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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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.
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(Name of small business issuer as specified in its charter)
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<S> <C>
ILLINOIS 36-3442829
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
7625 NORTH AUSTIN AVENUE, SKOKIE, ILLINOIS 60077
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(Address of principal executive offices) (Zip Code)
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Issuer's telephone number: (847) 967-1010
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g)
of the Exchange Act: COMMON STOCK, NO PAR VALUE
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 for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent files in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $4,497,560
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days. $2,101,797 AS OF MARCH 27, 1996, BASED ON THE
AVERAGE CLOSING BID AND ASKED PRICES AS QUOTED ON NASDAQ.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 3,785,377 SHARES OF
COMMON STOCK AS OF MARCH 27, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The issuer's definitive prospectus of September 29, 1987, and Exhibits
thereto, filed pursuant to Rule 424(b), Supplement No. 1 to the prospectus filed
pursuant to Rule 424(c), and post-effective amendments thereto, are incorporated
by reference into Part I and Part III of this Form 10-KSB.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) Business Development
Lifeway Foods, Inc. (the "Company") commenced operations in February,
1986, and incorporated under the laws of the State of Illinois on May 19, 1986.
The Company produces: Kefir, a drinkable product similar to but distinct from
yogurt, in several flavors sold under the name "Lifeway's Kefir"; a plain
farmer's cheese sold under the name "Lifeway's Farmer's Cheese"; and a fruit
sugar-flavored product similar in consistency to cream cheese sold under the
name of "Sweet Kiss." In the third quarter of 1995, the Company commenced
marketing a vegetable-based seasoning under the name "Golden Zesta." The
Company currently distributes its products throughout the Chicago metropolitan
area through local food stores. In addition, the products are sold throughout
the United States. The Company has also expanded the distribution of some of
its products internationally by exporting to Eastern Europe and Ontario,
Canada. For the years ending December 31, 1995 and 1994, export sales of the
Company were approximately $215,000 and $80,000, respectively.
Approximately 88.2% and 88.1% of consolidated revenues and 156.8% and
140.6% of consolidated net income for the years ended December 31, 1995 and
1994 were derived from the manufacturing of liquid yogurt and cheese products.
(See, further, Item 7, Note 1 to Consolidated Financial Statements.)
(a)(1) Subsidiary Corporations
Lifeway International, Inc.
In 1992, the Company formed Lifeway International, Inc. ("LII") as a
majority-owned subsidiary. In exchange for 98% of the issued and outstanding
Common Stock, 2,320,000 shares, the Company transferred $108,000 in cash. The
remaining 2% of the issued and outstanding Common Stock, 46,400 shares, was
transferred to other shareholders ("Minority Shareholders") under a qualifying
Rule 144 restricted stock issue in exchange for $145,000 in cash. In 1993, LII
executed an Investment Agreement with the Svyatoshino Milk Plant Ukrainian
Joint-Stock Company (Kiev, Ukraine) in which LII 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 lieu of this acquisition, LII has
commenced exporting Kefir to Eastern Europe. In light of this change in the
business plan, the Company extended an exchange offer to the Minority
Shareholders. (See, further, Exchange Offer to Minority Shareholders of
Lifeway International, Inc., below, and Item 7, Notes 9 and 11 to Consolidated
Financial Statements.)
Exchange Offer to Minority Shareholders of Lifeway International, Inc.
During 1994, the Company determined that it would not be able to
implement its original business plan for LII. As a result, the Company
conducted an exchange offer to the Minority Shareholders of LII, whereby each
Minority Shareholder could alternatively exchange their shares for (1)
restricted Common Shares in the Company (including shares for interest on their
investment) or, (2) a return of their original investment in cash plus interest
on their investment paid in restricted Common Shares in the Company.
During 1994, Minority Shareholders owning 8,000 shares in LII elected
to cash out and were paid $25,000. During 1995, Minority Shareholders owning
28,800 shares in LII elected to cash out and were paid $90,000. In addition,
these Minority Shareholders were entitled to 9,200 restricted Common Shares in
the Company as payment of interest on their investment in LII. During 1995,
Minority Shareholders owning 9,600 shares in LII elected to exchange their
shares and were issued 26,400 restricted Common Shares of the Company,
including 2,400 shares as payment of interest on their investment in LII. The
total issue of 35,600 restricted Common Shares in the Company resulted in a .9%
dilution of the current Company shareholder's interests. As of December 31,
1995, all minority interests in LII have been exchanged or cashed out under the
terms of the exchange offer, therefore making LII a
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wholly-owned subsidiary of the Company. Had the shares been issued in 1994,
earnings per share for the year ended December 31, 1994 would have decreased
$.0005. (See, further, Item 7, Note 11 to Consolidated Financial Statements,
and Item 12, Certain Relationships and Related Transactions.)
LFI Enterprises, Inc.
On September 30, 1992, the Company formed a wholly-owned subsidiary
corporation, LFI Enterprises, Inc. ("LFIE"), incorporated in the State of
Illinois. LFIE was formed for the purpose of operating a "Russian" theme
restaurant and supper club on the property acquired by the Company on October
9, 1992. The restaurant/supper club commenced its operations in late November
1992. In exchange for all of the issued and outstanding Common Stock of LFIE,
the Company transferred to LFIE $1,000 in cash. (See, further, Item 7, Note 9
to Consolidated Financial Statements.)
(a)(2) Acquisition of Business Line
On December 27, 1990, the Company purchased the Tuscan brand-name
liquid yogurt customer list along with a limited license of the trademark and
use of the Tuscan liquid yogurt U.P.C. 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. (See,
further, Item 7, Note 8 to Consolidated Financial Statements.)
(b) Business of Issuer
(b)(1) Products
The Company's primary product is Kefir which, like the better-known
product of yogurt, is a fermented dairy product. Kefir has a slightly
effervescent quality, with a taste similar to yogurt and a consistency similar
to buttermilk. It is a distinct product from yogurt because it uses the unique
microorganisms of Kefir as the culture to ferment the milk. The Company's
basic Kefir is a drinkable product intended for use as a breakfast meal or a
snack, or as a base for lower-calorie dressings, dips, soups or sauces. The
Kefir is also used as the base of the Company's plain farmer's cheese, a cheese
without salt, sugar or animal rennet. In addition, Kefir is the primary
ingredient of the Company's "Sweet Kiss" product, a fruit sugar-flavored, cream
cheese-like spread which is intended to be used as a dessert spread or
frosting.
Kefir contains a unique mixture of several live microorganisms and
body nutrients such as proteins, minerals and vitamins. Kefir is highly
digestible and, due to its acidity and enzymes, stimulates digestion of other
foods. Kefir is considered to be the most favorable milk product for people
suffering from genetically stipulated lactose intolerance. Studies indicate
that Kefir seems to stimulate protein digestion and appetite, decrease the
cholesterol content in blood, improve salivation and excretion of stomach and
pancreatic enzymes and peristalsis. As compared to yogurt, many Naturopathic
doctors consider Kefir to be the best remedy for digestive troubles because it
has a very low curd tension (the curd breaks up very easily into small
particles). The curd of yogurt, on the other hand, holds together or breaks
into lumps. The small size of the Kefir curd facilitates digestion by
presenting a large surface for the digestive agents to work on.
Like Kefir made by other manufacturers, other commercial yogurt
varieties, and dairy products in general, the Company's Kefir is a good source
of calcium, protein, and Vitamin B-complex. In addition, because the
fermentation process produces a less sour tasting product than yogurt, less
sugar is required to make a desirable product, and the end product contains
fewer calories.
The Company currently sells its drinkable Kefir product in eleven
flavors-- plain-regular, plain-low-fat, raspberry, blueberry, strawberry,
cherry, peach, banana-strawberry, capuccino, chocolate and vanilla-- in
32-ounce containers featuring color-coded caps and labels describing
nutritional information. In March 1996, the Company began marketing its
fat-free, low cholesterol Kefir in six flavors. The Kefir product is currently
marketed under the
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name "Lifeway's Kefir," and is sold from the dairy section. Lifeway's Kefir
has a shelf life of approximately 60 days. All flavors contain fructose, fruit
juice, Kefir culture, and pasteurized, low-fat milk and natural flavorings.
The Company sells Lifeway Kefir, Sweet Kiss spread, and Lifeway
Farmer's Cheese to various retail establishments including supermarkets,
grocery stores, gourmet shops, delicatessens and convenience stores. In late
1995, the Company began marketing a vegetable-based seasoning under the name
"Golden Zesta" which, because of its low sodium content, may also be used as a
salt substitute, and two kinds of fat-free Farmer's Cheese, regular and swiss
style.
The Company intends to continue to develop new products, such as salad
dressing and a frozen dessert product based on Kefir and Farmer's Cheese,
although there is no assurance that such products can be developed successfully
or marketed profitably.
(b)(2) Distribution
The Company has verbal distribution arrangements with various
distributors throughout the United States. These verbal distribution
arrangements, in the opinion of the Company, allow management the necessary
latitude to expand into new areas and markets and establish new relationships
with distributors on an ongoing basis. The Company has not offered any
exclusive territories to any distributors.
These distributors are provided Lifeway products at wholesale prices
for distribution to their retail accounts. The Company believes that the price
at which its products are sold to its distributors is competitive with the
prices generally paid by distributors for similar products in the markets
served. In all areas served, distributors currently deliver the products
directly to the refrigerated cases of dairy sections of the retail stores.
Each carries the full complement of Lifeway's products on its trucks, and
checks the retail stores for space allocated to Lifeway's products, determines
inventory requirements, and places Lifeway products directly into the case.
The Company prefers such method of distribution in order to serve the needs of
each retail store, and to ensure consistency and quality of product handling,
quality control, flavor selection and retail display. Under the distribution
arrangements, each distributor must meet certain prescribed product handling,
service and administrative requirements including, among others, frequency of
delivery, replacement of damaged, old or substandard packages, and delivery of
products directly to the refrigerated case.
With its four Company-owned trucks, the Company distributes directly
to major retail chains in the State of Illinois, including Jewel Food Stores
(more than 100 stores), Dominick's Finer Foods (more than 90 stores), Omni
Super Stores and Treasure Island Food Marts.
Additionally, the Company distributes its products internationally by
exporting to Eastern Europe and Ontario, Canada. (See, further, Item 7, Note 1
to Consolidated Financial Statements.)
(b)(3) Marketing
The Company continues to promote the verifiable nutritional
characteristics, purity of product, and good taste of its Kefir and Kefir-based
products. The Company's advertises its products through local cable T.V. and
radio, which is directed to both users and non-users of cultured milk products
of all kinds. In 1995, the Company ran more than 3,500 30-second spots on
local cable T.V. targeted at the greater Chicago area. As a result, sales
through the Jewel Food Stores and Dominick's Finer Foods stores increased by
23% and 27%, respectively, from sales in 1994. In addition, through newspapers
and magazines, the Company provides educational information on its products and
appeals to the common perception that the products may be of particular benefit
for a wide range of ills, including intestinal disorders, and continues to
educate the public on the possible health benefits which could be derived from
the use of Kefir and Kefir-based products. Although no scientific studies
have proven the certainty of such claims, the Company believes that the
potential for healthful benefits as suggested by such studies can serve as the
basis for an advertising strategy.
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In addition to local cable T.V., radio, newspapers and magazines, the
Company receives further exposure of its products through catalog advertising
and promotions, which includes demonstrations of its products, by participating
in various trade shows. In 1995, the Company's products were represented at
five trade shows in New York, Dallas, Milwaukee, Madison and Minneapolis. In
February 1996, the Company's products were represented by one of its
distributors at the Fancy Foods Show in Toronto, Canada. The Company has plans
to have its products represented in at least five more shows in 1996: (1) the
Cheese and Dairy Show to be held in Milwaukee in March; (2) the International
Fancy Food Show to be held in New York in June; (3) the Natural Products Expo
West to be held in Anaheim in September; (4) the Annual National Food Brokers
Association Show to be held in Chicago in November; and (5) the World Food Expo
to be held in Moscow in November. The cost of participating in the shows is
split between the distributor and the Company.
The Company plans to continue its vigorous advertising campaign during
the next 12-months. The Company expended approximately $202,000 and $100,000
on advertising and product promotion in 1995 and 1994, respectively, and it
expects to expend approximately $200,000 in 1996.
(b)(4) Competition
The Company's Kefir-based products are subject to competition from
major producers of yogurt and other dairy products. These producers, such as
Dannon and Dean Foods Company, as well as other national and regional
producers, are well-established and have significantly greater managerial and
technical expertise and financial resources than the Company.
While the business of manufacturing Kefir, yogurt and related products
carry a relatively low cost of entry, financial success in the industry is
dependent upon implementing costly national marketing and other factors. In
addition, Lifeway's products also compete, in general, with all other food
products and, in particular, with other dairy products and dessert items.
(b)(5) Suppliers
The Company purchases its raw materials, such as milk, sugar and
fruit, from unaffiliated suppliers, and is not limited or contractually bound
to any one. Prior to making any purchase, the Company determines which
supplier can offer the lowest price for the highest quality of product. The
raw and packaging materials purchased by the Company are considered commodity
items and are widely available on the open market. The Company owns and
operates the means of production of all of its products.
(b)(6) Major Customers
The Company distributes its products to approximately 400 accounts,
most of which are in the Chicago metropolitan area. 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 are concentrated in the retail food industry. In 1995, two customers
accounted for 5% and 3% of 1995 sales and 18% and 22% of trade accounts
receivable as of December 31, 1995. For 1994, these two customers accounted
for 18% and 11% of sales. (See, further, Item 1(b)(2) Distribution, and Item
7, Note 7 to Consolidated Financial Statements.)
(b)(7) Patents, Trademarks, Licenses, Franchises, Concessions,
Royalty Agreements, Labor Contracts
On December 12, 1989, and June 12, 1990, the U.S. Patent and Trademark
Office granted the Company exclusive trademarks for the names "Lifeway's" and
"Healthy Eating," respectively. In addition, on January 10, 1992, the Company
was granted a trademark for the name "Lifeway's" for its use in Canada since
September 9, 1988 on wares.
On December 27, 1990, the Company purchased the Tuscan brand-name
liquid yogurt customer list along with a limited license of the trademark and
use of the Tuscan liquid yogurt U.P.C. codes from a third party. (See,
further, Item 1(a)(2), Acquisition of Business Line, and Item 7, Note 8 to
Consolidated Financial Statements.)
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On June 30, 1992, the Company was granted trademarks for grain based,
non-alcoholic beverages, although it has no claim to the exclusive right to use
the names "KVAS," "KBAC" or "KWASS," apart from the mark as shown on the
Principal Register. Although the Company has developed the product under this
trademark, it is not currently marketing it.
The Company recently made application to the U.S. Patent and Trademark
Office for the trademark "Golden Zesta," for its recently marketed
vegetable-based seasoning. The Company expects trademark approval by the
second quarter 1996.
In addition, the Company maintains various state licenses and permits
required to operate its businesses, including a restaurant and liquor license,
renewed annually, held by the Company's wholly-owned subsidiary, LFI
Enterprises, Inc. for the operation of its "Russian" theme restaurant and
supper club.
At the date of this Report, neither the Company nor its subsidiaries
have entered into any franchise agreement, concession, royalty agreement or
labor contract.
(b)(8) Regulation
The Company is subject to regulation by federal, state and local
governmental authorities regarding the distribution and sale of food products.
Although the Company believes that it currently has all material government
permits, licenses, qualifications and approvals for its operations, there can
be no assurance that the Company will be able to maintain its existing licenses
and permits or to obtain any future licenses, permits, qualifications or
approvals which may be required for the operation of the Company's business.
(b)(9) Research and Development
The Company continues its program of new product development, centered
around the nutritional and "low calorie" features of its proprietary Kefir
formulas. In 1995, the Company developed and began marketing "Golden Zesta," a
vegetable-based seasoning, which can also be used as a salt substitute. Also,
in late 1995, the Company introduced a fat-free, low cholesterol line of Kefir
and two kinds of fat-free, low cholesterol Farmer's Cheese. (See, further,
Item 1(a), Business Development, and Item 1(b)(1), Products.) The Company's
research and development efforts have resulted in the successful introduction
to market of a "drinkable yogurt." These products, which have been produced on
a commercial basis, in the opinion of management, have gained substantial
market acceptance. Management anticipates that its product sales will
contribute significantly to the Company's growth as significant market
penetration is achieved. The Company's research and development program has
identified certain other products capable of development for sale complimentary
to its current product line. It is anticipated that a substantial portion of
projected increases in sales for the Company will come from new product sales.
The Company conducts primarily all of its research internally, but at
times will employ the services of an outside testing facility. In the fiscal
years 1994 and 1995, the Company estimates it expended approximately $6,000 and
$7,500, respectively, for research and new product development, which costs
were not borne directly by its customers.
(b)(10) Employees
The Company and its subsidiary, LFI Enterprises, Inc., currently
employ approximately 33 full-time persons and 3 or 4 part-time employees on an
"as needed" basis. Approximately 26 of those employees are engaged in the
manufacturing process of the Company's Kefir and Kefir-based products and 7 are
employed in the restaurant operation. None of the Company's employees are
covered by collective bargaining agreements. The President of the Company,
Michael Smolyansky, is engaged by the Company under an employment agreement.
Under the terms of such agreement, as amended, Mr. Smolyansky is employed as
President for a period of 5 years, commencing April 1992. The agreement
provides for a base salary, payable in equal monthly installments, which may be
increased, subject to approval of the Board of Directors, on a yearly basis in
proportion to the Company's
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profitability. Additionally, under the agreement, Mr. Smolyansky is entitled
to receive cash bonuses at the discretion of the Board of the Directors,
subject to the Company being profitable. (See, further, Item 10. Executive
Compensation.)
ITEM 2. DESCRIPTION OF PROPERTY.
On May 16, 1988, the Company purchased a 26,000 square foot parcel of
real property, including an 8,500 square foot one-story building, located at
7625 N. Austin Street, Skokie, Illinois. The purpose of the purchase was to
enable the Company to significantly expand its production facilities and
capacity pursuant to its business plan and growing demand for its product. The
Company brought the facility to full capacity and completed its remodeling in
1994. In addition to the increase in capacity, because of substantially
improved storage facilities at the new plant, the Company has been able to
incur substantial savings in the purchase of milk and other raw materials, by
virtue of its increased capacity to store bulk purchases. The loan to the
Company from 1st National Bank of Morton Grove, secured by the real estate, is
payable in monthy installments of $2,548, including interest at 7.5%, with a
balloon payment of $184,900 due November, 1998. At December 31, 1995, the loan
had a balance of $227,464. (See, further, Item 7, Note 5 to Consolidated
Financial Statements.)
On October 9, 1992, the Company purchased certain real estate located
at 7800 N. Caldwell, Niles, Illinois. The former restaurant property was
acquired from WRKR, Inc., a third-party having no material relationship with
the Company or any of its affiliates. This property consists of approximately
75,000 square feet of commercially zoned property, and a 7,750 square foot
building. The loan to the Company from American National Bank of Chicago,
secured by the real estate, has a balloon maturity in August 1998 and carries
an interest rate of 6.75% per annum. The Company's monthly payments,
calculated on a 15-year amortization schedule, are $4,498. At December 31,
1995, the loan had a balance of $462,638. (See, further, Item 7, Note 5 to
Consolidated Financial Statements.) The Company refurbished the property in
late 1992 and put it into productive use as a supper club facility, known as
"Moscow Nites," catering to the Chicago area's Russian and East European ethnic
communities. The premises are operated by the Company's wholly-owned
subsidiary, LFI Enterprises, Inc., an Illinois corporation.
For financial statement and tax purposes, the Company depreciates its
real property buildings on a straight line basis over a 31 year life. (See,
further, Item 7, Note 2 to Consolidated Financial Statements.)
The Company believes it has adequate insurance coverage for all its
properties.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company, its Subsidiaries, nor its properties are a party
to or a subject of any pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
ended December 31, 1995, to a vote of security holders through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
The Company's Common Stock, no par value, the only class of common
equity of the Company, is traded on the National Association of Securities
Dealer's Automated Quotation System ("NASDAQ") under the symbol "LWAY."
Trading commenced on March 29, 1988.
The range of high and low bid quotations for the Company's Common
Stock for the quarterly periods within the two most recent fiscal years, is set
forth in the following table:
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Low Bid High Bid
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1st Qtr. 1994 $1.25 $1.875
2nd Qtr. 1994 $1.125 $2.25
3rd Qtr. 1994 $l.125 $2.125
4th Qtr. 1994 $l.3125 $1.75
1st Qtr. 1995 $1.125 $2.00
2nd Qtr. 1995 $1.75 $4.25
3rd Qtr. 1995 $2.00 $3.50
4th Qtr. 1995 $1.4375 $2.50
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(b) Holders
As of March 27, 1996, there were approximately 320 holders of record
of the Company's Common Stock, as reflected on the Company's stock register and
in brokerage accounts.
(c) Dividends
The Company has paid no cash dividends on its Common Stock and
management does not anticipate that such dividends will be paid in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
(a) Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a)(1) Results of Operations
Net income increased by $225,089, up to $440,725 in 1995 from $215,636
in 1994. The components of this increase are detailed as follows:
Sales and cost of goods sold increased by $955,719 and $458,316,
respectively, up to $4,497,560 and $2,244,628 in 1995 from $3,541,841 and
$1,786,312 in 1994, respectively. The increase is primarily attributable to
increased sales of Kefir, Farmer's Cheese and the introduction of Golden Zesta
during 1995. Costs of sales and the gross margins of the Company increased
proportionately with sales in 1995.
Operating expenses increased by $191,527, up to $1,560,967 in 1995
from $1,369,440 in 1994. The increase is primarily attributable to (i) an
increase in advertising expenses due to the Company's aggressive marketing
campaign in 1995; and (ii) an increase in salaries and payroll taxes incurred
as additional employees were hired to support the Company's growth in
production.
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Interest income increased by $28,355, up to $41,326 in 1995 from
$12,971 in 1994. The increase is due to an increase in funds available for
investments.
Provision for income taxes increased by $118,422, up to $241,413 in
1995 from $122,991 in 1994. The increase is proportionate to the net income
increase.
(a)(2) Liquidity and Capital Resources
As of December 31, 1995 and December 31, 1994, respectively, the
Company had working capital in the amount of $1,455,647 and $823,228; and cash
on hand in the amounts of $702,107 and $495,498. Cash flow from operations was
generated by the primary business activity of the Company. As a result of its
strong working capital position, the Company expects all cash requirements can
be met internally for the next 12-month period. As discussed above, the
Company expects to purchase property and equipment for a new production
facility, and to gradually employ additional persons on an as-needed bases for
its operation.
In September 1994, the Company made an exchange offer to certain
minority shareholders of Lifeway International, Inc., a majority owned
subsidiary. The exchange was completed in 1995. The Company expended $115,000
in cash and issued an aggregate 35,600 shares of its restricted Common Stock
completing this exchange offer. (See, further, Item 1(a)(1) and Item 7, Note
11 to Consolidated Financial Statements.)
LFI Enterprises, Inc., the Company's supper club facility, had sales
of $390,145 in 1995 and $345,732 in 1994. These sales resulted in losses of
$59,954 and $51,272 for 1995 and 1994, respectively.
Net cash provided by operating activities decreased by $63,180, down
to $445,334 in 1995 from $508,514 in 1994. Although the Company had a
significant increase in sales and net income in 1995, the decrease in its net
cash from operating activities is primarily attributable to the Company's build
up of its inventories.
Net cash used in investing activities decreased by $287,735, down to
$56,972 in 1995 from $344,707 in 1994. The decrease is primarily attributable
to the Company's purchase of Certificates of Deposit and U.S. Treasury Bonds in
late 1994.
Net cash used in financing activities increased by $14,549, up to
$181,753 in 1995 from $167,204 in 1994. The increase is primarily attributable
to the payoff of certain loans in 1994, partially offset by payments to Lifeway
International, Inc.'s minority shareholders during 1995 in connection with an
exchange offer.
On January 25, 1996, the Board of Directors of the Company voted to
repurchase up to 100,000 shares of the Company's Common Stock on the open
market. The decision reflects the Board's belief that the Company's Common
Stock is significantly undervalued. The resolution of the Board of Directors
gave the Company one year to repurchase the shares to be held as treasury stock
for general corporate purposes. To date, the Company has repurchased a total
of 6,400 of its Common Shares.
On February 26, 1996, Mr. Michael Smolyansky, on behalf of the
Company, entered into a written proposal to purchase a 110,000 square foot
parcel of real property, zoned industrial, including a 46,000 square foot
one-story building, located at 6431 Oakton Avenue, Morton Grove, Illinois, for
approximately $1,325,000. The purpose of the purchase would be to enable the
Company to further expand its production facilities and capacity. The proposal
is subject to the parties executing a mutually agreeable Purchase and Sale
Agreement which is currently under negotiation.
The Company is not aware of any circumstances or trends which would
have a negative impact upon future sales or earnings. The Company believes it
has sufficient funds available during the next fiscal year for the Common Stock
repurchase and any earnest money deposit requirements for the proposed property
purchase discussed above. There have been no material fluctuations in the
standard seasonal variations of the Company's business.
8
<PAGE> 10
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements that constitute Item 7 of this
report and a table of contents thereto commences on page F-1 through F-17,
which pages follow this page.
9
<PAGE> 11
LIFEWAY FOODS, INC. AND SUBSIDIARIES
ANNUAL REPORT
DECEMBER 31, 1995 AND 1994
TABLE OF CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F2
Consolidated Balance Sheet -
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F3-F4
Consolidated Statements of Income -
for the years ended December 31, 1995 and 1994 . . . . . . . . . F5
Consolidated Statements of Changes in Stockholders' Equity -
for the years ended December 31, 1995 and 1994 . . . . . . . . . F6
Consolidated Statements of Cash Flows -
for the years ended December 31, 1995 and 1994 . . . . . . . . . F7-F8
Notes to Consolidated Financial Statements -
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F9-F17
</TABLE>
F-1
<PAGE> 12
[GLEESON, SKLAR, SAWYER & CUMPATA LLP]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
LIFEWAY FOODS, INC.
Skokie, Illinois
We have audited the consolidated balance sheet of LIFEWAY FOODS, INC. AND
SUBSIDIARIES as of December 31, 1995 and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the years ended
December 31, 1995 and 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated balance sheet of LIFEWAY
FOODS, INC. AND SUBSIDIARIES as of December 31, 1995, and the results of their
operations and their cash flows for the years ended December 31, 1995 and 1994
in conformity with generally accepted accounting principles.
/s/ GLEESON, SKLAR, SAWYERS & CUMPATA LLP
Gleeson, Sklar, Sawyers & Cumpata LLP
Elgin, Illinois
February 9, 1996
F-2
<PAGE> 13
LIFEWAY FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS 1995
- ------ -------------
<S> <C>
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 702,107
Investments 329,411
Accounts receivable, net of allowance
for doubtful accounts of $48,000 604,621
Other receivables 26,200
Inventories 288,100
Prepaid expenses and other assets 21,206
Deferred income taxes 34,480
------------
TOTAL CURRENT ASSETS 2,006,125
PROPERTY AND EQUIPMENT
- ----------------------
Land 369,500
Buildings, machinery and equipment 2,175,637
------------
Total property and equipment 2,545,137
Less: accumulated depreciation 868,769
------------
PROPERTY AND EQUIPMENT, NET 1,676,368
OTHER ASSETS
- ------------
Intangible assets 330,343
Less: accumulated amortization 221,595
------------
TOTAL OTHER ASSETS 108,748
------------
TOTAL ASSETS $ 3,791,241
- ------------ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE> 14
LIFEWAY FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995
- ------------------------------------ --------------
<S> <C>
CURRENT LIABILITIES
- -------------------
Current maturities of notes payable $ 41,651
Accounts payable 245,224
Accrued expenses 263,603
--------------
TOTAL CURRENT LIABILITIES 550,478
LONG-TERM LIABILITIES
- ---------------------
NOTES PAYABLE 660,007
DEFERRED INCOME TAXES 45,395
- ---------------------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock 1,374,754
Retained Earnings 1,160,607
--------------
TOTAL STOCKHOLDERS' EQUITY 2,535,361
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,791,241
- ------------------------------------------ ==============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE> 15
LIFEWAY FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
SALES $ 4,497,560 $ 3,541,841
Cost of goods sold 2,244,628 1,786,312
------------ -----------
GROSS PROFIT 2,252,932 1,755,529
Operating expenses 1,560,967 1,369,440
------------ -----------
INCOME FROM OPERATIONS 691,965 386,089
Other income (expense)
Interest Income 41,326 12,971
Interest Expense (67,164) (60,433)
Gain on sale of asset 16,011 ---
------------- -----------
Total other income (expense) (9,827) (47,462)
------------- -----------
INCOME BEFORE INCOME TAXES 682,138 338,627
Provision for income taxes 241,413 122,991
------------- -----------
NET INCOME $ 440,725 $ 215,636
============= ===========
EARNINGS PER SHARE $ .12 $ .06
============= ===========
Shares outstanding 3,785,377 3,729,777
============= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE> 16
LIFEWAY FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK, NO PAR VALUE
10,000,000 SHARES AUTHORIZED
---------------------------------
SHARES ISSUED RETAINED
AND OUTSTANDING AMOUNT EARNINGS
--------------- ------------ -------------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993 3,729,777 $ 1,302,754 $ 504,246
Net income for the year ended
December 31, 1994 --- --- 215,636
--------- ----------- ------------
BALANCES AT DECEMBER 31, 1994 3,729,777 1,302,754 719,882
Shares exchanged in non-cash
transaction 55,600 72,000 ---
Net income for the year ended
December 31, 1995 --- --- 440,725
--------- ----------- ------------
BALANCES AT DECEMBER 31, 1995 3,785,377 $ 1,374,754 $ 1,160,607
========= =========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE> 17
LIFEWAY FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
NET INCOME $ 440,725 $ 215,636
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 230,565 230,703
Issuance of common stock in exchange
for services rendered and interest expense 42,000 ---
Increase in allowance for doubtful accounts 24,000 24,000
Deferred income taxes (36,344) (4,785)
Gain on sale of asset (16,011) ---
(Increase) decrease in operating assets:
Accounts receivable (101,910) (133,428)
Other receivables 4,700 (11,700)
Inventories (179,791) (22,139)
Prepaid expenses and other assets 4,561 (18,004)
Increase (decrease) in operating liabilities:
Accounts payable (57,125) 122,310
Accrued expenses 89,964 105,921
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 445,334 508,514
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of investments (167,315) (269,310)
Sale of investments 107,214 ---
Purchase of property and equipment (48,194) (75,397)
Proceeds from sale of asset 51,323 ---
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (56,972) (344,707)
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Repayments of notes payable (91,753) (142,204)
Payments to minority shareholders (90,000) (25,000)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (181,753) (167,204)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 206,609 (3,397)
Cash and cash equivalents at beginning of year 495,498 498,895
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 702,107 $ 495,498
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-7
<PAGE> 18
LIFEWAY FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- --------------------------------------------------
Cash paid for interest $ 67,164 $ 60,433
============ ============
Cash paid for income taxes $ 190,760 $ 27,100
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
- -------------------------------------------------------
Issuance of common stock in exchange for:
Consulting fees $ 27,500 $ ---
Minority shareholders - interest expense 14,500 ---
------------ ------------
Subtotal 42,000
Minority shareholders - stock 30,000 ---
------------ ------------
Total common stock issued $ 72,000 $ ---
============ ============
Financed purchase:
Purchase of property and equipment $ --- $ 94,869
Less debt incurred --- (19,472)
------------ ------------
Cash payments $ --- $ 75,397
============ ============
Book transfers from minority interest to
accounts payable other $ --- $ 115,871
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-8
<PAGE> 19
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Note 1 - NATURE OF BUSINESS
Lifeway Foods, Inc. (The "Company") commenced operations in February, 1986,
and incorporated under the laws of the State of Illinois on May 19, 1986.
The Company produces Kefir, a drinkable product which is similar to but
distinct from yogurt in several flavors sold under the name "Lifeway's
Kefir"; a line of drinkable yogurt; a plain farmer's cheese sold under the
name "Lifeway's Farmer's Cheese"; and a fruit sugar-flavored product
similar in consistency to cream cheese sold under the name of "Sweet Kiss."
The Company currently distributes its products throughout the Chicago
metropolitan area through local food stores. In addition, the products are
sold throughout the United States and Ontario, Canada. The Company has
also expanded the distribution of some of its products internationally by
exporting to Eastern Europe through its wholly-owned subsidiary, Lifeway
International, Inc. For the years ending December 31, 1995 and 1994 export
sales of the Company were approximately $215,000 and $80,000, respectively.
On September 30, 1992, the Company formed a wholly-owned subsidiary
corporation, LFI Enterprises, Inc., (LFIE) incorporated in the State of
Illinois. LFIE was formed for the purpose of operating a "Russian" theme
restaurant and supper club on the property acquired by the Company on
October 9, 1992. The restaurant/supper club commenced its operations in
late November 1992.
Approximately 88.2% and 88.1% of consolidated revenues and 156.8% and
140.6% of consolidated net income for the years ended December 31, 1995 and
1994 were derived from the manufacturing of liquid yogurt and cheese
products.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated, including
$120,000 of rent paid by LFIE to the Company in 1995 and 1994 for use of
the restaurant which is owned by the Company.
The Company has adopted Statement of Financial Accounting Standards (SAFS)
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.
F-9
<PAGE> 20
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash Equivalents
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents.
Investments
Effective December 31, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Debt and Equity Securities" (SFAS 115). In accordance with this
Statement, securities are classified as held-to-maturity,
available-for-sale or trading.
The Company's investments include certificates of deposit with maturity
dates greater than three months and U.S. Treasury Bonds, which are all
short term and held-to-maturity. Securities classified as held-to-maturity
are stated at cost adjusted for amortization of premiums and accretion of
discounts. At December 31, 1995, cost approximated market value. The
Company does not currently have any trading or available-for-sale
securities.
Inventories
Inventories are stated at lower of cost or market, cost being determined by
the first-in, first-out method.
Property and Equipment
Property and equipment are stated 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 and equipment are being depreciated over the following useful
lives:
<TABLE>
<CAPTION>
Category Years
-------- -----
<S> <C>
Buildings and improvements 31
Machinery and equipment 5-12
Office equipment 5-7
Vehicles 5
</TABLE>
F-10
<PAGE> 21
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Intangible Assets
Intangible assets are stated at cost. Organization costs are amortized
over five years using the straight-line method. Other intangible assets
are 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
U.P.C. Codes 7 years
Customer lists 5 years
</TABLE>
Income Taxes
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax purposes
in different periods. Deferred taxes are classified as current or
noncurrent, depending on the classification of the assets and liabilities
to which they relate. Deferred taxes arising from temporary differences
that are not related to an asset or liability are classified as current or
noncurrent depending on the periods in which the temporary differences are
expected to reverse.
The principal sources of temporary differences are different depreciation
methods for financial statement and tax purposes, capitalization of
indirect costs for tax purposes, use of the allowance method for book
purposes versus the direct method for tax purposes as to bad debts, and
amortization of customer lists.
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. For the year ended December 31, 1995, fully diluted and primary
earnings per share were the same as there were no potentially dilutive
common stock equivalents outstanding. See Note 11 for fully diluted
earnings per share for the year ended December 31, 1994.
Note 3 - INVENTORIES
Inventories consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Finished goods $ 199,600
Production supplies 42,500
Raw materials 46,000
-----------
$ 288,100
===========
</TABLE>
F-11
<PAGE> 22
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Note 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Buildings and improvements $ 796,752
Machinery and equipment 1,218,213
Vehicles 109,877
Office equipment 50,795
------------
$ 2,175,637
============
</TABLE>
Depreciation charged to income was $186,925 and $183,462 in 1995 and 1994
respectively.
Note 5 - NOTES PAYABLE
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Mortgage note payable, 1st National Bank of
Morton Grove, payable in monthly installments
of $2,548, including interest at 7.5%, with a
balloon payment of $184,900 due November, 1998.
Collateralized by real estate. $ 227,464
Mortgage note payable, American National Bank
and Trust Company of Chicago, payable in monthly
installments of $4,498 including interest at 6.75%,
with a balloon payment of $394,300 due August, 1998.
Collateralized by real estate. 462,638
Note Payable, Glenview State Bank, payable in monthly
installments of $460, including interest at 6.25%, due
March, 1998. Collateralized an automobile. 11,556
----------
TOTAL 701,658
Less current maturities 41,651
----------
TOTAL $ 660,007
==========
</TABLE>
Maturities of notes payable are as follows:
<TABLE>
<S> <C>
Year Ending December 31
------------------------
1996 $ 41,651
1997 44,621
1998 615,386
----------
$ 701,658
==========
</TABLE>
F-12
<PAGE> 23
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Note 6 - PROVISION FOR INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Current
Federal $ 225,897 $ 96,259
State 51,860 22,338
--------- ----------
Total current 277,757 118,597
Deferred (36,344) 4,394
--------- ----------
Provision for income taxes $ 241,413 $ 122,991
========= ==========
</TABLE>
A reconciliation of the provision for income taxes and the income tax
computed at the Federal statutory rate is as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Federal income tax expense
computed at the statutory rate $ 215,228 $ 106,983
State taxes, expense 49,796 23,972
Book/tax, accumulated depreciation adjustment (4,886) ---
Book/tax, inventory adjustment (16,319) ---
Permanent book/tax difference (2,406) (7,964)
---------- ---------
Provision for income taxes $ 241,413 $ 122,991
========== =========
</TABLE>
Amounts for deferred tax assets and liabilities as of December 31, 1995
were are as follows:
<TABLE>
<S> <C>
Long-term deferred tax liabilities arising from:
Temporary differences - principally
Book/tax, accumulated depreciation $ 48,873
Book/tax, accumulated amortization (3,478)
---------
Total deferred tax liabilities 45,395
Short-term deferred tax assets arising from:
Book/tax, allowance for doubtful accounts 22,176
Book/tax, inventory 12,304
---------
Total deferred tax assets 34,480
---------
Net deferred tax liability $ 10,915
=========
</TABLE>
F-13
<PAGE> 24
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
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 are concentrated in the retail
food industry. Two customers accounted for 5% and 3% of 1995 sales and 18%
and 22% of trade accounts receivable as of December 31, 1995. For 1994,
these two customers accounted for 18% and 11% of sales.
Note 8 - ACQUISITION OF BUSINESS LINE
On December 27, 1990, the Company purchased the Tuscan brand-name liquid
yogurt customer list along with a limited license of the trademark and use
of the Tuscan liquid yogurt U.P.C. 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>
Total amortization charged against income for the years ended December 31,
1995 and 1994 was $43,640 and $47,241, respectively.
Note 9 - FORMATION OF SUBSIDIARIES
In 1992, the Company formed Lifeway International, Inc.("LII") as a
majority-owned subsidiary. In exchange for 98% of the issued and
outstanding common stock, 2,320,000 shares, the Company transferred
$108,000 in cash. The remaining 2% of the issued and outstanding common
stock, 46,400 shares, was transferred to other shareholders ("Minority
Shareholders") under a qualifying Rule 144 restricted stock issue in
exchange for $145,000 in cash. In 1993, LII executed an Investment
Agreement with the Svyatoshino Milk Plant Ukrainian Joint-Stock Company
(Kiev, Ukraine) in which LII 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, LII has commenced exporting Kefir to Eastern Europe. In
light of this change in business plan, the Company extended an exchange
offer to the Minority Shareholders. See Note 11 for additional
information.
F-14
<PAGE> 25
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Note 9 - FORMATION OF SUBSIDIARIES - Continued
On September 30, 1992, the Company formed LFI Enterprises, Inc. as a
wholly-owned subsidiary. In exchange for all of the issued and outstanding
common stock of LFIE, the Company transferred to LFIE $1,000 in cash.
Note 10 - BUSINESS SEGMENT INFORMATION
The Company's significant business segments include the sale of dairy
products and the operations of a restaurant. "Corporate and other"
includes revenues and expenses of the company's export subsidiary, general
corporate expenses, interest expense, and interest income. The Company's
operations by business segment for 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Dairy Corporate
1995 Products Restaurant & Other Consolidated
----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Sales $ 3,965,707 $ 390,145 $ 141,708 $ 4,497,560
Net Income $ 691,055 $ 18,729 $ (269,059) $ 440,725
Identifiable Assets $ 3,033,742 $ 654,413 $ 103,086 $ 3,791,241
Depreciation and
Amortization $ 209,567 $ 12,129 $ 8,869 $ 230,565
Capital Additions $ 45,494 $ 2,700 $ - $ 48,194
1994
------------
Sales $ 3,119,728 $ 345,732 $ 76,381 $ 3,541,841
Net Income $ 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 $ 230,703
Capital Additions $ 94,569 $ 90 $ 110 $ 94,869
</TABLE>
F-15
<PAGE> 26
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Note 11 - EXCHANGE OFFER TO MINORITY SHAREHOLDERS
During 1994, the Company determined that it would not be able to implement
its original business plan for LII (see Note 9). As a result, the Company
conducted an exchange offer to the Minority Shareholders of LII, whereby
each Minority Shareholder could alternatively exchange their shares for:
1) restricted common shares in the Company (including shares for interest
on their investment) or,
2) receive a return of their original investment in cash plus interest on
their investment paid in restricted common shares in the Company.
During 1994, Minority Shareholders owning 8,000 shares in LII elected to
cash out and were paid $25,000. During the 1995, Minority Shareholders
owning 28,800 shares in LII elected to cash out and were paid $90,000. In
addition, these Minority Shareholders were entitled to 9,200 restricted
common shares in the Company as payment of interest on their investment in
LII. During 1995, Minority Shareholders owning 9,600 shares in LII elected
to exchange their shares and were issued 26,400 restricted common shares of
the Company, including 2,400 shares as payment of interest on their
investment in LII. The total issue of 35,600 restricted common shares in
the Company resulted in a .9% dilution of the current Company shareholder's
interests. As of December 31, 1995, all minority interests in LII have
been exchanged or cashed out under the terms of the exchange offer. Had
the shares been issued in 1994, earnings per share for the year ended
December 31, 1994 would have decreased $.0005.
Note 12 - STOCK OPTION PLANS
The Company previously adopted a Restricted Stock Plan which provides for
the granting of stock options to Company employees. The maximum number of
Company Common Stock shares that may be subject to the Restrictive Stock
Option Plan is 300,000.
On June 9, 1995, the Company filed a registration statement with the
Securities and Exchange Commission in connection with a Consulting and
Service Compensation Plan covering up to 300,000 of the Company's Common
Stock shares. Pursuant to the Plan, the Company may issue Common Stock or
options to purchase Common Stock to certain consultants, service
providers, and employees of the Company.
As of December 31, 1995 no options have been issued under either of the two
plans. The company did issue 20,000 shares of Common Stock in 1995 for
consulting services valued at $27,500. This issue resulted in a .5%
dilution of the current Company shareholder's interests.
Note 13 - CONCENTRATION OF RISK
The Company maintains cash deposits at several banks located in the greater
Chicago, Illinois metropolitan area. Deposits at each bank are insured by
the Federal Deposit Insurance Corporation up to $100,000.
Bank balances of amounts reported by financial institutions which are
categorized as follows at December 31, 1995:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Amounts insured by FDIC $ 231,589
Uninsured and uncollateralized amounts 788,158
-----------
Total bank balance $ 1,019,747
===========
</TABLE>
F-16
<PAGE> 27
LIFEWAY FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
Note 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments, none
of which are held for trading purposes, are as follows at December 31, 1995:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
----------- ---------
<S> <C> <C>
Cash and cash equivalents $ 702,107 $ 702,107
Certificates of Deposit 230,000 $ 230,000
U.S. Treasury Bond 99,411 $ 99,411
Note payable to bank 11,556 $ 11,556
Mortgages payable 690,102 See below
-----------
Total $ 1,733,176
===========
</TABLE>
The carrying values of cash and cash equivalents, certificates of deposit
U.S. Treasury Bonds and notes payable to bank approximate fair values. It is
not currently practical to estimate the fair value of the mortgages payable,
because these mortgages contain unique terms and conditions, which were
negotiated at arms-length with the banks. There are no readily determinable
similar instruments on which to base an estimate of fair value.
F-17
<PAGE> 28
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTANT AND
FINANCIAL DISCLOSURE
On February 28, 1995, the Company accepted the resignation of Robert
L. DeLorme, C.P.A., as its certifying accountant, and engaged the firm of
Gleeson, Sklar, Sawyers & Cumpata, L.L.P., Certified Public Accountants, with
offices at 2400 Big Timber Road, Suite 200, Elgin, Illinois 60123, to serve as
the Company's independent certifying public accountants.
There have been no disagreements with the Company's accountants on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure.
The Company incorporates by reference its Current Report on Form 8-K
dated February 28, 1995, which sets forth the information required by Item 304
of Regulation S-B.
10
<PAGE> 29
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
(a) Directors and Executive Officers. The directors and executive
officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position Director Since
- ---- --- -------- --------------
<S> <C> <C> <C>
Michael Smolyansky 48 CEO, CFO, President, Treasurer and Director 1986
Pol Sikar 47 Director 1986
Rick D. Salm 45 Director 1986
Renzo Bernardi 58 Director 1994
Valeriy Nikolenko 50 Vice President-Production and Secretary --
</TABLE>
MICHAEL SMOLYANSKY has been Chief Executive Officer, Chief Financial
Officer, President, Treasurer and a director of the Company since its inception
in February 1986. From 1976 to 1985, he was Project Engineer and Department
Manager of E.J. Littell Machine Co., of Chicago, Illinois, where he had primary
responsibility for design of material handling equipment. Mr. Smolyansky is a
graduate of the Kiev Institute of Technology (M.S., Mechanical Engineering,
1971). Mr. Smolyansky devotes full time to the business of the Company. Mr.
Smolyansky holds no other directorships in any other company reporting under
either Section 12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
POL SIKAR has been a director of the Company since its inception in
February 1986. He is a graduate with a Master's degree from the Odessa State
Institute of Civil Engineering in Russia. For more than 10 years he has been
President and major stockholder of Still-Montrose Glass & Mirror Co., a company
providing glass and mirror products to the wholesale and retail trade in the
greater Chicago area. Mr. Sikar devotes as much time as necessary to the
business of the Company. Mr. Sikar holds no other directorships in any other
company reporting under either Section 12(b), 12(g) or 15(d) of the Exchange
Act.
RICK D. SALM, a director of the Company since its inception in
February 1986, is first Vice-President of the First Commercial Bank of Chicago,
Illinois. Mr. Salm joined First Commercial in 1982 and is currently in charge
of commercial lending activities. Mr. Salm holds a Bachelor's degree from St.
Norbert College, from which he graduated in 1974. Mr. Salm devotes as much
time as necessary to the business of the Company. Mr. Salm holds no other
directorships in any other company reporting under either Section 12(b), 12(g)
or 15(d) of the Exchange Act.
RENZO BERNARDI has been a director of the Company since 1994 and has
been a director of the Company's subsidiary, Lifeway International, Inc. Mr.
Bernardi is the president and founder of Renzo & Sons, Inc. - Dairy and Food
Service Company which has been in business since 1969 (formerly, Renzo-Milk
Distribution Systems). He has over 29 years of experience in the dairy
distribution industry. Over the years, Mr. Bernardi has developed and
implemented several innovative programs which have proven to reduce the costs
of distribution and have resulted in the steady and continuous growth of the
company which he now shares with his two sons. Mr. Bernardi is a graduate of
Instituto Teonico E Commerciale of Macomer, Sardinia. Mr. Bernardi will devote
as much time as necessary to the business of the Company. Mr. Bernardi holds
no other directorships in any other company reporting under either Section
12(b), 12(g) or 15(d) of the Exchange Act.
VALERIY NIKOLENKO has been Secretary of the Company since 1993 and
Vice President-Production since January 1996. From 1992 to 1993, he was
employed as an electronic technician in the United States. From 1982 to 1992,
Mr. Nikolenko was a Department Manager for a government controlled design
bureau in Kiev. He is a graduate of the Kiev Institute of Civil Aviation
(M.S., Electronic Engineering, 1969). Mr. Nikolenko devotes full time to the
business of the Company. Mr. Nikolenko holds no other directorships in any
other company reporting under either Section 12(b), 12(g) or 15(d) of the
Exchange Act.
11
<PAGE> 30
(b) Significant Employees
The Company employs no person who is not an executive officer but who
is expected to make a significant contribution to the business of the Company
or its subsidiaries who would therefore be considered a "significant employee,"
as that term is defined in Item 401 of Regulation S-B.
(c) Family Relationships
No family relationships exist between any director or executive
officer. Directors are elected to serve until the next annual meeting of
stockholders or until their successors have been elected and qualified.
Executive officers are appointed to serve at the pleasure of the Board of
Directors. Mr. Smolyansky may be deemed a "parent" of the Company as that term
is defined in the rules and regulations promulgated under the Securities Act of
1933, as amended.
(d) Involvement In Certain Legal Proceedings
During the past five years, no director, person nominated to become a
director, executive officer, promoter or control person of the issuer has (1)
filed any bankruptcy petition for himself or for any business for which he is a
general partner or executive officer; (2) been convicted in a criminal
proceeding or been subject to a pending criminal proceeding; (3) been subject
to any order, judgment, or decree, not subsequently reversed, suspended or
vacated, or been permanently or temporarily enjoined, barred, suspended or
otherwise limited in his involvement in any type of business, securities or
banking activities; or (4) been found by a court of competent jurisdiction (in
a civil action), the SEC or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, for which the
judgment has not been reversed, suspended, or vacated.
(e) Compliance With Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors, and greater than 10% shareholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Following are the persons, known to the Company, who have failed to
file a required Form.
<TABLE>
<CAPTION>
Name Number of Late Reports Number of Transactions
- ---- ---------------------- ----------------------
<S> <C> <C>
Michael Smolyansky 5 8
Pol Sikar 6 10
Rick D. Salm 4 4
Renzo Bernardi 4 5
Valeriy Nikolenko 1 2
</TABLE>
The Company will undertake to assist the above named individuals in
preparing the necessary filings as soon as possible.
ITEM 10. EXECUTIVE COMPENSATION.
(a) General
The following information discloses all plan and non-plan compensation
awarded to, earned by, or paid to Mr. Michael Smolyansky, CEO, CFO, President,
Treasurer and Director of the Company, for all services rendered in all
capacities to the registrant and its subsidiaries. Mr. Smolyansky is the only
person meeting the reporting requirements of Item 402 of Regulation S-B. No
other executive officer of the Company's total annual salary and bonus exceeded
$100,000 for the fiscal year ended December 31, 1995.
12
<PAGE> 31
(b) Summary Compensation Table
The following table sets forth all compensation, including bonuses,
stock option awards and other payments, paid or accrued by the Company during
each of the fiscal years ended December 31, 1995, 1994 and 1993, to or for the
Company's Chief Executive Officer and each of the other executive officers of
the Company whose total annual salary and bonus, if any, exceeded $100,000 for
the fiscal year ended 1995.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------
(a) (b) (c) (d) (e)
Name Year Other
and Ended Annual
Principal December Salary Bonus Compensation
Position 31 ($) ($) ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Smolyansky 1995 99,999.84 15,000.00 -0-
CEO, CFO, President 1994 81,333.00 15,000.00 -0-
1993 72,000.00 15,000.00 -0-
</TABLE>
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------------------------------
Awards Payouts
----------------------------------------------------------------
(a) (f) (g) (h) (i)
Name Restricted All
and Stock Shares LTIP Other Compen-
Principal Award(s) Underlying Payouts sation
Position ($) Options ($) ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Smolyansky -0- -0- -0- -0-
CEO, CFO, President -0- -0- -0- -0-
-0- -0- -0- -0-
</TABLE>
(c) Option/SAR Grants in Last Fiscal Year
This table has been omitted, as Mr. Smolyansky, the only person
meeting the reporting requirements of Item 402 of Regulation S-B, has not
received any individual grants of stock options during fiscal 1995 or stock
appreciation rights during 1995.
(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
This table has been omitted, as Mr. Smolyansky, the only person
meeting the reporting requirements of Item 402 of Regulation S-B, has not
exercised any stock options during fiscal 1995.
(e) Long-Term Incentive Plans ("LTIP") - Awards in Last Fiscal Year
This table has been omitted, as Mr. Smolyansky, the only person
meeting the reporting requirements of Item 402 of Regulation S-B, has not
received any awards pursuant to any LTIP during fiscal 1995.
13
<PAGE> 32
(f) Compensation of Directors
During the first three quarters of fiscal 1995, the Board of Directors
participated in two meetings and were compensated at the rate of $250 per
meeting. In August 1995, the Board of Directors voted to increase the
compensation paid to its directors from $250 to $500 for their meeting
participation. The Board of Directors conducted one meeting in the last
quarter of fiscal 1995 for which the directors were each compensated $500.
(g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
(g)(1) Employment Contracts
On April 15, 1992, Michael Smolyansky executed a 5-year employment
contract with the Company which will expire on April 14, 1997. The agreement
provides for a base salary, payable in equal monthly installments, which may be
increased, subject to approval of the Board of Directors, on a yearly basis in
proportion to the Company's profitability. Additionally, under the agreement,
Mr. Smolyansky is entitled to receive cash bonuses at the discretion of the
Board of the Directors, subject to the Company being profitable.
The employment agreement obligates the Company to pay Mr. Smolyansky's
basic annual salary for the remaining term of the agreement from the date of
the employee's termination regardless of whether such termination is based upon
cause. Additionally, the employment agreement provides that (a) the Company
shall furnish a suitable automobile for the employee's use and (b) the
employee, for a period of two years after termination, agrees not to compete in
a business substantially similar to that of the Company.
(g)(2) Restricted Stock Plan
The Company has adopted a Restricted Stock Plan (the "Plan") which
provides for the granting of stock options to employees, including salaried
officers of the Company. The maximum aggregate amount of shares of the
Company's Common Stock that may be made subject to stock options granted under
the Plan is 300,000. Options may be granted under the Plan at exercise prices
that are not less than the fair market value of the Common Stock at the time of
the grant. The Plan is administered by the Company's Board of Directors. The
terms of payment for the shares of Common Stock once options granted are
exercised may vary, as determined by the Board of Directors. As of March 27,
1996, no options have been granted under this Plan. (See, further, Item 7,
Note 12 to Consolidated Financial Statements.)
(g)(3) Employee, Consultants and Service Providers Benefit Plan
On June 9, 1995, the Company filed a registration statement on Form
S-8 with the Securities and Exchange Commission in connection with an employee
benefit plan (the "Plan") covering 300,000 shares of its Common Stock.
Pursuant to the Plan, the Company may issue Common Stock and/or options to
purchase Common Stock to certain consultants, service providers and employees,
including officers and directors, of the Company. The purpose of the Plan is
to promote the best interests of the Company and its stockholders by providing
a means of non-cash remuneration to eligible participants who contribute to
operating progress and earning power of the Company. The Plan is administered
by the Company's Board of Directors or a committee consisting of three members
which has the discretion to determine from time to time the eligible
participants to receive an award; the number of shares of stock issuable
directly or to be granted pursuant to option; the price at which the option may
be exercised or the price per share in cash or cancellation of fees or other
payment which the Company is liable if a direct issue of stock and all other
terms on which each option shall be granted. As of March 27, 1996, a total of
20,000 shares were issued under the Plan for public relations services. (See,
further, Item 7, Note 12 to Consolidated Financial Statements.)
14
<PAGE> 33
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the
Company regarding the beneficial ownership of the Company's Common Stock, the
Company's only class of securities, as of March 27, 1996 (except as indicated
below) by (a) each stockholder known by the Company to be the beneficial owner
of more than five percent of the Company's Common Stock, (b) each of the
Company's directors, (c) each of the Company's executive officers named in the
Summary Compensation Table above and (d) all executive officers and directors
of the Company as a group. The shareholders listed below have sole voting and
investment power except as noted.
<TABLE>
<CAPTION>
Percent Owned
Name and Address of Amount and Nature of Beneficially and
Beneficial Owner Beneficial Ownership of Record
(1) (2)
- ------------------- -------------------- ----------------
<S> <C> <C>
Michael Smolyansky (5) 2,567,750 (3) 67.8
7625 N. Austin Ave.
Skokie, IL 60077
Rick D. Salm (5) 1,500 *
6945 N. Clark St.
Chicago, IL 60626
Pol Sikar (5) 11,400 (4) *
3907 Miller Drive
Glenview, IL 60025
Renzo Bernardi (5) 800 *
2919 N. Natoma
Chicago, IL 60634
Valeriy Nikolenko (5) 2,900 *
8917 Lamon Ave.
Skokie, IL 60077
All officers and directors of the 2,584,350 68.3
Company as a group (five persons)
</TABLE>
- -----------------------
* Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, all shares are directly owned and
investing power is held by the persons named.
(2) Based upon 3,785,377 shares issued and outstanding as of March 27,
1996.
(3) Mr. Smolyansky directly owns 2,538,320 Common Shares of the Company.
29,430 Common Shares are owned by his wife and therefore deemed to
be beneficially owned by Mr. Smolyansky.
(4) Mr. Sikar directly owns 10,900 Common Shares of the Company. 500
Common Shares are owned by his minor children and are therefore
deemed to be beneficially owned by Mr. Sikar.
15
<PAGE> 34
(5) Director or officer. The majority of the Common Shares held by
officers, directors and principal shareholders listed above are
"restricted securities" and, as such, are subject to limitations on
resale. The shares may be sold pursuant to Rule 144 under certain
circumstances. The Board of Directors has adopted a Restricted
Stock Plan under which certain employees may be granted up to
300,000 shares of the Common Stock of the Company. In addition, the
Company filed a registration statement on Form S-8 with the
Securities and Exchange Commission in connection with an employee
benefit plan (the "Plan") covering 300,000 shares of its Common
Stock. Pursuant to the Plan the Company may issue Common Stock
and/or options to purchase Common Stock to certain employees,
including officers and directors, of the Company. (See, further,
Item 10(g)(2), Restricted Stock Plan and (g)(3), Employee,
Consultant and Services Providers Benefit Plan.)
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1994, the Company determined that it would not be able to
implement its business plan for its subsidiary, Lifeway International, Inc.
("LII"). As a result, the Company conducted an exchange offer to the minority
shareholders of LII, whereby each minority shareholder could alternatively
exchange their shares for (i) restricted Common Shares in Lifeway Foods, Inc.
("LFI"); or (ii) receive a return of their original investment in cash plus
interest on their investment paid in restricted Common Shares in LFI. (See,
further, Item 1(a)(1), Exchange Offer to Minority Shareholders of Lifeway
International, Inc., and Item 7, Note 11 to Consolidated Financial
Statements.) On February 21, 1995, Mr. Michael Smolyansky, the Company's CEO,
CFO, President, Treasurer and director, and his wife elected to exchange their
shares of LII for the return of their original investment in cash aggregating
$10,000 plus interest paid in an aggregate 800 restricted Common Shares in LFI.
On March 25, 1995, Mr. Pol Sikar, a director of the Company, elected to
exchange his shares of LII for 4,400 restricted Common Shares in LFI. On
January 10, 1995, Mr. Renzo Bernardi, a director of the Company, elected to
exchange his shares of LII for the return of his $10,000 investment in cash
plus interest paid in 1,600 restricted Common Shares in LFI.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(1)(2) Financial Statements and Schedules
A list of the Financial Statements and Financial Statement Schedules
filed as part of this Report is set forth in Item 7, and appears at page F-1 of
this Report, which list is incorporated herein by reference.
(a)(3) Exhibits
Exhibit Number and Brief Description
3.1 Articles of Incorporation of Registrant, with
Certificate, and Amendments. (1)
3.2 Bylaws of Registrant. (1)
3.3 Corrected Amendment to the Bylaws of Registrant. (1)
10.1 Lifeway Foods, Inc. Consulting and Services
Compensation Plan, dated June 5, 1995. (2)
10.2 Employment Agreement between Registrant and Michael
Smolyansky. (3)
10.4 Industrial Building Lease between Lifeway Foods, Inc.
and Michael Smolyansky, and Addendum to Building
Lease. (3)
10.5 Stock Option Agreements. (3)
16
<PAGE> 35
10.6 Noncompetition, Nondisclosure, and Inventions
Agreement. (3)
10.7 Restricted Stock Plan. (3)
10.8 Definitive Purchase Agreement between Lifeway Foods,
Inc. and Johanna Farms, Inc., dated December 27,
1990. (3)
16.1 Letter of Robert L. DeLorme, C.P.A., dated March 3,
1995, stating its concurrence with the disclosure
contained in the Company's Current Report on Form 8-K
dated February 28, 1995. (3)
16.2 Letter of Gleeson, Sklar, Sawyers & Cumpata, L.L.P.,
Certified Public Accountants and Management
Consultants, dated March 3, 1995, stating its
concurrence with the disclosure contained in the
Company's Current Report on Form 8-K dated February
28, 1995. (3)
27 Financial Data Schedule
-----------------------------
(1) Incorporated by reference to the issuer's
registration statement on Form S-18 (Commission File
No. 33-14329-C), and Post-Effective Amendments
thereto.
(2) Incorporated by reference to the issuer's
registration statement on Form S-8 (Commission File
No. 33-93306).
(3) Incorporated by reference to the issuer's Current
Reports filed under cover of Form 8-K and amendments
thereto.
(b) Reports on Form 8-K
The Registrant incorporates by this reference its Current Report on
Form 8-K dated February 28, 1995 relating to its change in accountants.
17
<PAGE> 36
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunder
duly authorized.
LIFEWAY FOODS, INC.
By /s/ Michael Smolyansky
--------------------------------------------
Michael Smolyansky, Chief Executive Officer,
Chief Financial and Accounting Officer,
President, Treasurer and Director
Date: March 27, 1996
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ Michael Smolyansky
--------------------------------------------
Michael Smolyansky, Chief Executive Officer,
Chief Financial and Accounting Officer,
President, Treasurer and Director
Date: March 27, 1996
By /s/ Pol Sikar
--------------------------------------------
Pol Sikar, Director
Date: March 27, 1996
By /s/ Rick D. Salm
--------------------------------------------
Rick D. Salm, Director
Date: March 27, 1996
18
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit
Number Description Page
------- ----------- ----
<S> <C> <C>
3.1 Articles of Incorporation of Registrant, with
Certificate, and Amendments. (1)
3.2 Bylaws of Registrant. (1)
3.3 Corrected Amendment to the Bylaws of Registrant. (1)
10.1 Lifeway Foods, Inc. Consulting and Services
Compensation Plan, dated June 5, 1995. (2)
10.2 Employment Agreement between Registrant and Michael
Smolyansky. (3)
10.4 Industrial Building Lease between Lifeway Foods, Inc.
and Michael Smolyansky, and Addendum to Building
Lease. (3)
10.5 Stock Option Agreements. (3)
10.6 Noncompetition, Nondisclosure, and Inventions
Agreement. (3)
10.7 Restricted Stock Plan. (3)
10.8 Definitive Purchase Agreement between Lifeway Foods,
Inc. and Johanna Farms, Inc., dated December 27,
1990. (3)
16.1 Letter of Robert L. DeLorme, C.P.A., dated March 3,
1995, stating its concurrence with the disclosure
contained in the Company's Current Report on Form 8-K
dated February 28, 1995. (3)
16.2 Letter of Gleeson, Sklar, Sawyers & Cumpata, L.L.P.,
Certified Public Accountants and Management
Consultants, dated March 3, 1995, stating its
concurrence with the disclosure contained in the
Company's Current Report on Form 8-K dated February
28, 1995. (3)
27 Financial Data Schedule
</TABLE>
-----------------------------
(1) Incorporated by reference to the issuer's
registration statement on Form S-18 (Commission File
No. 33-14329-C), and Post-Effective Amendments
thereto.
(2) Incorporated by reference to the issuer's
registration statement on Form S-8 (Commission File
No. 33-93306).
(3) Incorporated by reference to the issuer's Current
Reports filed under cover of Form 8-K and amendments
thereto.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 702,107
<SECURITIES> 329,411
<RECEIVABLES> 604,621
<ALLOWANCES> 48,000
<INVENTORY> 288,100
<CURRENT-ASSETS> 2,006,125
<PP&E> 2,545,137
<DEPRECIATION> 868,769
<TOTAL-ASSETS> 3,791,241
<CURRENT-LIABILITIES> 550,478
<BONDS> 660,007
<COMMON> 1,374,754
0
0
<OTHER-SE> 1,160,607
<TOTAL-LIABILITY-AND-EQUITY> 3,791,241
<SALES> 4,497,560
<TOTAL-REVENUES> 4,497,560
<CGS> 2,244,628
<TOTAL-COSTS> 2,244,628
<OTHER-EXPENSES> 1,560,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,164
<INCOME-PRETAX> 682,138
<INCOME-TAX> 241,413
<INCOME-CONTINUING> 440,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 440,725
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
