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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2005
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-17363
LIFEWAY FOODS, INC.
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(Exact name of small business issuer as specified in it charter)
Illinois 36-3442829
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6431 WEST OAKTON, MORTON GROVE, ILLINOIS 60053
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(Address of principal executive offices)
(847) 967-1010
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of September 30, 2005, the issuer
had 8,393,855 shares of common stock, no par value, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
================================================================================
INDEX
PART I - FINANCIAL INFORMATION................................................3
ITEM 1. FINANCIAL STATEMENTS..............................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........19
ITEM 3. CONTROLS AND PROCEDURES..........................................21
PART II - OTHER INFORMATION..................................................21
ITEM 2. LEGAL PROCEEDINGS.................................................21
ITEM 5. OTHER INFORMATION.................................................21
ITEM 6. EXHIBITS..........................................................22
SIGNATURE....................................................................23
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFEWAY FOODS, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 2005 and 2004
and December 31, 2004
SEPTEMBER 30, DECEMBER 31,
---------------------------- ------------
2005 2004 2004
------------ ------------ ------------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 4,191,755 $ 5,348,135 $ 5,773,285
Marketable securities 7,580,531 6,727,867 6,741,987
Accounts receivable, net of allowance for doubtful
accounts of $15,000 at September 30, 2005 and 2004
and December 31, 2004 2,637,528 1,943,032 2,024,036
Other receivables 109,093 80,582 72,137
Inventories 1,301,066 915,951 905,697
Prepaid expenses and other current assets 82,293 8,344 7,260
Deferred income taxes 46,881 90,937 --
Refundable income taxes 58,037 68,042 258,617
------------ ------------ ------------
TOTAL CURRENT ASSETS 16,007,184 15,182,890 15,783,019
PROPERTY AND EQUIPMENT, NET 7,755,352 3,482,524 3,420,138
INTANGIBLE ASSETS
Goodwill 75,800 511,800 75,800
Other intangible assets, net of amortization of $59,379
and $26,990 at September 30, 2005 and December 31, 2004 366,567 -- 409,010
------------ ------------ ------------
TOTAL INTANGIBLE ASSETS 442,367 511,800 484,810
TOTAL ASSETS $ 24,204,903 $ 19,177,214 $ 19,687,967
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of notes payable $ 534,938 $ 11,716 $ 8,784
Accounts payable 648,881 701,145 641,651
Accrued expenses 453,895 186,591 195,541
Deferred income taxes -- 36,214
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,637,714 899,452 882,190
NOTES PAYABLE 2,919,656 465,796 463,541
DEFERRED INCOME TAXES 362,314 426,895 424,039
STOCKHOLDERS' EQUITY
Common stock 6,509,267 6,509,267 6,509,267
Paid-in-capital 82,738 56,540 64,314
Stock subscription receivable (5,000) --
Treasury stock, at cost (1,034,172) (652,776) (649,039)
Retained earnings 13,715,660 11,534,832 11,874,475
Accumulated other comprehensive income (loss), net of taxes 11,726 (57,792) 119,180
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 19,285,219 17,385,071 17,918,197
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,204,903 $ 19,177,214 $ 19,687,967
============ ============ ============
See accompanying notes to financial statements
3
LIFEWAY FOODS, INC. AND SUBSIDIARY
Consolidated Statements of Income and Comprehensive Income
For the Three and Nine Months Ended September 30, 2005 and 2004
and The Year Ended December 31, 2004
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
---------------------------- ---------------------------- ------------
2005 2004 2005 2004 2004
------------ ------------ ------------ ------------ ------------
SALES $ 5,194,648 $ 4,138,606 $ 14,924,076 $ 12,075,778 $ 16,319,210
Cost of goods sold 3,073,314 2,239,553 $ 8,607,538 $ 6,604,554 9,034,971
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 2,121,334 1,899,053 6,316,538 5,471,224 7,284,239
Operating expenses 1,359,171 1,157,906 $ 3,793,394 $ 3,089,336 4,333,788
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 762,163 741,147 2,523,144 2,381,888 2,950,451
Other income (expense):
Interest and dividend income 72,363 49,689 212,927 124,897 185,575
Interest expense (36,877) (7,584) (51,195) (23,103) (31,441)
Gain (loss) on sale of marketable
securities, net 162,446 12,386 324,433 321,716 354,128
Gain (loss) on marketable securities
classified as trading (681) 15,681 14,355 (12,077) (16,487)
------------ ------------ ------------ ------------ ------------
Total other income 197,251 70,172 500,520 411,433 491,775
------------ ------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 959,414 811,319 3,023,664 2,793,321 3,442,226
Provision for income taxes 400,464 296,210 1,182,479 1,080,905 1,390,167
------------ ------------ ------------ ------------ ------------
NET INCOME $ 558,950 $ 515,109 $ 1,841,185 $ 1,712,416 $ 2,052,059
============ ============ ============ ============ ============
BASIC AND DILUTED EARNINGS PER COMMON
SHARE 0.07 0.06 0.22 0.20 0.24
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 8,400,700 8,440,888 8,400,750 8,440,888 8,439,159
============ ============ ============ ============ ============
COMPREHENSIVE INCOME
--------------------
NET INCOME $ 558,950 $ 515,109 $ 1,841,185 $ 1,712,416 $ 2,052,059
Other comprehensive income (loss), net
of tax:
Unrealized gains (losses) on
marketable securities
(net of tax benefits) 103,458 (11,245) (282,988) (25,827) 170,107
Less reclassification adjustment for
gains (losses)
included in net income (net of taxes) (96,369) (5,140) (190,442) (188,202) (207,164)
------------ ------------ ------------ ------------ ------------
Comprehensive income $ 566,039 $ 498,724 $ 1,733,731 $ 1,498,387 $ 2,015,002
============ ============ ============ ============ ============
See accompanying notes to financial statements
4
LIFEWAY FOODS, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 2005
and the Year Ended December 31, 2004
COMMON STOCK, NO PAR VALUE
10,000,000 SHARES AUTHORIZED # OF SHARES
--------------------------- OF
# OF SHARES # OF SHARES TREASURY COMMON PAID IN
ISSUED OUTSTANDING STOCK STOCK CAPITAL
------------ ------------ ------------ ------------ ------------
BALANCES AT
DECEMBER 31, 2003 8,636,888 8,436,888 200,000 $ 6,509,267 $ --
Issuance of
treasury stock -- 4,550 (4,550) -- 64,314
Other comprehensive
income (loss):
Unrealized losses
on securities,
net of taxes and
reclassification
adjustment -- -- -- -- --
Payment on
subscription
receivable -- -- -- -- --
Net income for the
year ended December
31, 2004 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCES AT
DECEMBER 31, 2004 8,636,888 8,441,438 195,450 $ 6,509,267 $ 64,314
Issuance of
treasury stock -- 2,417 (2,417) -- 18,424
Redemption of
treasury stock -- (50,000) 50,000 -- --
Other comprehensive
income (loss):
Unrealized losses
on securities,
net of taxes and
reclassification
adjustment -- -- -- -- --
Net income for the
nine months ended
September 30, 2005 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCES AT
SEPTEMBER 30, 2005 8,636,888 8,393,855 243,033 $ 6,509,267 $ 82,738
============ ============ ============ ============ ============
ACCUMULATED
OTHER
STOCK COMPREHENSIVE
SUBSCRIPTION TREASURY RETAINED INCOME (LOSS),
RECEIVABLE STOCK EARNINGS NET OF TAX TOTAL
------------ ------------ ------------ ------------ ------------
BALANCES AT
DECEMBER 31, 2003 $ (15,000) $ (679,956) $ 9,822,416 $ 156,237 $ 15,792,964
Issuance of
treasury stock -- 30,917 -- -- 95,231
Other comprehensive
income (loss):
Unrealized losses
on securities,
net of taxes and
reclassification
adjustment -- -- -- (37,057) (37,057)
Payment on
subscription
receivable 15,000 -- -- -- 15,000
Net income for the
year ended December
31, 2004 -- -- 2,052,059 -- 2,052,059
------------ ------------ ------------ ------------ ------------
BALANCES AT
DECEMBER 31, 2004 $ -- $ (649,039) $ 11,874,475 $ 119,180 $ 17,918,197
Issuance of
treasury stock -- 16,421 -- -- 34,845
Redemption of
treasury stock -- (401,554) -- -- (401,554)
Other comprehensive
income (loss):
Unrealized losses
on securities,
net of taxes and
reclassification
adjustment -- -- -- (107,454) (107,454)
Net income for the
nine months ended
September 30, 2005 -- -- 1,841,185 -- 1,841,185
------------ ------------ ------------ ------------ ------------
BALANCES AT
SEPTEMBER 30, 2005 $ -- $ (1,034,172) $ 13,715,660 $ 11,726 $ 19,285,219
============ ============ ============ ============ ============
See accompanying notes to financial statements
5
LIFEWAY FOODS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2005 and 2004
and the Year Ended December 31, 2004
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------- ------------
2005 2004 2004
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
NET INCOME $ 1,841,185 $ 1,712,416 $ 2,052,059
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization 486,050 474,876 669,994
Gain on sale of marketable securities, net (324,433) (321,716) (354,128)
(Gain)/Loss on marketable securities classified as trading (14,355) 12,077 16,487
Deferred income taxes (69,220) 45,776 45,560
Treasury stock issued for services 34,845 -- 95,231
(Increase) decrease in operating assets:
Accounts receivable (613,492) (142,891) (223,895)
Other receivables (36,956) 85,185 93,630
Inventories (395,369) (104,379) (94,125)
Refundable income taxes 200,580 238,129 47,554
Prepaid expenses and other current assets (75,033) (7,551) (6,469)
Increase (decrease) in operating liabilities:
Accounts payable 7,230 (94,176) (153,670)
Accrued expenses 258,354 2,991 11,941
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,299,386 1,900,737 2,200,169
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Purchases of marketable securities (5,149,008) (5,790,781) (6,265,671)
Sale of marketable securities 4,466,196 5,306,395 6,096,652
Purchases of property and equipment (4,772,181) (224,669) (330,411)
Acquisition of Ilya's Farms, Inc. net of assets acquired -- (511,800) (511,800)
Loan acquisition costs (6,638) -- --
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (5,461,631) (1,220,855) (1,011,230)
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Proceeds from stock subscription receivable -- 83,720 15,000
Proceeds from note payable 3,000,000 -- --
Purchases of treasury stock (401,554) 10,000 --
Repayment of notes payable (17,731) (23,286) (28,473)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,580,715 70,434 (13,473)
------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents (1,581,530) 750,316 1,175,466
Cash and cash equivalents at the beginning of the period 5,773,285 4,597,819 4,597,819
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 4,191,755 $ 5,348,135 $ 5,773,285
============ ============ ============
6
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 1 - NATURE OF BUSINESS
Lifeway Foods, Inc. (The "Company") commenced operations in February 1986 and
incorporated under the laws of the state of Illinois on May 19, 1986. The
Company's principal business activity is the production of dairy products.
Specifically, the Company produces Kefir, a drinkable product which is similar
to but distinct from yogurt, in several flavors sold under the name "Lifeway's
Kefir;" a plain farmer's cheese sold under the name "Lifeway's Farmer's Cheese;"
a fruit sugar-flavored product similar in consistency to cream cheese sold under
the name of "Sweet Kiss;" and a dairy beverage, similar to Kefir, with increased
protein and calcium, sold under the name "Basics Plus." The Company also
produces several soy-based products under the name "Soy Treat" and a
vegetable-based seasoning under the name "Golden Zesta." The Company currently
distributes its products throughout the Chicago Metropolitan area through local
food stores. In addition, the products are sold throughout the United States and
Ontario, Canada by distributors. The Company also distributes some of its
products to Eastern Europe.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows:
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, LFI Enterprises, Inc. All
significant intercompany accounts and transactions have been
eliminated.
Use of estimates
----------------
The preparation of financial statements in conformity with the Public
Company Accounting Oversight Board (PCAOB) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
-------------------
Sales represent sales of Company produced dairy products that are
recorded at the time of shipment. In addition, shipping costs invoiced
to the customers are included in net sales and the related cost in cost
of sales.
7
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Cash and cash equivalents
-------------------------
All highly liquid investments purchased with an original maturity of
three months or less are considered to be cash equivalents.
The Company maintains cash deposits at several institutions located in
the greater Chicago, Illinois and Philadelphia, Pennsylvania
metropolitan areas. Deposits at each institution are insured up to
$100,000 by the Federal Deposit Insurance Corporation or the Securities
Investor Protector Corporation.
Bank balances of amounts reported by financial institutions are
categorized as follows:
September 30, December 31,
----------------------- ------------
2005 2004 2004
---------- ----------- ------------
Amounts insured $ 500,000 $ 500,000 $ 472,341
Uninsured and uncollateralized
amounts 3,959,945 5,041,913 5,456,188
---------- ----------- ------------
Total bank balances $4,459,945 $5,541,913 $5,928,529
========== =========== ============
Marketable securities
---------------------
Marketable securities are classified as available-for-sale or trading
and are stated at fair value or quoted prices. Gains and losses related
to marketable securities sold are determined by the specific
identification method.
Accounts receivable
-------------------
Credit terms are extended to customers in the normal course of
business. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral.
Accounts receivable are recorded at invoice amounts, and reduced to
their estimated net realizable value by recognition of an allowance for
doubtful accounts. The Company's estimate of the allowance for doubtful
accounts is based upon historical experience, its evaluation of the
current status of specific receivables, and unusual circumstances, if
any. Accounts are considered past due if payment is not made on a
timely basis in accordance with the Company's credit terms. Accounts
considered uncollectible are charged against the allowance.
Inventories
-----------
Inventories are stated at lower of cost or market, cost being
determined by the first-in, first-out method.
8
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Property and equipment
----------------------
Property and equipment are stated at depreciated cost or fair value
where depreciated cost is not recoverable. Depreciation is computed
using the straight-line method. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is charged
to income as incurred; significant renewals and betterments are
capitalized.
Property and equipment are being depreciated over the following useful
lives:
Category Years
-------------------------- ---------
Buildings and improvements 31 and 39
Machinery and equipment 5 - 12
Office equipment 5 - 7
Vehicles 5
Intangible assets
-----------------
The Company accounts for intangible assets at historical cost.
Intangible assets acquired in a business combination are recorded under
the purchase method of accounting at their estimated fair values at the
date of acquisition. Goodwill represents the excess purchase price over
the fair value of the net tangible and other intangible assets
acquired. Goodwill is not amortized. The Company amortizes other
intangible assets over their estimated useful lives, as disclosed in
the table below.
Goodwill is reviewed for impairment at least annually. Since the
Company only has one reporting unit, the test is based on a fair value
approach applied for the entire company.
The Company will review intangible assets and their related useful
lives at least once a year to determine if any adverse conditions exist
that would indicate the carrying value of these assets may not be
recoverable. This review is called an impairment assessment. The
Company will conduct more frequent impairment assessments if certain
conditions exist, including: a change in the competitive landscape, any
internal decisions to pursue new or different strategies, a loss of a
significant customer, or a significant change in the market place
including changes in the prices paid for the Company's products or
changes in the size of the market for the Company's products.
If the estimate of an intangible asset's remaining useful life is
changed, the remaining carrying amount of the intangible asset is
amortized prospectively over the revised remaining useful life.
Intangible assets are being amortized over the following useful lives:
Category Years
-------------------------- ---------
Recipes 4
Customer lists and other
customer related intangibles 8
Lease agreement 7
9
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income taxes
------------
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax
purposes in different periods. Deferred taxes are classified as current
or non-current, depending on the classification of the assets and
liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are
classified as current or non-current depending on the periods in which
the temporary differences are expected to reverse.
The principal sources of temporary differences are different
depreciation and amortization methods for financial statement and tax
purposes, unrealized gains or losses related to marketable securities,
capitalization of indirect costs for tax purposes, and the recognition
of an allowance for doubtful accounts for financial statement purposes.
Treasury stock
--------------
Treasury stock is recorded using the cost method.
Advertising costs
-----------------
The Company expenses advertising costs as incurred. During the years
ended December 31, 2004 and for the nine months ended September 30,
2005 and 2004, approximately $909,179, $914,598 and $619,852, of such
costs respectively, were expensed.
Earning per common share
------------------------
Earnings per common share were computed by dividing net income
available to common stockholders by the weighted average number of
common shares outstanding during the period. For all periods presented,
diluted and basic earnings per share were the same, as the effect of
dilutive securities options outstanding was not significant.
NOTE 3 - ACQUISITION OF ILYA'S FARMS, INC.
On July 23, 2004, LFI Enterprises, Inc., an Illinois corporation and wholly
owned subsidiary of Lifeway ("LFIE"), acquired certain assets of Ilya's Farms,
Inc., a Pennsylvania corporation. The aggregate purchase price was $575,600,
paid by LFIE in cash from its current assets.
As a result of the acquisition LFIE now manufactures and distributes certain
cream cheese products under the brand name "Ilya's Farms" in the Philadelphia,
Pennsylvania metropolitan area. The results of operations of the acquired
business have been included in the consolidated financial statements since the
acquisition date.
The following table summarizes the values of the assets and inventory acquired
at the date of acquisition, July 23, 2004.
Assets and Inventory Acquired Value
---------------------------------------- --------
Machinery and equipment $ 38,200
Inventory 25,600
Intangible assets 511,800
--------
Total aggregate purchase price $575,600
========
10
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 4 - INTANGIBLE ASSETS
Intangible assets, and the related accumulated amortization, consist of the
following as of September 30, 2005:
Accumulated
Cost Amortization
--------- ------------
Recipes 43,600 12,717
Customer lists and other customer
related intangibles 305,200 48,323
Lease acquisition 87,200 14,533
Goodwill 75,800 --
Loan acquisition costs $ 6,638 $ 498
--------- ---------
$ 518,438 $ 76,071
========= =========
Amortization expense is expected to be as follows for the 12 months ending
September 30:
2006 $ 66,105
2007 66,105
2008 66,105
2009 56,113
2010 54,873
Thereafter 57,266
----------
$ 366,567
==========
Amortization expense during the nine months ended September 30, 2005 and year
ended December 31, 2004 was $49,081 and $26,990.
11
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 5 - MARKETABLE SECURITIES
The cost and fair value of marketable securities classified as available
for sale and trading are as follows:
Loss on
Marketable
Securities
Unrealized Unrealized Classified as Fair
September 30, 2005 Cost Gains Losses Trading Value
------------------ --------- ---------- ---------- ------------- ---------
Equities and Mutual
Funds 4,136,818 221,349 (121,835) 4,236,332
Preferred Securities 955,233 (19,849) 935,384
Certificates of Deposit 150,000 (3,630) 146,370
Corporate Bonds 2,159,363 (55,732) 2,103,631
Municipal Bonds 61,275 1,012 (1,341) 60,946
Government agency
obligations 100,000 (2,132) 97,868
--------- ---------- ---------- ------------ ---------
Total 7,562,689 222,361 (202,387) (2,132) 7,580,531
========= ========== ========== ============ =========
Loss on
Marketable
Securities
Unrealized Unrealized Classified as Fair
September 30, 2004 Cost Gains Losses Trading Value
------------------ --------- ---------- ---------- ------------- ----------
Equities/Mutual Funds $3,713,163 $ 101,144 $ (188,299) $ -- $3,626,008
Preferred Securities 75,505 1,825 -- -- 77,330
Certificates of Deposit 150,000 -- (7,440) -- 142,560
Corporate Bonds 1,614,275 -- (8,177) -- 1,606,098
Municipal bonds,
maturing within five
years 132,224 2,490 -- -- 134,714
Government agency
Obligations,
maturing
After five years 1,153,234 -- -- (12,077) 1,141,157
---------- ---------- ---------- ------------- ----------
Total $6,838,401 $ 105,459 $ (203,916) $ (12,077) $6,727,867
========== ========== ========== ============= ==========
12
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 5 - MARKETABLE SECURITIES - CONTINUED
Loss on
Marketable
Securities
Unrealized Unrealized Classified as Fair
December 31, 2004 Cost Gains Losses Trading Value
----------------- --------- ---------- ---------- ------------- ----------
Equities and Mutual
Funds $3,414,459 $ 341,230 $ (120,991) $ -- $3,634,698
Preferred Securities 65,000 596 -- -- 65,596
Certificates of Deposit 150,000 -- (4,935) -- 145,065
Corporate Bonds 1,639,275 -- (14,862) -- 1,624,413
Municipal bonds,
maturing within five
years 132,226 1,992 -- -- 134,218
Government agency
obligations, maturing
after five years 1,154,484 -- -- (16,487) 1,137,997
---------- ---------- ---------- ------------- ----------
Total $6,555,444 $ 343,818 $ (140,788) $ (16,487) $6,741,987
========== ========== ========== ============= ==========
Proceeds from the sale of marketable securities were $6,096,652, $4,466,196 and
$5,306,395 during the year ended December 31, 2004 and for the nine months ended
September 30, 2005 and 2004, respectively.
Gross gains of $354,128, $324,433 and $321,716 were realized on these sales
during the year ended December 31, 2004 and for the nine months ended September
30, 2005 and 2004, respectively.
NOTE 6 - INVENTORIES
Inventories consist of the following:
September 30, December 31,
----------------------- ------------
2005 2004 2004
----------- --------- ------------
Finished goods $ 537,514 $ 386,700 $ 404,206
Production supplies 460,664 308,766 297,791
Raw materials 302,888 220,485 203,700
---------- --------- ------------
Total inventories $1,301,066 $ 915,951 $ 905,697
========== ========= ============
13
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, December 31,
------------------------- -----------
2005 2004 2004
----------- ----------- -----------
Land $ 909,232 $ 470,900 $ 470,900
Buildings and improvements 6,441,412 2,453,681 2,481,257
Machinery and equipment 5,667,016 5,316,766 5,394,932
Vehicles 510,510 408,898 408,898
Office equipment 78,763 78,763 78,763
----------- ----------- -----------
13,606,938 8,729,008 8,834,750
Less accumulated depreciation 5,851,581 5,246,484 5,414,612
----------- ----------- -----------
Total property and equipment $ 7,755,352 $3,482,524 $ 3,420,138
=========== =========== ===========
Depreciation expense during the year ended December 31, 2004 and for the
nine months ended September 30, 2005 and 2004 was $643,004, $436,969 and
$474,876, respectively.
NOTE 8 - NOTES PAYABLE
Notes payable consist of the following:
September 30, December 31,
---------------------- -----------
2005 2004 2004
---------- ---------- -----------
Mortgage note payable to a bank, payable in monthly $ 465,179 $ 474,659 $ 472,325
installments of $3,273 including interest at 6.25%,
with a balloon payment of $454,275 due September 25,
2006. Collateralized by real estate. Mortgage note
payable to a bank, payable in monthly installments
of $19,513 including interest at 5.6%, with a
balloon payment of $2,652,143 due July 14, 2010.
Collateralized by real estate. 2,989,415
---------- ---------- -----------
Notes payable to finance companies; paid in full
November 2004. -- 2,853 --
---------- ---------- -----------
Total notes payable 3,454,596 477,512 472,325
Less current maturities 534,938 11,716 8,784
---------- ---------- -----------
Total long-term portion $2,919,656 $ 465,796 $ 463,541
========== ========== ===========
Maturities of notes payables are as follows:
As of September 30,
2006 $ 534,938
2007 73,767
2008 78,005
2009 82,488
2010 2,685,396
----------
Total $3,454,594
==========
14
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 9 - PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
For the
For the Nine Months Ended Year Ended
September 30, December 31,
----------------------- -----------
2005 2004 2004
---------- ----------- -----------
Current:
Federal $1,050,319 $ 841,895 $ 1,084,557
State and local 201,380 193,231 260,050
---------- ----------- -----------
Total current 1,251,699 1,035,126 1,334,607
Deferred (69,220) 45,779 45,560
---------- ----------- -----------
Provision for income taxes $1,182,479 $ 1,080,905 $ 1,390,167
========== =========== ===========
A reconciliation of the provision for income taxes and the income tax
computed at the statutory rate is as follows:
For the
For the Nine Months Ended Year Ended
September 30, December 31,
------------------------ -----------
2005 2004 2004
---------- ---------- -----------
Federal income tax expense $1,028,045 $ 880,399 $ 1,084,921
computed at the statutory rate
State and local tax expense 145,136 203,912 251,283
Permanent book/tax differences 9,298 (3,406) 53,963
---------- ---------- -----------
Provision for income taxes $1,182,479 $1,080,905 $ 1,390,167
========== ========== ===========
15
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 9 - PROVISION FOR INCOME TAXES - CONTINUED
Amounts for deferred tax assets and liabilities are as follows:
For the
For the Nine Months Ended Year Ended
September 30, December 31,
-------------------------- -----------
2005 2004 2004
----------- ----------- -----------
Non-current deferred tax liabilities
a rising from:
Temporary differences - principally
Book/tax, accumulated depreciation $ (362,314) $ (426,895) $ (424,039)
Current deferred tax liability arising
from:
Book/tax, unrealized losses (gains)
on marketable securities (8,250) 40,663 (83,850)
Current deferred tax assets arising
from:
Book/tax, inventory 55,131 50,273 47,636
----------- ----------- -----------
Total current deferred tax assets 46,881 90,936 (36,214)
(liabilities)
----------- ----------- -----------
Net deferred tax liability $ (315,433) $ (335,958) $ (460,253)
=========== =========== ===========
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
(Unaudited) For the Year
For the Nine Months Ended
Ended September 30, December 31,
----------------------- -----------
2005 2004 2004
---------- ----------- -----------
Interest $ 51,195 $ 23,103 $ 31,441
Income taxes $1,053,064 $ 798,147 $ 1,298,348
NOTE 11 - STOCK OPTION PLANS
The Company has a registration statement filed with the Securities and
Exchange Commission in connection with a Consulting Service Compensation
Plan covering up to 600,000 of the Company's common stock shares. Pursuant
to such Plan, the Company may issue common stock or options to purchase
common stock to certain consultants, service providers, and employees of
the Company. There were 468,000 shares available for issuance under the
Plan at December 31, 2004 and at September 30, 2005 and 2004. The option
price, number of shares, grant date, and vesting terms are determined at
the discretion of the Company's Board of Directors.
As of December 31, 2004 and at September 30, 2005 and 2004, there were no
stock options outstanding or exercisable.
16
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 11 - STOCK OPTION PLANS - CONTINUED
On February 12, 2004, Lifeway's Board of Directors approved awards of an
aggregate amount of 5,100 shares to be awarded under its Employee and
Consulting Services and Compensation Plan to certain employees and
consultants for services rendered to the Company. The stock awards were
made on April 1, 2004 and have vesting periods that vary from six months to
one year, depending upon the individual grantee. The expense for the awards
is measured as of April 1, 2004 at $20.93 per share for 5,100 shares, or a
total stock award expense of $106,743. This expense is being recognized as
the stock awards vest beginning with the recognition of $41,860 for 2,000
shares vested on April 1, 2004. There were a total of 4,550 vested shares
resulting in a stock award expense of $95,231 for the year ended December
31, 2004, and an additional 1,400 shares vested during the quarter ended
March 31, 2005 for an additional expense of $11,512.
On May 23, 2005, Lifeway's Board of Directors approved awards of an
aggregate amount of 5,600 shares to be awarded under its Employee and
Consulting Services and Compensation Plan to certain employees and
consultants for services rendered to the Company. The stock awards were
made on June 1, 2005 and have vesting periods of one year. The expense for
the awards is measured as of June 1, 2005 at $12.50 per share for 5,600
shares, or a total stock award expense of $70,000. This expense will be
recognized as the stock awards vest in 12 equal portions of $5,833, or 466
shares per month for one year. During the quarter ended September 30, 2005,
1,400 shares vested and the Company recognized a related expense of
$17,500.
NOTE 12 - STOCK SPLIT
On February 12, 2004, the Board of Directors of the Company declared a
two-for-one stock split of the common stock of the Company payable on March
8, 2004 to all of the Company's shareholders of record as of February 27,
2004.
As a result of the stock split, shareholders received two shares of common
stock for every one share held on the record date. Upon completion of the
split, the total number of shares of common stock outstanding increased
from 4,218,444 to 8,436,888.
The earnings per share calculations as presented on the consolidated
statements of income and comprehensive income and the number of shares
issued and outstanding per statement of changes in stockholders' equity
have been adjusted to reflect split adjusted share amounts.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is as
follows at:
----------------------- ----------------------- -----------------------
September 30, September 30, December 31,
2005 2004 2005
----------------------- ----------------------- -----------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash $4,191,755 $4,191,755 $5,348,135 $5,348,135 $5,773,285 $5,773,285
equivalents
Marketable
securities $7,580,531 $7,580,531 $6,727,867 $6,727,867 $6,741,987 $6,741,987
Notes payable $3,454,594 $3,437,469 $ 477,512 $ 454,773 $ 472,325 $ 469,696
The carrying values of cash and cash equivalents, and marketable securities
approximate fair values. The fair value of the notes payable is based on
the discounted value of contractual cash flows. The discount rate is
estimated using rates currently offered for debt with similar maturities.
17
LIFEWAY FOODS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
AND DECEMBER 31, 2004
NOTE 14 - PENDING LITIGATION
On December 4, 2004 a former employee requested a Motion for Summary
Judgment on the issue of Liability in a lawsuit filed against the Company
by the former employee. The motion was granted on February 10, 2005 and on
February 18, 2005 the case was referred to a Magistrate Judge for a
settlement conference.
The lawsuit alleges non payment of overtime wages in violation of federal
employment laws, with an estimated amount between $90,000 and $100,000. The
suit was filed in the United States District Court for the Northern
District of Illinois on behalf of all employees who were classified as
non-exempt during 2001 through 2003. The Company has accrued a $95,000
liability in anticipation of a settlement.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
COMPARISON OF QUARTER ENDED SEPTEMBER 30, 2005 TO QUARTER ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
2004
----
The following analysis should be read in conjunction with the unaudited
financial statements of the Company and related notes included elsewhere in this
quarterly report and the audited financial statements and Management's
Discussion and Analysis contained in our Form 10-KSB, for the fiscal year ended
December 31, 2004, and in the Management's Discussion and Analysis contained in
our Form 10-QSB, for the fiscal quarters ended March 31, 2005, and June 30,
2005.
RESULTS OF OPERATIONS
Sales increased by $1,056,042 (approximately 26%) to $5,194,648 during the three
month period ended September 30, 2005 from $4,138,606 during the same three
month period in 2004. This increase is primarily attributable to increased sales
and awareness of Lifeway's existing drinkable dairy products including La Fruta,
and its flagship line, Kefir.
Lifeway's wholly-owned subsidiary, LFI Enterprises, Inc. ("LFIE") accounted for
$247,416 of total sales revenues during the third quarter of 2005. Of the total
$264,807 revenues from LFIE, $112,671 was earned due to sales of Lifeway's Kefir
and Farmer Cheese products sent from our Morton Grove, Illinois facility to
Philadelphia, Pennsylvania for distribution in the tri-state area of
Pennsylvania, New Jersey and New York. The remaining $134,745 of LFIE revenues
for the third quarter of 2005 was earned from sales of the Cream Cheese Gourmet
line of products acquired from Ilya's Farms, Inc. in the third quarter of 2004.
Sales from the acquired Ilya's Farms cream cheese line in the third quarter 2004
were $103,635. This represents a 30% increase in sales for the cream cheese line
in the third quarter 2005 when compared to the same period year ago.
Cost of goods sold as a percentage of sales was approximately 59% during the
third quarter 2005, compared to about 54% during the same period in 2004. The
average cost of milk, Lifeway's largest cost of goods sold component, was
similar in the third quarter 2005 compared to the same period in 2004. Beginning
January 1, 2005, the minimum wage payable to Company's employees in Illinois
increased 18%. This higher wage increase (and indirect pressure for additional
increases) has had a negative impact on our gross margins in 2005, when compared
to 2004. We intend to primarily offset these wage increases by continuing to
invest in the automation of our production processes.
As we increased our shipments, the rise in fuel and transportation costs in the
third quarter, when compared to the same period a year ago, had a negative
impact on our gross margins. We were able to partially off-set this increase in
fuel costs by making prudent investments in the energy markets, as is evident in
our gains from the sale of marketable securities.
Operating expenses as a percentage of sales was approximately 26% during the
third quarter 2005, compared to about 28% during the same period in 2004. This
decrease is primarily attributable to our continuing efforts to improve our
production automation, through capital investments, thereby improving our
overall operating income. Lifeway also recognized an expense related to an
increase in a reserve established with respect to a lawsuit brought be a
previous employee, as discuss in Part II, Item 2 of this report.
Provision for income taxes was $400,464, or a 42% tax rate during the third
quarter 2005 compared with $296,210, or a 36% tax rate during the same period in
2004. Income taxes are discussed in Note 9 of the Notes to Consolidated
Financial Statements.
COMPARISON OF NINE MONTH PERIOD ENDED SEPTEMBER 30, 2005 TO NINE MONTH PERIOD
-----------------------------------------------------------------------------
ENDED SEPTEMBER 30, 2004
------------------------
RESULTS OF OPERATIONS
Sales increased by $2,848,298 (approximately 24%) to $14,924,076 during the nine
month period ended September 30, 2005 from $12,075,778 during the same nine
month period in 2004. This increase is primarily attributable to increased sales
and awareness of Lifeway's existing drinkable dairy products including La Fruta,
and its flagship line, Kefir.
19
Cost of goods sold as a percentage of sales was approximately 58% during the
nine month period ended September 30, 2005, compared to about 55% during the
same period in 2004. The average cost of milk, Lifeway's largest cost of goods
sold component, approximately 20% higher in the first quarter 2005, compared to
the same period in 2004, but was similar in the second and third quarters 2005
compared to the same periods in 2004. Beginning January 1, 2005, the minimum
wage payable to Company's employees in Illinois increased 18%. This higher wage
increase (and indirect pressure for additional increases) has had a negative
impact on our gross margins in 2005, when compared to 2004. We intend to
primarily offset these wage increases by continuing to invest in the automation
of our production processes.
Total other income for the six months ended September 30, 2005 was $500,520,
compared with $411,433 during the same period in 2004. This increase is
primarily attributable to the company earning more interest and dividends in
2005, when compared to the same period in 2004.
SOURCES AND USES OF CASH
Net cash used in investing activities was $5,461,631 during the nine months
ended September 30,2005, which is an increase of $4,240,776 compared to the same
period in 2004. This increase is primarily due to the Company's purchase of a
storage and distribution facility.
Net cash provided by financing activities was $2,580,715 during the nine months
ended September 30, 2005, which is an increase of $2,510,281 compared to the
same period in 2004. This increase is primarily attributable to the Company
financing the purchase of the above- mentioned facility. The Company entered
into a $3 million note that has a maturity of 5 years, at an interest rate of
5.6%. The Company also purchased 50,000 shares of its treasury stock at a cost
of $401,554 in the first nine months of 2005.
A significant portion of our assets are held in marketable securities. The
majority of our marketable securities are classified as available-for-sale on
our balance sheet, while the mortgage-backed securities are classified as
trading. All of these securities are stated thereon at market value as of the
end of the applicable period. Gains and losses on the portfolio are determined
by the specific identification method.
We anticipate being able to fund the Company's foreseeable liquidity
requirements internally. We continue to explore potential acquisition
opportunities in our industry in order to boost sales while leveraging our
distribution system to consolidate and lower costs.
OTHER DEVELOPMENTS
On May 23, 2005, Lifeway's Board of Directors approved awards of an aggregate
amount of 5,600 shares to be awarded under its Employee and Consulting Services
and Compensation Plan to certain employees and consultants for services rendered
to the Company. The stock awards were made on June 1, 2005 and have vesting
periods of one year. The expense for the awards is measured as of June 1, 2005
at $12.50 per share for 5,600 shares, or a total stock award expense of $70,000.
This expense will be recognized as the stock awards vest in 12 equal portions of
$5,833, or 466 shares per month for one year.
CRITICAL ACCOUNTING POLICIES
Lifeway's analysis and discussion of its financial condition and results of
operations are based upon its consolidated financial statements that have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). The preparation of financial statements in
accordance with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
US GAAP provides the framework from which to make these estimates, assumptions
and disclosures. Lifeway chooses accounting policies within US GAAP that
management believes are appropriate to accurately and fairly report Lifeway's
operating results and financial position in a consistent manner. Management
regularly assesses these policies in light of current and forecasted economic
conditions and has discussed the development and selection of critical
accounting policies with its audit committee of the Board of Directors. For
further information concerning accounting policies, refer to Note 2 -- Nature of
Business and Significant Accounting Policies in the notes to the consolidated
financial statements.
20
FORWARD LOOKING STATEMENTS
In this report, in reports subsequently filed by Lifeway with the SEC on Form
10-QSB and filed or furnished on Form 8-K, and in related comments by
management, our use of the words "believe," "expect," "anticipate," "estimate,"
"forecast," "objective," "plan," "goal," "project," "explore,"
"priorities/targets," and similar expressions is intended to identify
forward-looking statements. While these statements represent our current
judgment on what the future may hold, and we believe these judgments are
reasonable, actual results may differ materially due to numerous important
factors that are described in this report and other factors that may be
described in subsequent reports which Lifeway may file with the SEC on Form
10-QSB and filed or furnished on Form 8-K, including but not limited to:
o Changes in economic conditions, commodity prices;
o Shortages of and price increase for fuel, labor strikes or work stoppages,
market acceptance of the Company's new products;
o Significant changes in the competitive environment;
o Changes in laws, regulations, and tax rates; and
o Management's ability to achieve reductions in cost and employment levels,
to realize production efficiencies and to implement capital expenditures,
all at of the levels and times planned by management.
ITEM 3. CONTROLS AND PROCEDURES
The Chief Executive Officer and the Chief Accounting Officer conducted an
evaluation of the effectiveness of the Company's disclosure controls and
procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 as
of September 30, 2005. The Company has historically operated on strictly
monitored cost constraints. With that perspective, the Chief Executive Officer
and the Chief Accounting Officer concluded that the disclosure controls and
procedures are effective in ensuring that all material information required to
be filed in this quarterly report has been made known to them. However, based
upon the Company's recent growth and improved cash position, as well as
consultation with its auditors, management intends to implement additional
procedures to improve internal controls over financial reporting in 2005.
Specifically, an enhanced accounting software package has been identified and
continues to be evaluated which will permit enhanced data recording and internal
reporting as well as additional on-site accounting staff and some changes to the
Company's internal control procedures over financial reporting.
As of the date of this quarterly report, there have been no known
significant changes in internal controls or in other factors that could
significantly affect these controls subject to the date of such evaluation.
PART II - OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
On December 4, 2004, a former employee requested a Motion for Summary
Judgment on the issue of liability in a lawsuit filed against the Company by the
former employee. The motion was granted on February 10, 2005 and on February 18,
2005 the case was referred to a Magistrate Judge for a settlement conference.
The lawsuit alleges non payment of overtime wages in violation of federal
employment laws, with an estimated amount between $90,000 and $100,000. The suit
was filed in the United States District Court for the Northern District of
Illinois on behalf of all employees who were classified as non-exempt during
2001 through 2003. Outside counsel for the Company has advised that at this
stage in the proceedings it cannot offer an opinion as to the probable outcome.
The Company continues to vigorously defend this matter. The Company has accrued
a $95,000 liability in anticipation of a settlement.
On April 14, 2003, Vera Smolyansky filed a complaint seeking unspecified
damages in the Circuit Court of Cook County, Illinois naming Lifeway as a
defendant. This case was dismissed, with prejudice on June 30, 2005.
ITEM 5. OTHER INFORMATION
On October 3, 2005, the Company announced its financial results for the fiscal
quarter and six months ended September, 30, 2005 and certain other information.
A copy of the Company's press release announcing these financial results and
certain other information is attached as Exhibit 99.1 hereto. The information
contained in Exhibit 99.1 hereto is being furnished, and should not be deemed
"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liabilities imposed by that Section. The
information contained in Exhibit 99.1 shall not be incorporated by reference
into any registration statement or other document or filing under the Securities
Act of 1933, as amended, except as may be expressly set forth in a specific
filing. The press
21
release filed as an exhibit to this report includes "safe harbor" language
pursuant to the Private Securities Litigation Reform Act of 1995, as amended,
indicating that certain statements about the Company's business and other
matters contained in the press release are "forward-looking." The press release
also cautions investors that "forward-looking" statements may be different from
actual operating results. Finally, the press release states that a more thorough
discussion of risks and uncertainties which may affect the Company's operating
results is included in the Company's reports on file with the Securities and
Exchange Commission.
ITEM 6. EXHIBITS
Exhibit
Number Description
------- -----------
3.4 Amended and Restated By-laws (incorporated by reference to Exhibit
No. 3.5 of Lifeway's Current Report on Form 8-dated and filed on
December 10, 2002). (File No. 000-17363)
3.5 Articles of Incorporation, as amended and currently in effect
(incorporated by reference to Exhibit 3.5 of Lifeway's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2000 and filed
on August 8, 2000). (File No. 000-17363)
11 Statement re: Computation of per share earnings (incorporated by
reference to Note 2 of the Consolidated Financial Statements)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Julie Smolyansky.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Edward P. Smolyansky.
32.1 Section 1350 Certification of Julie Smolyansky.
32.2 Section 1350 Certification of Edward P. Smolyansky.
99.1 Press Release dated October 3, 2005- "Lifeway Foods Reports Record
Third Quarter and Nine Months Sales Results."
22
SIGNATURE
In accordance with the requirements of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 15, 2005
LIFEWAY FOODS, INC.
By: /s/ Julie Smolyansky
----------------------------------
Julie Smolyansky
Chief Executive Officer, President,
and Director
/s/ Edward P. Smolyansky
----------------------------------
Chief Financial and Accounting Officer
and Treasurer
23
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Julie Smolyansky.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Edward P. Smolyansky.
32.1 Section 1350 Certification of Julie Smolyansky.
32.2 Section 1350 Certification of Edward P. Smolyansky.
99.1 Press Release dated October 3, 2005- "Lifeway Foods Reports Record
Third Quarter and Nine Months Sales Results."
24