UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended:
For the transition period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, zip code)
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Securities registered under Section 12(g) of the Exchange Act:
None
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐ | |
| 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 ☐
Number of shares of Common Stock, no par value, outstanding as of Nov 10, 2023: .
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. | 18 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 24 |
| Item 4. | Controls and Procedures. | 24 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 25 |
| Item 1A. | Risk Factors. | 25 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 25 |
| Item 3. | Defaults Upon Senior Securities. | 25 |
| Item 5. | Other Information. | 25 |
| Item 6. | Exhibits. | 25 |
| Signatures. | 26 | |
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2023 and December 31, 2022
(In thousands)
September 30, 2023 | December 31, | |||||||
| (Unaudited) | 2022 | |||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Refundable income taxes | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | ||||||||
| Current portion of note payable | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued income taxes | ||||||||
| Total current liabilities | ||||||||
| Line of credit | ||||||||
| Note payable | ||||||||
| Operating lease liabilities | ||||||||
| Deferred income taxes, net | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, par value; shares authorized; shares issued or outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Common stock, par value; shares authorized; shares issued; and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Paid-in capital | ||||||||
| Treasury stock, at cost | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements
| 3 |
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and nine months ended September 30, 2023 and 2022
(Unaudited)
(In thousands, except per share data)
Three Months Ended September 30, | Nine months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Depreciation expense | ||||||||||||||||
| Total cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sale of property and equipment | ||||||||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income before provision for income taxes | ||||||||||||||||
| Provision (benefit) for income taxes | ( | ) | ||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Earnings per common share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to consolidated financial statements
| 4 |
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands)
| Common Stock | ||||||||||||||||||||||||||||
| Issued | In treasury | Paid-In | Retained | Total | ||||||||||||||||||||||||
| Shares | $ | Shares | $ | Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance, January 1, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| Issuance of common stock in connection with stock-based compensation | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net income | – | – | ||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| Issuance of common stock in connection with stock-based compensation | – | ( | ) | |||||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net income | – | – | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| 5 |
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands)
| Common Stock | ||||||||||||||||||||||||||||
| Issued | In treasury | Paid-In | Retained | Total | ||||||||||||||||||||||||
| Shares | $ | Shares | $ | Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance, January 1, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net income | – | – | ||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| Issuance of common stock in connection with stock-based compensation | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net income | – | – | ||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| Issuance of common stock in connection with stock-based compensation | – | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Net income | – | – | ||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
See accompanying notes to consolidated financial statements
| 6 |
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to operating cash flow: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Non-cash interest expense | ||||||||
| Bad debt expense | ||||||||
| Deferred revenue | ( | ) | ||||||
| Gain on sale of equipment | ( | ) | ||||||
| (Increase) decrease in operating assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Refundable income taxes | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued income taxes | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sales of equipment | ||||||||
| Acquisition, net of cash acquired | ( | ) | ||||||
| Purchase of investments | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of note payable | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at the beginning of the period | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for income taxes, net | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing activities | ||||||||
| Accrued purchase of property and equipment | $ | $ | ||||||
| Increase in right-of-use assets and operating lease obligations | $ | $ | ||||||
See accompanying notes to consolidated financial statements
| 7 |
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data)
Note 1 – 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 certain information and footnote disclosures required for complete, audited financial statements. In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. The consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Results of operations for any interim period are not necessarily indicative of future or annual results.
Principles of consolidation
The 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 – Summary of Significant Accounting Policies
Our significant accounting policies, which are summarized in detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, have not materially changed. The following is a description of certain of our 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.
Cash and cash equivalents
Lifeway considers cash and all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates or equals fair value due to their short-term nature.
Lifeway from time to time may have bank deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. The Company places its cash and cash equivalents with high credit quality financial institutions. Lifeway has not experienced any losses in such accounts and believes the financial risks associated with these financial instruments are minimal.
Customer concentration
Sales are predominately to companies in the retail
food industry located within the United States. Two major customers accounted for approximately
Advertising and promotional costs
Lifeway expenses advertising costs as incurred
and is reported in Selling expense in the Company’s consolidated statement of operations. Total advertising expense was $
| 8 |
Segments
The Company is managed as a single reportable segment. The Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), reviews financial information on an aggregate basis for purposes of allocating resources and assessing financial performance, as well as for making strategic operational decisions and managing the organization. Substantially all of Lifeway’s consolidated revenues relate to the sale of cultured dairy products that it produces using the same processes and materials and are sold to consumers through a common network of distributors and retailers in the United States.
Recent accounting pronouncements
Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance provides a single comprehensive accounting model on revenue recognition for contracts with customers and requires that the acquirer in a business combination recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). The amendments in this ASU are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard during the first quarter of 2023. The adoption did not have a material impact on the Company’s financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance will be effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. The ASU was effective upon issuance and allowed companies to adopt the amendments on a prospective basis through December 31, 2024.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, in November 2018 issued an amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and in November 2019 issued two amendments, ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The series of new guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The guidance should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard during the first quarter of 2023. The adoption did not have a material impact on the Company’s financial statements.
Note 3 – Inventories, net
Inventories consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Ingredients | $ | $ | ||||||
| Packaging | ||||||||
| Finished goods | ||||||||
| Total inventories, net | $ | $ | ||||||
| 9 |
Note 4 – Property, Plant and Equipment, net
Property, plant and equipment consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Land | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Machinery and equipment | ||||||||
| Vehicles | ||||||||
| Office equipment | ||||||||
| Construction in process | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total property, plant and equipment, net | $ | $ | ||||||
Note 5 – Goodwill and Intangible Assets
Goodwill
Goodwill consisted of the following:
| Total | ||||
| Balance at December 31, 2022, before accumulated impairment loses | $ | |||
| Accumulated impairment losses | ( | ) | ||
| Balance at December 31, 2022 | $ | |||
| Balance at September 30, 2023 | $ | |||
Intangible Assets
Other intangible assets, net consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Gross | Net | Gross | Net | |||||||||||||||||||||
| Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
| Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
| Recipes | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Customer lists and other customer related intangibles | ( | ) | ( | ) | ||||||||||||||||||||
| Customer relationship | ( | ) | ( | ) | ||||||||||||||||||||
| Brand names | ( | ) | ( | ) | ||||||||||||||||||||
| Formula | ( | ) | ( | ) | ||||||||||||||||||||
| Total intangible assets, net | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Estimated amortization expense on intangible assets for the next five years is as follows:
| Year | Amortization | |||
| Three months ended December 31, 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| 10 |
Note 6 – Accrued Expenses
Accrued expenses consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Payroll and incentive compensation | $ | $ | ||||||
| Real estate taxes | ||||||||
| Utilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
Note 7 – Debt
Note payable consisted of the following:
September 30, 2023 | December 31, 2022 | |||||||
| Term loan due August 18, 2026. Interest (7.40% at September 30, 2023) payable monthly. | $ | $ | ||||||
| Unamortized deferred financing costs | ( | ) | ( | ) | ||||
| Total note payable | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total long-term portion | $ | $ | ||||||
The scheduled maturities of the term loan, excluding deferred financing costs, at September 30, 2023 are as follows:
| Three months ended December 31, 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total term loan | $ | |||
Credit Agreement
The Company is party to an Amended and
Restated Loan and Security Agreement (as amended and modified from time to time, the “Credit Agreement”) with its
existing lender and certain of its subsidiaries. The Credit Agreement provides for, among other things, a $
All outstanding amounts under the Credit Agreement
bear interest at the
As of September 30, 2023, the Company had $
| 11 |
The Credit Agreement includes customary representations, warranties, and covenants, including financial covenants requiring the Company to maintain a fixed charge coverage ratio of no less than 1.25 to 1.00, and a minimum working capital financial covenant, as defined, of no less than $11.25 million, in each of the fiscal quarters ending through the expiration date. The Credit Agreement continues to provide 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 Credit Agreement may be accelerated. The loans and all other amounts due and owed under the Credit Agreement and related documents are secured by substantially all of the Company’s assets.
Lifeway was in compliance with the fixed charge coverage ratio and minimum working capital covenants at September 30, 2023.
Note 8 – Leases
The Company leases certain machinery and equipment with fixed base rent payments and variable costs based on usage. Remaining lease terms for these leases range from less than one year to six years. The Company includes lease extension options, if applicable and reasonably certain to be exercised, in the calculation of the right-of-use asset and lease liabilities. Lifeway includes only fixed payments for lease components in the measurement of the right-of-use asset and lease liability. Variable lease payments are those that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time. There are no residual value guarantees. Lifeway does not currently have leases which meet the finance lease classification as defined under ASC 842.
Lifeway treats contracts as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, it directs the use of the asset and obtains substantially all the economic benefits of the asset.
Right-of-use assets and lease liabilities are measured and recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Lifeway has elected the practical expedient to combine lease and non-lease components into a single component for all of its leases. When the Company is unable to determine an implicit interest rate, it uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments for those leases. Lifeway includes options to extend or terminate the lease in the measurement of the right-of-use asset and lease liability when it is reasonably certain that it will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company does not record leases with an initial
term of 12 months or less on the balance sheet. Expense for these short-term leases is recorded on a straight-line basis over the lease
term. Total lease expense was $
Future maturities of lease liabilities were as follows:
| Year | Operating Leases | |||
| Three months ended December 31, 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: Interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| 12 |
The weighted-average remaining lease term for
its operating leases was
Note 9 – Commitments and contingencies
Litigation
Lifeway is involved in various legal proceedings, claims, disputes, regulatory matters, audits, and proceedings arising in the ordinary course of, or incidental to the Company’s business, including commercial disputes, product liabilities, intellectual property matters and employment-related matters.
Lifeway records provisions in the consolidated financial statements for pending legal matters when it believes it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company evaluates, 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, it does not establish an accrued liability. Currently, none of its accruals for outstanding legal matters are material individually or in the aggregate to its 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 its business, financial condition, results of operations, or cash flows. However, if the Company is ultimately required to make payments in connection with an adverse outcome, it is possible that such contingency could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Note 10 – Income taxes
Income taxes were recognized at effective rates
of
The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year, excluding unusual or infrequently occurring discrete items, and applies that rate to income (loss) before provision for income taxes for the period.
The Company’s effective tax rate may change from period to period based on recurring and non-recurring factors including the relative mix of pre-tax earnings (or losses), the jurisdictional mix of earnings, enacted tax legislation, state income taxes, the impact of non-deductible items, changes in valuation allowances, settlement of tax audits, and the expiration of the statute of limitations in relation to unrecognized tax benefits. The Company records discrete income tax items such as enacted tax rate changes and completed tax audits in the period in which they occur. The Company consistently reflects non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards and separate state tax rates from period to period. Although similar items were reflected in 2023, the percentage effect is different due to the difference in pre-tax income in 2023 compared to 2022.
Unrecognized tax benefits were $
Omnibus Incentive Plan
In December 2015, Lifeway stockholders approved the 2015 Omnibus Incentive Plan, which authorized the issuance of an aggregate of shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units to qualifying employees. Under the 2015 Omnibus Incentive Plan, the Board of Directors or its Audit and Corporate Governance Committee approves stock awards to executive officers and certain senior executives, generally in the form of restricted stock or performance shares. The number of performance shares that participants may earn depends on the extent to which the corresponding performance goals have been achieved. Stock awards generally vest over a three-year performance or service period. At September 30, 2023, no shares remain available for award under the 2015 Omnibus Incentive Plan as it was terminated on August 31, 2022. However, any outstanding awards under the 2015 Omnibus Incentive Plan are unaffected by the termination of the 2015 Omnibus Incentive Plan or by the approval of the 2022 Omnibus Incentive Plan (the “2022 Plan”) as described below.
| 13 |
On August 31, 2022, Lifeway stockholders approved the 2022 Plan. Under the 2022 Plan, the Compensation Committee of the Board of Directors may grant awards of various types of compensation, including, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. The maximum number of shares authorized to be awarded under the 2022 Plan is shares of common stock, which includes shares that remained available under the now terminated 2015 Omnibus Incentive Plan.
Awards granted under the 2022 Plan are generally subject to a minimum vesting period of at least one year. Awards may be subject to cliff-vesting or graded-vesting conditions, with graded vesting starting no earlier than one year after the grant date. The Plan Administrator may provide for shorter vesting periods in an award agreement for no more than five percent of the maximum number of shares authorized for issuance under the 2022 Plan. As of September 30, 2023, shares remain available to award under the 2022 Plan.
Stock Options
The following table summarizes stock option activity during the nine months ended September 30, 2023:
| Options | Weighted average exercise price | Weighted average remaining contractual life | Aggregate intrinsic value | |||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | – | – | ||||||||||||||
| Exercised | – | – | ||||||||||||||
| Forfeited | – | – | ||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
Restricted Stock Units
A Restricted Stock Unit (“RSU”) represents the right to receive one share of common stock in the future. RSUs have no exercise price. The grant date fair value of the awards is determined by the Company’s closing stock price on the grant date. Lifeway expenses RSUs over the vesting period. The following table summarizes RSU activity during the nine months ended September 30, 2023.
| Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Shares issued upon vesting | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding at September 30, 2023 | $ | |||||||
| Vested and deferred at September 30, 2023 | $ | |||||||
For the nine months ended September 30, 2023
and 2022 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $
and $,
respectively. For the nine months ended September 30,2023 and 2022 tax-related benefits of $
Long-Term Incentive Plan Compensation
Lifeway has established long-term incentive-based compensation programs for certain senior executives and key employees pursuant to the terms of its incentive plans.
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2020 CEO Incentive Award
During the fourth quarter 2020, Lifeway awarded
a long-term equity-based incentive of $
2021 Equity Award
The 2021 long-term equity incentive plan
compensation is based on Lifeway’s achievement of adjusted EBITDA performance versus the respective target established by the
Board of Directors for 2021. Under the 2021 plan, collectively the participants earned equity-based incentive compensation of $
2022 Equity Award
Under the 2022 long-term incentive plan, participants can earn a specified number of target level Performance Share Units (“PSUs”) contingent upon the achievement of strategic milestones during the three-year Measurement Period, which is fiscal year 2022 to 2024. The strategic milestones are 1) 3-year cumulative net revenue, and 2) 3-year cumulative adjusted EBITDA. The target number of PSU awards are weighted 50% on net revenue and 50% on adjusted EBITDA. Collectively, the participants can earn 125,066 PSUs at the target level. Participants may earn more or less than the target number of shares based on actual results, however the minimum and maximum number of shares that can be earned are bound by minimum and maximum thresholds of net revenue and adjusted EBITDA. The PSU awards will be earned and will vest, if at all, after the end of the three-year measurement period based on achievement of the milestones. The PSU awards do not vest during the three-year measurement period. The PSUs have a grant date fair value of $6.25 dollars per share. For the nine months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively. For the three months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.
The 2022 long-term incentive plan also granted restricted stock unit awards that contain only a service condition and vest on the passage of time in three equal installments on each of the first three anniversaries of the August 31, 2022 grant date. The stock-based compensation expense for these awards is included in the Restricted Stock Units section above.
2023 Equity Award
Under the 2023 long-term incentive plan, participants can earn a specified number of target level Performance Share Units (“PSUs”) contingent upon the achievement of strategic milestones during the three-year Measurement Period, which is fiscal year 2023 to 2025. The strategic milestones are 1) 3-year cumulative net revenue, and 2) 3-year cumulative adjusted EBITDA. The target number of PSU awards are weighted 50% on net revenue and 50% on adjusted EBITDA. Collectively, the participants can earn 115,622 PSUs at the target level. Participants may earn more or less than the target number of shares based on actual results, however the minimum and maximum number of shares that can be earned are bound by minimum and maximum thresholds of net revenue and adjusted EBITDA. The PSU awards will be earned and will vest, if at all, after the end of the three-year measurement period based on achievement of the milestones. The PSU awards do not vest during the three-year measurement period. The PSUs have a grant date fair value of $6.88 dollars per share. For the nine months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively. For the three months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.
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The 2023 long-term incentive plan also granted restricted stock unit awards that contain only a service condition and vest on the passage of time in three equal installments on each of the first three anniversaries of the June 16, 2023 grant date. The stock-based compensation expense for these awards is included in the Restricted Stock Units section above.
Non-Employee Director Plan
On August 31, 2022, Lifeway stockholders approved the 2022 Non-Employee Director Equity and Deferred Compensation Plan (the “2022 Director Plan”), which authorizes the grant of restricted stock units (“RSUs”), which will vest on such schedule as the Company, in its sole discretion, shall determine. Each non-employee director of the Company is eligible to be a participant in the 2022 Director Plan until they no longer serve as a non-employee director. As of the date of each annual shareholder meeting, the Company may grant each director a number of RSUs for such year and set the vesting schedule for the RSUs granted. Whether and how many RSUs the Company will grant to directors in any year is subject to the sole discretion of the Company and shall in any event be subject to the 2022 Director Plan’s overall share limits. The maximum aggregate number of shares of common stock that may be issued under the 2022 Director Plan is 500 thousand shares. As of September 30, 2023, thousand shares remain available to award under the 2022 Director Plan. The aggregate fair market value of shares underlying RSU compensation that may be issued as RSU compensation to a director in any year shall not exceed $170. In addition to the grant of RSUs, the 2022 Director Plan also provides for the deferral by electing participants of all or part of their cash compensation (in 10% increments) into a deferred cash account, and they may defer all or part of their cash and/or RSU compensation (in 10% increments) into a deferred RSU account. Deferred benefits are paid in a lump sum upon the applicable director’s departure from the Board of Directors.
Retirement Benefits
Lifeway has a defined contribution plan which
is available to substantially all full-time employees. Under the terms of the plan, the Company matches employee contributions under a
prescribed formula. For the nine months ended September 30, 2023 and 2022 total contribution expense recognized in the consolidated statements
of operations was $
The following table summarizes the effects of the share-based compensation awards on the weighted average number of shares outstanding used in calculating diluted earnings (loss) per share:
| Three Months Ended | Nine months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Assumed exercise/vesting of equity awards | ||||||||||||||||
| Weighted average diluted common shares outstanding | ||||||||||||||||
Note 13 – Related Party Transactions
Consulting Services
Lifeway obtained consulting services from Ludmila
Smolyansky, a member of the Company’s Board of Directors and former Chairperson of its Board of Directors. On January 4, 2022, the
Company notified Ms. Smolyansky that it was terminating the amended and restated consultancy agreement effective January 17, 2022. Service
fees earned are included in general and administrative expenses in the accompanying consolidated statements of operations and were $
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Endorsement Agreement
Lifeway was also a party to an endorsement agreement, dated as March 14, 2016, by and between the Company and Ludmila Smolyansky, a member of the Company’s Board of Directors and former Chairperson of its Board of Directors (the “Endorsement Agreement”) under which it paid the Chairperson a royalty based on the sale of certain Lifeway products, not to exceed $50 in any fiscal month.
On September 6, 2022, the Company entered into an agreement (the “Termination Agreement”) with Ms. Smolyansky that terminated the Endorsement Agreement as of September 6, 2022.
Pursuant to the Termination Agreement, the Company and Ms. Smolyansky have agreed, among other things, that (i) the Company paid Ms. Smolyansky a lump sum payment of $400, (ii) Ms. Smolyansky will no longer have any further claims against the Company under the Endorsement Agreement, and (iii) the Endorsement Agreement was terminated and of no further force or effect except for the provisions thereof that expressly survive termination.
Royalties earned were $
Note 14 – Subsequent Event
On October 6, 2023, the Company paid the outstanding line of credit balance of $2,777 in full. There were no amounts outstanding under the line of credit after October 6, 2023, through the date of filing of these financial statements.
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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, 2022 (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,” “from time to time,” “intend,” “plan,” “ongoing,” “realize,” “should,” “may,” “could," "believe," "future," "depend," "expect," "will," "result," "can," "remain," "assurance," "subject to," "require," "limit," "impose," "guarantee," "restrict," "continue," "become," "predict," "likely," "opportunities," "effect," "change," "predict," and "estimate,” 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 based on management’s beliefs, assumptions, estimates and observations of future events based on information available to our management at the time the statements are made and include any statements that do not relate to any historical or current fact. These statements are not guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements due in part to the risks, uncertainties, and assumptions that include:
| · | Changes in the pricing of commodities; | |
| · | The actions and decisions of our competitors and customers, including those related to price competition; | |
| · | Our ability to successfully implement our business strategy; | |
| · | The effects of government regulation; | |
| · | Disruptions to our supply chain, or our manufacturing and distribution capabilities, including those due to cybersecurity threats; and | |
| · | 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, 2022 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. The Company intends 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, Lifeway has no duty to update these statements, and it undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Business Overview
Lifeway was founded in 1986 by Michael Smolyansky a refugee from the former USSR who emigrated from Eastern Europe to the United States in 1976 with his wife and young daughter. Lifeway was the first to successfully introduce kefir to the U.S. consumer on a commercial scale, initially catering to ethnic consumers in the Chicago, Illinois metropolitan area.
The Company’s primary product is drinkable kefir, a cultured dairy product. Lifeway Kefir is a probiotic beverage that is tart and tangy, high in protein, calcium and vitamin D. The Company manufactures (directly or through a co-manufacturer) and markets products under the Lifeway, Fresh Made, and GlenOaks Farms brand names, as well as under private labels on behalf of certain customers.
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The Company’s product categories are:
| · | Drinkable Kefir, a cultured dairy product sold in a variety of organic and non-organic sizes, flavors, and types. | |
| · | European-style soft cheeses, including farmer cheese, white cheese, and Sweet Kiss. | |
| · | Cream and other, which primarily consists of cream, a byproduct of raw milk processing. | |
| · | Drinkable Yogurt, sold in a variety of sizes and flavors. | |
| · | ProBugs, a line of kefir products designed for children. | |
| · | Other Dairy, which primarily consists of Fresh Made butter and sour cream. |
Recent Developments
Current Macroeconomic Environment and Inflation Impact
Since 2022, we have been experiencing inflationary and cost pressures due to volatility and disruption in the global economy which have increased our production and distribution costs. We have begun to see some moderation of inflationary pressures and have experienced pricing declines in certain of our input costs, such as milk. We expect inflationary pressures to persist throughout 2023, although at lower levels than experienced in 2022. In response to these persistent inflationary and cost pressures, we instituted price increases in 2022 on many of our products. We expect that these inflation-justified price increases will continue to help mitigate a portion of our increased costs.
We have not experienced significant supply chain disruptions or labor supply shortages and have continued to satisfy customer and consumer demand for our products. Management continues to proactively manage the supply and transportation of materials used to make and package our products, staffing, and transportation of our products to customers. This proactive planning has allowed the Company to avoid disruption to its manufacturing facilities and production, transportation, and sales and to meet the increased demand. The Company has maintained full production at all locations and does not anticipate manufacturing or staffing disruptions in the near term.
Results of Operations
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
The following table presents certain information concerning our financial results, including information presented as a percentage of consolidated net sales:
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Net sales | 40,896 | 100.0% | 38,140 | 100.0% | ||||||||||||
| Cost of goods sold | 29,099 | 71.2% | 29,962 | 78.6% | ||||||||||||
| Depreciation expense | 654 | 1.6% | 590 | 1.5% | ||||||||||||
| Total cost of goods sold | 29,753 | 72.8% | 30,552 | 80.1% | ||||||||||||
| Gross profit | 11,143 | 27.2% | 7,588 | 19.9% | ||||||||||||
| Selling expenses | 2,884 | 7.1% | 2,843 | 7.4% | ||||||||||||
| General & administrative expense | 3,085 | 7.5% | 3,415 | 9.0% | ||||||||||||
| Amortization expense | 135 | 0.3% | 135 | 0.4% | ||||||||||||
| Total operating expenses | 6,104 | 14.9% | 6,393 | 16.8% | ||||||||||||
| Income from operations | 5,039 | 12.3% | 1,195 | 3.1% | ||||||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense | (109 | ) | (0.3% | ) | (77 | ) | (0.2% | ) | ||||||||
| Gain on sales of property and equipment | – | 0.0% | – | 0.0% | ||||||||||||
| Other (expense) income, net | (1 | ) | 0.0% | (5 | ) | 0.0% | ||||||||||
| Total other (expense) income | (110 | ) | (0.3% | ) | (82 | ) | (0.2% | ) | ||||||||
| Income before provision for income taxes | 4,929 | 12.0% | 1,113 | 2.9% | ||||||||||||
| Provision for income taxes | 1,517 | 3.7% | 130 | 0.3% | ||||||||||||
| Net income | 3,412 | 8.3% | 983 | 2.6% | ||||||||||||
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Net Sales
Net sales finished at $40,896 for the three-month period ended September 30, 2023, an increase of $2,756 or 7.2% versus prior year. The net sales increase was primarily driven by higher volumes of our branded drinkable kefir, and to a lesser extent the impact of price increases implemented during the fourth quarter of 2022.
Net sales by product category were as follows for the three months ended September 30:
| 2023 | 2022 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Drinkable Kefir excluding ProBugs | $ | 33,035 | 81% | $ | 30,297 | 79% | ||||||||||
| Cheese | 3,353 | 8% | 3,211 | 9% | ||||||||||||
| Cream and other | 1,811 | 4% | 1,874 | 4% | ||||||||||||
| Drinkable yogurt | 1,485 | 4% | 1,482 | 5% | ||||||||||||
| ProBugs Kefir | 820 | 2% | 882 | 2% | ||||||||||||
| Other dairy | 392 | 1% | 394 | 1% | ||||||||||||
| Net Sales | $ | 40,896 | 100% | $ | 38,140 | 100% | ||||||||||
Gross Profit
Gross profit as a percentage of net sales was 27.2% during the three-month period ended September 30, 2023. Gross profit percentage was 19.9% in the prior year. The increase versus the prior year was primarily due to the higher volumes of our branded products and the favorable impact of milk pricing, and to a lesser extent the price increases implemented during the fourth quarter of 2022 and decreased transportation costs.
Selling Expenses
Selling expenses increased by $41 to $2,884 during the three-month period ended September 30, 2023 from $2,843 during the same period in 2022.
General and Administrative Expenses
General and administrative expenses decreased $330 to $3,085 during the three-month period ended September 30, 2023 from $3,415 during the same period in 2022. The decrease is primarily driven by the termination of the endorsement agreement in September 2022.
Provision for Income Taxes
The provision for income taxes was $1,517 and $130 during the three months ended September 30, 2023 and 2022, respectively.
The effective income tax rate for the three months ended September 30, 2023 was 30.8% compared to 11.7% in the same period last year. The statutory Federal and state tax rates remained consistent from 2022 to 2023. The Company has items that are nondeductible or are discrete adjustments to tax expense. The Company consistently reflects non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards and separate state tax rates from period to period. Although similar items were reflected in 2023, the percentage effect is different due to the difference in pre-tax income in 2023 compared to 2022.
The Company’s effective tax rate may change from period to period based on recurring and non-recurring factors including the relative mix of pre-tax earnings (or losses), the jurisdictional mix of earnings, enacted tax legislation, state income taxes, the impact of non-deductible items, changes in valuation allowances, settlement of tax audits, and the expiration of the statute of limitations in relation to unrecognized tax benefits. The Company records discrete income tax items such as enacted tax rate changes and completed tax audits in the period in which they occur.
Income taxes are discussed in Note 10 in the Notes to the Consolidated Financial Statements.
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Nine months Ended September 30, 2023 Compared to Nine months Ended September 30, 2022
The following table presents certain information concerning our financial results, including information presented as a percentage of consolidated net sales:
| Nine months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Net sales | 118,030 | 100.0% | 105,730 | 100.0% | ||||||||||||
| Cost of goods sold | 85,428 | 72.4% | 85,032 | 80.4% | ||||||||||||
| Depreciation expense | 1,953 | 1.7% | 1,833 | 1.7% | ||||||||||||
| Total cost of goods sold | 87,381 | 74.1% | 86,865 | 82.2% | ||||||||||||
| Gross profit | 30,649 | 25.9% | 18,865 | 17.8% | ||||||||||||
| Selling expenses | 8,974 | 7.6% | 8,527 | 8.1% | ||||||||||||
| General & administrative expense | 10,028 | 8.5% | 9,546 | 9.0% | ||||||||||||
| Amortization expense | 405 | 0.3% | 405 | 0.4% | ||||||||||||
| Total operating expenses | 19,407 | 16.4% | 18,478 | 17.5% | ||||||||||||
| Income from operations | 11,242 | 9.5% | 387 | 0.4% | ||||||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense | (322 | ) | (0.3% | ) | (171 | ) | (0.2% | ) | ||||||||
| Gain on sales of property and equipment | 33 | 0.0% | – | 0.0% | ||||||||||||
| Other (expense) income, net | (1 | ) | 0.0% | (10 | ) | 0.0% | ||||||||||
| Total other (expense) income | (290 | ) | (0.3% | ) | (181 | ) | (0.2% | ) | ||||||||
| Income before provision for income taxes | 10,952 | 9.2% | 206 | 0.2% | ||||||||||||
| Provision (benefit) for income taxes | 3,554 | 3.0% | (2 | ) | 0.0% | |||||||||||
| Net income | 7,398 | 6.2% | 208 | 0.2% | ||||||||||||
Net Sales
Net sales finished at $118,030 for the nine-month period ended September 30, 2023, an increase of $12,300 or 11.6% versus prior year. The net sales increase was primarily driven by higher volumes of our branded drinkable kefir, and to a lesser extent the impact of price increases implemented during the fourth quarter of 2022.
Net sales by product category were as follows for the nine months ended September 30:
| 2023 | 2022 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Drinkable Kefir excluding ProBugs | $ | 94,174 | 80% | $ | 82,779 | 78% | ||||||||||
| Cheese | 10,074 | 9% | 9,233 | 9% | ||||||||||||
| Cream and other | 5,362 | 4% | 5,438 | 5% | ||||||||||||
| Drinkable yogurt | 4,760 | 4% | 4,559 | 5% | ||||||||||||
| ProBugs Kefir | 2,490 | 2% | 2,481 | 2% | ||||||||||||
| Other dairy | 1,170 | 1% | 1,240 | 1% | ||||||||||||
| Net Sales | $ | 118,030 | 100% | $ | 105,730 | 100% | ||||||||||
Gross Profit
Gross profit as a percentage of net sales was 25.9% during the nine-month period ended September 30, 2023. Gross profit percentage was 17.8% in the prior year. The increase versus the prior year was primarily due to the higher volumes of our branded products and the favorable impact of milk pricing, and to a lesser extent the price increases implemented during the fourth quarter of 2022 and decreased transportation costs.
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Selling Expenses
Selling expenses increased by $447 to $8,974 during the nine-month period ended September 30, 2023 from $8,527 during the same period in 2022. The increase is primarily due to increased compensation expense, partially offset by the reduction in royalty expense resulting from the termination of the endorsement agreement in September 2022.
General and Administrative Expenses
General and administrative expenses increased $482 to $10,028 during the nine-month period ended September 30, 2023 from $9,546 during the same period in 2022. The increase is primarily driven by incentive compensation and to a lesser extent expenses related to non-routine stockholder action, partially offset by the termination of the endorsement agreement in September 2022.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes was $3,554 and $(2) during the nine months ended September 30, 2023 and 2022, respectively.
The effective income tax rate for the nine months ended September 30, 2023 was 32.5% compared to (0.8)% in the same period last year. The statutory Federal and state tax rates remained consistent from 2022 to 2023. The Company has items that are nondeductible or are discrete adjustments to tax expense. The Company consistently reflects non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards and separate state tax rates from period to period. Although similar items were reflected in 2023, the percentage effect is different due to the difference in pre-tax income in 2023 compared to 2022.
The Company’s effective tax rate may change from period to period based on recurring and non-recurring factors including the relative mix of pre-tax earnings (or losses), the jurisdictional mix of earnings, enacted tax legislation, state income taxes, the impact of non-deductible items, changes in valuation allowances, settlement of tax audits, and the expiration of the statute of limitations in relation to unrecognized tax benefits. The Company records discrete income tax items such as enacted tax rate changes and completed tax audits in the period in which they occur.
Income taxes are discussed in Note 10 in the Notes to the Consolidated Financial Statements.
Liquidity and Capital Resources
Management assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing, and financing activities. The Company remains in a strong financial position, and while it has been impacted by the macroeconomic challenges with commodity inflation and other input cost increases, the Company believes that its cash flow from operations, revolving credit and term loan facility, and cash and cash equivalents will continue to provide sufficient liquidity for its working capital needs, capital resource requirements, and growth initiatives and to ensure the continuation of the Company as a going concern.
If additional borrowings are needed, $2,223 was available under the Revolving Credit Facility as of September 30, 2023 (see Note 7, Debt). We are in compliance with the terms of the Credit Agreement and expect to meet foreseeable financial requirements. 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. To date, we have been successful in generating cash and obtaining financing as needed. However, if a serious economic or credit market crisis ensues, it could have a negative effect on our liquidity, results of operations and financial condition.
As discussed in Note 14, Subsequent Events, the Company paid the outstanding line of credit balance of $2,777 in full on October 6, 2023.
The Company’s most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, and income tax liabilities) as well as expenditures for property, plant and equipment.
Long-term cash requirements primarily relate to funding long-term debt repayments (see Note 7, Debt) and deferred income taxes (see Note 10, Income Taxes, in our Annual Report on Form 10-K).
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Cash Flow
The following table is derived from our Consolidated Statement of Cash Flows:
| Nine months Ended September 30, | ||||||||
| Net Cash Flows Provided By (Used In): | 2023 | 2022 | ||||||
| Operating activities | $ | 12,144 | $ | 3,639 | ||||
| Investing activities | $ | (3,206 | ) | $ | (3,189 | ) | ||
| Financing activities | $ | (750 | ) | $ | (750 | ) | ||
Operating Activities
Net cash provided by operating activities was $12,144 during the nine-month period ended September 30, 2023 compared to $3,639 in the same period in 2022. The increase was primarily due to higher cash earnings driven by increased product volumes and declines in certain input costs, and the change in working capital.
Investing Activities
Net cash used in investing activities was $3,206 during the nine-month period ended September 30, 2023 compared to $3,189 in the same period in 2022. The increase in cash used reflects our planned capital spending increase during 2023 compared to 2022. 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 and facility improvements support manufacturing efficiency, safety, and productivity.
Financing Activities
Net cash used in financing activities was $750 during the nine-month period ended September 30, 2023 and 2022, respectively. The cash used represents the quarterly principal payments under the term loan.
Debt Obligations
As of September 30, 2023, the Company had $2,777 outstanding and $2,223 available for future borrowings under the revolving line of credit. Under the Credit Agreement, the Revolving Credit Facility matures on June 30, 2025. The were no letters of credit issued or outstanding as of September 30, 2023. The Company had $2,981 outstanding under the note payable, net of $19 of unamortized deferred financing fees, as of September 30, 2023.
The Company’s interest rate on debt outstanding under the revolving line of credit and note payable as of September 30, 2023 was 7.34% and 7.40%, respectively.
The Company is in compliance with all applicable financial debt covenants as of September 30, 2023. See Note 7 to our Consolidated Financial Statements for additional information regarding our indebtedness and related agreements.
As discussed in Note 14, Subsequent Events, the Company paid the outstanding line of credit balance of $2,777 in full on October 6, 2023.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is provided in Note 2 – Summary of Significant Accounting Policies.
Critical Accounting Policies and Estimates
A description of the Company's critical accounting policies and estimates is contained in its Annual Report on Form 10-K for the year ended December 31, 2022. There were no material changes to the Company’s critical accounting policies and estimates in the nine months ended September 30, 2023.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Management, together with our CEO and CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2023. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2023 that has materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
| 24 |
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 3, 2023, the Circuit Court of Cook County, Illinois granted the Company’s motion to file a Verified Second Amended Complaint (“Complaint”) in the previously disclosed lawsuit by the Company against Ludmila Smolyansky and Edward Smolyansky and transferred the matter to the Chancery Division of the Circuit Court of Cook County, Illinois for adjudication of the Company’s motion for a preliminary injunction and trial on Count I of the Complaint seeking a permanent injunction. The Complaint alleges additional violations of agreements between the Company and Edward Smolyansky by Mr. Smolyansky. Such additional ongoing activity by Mr. Smolyansky prompted the Company to request the additional relief of a preliminary injunction and permanent injunction against Mr. Smolyansky.
Additional information regarding legal proceedings is available in Note 9, Commitment and Contingencies.
ITEM 1A. RISK FACTORS.
There have been no material changes from the risk factors disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| No. | Description | Form | Period Ending | Exhibit | Filing Date | |||||
| 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 Eric Hanson | Filed Herewith | ||||||||
| 32.1 | Section 1350 Certification of Julie Smolyansky* | Furnished Herewith | ||||||||
| 32.2 | Section 1350 Certification of Eric Hanson* | Furnished Herewith | ||||||||
| 99.1 | Press release dated November 13, 2023 reporting Lifeway’s financial results for the three months ended September 30, 2023* | Furnished Herewith | ||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
* The exhibits deemed furnished with this Form 10-Q and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act., whether made before or after the date of the filing of this Form 10-Q and irrespective of any general incorporation language contained in such filing.
| 25 |
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 13, 2023 | By: | /s/ Julie Smolyansky |
| Julie Smolyansky | ||
| Chief Executive Officer, President, and Director | ||
| (Principal Executive Officer) | ||
| Date: November 13, 2023 | By: | /s/ Eric Hanson |
| Eric Hanson | ||
| Chief Financial & Accounting Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 26 |
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; |
| 4. | 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 13, 2023 | By: /s/ Julie Smolyansky |
| Julie Smolyansky | |
| Chief Executive Officer, President and Director | |
| (Principal Executive Officer) |
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, Eric Hanson, 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; |
| 4. | 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 13, 2023 | By: /s/ Eric Hanson |
| Eric Hanson | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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, 2023 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:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 13, 2023 | By: /s/ Julie Smolyansky |
| Julie Smolyansky | |
| Chief Executive Officer, President and Director | |
| (Principal Executive Officer) |
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
In connection with the Quarterly Report on Form 10-Q of Lifeway Foods, Inc. (the “Company”) for the period ended September 30, 2023 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 his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 13, 2023 | By: /s/ Eric Hanson |
| Eric Hanson | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
EXHIBIT 99.1
Lifeway Foods® Announces Record Results for the Third Quarter Ended September 30, 2023
Net sales increase 7.2% year-over-year to $40.9 million; 16th consecutive quarter of year-over-year net sales growth
730 basis points of year-over-year gross profit margin expansion
Morton Grove, IL — November 13, 2023 — Lifeway Foods, Inc. (Nasdaq: LWAY) (“Lifeway” or “the Company”), a leading U.S. supplier of kefir and fermented probiotic products to support the microbiome, today reported financial results for the third quarter ended September 30, 2023.
“I am excited to announce that our strong momentum continued in the third quarter as we once again set a Company record on the topline, and delivered robust, year-over-year gross profit margin expansion of 730 basis points,” commented Julie Smolyansky, President and Chief Executive Officer of Lifeway Foods. “Net sales were up 7.2%, marking our 16th consecutive quarter of year-over-year growth, and continued to be driven by volume growth in our flagship Lifeway drinkable kefir. This growth is particularly impressive as we lapped an exceptional third quarter of 2022, illustrating both the loyalty of our customers, who have maintained their dedication to our premium, healthy offerings in light of inflation-justified price increases last year, as well as the success of our strategic investments in capturing incremental consumers seeking better-for-you offerings at a great value. Additionally, our proactive operating discipline and favorable milk pricing helped achieve vastly improved year-over-year profitability alongside the heightened sales, a testament to the execution by the whole Lifeway team. Looking ahead, we will continue to assess further distribution opportunities and pursue additional brand exposure for our core Lifeway kefir products and farmer cheese. This was an amazing start to the second half of 2023, and I want to thank the Lifeway team, our customers and retail partners for helping us deliver yet another quarter of record revenue.”
Third Quarter 2023 Results
Net sales were $40.9 million for the third quarter ended September 30, 2023, an increase of $2.8 million or 7.2% from the same period of 2022. The net sales increase was primarily driven by higher volumes of Lifeway branded drinkable kefir, and to a lesser extent the impact of price increases implemented during the fourth quarter of 2022.
Gross profit as a percentage of net sales was 27.2% for the third quarter ended September 30, 2023, compared to 19.9% in the same period of 2022. The 730 basis point increase versus the prior year was primarily due to the higher volumes of Lifeway branded products and the favorable impact of milk pricing, and to a lesser extent the price increases implemented during the fourth quarter of 2022 and decreased transportation costs.
Selling, general and administrative expenses as a percentage of net sales were 14.6% for the third quarter ended September 30, 2023, compared to 16.4% in the same period of 2022.
The Company reported net income of $3.4 million or $0.23 per basic and diluted common share for the third quarter ended September 30, 2023 compared to net income of $1.0 million or $0.06 per basic and diluted common share during the same period in 2022.
Conference Call and Webcast
A pre-recorded conference call and webcast with Julie Smolyansky discussing these results with additional comments and details is available through the “Investor Relations” section of the Company’s website at https://lifewaykefir.com/webinars-reports/ and will also be available for replay.
| 1 |
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 cheese, probiotic oat milk, and
a ProBugs line for kids. Lifeway's tart and tangy fermented dairy products are now sold across the United States, Mexico, Ireland and France.
Learn how Lifeway is good for more than just you at lifewayfoods.com.
Forward-Looking Statements
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 "continue," "build," "future," "increase," "drive," "believe," "look," "ahead," "confident," "deliver," "outlook," "expect," and "predict." 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, 2022, 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.
Media:
Derek Miller
Vice President of Communications, Lifeway Foods
Email: derekm@lifeway.net
General inquiries:
Lifeway Foods, Inc.
Phone: 847-967-1010
Email: info@lifeway.net
| 2 |
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2023 and December 31, 2022
(In thousands)
September 30, 2023 | December 31, | |||||||
| (Unaudited) | 2022 | |||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 12,632 | $ | 4,444 | ||||
| Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $1,430 and $1,820 at September 30, 2023 and December 31, 2022 respectively | 13,095 | 11,414 | ||||||
| Inventories, net | 9,321 | 9,631 | ||||||
| Prepaid expenses and other current assets | 1,621 | 1,445 | ||||||
| Refundable income taxes | 260 | 44 | ||||||
| Total current assets | 36,929 | 26,978 | ||||||
| Property, plant and equipment, net | 22,285 | 20,905 | ||||||
| Operating lease right-of-use asset | 203 | 174 | ||||||
| Goodwill | 11,704 | 11,704 | ||||||
| Intangible assets, net | 7,033 | 7,438 | ||||||
| Other assets | 1,900 | 1,800 | ||||||
| Total assets | $ | 80,054 | $ | 68,999 | ||||
| Current liabilities | ||||||||
| Current portion of note payable | $ | 1,250 | $ | 1,250 | ||||
| Accounts payable | 9,102 | 7,979 | ||||||
| Accrued expenses | 5,555 | 3,813 | ||||||
| Accrued income taxes | 500 | – | ||||||
| Total current liabilities | 16,407 | 13,042 | ||||||
| Line of credit | 2,777 | 2,777 | ||||||
| Note payable | 1,731 | 2,477 | ||||||
| Operating lease liabilities | 130 | 104 | ||||||
| Deferred income taxes, net | 3,029 | 3,029 | ||||||
| Total liabilities | 24,074 | 21,429 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, no par value; 2,500 shares authorized; no shares issued or outstanding at September 30, 2023 and December 31, 2022 | – | – | ||||||
| Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 14,691 and 14,645 outstanding at September 30, 2023 and December 31, 2022, respectively | 6,509 | 6,509 | ||||||
| Paid-in capital | 4,338 | 3,624 | ||||||
| Treasury stock, at cost | (16,695 | ) | (16,993 | ) | ||||
| Retained earnings | 61,828 | 54,430 | ||||||
| Total stockholders' equity | 55,980 | 47,570 | ||||||
| Total liabilities and stockholders' equity | $ | 80,054 | $ | 68,999 | ||||
| 3 |
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and nine months ended September 30, 2023 and 2022
(Unaudited)
(In thousands, except per share data)
Three Months Ended September 30, | Nine months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | $ | 40,896 | $ | 38,140 | $ | 118,030 | $ | 105,730 | ||||||||
| Cost of goods sold | 29,099 | 29,962 | 85,428 | 85,032 | ||||||||||||
| Depreciation expense | 654 | 590 | 1,953 | 1,833 | ||||||||||||
| Total cost of goods sold | 29,753 | 30,552 | 87,381 | 86,865 | ||||||||||||
| Gross profit | 11,143 | 7,588 | 30,649 | 18,865 | ||||||||||||
| Selling expenses | 2,884 | 2,843 | 8,974 | 8,527 | ||||||||||||
| General and administrative | 3,085 | 3,415 | 10,028 | 9,546 | ||||||||||||
| Amortization expense | 135 | 135 | 405 | 405 | ||||||||||||
| Total operating expenses | 6,104 | 6,393 | 19,407 | 18,478 | ||||||||||||
| Income from operations | 5,039 | 1,195 | 11,242 | 387 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (109 | ) | (77 | ) | (322 | ) | (171 | ) | ||||||||
| Gain on sale of property and equipment | – | – | 33 | – | ||||||||||||
| Other (expense) income, net | (1 | ) | (5 | ) | (1 | ) | (10 | ) | ||||||||
| Total other income (expense) | (110 | ) | (82 | ) | (290 | ) | (181 | ) | ||||||||
| Income before provision for income taxes | 4,929 | 1,113 | 10,952 | 206 | ||||||||||||
| Provision (benefit) for income taxes | 1,517 | 130 | 3,554 | (2 | ) | |||||||||||
| Net income | $ | 3,412 | $ | 983 | $ | 7,398 | $ | 208 | ||||||||
| Earnings per common share: | ||||||||||||||||
| Basic | $ | 0.23 | $ | 0.06 | $ | 0.50 | $ | 0.01 | ||||||||
| Diluted | $ | 0.23 | $ | 0.06 | $ | 0.49 | $ | 0.01 | ||||||||
| Weighted average common shares: | ||||||||||||||||
| Basic | 14,677 | 15,490 | 14,659 | 15,462 | ||||||||||||
| Diluted | 15,101 | 15,848 | 15,063 | 15,759 | ||||||||||||
| 4 |
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 7,398 | $ | 208 | ||||
| Adjustments to reconcile net income to operating cash flow: | ||||||||
| Depreciation and amortization | 2,358 | 2,238 | ||||||
| Stock-based compensation | 1,078 | 755 | ||||||
| Non-cash interest expense | 5 | 5 | ||||||
| Bad debt expense | 2 | – | ||||||
| Deferred revenue | – | (23 | ) | |||||
| Gain on sale of equipment | (33 | ) | – | |||||
| (Increase) decrease in operating assets: | ||||||||
| Accounts receivable | (1,683 | ) | (1,576 | ) | ||||
| Inventories | 310 | (907 | ) | |||||
| Refundable income taxes | (216 | ) | (309 | ) | ||||
| Prepaid expenses and other current assets | (176 | ) | (115 | ) | ||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accounts payable | 928 | 3,085 | ||||||
| Accrued expenses | 1,673 | 1,003 | ||||||
| Accrued income taxes | 500 | (725 | ) | |||||
| Net cash provided by operating activities | 12,144 | 3,639 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (3,146 | ) | (2,609 | ) | ||||
| Proceeds from sales of equipment | 40 | – | ||||||
| Acquisition, net of cash acquired | – | (580 | ) | |||||
| Purchase of investments | (100 | ) | – | |||||
| Net cash used in investing activities | (3,206 | ) | (3,189 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of note payable | (750 | ) | (750 | ) | ||||
| Net cash used in financing activities | (750 | ) | (750 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 8,188 | (300 | ) | |||||
| Cash and cash equivalents at the beginning of the period | 4,444 | 9,233 | ||||||
| Cash and cash equivalents at the end of the period | $ | 12,632 | $ | 8,933 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for income taxes, net | $ | 3,270 | $ | 640 | ||||
| Cash paid for interest | $ | 343 | $ | 158 | ||||
| Non-cash investing activities | ||||||||
| Accrued purchase of property and equipment | $ | 194 | $ | 250 | ||||
| Increase in right-of-use assets and operating lease obligations | $ | 86 | $ | 19 | ||||
| 5 |
Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Thousands, $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for doubtful accounts and discounts | $ 1,430 | $ 1,820 |
| Preferred stock, 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, par value | $ 0 | $ 0 |
| Common stock, shares authorized | 40,000 | 40,000 |
| Common stock, shares issued | 17,274 | 17,274 |
| Common stock, shares outstanding | 14,691 | 14,645 |
Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Statement [Abstract] | ||||
| Net sales | $ 40,896 | $ 38,140 | $ 118,030 | $ 105,730 |
| Cost of goods sold | 29,099 | 29,962 | 85,428 | 85,032 |
| Depreciation expense | 654 | 590 | 1,953 | 1,833 |
| Total cost of goods sold | 29,753 | 30,552 | 87,381 | 86,865 |
| Gross profit | 11,143 | 7,588 | 30,649 | 18,865 |
| Selling expenses | 2,884 | 2,843 | 8,974 | 8,527 |
| General and administrative | 3,085 | 3,415 | 10,028 | 9,546 |
| Amortization expense | 135 | 135 | 405 | 405 |
| Total operating expenses | 6,104 | 6,393 | 19,407 | 18,478 |
| Income from operations | 5,039 | 1,195 | 11,242 | 387 |
| Other income (expense): | ||||
| Interest expense | (109) | (77) | (322) | (171) |
| Gain on sale of property and equipment | 0 | 0 | 33 | 0 |
| Other (expense) income, net | (1) | (5) | (1) | (10) |
| Total other income (expense) | (110) | (82) | (290) | (181) |
| Income before provision for income taxes | 4,929 | 1,113 | 10,952 | 206 |
| Provision (benefit) for income taxes | 1,517 | 130 | 3,554 | (2) |
| Net income | $ 3,412 | $ 983 | $ 7,398 | $ 208 |
| Earnings per common share: | ||||
| Basic | $ 0.23 | $ 0.06 | $ 0.50 | $ 0.01 |
| Diluted | $ 0.23 | $ 0.06 | $ 0.49 | $ 0.01 |
| Weighted average common shares: | ||||
| Basic | 14,677 | 15,490 | 14,659 | 15,462 |
| Diluted | 15,101 | 15,848 | 15,063 | 15,759 |
Basis of Presentation |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation | Note 1 – 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 certain information and footnote disclosures required for complete, audited financial statements. In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. The consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Results of operations for any interim period are not necessarily indicative of future or annual results.
Principles of consolidation
The 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.
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Summary of Significant Accounting Policies |
9 Months Ended |
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Sep. 30, 2023 | |
| Accounting Policies [Abstract] | |
| Summary of Significant Accounting Policies | Note 2 – Summary of Significant Accounting Policies
Our significant accounting policies, which are summarized in detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, have not materially changed. The following is a description of certain of our 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.
Cash and cash equivalents
Lifeway considers cash and all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates or equals fair value due to their short-term nature.
Lifeway from time to time may have bank deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. The Company places its cash and cash equivalents with high credit quality financial institutions. Lifeway has not experienced any losses in such accounts and believes the financial risks associated with these financial instruments are minimal.
Customer concentration
Sales are predominately to companies in the retail food industry located within the United States. Two major customers accounted for approximately 23% and 22% of net sales for the nine months ended September 30, 2023 and 2022, respectively. Two major customers accounted for approximately 24% and 23% of net sales for the three months ended September 30, 2023 and 2022, respectively.
Advertising and promotional costs
Lifeway expenses advertising costs as incurred and is reported in Selling expense in the Company’s consolidated statement of operations. Total advertising expense was $2,884 and $2,585 for the nine months ended September 30, 2023 and 2022, respectively. Total advertising expense was $878 and $848 for the three months ended September 30, 2023 and 2022, respectively.
Segments
The Company is managed as a single reportable segment. The Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), reviews financial information on an aggregate basis for purposes of allocating resources and assessing financial performance, as well as for making strategic operational decisions and managing the organization. Substantially all of Lifeway’s consolidated revenues relate to the sale of cultured dairy products that it produces using the same processes and materials and are sold to consumers through a common network of distributors and retailers in the United States.
Recent accounting pronouncements
Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance provides a single comprehensive accounting model on revenue recognition for contracts with customers and requires that the acquirer in a business combination recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). The amendments in this ASU are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard during the first quarter of 2023. The adoption did not have a material impact on the Company’s financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance will be effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. The ASU was effective upon issuance and allowed companies to adopt the amendments on a prospective basis through December 31, 2024.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, in November 2018 issued an amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and in November 2019 issued two amendments, ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The series of new guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The guidance should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard during the first quarter of 2023. The adoption did not have a material impact on the Company’s financial statements.
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Inventories, net |
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| Inventories, net | Note 3 – Inventories, net
Inventories consisted of the following:
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Property, Plant and Equipment, net |
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| Property, Plant and Equipment, net | Note 4 – Property, Plant and Equipment, net
Property, plant and equipment consisted of the following:
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Goodwill and Intangible Assets |
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| Goodwill and Intangible Assets | Note 5 – Goodwill and Intangible Assets
Goodwill
Goodwill consisted of the following:
Intangible Assets
Other intangible assets, net consisted of the following:
Estimated amortization expense on intangible assets for the next five years is as follows:
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Accrued Expenses |
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| Accrued Expenses | Note 6 – Accrued Expenses
Accrued expenses consisted of the following:
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Debt |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | Note 7 – Debt
Note payable consisted of the following:
The scheduled maturities of the term loan, excluding deferred financing costs, at September 30, 2023 are as follows:
Credit Agreement
The Company is party to an Amended and Restated Loan and Security Agreement (as amended and modified from time to time, the “Credit Agreement”) with its existing lender and certain of its subsidiaries. The Credit Agreement provides for, among other things, a $5 million term loan to be repaid in quarterly installments of principal and interest over a term of five years, a revolving line of credit up to a maximum of $5 million (the “Revolving Credit Facility”) and an incremental facility not to exceed $5 million. The termination date of the term loan is August 18, 2026, unless earlier terminated. The termination date of the revolving line of credit is June 30, 2025, unless earlier terminated.
All outstanding amounts under the Credit Agreement bear interest at the Secured Overnight Financing Rate (“SOFR”), plus 2.07%. Interest is payable monthly in arrears.
As of September 30, 2023, the Company had $2,777 outstanding under the Revolving Credit Facility. The Company had $2,223 available for future borrowings under the Revolving Credit Facility as of September 30, 2023. Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility as of September 30, 2023 was 7.34%.
The Credit Agreement includes customary representations, warranties, and covenants, including financial covenants requiring the Company to maintain a fixed charge coverage ratio of no less than 1.25 to 1.00, and a minimum working capital financial covenant, as defined, of no less than $11.25 million, in each of the fiscal quarters ending through the expiration date. The Credit Agreement continues to provide 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 Credit Agreement may be accelerated. The loans and all other amounts due and owed under the Credit Agreement and related documents are secured by substantially all of the Company’s assets.
Lifeway was in compliance with the fixed charge coverage ratio and minimum working capital covenants at September 30, 2023.
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Leases |
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| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | Note 8 – Leases
The Company leases certain machinery and equipment with fixed base rent payments and variable costs based on usage. Remaining lease terms for these leases range from less than one year to six years. The Company includes lease extension options, if applicable and reasonably certain to be exercised, in the calculation of the right-of-use asset and lease liabilities. Lifeway includes only fixed payments for lease components in the measurement of the right-of-use asset and lease liability. Variable lease payments are those that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time. There are no residual value guarantees. Lifeway does not currently have leases which meet the finance lease classification as defined under ASC 842.
Lifeway treats contracts as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, it directs the use of the asset and obtains substantially all the economic benefits of the asset.
Right-of-use assets and lease liabilities are measured and recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Lifeway has elected the practical expedient to combine lease and non-lease components into a single component for all of its leases. When the Company is unable to determine an implicit interest rate, it uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments for those leases. Lifeway includes options to extend or terminate the lease in the measurement of the right-of-use asset and lease liability when it is reasonably certain that it will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company does not record leases with an initial term of 12 months or less on the balance sheet. Expense for these short-term leases is recorded on a straight-line basis over the lease term. Total lease expense was $102 and $191 (including short term leases) for the nine months ended September 30, 2023 and 2022, respectively. Total lease expense was $41 and $44 (including short term leases) for the three months ended September 30, 2023 and 2022, respectively.
Future maturities of lease liabilities were as follows:
The weighted-average remaining lease term for its operating leases was 3.50 years as of September 30, 2023. The weighted average discount rate of its operating leases was 10.08% as of September 30, 2023. Cash paid for amounts included in the measurement of lease liabilities was $70 and $121 for the nine months ended September 30, 2023 and 2022, respectively. Cash paid for amounts included in the measurement of lease liabilities was $24 and $35 for the three months ended September 30, 2023 and 2022, respectively.
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Commitments and contingencies |
9 Months Ended |
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Sep. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and contingencies | Note 9 – Commitments and contingencies
Litigation
Lifeway is involved in various legal proceedings, claims, disputes, regulatory matters, audits, and proceedings arising in the ordinary course of, or incidental to the Company’s business, including commercial disputes, product liabilities, intellectual property matters and employment-related matters.
Lifeway records provisions in the consolidated financial statements for pending legal matters when it believes it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company evaluates, 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, it does not establish an accrued liability. Currently, none of its accruals for outstanding legal matters are material individually or in the aggregate to its 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 its business, financial condition, results of operations, or cash flows. However, if the Company is ultimately required to make payments in connection with an adverse outcome, it is possible that such contingency could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
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Income taxes |
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Sep. 30, 2023 | |
| Income Tax Disclosure [Abstract] | |
| Income taxes | Note 10 – Income taxes
Income taxes were recognized at effective rates of 32.5% and (0.8)% for the nine months ended September 30, 2023 and 2022, respectively. Income taxes were recognized at effective rates of 30.8% and 11.7% for the three months ended September 30, 2023 and 2022, respectively.
The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year, excluding unusual or infrequently occurring discrete items, and applies that rate to income (loss) before provision for income taxes for the period.
The Company’s effective tax rate may change from period to period based on recurring and non-recurring factors including the relative mix of pre-tax earnings (or losses), the jurisdictional mix of earnings, enacted tax legislation, state income taxes, the impact of non-deductible items, changes in valuation allowances, settlement of tax audits, and the expiration of the statute of limitations in relation to unrecognized tax benefits. The Company records discrete income tax items such as enacted tax rate changes and completed tax audits in the period in which they occur. The Company consistently reflects non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards and separate state tax rates from period to period. Although similar items were reflected in 2023, the percentage effect is different due to the difference in pre-tax income in 2023 compared to 2022.
Unrecognized tax benefits were $0 at September 30, 2023 and 2022, respectively. The Company does not expect material changes to its unrecognized tax benefits during the next twelve months.
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Stock-based and Other Compensation |
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| Stock-based and Other Compensation |
Omnibus Incentive Plan
In December 2015, Lifeway stockholders approved the 2015 Omnibus Incentive Plan, which authorized the issuance of an aggregate of shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units to qualifying employees. Under the 2015 Omnibus Incentive Plan, the Board of Directors or its Audit and Corporate Governance Committee approves stock awards to executive officers and certain senior executives, generally in the form of restricted stock or performance shares. The number of performance shares that participants may earn depends on the extent to which the corresponding performance goals have been achieved. Stock awards generally vest over a three-year performance or service period. At September 30, 2023, no shares remain available for award under the 2015 Omnibus Incentive Plan as it was terminated on August 31, 2022. However, any outstanding awards under the 2015 Omnibus Incentive Plan are unaffected by the termination of the 2015 Omnibus Incentive Plan or by the approval of the 2022 Omnibus Incentive Plan (the “2022 Plan”) as described below.
On August 31, 2022, Lifeway stockholders approved the 2022 Plan. Under the 2022 Plan, the Compensation Committee of the Board of Directors may grant awards of various types of compensation, including, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. The maximum number of shares authorized to be awarded under the 2022 Plan is shares of common stock, which includes shares that remained available under the now terminated 2015 Omnibus Incentive Plan.
Awards granted under the 2022 Plan are generally subject to a minimum vesting period of at least one year. Awards may be subject to cliff-vesting or graded-vesting conditions, with graded vesting starting no earlier than one year after the grant date. The Plan Administrator may provide for shorter vesting periods in an award agreement for no more than five percent of the maximum number of shares authorized for issuance under the 2022 Plan. As of September 30, 2023, shares remain available to award under the 2022 Plan.
Stock Options
The following table summarizes stock option activity during the nine months ended September 30, 2023:
Restricted Stock Units
A Restricted Stock Unit (“RSU”) represents the right to receive one share of common stock in the future. RSUs have no exercise price. The grant date fair value of the awards is determined by the Company’s closing stock price on the grant date. Lifeway expenses RSUs over the vesting period. The following table summarizes RSU activity during the nine months ended September 30, 2023.
For the nine months ended September 30, 2023 and 2022 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ and $, respectively. For the nine months ended September 30,2023 and 2022 tax-related benefits of $100 and $49, respectively, were also recognized. For the three months ended September 30, 2023 and 2022 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ and $, respectively. For the three months ended September 30, 2023 and 2022 tax-related benefits of $43 and $14, respectively, were also recognized. Future compensation expense related to restricted stock units was $ as of September 30, 2023 and will be recognized on a weighted average basis over the next years.
Long-Term Incentive Plan Compensation
Lifeway has established long-term incentive-based compensation programs for certain senior executives and key employees pursuant to the terms of its incentive plans.
2020 CEO Incentive Award
During the fourth quarter 2020, Lifeway awarded a long-term equity-based incentive of $750 to its Chief Executive Officer (the “2020 CEO Award”) depending on Lifeway’s 2020 performance levels compared to the respective targets. The equity-based incentive compensation is payable in restricted stock that vests one-third in April 2022, one-third in April 2023, and one-third in April 2024. The issuance of vested equity awards is subject to approval under the Stock Purchase Agreement dated October 1, 1999. For the nine months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively. For the three months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively. As of September 30, 2023, the total remaining unearned compensation was $, of which $ will be recognized in 2023, and $ in 2024, respectively, subject to vesting.
2021 Equity Award
The 2021 long-term equity incentive plan compensation is based on Lifeway’s achievement of adjusted EBITDA performance versus the respective target established by the Board of Directors for 2021. Under the 2021 plan, collectively the participants earned equity-based incentive compensation of $1,069 based on Lifeway’s achievement of the respective financial target. The equity-based incentive compensation is payable in restricted stock that vests one-third in April 2022, one-third in April 2023, and one-third in April 2024. For the nine months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively. For the three months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively. As of September 30, 2023, the total remaining unearned compensation was $, of which $ will be recognized in 2023, $ in 2024, respectively, subject to vesting.
2022 Equity Award
Under the 2022 long-term incentive plan, participants can earn a specified number of target level Performance Share Units (“PSUs”) contingent upon the achievement of strategic milestones during the three-year Measurement Period, which is fiscal year 2022 to 2024. The strategic milestones are 1) 3-year cumulative net revenue, and 2) 3-year cumulative adjusted EBITDA. The target number of PSU awards are weighted 50% on net revenue and 50% on adjusted EBITDA. Collectively, the participants can earn 125,066 PSUs at the target level. Participants may earn more or less than the target number of shares based on actual results, however the minimum and maximum number of shares that can be earned are bound by minimum and maximum thresholds of net revenue and adjusted EBITDA. The PSU awards will be earned and will vest, if at all, after the end of the three-year measurement period based on achievement of the milestones. The PSU awards do not vest during the three-year measurement period. The PSUs have a grant date fair value of $6.25 dollars per share. For the nine months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively. For the three months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.
The 2022 long-term incentive plan also granted restricted stock unit awards that contain only a service condition and vest on the passage of time in three equal installments on each of the first three anniversaries of the August 31, 2022 grant date. The stock-based compensation expense for these awards is included in the Restricted Stock Units section above.
2023 Equity Award
Under the 2023 long-term incentive plan, participants can earn a specified number of target level Performance Share Units (“PSUs”) contingent upon the achievement of strategic milestones during the three-year Measurement Period, which is fiscal year 2023 to 2025. The strategic milestones are 1) 3-year cumulative net revenue, and 2) 3-year cumulative adjusted EBITDA. The target number of PSU awards are weighted 50% on net revenue and 50% on adjusted EBITDA. Collectively, the participants can earn 115,622 PSUs at the target level. Participants may earn more or less than the target number of shares based on actual results, however the minimum and maximum number of shares that can be earned are bound by minimum and maximum thresholds of net revenue and adjusted EBITDA. The PSU awards will be earned and will vest, if at all, after the end of the three-year measurement period based on achievement of the milestones. The PSU awards do not vest during the three-year measurement period. The PSUs have a grant date fair value of $6.88 dollars per share. For the nine months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively. For the three months ended September 30, 2023 and 2022, $ and $ was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.
The 2023 long-term incentive plan also granted restricted stock unit awards that contain only a service condition and vest on the passage of time in three equal installments on each of the first three anniversaries of the June 16, 2023 grant date. The stock-based compensation expense for these awards is included in the Restricted Stock Units section above.
Non-Employee Director Plan
On August 31, 2022, Lifeway stockholders approved the 2022 Non-Employee Director Equity and Deferred Compensation Plan (the “2022 Director Plan”), which authorizes the grant of restricted stock units (“RSUs”), which will vest on such schedule as the Company, in its sole discretion, shall determine. Each non-employee director of the Company is eligible to be a participant in the 2022 Director Plan until they no longer serve as a non-employee director. As of the date of each annual shareholder meeting, the Company may grant each director a number of RSUs for such year and set the vesting schedule for the RSUs granted. Whether and how many RSUs the Company will grant to directors in any year is subject to the sole discretion of the Company and shall in any event be subject to the 2022 Director Plan’s overall share limits. The maximum aggregate number of shares of common stock that may be issued under the 2022 Director Plan is 500 thousand shares. As of September 30, 2023, thousand shares remain available to award under the 2022 Director Plan. The aggregate fair market value of shares underlying RSU compensation that may be issued as RSU compensation to a director in any year shall not exceed $170. In addition to the grant of RSUs, the 2022 Director Plan also provides for the deferral by electing participants of all or part of their cash compensation (in 10% increments) into a deferred cash account, and they may defer all or part of their cash and/or RSU compensation (in 10% increments) into a deferred RSU account. Deferred benefits are paid in a lump sum upon the applicable director’s departure from the Board of Directors.
Retirement Benefits
Lifeway has a defined contribution plan which is available to substantially all full-time employees. Under the terms of the plan, the Company matches employee contributions under a prescribed formula. For the nine months ended September 30, 2023 and 2022 total contribution expense recognized in the consolidated statements of operations was $364 and $328, respectively. For the three months ended September 30, 2023 and 2022, total contribution expense recognized in the consolidated statements of operations was $106 and $97, respectively.
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Earnings Per Share |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share |
The following table summarizes the effects of the share-based compensation awards on the weighted average number of shares outstanding used in calculating diluted earnings (loss) per share:
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Related Party Transactions |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | Note 13 – Related Party Transactions
Consulting Services
Lifeway obtained consulting services from Ludmila Smolyansky, a member of the Company’s Board of Directors and former Chairperson of its Board of Directors. On January 4, 2022, the Company notified Ms. Smolyansky that it was terminating the amended and restated consultancy agreement effective January 17, 2022. Service fees earned are included in general and administrative expenses in the accompanying consolidated statements of operations and were $0 and $22 during each of the nine months ended September 30, 2023 and 2022, respectively. Service fees earned are included in general and administrative expenses in the accompanying consolidated statements of operations and were $0 during each of the three months ended September 30, 2023 and 2022.
Endorsement Agreement
Lifeway was also a party to an endorsement agreement, dated as March 14, 2016, by and between the Company and Ludmila Smolyansky, a member of the Company’s Board of Directors and former Chairperson of its Board of Directors (the “Endorsement Agreement”) under which it paid the Chairperson a royalty based on the sale of certain Lifeway products, not to exceed $50 in any fiscal month.
On September 6, 2022, the Company entered into an agreement (the “Termination Agreement”) with Ms. Smolyansky that terminated the Endorsement Agreement as of September 6, 2022.
Pursuant to the Termination Agreement, the Company and Ms. Smolyansky have agreed, among other things, that (i) the Company paid Ms. Smolyansky a lump sum payment of $400, (ii) Ms. Smolyansky will no longer have any further claims against the Company under the Endorsement Agreement, and (iii) the Endorsement Agreement was terminated and of no further force or effect except for the provisions thereof that expressly survive termination.
Royalties earned were $0 and $400 during each of the nine months ended September 30, 2023 and 2022, respectively. Royalties earned were $0 and $100 during each of the three months ended September 30, 2023 and 2022, respectively.
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Subsequent Event |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Subsequent Events [Abstract] | |
| Subsequent Event | Note 14 – Subsequent Event
On October 6, 2023, the Company paid the outstanding line of credit balance of $2,777 in full. There were no amounts outstanding under the line of credit after October 6, 2023, through the date of filing of these financial statements.
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Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| 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.
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| Cash and cash equivalents | Cash and cash equivalents
Lifeway considers cash and all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates or equals fair value due to their short-term nature.
Lifeway from time to time may have bank deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. The Company places its cash and cash equivalents with high credit quality financial institutions. Lifeway has not experienced any losses in such accounts and believes the financial risks associated with these financial instruments are minimal.
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| Customer concentration | Customer concentration
Sales are predominately to companies in the retail food industry located within the United States. Two major customers accounted for approximately 23% and 22% of net sales for the nine months ended September 30, 2023 and 2022, respectively. Two major customers accounted for approximately 24% and 23% of net sales for the three months ended September 30, 2023 and 2022, respectively.
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| Advertising and promotional costs | Advertising and promotional costs
Lifeway expenses advertising costs as incurred and is reported in Selling expense in the Company’s consolidated statement of operations. Total advertising expense was $2,884 and $2,585 for the nine months ended September 30, 2023 and 2022, respectively. Total advertising expense was $878 and $848 for the three months ended September 30, 2023 and 2022, respectively.
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| Segments | Segments
The Company is managed as a single reportable segment. The Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), reviews financial information on an aggregate basis for purposes of allocating resources and assessing financial performance, as well as for making strategic operational decisions and managing the organization. Substantially all of Lifeway’s consolidated revenues relate to the sale of cultured dairy products that it produces using the same processes and materials and are sold to consumers through a common network of distributors and retailers in the United States.
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| Recent accounting pronouncements | Recent accounting pronouncements
Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance provides a single comprehensive accounting model on revenue recognition for contracts with customers and requires that the acquirer in a business combination recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). The amendments in this ASU are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard during the first quarter of 2023. The adoption did not have a material impact on the Company’s financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance will be effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. The ASU was effective upon issuance and allowed companies to adopt the amendments on a prospective basis through December 31, 2024.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, in November 2018 issued an amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and in November 2019 issued two amendments, ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The series of new guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The guidance should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard during the first quarter of 2023. The adoption did not have a material impact on the Company’s financial statements.
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Inventories, net (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventories |
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Property, Plant and Equipment, net (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property, plant and equipment |
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Goodwill and Intangible Assets (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of goodwill |
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| Schedule of finite-lived intangible assets |
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| Schedule of estimated amortization expense on intangible assets |
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Accrued Expenses (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accrued expenses |
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Debt (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of debt |
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| Schedule of maturities of long-term debt |
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Leases (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of future maturities of lease liabilities |
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Stock-based and Other Compensation (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of stock option activity |
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| Schedule of RSU Activity |
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Earnings Per Share (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of weighted average number of shares |
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Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
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| Product Information [Line Items] | ||||
| Advertising expense | $ 878 | $ 848 | $ 2,884 | $ 2,585 |
| Revenue Benchmark [Member] | One Customer [Member] | Customer Concentration Risk [Member] | ||||
| Product Information [Line Items] | ||||
| Concentration risk | 24.00% | 23.00% | 23.00% | 22.00% |
| Revenue Benchmark [Member] | Two Customer [Member] | Customer Concentration Risk [Member] | ||||
| Product Information [Line Items] | ||||
| Concentration risk | 24.00% | 23.00% | 23.00% | 22.00% |
Inventories, net (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Ingredients | $ 2,711 | $ 2,859 |
| Packaging | 3,048 | 3,233 |
| Finished goods | 3,562 | 3,539 |
| Total inventories, net | $ 9,321 | $ 9,631 |
Property, Plant and Equipment, net (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 59,759 | $ 56,491 |
| Less accumulated depreciation | (37,474) | (35,586) |
| Total property, plant and equipment, net | 22,285 | 20,905 |
| Land [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 1,565 | 1,565 |
| Building and Building Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 19,463 | 19,341 |
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 33,574 | 32,786 |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 705 | 640 |
| Office Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 1,059 | 979 |
| Construction in Progress [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 3,393 | $ 1,180 |
Goodwill and Intangible Assets (Details - Goodwill) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Goodwill before impairment | $ 12,948 | |
| Goodwill, impaired, accumulated impairment loss | (1,244) | |
| Goodwill | $ 11,704 | $ 11,704 |
Goodwill and Intangible Assets (Details - Amortization expense on intangible assets) $ in Thousands |
Sep. 30, 2023
USD ($)
|
|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| Three months ended December 31, 2023 | $ 135 |
| 2024 | 540 |
| 2025 | 540 |
| 2026 | 540 |
| 2027 | $ 540 |
Accrued Expenses (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Payroll and incentive compensation | $ 4,381 | $ 2,925 |
| Real estate taxes | 556 | 394 |
| Utilities | 174 | 121 |
| Current portion of operating lease liabilities | 73 | 70 |
| Other | 371 | 303 |
| Total accrued expenses | $ 5,555 | $ 3,813 |
Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| Term loan due August 18, 2026. Interest (7.40% at September 30, 2023) payable monthly. | $ 3,000 | $ 3,750 |
| Unamortized deferred financing costs | (19) | (23) |
| Total note payable | 2,981 | 3,727 |
| Less current portion | (1,250) | (1,250) |
| Total long-term portion | $ 1,731 | $ 2,477 |
Debt (Details - Maturities) $ in Thousands |
Sep. 30, 2023
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| Three months ended December 31, 2023 | $ 500 |
| 2024 | 1,000 |
| 2025 | 1,000 |
| 2026 | 500 |
| Total term loan | $ 3,000 |
Debt (Details Narrative) |
9 Months Ended |
|---|---|
|
Sep. 30, 2023
USD ($)
| |
| Revolving Credit Facility [Member] | |
| Short-Term Debt [Line Items] | |
| Outstanding amount | $ 2,777,000 |
| Available for future borrowings | $ 2,223,000 |
| Credit line effective interest rate | 7.34% |
| Credit Agreement Term Loan [Member] | |
| Short-Term Debt [Line Items] | |
| Termination Loans | $ 5,000,000 |
| Debt Instrument, Maturity Date | Aug. 18, 2026 |
| Revolving Credit Facility [Member] | |
| Short-Term Debt [Line Items] | |
| Outstanding amount | $ 5,000,000 |
| Credit Agreement Line Of Credit [Member] | |
| Short-Term Debt [Line Items] | |
| Debt Instrument, Maturity Date | Jun. 30, 2025 |
| Credit Agreement [Member] | |
| Short-Term Debt [Line Items] | |
| Debt Instrument, Interest Rate Terms | Secured Overnight Financing Rate (“SOFR”), plus 2.07% |
Leases (Details) $ in Thousands |
Sep. 30, 2023
USD ($)
|
|---|---|
| Leases | |
| Three months ended December 31, 2023 | $ 22 |
| 2024 | 86 |
| 2025 | 52 |
| 2026 | 29 |
| 2027 | 21 |
| Thereafter | 0 |
| Total lease payments | 210 |
| Less: Interest | (7) |
| Present value of lease liabilities | $ 203 |
Leases (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Leases | ||||
| Total lease expense | $ 41 | $ 44 | $ 102 | $ 191 |
| Weighted average remaining lease term | 3 years 6 months | 3 years 6 months | ||
| Weighted average discount rate | 10.08% | 10.08% | ||
| Operating lease liabilities | $ 24 | $ 35 | $ 70 | $ 121 |
Income taxes (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Tax Disclosure [Abstract] | ||||
| Effective income tax rate reconciliation, percent | 30.80% | 11.70% | 32.50% | (0.80%) |
| Unrecognized Tax Benefits | $ 0 | $ 0 | $ 0 | $ 0 |
Stock-based and Other Compensation (Details - Restricted Stock Units) - Restricted Stock Units (RSUs) [Member] shares in Thousands |
9 Months Ended |
|---|---|
|
Sep. 30, 2023
$ / shares
shares
| |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Number of shares outstanding, beginning | shares | 164 |
| Weighted average grant date fair value outstanding, beginning | $ / shares | $ 5.69 |
| Granted | shares | 85 |
| Weighted average grant date fair value, granted | $ / shares | $ 8.14 |
| Shares issued upon vesting | shares | (37) |
| Weighted average grant date fair value, shares issued upon vesting | $ / shares | $ 4.57 |
| Forfeited | shares | (5) |
| Weighted average grant date fair value, forfeited | $ / shares | $ 6.25 |
| Number of shares outstanding, ending | shares | 207 |
| Weighted average grant date fair value outstanding, ending | $ / shares | $ 6.89 |
| Vested and deferred | shares | 54 |
| Weighted average grant date fair value, vested and deferred | $ / shares | $ 5.78 |
Schedule of Weighted Average Number of Shares (Details) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Earnings per common share: | ||||
| Weighted average common shares outstanding | 14,677 | 15,490 | 14,659 | 15,462 |
| Assumed exercise/vesting of equity awards | 424 | 358 | 404 | 297 |
| Weighted average diluted common shares outstanding | 15,101 | 15,848 | 15,063 | 15,759 |
Related Party Transactions (Details Narrative) - Ludmila Smolyansky [Member] - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Related Party Transaction [Line Items] | ||||
| Other General and Administrative Expense | $ 0 | $ 0 | $ 0 | $ 22 |
| Royalty expense | $ 0 | $ 100 | $ 0 | $ 400 |