability
and intent to hold these investments for a reasonable period of time sufficient
for a forecasted recovery of fair value, the Company does not consider any
material investments to be other-than-temporarily impaired at June 30,
2009.
Preferred
Securities - The Company’s investments in preferred securities consist of
investments in preferred stock of companies in various
industries. The Company evaluated the continuing performance of the
securities, the credit worthiness of the issuers as well as the near-term
prospects of the security in relation to the severity and duration of the
impairment. Based on that evaluation and the Company’s ability and intent to
hold these investments for a reasonable period of time sufficient for a
forecasted recovery of fair value, the Company does not consider any material
investments to be other-than-temporarily impaired at June 30, 2009.
Note
6 – INVENTORIES
Inventories
consist of the following:
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Finished
goods
|
|
$
|
1,500,090
|
|
|
$
|
1,276,812
|
|
|
$
|
1,343,811
|
|
|
Production
supplies
|
|
|
1,704,240
|
|
|
|
1,476,944
|
|
|
|
1,291,484
|
|
|
Raw
materials
|
|
|
612,865
|
|
|
|
1,097,969
|
|
|
|
462,247
|
|
|
Total
inventories
|
|
$
|
3,817,195
|
|
|
$
|
3,851,725
|
|
|
$
|
3,097,542
|
|
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
7 – PROPERTY AND EQUIPMENT
Property
and equipment consist of the following:
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Land
|
|
$
|
1,178,160
|
|
|
$
|
969,232
|
|
|
$
|
969,232
|
|
|
Buildings
and improvements
|
|
|
9,769,348
|
|
|
|
7,054,840
|
|
|
|
7,138,042
|
|
|
Machinery
and equipment
|
|
|
12,213,069
|
|
|
|
8,199,914
|
|
|
|
8,229,202
|
|
|
Vehicles
|
|
|
961,245
|
|
|
|
581,458
|
|
|
|
610,558
|
|
|
Office
equipment
|
|
|
208,213
|
|
|
|
116,203
|
|
|
|
180,351
|
|
|
Construction
in process
|
|
|
—
|
|
|
|
1,828,582
|
|
|
|
2,309,045
|
|
|
|
|
|
24,330,035
|
|
|
|
18,750,229
|
|
|
|
19,436,430
|
|
|
Less
accumulated depreciation
|
|
|
10,536,106
|
|
|
|
7,980,553
|
|
|
|
8,373,716
|
|
|
Total
property and equipment
|
|
$
|
13,793,929
|
|
|
$
|
10,769,676
|
|
|
$
|
11,062,714
|
|
Depreciation
expense during the year ended December 31, 2008 and for the six months ended
June 30, 2009 and 2008 was $777,715, $570,428 and $384,552,
respectively.
Note 8 – ACCRUED EXPENSES
Accrued
expenses consist of the following:
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Accrued
payroll and payroll taxes
|
|
$
|
219,842
|
|
|
$
|
243,876
|
|
|
$
|
98,089
|
|
Accrued
property tax
|
|
|
300,446
|
|
|
|
293,712
|
|
|
|
291,819
|
|
Other
|
|
|
97,374
|
|
|
|
11,118
|
|
|
|
68,374
|
|
|
|
$
|
617,662
|
|
|
$
|
548,706
|
|
|
$
|
458,282
|
|
Note
9 – NOTES PAYABLE
Notes
payable consist of the following:
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Mortgage
note payable to a bank, payable in monthly installments of $3,273
including interest at 7%, with a balloon payment of $416,825 due September
25, 2011. Collateralized by real estate.
|
|
|
—
|
|
|
$
|
443,275
|
|
|
$
|
438,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
note payable to a bank, payable in monthly installments of $19,513
including interest at 5.6%, with a balloon payment of $2,652,143 due July
14, 2010. Collateralized by real estate.
|
|
|
—
|
|
|
|
2,798,264
|
|
|
|
2,760,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Amani Holding LLC, payable in quarterly installments of
$262,500 plus interest at the floating prime rate per annum (7.25% at
December 31, 2007) due September 1, 2010 secured by letter of
credit.
|
|
|
—
|
|
|
|
1,406,914
|
|
|
|
837,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Private Bank in monthly installments of $42,222, plus variable
interest rate, currently at 2.945%, with a balloon payment of $5,066,667
due February 6, 2014. Collateralized by substantially all
assets of the Company.
|
|
|
7,388,889
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit with Private Bank at variable interest rate, currently at
2.945%, due on February 6, 2010. Collateralized by real
estate.
|
|
|
2,400,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit with Morgan Stanley at variable interest rate, currently at
2.40%. Secured by marketable securities.
|
|
|
1,945,621
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
notes payable to Ilya Mandel & Michael Edelson, payable in quarterly
installments of $341,875, plus interest at the floating rate per annum
(3.3% at June 30, 2009) due February 6, 2011.
|
|
|
2,393,125
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
|
14,127,635
|
|
|
|
4,648,453
|
|
|
|
4,036,458
|
|
Less
current maturities
|
|
|
6,219,788
|
|
|
|
1,130,612
|
|
|
|
928,444
|
|
Total
long-term portion
|
|
$
|
7,907,847
|
|
|
$
|
3,571,841
|
|
|
$
|
3,108,014
|
|
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
9 – NOTES PAYABLE - Continued
Maturities
of notes payables are as follows:
For
the Period Ended June 30,
|
|
2010
|
|
$
|
6,219,788
|
|
2011
|
|
|
1,532,292
|
|
2012
|
|
|
506,667
|
|
2013
|
|
|
506,667
|
|
2014
|
|
|
5,362,221
|
|
Total
|
|
$
|
14,127,635
|
|
Note
10 – PROVISION FOR INCOME TAXES
The
provision for income taxes consists of the following:
|
|
|
|
|
For
the
|
|
|
|
For
the Six Months Ended
|
|
|
Year
Ended
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
974,424
|
|
|
$
|
969,123
|
|
|
$
|
1,005,159
|
|
State
and local
|
|
|
233,131
|
|
|
|
219,627
|
|
|
|
184,016
|
|
Total
current
|
|
|
1,207,555
|
|
|
|
1,188,750
|
|
|
|
1,189,175
|
|
Deferred
|
|
|
179,795
|
|
|
|
( 78,035
|
)
|
|
|
( 509,386
|
)
|
Provision
for income taxes
|
|
$
|
1,387,350
|
|
|
$
|
1,110,715
|
|
|
$
|
679,789
|
|
A
reconciliation of the provision for income taxes and the income tax computed at
the statutory rate is as follows:
|
|
|
|
|
For
the
|
|
|
|
For
the Six Months Ended
|
|
|
Year
Ended
|
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Federal
income tax expense computed at the statutory rate
|
|
$
|
1,858,685
|
|
|
$
|
989,753
|
|
|
$
|
881,302
|
|
State
and local tax expense, net
|
|
|
262,403
|
|
|
|
139,730
|
|
|
|
124,419
|
|
Permanent
differences
|
|
|
( 733,738
|
)
|
|
|
( 18,768
|
)
|
|
|
( 150,772
|
)
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
( 175,160
|
)
|
Provision
for income taxes
|
|
$
|
1,387,350
|
|
|
$
|
1,110,715
|
|
|
$
|
679,789
|
|
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
10 – PROVISION FOR INCOME TAXES - Continued
Amounts
for deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Non-current
deferred tax liabilities arising from:
Temporary
differences -
|
|
|
|
|
|
|
|
|
|
accumulated
depreciation and amortization
|
|
$
|
( 1,941,740
|
)
|
|
$
|
( 1,647,550
|
)
|
|
$
|
( 1,607,155
|
)
|
Current
deferred tax assets arising from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on marketable securities
|
|
|
431,188
|
|
|
|
424,555
|
|
|
|
351,020
|
|
Impairment
of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
396,017
|
|
Inventory
|
|
|
161,749
|
|
|
|
163,212
|
|
|
|
127,177
|
|
Allowance
for doubtful accounts
|
|
|
14,460
|
|
|
|
14,460
|
|
|
|
14,460
|
|
Allowance
for promotions
|
|
|
30,975
|
|
|
|
—
|
|
|
|
30,975
|
|
Total
current deferred tax assets (liabilities)
|
|
|
638,372
|
|
|
|
602,227
|
|
|
|
919,649
|
|
Net
deferred tax liability
|
|
$
|
(
1,303,368
|
)
|
|
$
|
( 1,045,323
|
)
|
|
$
|
( 687,506
|
)
|
Note
11 – SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid
for interest and income taxes are as follows:
|
|
|
|
|
For
the
|
|
|
|
For
the Six Months Ended
|
|
|
Year
Ended
|
|
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Interest
|
|
$
|
250,553
|
|
|
$
|
154,924
|
|
|
$
|
307,620
|
|
Income
taxes
|
|
$
|
1,563,750
|
|
|
$
|
552,777
|
|
|
$
|
1,288,428
|
|
Note
12 – STOCK AWARD AND STOCK OPTION PLANS
The
Company has a registration statement filed with the Securities and Exchange
Commission in connection with a Consulting Service Compensation Plan covering up
to 1,200,000 of the Company’s common stock shares. Pursuant to such Plan, the
Company may issue common stock or options to purchase common stock to certain
consultants, service providers, and employees of the Company. The
option price, number of shares, grant date, and vesting terms are determined at
the discretion of the Company’s Board of Directors.
As of
December 31, 2008 and at June 30, 2009 and 2008, there were no stock options
outstanding or exercisable. There were approximately 940,000 shares
available for issuance under the Plan at June 30, 2009.
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
12 – STOCK AWARD AND STOCK OPTION PLANS - Continued
On June
13, 2008, Lifeway’s Board of Directors approved awards of an aggregate amount
of 10,500 shares to be awarded under its Employee and Consulting Services
and Compensation Plan to certain key employees and consultants for services
rendered to the Company. The stock awards were made on June 13,
2008 and have vesting periods of one year. The expense for the awards is
measured as of July 1, 2008 at $11.87 per share for 10,500 shares, or
a total stock award expense of $124,635. This expense will be recognized as the
stock awards vest in 12 equal portions of $10,386, or 875 shares per month
for one year.
On May
18, 2007, Lifeway’s Board of Directors approved awards of an aggregate amount of
8,400 shares to be awarded under its Employee and Consulting Services and
Compensation Plan to certain key employees and consultants for services rendered
to the Company. The stock awards were made on June 1, 2007 and have
vesting periods of one year. The expense for the awards is measured as of June
1, 2007 at $9.90 per share for 8,400 shares, or a total stock award expense of
$83,160. This expense will be recognized as the stock awards vest in 12 equal
portions of $6,930, or 700 shares per month for one year.
Note
13 – FAIR VALUE MEASUREMENTS
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in accordance with U.S. GAAP, and expands
disclosures about fair value measurements. The Statement clarifies
that the exchange price is the price in an orderly transaction between market
participants to sell an asset or transfer a liability at the measurement
date. The statement emphasizes that fair value is a market-based
measurement and not an entity-specific measurement. The statement
establishes a fair value hierarchy used in fair value measurements and expands
the required disclosures of assets and liabilities measured at fair
value.
Level 1 –
Inputs use quoted prices in active markets for identical assets or liabilities
that the Company has the ability to access.
Level 2 –
Inputs use other inputs that are observable, either directly or
indirectly. These inputs include quoted prices for similar assets and
liabilities in active markets, and other inputs such as interest rates and yield
curves that are observable at commonly quoted intervals.
Level 3 –
Inputs are unobservable inputs, including inputs that are available in
situations where there is little, if any, market activity for the related asset
or liability.
In
instances where inputs used to measure fair value fall into different levels in
the above fair value hierarchy, fair value measurements in their entirety are
categorized based on the lowest level input that is significant to the
valuation. The Company’s assessment of the significance of particular
inputs to these fair measurements requires judgment and considers factors
specific to each asset or liability.
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
13 – FAIR VALUE MEASUREMENTS - Continued
Disclosures
concerning assets and liabilities measured at fair value are as
follows:
|
|
Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance
at
June
30, 2009
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities- available - for - sale
|
|
$
|
4,659,161
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
4,659,161
|
|
Note
14 – RECENT ACCOUNTING PRONOUNCEMENTS
In
December 2007, the FASB issued SFAS No. 141(R) “Business
Combinations.” SFAS No. 141(R) states that all business combinations
(whether full, partial or step acquisitions) will result in all assets and
liabilities of an acquired business being recorded at their acquisition date
fair values. Earn-outs and other forms of contingent consideration
and certain acquired contingencies will also be recorded at fair value at the
acquisition date. SFAS No. 141(R) also states acquisition costs will
generally be expensed as incurred; in-process research and development will be
recorded at fair value as an indefinite-lived intangible asset at the
acquisition date; changes in deferred tax asset valuation allowances and income
tax uncertainties after the acquisition date generally will affect income tax
expense; and restructuring costs will be expensed in periods after the
acquisition date. This statement is effective for financial
statements issued for fiscal years beginning after December 15,
2008. The Company will apply the provisions of this standard to any
acquisitions that it completes on or after December 15, 2008.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51.” This
statement amends ARB No. 51 to establish accounting and reporting
standards for the noncontrolling interest (minority interest) in a subsidiary
and for the deconsolidation of a subsidiary. Upon its adoption, noncontrolling
interests will be classified as equity in the consolidated balance
sheets. This statement also provides guidance on a subsidiary
deconsolidation as well as stating that entities need to provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. This statement is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The adoption of this standard did not have a
material impact on the Company’s financial condition, results of operations or
liquidity.
LIFEWAY
FOODS, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
June
30, 2009 and 2008
and
December 31, 2008
Note
14 – RECENT ACCOUNTING PRONOUNCEMENTS - Continued
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No.
161”). This statement requires enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows. SFAS No. 161 also requires that objectives for using
derivative instruments be disclosed in terms of underlying risk and accounting
designation and requires cross-referencing within the footnotes. This
statement also suggests disclosing the fair values of derivative instruments and
their gains and losses in a tabular format. This statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The adoption of this standard did
not have a material impact on the Company’s financial condition, results of
operations or liquidity.
ITEM 2.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Comparison of Quarter Ended
June 30, 2009 to Quarter Ended June 30, 2008.
The
following analysis should be read in conjunction with the unaudited financial
statements of the Company and related notes included elsewhere in this quarterly
report and the audited financial statements and Management’s Discussion and
Analysis contained in our Form 10-K, for the fiscal year ended December 31,
2008, and in the Management’s Discussion and Analysis contained in our Form
10-Q, for the fiscal quarter ended March 31, 2009.
Results
of Operations
Total
consolidated group sales increased by $2,956,036, (approximately 26%) to
$14,479,429 during the three month period ended June 30, 2009 from $11,523,393
during the same three month period in 2008. This increase is primarily
attributable to increased sales and awareness of Lifeway’s flagship line, Kefir,
as well as ProBugs® Organic Kefir for kids. Additionally,
Lifeway recorded revenues from its February 6, 2009 acquisition of Fresh Made
Dairy. Included in the total group sales was $2,152,730 of revenue
related to this acquisition and recorded during the second
quarter 2009.
Cost of
goods sold as a percentage of sales was approximately 58% during the second
quarter 2009, compared to approximately 66% during the same period in 2008. The
decrease was primarily attributable to the decreased cost of conventional milk,
our largest raw material, and the cost of transportation and other petroleum
based production supplies. Gross profit increased approximately 59%
during the second quarter 2009, when compared with the same period in
2008.
Operating
expenses as a percentage of sales were approximately 21% during the second
quarter 2009, compared to approximately 20% during the same period in
2008. This increase is primarily attributable to the increase
in professional fees related to the February 6, 2009 acquisition of Fresh Made
Dairy and a 111% increase in amortization expense, a non cash expense, also
related to the Fresh Made acquisition. Many of the acquisition
related professional fees are non recurring expenses.
Total
operating income increased by $1,608,486, (approximately 104%) to
$3,154,647 during
the second quarter 2009, from $1,546,161 during the same period in
2008.
Interest
expense during the second quarter 2009 was $110,090 compared with interest
expense of $68,969 during the same period a year ago. This higher
interest expense is primarily attributable to the issuance of the note payable
related to the February 6, 2009 Fresh Made acquisition. Notes payable
are discussed in Note 9 of the Notes to Consolidated Financial
Statements.
Total net
income was $2,531,905 or $.15 per share for
the second quarter ended June 30, 2009, compared with $911,718 or $.05 per share in the
same period in 2008. This represents a 178% increase in net income
from the second quarter 2009 when compared to the same period in
2008.
Comparison of Six-Month
Period Ended June 30, 2009 to Six-Month Period Ended June 30,
2008
Results
of Operations
Sales
increased by $5,569,878, (approximately 25%) to $28,215,509 during the six-month
period ended June 30, 2009 from $22,645,631 during the same six-month period in
2008. This increase is primarily attributable to increased sales and awareness
of Lifeway’s flagship line, Kefir, as well as Lifeway’s kids Kefir drink,
ProBugs®. Aditionally, Lifeway recorded revenues from its February 6, 2009
acquisition of Fresh Made Dairy. Included in the total group sales was
$3,543,603 of revenue related to this acquisition and recorded during the
six-month period ended June 30, 2009.
Cost of
goods sold as a percentage of sales, excluding depreciation expense, was
approximately 57% during the six-month period ended June 30, 2009, compared to
about 66% during the same period in 2008. The decrease was primarily
attributable to the decreased cost of conventional milk, our largest raw
material, and the cost of transportation and other petroleum based production
supplies.
Operating
expenses as a percentage of sales for Lifeway Foods were approximately 21%
during the six-month period ended June 30, 2009, compared to approximately 20%
during the same period in 2008. This increase is primarily
attributable to the increase in professional fees related to the February 6,
2009 acquisition of Fresh Made Dairy and a 112% in amortization expense, a non
cash expense, also related to the Fresh Made acquisition. Many of
the acquisition related professional fees are non recurring
expenses.
Total
other expenses during the six-month period ending June 30, 2009 were $231,439,
compared with total other expenses of $1,780 during the same period in
2008. This increase is primarily attributable to a higher interest
expense related to the February 6, 2009 Fresh Made
acquisition. Interest expenses during the six-month period ending
June 30, 2009 were $264,473, which includes approximately a $55,000 pre -payment
penalty on one of Lifeway’s real estate mortgages related to the financing of
the acquisition. This pre-payment expense is a non recurring
expense.
Total net
income was $4,079,370, or $.24 per split adjusted share for the six-month period
ended June 30, 2009, compared with $1,800,324, or $.11 per split adjusted share
in the same period in 2008.
Sources
and Uses of Cash
Net cash
provided by operating activities was $3,390,715 during the six months
ended June 30, 2009, which is an increase of $762,708 when compared to the same
period in 2008. This increase is primarily attributable to the
increase in net income of $2,279,046.
Net cash used in investing activities was $2,827,272 during the
six months ended June 30, 2009, which is an increase of $1,568,612 when compared
to the same period in 2008. This increase is primarily due to the
Company’s acquisition of Fresh Made, net of cash acquired. The
Company purchased $714,052 worth of property, plant and equipment during the
first six months of 2009 when compared to the purchase of $1,475,280 worth of
property, plant in equipment during the same period in 2008. This
represents a decrease of $761,228 in the purchase of equipment during the six
months ended June 30, 2009, when compared to the same period in
2008. The Company also repaid its short term liability in the form of
a margin loan in the amount of $407,479 during it’s second quarter of
2009.
Lifeway
had a net increase in cash and cash equivalents of $305,518 during the six months
ended June 30, 2009, compared to a net decrease in cash and cash equivalents of
$253,846 during the
same period in 2008.
Assets
and Liabilities
Total
assets were
$49,706,668 during
the six months ended June 30, 2009, which is an increase of $13,969,737 when
compared to the same period in 2008. This is primarily due the
Company’s acquisition of Fresh Made, which increased intangible assets by
$10,240,123 as of June 30, 2009 when compared to June 30,
2008. Additionally, the value of the Company’s property, plant and
equipment was $13,793,929 as of June 30, 2009,
which is an increase of $3,024,253 from June 30, 2008.
Total
current liabilities were $8,861,787 during the six months
ended June 30, 2009, which is an increase of $4,506,253 when compared to the
same period in 2008. This is primarily due the Company’s acquisition
of Fresh Made, which increased current maturities of notes payable by $5,089,176
as of June 30, 2009 when compared to June 30, 2008.
Significant
portions of our assets are held in marketable securities. The majority of our
marketable securities are classified as available-for-sale on our balance sheet,
while the mortgage-backed securities are classified as trading. All
of these securities are stated thereon at market value as of the end of the
applicable period. Gains and losses on the portfolio are determined by the
specific identification method.
We
anticipate being able to fund the Company’s foreseeable liquidity requirements
internally. We continue to explore potential acquisition opportunities in our
industry in order to boost sales while leveraging our distribution system to
consolidate and lower costs.
Other
Developments
On June
13, 2008, Lifeway’s Board of Directors approved awards of an aggregate amount of
10,500 shares to be awarded under its Employee and Consulting Services and
Compensation Plan to certain key employees and consultants for services rendered
to the Company. The stock awards were made on June 13, 2008 and have
vesting periods of one year. The expense for the awards is measured as of July
1, 2007 at $11.87 per share for 10,500 shares, or a total stock award expense of
$124,634. This expense will be recognized as the stock awards vest in 12 equal
portions of $10,386, or 875 shares per month for one year.
The
Company has
previously identified and disclosed the following material weaknesses in our
internal control for financial reporting: (1) an incomplete and undocumented
financial reporting process, including an overview of the financial disclosure
principals, (2) no documented accounting procedures manual available for
employee use, and (3) no documented accounting procedures in valuing of
marketable securities other than temporary impairment. The Company has
previously disclosed its intent to take corrective action and to implement
additional controls in order to address these material
weaknesses. With respect to (1), the Company has
implemented use of a software program called Microsoft Business
Solutions-Navision (“NAV”) as of June 1, 2009 to increase the financial
reporting ability of the Company over the previous accounting software, to
implement additional controls and strengthen the existing controls over the
financial reporting process, and to allow for additional documentation of the
financial reporting process. With respect to (2), the Company has
recently engaged a firm to assist with development of such manual which should
be completed this year. Finally, with respect to (3), the Company has undertaken
more frequent and vigorous discussions with its accountants and recently engaged
a firm to assist with documenting such procedures.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not
applicable.
ITEM
4T. CONTROLS AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
As of
June 30, 2009, we carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were not effective at the reasonable assurance level as
of June 30, 2009 in ensuring that information required to be disclosed by us
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified under the Exchange Act rules and forms due to the
material weaknesses as disclosed in our Form 10-K filed on March 31, 2009
which we cannot yet determine have been remedied by implementation of the
NAV software as described below. As a result, we performed additional analysis
and other post-closing procedures to ensure our consolidated financial
statements were prepared in accordance with generally accepted accounting
principles.
Accordingly,
management believes the consolidated financial statements included in this Form
10-Q fairly present, in all material respects, our financial condition, results
of operations and cash flows for the periods presented.
There was
no change in our internal control over financial reporting during our most
recently completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting,
other than the following. As of June 1, 2009, the Company implemented
the software program Microsoft Business Solutions-Navision (“NAV”). The Company
intends for the NAV software to increase the financial reporting ability of the
Company over the Company’s previous accounting software, to implement
additional controls and strengthen the existing controls over the financial
reporting process, and to allow for additional documentation of the financial
reporting process.
PART
II — OTHER INFORMATION
None.
ITEM
1A. RISK FACTORS.
Not
applicable.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
(c)
|
Purchases
of the Company’s Securities.
|
Period
|
|
(a)
Total
Numbers
of
Shares
(or Units)
Purchased
|
|
(b)
Average Price Paid per Share (or Unit)
|
|
(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced
Plans or Programs
|
|
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May
Yet Be Purchased Under the Plans or Programs
|
April
1, 2009 to April 30, 2009
|
|
24,431
|
|
|
8.24
|
|
24,431
|
|
48,365
|
May
1, 2009 to May 31, 2009
|
|
4,000
|
|
|
10.45
|
|
4,000
|
|
44,365
|
June
1, 2009 to June 30, 2009*
|
|
4,715
|
|
|
11.94
|
|
4,715
|
|
39,650
|
*Total
|
|
33,146
|
|
$
|
10.21
|
|
33,146
|
|
39,650
|
*
Pursuant to the share repurchase program approved November 20, 2008
for 100,000 split adjusted shares with a plan expiration date of one
year.
ITEM 3. DEFAULTS
UPON SENIOR SECURITIES.
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Our
Annual Meeting of stockholders was held on June 19, 2009. Proxies for the
meeting were solicited pursuant to Regulation 14A under the Exchange Act. There
was no solicitation of proxies in opposition to management’s nominees as listed
in the proxy statement and all of management’s nominees were elected to our
Board of Directors. Details of the voting are provided below:
Proposal
1:
To elect
six (6) members of the Company’s Board of Directors to serve until the 2010
Annual Meeting of Stockholders (or until successors are elected or directors
resign or are removed).
Proposal
1:
|
|
For
|
|
Withhold
|
|
Election
of Directors
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
Ludmila
Smolyansky
|
13,474,028
|
|
756,191
|
|
|
|
94.69%
|
|
5.31%
|
|
|
Julie
Smolyansky
|
13,474,891
|
|
755,328
|
|
|
|
94.69%
|
|
5.31%
|
|
|
Pol
Sikar
|
14,220,816
|
|
9,403
|
|
|
|
99.93%
|
|
0.07%
|
|
|
Renzo
Bernardi
|
14,223,331
|
|
6,888
|
|
|
|
99.95%
|
|
0.05%
|
|
|
Gustavo
Carlos Valle
|
14,206,469
|
|
23,750
|
|
|
|
99.83%
|
|
0.17%
|
|
|
Julie
Oberweis
|
14,214,931
|
|
15,288
|
|
|
|
99.89%
|
|
0.11%
|
|
Proposal
2:
Proposal
2:
|
For
|
|
Against
|
|
Abstain
|
|
Auditor
Ratification
|
10,761,833
|
|
11,515
|
|
3,456,871
|
|
|
|
|
|
|
|
|
Plante
& Moran, PLLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Votes Represented by Proxy
|
|
|
14,230,219
|
|
|
|
Percentage
of the Outstanding Votable Shares
|
|
|
84.62%
|
|
|
|
Outstanding
Votable Shares
|
|
|
16,815,920
|
|
|
|
ITEM
5. OTHER INFORMATION.
On August
13, 2009, the Company announced its financial results for the fiscal quarter
ended June 30, 2009 and certain other information. A copy of the Company’s press
release announcing these financial results and certain other information is
attached as Exhibit 99.1 hereto. The information contained in Exhibit 99.1
hereto is being furnished, and should not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities imposed by that Section. The information contained in
Exhibit 99.1 shall not be incorporated by reference into any registration
statement or other document or filing under the Securities Act of 1933, as
amended, except as may be expressly set forth in a specific filing. The press
release filed as an exhibit to this report includes “safe harbor” language
pursuant to the Private Securities Litigation Reform Act of 1995, as amended,
indicating that certain statements about the Company’s business and other
matters contained in the press release are “forward-looking.” The press release
also cautions investors that “forward-looking” statements may be different from
actual operating results. Finally, the press release states that a more thorough
discussion of risks and uncertainties which may affect the Company’s operating
results is included in the Company’s reports on file with the Securities and
Exchange Commission.
ITEM
6. EXHIBITS.
Exhibit
Number
|
|
Description
of Document
|
|
|
|
3.4
|
|
Amended
and Restated By-laws (incorporated by reference to
Exhibit No. 3.5 of Lifeway’s Current Report on
Form 8-K dated and filed on December 10, 2002). (File
No. 000-17363)
|
|
|
|
3.5
|
|
Articles
of Incorporation, as amended and currently in effect (incorporated by
reference to Exhibit 3.5 of Lifeway’s Quarterly Report on
Form 10-QSB for the quarter ended June 30, 2000 and filed
on August 8, 2000). (File No. 000-17363)
|
|
|
|
31.1
|
|
Officer’s
Certificate Pursuant to 15 U.S.C. 7241, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Officer’s
Certificate Pursuant to 15 U.S.C. 7241, as Adopted Pursuant to Section 302
of the Sarbanes- Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
99.1
|
|
Press
Release dated August 13,
2009.
|
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LIFEWAY
FOODS, INC.
(Registrant)
|
|
|
|
|
|
Date:
|
December
2, 2009
|
|
By:
|
/s/
Julie Smolyansky
|
|
|
|
|
|
Julie
Smolyansky
Chief
Executive Officer,
President
and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
December
2, 2009
|
|
By:
|
/s/
Edward P. Smolyansky
|
|
|
|
|
|
Edward
P. Smolyansky
Chief
Financial and Accounting
Officer and
Treasurer
|
|
|
|
|
|
|
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
of Document
|
|
|
|
3.4
|
|
Amended
and Restated By-laws (incorporated by reference to
Exhibit No. 3.5 of Lifeway’s Current Report on
Form 8-K dated and filed on December 10, 2002). (File
No. 000-17363)
|
|
|
|
3.5
|
|
Articles
of Incorporation, as amended and currently in effect (incorporated by
reference to Exhibit 3.5 of Lifeway’s Quarterly Report on
Form 10-QSB for the quarter ended June 30, 2000 and filed
on August 8, 2000). (File No. 000-17363)
|
|
|
|
31.1
|
|
Officer’s
Certificate Pursuant to 15 U.S.C. 7241, as Adopted Pursuant to Section 302
of the Sarbanes- Oxley Act of 2002.
|
|
|
|
31.2
|
|
Officer’s
Certificate Pursuant to 15 U.S.C. 7241, as Adopted Pursuant to Section 302
of the Sarbanes- Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
99.1
|
|
Press
Release dated August 13,
2009.
|