-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OCr3x5aXKxPhO4rtsnhk6A1d3lcpBRCjYznbYwlZ5Ff3Nt78BoCQt0szWkONrvbZ Xy0D6xDWLUiZrw1naT53Ug== /in/edgar/work/0001035704-00-000864/0001035704-00-000864.txt : 20001110 0001035704-00-000864.hdr.sgml : 20001110 ACCESSION NUMBER: 0001035704-00-000864 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIFEWAY FOODS INC CENTRAL INDEX KEY: 0000814586 STANDARD INDUSTRIAL CLASSIFICATION: [2020 ] IRS NUMBER: 363442829 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-17363 FILM NUMBER: 757494 BUSINESS ADDRESS: STREET 1: 6431 W OAKTON CITY: MORTON GROVE STATE: IL ZIP: 60053 BUSINESS PHONE: 7089671010 MAIL ADDRESS: STREET 1: 6431 W OAKTON CITY: MORTON GROVE STATE: IL ZIP: 60053 10QSB 1 d81586e10qsb.txt FORM 10QSB PERIOD 9/30/2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to -------------- -------------- Commission file number: 0-17363 LIFEWAY FOODS, INC. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in it charter) ILLINOIS 36-3442829 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 6431 WEST OAKTON, MORTON GROVE, ILLINOIS 60053 - -------------------------------------------------------------------------------- (Address of principal executive offices) (847) 967-1010 - -------------------------------------------------------------------------------- (issuer's telephone number) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the issuer filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: AS OF NOVEMBER 7, 2000, THE ISSUER HAD 4,318,444 SHARES OF COMMON STOCK, NO PAR VALUE, OUTSTANDING. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] 2 INDEX
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Consolidated Balance Sheets - December 31, 1999 and September 30, 2000 and 1999 F-2 - F-3 Consolidated Statements of Income and Comprehensive Income For the year ended December 31, 1999 and for the three and nine months ended September 30, 2000 and 1999 F-4 Consolidated Statements of Changes in Stockholders' Equity For the year ended December 31, 1999 and for the nine months ended September 30, 2000 F-5 Consolidated Statements of Cash Flows For the year ended December 31, 1999 and for the nine months ended September 30, 2000 and 1999 F-6 - F-7 Notes to Consolidated Financial Statements - December 31, 1999 and September 30, 2000 and 1999 F-8 - F15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 2 CONDITIONS AND RESULTS OF OPERATIONS PART II - OTHER INFORMATION 3 SIGNATURES 5
1 3 PART I - FINANCIAL INFORMATION LIFEWAY FOODS, INC. AND SUBSIDIARY FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 F-1 4 LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
(UNAUDITED) SEPTEMBER 30, --------------------------- DECEMBER 31, 2000 1999 1999 ----------- ----------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalent $ 4,999,952 $ 1,193,098 $ 4,640,923 Marketable Securities 1,583,160 169,199 1,564,200 Accounts receivable, net of allowance for doubtful accounts of $0 at September 30, 2000 and 1999 and December 31, 1999 1,084,829 1,063,428 965,725 Other receivables 50,300 16,620 57,193 Inventories 644,622 761,000 843,959 Prepaid expenses and other assets 0 194,420 0 Deferred income taxes 143,358 46,494 52,362 ----------- ----------- ----------- TOTAL CURRENT ASSET 8,506,221 3,444,259 8,124,362 PROPERTY AND EQUIPMENT Land 658,400 658,400 658,400 Buildings, machinery and equipment 6,776,543 5,540,745 5,966,635 ----------- ----------- ----------- Total property and equipment 7,434,943 6,199,145 6,625,035 Less: accumulated depreciation 2,559,007 1,962,633 2,096,842 ----------- ----------- ----------- PROPERTY AND EQUIPMENT, NET 4,875,936 4,236,512 4,528,193 OTHER ASSETS INTANGIBLE ASSETS, NET 1,250 6,250 5,000 ----------- ----------- ----------- TOTAL ASSETS $13,383,407 $ 7,687,021 $12,657,555 =========== =========== ===========
THIS IS NOT AN AUDIT SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-2 5 LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS - CONTINUED LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED) SEPTEMBER 30, --------------------------- DECEMBER 31, 2000 1999 1999 ------------ ------------ ------------ CURRENT LIABILITIES Current maturities of notes payable $ 93,909 $ 91,647 $ 91,920 Accounts payable 559,402 404,076 480,043 Accrued expenses 331,601 417,177 192,812 ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 964,912 912,900 764,775 LONG-TERM LIABILITIES 1,163,476 1,255,935 1,233,865 DEFERRED INCOME TAXES 326,886 171,960 247,673 STOCKHOLDERS' EQUITY Common stock 6,509,267 1,601,916 6,509,267 Retained earnings 4,573,066 3,965,002 3,923,766 Accumulated other comprehensive income, net of tax (139,200) (26,874) (6,791) Stock subscription receivable (15,000) (175,000) (15,000) Treasury stock 0 (18,818) 0 ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 10,928,133 5,346,226 10,411,242 ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,383,407 $ 7,687,021 $ 12,657,555 ============ ============ ============
THIS IS NOT AN AUDIT SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-3 6 LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME AND COMPREHESIVE INCOME
(UNAUDITED) (UNAUDITED) FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED FOR THE SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED ---------------------------- ---------------------------- DECEMBER 31, 2000 1999 2000 1999 1999 ----------- ----------- ----------- ----------- ----------- SALES $ 2,283,584 $ 2,001,305 $ 6,843,592 $ 5,894,493 $ 7,907,571 COST OF GOODS SOLD 1,077,174 955,249 3,502,271 2,858,258 4,664,987 ----------- ----------- ----------- ----------- ----------- GROSS PROFIT 1,206,410 1,046,056 3,341,321 3,036,235 3,242,584 OPERATING EXPENSES 850,859 645,486 2,643,227 1,822,477 2,177,637 ----------- ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 355,551 400,570 698,094 1,213,758 1,064,947 OTHER INCOME (EXPENSE) Interest/Dividend income 115,572 10,325 226,827 27,099 110,358 Interest expense (25,634) (27,450) (72,020) (74,613) (112,144) Gain on sale of marketable securities 35,458 15,004 237,090 15,004 6,621 ----------- ----------- ----------- ----------- ----------- TOTAL OTHER INCOME (EXPENSE) 125,396 (2,121) 391,897 (32,510) 4,835 ----------- ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 480,947 398,449 1,089,991 1,181,248 1,069,782 PROVISION FOR INCOME TAXES 204,803 154,357 440,691 457,554 387,324 ----------- ----------- ----------- ----------- ----------- NET INCOME $ 276,144 $ 244,092 $ 649,300 $ 723,694 $ 682,458 =========== =========== =========== =========== =========== EARNINGS PER SHARE $ .06 $ .06 $ .15 $ .19 $ .17 =========== =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 4,318,444 3,813,577 4,318,444 3,813,577 3,933,005 =========== =========== =========== =========== =========== COMPREHENSIVE INCOME: NET INCOME $ 276,144 $ 244,092 $ 649,300 $ 723,694 $ 682,458 OTHER COMPREHENSIVE INCOME, NET OF TAX: UNREALIZED LOSSES ON SECURITIES (NET OF TAX BENEFIT) (5,845) (15,237) (132,409) (15,237) (6,791) LESS: RECLASSIFICATION ADJUSTMENT FOR LOSSES 0 0 0 0 11,637 ----------- ----------- ----------- ----------- ----------- COMPREHENSIVE INCOME $ 270,299 $ 228,855 $ 516,891 $ 708,457 $ 687,304 =========== =========== =========== =========== ===========
THIS IS NOT AN AUDIT SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-4 7 LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK, NO PAR VALUE 10,000,000 SHARES AUTHORIZED ------------------------------- # OF ACCUMULATED SHARES OF OTHER STOCK # OF SHARES ISSUED TREASURY COMMON TREASURY RETAINED COMPREHENSIVE SUBSCRIPTION AND OUTSTANDING STOCK STOCK STOCK EARNINGS INCOME RECEIVABLE ----------------- ---------- ----------- ----------- ---------- ------------- ----------- BALANCES AT DECEMBER 31, 1998 3,796,077 10,400 $ 1,426,916 $ (18,818) $ 3,241,308 $ (11,637) $ 0 Issuance of common stock 497,767 0 4,977,670 0 0 0 0 Cost of issuance of new stock 0 0 (51,501) 0 0 0 0 Stock options exercised 35,000 0 175,000 0 0 0 (15,000) Retirement of treasury stock (10,400) (10,400) (18,818) 18,818 0 0 0 Other comprehensive income: Unrealized losses on securities 0 0 0 0 0 4,846 0 Net income for the year ended December 31, 1999 0 0 0 0 682,458 0 0 ----------- ----------- ----------- ----------- ----------- ----------- --------- BALANCES AT DECEMBER 31, 1999 4,318,444 0 6,509,267 0 3,923,766 (6,791) (15,000) Other comprehensive income: Unrealized losses on securities 0 0 0 0 0 (132,409) 0 Net income for the nine months ended September 30, 2000 0 0 0 0 649,300 0 0 ----------- ----------- ----------- ----------- ----------- ----------- --------- BALANCES AT SEPTEMBER 30, 2000 (UNUAUDITED) 4,318,444 0 $ 6,509,267 $ 0 $ 4,573,066 $ (139,200) (15,000) =========== =========== =========== =========== =========== =========== ==========
THIS IS NOT AN AUDIT SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-5 8 LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------- ----------- ------------------ 2000 1999 1999 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 649,300 $ 723,694 $ 682,458 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 465,915 305,755 441,214 Amortization of discounts on securities 0 0 (6,643) Realized gain on sale of marketable securities (237,090) (15,004) (6,621) Deferred income taxes 11,783 0 54,147 (Increase) decrease in operating assets: Accounts receivable (119,104) (216,159) (118,456) Other receivables (6,893) 420 (40,993) Inventories 199,337 90,517 7,558 Prepaid expenses and other assets 0 (182,648) 11,772 Increase (decrease) in operating liabilities: Accounts payable 79,359 (109,596) (33,628) Accrued expenses 118,789 250,102 25,737 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,161,396 847,081 1,016,545 NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: Purchase of marketable securities (2,500,536) (188,429) (1,845,570) Sale of marketable securities 2,576,477 123,740 645,968 Cash proceeds from maturity of investments classified as held to maturity 0 247,211 0 Purchase of property and equipment (809,908) (390,497) (794,386) ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (733,967) (207,975) (1,993,988) NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Proceeds from issuance of common stock 0 0 5,137,670 Stock issuance costs 0 0 (51,501) Repayment of notes payable (68,400) (74,423) (96,218) ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (68,400) (74,423) 4,989,951 ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 359,029 564,683 4,012,508 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,640,923 628,415 628,415 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,999,952 $ 1,193,098 $ 4,640,923 =========== =========== ===========
THIS IS NOT AN AUDIT SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-6 9 LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED ------------------------- DECEMBER 31, 2000 1999 1999 ----------- ------------ ------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 65,888 $ 74,163 $112,144 ======== ======== ======== Cash paid for income taxes $209,000 $267,500 $376,250 ======== ======== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of automobile by issuing a note payable $ 0 $ 22,002 $ 22,000 ======== ======== ======== Issuance of common stock in exchange for note payable $ 0 $ 0 $ 15,000 ======== ======== ======== Issuance of common stock from exercise of stock options by stockholder note $ 0 $175,000 $ 0 ======== ======== ========
THIS IS NOT AN AUDIT SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-7 10 LIFEWAY FOODS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 AND DECEMBER 31, 1999 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 Farmers Cheese;" a fruit sugar-flavored product similar in consistency to cream cheese sold under the name of "Sweet Kiss;" and a new dairy beverage, similar to Kefir, with increased protein and calcium, sold under the name "Basics Plus." The Company also produces several soy-based products and a vegetable-based seasoning under the name "Golden Zesta." The Company currently distributes its products throughout the Chicago Metropolitan area through local food stores. In addition, the products are sold throughout the United States and Ontario, Canada. The Company also distributes some of its products internationally by exporting to Eastern Europe. For the year ended December 31, 1999 and the nine months ended September 30, 2000 and 1999, export sales of the Company were approximately $162,000, $141,000 and $130,000, respectively. On September 30, 1992, the Company formed a wholly-owned subsidiary corporation, LFI Enterprises, Inc., (LFIE) incorporated in the State of Illinois. LFIE was formed for the purpose of operating a "Russian" theme restaurant and supper club on the property acquired by the Company on October 9, 1992. The restaurant/supper club commenced operations in late November 1992. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows: Management's Opinion In the opinion of management, all necessary adjustments have been made for fair presentation of the financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Company and it's wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. 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 metropolitan area. Deposits at each institution are insured up to $100,000 by the Federal Deposit Insurance Corporation or the Securities Investor Protector Corporation. F-8 11 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 AND DECEMBER 31, 1999 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Bank balances of amounts reported by financial institutions are categorized as follows:
September 30, September 30, December 31, 2000 1999 1999 ------------- ------------- ------------ Amounts insured $ 293,275 $ 262,070 $ 396,799 Uninsured and uncollateralized amounts 650,241 355,399 373,059 --------- --------- --------- Total bank balances $ 943,516 $ 617,469 $ 769,858 ========= ========= =========
Marketable Securities Marketable securities are classified as available-for-sale and are stated at market value. Gains and losses related to marketable securities sold are determined by the specific identification method. Accounts Receivable The allowance for doubtful accounts is based on management's evaluation of outstanding accounts receivable at the end of the year. At December 31, 1999 and September 30, 2000, no allowance for doubtful accounts has been made since all receivables were considered collectible. Inventories Inventories are stated at lower of cost or market, cost being determined by the first-in, first-out method. Property and Equipment Property and equipment are stated at lower of cost or net realized value. 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. Property and equipment are being depreciated over the following useful lives:
Category Years -------- ----- Buildings and improvements 19 and 31 Machinery and equipment 5-12 Office equipment 5-7 Vehicles 5
Intangible Asset Lifeway Foods has a covenant not to compete, which is stated at cost and is amortized over ten years using the straight-line method. F-9 12 LIFEWAY FOODS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 AND DECEMBER 31, 1999 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 noncurrent, 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 noncurrent depending on the periods in which the temporary differences are expected to reverse. The principal sources of temporary differences are different depreciation methods for financial statement and tax purposes, unrealized gains or losses related to marketable securities and capitalization of indirect costs for tax purposes. Advertising Costs The Company expenses advertising costs as incurred. During the year 1999 and for the nine months ended September 30, 2000 and 1999, $491,751, $370,896 and $240,636, 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 year. For the year ended December 31, 1999, and for the nine months ended September 30, 2000 and 1999, diluted and basic earnings per share were the same, as the effect of dilutive securities options outstanding was not significant. NOTE 3 - MARKETABLE SECURITIES The cost and fair value of marketable securities available for sale are as follows:
Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ---------- December 31, 1999 - Equities $ 595,177 $ 35,089 $ 46,896 $ 583,370 December 31, 1999 - Government Obligations, maturing within one year $ 979,745 $ 1,085 0 $ 980,830 September 30, 1999 - Equities $ 194,072 0 $ 24,873 $ 169,199 September 30, 2000 - Equities $1,332,372 $ 24,196 $257,785 $1,098,783 September 30, 2000 - Government Obligations, maturing within one year $ 484,377 0 0 $ 484,377
Proceeds from the sale of marketable securities were $645,968, $2,576,477 and $123,740 in December 31, 1999 and September 30, 2000 and 1999, respectively. Gross gains of $6,621, $237,090 and $15,004 were realized on those sales in December 31, 1999 and September 30, 2000 and 1999, respectively NOTE 4 - INVENTORIES Inventories consisted of the following:
(UNAUDITED) SEPTEMBER 30, ------------------------------- DECEMBER 31, 2000 1999 1999 --------- --------- ------------ Finished goods $ 286,863 $ 480,000 $ 420,328 Production supplies 166,217 125,000 218,283 Raw materials 191,542 156,000 205,348 --------- --------- ---------- $ 644,622 $ 761,000 $ 843,959 ========= ========= ==========
F-10 13 LIFEWAY FOODS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 AND DECEMBER 31, 1999 NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
(UNAUDITED) SEPTEMBER 30, ----------------------- DECEMBER 31, 2000 1999 1999 ---------- ---------- ------------ Land $ 658,400 $ 658,400 $ 658,400 Buildings and improvements 2,635,766 1,649,370 2,538,942 Machinery and equipment 3,818,070 3,628,278 3,133,718 Vehicles 250,328 180,676 222,443 Office equipment 72,379 82,421 71,532 ---------- ---------- ---------- $7,434,943 $6,199,145 $6,625,035 ========== ========== ==========
Depreciation charged to income for the three and nine months ended September 30, 2000 and 1999 was $154,055, $462,165, $100,669 and $302,007 respectively, and $436,214 for the year ended December 31, 1999. NOTE 6 - NOTES PAYABLE
(UNAUDITED) SEPTEMBER 30, ------------------- DECEMBER 31, 2000 1999 1999 -------- -------- ------------ Mortgage note payable, 1st National Bank of Morton Grove, payable in monthly installments of $1,767, including interest at 7.25%, with a balloon payment of $139,838 due November 2003. Collateralized by real estate $168,100 $176,780 $174,668 Mortgage note payable, American National Bank and Trust Company of Chicago, payable in monthly installments of $3,161 including interest at 7.25%, with a balloon payment of $343,151 due August 2003. Collaterlized by real estate 379,379 388,147 386,590 Mortgage note payable, American National Bank and Trust Company of Chicago, payable in monthly installments of principal of $5,109 plus interest at 8.05%, with a balloon payment of $618, 214 due November 2001 Collateralized by real estate 689,739 751,048 735,721 Note payable, Ford Motor credit, payable in monthly installments of $540, including interest at 1.9%, due October 2001. Collateralized by vehicle 6,939 13,220 11,660 Note payable, 1st National Bank of Morton Grove, payable in monthly installments of $532, including interest at 7.5%, due December 2002 Collateralized by vehicle 13,228 18,387 17,146 -------- -------- --------
F-11 14 LIFEWAY FOODS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 AND DECEMBER 31, 1999 NOTE 6 - NOTES PAYABLE
(UNAUDITED) SEPTEMBER 30, ------------------------ DECEMBER 31, 2000 1999 1999 ---------- ---------- ------------ Total 1,257,385 1,347,582 1,325,785 Less current maturities 93,909 91,647 91,920 ---------- ---------- ---------- Total $1,163,476 $1,255,935 $1,233,865 ========== ========== ==========
Maturities of notes payable are as follows:
Year Ending September 30, 2000 $ 93,909 2001 693,880 2002 26,670 2003 442,926 --------- Total $1,257,385 ==========
NOTE 7 - PROVISION FOR INCOME TAXES The provision for income taxes consists of the following:
(UNAUDITED) (UNAUDITED) FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, FOR THE YEAR ENDED -------------------------- ------------------------- DECEMBER 31, 2000 1999 2000 1999 1999 ------------ ------------ ------------ ----------- ------------------ Current Federal $131,345 $125,777 $290,163 $372,065 $274,263 State 35,783 28,610 71,853 84,742 58,914 -------- -------- -------- -------- -------- Total current 167,128 154,387 362,016 457,554 333,177 Deferred 37,675 0 78,675 0 54,147 -------- -------- -------- -------- -------- Provision for income taxes $204,803 $154,387 $440,691 $457,554 $387,324 ======== ======== ======== ======== ========
A reconciliation of the provision for income taxes and the income tax computed at the statutory rate is as follows:
(UNAUDITED) (UNAUDITED) FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, FOR THE YEAR ENDED -------------------------- ------------------------- DECEMBER 31, 2000 1999 2000 1999 1999 ------------ ------------ ------------ ----------- ------------------ Federal income tax expense computed at the statutory rate $138,728 $125,777 $344,013 $372,842 $337,635 State taxes, expense 31,587 28,610 78,190 84,742 76,739 Permanent book/tax differences 34,488 0 18,488 0 (27,050) -------- -------- -------- -------- -------- Provision for income taxes $204,803 $154,387 $440,691 $457,554 $387,324 ======== ======== ======== ======== ========
F-12 15 LIFEWAY FOODS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 AND DECEMBER 31, 1999 NOTE 7 - PROVISION FOR INCOME TAXES - CONTINUED Amounts for deferred tax assets and liabilities are as follows:
SEPTEMBER 30, SEPTEMBER 30, DEC. 31, 2000 1999 1999 ------------- ------------- -------- Non-current deferred tax liabilities arising from: Temporary differences - principally Book/tax, accumulated depreciation $326,886 $171,960 $247,673 Total deferred tax liabilities $326,886 $171,960 $247,673 Current deferred tax assets arising from: Book/tax, allowance for unrealized losses $ 94,389 $ 19,630 $ 3,931 Book/tax, inventory 48,969 26,864 48,431 -------- -------- -------- Total deferred tax assets 143,358 46,494 52,362 -------- -------- -------- Net deferred tax liability $183,528 $125,466 $195,311 ======== ======== ========
NOTE 8 - CUSTOMER AND CREDIT CONCENTRATIONS Concentrations of credit with regard to trade accounts receivable, which are uncollateralized, and sales are limited due to the fact the Company's customers are spread across different geographic areas. The customers are concentrated in the retail food industry. In 1999 and September 30, 2000, no customers comprised over 10% of sales. NOTE 9 - INTANGIBLE ASSETS Amounts for deferred tax assets and liabilities are as follows:
SEPTEMBER 30, SEPTEMBER 30, DEC. 31, 2000 1999 1999 ------------- ------------- -------- Covenant Not to Compete $50,000 $50,000 $50,000 Less: Accumulated amortization 48,750 43,750 45,000 ------- ------- ------- $ 1,250 $ 6,250 $ 5,000 ======= ======= =======
Total amortization charged against income for the three and nine months ended September 30, 2000 and 1999 was $1,250, $3,750, $1,250 and $3,750 respectively, and $5,000 for the year ended December 31, 1999. NOTE 10 - 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 300,000 of the Company's Common Stock shares. Pursuant to the Plan, the Company may issue common stock or options to purchase common stock to certain consultants, service providers and employees of the Company. There were 234,300 shares available for issuance under the Plan at December 31, 1999 and September 30, 2000 and 269,300 at September 30, 1999. The option price, number of shares, grant date and vesting terms are determined at the discretion of the Company's Board of Directors. F-13 16 LIFEWAY FOODS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 AND DECEMBER 31, 1999 NOTE 10 - STOCK OPTION PLANS (CONTINUED) In 1997, 55,000 options we granted to certain consultants and employees of the Company. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weight-average assumptions used for grants: dividend yield of 0%, expected volatility of 54%, risk free interest rate of 6.2% and expected lives of three years. The weighted-average fair value of options granted during 1997 was $1.48 per share. The Company has chosen to account for stock-based compensation in accordance with APB Opinion 25. If compensation cost would have been recognized in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," compensation cost would not have increased in 1999 and net income would have remained the same. A summary of option transactions during the year ended December 31, 1999 is shown below:
Number Weighted-Average of Exercise Shares Price ---------- ---------------- Outstanding and exercisable at January 1, 1999 55,000 $ 5.00 Granted 0 0 Exercised (35,000) 5.00 Forfeited (by agreement) (20,000) 0 ------- Outstanding and exercisable at December 31, 1999 0 5.00 =======
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments, none of which are held for trading purposes, are as follows:
At September 30, 2000: Carrying Fair Amount Value ---------- ---------- Cash and cash equivalents $4,999,952 $4,999,952 Marketable securities 1,583,160 1,583,160 Notes payable 1,257,385 1,178,798
At September 30, 1999: Carrying Fair Amount Value ---------- ---------- Cash and cash equivalents $ 1,193,098 $ 1,193,098 Marketable securities 169,199 169,199 Notes payable 1,347,582 1,304,112
At December 31, 1999: Carrying Fair Amount Value ---------- ---------- Cash and cash equivalents $4,640,923 $4,640,923 Marketable securities 1,564,200 1,564,200 Notes payable 1,325,785 1,293,275
F-14 17 LIFEWAY FOODS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 AND DECEMBER 31, 1999 NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying values of cash and cash equivalents and marketable securities approximate fair values. The fair value of the notes payable is based on the discount value of contractual cash flows. The discount rate is Estimated using rates currently offered for debt with similar maturities. NOTE 12 - COMMON STOCK TRANSACTION On October 1, 1999, the company entered into a stock purchase agreement and shareholders' agreement with Danone Foods, Inc. ("Danone"). As part of these agreements, the Company issued and sold 497,767 unregistered shares of restricted common stock to Danone, at a purchase price of $10.00 per share. Net of stock issuance costs of $51,501, this transaction resulted in an aggregate equity investment of $4,926,169. On December 24, 1999, the Company and Danone entered into a support agreement, which allowed the Company access to Danone's brokers and distributors in the United States and created a non-compete agreement between the Company and Danone for a period of three years from the termination of this support agreement. In addition, the parties have entered into a reciprocal stock rights of first refusal and Danone has been granted anti-dilutive rights relating to future offerings and limited registration rights. F-15 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (1) Material Changes in Results of Operations Sales increased by $949,099, up to $6,843,592 during the nine month period ending September 30, 2000, from $5,894,493 during the same nine month period in 1999 (a 16% increase). This increase is attributable to increased sales of existing products. However, net income decreased by $74,394, down to $649,300 for the nine month period ending September 30, 2000, from $723,694 during the same nine month period in 1999 (a 10% decrease). This decrease in net income is primarily attributable to increases in cost of goods sold and operating expenses, as described below. Cost of goods sold increased by $644,013, up to $3,502,271 during the nine month period ending September 30, 2000, from $2,858,258 during the same nine month period in 1999 (a 23% increase). While this increase generally corresponds with the increased sales, it is also partially attributable to increased costs of raw materials and increased transportation costs in 2000. Cost of goods sold as a percentage of sales for the nine months ended September 30, 2000 was 51%, compared to 48% for the same nine month period in 1999. Operating expenses increased by $820,750, up to $2,643,227 for the nine month period ending September 30, 2000, from $1,822,477 during the same nine month period in 1999 (a 45% increase). This increase is due in part to increased operations in the current year. Additionally, during the nine month period ended September 30, 2000, the Company paid non-recurring expenses in excess of $300,000 for: 1) initial filing fees and legal fees in connection with the listing of the Company's common stock on the NASDAQ National Market System (NMS) stock exchange, and 2) legal fees in connection with the Company's successful efforts to protect one of its trademarks. Also, depreciation expenses (a non-cash expense) incurred during the nine month period ending September 30, 2000 was $462,165, which is approximately $160,000 more than during the same nine month period in 1999. Total other income for the nine month period ended September 30, 2000 was $391,897, as compared to total other expenses of $32,510 for the same nine month period in 1999. This difference is due to increased interest income and a gain on the sale of marketable securities in 2000. (2) Liquidity and Capital Resources As of September 30, 2000, as compared to September 30, 1999, the Company had working capital in the amount of $7,541,309 as compared to $2,531,359, respectively, an increase of $5,009,950. This increase is attributable to increases in current assets, primarily cash on hand ($3,806,854 increase) and marketable securities ($1,413,961 increase) due to an equity investment of almost $5 million by Groupe Danone in the fourth quarter of 1999 (which is described in detail in the annual report on Form 10-KSB for the year ended December 31, 1999). The Company expects all cash requirements can be met internally for the next 12-month period. Net property and equipment as of September 30, 2000 was $4,875,936, a $639,424 increase from $4,236,512 as of September 30, 1999. This increase is primarily due to additional building improvements of $986,396, and is partially offset by increased depreciation of $160,158. The Company is not aware of any circumstances or trends which would have a negative impact upon future sales or earnings. There have been no material fluctuations in the standard seasonal variations of the Company's business. The accompanying financial statements include all adjustments which in the opinion of management are necessary in order to make the financial statements not misleading. 2 19 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no material developments in the pending legal proceeding described in the Company's quarterly report on Form 10-QSB for the quarter ended June 30, 2000. ITEM 2. CHANGES IN SECURITIES On June 17, 2000 the shareholders of the Company approved an Amendment to the Articles of Incorporation to clarify that the Company has the power to grant pre-emptive rights to any of its shareholders by contract by adding the following sentence immediately following existing provisions relating to pre-emptive rights: "Notwithstanding anything contained herein to the contrary, the Corporation shall have the power to grant preemptive rights to any of its shareholders by contract." On July 26, 2000 the Articles of Incorporation were amended to reflect this change. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None. ITEM 5. OTHER INFORMATION - None. 3 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit Number and Brief Description 3.4 Bylaws, as amended. (Incorporated by reference to Exhibit 3.4 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.) 3.5 Articles of Incorporation, as amended on July 26, 2000 and currently in effect. (Incorporated by reference to Exhibit 3.5 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000.) 10.1 Lifeway Foods, Inc. Consulting and Services Compensation Plan, dated June 5, 1995. (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-8, File No. 33-93306.) 10.10 Stock Purchase Agreement with Danone Foods, Inc., dated October 1, 1999. (Incorporated by reference to Exhibit 10.10 of the Company's Current Report on Form 8-K dated October 1, 1999, and filed October 12, 1999.) 10.11 Stockholders' Agreement with Danone Foods, Inc. dated October 1, 1999. (Incorporated by reference to Exhibit 10.11 of the Company's Current Report on Form 8-K dated October 1, 1999, and filed October 12, 1999.) 10.12 Letter Agreement dated December 24, 1999 amending the Stockholders' Agreement with Danone Foods, Inc. dated October 1, 1999. (Incorporated by reference to Exhibit 10.12 of the Company's Current Report on Form 8-K dated December 24, 1999 and filed January 11, 2000.) 10.13 Support Agreement with The Dannon Company, Inc. dated December 24, 1999. (Incorporated by reference to Exhibit 10.13 of the Company's Current Report on Form 8-K dated December 24, 1999 and filed January 11, 2000.) 27 Financial Data Schedule. (Filed herewith.) (b) Reports on Form 8-K - None. 4 21 SIGNATURES In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIFEWAY FOODS, INC. By: /s/ Michael Smolyansky ------------------------------------ Michael Smolyansky, Chief Executive Officer, Chief Financial and Accounting Officer, President, Treasurer and Director Date: November 8, 2000 5 22 EXHIBIT INDEX
NUMBER BRIEF DESCRIPTION ------ ----------------- 3.4 Bylaws, as amended. (Incorporated by reference to Exhibit 3.4 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.) 3.5 Articles of Incorporation, as amended on July 26, 2000 and currently in effect. (Incorporated by reference to Exhibit 3.5 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000.) 10.1 Lifeway Foods, Inc. Consulting and Services Compensation Plan, dated June 5, 1995. (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-8, File No. 33-93306.) 10.10 Stock Purchase Agreement with Danone Foods, Inc., dated October 1, 1999. (Incorporated by reference to Exhibit 10.10 of the Company's Current Report on Form 8-K dated October 1, 1999, and filed October 12, 1999.) 10.11 Stockholders' Agreement with Danone Foods, Inc. dated October 1, 1999. (Incorporated by reference to Exhibit 10.11 of the Company's Current Report on Form 8-K dated October 1, 1999, and filed October 12, 1999.) 10.12 Letter Agreement dated December 24, 1999 amending the Stockholders' Agreement with Danone Foods, Inc. dated October 1, 1999. (Incorporated by reference to Exhibit 10.12 of the Company's Current Report on Form 8-K dated December 24, 1999 and filed January 11, 2000.) 10.13 Support Agreement with The Dannon Company, Inc. dated December 24, 1999. (Incorporated by reference to Exhibit 10.13 of the Company's Current Report on Form 8-K dated December 24, 1999 and filed January 11, 2000.) 27 Financial Data Schedule. (Filed herewith.)
EX-27 2 d81586ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB. 1 U.S. DOLLARS 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 4,999,952 1,583,160 1,084,829 0 644,622 8,506,221 7,434,943 2,559,007 13,383,407 964,912 0 0 0 6,509,267 4,418,866 13,383,407 6,843,592 7,307,509 3,502,271 2,643,227 0 0 72,020 1,089,991 440,691 649,300 0 0 0 649,300 .15 .15
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