<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ______________
Commission file number: 0-17363
LIFEWAY FOODS, INC.
----------------------------------------------------------------
(Exact name of small business issuer as specified in it charter)
<TABLE>
<S> <C>
ILLINOIS 36-3442829
- - -------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
7625 NORTH AUSTIN AVENUE, SKOKIE, ILLINOIS 60077
------------------------------------------------
(Address of principal executive offices)
(708) 967-1010
---------------------------
(Issuer's telephone number)
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ( )
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ( ) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
AS OF OCTOBER 31, 1995, THE ISSUER HAD 3,787,377 SHARES OF COMMON STOCK, NO PAR
VALUE, OUTSTANDING.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X)
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS.
Lifeway Foods, Inc. and Subsidiaries
September 30, 1995 and 1994
Consolidated Balance Sheets 4-5
Consolidated Statements of Income 6
Statements of Changes in Stockholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Financial Statements 9-18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS 19
PART II - OTHER INFORMATION 20
SIGNATURE 21
</TABLE>
-2-
<PAGE> 3
LIFEWAY FOODS INC, AND SUBSIDIARIES
FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
-3-
<PAGE> 4
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
Sept. 30, December 31, December 31,
Current Assets 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash and Cash Equivalents $801,696 $495,498 $394,656
Certificates of Deposit 170,563 269,310 104,239
Accounts Receivable-net of allowance 631,122 526,711 417,283
for doubtful accounts of $24,000 @
December 31, 1994 and Sept. 30, 1995
Other Receivable 31,100 30,900 19,200
Inventory 293,900 108,309 86,170
Prepaid Expenses 24,663 25,767 7,763
---------- ---------- ----------
Total Current Assets $1,953,044 $1,456,495 $1,029,311
---------- ---------- ----------
Fixed Assets
Land 369,500 369,500 369,500
Building Machinery and Equipment 2,148,463 2,192,544 2,097,675
---------- ---------- ----------
Total Property & Equipment 2,517,963 2,562,044 2,467,175
Less: Accumulated Depreciation 819,967 711,636 528,174
---------- ---------- ----------
Net 1,697,996 1,850,408 1,939,001
---------- ---------- ----------
Other Assets
Intangible Assets 330,343 330,343 330,343
Less: Accumulated Amortization 206,250 177,954 130,713
---------- ---------- ----------
Total Other Assets 124,093 152,389 199,630
---------- ---------- ----------
Total Assets $3,775,133 $3,459,292 $3,167,942
========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of this financial statement
-4-
<PAGE> 5
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
Sept. 30 December 31, December 31,
Current Liabilities 1995 1994 1993
---------- ------------ ------------
<S> <C> <C> <C>
Current Maturities of Notes Payable $ 43,656 $ 41,410 $138,410
Accounts Payable 245,748 302,349 180,039
Accounts Payable - Other 0 115,871 0
Accrued Expenses 229,348 173,637 67,716
---------- ---------- ----------
Total Current Liabilities 518,752 633,267 386,165
Long-Term Debt
Deferred Income Taxes 55,004 47,259 52,044
Notes Payable less current maturities 670,760 752,001 777,733
---------- ---------- ----------
Total Long-Term Debt 725,764 799,260 829,777
Minority Interest 0 4 145,000
Stockholders' Equity
Common Stock - No Par Value;
10,000,000 Shares Authorized;
3,731,777 Shares Outstanding
@ December 31, 1994, 93, and 92 and
September 30, 1994 respectively and
3,787,377 Shares Outstanding
@ September 30, 1995. 1,374,254 1,302,754 1,302,754
Retained Earnings 1,156,363 719,882 504,246
---------- ---------- ----------
Total Stockholders' Equity 2,530,617 2,022,636 1,807,000
---------- ---------- ----------
Total Liabilities and
Stockholders' Equity $3,775,133 $3,459,292 $3,167,942
========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of this financial statement
-5-
<PAGE> 6
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
(Unaudited)
For the nine months ended For the year ended
September 30, December 31,
------------------------ -------------------------
1995 1994 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $3,240,955 $2,521,799 $3,541,841 $3,003,734
Cost of Goods Sold 1,445,326 1,239,676 1,786,312 1,525,564
---------- ---------- ---------- ----------
Gross Profit 1,795,629 1,282,123 1,755,529 1,478,170
Operating Expenses 1,076,170 854,092 1,369,440 1,263,885
---------- ---------- ---------- ----------
Income from Operations 719,459 428,031 386,089 214,285
Other Income<Expense>
Gain from Sale of Assets 16,011 0 0 0
Interest Income 31,950 6,978 12,971 14,059
Interest Expense (56,902) (45,727) (60,433) (79,505)
---------- ---------- ---------- ----------
Net Other Income<Expense> (8,941) (38,749) (47,462) (65,446)
---------- ---------- ---------- ----------
Income Before Taxes and
cumulative effect of
accounting change 710,518 389,282 338,627 148,839
Provision for income taxes 274,037 151,000 122,991 63,343
---------- ---------- ---------- ----------
Income Before cumulative
effect of accounting
change 436,481 238,282 215,636 85,496
Cumulative effect of
accounting change -
cumulative effect of
application of Statement
of Financial Accounting
Standards No. 109
"Accounting for
Income Taxes" 0 0 0 15,570
---------- ---------- ---------- ----------
Net Income $436,481 $238,282 $215,636 $101,066
========== ========== ========== ==========
Earnings per share before
cumulative effect of
accounting change 0.12 0.06 0.06 0.02
Cumulative effect of
accounting change
per share 0.00 0.00 0.00 0.01
---------- ---------- ---------- ----------
Earnings per share 0.12 0.06 0.06 0.03
========== ========== ========== ==========
Shares outstanding 3,787,377 3,731,777 3,731,777 3,731,777
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of this financial statement
-6-
<PAGE> 7
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock, No Par Value
10,000,000 Shares Authorized
---------------------------- Retained
Shares Issued Amount Earnings
------------- ----------- -----------
<S> <C> <C> <C>
Balances @ 12/31/92 3,731,777 $ 1,302,754 $ 403,180
Net Income for the Year
Ended December 31, 1993 0 0 101,066
--------- ----------- -----------
Balances @ 12/31/93 3,731,777 1,302,754 504,246
--------- ----------- -----------
Net Income for the Year
Ended December 31, 1994 0 0 215,636
--------- ----------- -----------
Balances @ 12/31/94 3,731,777 1,302,754 719,882
--------- ----------- -----------
Net Income for the Nine Months
Ended September 30, 1995 55,600 71,500 436,481
--------- ----------- -----------
Balances @ 9/30/95 3,787,377 $ 1,374,254 $ 1,156,363
========= =========== ===========
</TABLE>
The accompanying notes are an integral
part of this financial statement
-7-
<PAGE> 8
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION> (Unaudited)
For the nine months ended For the year ended
September 30 December 31
------------------- -------------------
1995 1994 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash Flows from OperatingActivities
Net Income(Loss) $436,481 $238,282 $215,636 $101,066
Adjustments to Reconcile
Net Income
to Net Cash Provided by
Operating Activities
Depreciation and Amortization 166,418 122,453 230,703 172,006
Bad Debt expense 0 0 24,000 0
Deferred Income Taxes 7,745 0 (4,785) 34,653
Gain on Sale of Assets (16,011) 0 0 0
Changes in Operating Assets and
Liabilities
Accounts Receivable (104,411) (49,545) (133,428) (180,469)
Other Receivable (200) (14,600) (11,700) 0
Inventory (185,591) (55,531) (22,139) 3,360
Prepaid Expenses 1,104 (35,130) (18,004) 75,842
Accounts Payable (56,601) 90,220 122,310 (12,167)
Accrued Expenses 55,711 103,080 105,921 14,168
-------- -------- -------- --------
Net Cash Provided by
Operating Activities 304,645 399,229 508,514 208,459
-------- -------- -------- --------
Cash Flows from Investing Activities
(Purchase) Sale of Investments 98,747 0 (269,310) 0
Acquisition/Start Up Costs 0 0 0 (16,153)
Purchase of Property,Plant
and Equipment (20,919) (81,143) (75,397) (68,552)
-------- -------- -------- --------
Net Cash from Investing
Activities 77,828 (81,143) (344,707) (84,705)
-------- -------- -------- --------
Cash Flows Provided by Financing
Activities
Proceeds from Sale of Assets 51,220 0 0 0
Proceeds from Long-Term Debt 0 19,472 0 0
Repayments of Notes Payable (78,995) (132,474) (142,204) (269,144)
Redemption of Minority Interest (120,000) (25,000) (25,000) 0
Proceeds from Issuance of
Common Stock and Warrants 71,500 0 0 0
-------- -------- -------- --------
Net Cash Provided by
Financing Activities (76,275) (138,002) (167,204) (269,144)
-------- -------- -------- --------
Net Increase (Decrease) in Cash 306,198 180,084 (3,397) (145,390)
Cash, Beginning of Year 495,498 498,895 498,895 644,285
-------- -------- -------- --------
Cash, End of Year $801,696 $678,979 $495,498 $498,895
======== ======== ======== ========
Supplemental Disclosures to
cash flow information:
Cash paid for interest $56,902 $45,727 $60,433 $82,906
======== ======== ======== ========
Cash paid for income taxes $193,152 $27,100 $27,100 $(66,466)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral
part of this financial statement
-8-
<PAGE> 9
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the accompanying financial statements follows:
INVENTORIES
Inventories are stated at lower of cost or market, cost being determined by the
first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are carried at cost. Depreciation is computed
using the straight line method. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is recognized in income for the
period. The cost of maintenance and repairs is charged to income as
incurred; significant renewals and betterments are capitalized.
Property, plant, and equipment are being depreciated over the following useful
lives by the straight-line method:
<TABLE>
<CAPTION>
Category Years
-------- -----
<S> <C>
Building 31.5
Machinery 10-12
Computers 5
Vehicles 5
</TABLE>
INCOME TAXES
Deferred income taxes arise from timing differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or noncurrent, depending on
the classification of the assets and liabilities to which they relate.
Deferred taxes arising from timing differences that are not related to an asset
or a liability are classified as current or noncurrent depending on the periods
in which the timing differences are expected to reverse.
The principle sources of timing differences are different depreciation methods
for financial statement and tax purposes; and capitalization of indirect costs
for tax purposes.
-9-
<PAGE> 10
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
CASH EQUIVALENTS
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents.
INVESTMENTS
Investments include certificates of deposits with maturity dates greater than
three months and marketable securities.
EARNINGS PER COMMON SHARE
Earnings per common share were computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year.
INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized over the estimated useful
lives of the assets using the straight-line method as follows:
<TABLE>
<S> <C>
Covenant Not To Compete 10 Years
Trademark License 2.5 Years
UPC Codes 7 Years
</TABLE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
94, " Consolidation of All Majority-owned Subsidiaries", which requires the
consolidation of all majority-owned subsidiaries unless control is temporary or
does not rest with the majority owners.
-10-
<PAGE> 11
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 2: INDUSTRY OPERATIONS
The Company is primarily engaged in the production and sale of liquid yogurt
and cheese products. In addition, one of the Company's wholly owned
subsidiaries operates as a restaurant. Approximately 90.3% and 87.0% of
consolidated revenues and 140.6% and 190.1% of consolidated net income for the
years ended December 31, 1994 and 1993 were derived from the manufacturing of
liquid yogurt and cheese products.
NOTE 3: INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
---------- ----------
<S> <C> <C>
Finished Goods $ 192,900 $ 58,085
Production Supplies 45,000 20,644
Raw Materials 56,000 29,580
---------- ----------
$ 293,900 $ 108,309
---------- ----------
</TABLE>
NOTE 4: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
---------- -----------
<S> <C> <C>
Building and Improvements $ 796,752 $ 796,752
Machinery and Equipment 1,209,558 1,257,691
Vehicles 89,906 89,906
Office Equipment 52,247 48,195
---------- -----------
$2,148,463 $ 2,192,544
---------- -----------
</TABLE>
Depreciation charged to income for the nine months ended September 30, 1995 and
1994 were $138,123 and $97,275 respectively, and for the years ended December
31, 1994, 1993 and 1992 were $183,462, $132,436, and $125,554 respectively.
-11-
<PAGE> 12
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 5: ADDITIONAL FINANCIAL INFORMATION
Noncash investing and financing transactions:
<TABLE>
<CAPTION> December 31,
September 30, ------------------------
1995 1994 1993
------------- --------- ---------
<S> <C> <C> <C>
Financed purchases
Purchase of Plant $ 94,869 $ 708,925
and Equipment
Debt Incurred 19,472 605,000
--------- ---------
Cash Payments $ 75,397 $ 103,925
--------- ---------
Book transfer from minority
interest to accounts payable - other $ 115,871
---------
Exchange of minority interest common
stock and accrued interest for shares
of parent company common stock $ 44,000
---------
</TABLE>
NOTE 6: NOTES PAYABLE
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
--------- ---------
<S> <C> <C>
Mortgage note payable,
1st Commercial Bank,
at 9 3/4% interest.
Final payment due September
1996. Secured by Real Estate. $ 0 $ 52,623
Mortgage note payable,
1st National Bank of
Morton Grove, at 7.5% interest.
Final payment due November 1998.
Secured by Real Estate. 229,884 240,450
Mortgage Payable, American
National Bank of Chicago,
at 6.75%, Final payment due
August 1998. Secured by Real Estate. 471,791 484,266
Note Payable, Glenview State Bank,
at 6.25% interest, Final payment
due March 1998. Secured by automobile 12,741 16,072
--------- ---------
Total 714,416 793,411
Less Current Maturities 43,656 41,410
--------- ---------
Total $ 670,760 $ 752,001
--------- ---------
</TABLE>
-12-
<PAGE> 13
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 6: NOTES PAYABLE (CONTINUED)
Maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
-----------------------
<S> <C>
1995 $ 41,410
1996 91,743
1997 44,620
1998 615,638
----------
$ 793,411
==========
</TABLE>
NOTE 7: CUSTOMERS AND CREDIT CONCENTRATIONS
Concentrations of credit with regard to trade accounts receivable and sales are
limited due to the fact that the Company's customers are spread across
different geographic areas. The customers though are concentrated in the
retail food industry. Two customers accounted for 23% and 13% of sales as of
September 30, 1995. Two customers accounted for 18% and 11% of 1994 sales and
28% and 21% of trade accounts receivable as of December 31, 1994, respectively.
For 1993, one customer accounted for 14% of total sales.
The Company and its subsidiaries have deposits in three banks in the
Chicagoland Area. The deposits of the Company and its subsidiaries are insured
up to $100,000 at each of these financial institutions.
NOTE 8: PROVISION FOR INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
(Unaudited) December 31,
September 30, ----------------------
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Current:
Federal $ 216,918 $ 96,259 $ 8,898
State 49,374 22,338 4,222
--------- -------- ---------
Total Current 266,292 129,597 13,120
Deferred 7,745 (6,606) 50,223
--------- -------- ---------
Provision for
Income Taxes $ 274,037 $122,991 $ 63,343
--------- -------- ---------
</TABLE>
-13-
<PAGE> 14
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 8: PROVISION FOR INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes and the income tax computed
at the Federal statutory note is as follows:
<TABLE>
<CAPTION>
(Unaudited) December 31,
September 30, -----------------------
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Income tax expense
computed at the
statutory rate $ 216,918 $ 106,983 $ 35,286
Deferred Income Taxes 7,745 (7,964) 17,560
State taxes, net of
federal income tax
effects 49,374 23,972 10,497
---------- --------- ---------
Provision for
income taxes $ 274,037 $ 122,991 $ 63,343
---------- --------- ---------
</TABLE>
Amounts for deferred tax assets and liabilities as of September 30, 1995,
December 31, 1994 and 1993 are as follows:
<TABLE>
<S> <C> <C> <C>
Long-Term liability $ 55,004 $ 47,259 $ 52,044
---------- --------- ---------
</TABLE>
NOTE 9: ACQUISITION OF BUSINESS LINE
On December 27, 1990, Lifeway Foods, Inc., purchased the Tuscan brand-name
liquid yogurt UPC codes from a third party. In addition, the third party
signed a Covenant Not To Compete which states that for a period of ten (10)
years from the date of the Agreement, they shall not sell, produce, market or
broker liquid yogurt products in the United States.
The final purchase price of the assets was determined to be $286,000, which
was allocated accordingly:
<TABLE>
<S> <C>
Covenant not to compete $ 50,000
Customer List 6,000
Trademark 30,000
U.P.C. Codes 200,000
---------
$ 286,000
---------
</TABLE>
Amortization charged against income for the nine months ended September 30,
1995 and 1994 were $26,078 and $25,178 respectively, and for the years ended
December 31, 1994, 1993 and 1992 was $47,241, $39,570 and $45,571,
respectively.
-14-
<PAGE> 15
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 10: FORMATION OF SUBSIDIARIES
On April 15, 1992, Lifeway Foods, Inc. (the parent) formed Lifeway
International, Inc. as a majority-owned subsidiary. In exchange for 98% of the
issued and outstanding common stock (2,320,000 shares of Lifeway International,
Inc.) the parent transferred to Lifeway International, Inc. $108,000 in cash.
The remainder of the issued and outstanding common stock, 46,200 shares, (2%)
was transferred to other shareholders ("Minority Shareholders") under a
qualifying Rule 144 restricted stock issue in exchange for $145,000 in cash.
On February 17, 1993, Lifeway International, Inc., executed an Investment
Agreement with the Svyatoshino Milk Plant Ukrainian Joint-Stock Company (Kiev,
Ukraine) in which Lifeway International was to acquire a majority- ownership
interest in Svyatoshino.
Due to the political situation in the Ukraine, acquisition of the controlling
interest is not anticipated in the near future. In lieu of this acquisition,
Lifeway International, Inc., has commenced exporting Kefir to Eastern Europe.
In light of this change of business plan, the Company has extended an exchange
offer to the Minority Shareholders. See Note 13 for additional information.
During 1994 the Company, under the exchange offer, acquired 8,000 shares of
Lifeway International, Inc. from the Minority Shareholders. As of December 31,
1994, the Minority Shareholders owned was approximately 1.9% of Lifeway
International, Inc. Income generated by Lifeway International Inc. was
insignificant for the years ended 1994 and 1993.
On September 30, 1992, the parent formed LFI Enterprises, Inc. as a
wholly-owned subsidiary. In exchange for all of the issued and outstanding
common stock of LFI Enterprises, Inc., the parent transferred to LFI
Enterprises, Inc. $1,000 in cash.
NOTE 11: CUMULATIVE EFFECT OF ACCOUNTING CHANGE
During the year ended December 31, 1993, the Company adopted FAS Statement 109,
Accounting for Income Taxes. The effect of this change was to increase net
income for the year by $15,570. The cumulative effect of the change is shown
as a one time credit to income in the statement of income for the year ended
December 31, 1993.
-15-
<PAGE> 16
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 12: BUSINESS SEGMENT INFORMATION
The Company's significant business segments include the sale of Dairy products
and the operations of a restaurant. "Corporate and other" included revenues
and expenses of the company's export subsidiary, general corporate expenses,
interest expense and interest income. The Company's operations, by business
segment are as follows:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Dairy Corporate
Products Restaurant & Other Consolidated
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales $ 2,810,470 $ 288,777 $ 141,708 $ 3,240,955
Operating Earnings $ 659,270 $ 39,418 $ 20,771 $ 719,459
Identifiable Assets $ 3,027,461 $ 638,852 $ 108,820 $ 3,775,133
Depreciation and
Amortization $ 149,238 $ 14,963 $ 2,217 $ 166,418
Capital Additions $ 20,919 $ 0 $ 0 $ 20,919
</TABLE>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Dairy Corporate
Products Restaurant & Other Consolidated
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales $ 2,259,904 $ 261,895 $ 0 $ 2,521,799
Operating Earnings $ 375,891 $ 52,282 $ (142) $ 428,031
Identifiable Assets $ 2,728,417 $ 628,002 $ 105,103 $ 3,461,522
Depreciation and
Amortization $ 107,828 $ 14,625 $ 0 $ 122,453
Capital Additions $ 81,143 $ 0 $ 0 $ 81,143
</TABLE>
-16-
<PAGE> 17
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 12: BUSINESS SEGMENT INFORMATION (CONTINUED)
FOR THE YEAR ENDED
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Dairy Corporate
Products Restaurant & Other Consolidated
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales $ 3,119,728 $ 345,732 $ 76,381 $ 3,541,841
Operating Earnings $ 401,457 $ (595) $(185,226) $ 215,636
Identifiable Assets $ 2,689,994 $ 664,613 $ 104,685 $ 3,459,292
Depreciation and
Amortization $ 195,921 $ 25,644 $ 9,139 $ 230,704
Capital Additions $ 94,569 $ 90 $ 110 $ 94,769
</TABLE>
FOR THE YEAR ENDED
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Dairy Corporate
Products Restaurant & Other Consolidated
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales $ 2,614,556 $ 389,378 $ 0 $ 3,003,934
Operating Earnings $ 250,425 $ (77,427) $ (71,932) $ 101,066
Identifiable Assets $ 2,317,102 $ 642,669 $ 208,171 $ 3,167,942
Depreciation and
Amortization $ 149,167 $ 22,839 $ 0 $ 172,006
Capital Additions $ 50,768 $ 17,784 $ 0 $ 68,552
</TABLE>
NOTE 13: SUBSEQUENT EVENT
During 1994, the Company determined that it would not be able to implement its
original business plan for Lifeway International, Inc. As a result, the
Company conducted an exchange offer to the Minority Shareholders of Lifeway
International, Inc.,(see Note 10), whereas each Minority Shareholder could
alternatively exchange their shares for:
1) restricted common shares in Lifeway Foods, Inc. or,
2) receive a return of the original investment in cash plus interest on
their investment paid in restricted common shares of Lifeway Foods,
Inc.
-17-
<PAGE> 18
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995 and December 31, 1994 And 1993
NOTE 13: SUBSEQUENT EVENT (CONTINUED)
During 1994, Minority Shareholders totalling 8,000 shares elected to cash out
and were paid $25,000, and during the period ended March 22, 1995, Minority
Shareholders totalling 28,000 shares elected to cash out and were paid
$90,000, In addition, these Minority Shareholders are entitled to 2,000 and
7,200 restricted common shares in the Parent, respectively. As of October 24,
1995, all minority shareholders have either cashed-out or exchanged their
shares for restricted common shares of the parent. In addition, all 35,600
restricted common shares required to be issued under the agreement have been
issued.
The terms of the executed exchange agreement has resulted in a .09% dilution
of the current Lifeway Foods, Inc. shareholders as 35,600 restricted common
shares of the Parent were issued to the Minority Shareholders. If these shares
had been issued in 1994, earnings per share would have decreased $0.0009.
Accounts payable - other represents amounts due to Minority Shareholders as of
December 31, 1994 under the terms of the exchange agreement.
NOTE 14: ADJUSTMENTS TO FINANCIAL STATEMENTS
In the opinion of management, all adjustments necessary have been made in order
to make the financial statements not misleading.
-18-
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(1) Material Changes in Financial Condition
The registrant's balance in Inventory increased from $108,309 at
December 31, 1994 to $293,900 at September 30, 1995, an increase of $185,591.
This increase is primarily due to increased purchases of finished goods from
third-parties for resale, rather than from any changes in the rate of
production from the registrant's own manufacturing activities.
Management knows of no other trends, demands, commitment, events or
circumstances which will result in or which are reasonably likely to result in
the registrant's liquidity increasing or decreasing in a material way.
The registrant has no material commitments for capital expenditures as
of the end of the latest fiscal period. Management knows of no material
trends, favorable or unfavorable, in the registrant's capital resources and
anticipates no material change in the mix and cost of such resources. There
have been no material fluctuations in the standard seasonal variations of the
Company's business.
(2) Material Changes in Results of Operations
The registrant's revenue increased from $2,521,799 during the nine
month period ended September 30, 1994 to $3,240,955 during the nine month
period ended September 30, 1995, an increase of $719,156. The registrant's
cost of sales increased from $1,239,676 during the nine month period ended
September 30, 1994 to $1,445,326 during the nine month period ended September
30, 1995, an increase of $205,650. Operating expenses increased from $854,092
during the nine month period ended September 30, 1994 to $1,076,170 during the
nine month period ended September 30, 1995, an increase $222,078.
-19-
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 27 -- FINANCIAL DATA SCHEDULE.
-20-
<PAGE> 21
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LIFEWAY FOODS, INC.
By: /s/ Michael Smolyansky
---------------------------------
Michael Smolyansky, President and
Chief Financial Officer
DATE: October 31, 1995
-21-
<PAGE> 22
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- - ------ ------------------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 801,696
<SECURITIES> 170,563
<RECEIVABLES> 655,122
<ALLOWANCES> 24,000
<INVENTORY> 293,900
<CURRENT-ASSETS> 1,953,044
<PP&E> 2,517,963
<DEPRECIATION> 819,967
<TOTAL-ASSETS> 3,775,133
<CURRENT-LIABILITIES> 518,752
<BONDS> 670,760
<COMMON> 1,374,254
0
0
<OTHER-SE> 1,156,363
<TOTAL-LIABILITY-AND-EQUITY> 3,775,133
<SALES> 3,240,955
<TOTAL-REVENUES> 3,288,916
<CGS> 1,445,326
<TOTAL-COSTS> 1,076,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,902
<INCOME-PRETAX> 710,518
<INCOME-TAX> 274,037
<INCOME-CONTINUING> 436,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 436,481
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
