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What changed in Lifeway Foods, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Lifeway Foods, Inc.'s 2023 and 2024 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 2024 report.

+172 added−132 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-20)

Top changes in Lifeway Foods, Inc.'s 2024 10-K

172 paragraphs added · 132 removed · 103 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn addition, we own numerous registered and unregistered copyrights, registered domain names, and proprietary trade secrets, trade dress, technology, know-how, processes, and other proprietary rights that are not registered. Depending on the jurisdiction, trademarks are generally valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic.
Biggest changeDepending on the jurisdiction, trademarks are generally valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic. Registrations of trademarks can also generally be renewed indefinitely as long as the trademarks are in use.
Our product categories are: · Drinkable kefir, sold in a variety of organic and non-organic sizes, flavors, and types; · European-style soft cheeses, including farmer cheese, white cheese, and Sweet Kiss; · Cream and other, which consists primarily of cream, a byproduct of making our kefir; · ProBugs, a line of kefir products designed for children; · Drinkable yogurt, sold in a variety of sizes and flavors; and · Other dairy, which consists primarily of Fresh Made butter and sour cream.
Our product categories are: · Drinkable kefir, a cultured dairy product sold in a variety of organic and non-organic sizes, flavors, and types; · European-style soft cheeses, including farmer cheese, white cheese, and Sweet Kiss; · Cream and other, which consists primarily of cream, a byproduct of making our kefir; · Drinkable yogurt, sold in a variety of sizes and flavors; · ProBugs, a line of kefir products designed for children; · Other dairy, which consists primarily of Fresh Made butter and sour cream.
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.
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 utilities, such as natural gas and electricity to operate our facilities.
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. 5 FOOD SAFETY Lifeway takes appropriate precautions to ensure the safety of 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. 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.
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 include rebates, in-store display and demo allowances, allowances for non-saleable product, coupons, and other trade promotional activities.
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.
Sales to our DSD customers represent approximately 2% of our total net sales for the year ended 2024. Distribution outside of the U.S . Lifeway’s primary market is the United States; however, certain distributors based in the United States sell our products to retailers in Mexico, portions of Central and South America and the Caribbean.
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 have a co-packer agreement to manufacture drinkable kefir in Ireland, to serve our European markets. During 2024 and 2023, approximately 6% and 7% 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”).
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.
Sales to our retail-direct customers represent approximately 52% of our total net sales for the year ended 2024. 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.
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.
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 3% of net sales for the year ended 2024.
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.
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.
Lifeway’s policy is to pursue registration of intellectual property whenever appropriate. We protect our intellectual property rights by relying on a combination of trademark, copyright, trade dress, trade secret and other intellectual property laws, and domain name dispute resolution systems; as well as licensing agreements, third-party confidentiality, nondisclosure, and assignment agreements; and by policing third-party misuses of our intellectual property.
We protect our intellectual property rights by relying on a combination of trademark, copyright, trade dress, trade secret and other intellectual property laws, and domain name dispute resolution systems; as well as licensing agreements, third-party confidentiality, nondisclosure, and assignment agreements; and by policing third-party misuses of our intellectual property.
PRODUCTION Manufacturing During 2023 and 2022, approximately 93% and 96% of our revenue, respectively, was derived from products manufactured at our own facilities.
PRODUCTION Manufacturing During 2024 and 2023, approximately 94% and 93% our revenue, respectively, was derived from products manufactured at our own facilities.
Sales to our distributor customers represent approximately 48% of our total net sales for year ended 2023.
Sales to our distributor customers represent approximately 46% of our total net sales for year ended 2024.
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.
Net sales of products by category were as follows for the years ended December 31: 2024 2023 In thousands $ % $ % Drinkable Kefir other than ProBugs $ 153,493 82% $ 127,726 80% Cheese 14,554 8% 13,781 9% Cream and other 8,299 4% 7,382 4% Drinkable Yogurt 5,619 3% 6,236 4% Probugs Kefir 3,421 2% 3,429 2% Other dairy 1,434 1% 1,569 1% Net Sales $ 186,820 100% $ 160,123 100% 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.
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.
These may include scheduling and coordinating promotions, merchandising, centralized ordering, and data collection services. 3 MARKETING We use a combination of sales incentives, trade promotions, and consumer promotions to market our products.
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.
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.
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.
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. Lifeway believes it has access to alternative suppliers for critical ingredients, packaging, and other input requirements.
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.
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.
Substantially all our consolidated revenues relate to the sale of cultured dairy products that we produce using the same processes and materials and are sold to consumers through a common network of distributors and retailers in the United States.
Substantially all our consolidated revenues relate to the sale of cultured dairy products that we produce using the same processes and materials and are sold to consumers through a common network of distributors and retailers in the United States. 4 INTELLECTUAL PROPERTY We believe that our rights in our trademarks and service marks are important to our marketing efforts to develop brand recognition and differentiate our brand from our competitors and are a valuable part of our business.
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. 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.
Registrations of trademarks can also generally be renewed indefinitely as long as the trademarks are in use. We also have licenses to use certain trademarks inside and outside of the United States and to certain product formulas, all subject to the terms of the agreements under which such licenses are granted.
We also have licenses to use certain trademarks inside and outside of the United States and to certain product formulas, all subject to the terms of the agreements under which such licenses are granted. Lifeway’s policy is to pursue registration of intellectual property whenever appropriate.
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.
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. EMPLOYEES As of December 31, 2024, we employed 291 full-time and one part-time employee, of which 100 were members of a union bargaining unit in Illinois.
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.
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.
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.
MAJOR CUSTOMERS During the year ended December 31, 2024, two customers accounted for a total of 25% of our total net sales. Two customers accounted for a total of 26% of net accounts receivable as of December 31, 2024.
Removed
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.
Added
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.
Removed
Lifeway and Danone are parties to a Stockholders’ Agreement dated October 1, 1999, which as amended provides Danone the right to designate one director nominee, provides Danone with anti-dilutive rights relating to certain future offerings and issuances of capital stock, and grants Danone limited registration rights.
Added
We own many domestic and international trademarks and service marks. In addition, we own numerous registered and unregistered copyrights, registered domain names, and proprietary trade secrets, trade dress, technology, know-how, processes, and other proprietary rights that are not registered.
Removed
INTELLECTUAL PROPERTY We believe that our rights in our trademarks and service marks are important to our marketing efforts to develop brand recognition and differentiate our brand from our competitors and are a valuable part of our business. We own many domestic and international trademarks and service marks.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThis could cause us to lower our prices, resulting in lower profitability or, in the alternative, cause us to lose market share if we fail to lower prices. Furthermore, private label competitors are generally able to sell their products at lower prices because private label products typically have lower marketing costs than their branded counterparts.
Biggest changeFurthermore, private label competitors are generally able to sell their products at lower prices because private label products typically have lower marketing costs than their branded counterparts. If our products fail to compete successfully with other branded or private label offerings, demand for our products and our sales volumes could be negatively impacted.
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 manufacturing platform and we rely primarily on internal production resources to fulfill our manufacturing needs.
The loss of any large customer, the reduction of purchasing levels, or the cancellation of any business from a large customer for an extended period of time could negatively affect our sales and results of operations. We rely on sales made by or through our independent distributors to customers. Distributors purchase directly for their own account for resale.
The loss of any large customer, the reduction of purchasing levels, or the cancellation of any business from a large customer for an extended period of time could negatively affect our sales and results of operations. 14 We rely on sales made by or through our independent distributors to customers. Distributors purchase directly for their own account for resale.
If any of the events or circumstances described in the following risk factors actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. RISKS RELATED TO OUR BUSINESS Our product categories face a high level of competition, which could negatively impact our sales and results of operations.
If any of the events or circumstances described in the following risk factors actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. 6 RISKS RELATED TO OUR BUSINESS Our product categories face a high level of competition, which could negatively impact our sales and results of operations.
Unless cured or waived, a default would permit lenders to accelerate the maturity of the debt under the credit agreement and to foreclose upon the collateral securing the debt. Loss of our key management or other personnel, or an inability to attract such management and other personnel, could negatively impact our business.
Unless cured or waived, a default would permit lenders to accelerate the maturity of the debt under the credit agreement and to foreclose upon the collateral securing the debt. 10 Loss of our key management or other personnel, or an inability to attract such management and other personnel, could negatively impact our business.
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.
Such disruptions could have a material adverse effect on our business, consolidated financial condition or results of operations. 8 Disruption of our manufacturing or distribution chains or information technology systems, including disruption due to cybersecurity threats, could adversely affect our business.
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.
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. 15 Increases in the cost of milk could reduce our gross margin and profit.
Further, if we are found to be in violation of applicable laws and regulations in these areas, we could be subject to civil remedies, including third-party claims for property damage or personal injury, fines, injunctions, recalls, cleanup costs, and other civil sanctions, as well as potential criminal sanctions, any of which could have a material adverse effect on our business.
Further, if we are found to be in violation of applicable laws and regulations in these areas, we could be subject to civil remedies, including third-party claims for property damage or personal injury, fines, injunctions, recalls, cleanup costs, and other civil sanctions, as well as potential criminal sanctions, any of which could have a material adverse effect on our business. 17 ITEM 1B.
Our ongoing initiatives to expand our production platform and our productive capacity could fail to achieve such objectives and, in any case, could increase our operating costs beyond our expectations and could require significant additional capital expenditures.
Our ongoing initiatives to expand our manufacturing platform and our productive capacity could fail to achieve such objectives and, in any case, could increase our operating costs beyond our expectations and could require significant additional capital expenditures.
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.
Conventional and organic milk, our primary raw material, is an agricultural commodity that is subject to price fluctuations. Conventional milk prices were higher in fiscal 2024 than the prior year, and there can be no assurance that such prices will remain at these levels in the future.
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.
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 bears interest at variable rates. If market interest rates increase, it will increase our debt service requirements, which could adversely affect our cash flow.
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.
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 25% of our net sales in the fiscal year ended December 31, 2024.
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.
By exercising their influence, such stockholders 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 ability to implement this strategy depends, among other things, on our ability to: · enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products; · compete successfully in the product categories in which we choose to operate; · introduce timely, new, cost-effective, and appealing products and innovate successfully within our existing product categories; · develop and maintain consumer interest in and demand for our brands considering prevailing consumer tastes and preferences; · increase our brand recognition and loyalty; · enter into strategic arrangements with third-party suppliers to obtain necessary raw materials; · identify suitable acquisition candidates or joint venture partners and accurately assess their value, growth potential, strengths, weaknesses, contingent and other liabilities, and potential profitability; · negotiate acquisitions and joint ventures on terms acceptable to us; and · integrate acquired brands, products, or joint ventures into our company and our business strategy.
Our ability to implement this strategy depends, among other things, on our ability to: · enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products; · compete successfully in the product categories in which we choose to operate; · introduce timely, new, cost-effective, and appealing products and innovate successfully within our existing product categories; · develop and maintain consumer interest in and demand for our brands considering prevailing consumer tastes and preferences; · increase our brand recognition and loyalty; · enter into strategic arrangements with third-party suppliers to obtain necessary raw materials; · identify suitable acquisition candidates or joint venture partners and accurately assess their value, growth potential, strengths, weaknesses, contingent and other liabilities, and potential profitability; · negotiate acquisitions and joint ventures on terms acceptable to us; and · integrate acquired brands, products, or joint ventures into our company and our business strategy. 7 If we fail to execute these and other important elements of our business strategy, our business and results of operations could be adversely affected.
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.
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.
RISK FACTORS In evaluating and understanding us and our business, you should carefully consider the risks described below, in conjunction with all of the other information included in this Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 and “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II, Item 7A.
ITEM 1A. RISK FACTORS In evaluating and understanding us and our business, you should carefully consider the risks described below, in conjunction with all of the other information included in this Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7.
Factors that may affect consumer tastes and preferences include: · dietary trends and increased attention to nutritional values, such as the sugar, fat, protein, fiber or calorie content of different foods and beverages; · concerns regarding the health effects of specific ingredients and nutrients, such as sugar, other sweeteners, dairy, soybeans, nuts, oils, vitamins, fiber and minerals; · concerns regarding the public health consequences associated with obesity, particularly among young people; · decisions by yogurt and non-dairy beverage manufacturers to mislabel their products as “kefir” in order to benefit from our branding and marketing efforts, a marketing ploy that can cause significant confusion and misunderstanding among consumers; and · increased awareness of the environmental and social effects of food processing. 8 Our future investments may not produce the results we expect when we expect them for a variety of reasons including those described herein.
Factors that may affect consumer tastes and preferences include: · dietary trends and increased attention to nutritional values, such as the sugar, fat, protein, fiber or calorie content of different foods and beverages; · concerns regarding the health effects of specific ingredients and nutrients, such as sugar, other sweeteners, dairy, soybeans, nuts, oils, vitamins, fiber and minerals; · concerns regarding the public health consequences associated with obesity, particularly among young people; · decisions by yogurt and non-dairy beverage manufacturers to mislabel their products as “kefir” in order to benefit from our branding and marketing efforts, a marketing ploy that can cause significant confusion and misunderstanding among consumers; and · increased awareness of the environmental and social effects of food processing.
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.
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.
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.
In 2024, costs to us increased modestly due to inflationary price increases. However, for market conditions or competitive reasons, our customer pricing actions may 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.
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.
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.
We consider our intellectual property rights, particularly our trademarks, but also our copyrights, registered domain names, and proprietary trade secrets, technology, know-how, processes and other proprietary rights to be a significant and valuable aspect of our business.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands. We consider our intellectual property rights, particularly our trademarks, but also our copyrights, registered domain names, and proprietary trade secrets, technology, know-how, processes and other proprietary rights to be a significant and valuable aspect of our business.
The terms and conditions of existing, renegotiated, or new collective bargaining agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy. 11 Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.
The terms and conditions of existing, renegotiated, or new collective bargaining agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy.
If we fail to execute these and other important elements of our business strategy, our business and results of operations could be adversely affected. One key element of our business strategy is to introduce timely, new, cost-effective, and appealing products and to innovate successfully within our existing product categories. However, consumer tastes and preferences change rapidly, and evolve over time.
One key element of our business strategy is to introduce timely, new, cost-effective, and appealing products and to innovate successfully within our existing product categories. However, consumer tastes and preferences change rapidly, and evolve over time.
The Smolyansky family controls a substantial portion of our common stock and has the ability to control the outcome of matters submitted for stockholder approval.
A substantial portion of our common stock is held by members of the Smolyansky family and Danone, and they have the ability to control the outcome of matters submitted for stockholder approval.
These competitors and others may be able to introduce innovative products more quickly or market their products more successfully than we can, which could cause our growth rate to be slower than we anticipate and could cause sales to decline.
These competitors and others may be able to introduce innovative products more quickly or market their products more successfully than we can, which could cause our growth rate to be slower than we anticipate and could cause sales to decline. We also compete with producers of non-dairy products that have lower ingredient and production-related costs.
Any of these events could adversely affect our financial results and our business. We could experience similar effects if we invest resources in a strategy that ultimately proves unsuccessful.
We may have to pay cash, incur debt, or issue equity, equity-linked, or debt securities to fund our business strategy, or may be unable to fund that strategy. Any of these events could adversely affect our financial results and our business. We could experience similar effects if we invest resources in a strategy that ultimately proves unsuccessful.
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.
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.
Our future product development and innovation will be reliant on our ability to identify and develop potential new growth opportunities. This process is inherently risky and will result in investments of substantial time and resources for which we may not achieve any return or value.
This process is inherently risky and will result in investments of substantial time and resources for which we may not achieve any return or value. Successful product development and innovation is also affected by our ability to launch new or improved products successfully and on a timely and cost-effective basis.
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.
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.
Any of these impacts could materially and adversely affect our business and operating results, and the market price of our Common Stock could be subject to significant fluctuation or otherwise be adversely affected by stockholder actions. 12 RISKS RELATED TO OUR INDUSTRY The consolidation of our customers or the loss of any of our largest customers could negatively impact our sales and results of operations.
Any of these impacts could materially and adversely affect our business, operating results and financial condition, and the market price of Company common stock could be subject to significant fluctuation or otherwise be adversely affected.
Although the members of the Smolyansky family together control less than 50% of our common stock collectively, they could significantly influence any matter requiring approval by our stockholders, including the election of all of our directors and the approval or rejection of any merger, change of control, or other significant corporate transaction.
Certain of these shareholders, together, could significantly influence any matter requiring approval by our stockholders, including the election or removal of all of our directors, amendments to our articles of incorporation and the approval or rejection of any merger, change of control, or other significant corporate transaction.
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.
Stockholder actions, including potential proxy contests, require significant time and attention by management and our Board, potentially interfering with our ability to execute our strategic plan.
It is unlikely that any person interested in acquiring Lifeway will be able to do so without obtaining the consent of some members of the Smolyansky family. The Smolyansky family’s interests may not always be aligned with other stockholders’ interests.
It is unlikely that any person interested in acquiring Lifeway will be able to do so without obtaining the consent of some combination of Julie Smolyansky, Edward Smolyansky, Ludmila Smolyansky and Danone. The interests of the Smolyansky family members and Danone could differ from those of other stockholders in ways that could be adverse to the interests of other stockholders.
Increased price competition and resistance to price increases have had, and may continue to have, a negative effect on our results of operations. 7 We may not be able to successfully implement our business strategy for our brands on a timely basis or at all.
We may not be able to successfully implement our business strategy for our brands on a timely basis or at all.
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.
Competition with other manufacturers in the procurement of organic product ingredients may increase in the future if consumer demand for organic products exceeds the supply. 16 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 ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets, and other factors. We cannot assure that additional financing will be available to us on favorable terms when required, or at all.
We cannot assure that additional financing will be available to us on favorable terms when required, or at all.
If our products fail to compete successfully with other branded or private label offerings, demand for our products and our sales volumes could be negatively impacted. Additionally, due to high levels of competition, certain of our key retailers may demand price concessions on our products or may become more resistant to price increases for our products.
Additionally, due to high levels of competition, certain of our key retailers may demand price concessions on our products or may become more resistant to price increases for our products. Increased price competition and resistance to price increases have had, and may continue to have, a negative effect on our results of operations.
We have outstanding debt obligations that could adversely affect our financial condition and limit our ability to successfully implement our business strategy. Furthermore, from time to time, we may need additional financing to support our business and pursue our business strategy, including strategic acquisitions.
Furthermore, from time to time, we may need additional financing to support our business and pursue our business strategy, including strategic acquisitions. Our ability to obtain additional financing, if and when required, will depend on our operating performance, the condition of the capital markets, and other factors.
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.
We may be subject to continued or similar activism in the future, which could cause us to incur significant expense, hinder execution of our business strategy and adversely impact the market price of Company common stock.
Customers, such as supermarkets and food distributors, continue to consolidate.
RISKS RELATED TO OUR INDUSTRY The consolidation of our customers or the loss of any of our largest customers could negatively impact our sales and results of operations. Customers, such as supermarkets and food distributors, continue to consolidate.
We also compete with producers of non-dairy products, such as Millennium Products and PepsiCo, that have lower ingredient and production-related costs. As a result, these competing producers may be able to offer their products to customers at a lower price point.
As a result, these competing producers may be able to offer their products to customers at a lower price point. This could cause us to lower our prices, resulting in lower profitability or, in the alternative, cause us to lose market share if we fail to lower prices.
Removed
Successful product development and innovation is also affected by our ability to launch new or improved products successfully and on a timely and cost-effective basis. We may have to pay cash, incur debt, or issue equity, equity-linked, or debt securities to fund our business strategy, or may be unable to fund that strategy.
Added
Our future investments may not produce the results we expect when we expect them for a variety of reasons including those described herein. Our future product development and innovation will be reliant on our ability to identify and develop potential new growth opportunities.
Removed
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.
Added
We rely on a limited number of production and distribution facilities.
Removed
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.
Added
Although the Company does not have any indebtedness outstanding as of December 31, 2024, the Company may incur indebtedness in the future. Outstanding debt obligations could adversely affect our financial condition and limit our ability to successfully implement our business strategy.
Removed
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.
Added
Although the Company believes that the Stockholders’ Agreement, dated as of October 1, 1999 (and as amended on December 24, 1999 and as extended in certain respects in eight extensions executed by certain of the parties to the Stockholders’ Agreement, the last of which was dated as of December 31, 2009 (the “Stockholders’ Agreement”)), by and among Danone North America Public Benefit Corporation or an affiliate thereof (collectively, “Danone”), Lifeway and certain Lifeway shareholders, is invalid, the Stockholders’ Agreement purports to limit the Company’s ability to issue shares of Company common stock or convertible securities outside of specified, limited situations without providing Danone a right of first refusal, in the case of issuances of Company common stock, or first obtaining Danone’s prior consent, in the case of issuances of securities convertible into Company common stock in excess of a specified amount.
Removed
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.
Added
If the Stockholders’ Agreement is valid or if third parties are unwilling to participate in transactions due to the uncertainty relating to the validity of the Stockholders’ Agreement, the Company may not be able to raise additional funds through the issuance of equity or equity-linked securities. 9 As of December 31, 2024, we had $0 outstanding under the Revolving Credit Facility and note payable.
Removed
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.
Added
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.
Removed
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.
Added
Our four largest shareholders, Julie Smolyansky (the Company’s chief executive officer and the daughter of our founder), Edward Smolyansky (our former chief operations officer and son of our founder), Ludmila Smolyansky (a former member of our Board and the widow of our founder) and Danone, beneficially owned approximately 18%, 21%, 8% and 23% of the Company’s outstanding common stock, respectively, as of December 31, 2024.
Removed
While we welcome our stockholders’ constructive input, there can be no assurance that stockholder actions would not result in negative impacts to the Company.
Added
Additionally, concentration of ownership could also harm the market price of our common stock if investors perceive disadvantages in owning stock in a company of which a substantial portion of common stock is beneficially owned by a small number of stockholders. 11 Our business could be adversely affected as a result of proposals to acquire the Company or other actions taken by stockholders related to a possible acquisition of the Company.
Removed
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.
Added
In September 2024, Danone publicly made an unsolicited proposal to acquire all of the shares of Company common stock that it did not already own for $25.00 per share of Company common stock, subject to due diligence, among other things. Then in November 2024, Danone revised its proposal to $27.00 per share of Company common stock.
Removed
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.
Added
Our Board carefully considered the initial proposal and the revised proposal in consultation with the Company’s independent financial and legal advisors, and ultimately determined that both proposals substantially undervalued the Company and were not in the best interests of the Company or its stockholders or other stakeholders.
Removed
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.
Added
These proposals, similar proposals that we may receive in the future and any other actions by stockholders or others relating to a potential change of control transaction involving the Company could interfere with our ability to execute our strategic plans, make it more difficult to attract and retain qualified executives and employees, cause management distraction, require us to utilize more resources than anticipated towards review of strategic alternatives and result in the loss of potential business opportunities, any of which could have a material negative impact on the Company.
Removed
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.
Added
In addition, our business and operations may be harmed to the extent that our customers or suppliers or others believe that we cannot effectively compete in the marketplace without completing a transaction, or if there is customer, supplier or employee uncertainty surrounding the future direction of our product offerings and our strategy.
Removed
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.
Added
There can be no assurance that any such transaction will be completed now or in the future. We have had to, and may continue to be required to, incur fees and other expenses related to Danone’s proposals, including for third-party advisors.
Removed
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.
Added
Further, Danone’s proposals, similar future proposals that we may receive in the future or any actual or perceived actions by our stockholders or others relating to a potential transaction involving the Company may cause significant fluctuations in our stock price based upon temporary or speculative market perceptions or other factors that do not necessarily reflect the Company’s underlying fundamentals and prospects.
Removed
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.
Added
The actions of certain of our stockholders could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and adversely impact our stock price. We value constructive input from investors and regularly engage in dialogue with our stockholders regarding strategy and performance.
Removed
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.
Added
Our Board and management team are committed to acting in the best interests of all of our stockholders. Two of the Company’s largest stockholders, Edward Smolyansky and Ludmila Smolyansky, filed a Schedule 13D/A with the U.S.
Added
Securities and Exchange Commission (the “SEC”) on August 14, 2024 announcing their intention, among other things, to nominate seven director candidates for election to our Board and replace seven of the eight members of our Board.
Added
Edward and Ludmila Smolyansky subsequently filed a preliminary consent solicitation statement with the SEC in furtherance of this objective, and they have made public statements critical of our Board, management and strategy, repeatedly called for the sale of the Company and publicly supported a sale of the Company for $25 per share.
Added
A contested election with respect to the Company’s directors could require us to incur substantial legal, public relations and other advisory fees and proxy solicitation expenses.
Added
Further, we may choose to initiate, or may become subject to, litigation as a result of proposals by Edward and Ludmila Smolyansky or other stockholders or proxy contests or matters relating thereto, which would serve as a further distraction to our Board and management and could require us to incur significant additional costs.
Added
Such stockholder action could give rise to perceived uncertainties as to our future, adversely affect our relationships with our employees, customers or suppliers and make it more difficult to attract and retain qualified personnel and business partners.
Added
These perceived uncertainties may also be exploited by our competitors or other stockholders, which could result in lost business opportunities and make it more difficult to execute on our long-term strategic plan.
Added
If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business, financial condition and operating results would be adversely affected. 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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

3 edited+1 added−0 removed7 unchanged
Biggest changeCybersecurity risks are incorporated into the Company’s broader risk management process to evaluate and address cybersecurity risks in alignment with our business objectives and operational needs. As part of the cybersecurity program, we utilize a combination of internal technology and a third-party managed security service provider and their platform to monitor, evaluate and respond to cyber activity.
Biggest changeAs part of the cybersecurity program, we utilize a combination of internal technology, which we continue to analyze and update as necessary, and a third-party managed security service provider and their platform to monitor, evaluate and respond to cyber activity.
Additional information on cybersecurity risks we face is discussed in Part I, Item A – Risk Factors, which should be read in conjunction with the foregoing information. Governance Board of Directors Our Board of Directors oversees our risk management process, and cybersecurity risks are monitored as a part of the broader program.
Additional information on cybersecurity risk we face is discussed in Part I, Item A – Risk Factors, which should be read in conjunction with the foregoing information. Governance Board of Directors Our Board of Directors oversees our risk management process, and cybersecurity risks are monitored as a part of the broader program.
The Director has over 18 years of experience in the information technology field, and cybersecurity knowledge and skills gained through relevant experiences. The Director and Chief Financial Officer regularly review potential risks and measures implemented by the Company to identify and mitigate cyber security risks.
The Director has extensive experience in the information technology field, and cybersecurity knowledge and skills gained through relevant experiences. The Director and Chief Financial Officer regularly review potential risks and measures implemented by the Company to identify and mitigate cyber security risks. 18
Added
Cybersecurity risks are incorporated into the Company’s broader risk management process to evaluate and address cybersecurity risks in alignment with our business objectives and operational needs.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeWe believe that we have adequate insurance coverage for all our properties. 16
Biggest changeWe believe that we have adequate insurance coverage for all our properties.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+1 added−2 removed0 unchanged
Biggest changeDividend 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.
Biggest changeDividend 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 2024 or 2023.
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.
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, 2025, there were approximately 53 shareholders of record of our common stock.
Removed
Purchases 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.
Added
Purchases of Equity Securities by the Issuer None. ITEM 6. [RESERVED]
Removed
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]

Item 7. Management's Discussion & Analysis

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

32 edited+18 added−8 removed28 unchanged
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.
Biggest changeThis proactive planning has allowed the Company to meet increased demand. 21 Results of Operations Comparison of Year Ended December 31, 2024 to Year Ended December 31, 2023 (in thousands) The following table presents certain information concerning our financial results, including information presented as a percentage of consolidated net sales: Year Ended December 31, 2024 2023 $ % $ % Net sales 186,820 100.0% 160,123 100.0% Cost of goods sold 135,400 72.5% 115,060 71.9% Depreciation expense 2,846 1.5% 2,622 1.6% Total cost of goods sold 138,246 74.0% 117,682 73.5% Gross profit 48,574 26.0% 42,441 26.5% Selling expenses 14,743 7.9% 11,776 7.4% General & administrative expenses 19,439 10.4% 13,130 8.2% Amortization expense 540 0.3% 540 0.3% Total operating expenses 34,722 18.6% 25,446 15.9% Income from operations 13,852 7.4% 16,995 10.6% Other income (expense): Interest expense (105 ) (0.1% ) (384 ) (0.2% ) Gain (loss) on sale of property and equipment (8 ) 0.0% 34 0.0% Other income 230 0.1% 4 0.0% Total other income (expense) 117 0.0% (346 ) (0.2% ) Income before provision for income taxes 13,969 7.4% 16,649 10.4% Provision for income taxes 4,944 2.6% 5,282 3.3% Net income 9,025 4.8% 11,367 7.1% Net Sales Net sales were $186,820 for the year ended December 31, 2024, an increase of $26,697 or 16.7% versus prior year.
The Company remains in a strong financial position, and while it has been impacted by the macroeconomic challenges with commodity inflation and other input cost increases, the Company believes that its cash flow from operations, revolving credit and term loan facility, and cash and cash equivalents will continue to provide sufficient liquidity for its working capital needs, capital resource requirements, and growth initiatives and to ensure the continuation of the Company as a going concern.
The Company remains in a strong financial position, and while it has been impacted by the macroeconomic challenges with commodity inflation and other input cost increases, the Company believes that its cash flow from operations, revolving credit facility, and cash and cash equivalents will continue to provide sufficient liquidity for its working capital needs, capital resource requirements, and growth initiatives and to ensure the continuation of the Company as a going concern.
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.
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, 2024 and 2023 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 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.
The Company granted RSU and PSU awards during 2024 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.
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.
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, 2024.
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 Credit Agreement provides for, among other things, a $5,000 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 $5,000 (the “Revolving Credit Facility”) and an incremental facility not to exceed $5,000.
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.
If additional borrowings are needed, $5,000 was available under the Revolving Credit Facility as of December 31, 2024 (see Note 7, Debt). We are in compliance with the terms of the Credit Agreement and expect to meet foreseeable financial requirements.
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.
Income taxes are discussed in Note 10 in the Notes to the Consolidated Financial Statements. 23 Liquidity and Capital Resources Management assesses the Company’s liquidity in terms of its ability to generate cash to fund its operating, investing, and financing activities.
The 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.
The statutory Federal and state tax rates remained consistent from 2023 to 2024. 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.
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.
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, 2024, we had $1,590 of accrued discounts and allowances.
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.
See Note 11 to our consolidated financial statements for further detail. 26 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.
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.
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.
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.
As of December 31, 2024, the Company had $0 outstanding under the Revolving Credit Facility and note payable. The Company had $5,000 available for future borrowings under the Revolving Credit Facility as of December 31, 2024. All outstanding amounts under the loans bear interest at the Secured Overnight Financing Rate (“SOFR”), plus 2.07%. Interest is payable monthly in arrears.
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.
Provision for Income Taxes The provision for income taxes includes federal, state and local income taxes. The provision for income taxes was $4,944 and $5,282 during the year ended December 31, 2024 and 2023, respectively. The effective income tax rate was 35.4% in 2024 compared to 31.7% in 2023.
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.
Cash Flow The following table is derived from our Consolidated Statement of Cash Flows: Year Ended December 31, 2024 2023 Net Cash Flows Provided By (Used In): Operating activities $ 12,962 $ 16,941 Investing activities $ (6,682 ) $ (4,410 ) Financing activities $ (2,750 ) $ (3,777 ) Operating Activities Net cash provided by operating activities was $12,962 in 2024 compared to $16,941 in 2023.
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.
The Company has one reporting unit within its single reportable segment. 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, 2024. Our assessment did not result in an impairment.
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.
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.
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.
The Company paid the outstanding term loan balance of $2,250 in full during the second quarter of 2024. 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.
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.
The net sales increase was primarily driven by higher volumes of our branded drinkable kefir. 22 Gross Profit Gross profit as a percentage of net sales decreased to 26.0% during the year ended December 31, 2024 from 26.5% during the same period in 2023.
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.
Although similar items were reflected in 2024, the percentage effect is different primarily due to the increase in certain non-deductible compensation in 2024 compared to 2023. The increase is partially offset by the difference in pre-tax income in 2024 compared to 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 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 Company also reconciles the fair value of its reporting unit to its current market capitalization, allowing for a reasonable control premium.
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.
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.
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.
Our capital spending is focused in three core areas: growth, cost reduction, and facility improvements. Growth capital spending supports increased production capacity, new product innovation and enhancements. Cost reduction and facility improvements support manufacturing efficiency, safety, and productivity.
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.
The decrease was primarily due to lower cash earnings driven by non-routine stockholder action, and the change in working capital. Investing Activities Net cash used in investing activities was $6,682 in 2024 compared to $4,410 in 2023. The increase in cash used reflects our planned capital spending increase during 2024 compared to 2023.
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.
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.
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.
We have identified the policies described below as our critical accounting policies that require us to make subjective or complex judgments. 25 Goodwill impairment Goodwill totaled $11,704 as of December 31, 2024. Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. Goodwill is not amortized.
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.
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. 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.
See Note 7 to our Consolidated Financial Statements for additional information regarding our indebtedness and related agreements.
See Note 7 to our Consolidated Financial Statements for additional information regarding our indebtedness and related agreements. 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.
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.
Management continues to proactively manage the supply and transportation of materials used to produce and package our products, staffing, and transportation of our products to customers.
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.
The termination date of the term loan is August 18, 2026, unless earlier terminated. The term loan was terminated during the second quarter of 2024 upon payment of the outstanding loan balance in full. The termination date of the revolving credit facility is June 30, 2025, unless earlier terminated.
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.
General and Administrative Expenses General and administrative expenses increased $6,309 to $19,439 during the year ended December 31, 2024 from $13,130 during the same period in 2023.
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 versus the prior year was driven by the unfavorable impact of milk pricing, and to a lesser extent the increase in other input costs, partially offset by favorable transportation costs. Selling Expenses Selling expenses increased by $2,967 to $14,743 during the year ended December 31, 2024 from $11,776 during the same period in 2023.
Removed
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.
Added
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. 20 Recent Developments Unsolicited Proposal On November 5, 2024, we announced that our board of directors (our “Board”) determined, after careful and thorough consideration in consultation with the Company’s independent financial and legal advisors, that the unsolicited proposal made on September 23, 2024 by Danone North America PBC (“Danone”) to acquire all of the shares of the Company that it did not already own for $25.00 per share, substantially undervalued the Company and was not in the best interests of the Company or its stockholders or other stakeholders.
Removed
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.
Added
In connection with that determination, we entered into a Shareholder Rights Agreement with Computershare Trust Company, N.A., as rights agent (the “Rights Agreement”).
Removed
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.
Added
Pursuant to the Rights Agreement, our Board declared a dividend of one preferred share purchase right (each a “Right”) for each outstanding share of Company common stock to stockholders of record as of the close of business on November 18, 2024.
Removed
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.
Added
Each Right entitles its holder, subject to the terms of the Rights Agreement, to purchase from the Company one one-thousandth of one share of Series A Junior Participating Preferred Stock, no par value, of the Company at an exercise price of $130.00 per Right, subject to adjustment.
Removed
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.
Added
Rights also attach to any shares of Company common stock that become outstanding after November 18, 2024 and prior to the earlier of the Distribution Time (as defined in the Rights Agreement) and the redemption or expiration of the Rights, and in certain other circumstances described in the Rights Agreement.
Removed
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.
Added
On November 15, 2024, Danone revised its offer to acquire all of the shares of the Company that it did not already own from $25.00 per share to $27.00 per share.
Removed
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.
Added
On November 20, 2024, we announced our Board’s determination that, after careful and thorough consideration in consultation with the Company’s independent financial and legal advisors, the revised unsolicited proposal substantially undervalued the Company and was not in the best interests of the Company or its stockholders or other stakeholders.
Removed
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.
Added
On November 26, we announced additional information regarding the information the Board used to come to this determination. Debt Refinancing On February 5, 2025, the Company entered into the Fifth Modification to the Amended and Restated Loan and Security Agreement (the “Fifth Modification”) with its current lender.
Added
The Fifth Modification, among other things, (i) increased the commitment for revolving loans under the Credit Agreement from $5,000 to $25,000, with interest payable at either the lender Base Rate (the Prime Rate minus 1.00%) or the SOFR plus 1.75%, (ii) extended the termination date of the Credit Agreement to February 5, 2028 and (iii) replaced the quarterly minimum working capital financial covenant with a financial covenant to maintain a maximum cash flow leverage ratio of no greater than 2.00 to 1.00 for each fiscal quarter commencing with the fiscal quarter ending March 31, 2025.
Added
The remaining material terms and conditions of the Credit Agreement remain substantially unchanged. The Company had no outstanding borrowings at the time of entry into the Fifth Modification. Products In October 2024, we began to roll out our first products with 100% lactose free labeling.
Added
Our products were already up to 99% lactose free, so we are pleased to further attract consumers with our new Organic Whole Milk Flavor Fusion items that have this added benefit, along with decreased sugar content. In demand flavors including Hot Honey, Matcha Latte, and Passionfruit Lychee are new additions to our portfolio.
Added
The entire lineup is loaded with high-quality bioavailable nutrients, and plays to our strengths, as our organic products have been incredibly successful to date. We expect health and wellness trends to continue to be a tailwind for our entire premium product portfolio.
Added
We plan to continue to invest behind our key products to capture more and more of this growing market, Distribution Strategy In September 2024, we announced our first expansion of Kefir distribution in the South African market. In November 2024, we announced our expansion within Dubai and the UAE.
Added
The offering of 32oz Lifeway Kefir, 8oz Lactose-Free Lifeway Kefir, ProBugs and farmer cheese, exported from the United States, is expected to begin shipping in the first quarter of 2025 and will become available in supermarkets and hypermarkets in Dubai and across the Emirates.
Added
We are taking a measured, and thoughtful approach to global expansion, as we seek markets that are primed for success and can be accessed without a major initial investment. Trends and Uncertainties Current Macroeconomic Environment We have not experienced significant supply chain disruptions or labor supply shortages and have continued to satisfy customer and consumer demand for our products.
Added
Selling expenses as a percentage of net sales increased to 7.9% during the year ended December 31, 2024 from 7.4% during the same period in 2023. The increase is primarily a result of our continued investments in marketing activities to drive brand awareness and sales volumes.
Added
Legal and professional fees associated with non-routine stockholder action and the Danone unsolicited purchase proposal, and the CEO retention bonus awarded in the fourth quarter of 2024, account for approximately 75% of the increase. General and administrative stock-based compensation expense increased $784 compared to the same period in 2023.
Added
We continue to make capital expenditures primarily to modernize manufacturing facilities and support productivity initiatives. 24 Financing Activities Net cash used in financing activities was $2,750 in 2024 compared to $3,777 in 2023. The cash used represents the quarterly principal payments under the term loan.

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