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What changed in Lifeway Foods, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Lifeway Foods, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+145 added−159 removedSource: 10-K (2024-03-20) vs 10-K (2023-03-27)

Top changes in Lifeway Foods, Inc.'s 2023 10-K

145 paragraphs added · 159 removed · 111 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeDistribution inside the United States Lifeway’s products reach the consumer through three primary “route-to-market” pathways: · Retail-direct; · Distributor; and · Direct store delivery (“DSD”). Under the retail-direct channel, we sell our products to retailers and deliver it through either the retailers’ carriers or third-party carriers that deliver to such retailers’ distribution centers.
Biggest changeUnder the retail-direct channel, we sell our products to retailers and deliver it through either the retailers’ carriers or third-party carriers that deliver to such retailers’ distribution centers. In turn, our retailers then deliver the products to their respective stores. Under the retail direct-model, optimal product merchandising, assortment and product presentation are attended to by the retailer.
We regard the Lifeway family of trademarks and other intellectual property as having substantial value and as being an important factor in the marketing of our products. The loss of such protection would have a material adverse impact on our operations and share price. 5 REGULATION Lifeway is subject to extensive regulation by federal, state, and local governmental authorities.
We regard the Lifeway family of trademarks and other intellectual property as having substantial value and as being an important factor in the marketing of our products. The loss of such protection would have a material adverse impact on our operations and share price. REGULATION Lifeway is subject to extensive regulation by federal, state, and local governmental authorities.
Under the direct store delivery (DSD) route to market, we sell our products to retailers and deliver it directly to the store using Company-owned vehicles and a team of Lifeway merchandisers who engage face-to-face with store management to ensure optimal product assortments and presentations. We operate our DSD model in the Chicago, Illinois metropolitan area only.
Under the direct store delivery (“DSD”) route to market, we sell our products to retailers and deliver it directly to the store using Company-owned vehicles and a team of Lifeway merchandisers who engage face-to-face with store management to ensure optimal product assortments and presentations. We operate our DSD model in the Chicago, Illinois metropolitan area only.
While we are subject to federal government regulations that establish minimum prices for milk, and we also pay producer (“over-order”) premiums, federal order administration costs, and other related charges that vary by milk product, location, and supplier. FOOD SAFETY Lifeway takes appropriate precautions to ensure the safety of our products.
We are subject to federal government regulations that establish minimum prices for milk, and we also pay producer (“over-order”) premiums, federal order administration costs, and other related charges that vary by milk product, location, and supplier. FOOD SAFETY Lifeway takes appropriate precautions to ensure the safety of our products.
In addition to routine inspections by state and federal regulatory agencies, including the USDA and FDA, we have instituted Company-wide quality systems that address topics such as supplier control; ingredient, packaging, and product specifications; preventive maintenance; pest control; and sanitation.
In addition to routine inspections by state and federal regulatory agencies, including the USDA and FDA, we have instituted Company-wide systems that address topics such as supplier control; ingredient, packaging, and product specifications; preventive maintenance; pest control; and sanitation.
Additionally, the co-packers are required to ensure our products are manufactured in accordance with our quality specifications and that they are compliant with all applicable laws and regulations. 2 SALES AND DISTRIBUTION Sales Organization We sell our products primarily through our direct sales force, brokers, and distributors.
Additionally, the co-packers are required to ensure our products are manufactured in accordance with our quality specifications and that they are compliant with all applicable laws and regulations. SALES AND DISTRIBUTION Sales Organization We sell our products primarily through our direct sales force, brokers, and distributors.
We routinely evaluate opportunities for new product flavors and formulations, improved package design, new product configurations and other innovation avenues.
We routinely evaluate opportunities for new product development, flavors and formulations, improved package design, new product configurations and other innovation avenues.
We manufacture (directly or through co-packers) and market products under the Lifeway, Fresh Made and Glen Oaks Farms brand names, as well as under private labels on behalf of certain customers.
We manufacture (directly or through co-packers) and market products under the Lifeway, Fresh Made and GlenOaks Farms brand names, as well as under private labels on behalf of certain customers.
Many of our competitors are well-established and have significantly greater financial resources than Lifeway to promote their products. 4 SUPPLIERS We purchase our ingredients such as milk, pectin, and other ingredients from unaffiliated suppliers. In addition, we purchase significant quantities of packaging materials to package our products and natural gas and electricity to operate our facilities.
Many of our competitors are well-established and have significantly greater financial resources than Lifeway to promote their products. SUPPLIERS We purchase our ingredients such as milk, cultures, and other ingredients from unaffiliated suppliers. In addition, we purchase significant quantities of ingredients and product packaging materials and natural gas and electricity to operate our facilities.
ITEM 1. BUSINESS OVERVIEW Lifeway was founded in 1986 by Michael Smolyansky shortly after he and his wife, Ludmila Smolyansky, emigrated from Eastern Europe to the United States. 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.
ITEM 1. BUSINESS OVERVIEW Lifeway was founded in 1986 by Michael Smolyansky, ten years after he and his family emigrated from Eastern Europe to the United States. 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.
We have a co-packer agreement to manufacture drinkable kefir in Ireland, to serve our European markets. During 2022 and 2021, approximately 4% and 2% of our revenue, respectively, was derived from products manufactured by co-packers. Our domestic co-packer is Safe Quality Food (“SQF”) certified and follows Good Manufacturing Practices (GMPs).
We have a co-packer agreement to manufacture drinkable kefir in Ireland, to serve our European markets. During 2023 and 2022, approximately 7% and 4% of our revenue, respectively, was derived from products manufactured by co-packers. Our domestic co-packer is Safe Quality Food (“SQF”) certified and follows Good Manufacturing Practices (“GMPs”).
We own these manufacturing facilities. All our fixed assets associated with manufacturing, storage, and distribution of our products are in the United States. Co-Packers In addition to the products manufactured in our own facilities, independent manufacturers (“co-packers”) manufacture some of our products. We have a co-packer agreement to manufacture drinkable yogurt in California.
All our fixed assets associated with manufacturing, storage, and distribution of our products are in the United States. Co-Packers In addition to the products manufactured in our own facilities, independent manufacturers (“co-packers”) manufacture some of our products. We have a co-packer agreement to manufacture drinkable yogurt and a small percentage of our Lifeway kefir product in California.
Internationally, we are subject to the laws and regulatory authorities of the foreign jurisdictions in which we manufacture and sell our products, including the Food Standards Agency in the United Kingdom; the National Service of Health, Food Safety and Agro-Food Quality (known by its Spanish-language acronym “SENASICA”) and the Federal Commission for the Protection from Sanitary Risks (“COFEPRIS”) in Mexico; the Food Safety Authority in Ireland; and the European Food Safety Authority, which supports the European Commission, as well as individual country, province, state, and local regulations.
Additionally, our facilities are subject to various laws and regulations regarding the release of material into the environment and the protection of the environment in other ways. 5 Internationally, we are subject to the laws and regulatory authorities of the foreign jurisdictions in which we manufacture and sell our products, including the Food Standards Agency in the United Kingdom; the National Service of Health, Food Safety and Agro-Food Quality (known by its Spanish-language acronym “SENASICA”) and the Federal Commission for the Protection from Sanitary Risks (“COFEPRIS”) in Mexico; the Food Safety Authority in Ireland; and the European Food Safety Authority, which supports the European Commission, as well as individual country, province, state, and local regulations.
We currently operate the following manufacturing and distribution facilities: · Morton Grove, Illinois, which produces drinkable kefir, drinkable ProBugs kefir, and cheese products; · Waukesha, Wisconsin, which produces drinkable kefir products and from which we store and distribute products; · Niles, Illinois, which stores and serves as a distribution point for products; and · Philadelphia, Pennsylvania, which produces drinkable kefir, cheese, and butter products, from which we store and distribute products.
We currently operate the following manufacturing and distribution facilities: · Morton Grove, Illinois, which produces drinkable kefir and cheese products; · Waukesha, Wisconsin, which produces drinkable kefir products and from which we warehouse and distribute products; · Niles, Illinois, which stores and serves as a warehouse and distribution point for products; and · Philadelphia, Pennsylvania, which produces drinkable kefir, cheese, and other dairy products, from which we warehouse and distribute products.
PRODUCTION Manufacturing During 2022 and 2021, approximately 96% and 98% of our revenue, respectively, was derived from products manufactured at our own facilities.
PRODUCTION Manufacturing During 2023 and 2022, approximately 93% and 96% of our revenue, respectively, was derived from products manufactured at our own facilities.
Lifeway believes that the prices at which we sell our products to distributors are competitive with the prices generally paid by distributors for similar products in the markets served.
We provide our independent distributors with products at wholesale prices for distribution to their retail accounts. Lifeway believes that the prices at which we sell our products to distributors are competitive with the prices generally paid by distributors for similar products in the markets served.
Sales to our DSD customers represent approximately 2% of our total net sales for the year ended 2022. Distribution outside of the U.S . Substantially all of Lifeway’s products are distributed within the United States; however, certain of our distributors sell our products to retailers in Mexico and portions of South America and the Caribbean.
Sales to our DSD customers represent approximately 2% of our total net sales for the year ended 2023. Distribution outside of the U.S . Lifeway’s primary market is the United States; however, certain of our distributors based in the United States sell our products to retailers in Mexico and portions of South America and the Caribbean.
Beyond our core drinkable kefir products, we have an ongoing effort to extend the strength of the Lifeway brand and leverage the capabilities of the Lifeway organization into fresh categories and into additional channels of trade, such as Convenience; Foodservice; Club; and Drug. In 2022, we maintained the level of focus on product innovations, packaging innovations, and growth opportunities.
Beyond our core drinkable kefir products, we have an ongoing effort to extend the strength of the Lifeway brand and leverage the capabilities of the Lifeway organization into fresh categories and into additional channels of trade, such as Convenience; Foodservice; Club; and Drug.
Net sales of products by category were as follows for the years ended December 31: 2022 2021 In thousands $ % $ % Drinkable Kefir other than ProBugs $ 110,247 78% $ 95,850 80% Cheese 12,651 9% 12,612 11% Cream and other 7,465 5% 3,582 3% Drinkable Yogurt 6,105 4% 2,223 2% Probugs Kefir 3,403 3% 3,178 3% Other dairy 1,697 1% 1,620 1% Net Sales $ 141,568 100% $ 119,065 100% 1 Product innovation and new product development Lifeway is committed to maintaining its positions as the leading producer of kefir and a recognized leader in the market for probiotic products.
Net sales of products by category were as follows for the years ended December 31: 2023 2022 In thousands $ % $ % Drinkable Kefir other than ProBugs $ 127,726 80% $ 110,247 78% Cheese 13,781 9% 12,651 9% Cream and other 7,382 4% 7,465 5% Drinkable Yogurt 6,236 4% 6,105 4% Probugs Kefir 3,429 2% 3,403 3% Other dairy 1,569 1% 1,697 1% Net Sales $ 160,123 100% $ 141,568 100% 1 Product innovation and new product development Lifeway is committed to maintaining its positions as the leading producer of kefir and a recognized leader in the market for probiotic products.
In the thirty-six years that have followed, Lifeway has grown to become the largest producer and marketer of kefir in the U.S. and an important player in the broader market spaces of probiotic-based products and natural, “better for you” foods. PRODUCTS Our primary product is drinkable kefir, a cultured dairy product.
Lifeway has grown to become the largest producer and marketer of kefir in the U.S. and an important player in the broader market spaces of probiotic-based products and natural, “better for you” foods. PRODUCTS Our primary product is drinkable kefir, a cultured dairy product. Lifeway kefir is tart and tangy, high in protein, calcium and vitamin D.
Under the distributor channel, we sell our products to distributors and deliver it through either the distributors’ carriers or third-party carriers that deliver to such distributors’ designated warehouses. In turn, our distributors then sell and ship our products to their retail customers.
Sales to our retail-direct customers represent approximately 50% of our total net sales for the year ended 2023. Under the distributor channel, we sell our products to distributors and deliver it through either the distributors’ carriers or third-party carriers that deliver to such distributors’ designated warehouses. In turn, our distributors then sell and ship our products to their retail customers.
Where possible, we leverage our existing staff and facilities to conduct our innovation, research, and development efforts, rather than maintaining a dedicated research and development staff and facilities or relying solely on third parties.
Lifeway considers research and development of new products to be a significant part of our overall business philosophy. Where possible, we leverage our existing staff and facilities to conduct our innovation, research, and development efforts, rather than maintaining a dedicated research and development staff and facilities or relying solely on third parties.
AVAILABLE INFORMATION Lifeway maintains a corporate website for investors at www.lifewayfoods.com and makes available, free of charge, through this website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that we file with or furnish to the SEC as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
EMPLOYEES As of December 31, 2023, we employed 288 full-time and one part-time employee, of which 98 were members of a union bargaining unit in Illinois. 6 AVAILABLE INFORMATION Lifeway maintains a corporate website at www.lifewayfoods.com and makes available, free of charge, through this website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that we file with or furnish to the SEC as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Lifeway Kefir is tart and tangy, high in protein, calcium and vitamin D. Thanks to our exclusive blend of kefir cultures, each cup of kefir contains 12 live and active cultures and 25 to 30 billion beneficial CFU (Colony Forming Units) at the time of manufacture.
Thanks to our exclusive blend of kefir cultures, each cup of our flagship low fat kefir contains 12 live and active cultures and 25 to 30 billion beneficial CFU (Colony Forming Units) at the time of manufacture.
Our sales organization strives to cultivate strong, collaborative relationships with our customers that facilitate favorable shelf placement for our products, which we believe will drive sales volumes when combined with our marketing efforts and our brand strength. Our relationships with food brokers provide additional customer coverage as a supplement to our direct sales force.
Our sales organization strives to cultivate strong, collaborative relationships with our customers that facilitate favorable shelf placement for our products, which we believe drives sales volumes when combined with our marketing efforts and our brand strength.
Due to the perishable nature of our products and the costs to return, we do not offer return privileges to any of our distributors or channel customers; however, from time to time we do provide our customers with allowances for non-saleable product.
Due to the perishable nature of our products and the costs to return, we do not offer return privileges to any of our distributors or channel customers; however, from time to time we do provide our customers with allowances for non-saleable product. 3 Lifeway engages independent food brokers generally on a commission basis, subject in some cases to a minimum commission guarantee.
Purchases are made through purchase orders or contracts, and price, delivery terms, and product specifications vary. Although the prices for our principal inputs can fluctuate based on economic, weather, and other conditions, Lifeway believes it has ready access to alternative suppliers for all critical ingredients, packaging, and other input requirements.
Purchases are made through purchase orders or contracts, and price, delivery terms, and product specifications vary. The prices for our principal inputs can fluctuate based on economic, weather, and other conditions.
These sales incentives and trade promotion programs typically include rebates, in-store display and demo allowances, allowances for non-saleable product, coupons, and other trade promotional activities. Trade promotions support price features, displays, and other merchandising of our products by our retail and distributor customers. We record these arrangements as a reduction to net sales in our consolidated statements of operations.
Trade promotions support price features, displays, and other merchandising of our products by our retail and distributor customers. We record these arrangements as a reduction to net sales in our consolidated statements of operations.
For example, as required by the National Organic Program (“NOP”), we rely on third parties to certify certain of our products and production locations as organic. Additionally, our facilities are subject to various laws and regulations regarding the release of material into the environment and the protection of the environment in other ways.
For example, as required by the National Organic Program (“NOP”), we rely on third parties to certify certain of our products and production locations as organic.
Additionally, Lifeway products reach consumers in the United Kingdom, Ireland, and the Middle East under third party co-manufacturing agreements and in-country broker and distributor arrangements.
Additionally, Lifeway products reach consumers in France, Ireland, and the Middle East under third party co-manufacturing agreements and in-country broker and distributor arrangements. Sales distributed outside the United States represented approximately 2% of net sales for the year ended 2023.
DANONE SA Since October 1999, Danone SA, through subsidiaries (collectively “Danone”), has been the beneficial owner of approximately 24% of the outstanding common stock of Lifeway.
DANONE SA Since October 1999, Danone North America Public Benefit Corporation, through predecessors, affiliates and/or subsidiaries (collectively “Danone”), has been the beneficial owner of 20% or more of the outstanding common stock of Lifeway.
SQF certification provides an independent and external validation that a product, process or service complies with international, regulatory and other specified standards. SEASONALITY Lifeway’s business is not seasonal. 6 EMPLOYEES As of December 31, 2022, we employed 289 full-time and two part-time employees, of which 103 were members of a union bargaining unit.
SQF certification provides an independent and external validation that a product, process or service complies with international, regulatory and other specified standards. SEASONALITY Lifeway’s business is not seasonal.
Sales outside the United States represented approximately 1% of net sales for the year ended 2022. 3 Channel- and Market-Specific Distribution and Broker Representation Arrangements Lifeway’s generally standardized agreements with independent distributors and food brokers allow us the latitude to establish new relationships as opportunities and needs arise.
Channel- and Market-Specific Distribution and Broker Representation Arrangements Lifeway’s generally standardized agreements with independent distributors and food brokers allow us the latitude to establish new relationships as opportunities and needs arise. Where appropriate given the relationship, market, and business opportunity, we offer exclusive channels, markets, and/or territories to our distributors and brokers.
MARKETING We use a combination of sales incentives, trade promotions, and consumer promotions to market our products. Sales Incentives and Trade Promotion Allowances Lifeway offers various sales incentives and trade promotional programs to its retailer and distributor customers from time to time in the normal course of business.
Sales Incentives and Trade Promotion Allowances Lifeway offers various sales incentives and trade promotional programs to its retailer and distributor customers from time to time in the normal course of business. These sales incentives and trade promotion programs typically include rebates, in-store display and demo allowances, allowances for non-saleable product, coupons, and other trade promotional activities.
MAJOR CUSTOMERS During the year ended December 31, 2022, two customers collectively accounted for approximately 22% of our total net sales. Two customers collectively accounted for approximately 28% of net accounts receivable as of December 31, 2022.
Lifeway believes it has access to alternative suppliers for critical ingredients, packaging, and other input requirements. 4 MAJOR CUSTOMERS During the year ended December 31, 2023, two customers collectively accounted for approximately 24% of our total net sales. Two customers collectively accounted for approximately 25% of net accounts receivable as of December 31, 2023.
The distributor attends to optimal product merchandising, assortment, and product presentations at the retail end of the channel, with support from Lifeway’s direct sales force and broker network. Sales to our distributor customers represented approximately 48% of our total net sales for year ended 2022.
Our distributors often use a DSD model of their own to make deliveries directly to individual stores, but they also make deliveries to retailers’ distribution centers. The distributor attends to optimal product merchandising, assortment, and product presentations at the retail end of the channel, with support from Lifeway’s direct sales force and broker network.
These buyers could be specialty stores, retail grocery chains, wholesalers, foodservice operators and distributors, drug chains, mass merchandisers, industrial users, schools and universities, or military installations. With support from our direct sales force, brokers may provide other value-added services. These may include scheduling and coordinating promotions, merchandising, centralized ordering, and data collection services.
The commissions vary based on the scope of services provided and customers served. Our brokers represent our products to a variety of prospective buyers. These buyers could be specialty stores, retail grocery chains, wholesalers, foodservice operators and distributors, drug chains, mass merchandisers, industrial users, schools and universities, or military installations.
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These product innovation and development efforts have led to additional revenue opportunities. Lifeway considers research and development of new products to be a significant part of our overall business philosophy.
Added
Our relationships with food brokers provide additional customer coverage as a supplement to our direct sales force. 2 Distribution inside the United States Lifeway’s products reach the consumer through three primary “route-to-market” pathways: · Retail-direct; · Distributor; and · Direct store delivery (“DSD”).
Removed
Until the second half of 2021, in light of the COVID-19 outbreak, our focus was on expanding sales of our current products, and less on new product development. In August 2021, we purchased the Glen Oaks Farms drinkable yogurt product line, and launched our drinkable oat-based kefir product line in December 2021.
Added
Sales to our distributor customers represent approximately 48% of our total net sales for year ended 2023.
Removed
In turn, our retailers then deliver the products to their respective stores. Customers in this route-to-market grouping include Kroger, Walmart and Trader Joe’s. Under the retail direct-model, optimal product merchandising, assortment and product presentation are attended to by the retailer. Sales to our retail-direct customers represent approximately 50% of our total net sales for the year ended 2022.
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With support from our direct sales force, brokers may provide other value-added services. These may include scheduling and coordinating promotions, merchandising, centralized ordering, and data collection services. MARKETING We use a combination of sales incentives, trade promotions, and consumer promotions to market our products.
Removed
Our distributors often use a DSD model of their own to make deliveries directly to individual stores, but they also make deliveries to retailers’ distribution centers. Our distributor customers include United Natural Foods (UNFI), KeHE Distributors, and C&S Wholesale Grocers.
Added
The information contained on our website is not part of this Report.
Removed
Where appropriate given the relationship, market, and business opportunity, we offer exclusive channels, markets, and/or territories to our distributors and brokers. We provide our independent distributors with products at wholesale prices for distribution to their retail accounts.
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Lifeway engages independent food brokers generally on a commission basis, subject in some cases to a minimum commission guarantee. The commissions vary based on the scope of services provided and customers served. Our brokers represent our products to a variety of prospective buyers.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, our suppliers and co-packers are subject to risk, including labor disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply constraints, and general economic and political conditions that could limit their ability to timely provide us with acceptable products, which could disrupt our supply of finished goods, or require that we incur additional expense by providing financial accommodations to the supplier or co-packer or taking other steps to seek to minimize or avoid supply disruption, such as establishing new arrangements with other providers.
Biggest changeFor certain items, we rely on a single supplier or co-packer as our sole source for the item. Our suppliers and co-packers are subject to risk, including labor disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply constraints, and general economic and political conditions that could limit their ability to timely provide us with acceptable product.
There is no guarantee that we will be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all. 10 Our Revolving Credit Facility and term loan bear interest at variable rates. If market interest rates increase, it will increase our debt service requirements, which could adversely affect our cash flow.
There is no guarantee that we will be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all. Our Revolving Credit Facility and term loan bear interest at variable rates. If market interest rates increase, it will increase our debt service requirements, which could adversely affect our cash flow.
Increases in the market price for raw milk or over-order premiums charged by producers may also impact our ability to enter into purchase commitments at a fixed price. There can be no assurance that our purchasing practices will mitigate future price risk. As a result, increases in the cost of raw milk could have an adverse impact on our profitability.
Increases in the market price for milk or over-order premiums charged by producers may also impact our ability to enter into purchase commitments at a fixed price. There can be no assurance that our purchasing practices will mitigate future price risk. As a result, increases in the cost of milk could have an adverse impact on our profitability.
Furthermore, our insurance coverage may not be adequate to cover all related costs. 9 Our information technology systems are also critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. These systems include, without limitation, networks, applications, and outsourced services in connection with the operation of our business.
Furthermore, our insurance coverage may not be adequate to cover all related costs. Our information technology systems are also critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. These systems include, without limitation, networks, applications, and outsourced services in connection with the operation of our business.
The supply and price of raw milk may be impacted by, among other things, weather, natural disasters, real or perceived supply shortages, lower dairy and crop yields, general increases in farm inputs and costs of production, political and economic conditions, labor actions, government actions, and trade barriers.
The supply and price of milk may be impacted by, among other things, weather, natural disasters, real or perceived supply shortages, lower dairy and crop yields, general increases in farm inputs and costs of production, political and economic conditions, labor actions, government actions, and trade barriers.
Oversupply levels of organic raw milk can increase competitive pressure on our products and pricing, while supply shortages can cause higher input costs and reduce our ability to deliver product to our customers.
Oversupply levels of organic milk can increase competitive pressure on our products and pricing, while supply shortages can cause higher input costs and reduce our ability to deliver product to our customers.
In addition, the dairy industry continues to experience periodic imbalances between supply and demand for organic raw milk. Industry regulation and the costs of organic farming compared to costs of conventional farming can impact the supply of organic raw milk in the market.
In addition, the dairy industry continues to experience periodic imbalances between supply and demand for organic milk. Industry regulation and the costs of organic farming compared to costs of conventional farming can impact the supply of organic milk in the market.
In 2022, costs to us increased primarily due to inflationary price increases of other ingredients, packaging materials, and freight. However, for market conditions or competitive reasons, our pricing actions may also lag input cost changes, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them.
In 2023, costs to us increased primarily due to inflationary price increases of other ingredients, packaging materials, and freight. However, for market conditions or competitive reasons, our pricing actions may also lag input cost changes, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them.
The consolidation of retail customers also increases the risk that a significant adverse impact on their business could have a corresponding material adverse impact on our business. Two of our customers together accounted for 22% of our net sales in the fiscal year ended December 31, 2022.
The consolidation of retail customers also increases the risk that a significant adverse impact on their business could have a corresponding material adverse impact on our business. Two of our customers together accounted for 24% of our net sales in the fiscal year ended December 31, 2023.
In addition, the marketing and advertising of our products could make us the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations, and we may be subject to initiatives that limit or prohibit the marketing and advertising of our products to children.
In addition, the marketing and advertising of our products could make us the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations, and we may be subject to initiatives that limit or prohibit the marketing and advertising of our products to children. 14 We are also subject to federal laws and regulations relating to our organic products and production.
We have a union contract governing the terms and conditions of employment for a significant portion of our workforce.
We have a union contract governing the terms and conditions of employment for a significant portion of our manufacturing workforce in Illinois.
By exercising their influence, members of the Smolyansky family could cause Lifeway to take actions that are at odds with the investment goals of institutional, short-term, non-voting, or other non-controlling investors, or that have a negative effect on our stock price. Our business could be negatively affected as a result of the actions of stockholders.
By exercising their influence, members of the Smolyansky family could cause Lifeway to take actions that are at odds with the investment goals of institutional, short-term, non-voting, or other non-controlling investors, or that have a negative effect on our stock price.
Interruption of our supply chain could affect our ability to manufacture or distribute products, could adversely affect our business and sales, and/or could increase our operating costs and capital expenditures. We have several supply agreements with suppliers and co-packers that require them to provide us with specific finished goods, including packaging and kefir.
Interruption of our supply chain could affect our ability to manufacture or distribute products, could adversely affect our business and sales, and/or could increase our operating costs and capital expenditures. We have several supply agreements with suppliers and co-packers that require them to provide us with certain ingredients, packaging, other inputs, and finished goods.
Furthermore, damage or disruption to our manufacturing or distribution capabilities due to weather, natural disaster, fire, environmental incident, terrorism, cybersecurity threats and other security breaches, pandemic, strikes, the financial or operational instability of key distributors, warehousing, and transportation providers, or other reasons could impair our ability to manufacture or distribute our products.
Furthermore, damage or disruption to our manufacturing or distribution capabilities due to weather, natural disaster, fire, environmental incident, terrorism, cybersecurity threats and other security breaches, pandemic, strikes, the financial or operational instability of key distributors, warehousing, and transportation providers, or other reasons could impair our ability to manufacture or distribute our products. 9 We rely on a limited number of production and distribution facilities.
Our loan agreements contain certain restrictions and requirements that among other things: · require us to maintain a quarterly fixed charge coverage ratio and minimum working capital ratio; · limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes; · limit our future ability to refinance our indebtedness on terms acceptable to us or at all; · limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan; and · impose on us financial and operational restrictions.
Our loan agreements contain certain restrictions and requirements that among other things: · require us to maintain a quarterly fixed charge coverage ratio and minimum working capital ratio; · limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes; · limit our future ability to refinance our indebtedness on terms acceptable to us or at all; · limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan; and · impose on us financial and operational restrictions. 10 Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described in this Annual Report on Form 10-K.
As of December 31, 2022, we had $2.77 million outstanding under the Revolving Credit Facility and $3,72 million outstanding under the note payable, net of $25 thousand of unamortized deferred financing.
As of December 31, 2023, we had $0 outstanding under the Revolving Credit Facility and $2.73 million outstanding under the note payable, net of $17 thousand of unamortized deferred financing.
Disruption of our manufacturing or distribution chains or information technology systems, including disruption due to cybersecurity threats, could adversely affect our business. The success of our business depends, in part, on maintaining a strong production platform and we rely primarily on internal production resources to fulfill our manufacturing needs.
The success of our business depends, in part, on maintaining a strong production platform and we rely primarily on internal production resources to fulfill our manufacturing needs.
The organic ingredients we use in some of our products are less plentiful and available from a fewer number of suppliers than their conventional counterparts.
The organic ingredients we use in some of our products are less plentiful and available from a fewer number of suppliers than their conventional counterparts. Competition with other manufacturers in the procurement of organic product ingredients may increase in the future if consumer demand for organic products increases.
We rely on independent certification, such as certifications of our products as “organic,” or “gluten-free,” to differentiate our products from others. The loss of any independent certifications could adversely affect our market position as a probiotic-based product and natural, “better for you” foods company, which could harm our business.
The loss of any independent certifications could adversely affect our market position as a probiotic-based product and natural, “better for you” foods company, which could harm our business. We rely on independent SQF certification at some of our facilities, a certification that some of our customers require us to maintain.
Our business could be negatively affected as a result of stockholder actions, which could cause us to incur significant expense, hinder execution of our business strategy, and impact the trading value of our securities. Stockholder actions, including potential proxy contests, requires significant time and attention by management and our Board, potentially interfering with our ability to execute our strategic plan.
Our business could be negatively affected as a result of the actions of stockholders. Our business could be negatively affected as a result of stockholder actions, which could cause us to incur significant expense, hinder execution of our business strategy, and impact the trading value of our securities.
Similarly, we could lose our SQF certification if we do not meet the requirements of the SQF Code. The loss of these certifications could cause us to lose customers that require Lifeway products and/or facilities to carry some or all of them, which could negatively affect our sales and results of operations.
The loss of these certifications could cause us to lose customers that require Lifeway products and/or facilities to carry some or all of them, which could negatively affect our sales and results of operations. 13 Increases in the cost of milk could reduce our gross margin and profit.
We may be required to incur significant legal fees and other expenses related to stockholder actions, and the attention of our management may be diverted by such actions. While we welcome our stockholders’ constructive input, there can be no assurance that stockholder actions would not result in negative impacts to the Company.
While we welcome our stockholders’ constructive input, there can be no assurance that stockholder actions would not result in negative impacts to the Company.
We are also subject to federal laws and regulations relating to our organic products and production. For example, as required by the National Organic Program (“NOP”), we rely on third parties to certify certain of our products and production locations as organic.
For example, as required by the National Organic Program (“NOP”), we rely on third parties to certify certain of our products and production locations as organic. Regulations and formal and informal positions taken by the NOP pursuant to the Organic Foods Production Act of 1990, which created the NOP, are subject to continued review and scrutiny.
For example, we can lose our “organic” certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run. In addition, all organic raw materials must be certified organic or organic compliant. Our products could lose their organic certifications if our raw material suppliers lose their organic certifications.
We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified. For example, we can lose our “organic” certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run.
Both conventional and organic milk prices in fiscal 2022 were higher than the prior year, and there can be no assurance that such prices will remain at these levels in the future.
Conventional and organic milk, our primary raw material, is an agricultural commodity that is subject to price fluctuations. Conventional milk prices were lower in fiscal 2023 than the prior year, and there can be no assurance that such prices will remain at these levels in the future.
Competition with other manufacturers in the procurement of organic product ingredients may increase in the future if consumer demand for organic products increases. 14 Our business is subject to various food, environmental, and health and safety laws and regulations, which may increase our compliance costs, subject us to liabilities, or otherwise adversely affect our business.
Our business is subject to various food, environmental, and health and safety laws and regulations, which may increase our compliance costs, subject us to liabilities, or otherwise adversely affect our business.
However, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage.
However, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
RISKS RELATED TO COVID-19 AND OTHER PANDEMIC OR DISEASE OUTBREAKS Pandemics or disease outbreaks, such as the COVID-19 pandemic, may disrupt consumption and trade patterns, supply chains, available labor supply, and production processes, which could materially affect our operations and results of operations.
General economic or geopolitical conditions, including inflationary conditions, Russia’s invasion of Ukraine, the Israel Gaza conflict, and the impact of pandemics such as COVID-19, may disrupt our business, including, among other things, consumption patterns, supply chain, and production processes, each of which could materially and adversely affect our business, financial condition and results of operations.
Removed
For some of these products, we essentially rely on a single supplier or co-packer as our sole source for the item.
Added
Although other sources are available for these items, if our current sources are unable to fulfill our needs for any reason, we may not be able to timely engage a replacement source that can timely provide us with acceptable products or on terms favorable to us or at all, which could disrupt our ability to manufacture and distribute products.
Removed
The failure for any reason of any such sole source or other co-packer to fulfill its obligations under the applicable agreements with us or the termination or renegotiation of any such sourcing agreement could result in disruptions to our supply of finished goods and have an adverse effect on our results of operations.
Added
Such disruptions could have a material adverse effect on our business, consolidated financial condition or results of operations. Disruption of our manufacturing or distribution chains or information technology systems, including disruption due to cybersecurity threats, could adversely affect our business.
Removed
A new arrangement may not be available on terms as favorable to us as our existing arrangements, if at all. Our inability to maintain sufficient internal capacity or establish satisfactory co-packing, warehousing and distribution arrangements could limit our ability to operate our business or implement our strategic plan and could negatively affect our sales volumes and results of operations.
Added
Danone has certain rights under the Shareholder Agreement which give Danone the ability to control or influence the outcome of certain matters, including our ability to compensate our officers and directors in accordance with market standards, to undertake certain offerings of securities, and to consummate mergers and acquisitions or other strategic alternatives for the Company.
Removed
We rely on a limited number of production and distribution facilities.
Added
Although Danone holds less than 25% of our common stock, the rights Danone has under the Shareholder Agreement may prevent us from offering market standard compensation to our officers and directors or prevent third parties from making offers to enter into certain strategic transactions.
Removed
Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described in this Annual Report on Form 10-K.
Added
Danone’s exercise of their rights under the Shareholder Agreement have prevented us from consummating the issuance of certain equity as part of market standard compensation terms and amounts to certain officers and directors which could prevent us from attracting and retaining qualified key personnel.
Removed
A product liability judgment against us or a product recall could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. 13 We rely on independent certification for several of our products and facilities.
Added
Additionally, it is possible that any offers to acquire Lifeway or purchase Lifeway equity in an offering will be made at reduced prices, if made at all, as a result of certain of Danone’s rights under the Shareholder Agreement, including, without limitation, its right of first refusal on shares issued by the Company.
Removed
We rely on independent SQF certification at some of our facilities, a certification that some of our customers require us to maintain. We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified.
Added
Danone’s interests may not always be aligned with other stockholders’ interests. By exercising its rights under the Shareholder Agreement, Danone could prevent Lifeway from taking actions that are consistent with the investment goals of institutional, short-term, non-voting, or other non-controlling investors, or that would have a positive effect on our stock price.
Removed
Increases in the cost of raw milk could reduce our gross margin and profit. Conventional and organic raw milk, our primary raw material, is an agricultural commodity that is subject to price fluctuations.
Added
Stockholder actions, including potential proxy contests, requires significant time and attention by management and our Board, potentially interfering with our ability to execute our strategic plan. We may be required to incur significant legal fees and other expenses related to stockholder actions, and the attention of our management may be diverted by such actions.
Removed
Regulations and formal and informal positions taken by the NOP pursuant to the Organic Foods Production Act of 1990, which created the NOP, are subject to continued review and scrutiny.
Added
We rely on independent certification for several of our products and facilities. We rely on independent certification, such as certifications of our products as “organic,” or “gluten-free,” to differentiate our products from others.
Removed
The ultimate impact that the COVID-19 pandemic or any future pandemic or disease outbreak will have on our business and our consolidated results of operations is uncertain. To date we have seen increased customer and consumer demand for our products.
Added
In addition, all organic raw materials must be certified organic or organic compliant. Our products could lose their organic certifications if our raw material suppliers lose their organic certifications. Similarly, we could lose our SQF certification if we do not meet the requirements of the SQF Code.
Removed
We have not experienced significant supply chain disruptions or labor supply shortages and we have continued to be able to satisfy customer and consumer demand for our products.
Added
The United States and other key international economies have experienced significant economic and market downturns in the past, and are likely to experience additional cyclical downturns from time to time in which economic activity is impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, inflation, bankruptcies and overall uncertainty with respect to the economy.
Removed
However, the COVID-19 pandemic, or any future pandemic, may limit the availability of, or increase the cost of, employees, ingredients, packaging and other inputs necessary to produce our products, and our operations may be negatively impacted. In 2022, our costs increased primarily due to inflationary price increases of milk, other ingredients, packaging materials, and freight.
Added
These economic conditions can arise suddenly and the full impact of such conditions can be difficult to predict, such as the future expectations in this inflationary environment.
Removed
However, because of market conditions or for competitive reasons, our pricing actions may sometimes lag input cost changes, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them. 15 In 2022, social distancing, shelter-in-place and work-from-home mandates and recommendations have begun to be reduced or eliminated.
Added
In addition, geopolitical and domestic political developments, such as existing and potential trade wars and other events beyond our control, such as Russia’s invasion of Ukraine, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.
Removed
The increased customer demand we have realized over the past two years as consumers increased their at-home consumption and e-commerce purchasing during the COVID-19 pandemic may change or decrease due to the decrease in social distancing and stay-at-home and work-from-home mandates and recommendations.
Added
The actual or perceived effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as COVID-19, could also materially and adversely affect the Company’s business, financial condition and results of operations. Adverse and uncertain economic conditions, such as those caused by inflation or the COVID-19 pandemic, may impact distributor, retailer and consumer demand for our products.
Removed
We are unable to predict the nature and timing of when such change may occur, if at all.
Added
In addition, our ability to manage normal commercial relationships with our suppliers, distributors, retailers, consumers and creditors may suffer. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns. Distributors and retailers may become more conservative in response to these conditions and seek to reduce their inventories.
Removed
The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others, whether additional waves of COVID-19 or different variants of COVID-19 will affect the United States and other markets and the duration of any social distancing and stay home and work from home mandates or recommendations that may occur as a result of such COVID-19 wave or variant; our ability and the ability of our suppliers to continue to maintain production despite unprecedented demand in the food industry, supply chain disruptions, tight labor markets and increased raw materials and packaging costs; and the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery impact consumer eating and shopping habits.
Added
Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with existing distributors and retailer customers, our ability to attract new consumers, the financial condition of our consumers, and our ability to provide products that appeal to consumers at attractive prices.
Removed
We cannot predict the duration or scope of the disruption or the impact of any recovery from the impacts of COVID-19. Therefore, the financial impact cannot be reasonably estimated at this time.
Added
Prolonged unfavorable economic conditions may have an adverse effect on the Company’s sales, which could materially and adversely affect its business, financial condition and results of operations. 15 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Removed
Future pandemics or disease outbreaks could similarly adversely affect economies and financial markets, consumer spending and confidence levels and result in an economic downturn that affects customer demand for our products.
Removed
Our efforts to manage and mitigate these risks may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any pandemic or disease outbreak, as well as third party actions taken to contain its spread and mitigate public health effects. ITEM 1B. UNRESOLVED STAFF COMMENTS None.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES We operate the following facilities: Location Owned / Leased Principal Use Morton Grove, Illinois Owned Production of kefir and cheese, principal executive offices Waukesha, Wisconsin Owned Production of kefir, administrative offices Niles, Illinois Owned Distribution center, administrative offices Philadelphia, Pennsylvania Owned Production of kefir and cheese, administrative offices Lifeway believes that its facilities are adequate for its current needs and that suitable additional space will be available on commercially acceptable terms as required.
Biggest changePROPERTIES We operate the following facilities: Location Owned / Leased Principal Use Morton Grove, Illinois Owned Production facility, principal executive offices Waukesha, Wisconsin Owned Production facility, warehousing and distribution, administrative offices Niles, Illinois Owned Warehousing and distribution, administrative offices Philadelphia, Pennsylvania Owned Production facility, warehousing and distribution, administrative offices Lifeway believes that its facilities are adequate for its current needs and that suitable additional space will be available on commercially acceptable terms as required.
We believe that we have adequate insurance coverage for all our properties.
We believe that we have adequate insurance coverage for all our properties. 16

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we are engaged in litigation matters arising in the ordinary course of business. While the results of litigation and claims cannot be predicted with certainty, Lifeway believes that no such matter is reasonably likely to have a material adverse effect on our financial position or results of operations. ITEM 4.
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we are engaged in litigation matters arising in the ordinary course of business. While the results of litigation and claims cannot be predicted with certainty, Lifeway believes that no such matter is reasonably likely to have a material adverse effect on our financial position or results of operations.
Removed
MINE SAFETY DISCLOSURES Not applicable. 16 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThere were no dividends declared or paid in fiscal 2022 or 2021. 17 Issuer Purchases of Equity Securities Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of a publicly announced program (a) Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs ($ in thousands) 7/1/2021 to 7/31/2021 250,000 $ 6.33 250,000 $ – Fiscal Year 2021 250,000 $ 6.33 250,000 $ – 11/1/2022 to 11/30/2022 850,340 (b) $ 4.70 – $ – Fiscal Year 2022 850,340 $ 4.70 – $ – (a) During the fourth quarter of 2015, Lifeway publicly announced a share repurchase program.
Biggest changePurchases of Equity Securities by the Issuer Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of a publicly announced program Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs ($ in thousands) 11/1/2022 to 11/30/2022 850,340 (a) $ 4.70 – $ – Fiscal Year 2022 850,340 $ 4.70 – $ – 1/1/2023 to 12/31/2023 – $ – – $ – Fiscal Year 2023 – $ – – $ – (a) On November 7, 2022, the Company entered into a Stock Purchase Agreement with Ludmila Smolyansky (“Ms.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the Nasdaq Global Market under the symbol “LWAY.” Trading commenced on March 29, 1988.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is listed on the Nasdaq Global Market under the symbol “LWAY.” Trading commenced on March 29, 1988. As of March 7, 2024, there were approximately 53 shareholders of record of our common stock.
From time to time however our Board of Directors may declare and pay dividends depending on our operating cash flow, financial condition, capital requirements and such other factors as the Board of Directors may deem relevant.
Dividend Policy Lifeway does not routinely declare and pay dividends. From time to time however our Board of Directors may declare and pay dividends depending on our operating cash flow, financial condition, capital requirements and such other factors as the Board of Directors may deem relevant. There were no dividends declared or paid in fiscal 2023 or 2022.
Smolyansky in a privately negotiated share repurchase (the “Share Repurchase”). The Share Repurchase closed on November 30, 2022. ITEM 6. [RESERVED]
Smolyansky”), to purchase 850,340 shares of Lifeway common stock from Ms. Smolyansky in a privately negotiated share repurchase (the “Share Repurchase”). The Share Repurchase closed on November 30, 2022. ITEM 6. [RESERVED]
Removed
As of March 14, 2023, there were approximately 49 holders of record of Lifeway’s Common Stock, one of which was Cede & Co., a nominee for Depository Trust Company, or DTC, and 73 financial institutions as nominees for beneficial owners or in “street name” the shares of which were deposited into participant accounts at DTC and are considered to be held of record by Cede & Co. as one stockholder.
Removed
Common stock price The following table shows the high and low sale prices per share of our common stock as reported on the Nasdaq Global Market for each quarter during the two most recent fiscal years: Common Stock Price Range 2021 Low High First Quarter $ 5.21 $ 6.90 Second Quarter $ 4.56 $ 5.71 Third Quarter $ 5.15 $ 7.04 Fourth Quarter $ 4.60 $ 5.85 2022 Low High First Quarter $ 4.55 $ 8.42 Second Quarter $ 4.56 $ 7.22 Third Quarter $ 4.60 $ 7.86 Fourth Quarter $ 5.26 $ 7.66 Dividend Policy Lifeway does not routinely declare and pay dividends.
Removed
On November 1, 2017, our Board of Directors amended the 2015 stock repurchase program (the “2017 amendment”), by adding to (i.e., exclusive of the shares previously authorized under the 2015 stock program repurchase) the authorization the lesser of $5,185 or 625 shares. The program has no expiration date.
Removed
As of April 2020, the Company had reached the amended threshold of 625 shares and therefore no shares of common stock remain available to be purchased under the 2017 Repurchase Plan Amendment.
Removed
On June 24, 2021, our Board authorized a plan to repurchase up to 250 shares of Common Stock in the open market within 24 months at no more than $10 per share (the “2021 Repurchase Plan”).
Removed
As of December 31, 2021, the Company had reached the threshold of 250 shares and therefore no shares of common stock remain available to be purchased under the 2021 Repurchase Plan Amendment. (b) On November 7, 2022, the Company entered into a Stock Purchase Agreement with Ludmila Smolyansky (“Ms. Smolyansky”), to purchase 850,340 shares of Lifeway common stock from Ms.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

39 edited+13 added−16 removed16 unchanged
Biggest changeResults of Operations Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2021 (in 000’s) December 31, 2022 2021 $ % $ % Net sales 141,568 100.0% 119,065 100.0% Cost of goods sold 112,350 79.4% 87,604 73.6% Depreciation expense 2,432 1.7% 2,751 2.3% Total cost of goods sold 114,782 81.1% 90,355 75.9% Gross profit 26,786 18.9% 28,710 24.1% Selling expenses 11,304 8.0% 11,097 9.3% General & administrative expenses 12,593 8.9% 11,611 9.8% Amortization expense 540 0.4% 122 0.1% Total operating expenses 24,437 17.2% 22,830 19.2% Income from operations 2,349 1.7% 5,880 4.9% Other income (expense): Interest expense (267 ) (0.2% ) (116 ) (0.1% ) Gain on investments – 0.0% 2 0.0% Loss on sale of property and equipment (241 ) (0.2% ) (88 ) (0.1% ) Other Income, net – 0.0% (62 ) 0.0% Total other income (expense) (508 ) (0.4% ) (264 ) (0.2% ) Income before provision for income taxes 1,841 1.3% 5,616 4.7% Provision for income taxes 917 0.6% 2,305 1.9% Net income 924 0.7% 3,311 2.8% 19 Net Sales Net sales were $141,568 for the year ended December 31, 2022, an increase of $22,503 or 18.9% versus prior year.
Biggest changeResults of Operations Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2022 (in 000’s) The following table presents certain information concerning our financial results, including information presented as a percentage of consolidated net sales: Year Ended December 31, 2023 2022 $ % $ % Net sales 160,123 100.0% 141,568 100.0% Cost of goods sold 115,060 71.9% 112,350 79.4% Depreciation expense 2,622 1.6% 2,432 1.7% Total cost of goods sold 117,682 73.5% 114,782 81.1% Gross profit 42,441 26.5% 26,786 18.9% Selling expenses 11,776 7.4% 11,304 8.0% General & administrative expenses 13,130 8.2% 12,593 8.9% Amortization expense 540 0.3% 540 0.4% Total operating expenses 25,446 15.9% 24,437 17.2% Income from operations 16,995 10.6% 2,349 1.7% Other income (expense): Interest expense (384 ) (0.2% ) (267 ) (0.2% ) Gain (loss) on sale of property and equipment 34 0.0% (241 ) (0.2% ) Other income (expense) 4 0.0% – 0.0% Total other income (expense) (346 ) (0.2% ) (508 ) (0.4% ) Income before provision for income taxes 16,649 10.4% 1,841 1.3% Provision for income taxes 5,282 3.3% 917 0.6% Net income 11,367 7.1% 924 0.7% 19 Net Sales Net sales were $160,123 for the year ended December 31, 2023, an increase of $18,555 or 13.1% versus prior year.
Share-based compensation Certain employees and non-employee directors receive various forms of share-based payment awards, and we recognize compensation expense for these awards based on their grant date fair values. The grant fair value of Restricted Stock Units (“RSUs”) and Performance Share Unit (“PSUs”) awards is equal to the Company’s closing stock price on the grant date.
Share-based compensation Certain employees and non-employee directors receive various forms of share-based payment awards, and we recognize compensation expense for these awards based on their grant date fair values. The grant date fair value of Restricted Stock Units (“RSUs”) and Performance Share Unit (“PSUs”) awards is equal to the Company’s closing stock price on the grant date.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations as of and for the years ended December 31, 2022 and 2021 should be read in conjunction with the audited consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations as of and for the years ended December 31, 2023 and 2022 should be read in conjunction with the audited consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K.
The Company’ 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.
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.
Smolyansky will sell the shares at a purchase price of $4.70 per share, which represents a twenty percent (20.0%) discount to the average closing price of the common stock on Nasdaq over the five (5) trading day period ended on the trading day immediately preceding the date of the Stock Purchase Agreement and (ii) Ms.
Smolyansky sold the shares at a purchase price of $4.70 per share, which represents a twenty percent (20.0%) discount to the average closing price of the common stock on Nasdaq over the five (5) trading day period ended on the trading day immediately preceding the date of the Stock Purchase Agreement and (ii) Ms.
Our 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 underlying income tax rates applicable to various state and local taxing jurisdictions, enacted tax legislation, the impact of non-deductible items, changes in valuation allowances, and the expiration of the statute of limitations in relation to unrecognized tax benefits.
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 underlying income tax rates applicable to various state and local taxing jurisdictions, enacted tax legislation, 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.
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 capacity available at all locations and does not anticipate manufacturing or staffing disruptions in the near term.
This proactive planning has allowed the Company to avoid disruption to its manufacturing facilities, transportation, and sales, and to meet the increased demand. The Company has maintained production at all locations and does not anticipate manufacturing or staffing disruptions in the near term.
Smolyansky will use a portion of the proceeds to satisfy in full certain obligations of Ms. Smolyansky, which are secured by previously disclosed pledges of common stock, causing all such pledges to be released. The purchased shares will be held in treasury by the Company.
Smolyansky used a portion of the proceeds to satisfy in full certain obligations of Ms. Smolyansky, which are secured by previously disclosed pledges of common stock, causing all such pledges to be released. The purchased shares are held in treasury by the Company.
We record discrete income tax items such as enacted tax rate changes in the period in which they occur. Section 162(m) of the Internal Revenue Code (the “Code”) limits the deductibility of compensation paid to certain of our executives to the extent their total compensation exceeds $1 million in any taxable year.
The Company records discrete income tax items such as enacted tax rate changes in the period in which they occur. Section 162(m) of the Internal Revenue Code (the “Code”) limits the deductibility of compensation paid to certain of our executives to the extent their total compensation exceeds $1 million in any taxable year.
Although similar items were reflected in 2022, the percentage effect is different due to the difference in pre-tax income in 2022 compared to 2021.
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 process for analyzing trade promotion programs could impact our results of operations and trade spending accruals depending on how actual results of the programs compare to original estimates. As of December 31, 2022, we had $1,800 of accrued discounts and allowances.
The process for analyzing trade promotion programs could impact our results of operations and trade spending accruals depending on how actual results of the programs compare to original estimates. As of December 31, 2023, we had $1,270 of accrued discounts and allowances.
See Note 11 to our consolidated financial statements for further detail. 23 Income taxes We pay income taxes based on tax statutes, regulations, and case law of the various jurisdictions in which we operate. At any given time, multiple tax years are subject to audit by the various taxing authorities.
See Note 11 to our consolidated financial statements for further detail. Income taxes We pay income taxes based on tax statutes, regulations, and case law of the various jurisdictions in which we operate. At any given time, multiple tax years are subject to audit by the various taxing authorities. Income taxes are accounted for under the asset and liability method.
If additional borrowings are needed, $2,223 was available under the Revolving Credit Facility as of December 31, 2022 (see Note 7, Debt). We are in compliance with the terms of the Credit Agreement and expect to meet foreseeable financial requirements.
If additional borrowings are needed, $5,000 was available under the Revolving Credit Facility as of December 31, 2023 (see Note 7, Debt). We are in compliance with the terms of the Credit Agreement and expect to meet foreseeable financial requirements.
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.
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 chain of materials used to produce and transport our products to customers.
The discount rate used to determine the present value of future cash flows is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business's ability to execute on the projected cash flows.
The discount rate used to determine the present value of future cash flows is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows. For the market approach, the Company uses the guideline public company method.
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse.
Deferred income tax assets and liabilities are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse.
Provision for Income Taxes The provision for income taxes includes federal, state and local income taxes. The provision for income taxes was $917 and $2,305 during the year ended December 31, 2022 and 2021, respectively. Our effective income tax rate was 49.1% in 2022 compared to 41.0% in 2021.
Provision for Income Taxes The provision for income taxes includes federal, state and local income taxes. The provision for income taxes was $5,282 and $917 during the year ended December 31, 2023 and 2022, respectively. The effective income tax rate was 31.7% in 2023 compared to 49.1% in 2022.
The following table is derived from our Consolidated Statement of Cash Flows: Year Ended December 31, 2022 2021 Net Cash Flows Provided By (Used In): Operating activities $ 3,987 $ 5,564 Investing activities $ (4,029 ) $ (7,142 ) Financing activities $ (4,747 ) $ 2,885 Operating Activities Net cash provided by operating activities was $3,987 in 2022 compared to $5,564 in 2021.
Cash Flow The following table is derived from our Consolidated Statement of Cash Flows: Year Ended December 31, 2023 2022 Net Cash Flows Provided By (Used In): Operating activities $ 16,941 $ 3,987 Investing activities $ (4,410 ) $ (4,029 ) Financing activities $ (3,777 ) $ (4,747 ) Operating Activities Net cash provided by operating activities was $16,941 in 2023 compared to $3,987 in 2022.
Lifeway is also required to pay a quarterly unused line fee of 0.20% on the Revolving Credit Facility and, in conjunction with the issuance of any letters of credit, a letter of credit fee of 0.20%.
Lifeway is also required to pay a quarterly unused line fee of 0.20% on the Revolving Credit Facility, and in conjunction with the issuance of any letters of credit, a letter of credit fee of 0.20%. The Company is in compliance with all applicable financial debt covenants as of December 31, 2023.
The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics. The resulting fair value, based on the income and market approaches, is then compared to the carrying value to determine if impairment is necessary.
The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics.
The statutory Federal and state tax rates remained consistent from 2021 to 2022. The Company has a number of 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 year to year.
The statutory Federal and state tax rates remained consistent from 2022 to 2023. The Company consistently reflects non-deductible items such as non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards and separate state tax rates from year to year.
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.
Income taxes are discussed in Note 10 in the Notes to the Consolidated Financial Statements. 20 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.
Management has discussed the development and selection of these critical accounting policies, as well as our significant accounting policies (see Note 2 to the Consolidated Financial Statements), with the Audit Committee of our Board of Directors. We have identified the policies described below as our critical accounting policies. Goodwill impairment Goodwill totaled $11,704 as of December 31, 2022.
Management has discussed the development and selection of these critical accounting policies, as well as our significant accounting policies (see Note 2 to the Consolidated Financial Statements), with the Audit and Corporate Governance Committee of our Board of Directors. We have identified the policies described below as our critical accounting policies that require us to make subjective or complex judgments.
Debt Obligations On August 18, 2021, Lifeway entered into the Fourth Modification (the “Fourth Modification”) to the 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.
Debt Obligations 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.
In certain circumstances, the preparation of our Consolidated Financial Statements in conformity with U.S. GAAP requires us to use our judgment to make certain estimates and assumptions.
In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP with no need for the application of our judgement. In certain circumstances, the preparation of our Consolidated Financial Statements in conformity with U.S. GAAP requires us to use our judgment to make certain estimates and assumptions.
Smolyansky, Board of Director member. The shares were repurchased during the fourth quarter of 2022. Pursuant to the Stock Purchase Agreement, the Company and Ms. Smolyansky have agreed, among other things, that (i) Ms.
Smolyansky”), to purchase 850,340 shares of Lifeway common stock from Ms. Smolyansky, Board of Director member. The shares were repurchased during the fourth quarter of 2022. Pursuant to the Stock Purchase Agreement, (i) Ms.
Sales discounts & allowance We offer various trade promotions and sales incentive programs to customers and consumers. From time to time, we grant certain sales discounts to customers which are classified as a reduction in sales.
The Company also reconciles the fair value of its reporting unit to its current market capitalization, allowing for a reasonable control premium. 23 Sales discounts & allowance We offer various trade promotions and sales incentive programs to customers and consumers. From time to time, we grant certain sales discounts to customers which are classified as a reduction in sales.
We estimate the fair value of our one reporting unit annually (as of December 31), or more frequently if certain conditions exist, using a combination of the fair values derived from both the income approach and the market approach.
Under a Step 1 quantitative test, we estimate the fair value of our one reporting unit using a combination of the fair values derived from both the income approach and the market approach.
Off-Balance Sheet Arrangements We do not have any off-balance sheet financing arrangements as defined in Item 303(a)(4) of Regulation S-K. Contractual Obligations Not applicable. 22 Critical Accounting Estimates Critical accounting estimates are those estimates made in accordance with U.S.
Off-Balance Sheet Arrangements We do not have any off-balance sheet financing arrangements as defined in Item 303(a)(4) of Regulation S-K. 22 Critical Accounting Estimates Critical accounting estimates are defined as those most important to the portrayal of a company’s financial condition and results, and require the most difficult, subjective, or complex judgments.
Selling Expenses Selling expenses increased by $207 to $11,304 during the year ended December 31, 2022 from $11,097 during the same period in 2021. The increase versus prior year is primarily due to increased investment in advertising and marketing programs, increased broker expense, partially offset by lower compensation expense.
Selling Expenses Selling expenses increased by $472 to $11,776 during the year ended December 31, 2023 from $11,304 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.
The decrease in cash used reflects the August 2021 acquisition of GlenOaks Farms, Inc., partially offset by increased capital spending in 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.
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 $3,777 in 2023 compared to $4,747 in 2022.
We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future. 18 Recent Developments COVID-19 Pandemic Impact We have seen increased customer and consumer demand for our products during the pandemic as consumers increased their food purchases for in-home consumption.
We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future. 18 Recent Developments Current Macroeconomic Environment and Inflation Impact During 2022, we experienced inflationary and cost pressures due to volatility and disruption in the global economy which have increased our production and distribution costs.
The Company completed its annual goodwill impairment analysis as of December 31, 2022. Our assessment did not result in an impairment. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired.
Goodwill impairment Goodwill totaled $11,704 as of December 31, 2023. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. Goodwill is not amortized. The Company has one reporting unit within its single reportable segment.
The net sales increase was primarily driven by higher volumes of our branded drinkable kefir and the impact of price increases implemented during the year, and to a lesser extent, the favorable impact of our acquisition of Glen Oaks Farms during the third quarter of 2021.
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. Gross Profit Gross profit as a percentage of net sales increased to 26.5% during the year ended December 31, 2023 from 18.9% during the same period in 2022.
We had $2,223 available for future borrowings under the Revolving Credit Facility as of December 31, 2022. As amended, all outstanding amounts under the Loans bear interest, at Lifeway’s election, at either the lender Base Rate (the Prime Rate minus 1.00%) or the LIBOR plus 1.95%, payable monthly in arrears.
The Company had $5,000 available for future borrowings under the Revolving Credit Facility as of December 31, 2023. All outstanding amounts under the loans bear interest at the Secured Overnight Financing Rate (“SOFR”), plus 2.07%. The Company’s interest rate on debt outstanding under the note payable as of December 31, 2023 was 6.29%. Interest is payable monthly in arrears.
The Fourth Modification amends the Credit Agreement to provide for, among other things, a $5 million term loan by the existing lender to the borrowers to be repaid in quarterly installments of principal and interest over a term of five years (the “Term Loan”). The termination date of the Term Loan is August 18, 2026, unless earlier terminated.
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 decrease was primarily due to lower cash earnings, which reflect the impact of input and freight cost inflation in 2022, and the change in working capital. 21 Investing Activities Net cash used in investing activities was $4,029 in 2022 compared to $7,142 in 2021.
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. 21 Investing Activities Net cash used in investing activities was $4,410 in 2023 compared to $4,029 in 2022. The increase in cash used reflects our planned capital spending increase during 2023 compared to 2022.
General and Administrative Expenses General and administrative expenses increased $982 to $12,593 during the year ended December 31, 2022 from $11,611 during the same period in 2021.
General and Administrative Expenses General and administrative expenses increased $537 to $13,130 during the year ended December 31, 2023 from $12,593 during the same period in 2022. The increase is primarily a result of increased incentive compensation expense, partially offset by the termination of the endorsement agreement in September 2022 and reduced professional fees.
Except for the addition of the Term Loan, the Credit Agreement remains substantively unchanged and in full force and effect. As of December 31, 2022, we had $2,777 outstanding under the Revolving Credit Facility and $3,727 outstanding under the note payable, net of $23 of unamortized deferred financing fees.
The termination date of the term loan is August 18, 2026, unless earlier terminated. The termination date of the revolving credit facility is June 30, 2025, unless earlier terminated. As of December 31, 2023, the Company had $0 outstanding under the Revolving Credit Facility and $2,733 outstanding under the note payable, net of $17 of unamortized deferred financing fees.
Removed
These statements may be identified by the use of words such as "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," "future," "predict," and "estimate," and similar terms or terminology, or the negative of such terms or other comparable terminology.
Added
These statements may be identified by the use of words such as “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,” and “estimate,” and similar terms or terminology, or the negative of such terms or other comparable terminology.
Removed
However, the COVID-19 pandemic, or any future pandemic, may limit the availability of, or increase the cost of, employees, ingredients, packaging and other inputs necessary to produce our products, and our operations may be negatively impacted. In 2022, our costs increased primarily due to inflationary price increases of milk, other ingredients, packaging materials, and transportation to our customers.
Added
During 2023, we experienced some moderation of inflationary pressures and have experienced pricing declines in certain of our input costs, such as conventional milk. In response to these persistent inflationary and cost pressures, we instituted price increases in 2022 on many of our products. These inflation-justified price increases mitigated a portion of our increased costs.
Removed
However, because of market conditions or for competitive reasons, our pricing actions may sometimes lag input cost changes, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them. During 2022, social distancing, shelter-in-place and work-from-home mandates and recommendations have continued to be reduced or eliminated.
Added
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.
Removed
The increased customer demand for our products as consumers increased their at-home consumption and e-commerce purchasing during the COVID-19 pandemic may change or decrease due to the decrease in social distancing and stay-at-home and work-from-home mandates and recommendations. We are unable to predict the nature and timing of when such change may occur, if at all.
Added
The Company paid the outstanding line of credit balance of $2,777 in full on October 6, 2023. There were no amounts outstanding under the line of credit after October 6, 2023, through December 31, 2023. On November 7, 2022, the Company entered into a Stock Purchase Agreement with Ludmila Smolyansky (“Ms.
Removed
Approximately 18% of the net sales increase results from the full year 2022 impact of our acquisition of Glen Oaks Farms during the third quarter of 2021. Gross Profit Gross profit as a percentage of net sales decreased to 18.9% during the year ended December 31, 2022 from 24.1% during the same period in 2021.
Added
See Note 7 to our Consolidated Financial Statements for additional information regarding our indebtedness and related agreements.
Removed
The decrease versus the prior year was primarily due to the unfavorable impact of milk pricing, and the inflationary price increases of other ingredients, packaging materials, and freight, partially offset by the decrease in depreciation expense and favorable labor efficiency due to increased volumes.
Added
We review and evaluate our goodwill for potential impairment at a minimum annually, as of December 31, or more frequently if circumstances indicate that impairment is possible. We completed our annual goodwill impairment analysis as of December 31, 2023. Our assessment did not result in an impairment.
Removed
We took favorable pricing actions during 2022 to recover a portion of the input and freight cost inflation. However, for market conditions or competitive reasons, our pricing actions may also lag input cost changes, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them.
Added
In testing goodwill for impairment, the Company has the option to perform a qualitative test (also known as “Step 0”) or a quantitative test (“Step 1”). Under the Step 0 test, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.
Removed
The increase is primarily a result of increased legal and professional fees, which include expense related to non-routine stockholder action, the fiscal year 2020 Form 10-K restatement, and incentive compensation, partially offset by lower consulting expense to our former Chairperson of the Board of Directors.
Added
Qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific events.
Removed
Income taxes are discussed in Note 10 in the Notes to the Consolidated Financial Statements. 20 Net Income (Loss) We reported net income of $924 or $0.06 per basic and diluted common share for the year ended December 31, 2022 compared to net income of $3,311 or $0.21 per basic and diluted common share in the same period in 2021.
Added
If after assessing these qualitative factors, the Company determines it is “more-likely-than-not” that the fair value of the reporting unit is less than the carrying value, then performing the Step 1 quantitative test is necessary. Step 1 of the quantitative test requires comparison of the fair value of the Company’s one reporting unit to the carrying value.
Removed
Financing Activities Net cash used in financing activities was $4,747 during 2022 compared to net cash provided by financing activities of $2,885 in 2021. The decrease in cash used relates to the term loan entered into during August 2021 in connection with the acquisition of GlenOaks Farms, Inc., partially offset by the quarterly principal payments under the term loan.
Added
If the carrying value of the reporting unit is less than the fair value, no impairment exists. Otherwise, the Company would recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value up to the amount of goodwill allocated to the reporting unit.
Removed
On June 24, 2021, Lifeway’s Board authorized a plan to repurchase up to 250 shares of Common Stock in the open market within 24 months at no more than $10 per share. We repurchased all 250 shares of common stock at a cost of $1,583 during the three-month period ended September 30, 2021.
Added
Under the income approach, the Company uses a discounted cash flow methodology which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others.
Removed
We intend to hold repurchased shares in treasury for general corporate purposes, including issuances under our 2015 Omnibus Incentive Plan. Treasury shares are accounted for using the cost method. On November 7, 2022, the Company entered into a Stock Purchase Agreement with Ludmila Smolyansky (“Ms. Smolyansky”), to purchase 850,340 shares of Lifeway common stock from Ms.
Added
The Company granted RSU and PSU awards during 2023 to employees. The PSU awards are contingent upon the achievement of strategic milestones during a three-year measurement period. The expense recognition of PSU awards therefore requires management to make judgements and estimates at the end of each reporting period as to the cumulative three-year milestone achievements.
Removed
The Company’s interest rate on debt outstanding under the revolving line of credit and note payable as of December 31, 2022 was 6.17% and 6.29%, respectively. We are in compliance with all applicable financial debt covenants as of December 31, 2022. See Note 7 to our Consolidated Financial Statements for additional information regarding our indebtedness and related agreements.
Added
Changes in managements estimate of the three-year cumulative milestone achievements are recognized as change in management estimate in a subsequent period. We do not estimate forfeitures in measuring the grant date fair value of RSUs and PSUs, but rather account for forfeitures as they occur. Forfeitures have historically been immaterial.
Removed
GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP with no need for the application of our judgement.
Removed
Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on our estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions.
Removed
The Company granted RSU and PSU awards during 2022 to employees under the 2022 long-term incentive-based plan, and RSU awards to non-employee Directors under the 2022 Non-Employee Director Equity and Deferred Compensation Plan. We do not estimate forfeitures in measuring the grant date fair value, but rather account for forfeitures as they occur.

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