0001683168-18-003387.txt : 20181114 0001683168-18-003387.hdr.sgml : 20181114 20181113203147 ACCESSION NUMBER: 0001683168-18-003387 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181114 DATE AS OF CHANGE: 20181113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Lifeway Foods, Inc. CENTRAL INDEX KEY: 0000814586 STANDARD INDUSTRIAL CLASSIFICATION: DAIRY PRODUCTS [2020] IRS NUMBER: 363442829 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17363 FILM NUMBER: 181180040 BUSINESS ADDRESS: STREET 1: 6431 W OAKTON CITY: MORTON GROVE STATE: IL ZIP: 60053 BUSINESS PHONE: 847-967-1010 MAIL ADDRESS: STREET 1: 6431 W OAKTON CITY: MORTON GROVE STATE: IL ZIP: 60053 FORMER COMPANY: FORMER CONFORMED NAME: LIFEWAY FOODS INC DATE OF NAME CHANGE: 19920703 10-Q 1 lifeway_10q-093018.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2018

☐ 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) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

	Large accelerated filer ☐	Accelerated filer ☐
	Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 5, 2018, 15,837,695 shares of the registrant’s common stock, no par value, were outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	22
Item 4.	Controls and Procedures.	22

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	23
Item 1 A.	Risk Factors.	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	23
Item 3.	Defaults Upon Senior Securities.	23
Item 4.	Mine Safety Disclosure.	23
Item 5.	Other Information.	23
Item 6.	Exhibits.	23
	Signatures.	24

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2018 and December 31, 2017

(In thousands)

	September 30, 2018 (Unaudited)			December 31, 2017
Current assets
Cash and cash equivalents	$	2,726		$	4,978
Investments, at fair value		500			–
Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $1,550 and $2,010 at September 30, 2018 and December 31, 2017 respectively		8,073			8,676
Inventories, net		6,837			7,697
Prepaid expenses and other current assets		1,298			983
Refundable income taxes		2,959			2,347
Total current assets		22,393			24,681

Property, plant and equipment, net		25,035			24,645

Intangible assets
Goodwill & indefinite-lived intangibles		14,068			14,068
Other intangible assets, net		485			975
Total intangible assets		14,553			15,043

Other assets		150			150
Total assets	$	62,131		$	64,519

Current liabilities
Current maturities of notes payable	$	–		$	3,166
Accounts payable		6,263			6,848
Accrued expenses		3,118			2,984
Accrued income taxes		82			203
Total current liabilities		9,463			13,201

Line of credit		5,990			–
Notes payable		–			3,113
Deferred income taxes, net		840			840
Other long-term liabilities		661			775
Total liabilities		16,954			17,929

Stockholders' equity
Preferred stock, no par value; 2,500 shares authorized; no shares issued or outstanding at September 30, 2018 and December 31, 2017, respectively		–			–
Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,838 and 16,008 outstanding at September 30, 2018 and December 31, 2017, respectively		6,509			6,509
Paid-in capital		2,211			2,244
Treasury stock, at cost		(12,918	)		(11,812	)
Retained earnings		49,375			49,649
Total stockholders' equity		45,177			46,590

Total liabilities and stockholders' equity	$	62,131		$	64,519

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the three months and nine months ended September 30, 2018 and 2017

(Unaudited)

(In thousands, except per share data)

	Three Months Ended September 30,						Nine months Ended September 30,
	2018			2017			2018			2017

Net sales	$	24,480		$	28,786		$	80,318		$	92,636

Cost of goods sold		17,892			20,331			57,412			65,262
Depreciation expense		738			618			2,143			1,801
Total cost of goods sold		18,630			20,949			59,555			67,063

Gross profit		5,850			7,837			20,763			25,573

Selling expenses		3,136			4,010			10,537			11,648
General and administrative		3,150			3,145			9,851			10,743
Amortization expense		163			168			490			504
Total operating expenses		6,449			7,323			20,878			22,895

(Loss) income from operations		(599	)		514			(115	)		2,678

Other income (expense):
Interest expense		(82	)		(62	)		(220	)		(180	)
Gain (loss) on sale of property and equipment		28			(34	)		42			(39	)
Other income, net		3			–			11			–
Total other income (expense)		(51	)		(96	)		(167	)		(219	)

(Loss) income before provision for income taxes		(650	)		418			(282	)		2,459

(Benefit) provision for income taxes		(136	)		175			(8	)		1,056

Net (loss) income	$	(514	)	$	243		$	(274	)	$	1,403

(Loss) earnings per common share:
Basic	$	(0.03	)	$	0.02		$	(0.02	)	$	0.09
Diluted	$	(0.03	)	$	0.02		$	(0.02	)	$	0.09

Weighted average common shares:
Basic		15,872			16,093			15,886			16,123
Diluted		16,256			16,168			16,354			16,218

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

For the Nine months Ended September 30, 2018 and 2017

(Unaudited)

(In thousands)

	Common Stock
	Issued				In treasury						Paid-In			Retained			Total
	Shares		$		Shares			$			Capital			Earnings			Equity

Balance, January 1, 2017		17,274	$	6,509		(1,120	)	$	(10,340	)	$	2,198		$	49,995		$	48,362

Treasury stock purchased		–		–		(117	)		(1,187	)		–			–			(1,187	)

Stock-based compensation		–		–		–			–			49			–			49

Net income		–		–		–			–			–			1,403			1,403

Balance, September 30, 2017		17,274	$	6,509		(1,237	)	$	(11,527	)	$	2,247		$	51,398		$	48,627

Balance, January 1, 2018		17,274	$	6,509		(1,266	)	$	(11,812	)	$	2,244		$	49,649		$	46,590

Issuance of common stock in connection with stock-based compensation		–		–		22			203			(71	)		–			132

Treasury stock purchased		–		–		(192	)		(1,309	)		–			–			(1,309	)

Stock-based compensation		–		–		–			–			38			–			38

Net loss		–		–		–			–			–			(274	)		(274	)

Balance, September 30, 2018		17,274	$	6,509		(1,436	)	$	(12,918	)	$	2,211		$	49,375		$	45,177

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Nine months Ended September 30, 2018 and 2017

(Unaudited)

(In thousands)

	2018			2017
Cash flows from operating activities:
Net (loss) income	$	(274	)	$	1,403
Adjustments to reconcile net income to operating cash flow:
Depreciation and amortization		2,633			2,305
Non-cash interest expense		9			–
Bad debt expense		50			–
Reserve for inventory obsolescence		580			320
Stock-based compensation		827			901
Deferred revenue		(72	)		–
(Gain) loss on sale of property and equipment		(42	)		39
(Increase) decrease in operating assets:
Accounts receivable		553			(814	)
Inventories		280			(328	)
Refundable income taxes		(612	)		(462	)
Prepaid expenses and other current assets		(291	)		(231	)
Increase (decrease) in operating liabilities:
Accounts payable		(586	)		1,384
Accrued expenses		(588	)		252
Accrued income taxes		(121	)		(580	)
Net cash provided by operating activities		2,346			4,189

Cash flows from investing activities:
Purchases of investments		(500	)		(25	)
Purchases of property and equipment		(2,581	)		(3,932	)
Proceeds from sale of property and equipment		90			37
Net cash used in investing activities		(2,991	)		(3,920	)

Cash flows from financing activities:
Borrowings under revolving credit facility		6,050			–
Payment of deferred financing costs		(69	)		–
Purchase of treasury stock		(1,309	)		(1,187	)
Repayment of notes payable		(6,279	)		(630	)
Net cash used in financing activities		(1,607	)		(1,817	)

Net decrease in cash and cash equivalents		(2,252	)		(1,548	)

Cash and cash equivalents at the beginning of the period		4,978			8,812

Cash and cash equivalents at the end of the period	$	2,726		$	7,264

Supplemental cash flow information:
Cash paid for income taxes, net of refunds	$	724		$	2,098
Cash paid for interest	$	189		$	180

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017

(Unaudited)

(In thousands, except per share data)

Note 1 – Basis of Presentation

Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information, and do not include all of the information and disclosures required for complete, audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. For further information, refer to the consolidated financial statements and disclosures included in our Annual Report on Form 10-K as of and for the year ended December 31, 2017. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation. The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year.

Principles of consolidation

Our consolidated financial statements include the accounts of Lifeway Foods, Inc. and all its wholly owned subsidiaries (collectively “Lifeway” or the “Company”). All significant intercompany accounts and transactions have been eliminated.

Note 2 – Significant Accounting Policies

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated 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 reserve for promotional allowances, the valuation of goodwill and intangible assets, stock-based and incentive compensation, and deferred income taxes.

Revenue Recognition

We sell food and beverage products across select product categories to customers predominantly within the United States (see Note 11, Segments, Products and Customers). We also sell bulk cream, a byproduct of our fluid milk manufacturing process. We recognize revenue when control over the products transfers to our customers, which generally occurs upon delivery to our customers or their common carriers. We account for product shipping and handling as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of goods sold. Any taxes collected on behalf of government authorities are excluded from net revenues.

Revenues are recorded net of discounts and allowances to our customers and consumers. Known or expected pricing or revenue adjustments, such as trade discounts, allowances for non-saleable products, product returns, and coupon redemption, are estimated at the time of sale. We base these estimates of expected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and coupon redemptions, are monitored and adjusted each period until the incentives realized or the coupons expire.

Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in accordance with U.S. GAAP and our inventory policies. We do not have any significant deferred revenue or unbilled receivables at the end of a period. We generally do not receive noncash consideration for the sale of goods nor do we grant payment financing terms greater than one year.

Deferred Financing Costs

We record deferred financing costs incurred in conjunction with its debt obligations. These costs are capitalized and amortized over the lives of the associated debt to interest expense using the effective interest method. Debt issuance costs associated with term debt and lines of credit are recorded as a direct deduction from the face amount of the debt. Total deferred financing costs, net of $9 and $0 of accumulated amortization, at September 30, 2018 and December 31, 2017 were $60 and $0, respectively.

Investments

All investment securities are classified as available-for-sale and are carried at fair value. The Company holds a Level 1 fair value investment in a short-term fixed income fund at September 30, 2018.

Advertising and promotional costs

Lifeway expenses advertising costs as incurred. For the nine months ended September 30, 2018 and 2017 total advertising expenses were $3,557 and $4,703 respectively. For the three months ended September 30, 2018 and 2017 total advertising expenses were $972 and $1,892 respectively.

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The new guidance is intended to simplify aspects of accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, but no earlier than an entity’s adoptions of Topic 606. We adopted this new standard in June 2018. The adoption of this amendment had no impact on the consolidated financial statements.

In May 2017, the Financial Accounting Standards Board ("FASB”) issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance provides clarity and reduces both diversity in practice and cost of complexity when accounting for a change to the terms of or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows, such as debt prepayment or debt extinguishment costs, contingent consideration payments made after an acquisition, proceeds from the settlement of insurance claims, and other topics. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless certain conditions exist. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASU 2014-09 establishes a five-step revenue recognition process in which an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. On August 12, 2015 the FASB approved a one year delay of the effective date to reporting periods beginning after December 15, 2017, while permitting companies to voluntarily adopt the new standard as of the original effective date. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which clarifies narrow aspects of ASC 606 or corrects unintended application of the guidance. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for ASU 2014-09. Under the delayed effective date, this guidance was effective January 1, 2018. We adopted the new standard on January 1, 2018 on a modified retrospective basis. The adoption of this amendment had no impact on the consolidated financial statements. Refer to the Revenue Recognition section above and Note 11, Segment, Products, and Customers for additional information.

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance will be effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The amendment should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this amendment is not expected to have a material impact on the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance requires lessees to recognize lease assets and lease liabilities in the balance sheet and disclose key information about leasing arrangements, such as information about variable lease payments and options to renew and terminate leases. The amended guidance will require both operating and finance leases to be recognized in the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The amendments in this ASU should be adopted using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. Management is currently evaluating the impact that the new guidance will have on the consolidated financial statements.

Note 3 – Inventories, net

Inventories consisted of the following:

	September 30, 2018		December 31, 2017
Ingredients	$	1,970	$	1,717
Packaging		2,064		2,453
Finished goods		2,803		3,527
Total inventories	$	6,837	$	7,697

Note 4 – Property, Plant and Equipment, net

Property, plant and equipment consisted of the following:

	September 30, 2018			December 31, 2017
Land	$	1,747		$	1,747
Buildings and improvements		17,446			17,260
Machinery and equipment		30,598			27,539
Vehicles		901			901
Office equipment		879			734
Construction in process		693			1,683
		52,264			49,864
Less accumulated depreciation		(27,229	)		(25,219	)
Total property, plant and equipment, net	$	25,035		$	24,645

Note 5 – Intangible Assets

Goodwill & indefinite-lived intangible assets consisted of the following:

	September 30, 2018		December 31, 2017
Goodwill	$	10,368	$	10,368
Brand names		3,700		3,700
Goodwill and indefinite-lived intangible assets	$	14,068	$	14,068

Other intangible assets, net consisted of the following:

	September 30, 2018			December 31, 2017
Recipes	$	44		$	44
Customer lists and other customer related intangibles		4,529			4,529
Customer relationship		985			985
Trade names		2,248			2,248
Formula		438			438
		8,244			8,244
Accumulated amortization		(7,759	)		(7,269	)
Other intangible assets, net	$	485		$	975

Note 6 – Accrued Expenses

Accrued expenses consisted of the following:

	September 30, 2018		December 31, 2017
Payroll and incentive compensation	$	2,271	$	2,208
Real estate taxes		401		371
Other		446		405
	$	3,118	$	2,984

Note 7 – Debt

Notes Payable

	September 30, 2018		December 31, 2017

Variable rate term loan due May 31, 2018. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.	$	–	$	2,832
Variable rate term loan due May 31, 2019. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.		–		3,447
Total term loans		–		6,279
Less current portion		–		(3,166	)
Total long-term portion	$	–	$	3,113

The variable rate term loans were subject to interest at the prime rate or at the LIBOR plus 2.5% and were collateralized by substantially all of Lifeway’s assets. The two term loans were refinanced and paid in full on May 7, 2018. See Line of Credit below.

Line of Credit

On May 7, 2018, Lifeway entered into an Amended and Restated Loan and Security Agreement (the “Revolving Credit Facility”) with its existing lender. The Revolving Credit Facility provides for a revolving line of credit up to a maximum of $10 million (the “Revolving Loan”) with an incremental facility not to exceed $5 million (the “Incremental Facility” and together with the Revolving Loan, the “Loans”). The proceeds of the Loans were used to pay off Lifeway’s existing debt with the lender under the Loan and Security Agreement, Revolving Note, and Term Note entered into on February 6, 2009, and for general working capital purposes. Upon closing, we retired all the then-outstanding term loans described above.

As of September 30, 2018, we have $5,990, net of $60 of unamortized deferred financing costs, outstanding under the New Revolving Credit Facility. We have approximately $3,950 available under the Borrowing Base for future borrowings as of September 30, 2018.

All outstanding amounts under the Loans bear interest, at Lifeway’s election, at either the lender Base Rate (the greater of either the Federal Funds Rate plus 0.5%, or the Prime Rate) or the LIBOR plus 2.50%, payable monthly in arrears. Lifeway is also required to pay a quarterly unused line fee and, in conjunction with the issuance of any letters of credit, a letter of credit fee. Lifeway’s interest rate on debt outstanding under our Credit Agreement for the period May 7, 2018 through September 30, 2018 ranged from 4.52% - 4.86%.

The commitment under the Revolving Credit Facility matures May 7, 2021. The new revolving line of credit is presented as a long-term debt obligation as of September 30, 2018. The Loans and all other amounts due and owed under the Revolving Credit Facility and related documents are secured by substantially all of our assets.

Amounts available for borrowing under the Loans equal the lesser of (i) the Borrowing Base (as defined below), or (ii) $10 million (plus the amount of any Incremental Facility requested by Lifeway and approved by lender), in each case, as the same is reduced by the aggregate principal amount outstanding under the Loans. “Borrowing Base” under the Revolving Credit Facility means, generally, an amount equal to our cash and cash equivalents plus our eligible accounts receivable and eligible inventory, less certain reserves, divided by 1.5.

The Revolving Credit Facility contains customary representations, warranties, and covenants on the part of Lifeway, including financial covenants requiring us to achieve a minimum EBITDA threshold for each of the fiscal quarters through December 31, 2018; maintain (a) a fixed charge coverage ratio of no less than 1.25 to 1.0, and (b) a Senior Debt to EBITDA ratio of not more than 3.00 to 1.0 at December 31, 2018 and for each of the succeeding fiscal quarters ending through the expiration date. The Revolving Credit Facility also provides for events of default, including failure to repay principal and interest when due and failure to perform or violation of the provisions or covenants of the agreement, as a result of which amounts due under the Revolving Credit Facility may be accelerated.

Note 8 – Commitments and contingencies

Lease obligations

We lease corporate office space, three retail stores for our Lifeway Kefir Shop subsidiary, and certain machinery and equipment, under operating leases. Total lease expense was $555 and $497 for the nine months ended September 30, 2018 and 2017, respectively. Total lease expense was $180 and $175 for the three months ended September 30, 2018 and 2017, respectively.

Litigation

Lifeway is engaged in various legal actions, claims, and proceedings arising in the normal course of business, including commercial disputes, product liabilities, intellectual property matters and employment-related matters resulting from our business activities.

We record accruals for outstanding legal matters when we believe it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. We evaluate, on a periodic basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, we do not establish an accrued liability. Currently, none of our accruals for outstanding legal matters are material individually or in the aggregate to our financial position and it is management’s opinion that the ultimate resolution of these outstanding legal matters will not have a material adverse effect on our business, financial condition, results of operations, or cash flows. However, if we ultimately are required to make payments in connection with an adverse outcome, it is possible that it could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Lifeway’s contingencies are subject to substantial uncertainties, including for each such contingency the following, among other factors: (i) the procedural status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions; (iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the proceedings involve a large number of parties and/or parties and claims in multiple jurisdictions or jurisdictions in which the relevant laws are complex or unclear; (vii) the extent of potential damages, which are often unspecified or indeterminate; and (viii) the status of settlement discussions, if any, and the settlement posture of the parties. Consequently, Lifeway cannot predict with any reasonable certainty the timing or outcome of such contingencies, and we are unable to estimate a possible loss or range of loss.

In a letter dated May 19, 2016, Lifeway received a request to voluntarily produce documents in connection with a confidential, informal inquiry by the Division of Enforcement of the SEC concerning Lifeway’s internal controls, disclosure controls procedures, and internal control over financial reporting for fiscal years 2013 through the date of the letter. Following the SEC’s issuance of a Wells Notice and discussions with the SEC staff about the SEC’s alleged claims, we reached an agreement in principle to resolve the inquiry on November 9, 2018. Under the terms of the proposed settlement, Lifeway would pay one hundred thousand dollars in a civil penalty and agree to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, and 13a-15, thereunder. Lifeway will enter into the offer of settlement without admitting or denying the allegations therein and the settlement will resolve all allegations by the SEC against us. In accordance with U.S. GAAP, we made a corresponding accrual in our financial statements. The settlement remains subject to final approval by the SEC.

Note 9 – Income taxes

For each interim period, Lifeway estimates the effective tax rate (“ETR”) expected to be applicable for the full year and applies that rate to income before provision for income taxes for the period. Additionally, we record discrete income tax items such as enacted tax rate changes and completed tax audits in the period in which they occur.

The effective tax rate for the three months ended September 30, 2018 was 20.9% compared to 41.9% for the three months ended September 30, 2017. The effective tax rate for the nine months ended September 30, 2018 was 3.0% compared to 42.9% for the nine months ended September 30, 2017. On December 22, 2017, Congress enacted the Tax Cuts and Jobs Act of 2017. The Act contains several key tax provisions that affected us, including without limitation a reduction of the federal corporate income tax rate to 21% effective January 1, 2018, and the repeal of the domestic manufacturing deduction for 2018. In 2018, our effective income tax rate reflects the current federal statutory rate of 21%, while the rate for 2017 reflects the then-current federal statutory rate of 35%. The relative mix of pre-tax earnings (or losses), the underlying income tax rates applicable to various state and local taxing jurisdictions, and the impact of non-deductible items can also affect our periodic effective income tax rate.

Note 10 – Stock-based and Other Compensation

Stock Options

In December 2015, Lifeway shareholders approved the 2015 Omnibus Incentive Plan, which authorized the issuance of an aggregate of 3.5 million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units. At September 30, 2018, 3.469 million shares remain available under the Omnibus Incentive Plan. We have not established a pace for the frequency of awards under the Omnibus Incentive Plan, and may choose to suspend the issuance of new awards in the future and may grant additional awards at any time including issuing special grants of restricted stock, restricted stock units, and stock options to attract and retain new and existing executives.

The following table summarizes stock option activity during the nine months ended September 30, 2018:

	Options		Weighted average exercise price		Weighted average remaining contractual life		Aggregate intrinsic value

Outstanding at December 31, 2017		45	$	10.45
Granted		–	$	–
Exercised		–	$	–
Forfeited		(3)	$	11.10
Outstanding at September 30, 2018		42	$	10.40		7.50	$	–
Exercisable at September 30, 2018		36	$	10.42		7.50	$	–

For the nine months ended September 30, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $9 and $35, respectively. For the nine months ended September 30, 2018 and 2017 tax-related benefits of $2 and $14 were also recognized. For the three months ended September 30, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $2 and $6, respectively. For the three months ended September 30, 2018 and 2017 tax-related benefits of $0 and $3 were also recognized. As of September 30, 2018, the total remaining unearned compensation related to non-vested stock options was $4, which is expected to be amortized over the weighted-average remaining service period of 0.73 years.

Restricted Stock Units

Lifeway granted 20 Restricted Stock Units (“RSUs”) to certain independent directors in June 2018 and 6 RSU’s to employees during the quarter ended September 30, 2018. An RSU represents the right to receive one share of common stock in the future. RSUs have no exercise price.

The following table summarizes RSU activity during the nine months ended September 30, 2018:

	RSU’s

Outstanding at December 31, 2017		–
Granted		26
Shares issued upon vesting		–
Forfeited		–
Outstanding at September 30, 2018		26
Weighted average grant date fair value per share outstanding	$	5.63

We expense RSU’s over the service period. For the nine months ended September 30, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $29 and $14, respectively. For the nine months ended September 30, 2018 and 2017 tax-related benefits of $8 and $6 were also recognized. For the three months ended September 30, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $25 and $5, respectively. For the three months ended September 30, 2018 and 2017 tax-related benefits of $7 and $2 were also recognized. As of September 30, 2018, the total remaining unearned compensation related to non-vested RSU’s was $116, which is expected to be amortized over the weighted-average remaining service period of 1.30 years.

Incentive Compensation

In January 2017, Lifeway established an incentive-based compensation program for fiscal year 2017 (the “2017 Plan”) for certain senior executives and key employees (the “participants”). We established a similar plan for participants for fiscal year 2018 (the “2018” Plan). Under both the 2017 Plan and the 2018 Plan, incentive compensation is based on (a) Lifeway’s achievement of certain sales and adjusted EBITDA performance levels versus respective targets established by the Board for each fiscal year, and (b) for certain senior executives other than our CEO and COO, the achievement of individual performance objectives.

Under the 2017 Plan, collectively the participants had the opportunity to earn cash and equity-based incentive compensation in amounts ranging from $0 to $11,025 depending on Lifeway’s performance levels compared to the respective targets and the senior executive’s performance compared to their individual objectives. The equity portion of the incentive compensation is payable in restricted stock that vests one-third in each of the three years from the 2017 grant dates. For the nine months ended September 30, 2018, $551 was expensed under the 2017 Plan as stock-based compensation expense in the consolidated statements of operations. For the nine months ended September 30, 2017, $2,106 was expensed under the 2017 Plan, of which $1,254 was recorded as cash bonus expense and $852 was recorded as stock-based compensation expense in the consolidated statements of operations. For the three months ended September 30, 2018, $139 was expensed under the 2017 Plan as stock-based compensation expense in the consolidated statements of operations. For the three months ended September 30, 2017, $121 was expensed under the 2017 Plan, of which $6 was recorded as cash bonus expense and $115 was recorded as stock-based compensation expense in the consolidated statements of operations. As of September 30, 2018, the total remaining unearned compensation related to the 2017 Plan was $494, of which $139 is expected to be recognized through the balance of fiscal year 2018 subject to vesting; and $303 and $52 is expected to be recognized in 2019 and 2020, respectively, subject to vesting.

Under the 2018 Plan, collectively the participants have the opportunity to earn cash and equity-based incentive compensation in amounts ranging from $0 to $11,200 depending on Lifeway’s performance levels compared to the respective targets and the senior executive’s performance compared to their individual objectives. The equity portion of the incentive compensation is payable in restricted stock that vests one-third in each of the three years from the 2018 grant dates. For the nine months ended September 30, 2018, $303 was expensed under the 2018 Plan, of which $76 was recorded as cash bonus expense and $227 was recorded as stock-based compensation expense in the consolidated statements of operations. For the three months ended September 30, 2018, $157 was expensed under the 2018 Plan as stock-based compensation expense in the consolidated statements of operations.

Retirement Benefits

Lifeway has a defined contribution plan which is available to substantially all full-time employees. Under the terms of the plan, we match employee contributions under a prescribed formula. For the nine months ended September 30, 2018 and 2017 total contribution expense recognized in the consolidated statements of operations was $319 and $296, respectively. For the three months ended September 30, 2018 and 2017 total contribution expense recognized in the consolidated statements of operations was $90 and $59, respectively.

Note 11 – Segments, Products and Customers

Lifeway’s primary product is drinkable kefir, a cultured dairy product. Lifeway Kefir is a tart and tangy cultured milk smoothie that is high in protein, calcium and vitamin D. Thanks to our exclusive blend of kefir cultures, each cup of kefir contains 12 live and active cultures and 15 to 20 billion beneficial CFU (Colony Forming Units) at the time of manufacture.

We manufacture (directly or through co-packers) our products under our own brand, as well as under private labels on behalf of certain customers. Lifeway offers over 50 varieties of our kefir products including more than 20 flavors. In addition to our core drinkable kefir products, we offer Kefir Cups, a strained, cupped version of our kefir; and Organic Farmer Cheese Cups, a cupped version of our soft cheeses, both served in resealable 5 oz. containers with mini-spoons. We also offer Lifeway Elixir, a line of non-dairy, sparkling organic probiotic beverages, as well as probiotic supplements for adults and children. In late 2017, we also announced that we would begin offering Skyr, a strained cupped Icelandic yogurt, and Plantiful, a plant-based probiotic beverage made from organic and non-GMO pea protein with 10 vegan kefir cultures.

Our product categories are:

	•	Drinkable Kefir, sold in a variety of organic and non-organic sizes, flavors, and types, including low fat, non-fat, whole milk, protein, BioKefir (a 3.5 oz. kefir with additional probiotic cultures), and Kefir with Oats.

	•	Cheese, which includes European-style soft cheeses, and farmer cheese in resealable cups.

	•	Cream and other, consists primarily of cream, a byproduct of our fluid milk manufacturing process, and non-dairy products.

	•	ProBugs, a line of kefir products in drinkable, frozen, and freeze dried formats, designed for children.

	•	Cupped Kefir and Skyr, which include Cupped Kefir and Icelandic Skyr, a line of strained kefir and yogurt products in resealable cups.

	•	Frozen Kefir, available in both bars and pint-size containers.

Lifeway has determined that it has one reportable segment based on how our chief operating decision maker manages the business and in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing our performance, has been identified collectively as the Chief Financial Officer, the Chief Operating Officer, the Chief Executive Officer, and Chairperson of the board of directors. Substantially all of our consolidated revenues relate to the sale of cultured dairy products that we produce using the same processes and materials and are sold to consumers through a common network of distributors and retailers in the United States.

Net sales of products by category were as follows for the nine months ended September 30:

	Nine months ended September 30,
	2018		%		2017		%
Drinkable Kefir other than ProBugs	$	61,255		76%	$	71,559		77%
Cheese		8,443		11%		8,527		9%
Cream and other		4,104		5%		5,053		5%
Cupped Kefir and Skyr		3,154		4%		2,379		3%
ProBugs Kefir		2,166		3%		3,700		4%
Frozen Kefir (a)		1,196		1%		1,418		2%
Net Sales	$	80,318		100%	$	92,636		100%

(a)	Includes Lifeway Kefir Shop sales

Net sales of products by category were as follows for the three months ended September 30:

	Three months ended September 30,
	2018		%		2017		%
Drinkable Kefir other than ProBugs	$	18,877		77%	$	22,154		77%
Cheese		2,656		11%		2,829		10%
Cream and other		1,406		6%		1,615		6%
Cupped Kefir and Skyr		699		3%		889		3%
ProBugs Kefir		471		2%		843		3%
Frozen Kefir (a)		371		1%		456		1%
Net Sales	$	24,480		100%	$	28,786		100%

(a)	Includes Lifeway Kefir Shop sales

Significant Customers – Sales are predominately to companies in the retail food industry, located within the United States. Two major customers accounted for approximately 22% of net sales for the nine months ended September 30, 2018 and 2017, and 20% and 21% of net sales for the three months ended September 30, 2018 and 2017, respectively.

Note 12 – Related party transactions

Lifeway obtains consulting services from the Chairperson of its board of directors. Fees earned by the Chairperson are included in general and administrative expenses in the accompanying consolidated statements of operations and were $750 during each of the nine months ended September 30, 2018 and 2017. Fees earned by the Chairperson are included in general and administrative expenses in the accompanying consolidated statements of operations and were $250 during each of the three months ended September 30, 2018 and 2017.

Lifeway is also a party to a royalty agreement with the Chairperson of its board of directors under which we pay the Chairperson a royalty based on the sale of certain Lifeway products, not to exceed $50 in any fiscal month. Royalties earned by the Chairperson are included in selling expenses in the accompanying consolidated statements of operations and were $445 and $450 during the nine months ended September 30, 2018 and 2017, respectively, and $145 and $150 during the three months ended September 30, 2018 and 2017, respectively

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in this Form 10-Q is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes, and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “Form 10-K”). Unless otherwise specified, any description of “our”, “we”, and “us” in this MD&A refer to Lifeway Foods, Inc. and our subsidiaries.

Cautionary Statement Regarding Forward-Looking Statements

In addition to historical information, this quarterly report contains “forward-looking” statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "from time to time," "future," "intend," "plan," "likely," "may," "ongoing," "realize," "should," "will," and similar terms or terminology, or the negative of such terms or other comparable terminology. Examples of forward-looking statements include, among others, statements we make regarding:

	•	Expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings;
	•	Strategy for acquisitions, customer retention, growth, product development, market position, financial results and reserves; Estimates of the amounts of sales allowances and discounts to our customers and consumers;
	•	Our belief that we will maintain compliance with our loan agreements and have sufficient liquidity to fund our business operations;

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

	•	The impact of investigative and legal proceedings;
	•	Developments and changes in laws and regulations, including regulation of the dairy or food industries through legislative action and revised rules and standards applied by the Food & Drug Administration (FDA);
	•	Economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices, and the value of our assets;
	•	Changes in the price of milk and other key materials and disruptions in supply chains for these materials;
	•	Strategic actions, including acquisitions and dispositions and our success in launching new products;
	•	The impact on our competitive position if we do not maintain compliance with our loan agreements and/or sufficient liquidity to fund our business operations;
	•	Such other factors as discussed throughout Part I, Item 1 “Business”; Part I, Item 1A “Risk Factors”; and Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2017 and that are described from time to time in our filings with the SEC.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. We intend these forward-looking statements to speak only at the date made. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC's rules, we have no duty to update these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

Results of Operations

(In thousands)

	September 30,					Favorable / (Unfavorable)
	2018			2017		$			%
Net sales	$	24,480		$	28,786	$	(4,306	)		(15.0%	)

Cost of goods sold	$	17,892		$	20,331	$	2,439
Depreciation expense		738			618		(120	)
Total cost of goods sold	$	18,630		$	20,949	$	2,319			11.1%

Gross profit	$	5,850		$	7,837	$	(1,987	)		(25.4%	)
Gross Profit % to net sales		23.9%			27.2%

Selling expenses	$	3,136		$	4,010	$	874			21.8%
Selling expenses % to net sales		12.8%			13.9%

General & administrative expenses	$	3,150		$	3,145	$	(5	)		(0.2%	)
General & administrative % to net sales		12.9%			10.9%

Amortization expense	$	163		$	168	$	5			3.0%

Total operating expenses	$	6,449		$	7,323	$	874			11.9%
Total operating expense % to net sales		26.3%			25.4%
(Loss) income from operations	$	(599	)	$	514	$	(1,113	)		(216.5%	)
(Loss) income from operations % to net sales		(2.4%	)		1.8%

Net Sales

Net sales finished at $24,480 for the three-month period ended September 30, 2018, a decrease of $4,306 or 15.0% versus prior year. The net sales softness continued to reflect the overall lower consumption in the dairy and cultured dairy product categories. Versus prior year, volume declines primarily resulted from volume / mix of 17.6% due to lower branded and ProBugs drinkable kefir sales, partially offset by new products. In addition, an increase in trade promotion and allowances of 0.6% resulted as targeted programming and product activity was executed. This was partially offset by pricing gains of 3.2% which commenced during second quarter 2018.

Gross Profit

Gross profit as a percentage of net sales was 23.9% during the three-month period ended September 30, 2018. Gross profit percentage was 27.2% in prior year. The decline versus prior year was primarily due to lower net sales, higher freight and fixed costs, partially offset by reduction in variable costs. Additionally, depreciation expense increased reflecting the continued investment in manufacturing improvements.

Selling Expenses

Selling expenses decreased by $874 or 21.8% to $3,136 during the three-month period ended September 30, 2018. The decrease versus prior year, primarily reflects a change in media spending to reduce programs with lower efficiency. The primary driver was the lapping of television media eliminated from third quarter 2018 that occurred in the previous year, and to a lesser extent lower broker commissions and marketing spending.

General and administrative expenses

General and administrative expenses were slightly higher for the three-month period ending September 30, 2018 finishing at $3,150, 0.2% above prior year. This reflects increased incentive compensation, partially offset by lower legal expenses.

Provision for Income Taxes

Benefit for income taxes was $136 during the three months ended September 30, 2018, compared to a provision for income taxes of $175 during the same period in 2017. Our effective tax rate (ETR) for the three months ended September 30, 2018 was 20.9% compared to an ETR of 41.9% in the same period last year. The lower effective tax rate reflects a high percentage of non-deductible tax expense against relatively low pre-tax book income/(loss).

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act significantly changed U.S. income tax law by, among other things, reducing the U.S. federal income tax rate from 35% to 21%, transitioning from a global tax system to a modified territorial tax system, eliminating the domestic manufacturing deduction, reducing the dividend received deduction, and limiting the tax deductions for interest expense and executive compensation.

An estimated provisional impact of the remeasurement of deferred income taxes was recorded in the provision (benefit) for income taxes for the year ended December 31, 2017. However, our review of the implications of the Act will be ongoing throughout 2018 as additional clarification and guidance are provided on how the IRS and state authorities will implement tax reform. We will also watch for additional guidance from the SEC or the FASB related to tax reform. Effective January 1, 2018, we currently estimate that the impact of the Act will lower our combined statutory federal income tax rate plus an estimate for state, local and foreign income taxes from approximately 39.5% to 27.7%. Among other effects, the Act’s lower federal statutory rate is partially offset by the adverse impact of the Act’s elimination of the domestic manufacturing deduction. In future periods, we expect the Act to favorably impact net earnings, diluted earnings per share, and cash flows, primarily due to the Act’s reduction of the federal corporate tax rate.

Income taxes are discussed in Note 9 in the Notes to the Consolidated Financial Statements.

Net income (loss)

We reported a net loss of $(514) or $(0.03) per basic and diluted common share for the three-month period ended September 30, 2018 compared to net income of $243 or $0.02 per basic and diluted common share in the same period in 2017.

Comparison of the nine-month period ended September 30, 2018 compared to the nine-month period ended September 30, 2017

Results of Operations

(In thousands)

	September 30,					Favorable / (Unfavorable)
	2018			2017		$			%
Net sales	$	80,318		$	92,636	$	(12,318	)		(13.3%	)

Cost of goods sold	$	57,412		$	65,262	$	7,850
Depreciation expense		2,143			1,801		(342	)
Total cost of goods sold	$	59,555		$	67,063	$	7,508			11.2%

Gross profit	$	20,763		$	25,573	$	(4,810	)		(18.8%	)
Gross Profit % to net sales		25.9%			27.6%

Selling expenses	$	10,537		$	11,648	$	1,111			9.5%
Selling expenses % to net sales		13.1%			12.6%

General & administrative expenses	$	9,851		$	10,743	$	892			8.3%
General & administrative % to net sales		12.3%			11.6%

Amortization expense	$	490		$	504	$	14			2.8%

Total operating expenses	$	20,878		$	22,895	$	2,017			8.8%
Total operating expense % to net sales		26.0%			24.7%
(Loss) income from operations	$	(115	)	$	2,678	$	(2,793	)		(104.3%	)
(Loss) income from operations % to net sales		(0.1%	)		2.9%

Net Sales

Net sales were $80,318 for the nine-month period ended September 30, 2018, a decrease of $12,318 or 13.3%. The decline was primarily due to volume / mix of 15.7%, partially offset by lower spend in trade promotion and allowances of 1.0%, partially offset by pricing gains of 1.4%. The decline in volume / mix was primarily driven by volume softness in our branded and ProBugs drinkable kefir, partially offset by the incremental volume of new item introductions. The volume decline reflects lower consumption of our products that is consistent with the overall volume decline in dairy and cultured dairy product categories.

Pricing primarily includes the favorable impact of a second quarter 2018 price increase to recover higher input costs. This increase was partially offset by the lapping of a price reduction driven by the shift in delivery method for select customers in the first quarter 2017. The favorable promotional activity reflects lower trade spending, partially offset by the increased redemptions on our 2018 coupon program.

Gross Profit

Gross profit as a percentage of net sales decreased to 25.9% during the nine-month period ended September 30, 2018 from 27.6% during the same period in 2017. The lower gross profit percentage primarily reflects category sales softness, product mix, fixed costs and incremental coupon activity. This was partially offset by an increase in pricing and lower trade spending.

Selling Expenses

Selling expenses decreased by $1,111 or 9.5% to $10,537 during the nine-month period ended September 30, 2018 from $11,648 during the same period in 2017. The decreased selling expenses primarily reflect the reduction in lower efficiency media spending and lower broker commissions and other marketing spending.

General and administrative expenses

General and administrative expenses decreased $892 or 8.3% to $9,851 during the nine-month period ended September 30, 2018 from $10,743 during the same period in 2017. The decrease is primarily a result of lower incentive compensation.

Provision for Income Tax

Benefit for income taxes was $8 during the nine-months ended September 30, 2018, compared to a provision for income taxes of $1,056 during the same period in 2017. Our effective tax rate (ETR) for the nine-months ended September 30, 2018 was 3.0% compared to an ETR of 42.9% in the same period last year. The low effective tax rate reflects a high percentage of non-deductible tax expense against low pre-tax book income results.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Act significantly changed U.S. income tax law by, among other things, reducing the U.S. federal income tax rate from 35% to 21%, transitioning from a global tax system to a modified territorial tax system, eliminating the domestic manufacturing deduction, reducing the dividend received deduction, and limiting the tax deductions for interest expense and executive compensation.

Income taxes are discussed in Note 9 in the Notes to the Consolidated Financial Statements.

Net income (loss)

We reported a net loss of $(274) or $(0.02) per basic and diluted common share for the nine-month period ended September 30, 2018 compared to net income of $1,403 or $0.09 per basic and diluted common share in the same period in 2017.

Liquidity and Capital Resources

We expect to meet our foreseeable liquidity and capital resource requirements through anticipated cash flows from operations; our revolving credit facility; and cash and cash equivalents. The success of our business and financing strategies will continue to provide us with the financial flexibility to take advantage of various opportunities as they arise.

Sources and Uses of Cash

Lifeway had a net decrease in cash and cash equivalents of $1,752 during the nine-month period ended September 30, 2018 compared to a net decrease in cash and cash equivalents of $1,548 in the same period in 2017. The drivers of the year over year change are as follows:

Net cash provided by operating activities was $2,346 during the nine-month period ended September 30, 2018 compared to net cash provided by operating activities of $4,189 in the same period in 2017. The decline in cash provided by operating activities reflects lower net income and timing of accrued expenses.

Net cash used in investing activities was $2,991 during the nine-month period ended September 30, 2018 compared to net cash used in investing activities of $3,920 in the same period in 2017. The lower level of net cash used in investing activities in the 2018 period reflects lower capital spending. Capital spending was $2,581 during the period ended September 30, 2018 compared to $3,932 in 2017. Our capital spending is focused in three core areas, growth, cost reduction, and facility improvements. Growth capital spending supports new product innovation and enhancements. Cost reduction spending supports manufacturing efficiency, safety and productivity.

Net cash used in financing activities was $1,607 during the nine months ended September 30, 2018 compared to net cash used in financing activities of $1,817 in the same period in 2017. On November 1, 2017, Lifeway’s Board approved an increase in the aggregate amount under our previously announced 2015 stock repurchase program (the “2017 Repurchase Plan Amendment”), by adding to (i.e., exclusive of the shares previously authorized under the 2015 stock repurchase program) the authorization the lesser of $5,185 or 625 shares. We repurchased approximately 192 shares of common stock at a cost of $1,309 during the nine-month period ended September 30, 2018 under the 2017 Repurchase Plan Amendment. We may execute transactions from time to time in the open market or by private negotiation, in accordance with all applicable securities laws and regulations. We intend to hold repurchased shares in treasury for general corporate purposes, including issuances under our 2015 Omnibus Incentive Plan. Treasury shares are accounted for using the cost method.

Revolving credit facility. On May 7, 2018 Lifeway entered into an Amended and Restated Loan and Security Agreement (the “Revolving Credit Facility”) with its existing lender. The Revolving Credit Facility provides for a revolving line of credit up to a maximum of $10 million (the “Revolving Loan”) with an incremental facility not to exceed $5 million (the “Incremental Facility” and together with the Revolving Loan, the “Loans”).

The Revolving Credit Facility contains financial covenants requiring us to achieve a minimum EBITDA threshold for each of the fiscal quarters during the year ended December 31, 2018 and maintain (a) a fixed charge coverage ratio of no less than 1.25 to 1.0, and (b) a senior debt to EBTIDA ratio of not more than 3.0 to 1.0 at December 31, 2018 and for each of the succeeding fiscal quarters ending through the expiration date. We were in compliance with the applicable covenants as of September 30, 2018.

We used the revolving credit facility to retire all the then-outstanding term loans described in Note 7 to the consolidated financial statements. The revolving credit facility provides us advantages over our prior debt facilities, including that it does not require scheduled principal payments, gives us access to unused credit capacity, and does not require costly annual amendments or extensions. Additionally, we have no debt maturities until May 2021.

We have been able to deploy capital resources to take advantage of targeted growth opportunities, including the development of our cupped kefir and cheese products, and to improve our manufacturing platform’s capacity and capabilities. We believe we have ample access to additional capital, as evidenced by our revolving credit facility transaction in May 2018, and we may issue debt or equity securities from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. Such opportunities could include refinancing existing indebtedness, funding capital expenditures, extending our debt maturities in a favorable interest rate environment, or taking advantage of acquisition opportunities that generate favorable returns.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes to our market risk during the third quarter of 2018. For information regarding our exposure to certain market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, in the 2017 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES.

(a)

Evaluation of Disclosure Controls and Procedures

Our evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act was performed under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer. The purpose of disclosure controls and procedures is to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based upon our most recent controls evaluation, our CEO and CFO have concluded that our Disclosure Controls were effective as of September 30, 2018.

(b)

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the third quarter of 2018 that were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time we are engaged in litigation matters arising in the ordinary course of business. While the results of litigation and claims cannot be predicted with certainty, Lifeway believes that no such matter is reasonably likely to have a material adverse effect on our financial position or results of operations.

ITEM 1A. RISK FACTORS.

There have been no material changes to the Risk Factors disclosed in Part I, Item 1A of the 2017 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURE.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

No.	Description	Form	Period Ending	Exhibit	Filing Date

10.1	Employment Agreement dated July 20, 2018 with Neha J. Clark.	8-K		10.1	8/3/18

31.1	Rule 13a-14(a)/15d-14(a) Certification of Julie Smolyansky	Filed Herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification of Neha Clark	Filed Herewith

32.1	Section 1350 Certification of Julie Smolyansky	Filed Herewith

32.2	Section 1350 Certification of Neha Clark	Filed Herewith

99.1	Press release dated November 14, 2018 reporting Lifeway’s financial results for the nine months ended September 30, 2018.	Furnished Herewith

101	Interactive Data Files	Filed Herewith

SIGNATURES

Pursuant to 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.



Date: November 14, 2018	By:	/s/ Julie Smolyansky
		Julie Smolyansky
		Chief Executive Officer, President, and Director
		(Principal Executive Officer)



Date: November 14, 2018	By:	/s/ Neha Clark
		Neha Clark
		Chief Financial Officer
		(Principal Financial Officer)

EX-31.1 2 lifeway_10q-3101.htm CERTIFICATION

EXHIBIT 31.1

SECTION 302 CERTIFICATION OF C.E.O.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Julie Smolyansky, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Lifeway Foods, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2018	By: /s/ Julie Smolyansky
	Julie Smolyansky
	Chief Executive Officer, President and Director
	(Principal Executive Officer)

EX-31.2 3 lifeway_10q-3102.htm CERTIFICATION

EXHIBIT 31.2

SECTION 302 CERTIFICATION OF C.F.O.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Neha Clark, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Lifeway Foods, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2018	By: /s/ Neha Clark
	Neha Clark
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1 4 lifeway_10q-3201.htm CERTIFICATION

EXHIBIT 32.1

SECTION 906 CERTIFICATION OF C.E.O.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Lifeway Foods, Inc. (the “Company”) for the period ended September 30, 2018 as filed with the SEC (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to her knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2018	By: /s/ Julie Smolyansky
	Julie Smolyansky
	Chief Executive Officer, President and Director
	(Principal Executive Officer)

EX-32.2 5 lifeway_10q-3202.htm CERTIFICATION

EXHIBIT 32.2

SECTION 906 CERTIFICATION OF C.F.O.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2018	By: /s/ Neha Clark
	Neha Clark
	Chief Financial Officer
	(Principal Financial Officer)

EX-99.1 6 lifeway_10q-ex9901.htm EARNINGS RELEASE

Exhibit 99.1

Lifeway Foods, Inc. Launches Strategic Plan, “Lifeway 2.0” to Reinvigorate Growth

Focus on Expansion of Core Kefir Product Distribution

Introduces Convenient, On-the-Go Health and Wellness Product Innovation

Builds Lifeway Brand Awareness & Consumer Loyalty

Announces Third Quarter 2018 Financial Results

Morton Grove, IL — November 14, 2018 — Lifeway Foods, Inc. (Nasdaq: LWAY), the leading U.S. supplier of kefir fermented dairy and probiotic products to support the microbiome, today announced a new strategic plan, “Lifeway 2.0” to reinvigorate growth. The Company also reported financial results for the three and nine months ended September 30, 2018.

Julie Smolyansky, Lifeway’s CEO commented, “We are excited to launch Lifeway 2.0, our strategic long-term plan to meaningfully reinvigorate growth. We expect to deliver sustainable top-line growth based on three core strategies. These include a focus on rebuilding our core kefir product distribution in new and existing sales channels, introducing product innovation for today’s on-the-go consumers focused on health and wellness, and enhancing Lifeway’s brand awareness and consumer loyalty. Over the last few months we have aligned our organizational structure to significantly reduce costs and create efficiencies, while also continuing to make investments in people, processes, manufacturing and sales and marketing. We believe we have the right team, strategic plan, and compelling industry fundamentals to generate the growth we are confident Lifeway is capable of achieving long-term.”

Smolyansky continued, “We believe the disciplined actions we have taken in light of the recent inflationary cost pressures and dairy industry challenges have further strengthened our foundation for growth. Importantly, recent research from Harvard University has reinforced the benefits of fermented dairy on gut health and microbiome support, information we look forward to educating more consumers about going forward. At Lifeway, we have strong health and wellness heritage which began in the 1980s, and our team remains intently focused on providing products that are positive for digestive health, high in protein and low in sugar to help consumers maintain a healthier lifestyle.”

Lifeway 2.0 Strategic Growth Priorities

To reinvigorate growth in 2019 and over the next several years, Lifeway is focused on the following strategic growth initiatives:

Expand Core Kefir Product Distribution

Lifeway will focus on rebuilding core kefir product distribution in new and existing sales channels. This includes in existing mass, grocery and natural retail partners as well as the complementary convenience, club, foodservice, drug store, e-commerce, hospital and university sales channels.

Introduce Convenient, Probiotic and Protein Rich-Product Innovation

Lifeway will introduce product innovation for today’s on-the-go consumers focused on health and wellness. This includes single-serve, 8 ounce Lifeway Kefir and newly released organic varieties. Year-to-date through September 30, 2018 Lifeway branded 8 ounce Kefir retail sales for measured channels grew approximately 39% over the prior year period off of a low-base.

The Company is also focused on completing the development of its dairy-free, plant-based probiotic drinks with distribution beginning in 2019.

Enhance Consumer Experience

Lifeway will utilize existing customer insights and technologies to increase trial and repurchase rates as it looks to expand kefir household penetration. The Company believes there is a tremendous opportunity to re-engage with existing consumers and bring new consumers to the Lifeway brand.

Lifeway believes these single-serve purchase opportunities, along with increased demos at traditional retail, will help support its objective to increase exposure, shopper occasions and introduce new consumers to the brand.

About Lifeway Foods, Inc.

Lifeway Foods, Inc., which has been recognized as one of Forbes’ Best Small Companies, is America’s leading supplier of the probiotic, fermented beverage known as kefir. In addition to its line of drinkable kefir, the company also produces cupped kefir and cheese, frozen kefir, specialty cheeses, probiotic supplements and a ProBugs line for kids. Lifeway’s tart and tangy fermented dairy and non-dairy products are now sold across North America, Ireland and the United Kingdom. Learn how Lifeway is good for more than just you at www.lifewaykefir.com.

Forward-Looking Statements

All statements in this release (and oral statements made regarding the subjects of this release) contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 regarding, among other things, future operating and financial performance, product development, market position, business strategy and objectives. These statements use words, and variations of words, such as “new,” “strategy,” “plan,” “expect,” “deliver,” “reinvigorate,” “rebuild,” “introduce,” “enhance,” “generate,” “innovate,” “grow,” “achieve,” “long-term,” “complete,” “begin,” “will,” “use,” “increase,” and “believe.” Other examples of forward looking statements may include, but are not limited to, (i) statements of Company plans and objectives, including the introduction of new products, or estimates or predictions of actions by customers or suppliers, (ii) statements of future economic performance, and (III) statements of assumptions underlying other statements and statements about Lifeway or its business. You are cautioned not to rely on these forward-looking statements. These statements are based on current expectations of future events and thus are inherently subject to uncertainty. If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from Lifeway’s expectations and projections. These risks, uncertainties, and other factors include: price competition; the decisions of customers or consumers; the actions of competitors; changes in the pricing of commodities; the effects of government regulation; possible delays in the introduction of new products; and customer acceptance of products and services. A further list and description of these risks, uncertainties, and other factors can be found in Lifeway’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and the Company’s subsequent filings with the SEC. Copies of these filings are available online at https://www.sec.gov, http://lifewaykefir.com/investor-relations/, or on request from Lifeway. Information in this release is as of the dates and time periods indicated herein, and Lifeway does not undertake to update any of the information contained in these materials, except as required by law. Accordingly, YOU SHOULD NOT RELY ON THE ACCURACY OF ANY OF THE STATEMENTS OR OTHER INFORMATION CONTAINED IN ANY ARCHIVED PRESS RELEASE.

Contact:

Lifeway Foods, Inc.

Phone: 847-967-1010

Email: info@lifeway.net

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2018 and December 31, 2017

(In thousands)

	September 30, 2018 (Unaudited)			December 31, 2017
Current assets
Cash and cash equivalents	$	2,726		$	4,978
Investments, at fair value		500			–
Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $1,550 and $2,010 at September 30, 2018 and December 31, 2017 respectively		8,073			8,676
Inventories, net		6,837			7,697
Prepaid expenses and other current assets		1,298			983
Refundable income taxes		2,959			2,347
Total current assets		22,393			24,681

Property, plant and equipment, net		25,035			24,645

Intangible assets
Goodwill & indefinite-lived intangibles		14,068			14,068
Other intangible assets, net		485			975
Total intangible assets		14,553			15,043

Other assets		150			150
Total assets	$	62,131		$	64,519

Current liabilities
Current maturities of notes payable	$	–		$	3,166
Accounts payable		6,263			6,848
Accrued expenses		3,118			2,984
Accrued income taxes		82			203
Total current liabilities		9,463			13,201

Line of credit		5,990			–
Notes payable		–			3,113
Deferred income taxes, net		840			840
Other long-term liabilities		661			775
Total liabilities		16,954			17,929

Stockholders' equity
Preferred stock, no par value; 2,500 shares authorized; no shares issued or outstanding at September 30, 2018 and December 31, 2017, respectively		–			–
Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,838 and 16,008 outstanding at September 30, 2018 and December 31, 2017, respectively		6,509			6,509
Paid-in capital		2,211			2,244
Treasury stock, at cost		(12,918	)		(11,812	)
Retained earnings		49,375			49,649
Total stockholders' equity		45,177			46,590

Total liabilities and stockholders' equity	$	62,131		$	64,519

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the three months and nine months ended September 30, 2018 and 2017

(Unaudited)

(In thousands, except per share data)

	Three Months Ended September 30,						Nine months Ended September 30,
	2018			2017			2018			2017

Net sales	$	24,480		$	28,786		$	80,318		$	92,636

Cost of goods sold		17,892			20,331			57,412			65,262
Depreciation expense		738			618			2,143			1,801
Total cost of goods sold		18,630			20,949			59,555			67,063

Gross profit		5,850			7,837			20,763			25,573

Selling expenses		3,136			4,010			10,537			11,648
General and administrative		3,150			3,145			9,851			10,743
Amortization expense		163			168			490			504
Total operating expenses		6,449			7,323			20,878			22,895

(Loss) income from operations		(599	)		514			(115	)		2,678

Other income (expense):
Interest expense		(82	)		(62	)		(220	)		(180	)
Gain (loss) on sale of property and equipment		28			(34	)		42			(39	)
Other income, net		3			–			11			–
Total other income (expense)		(51	)		(96	)		(167	)		(219	)

(Loss) income before provision for income taxes		(650	)		418			(282	)		2,459

(Benefit) provision for income taxes		(136	)		175			(8	)		1,056

Net (loss) income*	$	(514	)	$	243		$	(274	)	$	1,403

(Loss) earnings per common share:
Basic	$	(0.03	)	$	0.02		$	(0.02	)	$	0.09
Diluted	$	(0.03	)	$	0.02		$	(0.02	)	$	0.09

Weighted average common shares:
Basic		15,872			16,093			15,886			16,123
Diluted		16,256			16,168			16,354			16,218

*2018 third quarter net income includes a $0.3 million non-cash inventory write-off expense due to the Company’s discontinued products and the flow through from the Probugs packaging change.

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Nine months Ended September 30, 2018 and 2017

(Unaudited)

(In thousands)

	2018			2017
Cash flows from operating activities:
Net (loss) income	$	(274	)	$	1,403
Adjustments to reconcile net income to operating cash flow:
Depreciation and amortization		2,633			2,305
Non-cash interest expense		9			–
Bad debt expense		50			–
Reserve for inventory obsolescence		580			320
Stock-based compensation		827			901
Deferred revenue		(72	)		–
(Gain) loss on sale of property and equipment		(42	)		39
(Increase) decrease in operating assets:
Accounts receivable		553			(814	)
Inventories		280			(328	)
Refundable income taxes		(612	)		(462	)
Prepaid expenses and other current assets		(291	)		(231	)
Increase (decrease) in operating liabilities:
Accounts payable		(586	)		1,384
Accrued expenses		(588	)		252
Accrued income taxes		(121	)		(580	)
Net cash provided by operating activities		2,346			4,189

Cash flows from investing activities:
Purchases of investments		(500	)		(25	)
Purchases of property and equipment		(2,581	)		(3,932	)
Proceeds from sale of property and equipment		90			37
Net cash used in investing activities		(2,991	)		(3,920	)

Cash flows from financing activities:
Borrowings under revolving credit facility		6,050			–
Payment of deferred financing costs		(69	)		–
Purchase of treasury stock		(1,309	)		(1,187	)
Repayment of notes payable		(6,279	)		(630	)
Net cash used in financing activities		(1,607	)		(1,817	)

Net decrease in cash and cash equivalents		(2,252	)		(1,548	)

Cash and cash equivalents at the beginning of the period		4,978			8,812

Cash and cash equivalents at the end of the period	$	2,726		$	7,264

Supplemental cash flow information:
Cash paid for income taxes, net of refunds	$	724		$	2,098
Cash paid for interest	$	189		$	180

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Note 1 – Basis of Presentation   Basis of presentation   The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information, and do not include all of the information and disclosures required for complete, audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. For further information, refer to the consolidated financial statements and disclosures included in our Annual Report on Form 10-K as of and for the year ended December 31, 2017. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation. The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year.   Principles of consolidation   Our consolidated financial statements include the accounts of Lifeway Foods, Inc. and all its wholly owned subsidiaries (collectively “Lifeway” or the “Company”). All significant intercompany accounts and transactions have been eliminated.

Note 2 – Significant Accounting Policies   Use of estimates   The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated 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 reserve for promotional allowances, the valuation of goodwill and intangible assets, stock-based and incentive compensation, and deferred income taxes.   Revenue Recognition   We sell food and beverage products across select product categories to customers predominantly within the United States (see Note 11, Segments, Products and Customers). We also sell bulk cream, a byproduct of our fluid milk manufacturing process. We recognize revenue when control over the products transfers to our customers, which generally occurs upon delivery to our customers or their common carriers. We account for product shipping and handling as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of goods sold. Any taxes collected on behalf of government authorities are excluded from net revenues.   Revenues are recorded net of discounts and allowances to our customers and consumers. Known or expected pricing or revenue adjustments, such as trade discounts, allowances for non-saleable products, product returns, and coupon redemption, are estimated at the time of sale. We base these estimates of expected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and coupon redemptions, are monitored and adjusted each period until the incentives realized or the coupons expire.   Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in accordance with U.S. GAAP and our inventory policies. We do not have any significant deferred revenue or unbilled receivables at the end of a period. We generally do not receive noncash consideration for the sale of goods nor do we grant payment financing terms greater than one year.   Deferred Financing Costs   We record deferred financing costs incurred in conjunction with its debt obligations. These costs are capitalized and amortized over the lives of the associated debt to interest expense using the effective interest method. Debt issuance costs associated with term debt and lines of credit are recorded as a direct deduction from the face amount of the debt. Total deferred financing costs, net of $9 and $0 of accumulated amortization, at September 30, 2018 and December 31, 2017 were $60 and $0, respectively.   Investments   All investment securities are classified as available-for-sale and are carried at fair value. The Company holds a Level 1 fair value investment in a short-term fixed income fund at September 30, 2018.   Advertising and promotional costs   Lifeway expenses advertising costs as incurred. For the nine months ended September 30, 2018 and 2017 total advertising expenses were $3,557 and $4,703 respectively. For the three months ended September 30, 2018 and 2017 total advertising expenses were $972 and $1,892 respectively.   Recently Adopted Accounting Pronouncements   In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The new guidance is intended to simplify aspects of accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, but no earlier than an entity’s adoptions of Topic 606. We adopted this new standard in June 2018. The adoption of this amendment had no impact on the consolidated financial statements.   In May 2017, the Financial Accounting Standards Board ("FASB”) issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance provides clarity and reduces both diversity in practice and cost of complexity when accounting for a change to the terms of or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.   In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows, such as debt prepayment or debt extinguishment costs, contingent consideration payments made after an acquisition, proceeds from the settlement of insurance claims, and other topics. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.   In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless certain conditions exist. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.   In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASU 2014-09 establishes a five-step revenue recognition process in which an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. On August 12, 2015 the FASB approved a one year delay of the effective date to reporting periods beginning after December 15, 2017, while permitting companies to voluntarily adopt the new standard as of the original effective date. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which clarifies narrow aspects of ASC 606 or corrects unintended application of the guidance. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for ASU 2014-09. Under the delayed effective date, this guidance was effective January 1, 2018. We adopted the new standard on January 1, 2018 on a modified retrospective basis. The adoption of this amendment had no impact on the consolidated financial statements. Refer to the Revenue Recognition section above and Note 11, Segment, Products, and Customers for additional information.      Recently Issued Accounting Pronouncements   In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance will be effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The amendment should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this amendment is not expected to have a material impact on the consolidated financial statements.     In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance requires lessees to recognize lease assets and lease liabilities in the balance sheet and disclose key information about leasing arrangements, such as information about variable lease payments and options to renew and terminate leases. The amended guidance will require both operating and finance leases to be recognized in the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The amendments in this ASU should be adopted using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. Management is currently evaluating the impact that the new guidance will have on the consolidated financial statements.

Note 3 – Inventories, net   Inventories consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Ingredients</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">1,970</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">1,717</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Packaging</td> <td> </td> <td> </td> <td style="text-align: right">2,064</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2,453</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 1pt">Finished goods</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">2,803</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">3,527</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 2.5pt">Total inventories</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">6,837</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">7,697</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Note 4 – Property, Plant and Equipment, net   Property, plant and equipment consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Land</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">1,747</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">1,747</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Buildings and improvements</td> <td> </td> <td> </td> <td style="text-align: right">17,446</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">17,260</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Machinery and equipment</td> <td> </td> <td> </td> <td style="text-align: right">30,598</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">27,539</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Vehicles</td> <td> </td> <td> </td> <td style="text-align: right">901</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">901</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Office equipment</td> <td> </td> <td> </td> <td style="text-align: right">879</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">734</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt">Construction in process</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">693</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,683</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td> </td> <td> </td> <td> </td> <td style="text-align: right">52,264</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">49,864</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt">Less accumulated depreciation</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(27,229</td> <td style="padding-bottom: 1pt">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(25,219</td> <td style="padding-bottom: 1pt">)</td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt">Total property, plant and equipment, net</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">25,035</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">24,645</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Note 5 – Intangible Assets   Goodwill & indefinite-lived intangible assets consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Goodwill</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">10,368</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">10,368</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt">Brand names</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">3,700</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">3,700</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt">Goodwill and indefinite-lived intangible assets</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">14,068</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">14,068</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>   Other intangible assets, net consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Recipes</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">44</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">44</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Customer lists and other customer related intangibles</td> <td> </td> <td> </td> <td style="text-align: right">4,529</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">4,529</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Customer relationship</td> <td> </td> <td> </td> <td style="text-align: right">985</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">985</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Trade names</td> <td> </td> <td> </td> <td style="text-align: right">2,248</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2,248</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 1pt">Formula</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">438</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">438</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td> </td> <td> </td> <td style="text-align: right">8,244</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">8,244</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 1pt">Accumulated amortization</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(7,759</td> <td style="padding-bottom: 1pt">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(7,269</td> <td style="padding-bottom: 1pt">)</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 2.5pt">Other intangible assets, net</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">485</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">975</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Note 6 – Accrued Expenses   Accrued expenses consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Payroll and incentive compensation</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">2,271</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">2,208</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Real estate taxes</td> <td> </td> <td> </td> <td style="text-align: right">401</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">371</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 1pt">Other</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">446</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">405</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">3,118</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">2,984</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Note 7 – Debt   Notes Payable   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%; padding-left: 10pt; text-indent: -10pt">Variable rate term loan due May 31, 2018. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">–</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">2,832</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt; padding-left: 10pt; text-indent: -10pt">Variable rate term loan due May 31, 2019. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">–</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">3,447</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-left: 10pt; text-indent: -10pt">Total term loans</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6,279</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt; padding-left: 10pt; text-indent: -10pt">Less current portion</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">–</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(3,166</td> <td style="padding-bottom: 1pt">)</td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt; padding-left: 10pt; text-indent: -10pt">Total long-term portion</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">–</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">3,113</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>    The variable rate term loans were subject to interest at the prime rate or at the LIBOR plus 2.5% and were collateralized by substantially all of Lifeway’s assets. The two term loans were refinanced and paid in full on May 7, 2018. See Line of Credit below.   Line of Credit   On May 7, 2018, Lifeway entered into an Amended and Restated Loan and Security Agreement (the “Revolving Credit Facility”) with its existing lender. The Revolving Credit Facility provides for a revolving line of credit up to a maximum of $10 million (the “Revolving Loan”) with an incremental facility not to exceed $5 million (the “Incremental Facility” and together with the Revolving Loan, the “Loans”). The proceeds of the Loans were used to pay off Lifeway’s existing debt with the lender under the Loan and Security Agreement, Revolving Note, and Term Note entered into on February 6, 2009, and for general working capital purposes. Upon closing, we retired all the then-outstanding term loans described above.   As of September 30, 2018, we have $5,990, net of $60 of unamortized deferred financing costs, outstanding under the New Revolving Credit Facility. We have approximately $3,950 available under the Borrowing Base for future borrowings as of September 30, 2018.   All outstanding amounts under the Loans bear interest, at Lifeway’s election, at either the lender Base Rate (the greater of either the Federal Funds Rate plus 0.5%, or the Prime Rate) or the LIBOR plus 2.50%, payable monthly in arrears. Lifeway is also required to pay a quarterly unused line fee and, in conjunction with the issuance of any letters of credit, a letter of credit fee. Lifeway’s interest rate on debt outstanding under our Credit Agreement for the period May 7, 2018 through September 30, 2018 ranged from 4.52% - 4.86%.   The commitment under the Revolving Credit Facility matures May 7, 2021. The new revolving line of credit is presented as a long-term debt obligation as of September 30, 2018. The Loans and all other amounts due and owed under the Revolving Credit Facility and related documents are secured by substantially all of our assets.   Amounts available for borrowing under the Loans equal the lesser of (i) the Borrowing Base (as defined below), or (ii) $10 million (plus the amount of any Incremental Facility requested by Lifeway and approved by lender), in each case, as the same is reduced by the aggregate principal amount outstanding under the Loans. “Borrowing Base” under the Revolving Credit Facility means, generally, an amount equal to our cash and cash equivalents plus our eligible accounts receivable and eligible inventory, less certain reserves, divided by 1.5.   The Revolving Credit Facility contains customary representations, warranties, and covenants on the part of Lifeway, including financial covenants requiring us to achieve a minimum EBITDA threshold for each of the fiscal quarters through December 31, 2018; maintain (a) a fixed charge coverage ratio of no less than 1.25 to 1.0, and (b) a Senior Debt to EBITDA ratio of not more than 3.00 to 1.0 at December 31, 2018 and for each of the succeeding fiscal quarters ending through the expiration date. The Revolving Credit Facility also provides for events of default, including failure to repay principal and interest when due and failure to perform or violation of the provisions or covenants of the agreement, as a result of which amounts due under the Revolving Credit Facility may be accelerated.

Note 8 – Commitments and contingencies   Lease obligations   We lease corporate office space, three retail stores for our Lifeway Kefir Shop subsidiary, and certain machinery and equipment, under operating leases. Total lease expense was $555 and $497 for the nine months ended September 30, 2018 and 2017, respectively. Total lease expense was $180 and $175 for the three months ended September 30, 2018 and 2017, respectively.    Litigation   Lifeway is engaged in various legal actions, claims, and proceedings arising in the normal course of business, including commercial disputes, product liabilities, intellectual property matters and employment-related matters resulting from our business activities.   We record accruals for outstanding legal matters when we believe it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. We evaluate, on a periodic basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, we do not establish an accrued liability. Currently, none of our accruals for outstanding legal matters are material individually or in the aggregate to our financial position and it is management’s opinion that the ultimate resolution of these outstanding legal matters will not have a material adverse effect on our business, financial condition, results of operations, or cash flows. However, if we ultimately are required to make payments in connection with an adverse outcome, it is possible that it could have a material adverse effect on our business, financial condition, results of operations or cash flows.   Lifeway’s contingencies are subject to substantial uncertainties, including for each such contingency the following, among other factors: (i) the procedural status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions; (iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the proceedings involve a large number of parties and/or parties and claims in multiple jurisdictions or jurisdictions in which the relevant laws are complex or unclear; (vii) the extent of potential damages, which are often unspecified or indeterminate; and (viii) the status of settlement discussions, if any, and the settlement posture of the parties. Consequently, Lifeway cannot predict with any reasonable certainty the timing or outcome of such contingencies, and we are unable to estimate a possible loss or range of loss.   In a letter dated May 19, 2016, Lifeway received a request to voluntarily produce documents in connection with a confidential, informal inquiry by the Division of Enforcement of the SEC concerning Lifeway’s internal controls, disclosure controls procedures, and internal control over financial reporting for fiscal years 2013 through the date of the letter. Following the SEC’s issuance of a Wells Notice and discussions with the SEC staff about the SEC’s alleged claims, we reached an agreement in principle to resolve the inquiry on November 9, 2018. Under the terms of the proposed settlement, Lifeway would pay one hundred thousand dollars in a civil penalty and agree to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, and 13a-15, thereunder. Lifeway will enter into the offer of settlement without admitting or denying the allegations therein and the settlement will resolve all allegations by the SEC against us. In accordance with U.S. GAAP, we made a corresponding accrual in our financial statements. The settlement remains subject to final approval by the SEC.

Note 9 – Income taxes   For each interim period, Lifeway estimates the effective tax rate (“ETR”) expected to be applicable for the full year and applies that rate to income before provision for income taxes for the period. Additionally, we record discrete income tax items such as enacted tax rate changes and completed tax audits in the period in which they occur.   The effective tax rate for the three months ended September 30, 2018 was 20.9% compared to 41.9% for the three months ended September 30, 2017. The effective tax rate for the nine months ended September 30, 2018 was 3.0% compared to 42.9% for the nine months ended September 30, 2017. On December 22, 2017, Congress enacted the Tax Cuts and Jobs Act of 2017. The Act contains several key tax provisions that affected us, including without limitation a reduction of the federal corporate income tax rate to 21% effective January 1, 2018, and the repeal of the domestic manufacturing deduction for 2018. In 2018, our effective income tax rate reflects the current federal statutory rate of 21%, while the rate for 2017 reflects the then-current federal statutory rate of 35%. The relative mix of pre-tax earnings (or losses), the underlying income tax rates applicable to various state and local taxing jurisdictions, and the impact of non-deductible items can also affect our periodic effective income tax rate.

Note 10 – Stock-based and Other Compensation   Stock Options   In December 2015, Lifeway shareholders approved the 2015 Omnibus Incentive Plan, which authorized the issuance of an aggregate of 3.5 million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units. At September 30, 2018, 3.469 million shares remain available under the Omnibus Incentive Plan. We have not established a pace for the frequency of awards under the Omnibus Incentive Plan, and may choose to suspend the issuance of new awards in the future and may grant additional awards at any time including issuing special grants of restricted stock, restricted stock units, and stock options to attract and retain new and existing executives.   The following table summarizes stock option activity during the nine months ended September 30, 2018:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Options</td> <td> </td> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Weighted average exercise price</td> <td> </td> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Weighted average remaining contractual life</td> <td> </td> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Aggregate intrinsic value</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 44%">Outstanding at December 31, 2017</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">45</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">10.45</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right"> </td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Granted</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Exercised</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Forfeited</td> <td> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(3)</td> <td> </td> <td> </td> <td style="border-bottom: black 1pt solid">$</td> <td style="border-bottom: black 1pt solid; text-align: right">11.10</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Outstanding at September 30, 2018</td> <td> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">42</td> <td> </td> <td> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">10.40</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">7.50</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">–</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Exercisable at September 30, 2018</td> <td> </td> <td> </td> <td style="text-align: right">36</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">10.42</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">7.50</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">–</td> <td> </td></tr> </table>    For the nine months ended September 30, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $9 and $35, respectively. For the nine months ended September 30, 2018 and 2017 tax-related benefits of $2 and $14 were also recognized. For the three months ended September 30, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $2 and $6, respectively. For the three months ended September 30, 2018 and 2017 tax-related benefits of $0 and $3 were also recognized. As of September 30, 2018, the total remaining unearned compensation related to non-vested stock options was $4, which is expected to be amortized over the weighted-average remaining service period of 0.73 years.   Restricted Stock Units   Lifeway granted 20 Restricted Stock Units (“RSUs”) to certain independent directors in June 2018 and 6 RSU’s to employees during the quarter ended September 30, 2018. An RSU represents the right to receive one share of common stock in the future. RSUs have no exercise price.   The following table summarizes RSU activity during the nine months ended September 30, 2018:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">RSU’s</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Outstanding at December 31, 2017</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="width: 84%">Granted</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 13%; text-align: right">26</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Shares issued upon vesting</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt">Forfeited</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">–</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt">Outstanding at September 30, 2018</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">26</td> <td style="padding-bottom: 2.5pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Weighted average grant date fair value per share outstanding</td> <td> </td> <td>$</td> <td style="text-align: right">5.63</td> <td> </td></tr> </table>   We expense RSU’s over the service period. For the nine months ended September 30, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $29 and $14, respectively. For the nine months ended September 30, 2018 and 2017 tax-related benefits of $8 and $6 were also recognized. For the three months ended September 30, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $25 and $5, respectively. For the three months ended September 30, 2018 and 2017 tax-related benefits of $7 and $2 were also recognized. As of September 30, 2018, the total remaining unearned compensation related to non-vested RSU’s was $116, which is expected to be amortized over the weighted-average remaining service period of 1.30 years.   Incentive Compensation   In January 2017, Lifeway established an incentive-based compensation program for fiscal year 2017 (the “2017 Plan”) for certain senior executives and key employees (the “participants”). We established a similar plan for participants for fiscal year 2018 (the “2018” Plan). Under both the 2017 Plan and the 2018 Plan, incentive compensation is based on (a) Lifeway’s achievement of certain sales and adjusted EBITDA performance levels versus respective targets established by the Board for each fiscal year, and (b) for certain senior executives other than our CEO and COO, the achievement of individual performance objectives.   Under the 2017 Plan, collectively the participants had the opportunity to earn cash and equity-based incentive compensation in amounts ranging from $0 to $11,025 depending on Lifeway’s performance levels compared to the respective targets and the senior executive’s performance compared to their individual objectives. The equity portion of the incentive compensation is payable in restricted stock that vests one-third in each of the three years from the 2017 grant dates. For the nine months ended September 30, 2018, $551 was expensed under the 2017 Plan as stock-based compensation expense in the consolidated statements of operations. For the nine months ended September 30, 2017, $2,106 was expensed under the 2017 Plan, of which $1,254 was recorded as cash bonus expense and $852 was recorded as stock-based compensation expense in the consolidated statements of operations. For the three months ended September 30, 2018, $139 was expensed under the 2017 Plan as stock-based compensation expense in the consolidated statements of operations. For the three months ended September 30, 2017, $121 was expensed under the 2017 Plan, of which $6 was recorded as cash bonus expense and $115 was recorded as stock-based compensation expense in the consolidated statements of operations. As of September 30, 2018, the total remaining unearned compensation related to the 2017 Plan was $494, of which $139 is expected to be recognized through the balance of fiscal year 2018 subject to vesting; and $303 and $52 is expected to be recognized in 2019 and 2020, respectively, subject to vesting.   Under the 2018 Plan, collectively the participants have the opportunity to earn cash and equity-based incentive compensation in amounts ranging from $0 to $11,200 depending on Lifeway’s performance levels compared to the respective targets and the senior executive’s performance compared to their individual objectives. The equity portion of the incentive compensation is payable in restricted stock that vests one-third in each of the three years from the 2018 grant dates. For the nine months ended September 30, 2018, $303 was expensed under the 2018 Plan, of which $76 was recorded as cash bonus expense and $227 was recorded as stock-based compensation expense in the consolidated statements of operations. For the three months ended September 30, 2018, $157 was expensed under the 2018 Plan as stock-based compensation expense in the consolidated statements of operations.   Retirement Benefits   Lifeway has a defined contribution plan which is available to substantially all full-time employees. Under the terms of the plan, we match employee contributions under a prescribed formula. For the nine months ended September 30, 2018 and 2017 total contribution expense recognized in the consolidated statements of operations was $319 and $296, respectively. For the three months ended September 30, 2018 and 2017 total contribution expense recognized in the consolidated statements of operations was $90 and $59, respectively.

Note 11 – Segments, Products and Customers   Lifeway’s primary product is drinkable kefir, a cultured dairy product. Lifeway Kefir is a tart and tangy cultured milk smoothie that is high in protein, calcium and vitamin D. Thanks to our exclusive blend of kefir cultures, each cup of kefir contains 12 live and active cultures and 15 to 20 billion beneficial CFU (Colony Forming Units) at the time of manufacture.   We manufacture (directly or through co-packers) our products under our own brand, as well as under private labels on behalf of certain customers. Lifeway offers over 50 varieties of our kefir products including more than 20 flavors. In addition to our core drinkable kefir products, we offer Kefir Cups, a strained, cupped version of our kefir; and Organic Farmer Cheese Cups, a cupped version of our soft cheeses, both served in resealable 5 oz. containers with mini-spoons. We also offer Lifeway Elixir, a line of non-dairy, sparkling organic probiotic beverages, as well as probiotic supplements for adults and children. In late 2017, we also announced that we would begin offering Skyr, a strained cupped Icelandic yogurt, and Plantiful, a plant-based probiotic beverage made from organic and non-GMO pea protein with 10 vegan kefir cultures.   Our product categories are:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="width: 24px"> </td> <td style="width: 24px">•</td> <td style="text-align: justify">Drinkable Kefir, sold in a variety of organic and non-organic sizes, flavors, and types, including low fat, non-fat, whole milk, protein, BioKefir (a 3.5 oz. kefir with additional probiotic cultures), and Kefir with Oats.</td></tr> <tr style="vertical-align: top"> <td> </td> <td> </td> <td style="text-align: justify"> </td></tr> <tr style="vertical-align: top"> <td> </td> <td>•</td> <td style="text-align: justify">Cheese, which includes European-style soft cheeses, and farmer cheese in resealable cups.</td></tr> <tr style="vertical-align: top"> <td> </td> <td> </td> <td style="text-align: justify"> </td></tr> <tr style="vertical-align: top"> <td> </td> <td>•</td> <td style="text-align: justify">Cream and other, consists primarily of cream, a byproduct of our fluid milk manufacturing process, and non-dairy products.</td></tr> <tr style="vertical-align: top"> <td> </td> <td> </td> <td style="text-align: justify"> </td></tr> <tr style="vertical-align: top"> <td> </td> <td>•</td> <td style="text-align: justify">ProBugs, a line of kefir products in drinkable, frozen, and freeze dried formats, designed for children.</td></tr> <tr style="vertical-align: top"> <td> </td> <td> </td> <td style="text-align: justify"> </td></tr> <tr style="vertical-align: top"> <td> </td> <td>•</td> <td style="text-align: justify">Cupped Kefir and Skyr, which include Cupped Kefir and Icelandic Skyr, a line of strained kefir and yogurt products in resealable cups.</td></tr> <tr style="vertical-align: top"> <td> </td> <td> </td> <td style="text-align: justify"> </td></tr> <tr style="vertical-align: top"> <td> </td> <td>•</td> <td style="text-align: justify">Frozen Kefir, available in both bars and pint-size containers.</td></tr> </table>   Lifeway has determined that it has one reportable segment based on how our chief operating decision maker manages the business and in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing our performance, has been identified collectively as the Chief Financial Officer, the Chief Operating Officer, the Chief Executive Officer, and Chairperson of the board of directors. Substantially all of our consolidated revenues relate to the sale of cultured dairy products that we produce using the same processes and materials and are sold to consumers through a common network of distributors and retailers in the United States.   Net sales of products by category were as follows for the nine months ended September 30:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="text-align: justify"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="14" style="border-bottom: black 1pt solid; text-align: center">Nine months ended September 30,</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">%</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2017</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">%</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 44%; text-align: justify">Drinkable Kefir other than ProBugs</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">61,255</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">76%</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">71,559</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">77%</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="text-align: justify">Cheese</td> <td> </td> <td> </td> <td style="text-align: right">8,443</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">11%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">8,527</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">9%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="text-align: justify">Cream and other</td> <td> </td> <td> </td> <td style="text-align: right">4,104</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">5%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">5,053</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">5%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="text-align: justify">Cupped Kefir and Skyr</td> <td> </td> <td> </td> <td style="text-align: right">3,154</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">4%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2,379</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="text-align: justify">ProBugs Kefir</td> <td> </td> <td> </td> <td style="text-align: right">2,166</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3,700</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">4%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt; text-align: justify">Frozen Kefir (a)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,196</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1%</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,418</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">2%</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt; text-align: justify">Net Sales</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">80,318</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">100%</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">92,636</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">100%</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td>(a)</td> <td style="text-align: justify">Includes Lifeway Kefir Shop sales</td></tr> </table>    Net sales of products by category were as follows for the three months ended September 30:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="text-align: justify"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="14" style="border-bottom: black 1pt solid; text-align: center">Three months ended September 30,</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">%</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2017</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">%</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 44%; text-align: justify">Drinkable Kefir other than ProBugs</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">18,877</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">77%</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">22,154</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">77%</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="text-align: justify">Cheese</td> <td> </td> <td> </td> <td style="text-align: right">2,656</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">11%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2,829</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">10%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="text-align: justify">Cream and other</td> <td> </td> <td> </td> <td style="text-align: right">1,406</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">1,615</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="text-align: justify">Cupped Kefir and Skyr</td> <td> </td> <td> </td> <td style="text-align: right">699</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">889</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="text-align: justify">ProBugs Kefir</td> <td> </td> <td> </td> <td style="text-align: right">471</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">843</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt; text-align: justify">Frozen Kefir (a)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">371</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1%</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">456</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1%</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt; text-align: justify">Net Sales</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">24,480</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">100%</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">28,786</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">100%</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td>(a)</td> <td style="text-align: justify">Includes Lifeway Kefir Shop sales</td></tr> </table>   Significant Customers – Sales are predominately to companies in the retail food industry, located within the United States. Two major customers accounted for approximately 22% of net sales for the nine months ended September 30, 2018 and 2017, and 20% and 21% of net sales for the three months ended September 30, 2018 and 2017, respectively.

Note 12 – Related party transactions   Lifeway obtains consulting services from the Chairperson of its board of directors. Fees earned by the Chairperson are included in general and administrative expenses in the accompanying consolidated statements of operations and were $750 during each of the nine months ended September 30, 2018 and 2017. Fees earned by the Chairperson are included in general and administrative expenses in the accompanying consolidated statements of operations and were $250 during each of the three months ended September 30, 2018 and 2017.   Lifeway is also a party to a royalty agreement with the Chairperson of its board of directors under which we pay the Chairperson a royalty based on the sale of certain Lifeway products, not to exceed $50 in any fiscal month. Royalties earned by the Chairperson are included in selling expenses in the accompanying consolidated statements of operations and were $445 and $450 during the nine months ended September 30, 2018 and 2017, respectively, and $145 and $150 during the three months ended September 30, 2018 and 2017, respectively

Use of estimates   The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated 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 reserve for promotional allowances, the valuation of goodwill and intangible assets, stock-based and incentive compensation, and deferred income taxes.

Revenue Recognition   We sell food and beverage products across select product categories to customers predominantly within the United States (see Note 11, Segments, Products and Customers). We also sell bulk cream, a byproduct of our fluid milk manufacturing process. We recognize revenue when control over the products transfers to our customers, which generally occurs upon delivery to our customers or their common carriers. We account for product shipping and handling as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of goods sold. Any taxes collected on behalf of government authorities are excluded from net revenues.   Revenues are recorded net of discounts and allowances to our customers and consumers. Known or expected pricing or revenue adjustments, such as trade discounts, allowances for non-saleable products, product returns, and coupon redemption, are estimated at the time of sale. We base these estimates of expected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and coupon redemptions, are monitored and adjusted each period until the incentives realized or the coupons expire.   Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in accordance with U.S. GAAP and our inventory policies. We do not have any significant deferred revenue or unbilled receivables at the end of a period. We generally do not receive noncash consideration for the sale of goods nor do we grant payment financing terms greater than one year.

Deferred Financing Costs   We record deferred financing costs incurred in conjunction with its debt obligations. These costs are capitalized and amortized over the lives of the associated debt to interest expense using the effective interest method. Debt issuance costs associated with term debt and lines of credit are recorded as a direct deduction from the face amount of the debt. Total deferred financing costs, net of $9 and $0 of accumulated amortization, at September 30, 2018 and December 31, 2017 were $60 and $0, respectively.

Investments   All investment securities are classified as available-for-sale and are carried at fair value. The Company holds a Level 1 fair value investment in a short-term fixed income fund at September 30, 2018.

Advertising and promotional costs   Lifeway expenses advertising costs as incurred. For the nine months ended September 30, 2018 and 2017 total advertising expenses were $3,557 and $4,703 respectively. For the three months ended September 30, 2018 and 2017 total advertising expenses were $972 and $1,892 respectively.

Recently Adopted Accounting Pronouncements   In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The new guidance is intended to simplify aspects of accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, but no earlier than an entity’s adoptions of Topic 606. We adopted this new standard in June 2018. The adoption of this amendment had no impact on the consolidated financial statements.   In May 2017, the Financial Accounting Standards Board ("FASB”) issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance provides clarity and reduces both diversity in practice and cost of complexity when accounting for a change to the terms of or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.   In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows, such as debt prepayment or debt extinguishment costs, contingent consideration payments made after an acquisition, proceeds from the settlement of insurance claims, and other topics. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.   In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless certain conditions exist. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements.   In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASU 2014-09 establishes a five-step revenue recognition process in which an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. On August 12, 2015 the FASB approved a one year delay of the effective date to reporting periods beginning after December 15, 2017, while permitting companies to voluntarily adopt the new standard as of the original effective date. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which clarifies narrow aspects of ASC 606 or corrects unintended application of the guidance. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for ASU 2014-09. Under the delayed effective date, this guidance was effective January 1, 2018. We adopted the new standard on January 1, 2018 on a modified retrospective basis. The adoption of this amendment had no impact on the consolidated financial statements. Refer to the Revenue Recognition section above and Note 11, Segment, Products, and Customers for additional information.

Recently Issued Accounting Pronouncements   In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance will be effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The amendment should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this amendment is not expected to have a material impact on the consolidated financial statements.     In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance requires lessees to recognize lease assets and lease liabilities in the balance sheet and disclose key information about leasing arrangements, such as information about variable lease payments and options to renew and terminate leases. The amended guidance will require both operating and finance leases to be recognized in the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The amendments in this ASU should be adopted using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. Management is currently evaluating the impact that the new guidance will have on the consolidated financial statements.

Inventories consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Ingredients</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">1,970</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">1,717</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Packaging</td> <td> </td> <td> </td> <td style="text-align: right">2,064</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2,453</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 1pt">Finished goods</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">2,803</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">3,527</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 2.5pt">Total inventories</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">6,837</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">7,697</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Property, plant and equipment consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Land</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">1,747</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">1,747</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Buildings and improvements</td> <td> </td> <td> </td> <td style="text-align: right">17,446</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">17,260</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Machinery and equipment</td> <td> </td> <td> </td> <td style="text-align: right">30,598</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">27,539</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Vehicles</td> <td> </td> <td> </td> <td style="text-align: right">901</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">901</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Office equipment</td> <td> </td> <td> </td> <td style="text-align: right">879</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">734</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt">Construction in process</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">693</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,683</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td> </td> <td> </td> <td> </td> <td style="text-align: right">52,264</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">49,864</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt">Less accumulated depreciation</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(27,229</td> <td style="padding-bottom: 1pt">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(25,219</td> <td style="padding-bottom: 1pt">)</td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt">Total property, plant and equipment, net</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">25,035</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">24,645</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Goodwill & indefinite-lived intangible assets consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Goodwill</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">10,368</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">10,368</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt">Brand names</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">3,700</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">3,700</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt">Goodwill and indefinite-lived intangible assets</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">14,068</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">14,068</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Other intangible assets, net consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Recipes</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">44</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">44</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Customer lists and other customer related intangibles</td> <td> </td> <td> </td> <td style="text-align: right">4,529</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">4,529</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Customer relationship</td> <td> </td> <td> </td> <td style="text-align: right">985</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">985</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Trade names</td> <td> </td> <td> </td> <td style="text-align: right">2,248</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2,248</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 1pt">Formula</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">438</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">438</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td> </td> <td> </td> <td style="text-align: right">8,244</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">8,244</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 1pt">Accumulated amortization</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(7,759</td> <td style="padding-bottom: 1pt">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(7,269</td> <td style="padding-bottom: 1pt">)</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 2.5pt">Other intangible assets, net</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">485</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">975</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Accrued expenses consisted of the following:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%">Payroll and incentive compensation</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">2,271</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">2,208</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Real estate taxes</td> <td> </td> <td> </td> <td style="text-align: right">401</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">371</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 1pt">Other</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">446</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">405</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">3,118</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">2,984</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

Notes Payable   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> September 30, 2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid"> December 31, 2017</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 68%; padding-left: 10pt; text-indent: -10pt">Variable rate term loan due May 31, 2018. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">–</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 13%; text-align: right">2,832</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt; padding-left: 10pt; text-indent: -10pt">Variable rate term loan due May 31, 2019. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">–</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">3,447</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-left: 10pt; text-indent: -10pt">Total term loans</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6,279</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt; padding-left: 10pt; text-indent: -10pt">Less current portion</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">–</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(3,166</td> <td style="padding-bottom: 1pt">)</td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt; padding-left: 10pt; text-indent: -10pt">Total long-term portion</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">–</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">3,113</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>

The following table summarizes stock option activity during the nine months ended September 30, 2018:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Options</td> <td> </td> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Weighted average exercise price</td> <td> </td> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Weighted average remaining contractual life</td> <td> </td> <td> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">Aggregate intrinsic value</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 44%">Outstanding at December 31, 2017</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">45</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">10.45</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right"> </td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Granted</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Exercised</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">–</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Forfeited</td> <td> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">(3)</td> <td> </td> <td> </td> <td style="border-bottom: black 1pt solid">$</td> <td style="border-bottom: black 1pt solid; text-align: right">11.10</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Outstanding at September 30, 2018</td> <td> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">42</td> <td> </td> <td> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">10.40</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">7.50</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">–</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Exercisable at September 30, 2018</td> <td> </td> <td> </td> <td style="text-align: right">36</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">10.42</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">7.50</td> <td> </td> <td> </td> <td>$</td> <td style="text-align: right">–</td> <td> </td></tr> </table>

The following table summarizes RSU activity during the nine months ended September 30, 2018:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">RSU’s</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Outstanding at December 31, 2017</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="width: 84%">Granted</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 13%; text-align: right">26</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td>Shares issued upon vesting</td> <td> </td> <td> </td> <td style="text-align: right">–</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt">Forfeited</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">–</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt">Outstanding at September 30, 2018</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">26</td> <td style="padding-bottom: 2.5pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td>Weighted average grant date fair value per share outstanding</td> <td> </td> <td>$</td> <td style="text-align: right">5.63</td> <td> </td></tr> </table>

Net sales of products by category were as follows for the nine months ended September 30:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="text-align: justify"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="14" style="border-bottom: black 1pt solid; text-align: center">Nine months ended September 30,</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">%</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2017</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">%</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 44%; text-align: justify">Drinkable Kefir other than ProBugs</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">61,255</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">76%</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">71,559</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">77%</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="text-align: justify">Cheese</td> <td> </td> <td> </td> <td style="text-align: right">8,443</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">11%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">8,527</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">9%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="text-align: justify">Cream and other</td> <td> </td> <td> </td> <td style="text-align: right">4,104</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">5%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">5,053</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">5%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="text-align: justify">Cupped Kefir and Skyr</td> <td> </td> <td> </td> <td style="text-align: right">3,154</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">4%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2,379</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="text-align: justify">ProBugs Kefir</td> <td> </td> <td> </td> <td style="text-align: right">2,166</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3,700</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">4%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt; text-align: justify">Frozen Kefir (a)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,196</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1%</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1,418</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">2%</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt; text-align: justify">Net Sales</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">80,318</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">100%</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">92,636</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">100%</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td>(a)</td> <td style="text-align: justify">Includes Lifeway Kefir Shop sales</td></tr> </table>    Net sales of products by category were as follows for the three months ended September 30:   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="text-align: justify"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="14" style="border-bottom: black 1pt solid; text-align: center">Three months ended September 30,</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2018</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">%</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">2017</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center">%</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="width: 44%; text-align: justify">Drinkable Kefir other than ProBugs</td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">18,877</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">77%</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%">$</td> <td style="width: 11%; text-align: right">22,154</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 11%; text-align: right">77%</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="text-align: justify">Cheese</td> <td> </td> <td> </td> <td style="text-align: right">2,656</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">11%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2,829</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">10%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="text-align: justify">Cream and other</td> <td> </td> <td> </td> <td style="text-align: right">1,406</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">1,615</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">6%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="text-align: justify">Cupped Kefir and Skyr</td> <td> </td> <td> </td> <td style="text-align: right">699</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">889</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="text-align: justify">ProBugs Kefir</td> <td> </td> <td> </td> <td style="text-align: right">471</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">2%</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">843</td> <td> </td> <td> </td> <td> </td> <td style="text-align: right">3%</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="padding-bottom: 1pt; text-align: justify">Frozen Kefir (a)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">371</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1%</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">456</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: black 1pt solid"> </td> <td style="border-bottom: black 1pt solid; text-align: right">1%</td> <td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #EEEEEE"> <td style="padding-bottom: 2.5pt; text-align: justify">Net Sales</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">24,480</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">100%</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">28,786</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; text-align: right">100%</td> <td style="padding-bottom: 2.5pt"> </td></tr> </table>   <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: top"> <td>(a)</td> <td style="text-align: justify">Includes Lifeway Kefir Shop sales</td></tr> </table>

0.00

10000000

5000000

60000

3950000

4.52$ - 4.86%

2021-05-07

9000

29000

35000

2000

6000

14000

25000

5000

551000

2106000

1254000

852000

139000

121000

6000

115000

303000

76000

227000

157000

4000

116000

494000

139000 303000 52000 Includes Lifeway Kefir Shop sales

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Document And Entity Information - shares	9 Months Ended
Document And Entity Information - shares	Sep. 30, 2018	Nov. 05, 2018
Document And Entity Information
Entity Registrant Name	Lifeway Foods, Inc.
Entity Central Index Key	0000814586
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		15,837,695
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018

XML 15 R2.htm IDEA: XBRL DOCUMENT

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets
Cash and cash equivalents	$ 2,726	$ 4,978
Investments, at fair value	500	0
Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $1,550 and $2,010 at September 30, 2018 and December 31, 2017 respectively	8,073	8,676
Inventories, net	6,837	7,697
Prepaid expenses and other current assets	1,298	983
Refundable income taxes	2,959	2,347
Total current assets	22,393	24,681
Property, plant and equipment, net	25,035	24,645
Intangible assets
Goodwill & indefinite-lived intangibles	14,068	14,068
Other intangible assets, net	485	975
Total intangible assets	14,553	15,043
Other Assets	150	150
Total assets	62,131	64,519
Current liabilities
Current maturities of notes payable	0	3,166
Accounts payable	6,263	6,848
Accrued expenses	3,118	2,984
Accrued income taxes	82	203
Total current liabilities	9,463	13,201
Line of credit	5,990	0
Notes payable	0	3,113
Deferred income taxes, net	840	840
Other long-term liabilities	661	775
Total liabilities	16,954	17,929
Stockholders' equity
Preferred stock, no par value; 2,500 shares authorized; no shares issued or outstanding at September 30, 2018 and December 31, 2017, respectively	0	0
Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,838 and 16,008 outstanding at September 30, 2018 and December 31, 2017, respectively	6,509	6,509
Paid-in-capital	2,211	2,244
Treasury stock, at cost	(12,918)	(11,812)
Retained earnings	49,375	49,649
Total stockholders' equity	45,177	46,590
Total liabilities and stockholders' equity	$ 62,131	$ 64,519

XML 16 R3.htm IDEA: XBRL DOCUMENT

Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets
Allowance for doubtful accounts and discounts	$ 1,550	$ 2,010
Stockholders' equity
Preferred stock, no par value	$ 0	$ 0
Preferred stock, shares authorized	2,500	2,500
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, no par value	$ 0	$ 0
Common stock, shares authorized	40,000	40,000
Common stock, shares issued	17,274	17,274
Common stock, shares outstanding	15,838	16,008

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Consolidated Statements of Income and Comprehensive Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Statement [Abstract]
Net sales	$ 24,480	$ 28,786	$ 80,318	$ 92,636
Cost of goods sold	17,892	20,331	57,412	65,262
Depreciation expense	738	618	2,143	1,801
Total cost of goods sold	18,630	20,949	59,555	67,063
Gross profit	5,850	7,837	20,763	25,573
Selling expenses	3,136	4,010	10,537	11,648
General and administrative	3,150	3,145	9,851	10,743
Amortization expense	163	168	490	504
Total operating expenses	6,449	7,323	20,878	22,895
(Loss) income from operations	(599)	514	(115)	2,678
Other income (expense):
Interest expense	(82)	(62)	(220)	(180)
Gain (loss) on sale of property and equipment	28	(34)	42	(39)
Other income, net	3	0	11	0
Total other income (expense)	(51)	(96)	(167)	(219)
(Loss) income before provision for income taxes	(650)	418	(282)	2,459
(Benefit) provision for income taxes	(136)	175	(8)	1,056
Net (loss) income	$ (514)	$ 243	$ (274)	$ 1,403
(Loss) earnings per common share - Basic	$ (0.03)	$ 0.02	$ (0.02)	$ 0.09
(Loss) earnings per common share - Diluted	$ (0.03)	$ 0.02	$ (0.02)	$ 0.09
Weighted average number of shares - Basic	15,872	16,093	15,886	16,123
Weighted average number of shares - Diluted	16,256	16,168	16,354	16,218

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Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Common Stock	In Treasury	Paid-In Capital	Retained Earnings	Total
Beginning Balance, Shares at Dec. 31, 2016	17,274
Beginning Balance, Treasury stock shares at Dec. 31, 2016		(1,120)
Beginning Balance, Amount at Dec. 31, 2016	$ 6,509	$ (10,340)	$ 2,198	$ 49,995	$ 48,362
Treasury stock purchased, Shares		(117)
Treasury stock purchased, Amount		$ (1,187)			(1,187)
Stock-based compensation			49		49
Net income				1,403	1,403
Ending Balance, Shares at Sep. 30, 2017	17,274
Ending Balance, Treasury stock shares at Sep. 30, 2017		(1,237)
Ending Balance, Amount at Sep. 30, 2017	$ 6,509	$ (11,527)	2,247	51,398	48,627
Beginning Balance, Shares at Dec. 31, 2017	17,274
Beginning Balance, Treasury stock shares at Dec. 31, 2017		(1,266)
Beginning Balance, Amount at Dec. 31, 2017	$ 6,509	$ (11,812)	2,244	49,649	46,590
Issuance of common stock in connection with stock-based compensation, Shares		22
Issuance of common stock in connection with stock-based compensation, Amount		$ 203	(71)		132
Treasury stock purchased, Shares		(192)
Treasury stock purchased, Amount		$ (1,309)			(1,309)
Stock-based compensation			38		38
Net income				(274)	(274)
Ending Balance, Shares at Sep. 30, 2018	17,274
Ending Balance, Treasury stock shares at Sep. 30, 2018		(1,436)
Ending Balance, Amount at Sep. 30, 2018	$ 6,509	$ (12,918)	$ 2,211	$ 49,375	$ 45,177

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

XML 19 R6.htm IDEA: XBRL DOCUMENT

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net (loss) income	$ (274)	$ 1,403
Adjustments to reconcile net income to operating cash flow:
Depreciation and amortization	2,633	2,305
Non-cash interest expense	9	0
Bad debt expense	50	0
Reserve for inventory obsolescence	580	320
Stock-based compensation	827	901
Deferred revenue	(72)	0
(Gain) loss on sale of property and equipment	(42)	39
(Increase) decrease in operating assets:
Accounts receivable	553	(814)
Inventories	280	(328)
Refundable income taxes	(612)	(462)
Prepaid expenses and other current assets	(291)	(231)
Increase (decrease) in operating liabilities:
Accounts payable	(586)	1,384
Accrued expenses	(588)	252
Accrued income taxes	(121)	(580)
Net cash provided by operating activities	2,346	4,189
Cash flows from investing activities:
Purchases of investments	(500)	(25)
Purchases of property and equipment	(2,581)	(3,932)
Proceeds from sale of property and equipment	90	37
Net cash used in investing activities	(2,991)	(3,920)
Cash flows from financing activities:
Borrowings under revolving credit facility	6,050	0
Payment of deferred financing costs	(69)	0
Purchase of treasury stock	(1,309)	(1,187)
Repayment of notes payable	(6,279)	(630)
Net cash used in financing activities	(1,607)	(1,817)
Net decrease in cash and cash equivalents	(2,252)	(1,548)
Cash and cash equivalents at the beginning of the period	4,978	8,812
Cash and cash equivalents at the end of the period	2,726	7,264
Supplemental cash flow information:
Cash paid for income taxes, net of refunds	724	2,098
Cash paid for interest	$ 189	$ 180

XML 20 R7.htm IDEA: XBRL DOCUMENT

1. Basis of presentation

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of presentation

Note 1 – Basis of Presentation

Basis of presentation

Principles of consolidation

XML 21 R8.htm IDEA: XBRL DOCUMENT

2. Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Significant Accounting Policies

Note 2 – Significant Accounting Policies

Use of estimates

Revenue Recognition

Deferred Financing Costs

Investments

Advertising and promotional costs

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements

XML 22 R9.htm IDEA: XBRL DOCUMENT

3. Inventories, net

9 Months Ended

Sep. 30, 2018

Inventory Disclosure [Abstract]

Inventories

Note 3 – Inventories, net

Inventories consisted of the following:

	September 30, 2018		December 31, 2017
Ingredients	$	1,970	$	1,717
Packaging		2,064		2,453
Finished goods		2,803		3,527
Total inventories	$	6,837	$	7,697

XML 23 R10.htm IDEA: XBRL DOCUMENT

4. Property, Plant and Equipment, net

9 Months Ended

Sep. 30, 2018

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment, net

Note 4 – Property, Plant and Equipment, net

Property, plant and equipment consisted of the following:

	September 30, 2018			December 31, 2017
Land	$	1,747		$	1,747
Buildings and improvements		17,446			17,260
Machinery and equipment		30,598			27,539
Vehicles		901			901
Office equipment		879			734
Construction in process		693			1,683
		52,264			49,864
Less accumulated depreciation		(27,229	)		(25,219	)
Total property, plant and equipment, net	$	25,035		$	24,645

XML 24 R11.htm IDEA: XBRL DOCUMENT

5. Intangible Assets

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Note 5 – Intangible Assets

Goodwill & indefinite-lived intangible assets consisted of the following:

	September 30, 2018		December 31, 2017
Goodwill	$	10,368	$	10,368
Brand names		3,700		3,700
Goodwill and indefinite-lived intangible assets	$	14,068	$	14,068

Other intangible assets, net consisted of the following:

	September 30, 2018			December 31, 2017
Recipes	$	44		$	44
Customer lists and other customer related intangibles		4,529			4,529
Customer relationship		985			985
Trade names		2,248			2,248
Formula		438			438
		8,244			8,244
Accumulated amortization		(7,759	)		(7,269	)
Other intangible assets, net	$	485		$	975

XML 25 R12.htm IDEA: XBRL DOCUMENT

6. Accrued Expenses

9 Months Ended

Sep. 30, 2018

Payables and Accruals [Abstract]

Accrued Expenses

Note 6 – Accrued Expenses

Accrued expenses consisted of the following:

	September 30, 2018		December 31, 2017
Payroll and incentive compensation	$	2,271	$	2,208
Real estate taxes		401		371
Other		446		405
	$	3,118	$	2,984

XML 26 R13.htm IDEA: XBRL DOCUMENT

7. Debt

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Debt

Note 7 – Debt

Notes Payable

	September 30, 2018		December 31, 2017

Variable rate term loan due May 31, 2018. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.	$	–	$	2,832
Variable rate term loan due May 31, 2019. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.		–		3,447
Total term loans		–		6,279
Less current portion		–		(3,166	)
Total long-term portion	$	–	$	3,113

Line of Credit

XML 27 R14.htm IDEA: XBRL DOCUMENT

8. Commitments And Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

Note 8 – Commitments and contingencies

Lease obligations

Litigation

XML 28 R15.htm IDEA: XBRL DOCUMENT

9. Income taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income taxes

Note 9 – Income taxes

XML 29 R16.htm IDEA: XBRL DOCUMENT

10. Stock-based and Other Compensation

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based and Other Compensation

Note 10 – Stock-based and Other Compensation

Stock Options

The following table summarizes stock option activity during the nine months ended September 30, 2018:

	Options		Weighted average exercise price		Weighted average remaining contractual life		Aggregate intrinsic value

Outstanding at December 31, 2017		45	$	10.45
Granted		–	$	–
Exercised		–	$	–
Forfeited		(3)	$	11.10
Outstanding at September 30, 2018		42	$	10.40		7.50	$	–
Exercisable at September 30, 2018		36	$	10.42		7.50	$	–

Restricted Stock Units

The following table summarizes RSU activity during the nine months ended September 30, 2018:

	RSU’s

Outstanding at December 31, 2017		–
Granted		26
Shares issued upon vesting		–
Forfeited		–
Outstanding at September 30, 2018		26
Weighted average grant date fair value per share outstanding	$	5.63

Incentive Compensation

Retirement Benefits

XML 30 R17.htm IDEA: XBRL DOCUMENT

11. Segments, Products and Customers

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Segments, Products and Customers

Note 11 – Segments, Products and Customers

Our product categories are:

	•	Drinkable Kefir, sold in a variety of organic and non-organic sizes, flavors, and types, including low fat, non-fat, whole milk, protein, BioKefir (a 3.5 oz. kefir with additional probiotic cultures), and Kefir with Oats.

	•	Cheese, which includes European-style soft cheeses, and farmer cheese in resealable cups.

	•	Cream and other, consists primarily of cream, a byproduct of our fluid milk manufacturing process, and non-dairy products.

	•	ProBugs, a line of kefir products in drinkable, frozen, and freeze dried formats, designed for children.

	•	Cupped Kefir and Skyr, which include Cupped Kefir and Icelandic Skyr, a line of strained kefir and yogurt products in resealable cups.

	•	Frozen Kefir, available in both bars and pint-size containers.

Net sales of products by category were as follows for the nine months ended September 30:

	Nine months ended September 30,
	2018		%		2017		%
Drinkable Kefir other than ProBugs	$	61,255		76%	$	71,559		77%
Cheese		8,443		11%		8,527		9%
Cream and other		4,104		5%		5,053		5%
Cupped Kefir and Skyr		3,154		4%		2,379		3%
ProBugs Kefir		2,166		3%		3,700		4%
Frozen Kefir (a)		1,196		1%		1,418		2%
Net Sales	$	80,318		100%	$	92,636		100%

(a)	Includes Lifeway Kefir Shop sales

Net sales of products by category were as follows for the three months ended September 30:

	Three months ended September 30,
	2018		%		2017		%
Drinkable Kefir other than ProBugs	$	18,877		77%	$	22,154		77%
Cheese		2,656		11%		2,829		10%
Cream and other		1,406		6%		1,615		6%
Cupped Kefir and Skyr		699		3%		889		3%
ProBugs Kefir		471		2%		843		3%
Frozen Kefir (a)		371		1%		456		1%
Net Sales	$	24,480		100%	$	28,786		100%

(a)	Includes Lifeway Kefir Shop sales

XML 31 R18.htm IDEA: XBRL DOCUMENT

12. Related party transactions

9 Months Ended

Sep. 30, 2018

Related party transactions

Note 12 – Related party transactions

XML 32 R19.htm IDEA: XBRL DOCUMENT

2. Summary Of Significant Accounting Policies (Policies)	9 Months Ended
	Sep. 30, 2018
Accounting Policies [Abstract]
Use Of Estimates	Use of estimates The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated 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 reserve for promotional allowances, the valuation of goodwill and intangible assets, stock-based and incentive compensation, and deferred income taxes.
Revenue Recognition	Revenue Recognition We sell food and beverage products across select product categories to customers predominantly within the United States (see Note 11, Segments, Products and Customers). We also sell bulk cream, a byproduct of our fluid milk manufacturing process. We recognize revenue when control over the products transfers to our customers, which generally occurs upon delivery to our customers or their common carriers. We account for product shipping and handling as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of goods sold. Any taxes collected on behalf of government authorities are excluded from net revenues. Revenues are recorded net of discounts and allowances to our customers and consumers. Known or expected pricing or revenue adjustments, such as trade discounts, allowances for non-saleable products, product returns, and coupon redemption, are estimated at the time of sale. We base these estimates of expected amounts principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and coupon redemptions, are monitored and adjusted each period until the incentives realized or the coupons expire. Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in accordance with U.S. GAAP and our inventory policies. We do not have any significant deferred revenue or unbilled receivables at the end of a period. We generally do not receive noncash consideration for the sale of goods nor do we grant payment financing terms greater than one year.
Deferred Financing Costs	Deferred Financing Costs We record deferred financing costs incurred in conjunction with its debt obligations. These costs are capitalized and amortized over the lives of the associated debt to interest expense using the effective interest method. Debt issuance costs associated with term debt and lines of credit are recorded as a direct deduction from the face amount of the debt. Total deferred financing costs, net of $9 and $0 of accumulated amortization, at September 30, 2018 and December 31, 2017 were $60 and $0, respectively.
Investments	Investments All investment securities are classified as available-for-sale and are carried at fair value. The Company holds a Level 1 fair value investment in a short-term fixed income fund at September 30, 2018.
Advertising and promotional costs	Advertising and promotional costs Lifeway expenses advertising costs as incurred. For the nine months ended September 30, 2018 and 2017 total advertising expenses were $3,557 and $4,703 respectively. For the three months ended September 30, 2018 and 2017 total advertising expenses were $972 and $1,892 respectively.
Recently Adopted Accounting Pronouncements	Recently Adopted Accounting Pronouncements In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The new guidance is intended to simplify aspects of accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, but no earlier than an entity’s adoptions of Topic 606. We adopted this new standard in June 2018. The adoption of this amendment had no impact on the consolidated financial statements. In May 2017, the Financial Accounting Standards Board ("FASB”) issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance provides clarity and reduces both diversity in practice and cost of complexity when accounting for a change to the terms of or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows, such as debt prepayment or debt extinguishment costs, contingent consideration payments made after an acquisition, proceeds from the settlement of insurance claims, and other topics. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless certain conditions exist. This guidance was effective January 1, 2018. The adoption of this amendment had no impact on the consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASU 2014-09 establishes a five-step revenue recognition process in which an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. On August 12, 2015 the FASB approved a one year delay of the effective date to reporting periods beginning after December 15, 2017, while permitting companies to voluntarily adopt the new standard as of the original effective date. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which clarifies narrow aspects of ASC 606 or corrects unintended application of the guidance. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for ASU 2014-09. Under the delayed effective date, this guidance was effective January 1, 2018. We adopted the new standard on January 1, 2018 on a modified retrospective basis. The adoption of this amendment had no impact on the consolidated financial statements. Refer to the Revenue Recognition section above and Note 11, Segment, Products, and Customers for additional information.
Recently Issued Accounting Pronouncements	Recently Issued Accounting Pronouncements In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance will be effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The amendment should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this amendment is not expected to have a material impact on the consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance requires lessees to recognize lease assets and lease liabilities in the balance sheet and disclose key information about leasing arrangements, such as information about variable lease payments and options to renew and terminate leases. The amended guidance will require both operating and finance leases to be recognized in the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The amendments in this ASU should be adopted using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. Management is currently evaluating the impact that the new guidance will have on the consolidated financial statements.

- Definition

Disclosure of accounting policy for investments in financial assets, including marketable securities (debt and equity securities with readily determinable fair values), investments accounted for under the equity method and cost method, securities borrowed and loaned, and repurchase and resale agreements. For marketable securities, the disclosure may include the entity's accounting treatment for transfers between investment categories and how the fair values for such securities are determined. Also, for all investments, an entity may describe its policy for assessing, recognizing and measuring impairment of the investment.

+ References + Details

XML 33 R20.htm IDEA: XBRL DOCUMENT

3. Inventories (Tables)

9 Months Ended

Sep. 30, 2018

Inventory Disclosure [Abstract]

Schedule Of Inventories

Inventories consisted of the following:

	September 30, 2018		December 31, 2017
Ingredients	$	1,970	$	1,717
Packaging		2,064		2,453
Finished goods		2,803		3,527
Total inventories	$	6,837	$	7,697

XML 34 R21.htm IDEA: XBRL DOCUMENT

4. Property, Plant and Equipment, net (Tables)

9 Months Ended

Sep. 30, 2018

Property, Plant and Equipment [Abstract]

Schedule of property, plant and equipment

Property, plant and equipment consisted of the following:

	September 30, 2018			December 31, 2017
Land	$	1,747		$	1,747
Buildings and improvements		17,446			17,260
Machinery and equipment		30,598			27,539
Vehicles		901			901
Office equipment		879			734
Construction in process		693			1,683
		52,264			49,864
Less accumulated depreciation		(27,229	)		(25,219	)
Total property, plant and equipment, net	$	25,035		$	24,645

XML 35 R22.htm IDEA: XBRL DOCUMENT

5. Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill & indefinite-lived intangible assets

Goodwill & indefinite-lived intangible assets consisted of the following:

	September 30, 2018		December 31, 2017
Goodwill	$	10,368	$	10,368
Brand names		3,700		3,700
Goodwill and indefinite-lived intangible assets	$	14,068	$	14,068

Schedule of other intangible assets

Other intangible assets, net consisted of the following:

	September 30, 2018			December 31, 2017
Recipes	$	44		$	44
Customer lists and other customer related intangibles		4,529			4,529
Customer relationship		985			985
Trade names		2,248			2,248
Formula		438			438
		8,244			8,244
Accumulated amortization		(7,759	)		(7,269	)
Other intangible assets, net	$	485		$	975

XML 36 R23.htm IDEA: XBRL DOCUMENT

6. Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2018

Payables and Accruals [Abstract]

Schedule Of Accrued Expenses

Accrued expenses consisted of the following:

	September 30, 2018		December 31, 2017
Payroll and incentive compensation	$	2,271	$	2,208
Real estate taxes		401		371
Other		446		405
	$	3,118	$	2,984

XML 37 R24.htm IDEA: XBRL DOCUMENT

7. Debt (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule Of Notes Payable

Notes Payable

	September 30, 2018		December 31, 2017

Variable rate term loan due May 31, 2018. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.	$	–	$	2,832
Variable rate term loan due May 31, 2019. Principal and interest payable monthly with a balloon payment due at maturity. Paid in full.		–		3,447
Total term loans		–		6,279
Less current portion		–		(3,166	)
Total long-term portion	$	–	$	3,113

XML 38 R25.htm IDEA: XBRL DOCUMENT

10. Stock-based and Other Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock option activity

The following table summarizes stock option activity during the nine months ended September 30, 2018:

	Options		Weighted average exercise price		Weighted average remaining contractual life		Aggregate intrinsic value

Outstanding at December 31, 2017		45	$	10.45
Granted		–	$	–
Exercised		–	$	–
Forfeited		(3)	$	11.10
Outstanding at September 30, 2018		42	$	10.40		7.50	$	–
Exercisable at September 30, 2018		36	$	10.42		7.50	$	–

RSU activity

The following table summarizes RSU activity during the nine months ended September 30, 2018:

	RSU’s

Outstanding at December 31, 2017		–
Granted		26
Shares issued upon vesting		–
Forfeited		–
Outstanding at September 30, 2018		26
Weighted average grant date fair value per share outstanding	$	5.63

XML 39 R26.htm IDEA: XBRL DOCUMENT

11. Segments, Products and Customers (Tables)

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Schedule of sales of products by category

Net sales of products by category were as follows for the nine months ended September 30:

	Nine months ended September 30,
	2018		%		2017		%
Drinkable Kefir other than ProBugs	$	61,255		76%	$	71,559		77%
Cheese		8,443		11%		8,527		9%
Cream and other		4,104		5%		5,053		5%
Cupped Kefir and Skyr		3,154		4%		2,379		3%
ProBugs Kefir		2,166		3%		3,700		4%
Frozen Kefir (a)		1,196		1%		1,418		2%
Net Sales	$	80,318		100%	$	92,636		100%

(a)	Includes Lifeway Kefir Shop sales

Net sales of products by category were as follows for the three months ended September 30:

	Three months ended September 30,
	2018		%		2017		%
Drinkable Kefir other than ProBugs	$	18,877		77%	$	22,154		77%
Cheese		2,656		11%		2,829		10%
Cream and other		1,406		6%		1,615		6%
Cupped Kefir and Skyr		699		3%		889		3%
ProBugs Kefir		471		2%		843		3%
Frozen Kefir (a)		371		1%		456		1%
Net Sales	$	24,480		100%	$	28,786		100%

(a)	Includes Lifeway Kefir Shop sales

XML 40 R27.htm IDEA: XBRL DOCUMENT

2. Summary Of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Accounting Policies [Abstract]
Deferred financing costs	$ 60		$ 60		$ 0
Advertising expenses	972	$ 1,892	3,557	$ 4,703
Accumulated amortization on Deferred Finance Costs	$ 9		$ 9		$ 0

XML 41 R28.htm IDEA: XBRL DOCUMENT

3. Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Ingredients	$ 1,970	$ 1,717
Packaging	2,064	2,453
Finished goods	2,803	3,527
Total inventories	$ 6,837	$ 7,697

XML 42 R29.htm IDEA: XBRL DOCUMENT

4. Property And Equipment (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Property, plant and equipment, gross	$ 52,264	$ 49,864
Less accumulated depreciation	(27,229)	(25,219)
Property, plant and equipment, net	25,035	24,645
Land [Member]
Property, plant and equipment, gross	1,747	1,747
Buildings And improvements [Member]
Property, plant and equipment, gross	17,446	17,260
Machinery And Equipment [Member]
Property, plant and equipment, gross	30,598	27,539
Vehicles [Member]
Property, plant and equipment, gross	901	901
Office Equipment [Member]
Property, plant and equipment, gross	879	734
Construction In Progress [Member]
Property, plant and equipment, gross	$ 693	$ 1,683

XML 43 R30.htm IDEA: XBRL DOCUMENT

5. Intangible Assets (Details - Indefinite assets) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill	$ 10,368	$ 10,368
Brand names	3,700	3,700
Goodwill & indefinite lived intangible assets	$ 14,068	$ 14,068

XML 44 R31.htm IDEA: XBRL DOCUMENT

5. Intangible Assets (Details - Finite lived) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Intangible assets, gross	$ 8,244	$ 8,244
Accumulated Amortization	(7,759)	(7,269)
Intangible assets, net	485	975
Recipes [Member]
Intangible assets, gross	44	44
Customer lists and other customer related intangibles [Member]
Intangible assets, gross	4,529	4,529
Customer relationships [Member]
Intangible assets, gross	985	985
Trade Names [Member]
Intangible assets, gross	2,248	2,248
Formula [Member]
Intangible assets, gross	$ 438	$ 438

XML 45 R32.htm IDEA: XBRL DOCUMENT

6. Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Payables and Accruals [Abstract]
Payroll and incentive compensation	$ 2,271	$ 2,208
Real estate taxes	401	371
Other accrued expenses	446	405
Total accrued expenses	$ 3,118	$ 2,984

XML 46 R33.htm IDEA: XBRL DOCUMENT

7. Debt (Details - Notes payable) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Total notes payable	$ 0	$ 6,279
Less current maturities	0	(3,166)
Total long-term portion	0	3,113
Term Loan 1 [Member]
Total notes payable	0	2,832
Term Loan 2 [Member]
Total notes payable	$ 0	$ 3,447

XML 47 R34.htm IDEA: XBRL DOCUMENT

7. Debt (Details Narrative) - USD ($) $ in Thousands	9 Months Ended
7. Debt (Details Narrative) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Line of credit balance	$ 5,990	$ 0
Revolving Credit Facility [Member]
Credit facility interest rate range	4.52$ - 4.86%
Credit facility expiration date	May 07, 2021
Line of credit balance	$ 5,990
Unamortized deferred financing costs	60
Line of credit remaining borrowing capacity	3,950
Revolving Loan [Member]
Revolving credit facility maximum borrowing capacity	10,000
Incremental Facility [Member]
Revolving credit facility maximum borrowing capacity	$ 5,000

- Definition

The carrying value as of the balance sheet date of the current and noncurrent portions of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.

+ References + Details

XML 48 R35.htm IDEA: XBRL DOCUMENT

8. Commitments And Contingencies (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract]
Total lease expense	$ 180	$ 175	$ 555	$ 497

XML 49 R36.htm IDEA: XBRL DOCUMENT

9. Income taxes (Details Narrative)	3 Months Ended		9 Months Ended
9. Income taxes (Details Narrative)	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Tax Disclosure [Abstract]
Effective tax rate	20.90%	41.90%	3.00%	42.90%

XML 50 R37.htm IDEA: XBRL DOCUMENT

10. Stock-based and Other Compensation (Details - Option Activity) - Options [Member] $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($) $ / shares shares
Options outstanding, beginning balance \| shares	45
Options granted \| shares	0
Options exercised \| shares	0
Options forfeited \| shares	(3)
Options outstanding, ending balance \| shares	42
Options exercisable \| shares	36
Weighted average exercise price, options outstanding, beginning balance \| $ / shares	$ 10.45
Weighted average exercise price, options granted \| $ / shares	0.00
Weighted average exercise price, options exercised \| $ / shares	0.00
Weighted average exercise price, options forfeited \| $ / shares	11.10
Weighted average exercise price, options outstanding, ending balance \| $ / shares	10.40
Weighted average exercise price, options exercisable \| $ / shares	$ 10.42
Weighted average remaining contractural life, outstanding	7 years 6 months
Weighted average remaining contractural life, exercisable	7 years 6 months
Aggregate intrinsic value, options outstanding \| $	$ 0
Aggregate intrinsic value, options exercisable \| $	$ 0

XML 51 R38.htm IDEA: XBRL DOCUMENT

10. Stock-based Compensation (Details - RSU Activity) - Restricted Stock Units (RSUs) [Member] shares in Thousands	9 Months Ended
	Sep. 30, 2018 $ / shares shares
RSU's outstanding, beginning balance	0
RSU's granted	26
Shares issued upon vesting	0
RSU's forfeited	0
RSU's outstanding, ending balance	26
Weighted average grant date fair value per share \| $ / shares	$ 5.63

XML 52 R39.htm IDEA: XBRL DOCUMENT

10. Stock-based and Other Compensation (Details Narrative) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Contribution expense	$ 90	$ 59	$ 319	$ 296
Options [Member]
Share-based compensation	2	6	9	35
Tax benefits	0	3	2	14
Unearned compensation related to non-vested stock options	4		$ 4
Weighted average period for unrecognized compensation			8 months 23 days
Restricted Stock Units (RSUs) [Member]
RSU's granted			26
Share-based compensation	25	5	$ 29	14
Tax benefits	7	2	8	6
Unearned compensation related to non-vested stock options	$ 116		$ 116
Weighted average period for unrecognized compensation			1 year 3 months 19 days
Restricted Stock Units (RSUs) [Member] \| Independent Directors [Member]
RSU's granted			20
Restricted Stock Units (RSUs) [Member] \| Employees [Member]
RSU's granted			6
2015 Omnibus Incentive Plan [Member]
Stock authorized for issuance	3,500		3,500
Shares available for issuance	3,469		3,469
2017 Plan [Member]
Share-based compensation	$ 139	121	$ 551	2,106
Unearned compensation related to non-vested stock options	494		494
Unearned compensation expense balance of fiscal year 2018	139		139
Unearned compensation expense expected to be recognized 2019	303		303
Unearned compensation expense expected to be recognized 2020	52		52
2017 Plan [Member] \| Cash Bonus [Member]
Share-based compensation		6		1,254
2017 Plan [Member] \| Stock-Based Compensation [Member]
Share-based compensation		$ 115		$ 852
2018 Plan [Member]
Share-based compensation	$ 157		303
2018 Plan [Member] \| Cash Bonus [Member]
Share-based compensation			76
2018 Plan [Member] \| Stock-Based Compensation [Member]
Share-based compensation			$ 227

XML 53 R40.htm IDEA: XBRL DOCUMENT

11. Segments, Products and Customers (Details) - USD ($)
$ in Thousands

3 Months Ended

9 Months Ended

Sep. 30, 2018

Sep. 30, 2017

Sep. 30, 2018

Sep. 30, 2017

Total sales

$ 24,480

$ 28,786

$ 80,318

$ 92,636

Percentage of sales

100.00%

Drinkable Kefir other than ProBugs[Member]

Total sales

$ 18,877

$ 22,154

$ 61,255

$ 71,559

Percentage of sales

77.00%

76.00%

77.00%

Cheese [Member]

Total sales

$ 2,656

$ 2,829

$ 8,443

$ 8,527

Percentage of sales

11.00%

10.00%

11.00%

9.00%

Cream and other [Member]

Total sales

$ 1,406

$ 1,615

$ 4,104

$ 5,053

Percentage of sales

6.00%

5.00%

Cupped Kefir and Skyr [Member]

Total sales

$ 699

$ 889

$ 3,154

$ 2,379

Percentage of sales

3.00%

4.00%

3.00%

ProBugs Kefer [Member]

Total sales

$ 471

$ 843

$ 2,166

$ 3,700

Percentage of sales

2.00%

3.00%

4.00%

Frozen Kefir [Member]

Total sales

^[1]

$ 371

$ 456

$ 1,196

$ 1,418

Percentage of sales

^[1]

1.00%

2.00%

[1]	Includes Lifeway Kefir Shop sales

XML 54 R41.htm IDEA: XBRL DOCUMENT

11. Segments, Products and Customers (Details Narrative)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Sales Revenue, Net [Member] \| Two Customers [Member]
Concentration percentage	20.00%	21.00%	22.00%	22.00%

XML 55 R42.htm IDEA: XBRL DOCUMENT

12. Related party transactions (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
General and administrative expenses	$ 3,150	$ 3,145	$ 9,851	$ 10,743
Selling expenses	3,136	4,010	10,537	11,648
Consulting Fees [Member]
General and administrative expenses	250	250	750	750
Royalty Expense [Member]
Selling expenses	$ 145	$ 150	$ 445	$ 450

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