Filed 2026-03-17 · Period ending 2025-12-31 · 36,024 words · SEC EDGAR
← LWAY Profile · LWAY JSON API
# Lifeway Foods, Inc. (LWAY) — 10-K
**Filed:** 2026-03-17
**Period ending:** 2025-12-31
**Accession:** 0001683168-26-001886
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/814586/000168316826001886/)
**Origin leaf:** 5419efd9b9018a12a3215431e474be777c99dc8339c88601a15c61539f76158d
**Words:** 36,024
---
**Table of Contents
**
**UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
****
**Form 10-K**
****
**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
For the fiscal year ended December 31, 2025
or
**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
For the transition period from ____________ to
____________
**Commission file number: 000-17363**
****
**LIFEWAY FOODS, INC.**
*(Exact name of registrant as specified in its
charter)*
**
|
Illinois |
36-3442829 | |
|
(State or other jurisdiction of |
(I.R.S. Employer | |
|
incorporation or organization) |
Identification No.) | |
**6431 West Oakton St., Morton Grove, Illinois
60053**
*(Address of principal executive offices) (Zip
Code)*
**
**(847) 967-1010**
*(Registrants telephone number, including
area code)*
**
**Securities registered under Section 12(b) of
the Exchange Act:**
****
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | |
|
Common Stock, No Par Value |
LWAY |
Nasdaq Global Market | |
|
Preferred Stock Purchase Rights |
None |
Nasdaq Global Market | |
****
**Securities registered under Section 12(g) of
the Exchange Act:**
**None**
****
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 No
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T( 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of large accelerated filer, accelerated filer, smaller reporting company
and emerging growth company in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
Accelerated filer |
Non-accelerated filer |
Smaller reporting company |
Emerging growth company | |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section13(a)of the Exchange Act.
Indicate by check mark whether the registrant
has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. Yes No
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants
executive officers during the relevant recovery period pursuant to 240.10D-1(b).
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which the stock was last sold as of June 30, 2025 ($24.65 per
share as quoted on the Nasdaq Global Market) was $132,499,543.
As of March 2, 2026, 15,149,600 shares of the
registrants common stock, no par value, were outstanding.
Portions of the Registrants definitive
proxy statement to be filed no later than 120 days after the close of the fiscal year covered by this report on Form 10-K are incorporated
by reference into Part III.
| | | | |
**Table of Contents**
****
|
|
Page | |
|
PART I |
| |
|
|
|
| |
|
Item 1. |
Business |
1 | |
|
Item 1A. |
Risk Factors |
6 | |
|
Item 1B. |
Unresolved Staff Comments |
17 | |
|
Item 1C |
Cybersecurity |
17 | |
|
Item 2. |
Properties |
18 | |
|
Item 3. |
Legal Proceedings |
18 | |
|
Item 4. |
Mine Safety Disclosures |
18 | |
|
|
|
| |
|
PART II |
| |
|
|
|
| |
|
Item 5. |
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
19 | |
|
Item 6. |
[RESERVED] |
19 | |
|
Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 | |
|
Item 7A. |
Quantitative and Qualitative Disclosures about Market Risk |
28 | |
|
Item 8. |
Financial Statements and Supplementary Data |
28 | |
|
Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
29 | |
|
Item 9A. |
Controls and Procedures |
29 | |
|
Item 9B. |
Other Information |
30 | |
|
Item 9C. |
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections |
30 | |
|
|
|
| |
|
PART III |
|
| |
|
|
|
| |
|
Item 10. |
Directors, Executive Officers and Corporate Governance |
31 | |
|
Item 11. |
Executive Compensation |
31 | |
|
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
31 | |
|
Item 13. |
Certain Relationships and Related Transactions and Director Independence |
31 | |
|
Item 14. |
Principal Accountant Fees and Services |
31 | |
|
|
|
| |
|
PART IV |
| |
|
|
|
| |
|
Item 15. |
Exhibits, Financial Statement Schedules |
32 | |
|
Item 16. |
Form 10-K Summary |
34 | |
|
|
Signatures |
35 | |
****
****
****
| | i | | |
****
****
**FORWARD LOOKING STATEMENTS**
****
In connection with the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, readers are advised that this document, and any document incorporated
by reference herein, may contain forward looking statements. Forward looking statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those indicated by the forward looking statements. These statements use words,
variations of words, and negatives of words such as may, could, believe, future,
depend, expect, will, result, can, remain, assurance,
subject to, require, limit, impose, guarantee, restrict,
continue, become, predict, likely, opportunities, effect,
change, and estimate. Examples of forward looking statements include, but are not limited to, (i) projections
of revenues, income or loss, earnings or losses per share, capital expenditures, dividends, capital structure and other financial items,
(ii) statements of Lifeway Foods, Inc.s (which, together with its subsidiaries as the context requires, may be referred to as Lifeway,
the Company, our, we or us) plans and objectives, including the introduction of
new products, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) statements
of future economic performance, and (iv) statements of assumptions underlying other statements and statements about the Company or its
business.
Forward looking statements are based on managements
beliefs, assumptions, estimates and observations of future events based on information available to our management at the time the statements
are made and include any statements that do not relate to any historical or current fact. These statements are not guarantees of future
performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may
differ materially from what is expressed, implied or forecast by our forward looking statements due in part to the risks, uncertainties,
and assumptions that include:
|
|
the actions of our competitors and suppliers, including those related to price competition; | |
|
|
| |
|
|
the actions and decisions of our customers or consumers; | |
|
|
| |
|
|
our ability to successfully implement our business strategy; | |
|
|
| |
|
|
changes in the pricing of commodities; | |
|
|
| |
|
|
the effects of government regulation; | |
|
|
| |
|
|
the impact of proposals to acquire the Company or actions taken by stockholders, including actions related to a possible acquisition of the Company; | |
|
|
| |
|
|
disruptions to our supply chain, or our manufacturing and distribution capabilities, including those due to cybersecurity threats, wars or pandemics; and | |
|
|
| |
|
|
the other risks and uncertainties that are set forth in Item 1, Business, Item 1A Risk Factors and Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, and that are described from time to time in our filings with the U.S. Securities and Exchange Commission (the SEC). | |
These factors are not necessarily all of the important
factors that could cause actual results to differ materially from those expressed in any of our forward looking statements. Other unknown
or unpredictable factors could also have material adverse effects on future results. We intend these forward looking statements to speak
only at the date made. Except as otherwise required to be disclosed in periodic reports required to be filed by us with the SEC, we have
no duty to update these statements, and we undertake no obligation to publicly update or revise any forward looking statements, whether
as a result of new information, future events or otherwise.
****
| | ii | | |
****
**PART I**
****
**ITEM 1.BUSINESS**
****
**OVERVIEW**
****
Lifeway was founded in 1986 by Michael Smolyansky,
ten years after he and his family emigrated from Eastern Europe to the United States. Lifeway was the first to successfully introduce
kefir to the U.S. consumer on a commercial scale, initially catering to ethnic consumers in the Chicago, Illinois metropolitan area. Lifeway
has grown to become the largest producer and marketer of kefir in the U.S. and an important player in the broader market spaces of probiotic-based
products and natural, better for you foods.
Unless otherwise noted herein, all amounts in
this Form 10-K are in thousands, except per share numbers.
****
**PRODUCTS**
Our primary product is drinkable kefir, a cultured
dairy product. Lifeway kefir is tart and tangy, high in protein, calcium and vitamin D.
We manufacture (directly or through co-packers)
and market products under the Lifeway, Fresh Made and GlenOaks Farms brand names, as well as under private labels on behalf of certain
customers.
Our product categories are:
|
|
|
Drinkable kefir, a cultured dairy product sold in a variety of organic
and non-organic sizes, flavors, and milk types; | |
|
|
|
| |
|
|
|
European-style soft cheeses, including farmer cheese, white cheese, and Sweet Kiss; | |
|
|
|
| |
|
|
|
Cream and other, which consists primarily of cream, a byproduct of making our kefir; | |
|
|
|
| |
|
|
|
Drinkable yogurt, sold in a variety of sizes and flavors; | |
|
|
|
| |
|
|
|
ProBugs, a line of kefir products designed for children; | |
|
|
|
| |
|
|
|
Other dairy, which consists primarily of Fresh Made butter and sour cream. | |
Net sales of products by category were as follows
for the years ended December 31:
|
| |
2025 | | |
2024 | | |
|
In thousands | |
$ | | |
% | | |
$ | | |
% | | |
|
| |
| | |
| | |
| | |
| | |
|
Drinkable Kefir other than ProBugs | |
$ | 181,423 | | |
| 85% | | |
$ | 153,493 | | |
| 82% | | |
|
Cheese | |
| 16,571 | | |
| 8% | | |
| 14,554 | | |
| 8% | | |
|
Cream and other | |
| 8,693 | | |
| 4% | | |
| 8,299 | | |
| 4% | | |
|
Drinkable Yogurt | |
| 2,284 | | |
| 1% | | |
| 5,619 | | |
| 3% | | |
|
Probugs Kefir | |
| 2,214 | | |
| 1% | | |
| 3,421 | | |
| 2% | | |
|
Other dairy | |
| 1,311 | | |
| 1% | | |
| 1,434 | | |
| 1% | | |
|
Net Sales | |
$ | 212,496 | | |
| 100% | | |
$ | 186,820 | | |
| 100% | | |
| | 1 | | |
**Product innovation and new product development**
Lifeway is committed to maintaining its position
as the leading producer of kefir and a recognized leader in the market for probiotic products. We routinely evaluate opportunities for
new product development, flavors and formulations, improved package design, new product configurations and other innovation avenues. Beyond
our core drinkable kefir products, we have an ongoing effort to extend the strength of the Lifeway brand and leverage the capabilities
of the Lifeway organization into fresh categories and into additional channels of trade, such as Convenience; Foodservice; Club; and Drug.
Lifeway considers research and development of
new products to be a significant part of our overall business philosophy. Where possible, we leverage our existing staff and facilities
to conduct our innovation, research, and development efforts, rather than maintaining a dedicated research and development staff and facilities
or relying solely on third parties.
**PRODUCTION**
**Manufacturing**
During 2025 and 2024, approximately 95% and
94% of our revenue, respectively, was derived from products manufactured at our own facilities. We currently operate the following
manufacturing and distribution facilities:
|
|
|
Morton Grove, Illinois, which produces drinkable kefir and cheese products; | |
|
|
|
| |
|
|
|
Waukesha, Wisconsin, which produces drinkable kefir products and from which we warehouse and distribute products; | |
|
|
|
| |
|
|
|
Niles, Illinois, which stores and serves as a warehouse and distribution point for products; and | |
|
|
|
| |
|
|
|
Philadelphia, Pennsylvania, which produces drinkable kefir, cheese, and other dairy products, from which we warehouse and distribute products. | |
All our fixed assets associated with manufacturing,
storage, and distribution of our products are in the United States.
**Co-Packers**
In addition to the products manufactured in our
own facilities, independent manufacturers (co-packers) manufacture some of our products. We have a co-packer agreement to
manufacture drinkable yogurt and a small percentage of our Lifeway kefir product in California. We have a co-packer agreement to manufacture
drinkable kefir in Ireland, to serve our European markets. During2025 and 2024, approximately 5% and 6% of our revenue, respectively,
was derived from products manufactured by co-packers. Our domestic co-packer is Safe Quality Food (SQF) certified and follows
Good Manufacturing Practices (GMPs). Additionally, the co-packers are required to ensure our products are manufactured in
accordance with our quality specifications and that they are compliant with all applicable laws and regulations.
**SALES AND DISTRIBUTION**
**Sales Organization**
We sell our products primarily through our direct
sales force, brokers, and distributors. Our sales organization strives to cultivate strong, collaborative relationships with our customers
that facilitate favorable shelf placement for our products, which we believe drives sales volumes when combined with our marketing efforts
and our brand strength. Our relationships with food brokers provide additional customer coverage as a supplement to our direct sales force.
| | 2 | | |
**Distribution inside the United States**
Lifeways products reach the consumer through
three primary route-to-market pathways:
|
|
|
Retail-direct; | |
|
|
|
| |
|
|
|
Distributor; and | |
|
|
|
| |
|
|
|
Direct store delivery (DSD). | |
Under the retail-direct channel, we sell our products
to retailers and deliver products through either the retailers carriers or third-party carriers that deliver to such retailers
distribution centers. In turn, our retailers then deliver the products to their respective stores. Under the retail direct-model, optimal
product merchandising, assortment and product presentation are attended to by the retailer. Sales to our retail-direct customers represent
approximately 51% of our total net sales for the year ended 2025.
Under the distributor channel, we sell our products
to distributors and deliver products through either the distributors carriers or third-party carriers that deliver to such distributors
designated warehouses. In turn, our distributors then sell and ship our products to their retail customers. Our distributors often use
a DSD model of their own to make deliveries directly to individual stores, but they also make deliveries to retailers distribution
centers. The distributor attends to optimal product merchandising, assortment, and product presentations at the retail end of the channel,
with support from Lifeways direct sales force and broker network. Sales to our distributor customers represent approximately 47%
of our total net sales for year ended 2025.
Under the direct store delivery (DSD)
route to market, we sell our products to retailers and deliver it directly to the store using Company-owned vehicles and a team of Lifeway
merchandisers who engage face-to-face with store management to ensure optimal product assortments and presentations. We operate our DSD
model in the Chicago, Illinois metropolitan area only. Sales to our DSD customers represent approximately 2% of our total net sales for
the year ended 2025.
**Distribution outside of the U.S.**
Lifeways primary market is the United States;
however, certain distributors based in the United States sell our products to retailers in Mexico, portions of Central and South America,
and the Caribbean. Additionally, Lifeway products reach consumers in France, Ireland, and the Middle East under third party co-manufacturing
agreements and in-country broker and distributor arrangements. Sales distributed outside the United States represented 7% of net sales
for the year ended 2025.
**Channel- and Market-Specific Distribution and Broker Representation
Arrangements**
Lifeways generally standardized agreements
with independent distributors and food brokers allow us the latitude to establish new relationships as opportunities and needs arise.
Where appropriate given the relationship, market, and business opportunity, we offer exclusive channels, markets, and/or territories to
our distributors and brokers.
We provide our independent distributors with products
at wholesale prices for distribution to their retail accounts. Lifeway believes that the prices at which we sell our products to distributors
are competitive compared with the prices generally paid by distributors for similar products in the markets served. Due to the perishable
nature of our products and the costs to return, we do not offer return privileges to any of our distributors or channel customers; however,
from time to time we do provide our customers with allowances for non-saleable product.
Lifeway engages independent food brokers generally
on a commission basis, subject in some cases to a minimum commission guarantee. The commissions vary based on the scope of services provided
and customers served. Our brokers represent our products to a variety of prospective buyers. These buyers could be specialty stores, retail
grocery chains, wholesalers, foodservice operators and distributors, drug chains, convenience stores, club stores, mass merchandisers,
industrial users, schools and universities, or military installations. With support from our direct sales force, brokers may provide other
value-added services. These may include scheduling and coordinating promotions, merchandising, centralized ordering, and data collection
services.
| | 3 | | |
**MARKETING**
****
We use a combination of sales incentives, trade
promotions, and consumer promotions to market our products.
**Sales Incentives and Trade Promotion
Allowances**
Lifeway offers various sales incentives and trade
promotional programs to its retailer and distributor customers from time to time in the normal course of business. These sales incentives
and trade promotion programs include rebates, in-store display and demo allowances, allowances for non-saleable product, every day low
price (EDLP) coupons, and other trade promotional activities. Trade promotions support price features, displays, and other
merchandising of our products by our retail and distributor customers. We record these arrangements as a reduction to net sales in our
consolidated statements of operations.
**Consumer Promotions and Marketing Campaigns**
We engage in an ongoing and wide variety of marketing
and media campaigns primarily digital and social media, print advertising, television advertising, and event marketing. We complement
these marketing and media efforts with industry-related trade shows and in-store promotional events. Our consumer marketing efforts also
include cooperative advertising programs with our retail customers and various couponing campaigns, online consumer relationship programs,
and other similar forms of promotions.
Our marketing efforts are aimed at stimulating
demand with new and existing consumers by elevating awareness and consumption of kefir and probiotics, as well as enhancing our brand
equity. Our awareness marketing seeks to promote the positive nutritional attributes and flavor of our products.
**COMPETITION**
Lifeway competes with a limited number of other
domestic kefir producers and consequently faces a small amount of direct competition for kefir products. However, Lifeways kefir-based
products compete with other dairy products, such as spoonable and drinkable yogurt, and, increasingly, with non-dairy probiotic products.
Many of our competitors are well-established and have significantly greater financial resources than Lifeway to promote their products.
**SUPPLIERS**
We purchase our ingredients such as milk, cultures,
and other ingredients from unaffiliated suppliers. In addition, we purchase significant quantities of ingredients and product packaging
materials and utilities, such as natural gas and electricity to operate our facilities. Purchases are made through purchase orders or
contracts, and price, delivery terms, and product specifications vary. The prices for our principal inputs can fluctuate based on economic,
weather, and other conditions. Lifeway believes it has access to alternative suppliers for critical ingredients, packaging, and other
input requirements.
**MAJOR CUSTOMERS**
During the year ended December 31, 2025, two customers
accounted for a total of 24% of our total net sales. Two customers accounted for a total of 24% of net accounts receivable as of December
31, 2025.
**SEGMENTS**
Lifeway has determined that it has one reportable
segment based on how our chief operating decision maker manages the business and in a manner consistent with the internal reporting provided
to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing Company
performance, has been identified as the Chief Executive Officer. Substantially all our consolidated revenues relate to the sale of cultured
dairy products that we produce using the same processes and materials and are sold to consumers through a common network of distributors
and retailers in the United States.
| | 4 | | |
**INTELLECTUAL PROPERTY**
We believe that our rights in our trademarks and
service marks are important to our marketing efforts to develop brand recognition and differentiate our brand from our competitors and
are a valuable part of our business. We own many domestic and international trademarks and service marks. In addition, we own numerous
registered and unregistered copyrights, registered domain names, and proprietary trade secrets, trade dress, technology, know-how, processes,
and other proprietary rights that are not registered. Depending on the jurisdiction, trademarks are generally valid as long as they are
in use and/or their registrations are properly maintained, and they have not been found to have become generic. Registrations of trademarks
can also generally be renewed indefinitely as long as the trademarks are in use. We also have licenses to use certain trademarks inside
and outside of the United States and to certain product formulas, all subject to the terms of the agreements under which such licenses
are granted. Lifeways policy is to pursue registration of intellectual property whenever appropriate. We protect our intellectual
property rights by relying on a combination of trademark, copyright, trade dress, trade secret and other intellectual property laws, and
domain name dispute resolution systems; as well as licensing agreements, third-party confidentiality, nondisclosure, and assignment agreements;
and by policing third-party misuses of our intellectual property. We regard the Lifeway family of trademarks and other intellectual property
as having substantial value and as being an important factor in the marketing of our products. The loss of such protection would have
a material adverse impact on our operations and share price.
**REGULATION**
Lifeway is subject to extensive regulation by
federal, state, and local governmental authorities. In the United States, agencies governing the manufacture, marketing, and distribution
of our products include, among others, the Federal Trade Commission (FTC), the United States Food & Drug Administration
(FDA), the United States Department of Agriculture (USDA), the United States Environmental Protection Agency
(EPA), the Occupational Safety and Health Administration (OSHA), and their state and local equivalents. Under
various statutes, these agencies prescribe, among other things, the requirements and standards for quality, safety, and representation
of our products to consumers. We are also subject to federal laws and regulations relating to our products and production. For example,
as required by the National Organic Program (NOP), we rely on third parties to certify certain of our products and production
locations as organic. Additionally, our facilities are subject to various laws and regulations regarding the release of material into
the environment and the protection of the environment in other ways.
Internationally, we are subject to the laws and
regulatory authorities of the foreign jurisdictions in which we manufacture and sell our products, including the Food Standards Agency
in the United Kingdom; the National Service of Health, Food Safety and Agro-Food Quality (known by its Spanish-language acronym SENASICA)
and the Federal Commission for the Protection from Sanitary Risks (COFEPRIS) in Mexico; the Food Safety Authority in Ireland;
and the European Food Safety Authority, which supports the European Commission, as well as individual country, province, state, and local
regulations.
Changes in these laws or regulations, or the introduction
of new laws or regulations, could increase the costs of doing business for the Company, our customers, or suppliers, or restrict our actions,
causing our results of operations to be adversely affected.
**MILK INDUSTRY REGULATION**
Our primary raw material is milk. The federal
government establishes minimum prices for raw milk purchased in federally regulated areas. Some states have established their own rules
for determining minimum prices. The federal government announces prices for raw milk each month. We are subject to federal government
regulations that establish minimum prices for milk, and we also pay producer (over-order) premiums, federal order administration
costs, and other related charges that vary by milk product, location, and supplier.
| | 5 | | |
**FOOD SAFETY**
Lifeway takes appropriate precautions to ensure
the safety of our products. In addition to routine inspections by state and federal regulatory agencies, including the USDA and FDA, we
have instituted Company-wide systems that address topics such as supplier control; ingredient, packaging, and product specifications;
preventive maintenance; pest control; and sanitation. Each of our facilities also has in place a hazard analysis critical control points
(HACCP) plan that identifies critical pathways for contaminants and mandates control measures that must be used to prevent,
eliminate or reduce relevant food-borne hazards. To the extent that the federal Food Safety Modernization Act applies to Lifeways
business, we develop food safety plans and implement preventive measures to protect against food contamination. We also maintain a product
recall plan, including lot identifiability and traceability measures that allow us to act quickly to reduce the risk of consumption of
any product that we suspect may pose a health issue.
We maintain various types of insurance, including
product liability and product recall coverages, which we believe to be sufficient to cover potential product liabilities.
We have also implemented the SQF program at our
Illinois and Wisconsin facilities. SQF is a fully integrated food safety and quality management protocol designed specifically for the
food sector. The SQF Code, based on universally accepted CODEX Alimentarius, HACCP guidelines and the Global Food Safety Initiative (GFSI)
standards, offers a comprehensive methodology to manage food safety and quality simultaneously. SQF certification provides an independent
and external validation that a product, process or service complies with international, regulatory and other specified standards.
**SEASONALITY**
Lifeways business is not seasonal.
**EMPLOYEES**
As of December 31, 2025, we employed 293 full-time
and two part-time employees, of which 97 were members of a union bargaining unit in Illinois.
**AVAILABLE INFORMATION**
****
Lifeway maintains a corporate website at www.lifewayfoods.com
and makes available, free of charge, through this website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports that we file with or furnish to the SEC as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report.
****
**ITEM 1A.RISK FACTORS**
In evaluating and understanding us and our business,
you should carefully consider the risks described below, in conjunction with all of the other information included in this Annual Report
on Form 10-K, including Managements Discussion and Analysis of Financial Condition and Results of Operations contained
in Part II, Item 7. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that
we are unaware of, or that we currently believe are not material, may become important factors that adversely affect our business. If
any of the events or circumstances described in the following risk factors actually occurs, our business, financial condition, results
of operations, and future prospects could be materially and adversely affected.
| | 6 | | |
**RISKS RELATED TO OUR BUSINESS**
****
**Our product categories face a high level
of competition, which could negatively impact our sales and results of operations.**
****
We compete with a limited number of other
domestic kefir producers and consequently face a small amount of direct competition for kefir products. However, our kefir-based
products compete with other dairy products, notably spoonable and drinkable yogurt, and, increasingly, with non-dairy probiotic
products that incorporate kefir cultures but are not kefir. We face significant competition for limited retailer shelf space in each
of our product categories. Competition in our product categories is based on product innovation, product quality, price, brand
recognition and loyalty, effectiveness of marketing, promotional activity, and our ability to identify and satisfy consumer tastes
and preferences. We believe that our brands have benefited in many cases from being the first to introduce products in their
categories, and their success has attracted competition from other food and beverage companies that produce branded products, as
well as from private label competitors. Some of our competitors, such as Danone, General Mills, Chobani, Hain Celestial Group,
Horizon and Nestle, have substantial financial and marketing resources. These competitors and others may be able to introduce
innovative products more quickly or market their products more successfully than we can, which could cause our growth rate to be
slower than we anticipate and could cause sales to decline.
We also compete with producers of non-dairy products
that have lower ingredient and production-related costs. As a result, these competing producers may be able to offer their products to
customers at a lower price point. This could cause us to lower our prices, resulting in lower profitability or, in the alternative, cause
us to lose market share if we fail to lower prices. Furthermore, private label competitors are generally able to sell their products at
lower prices because private label products typically have lower marketing costs than their branded counterparts. If our products fail
to compete successfully with other branded or private label offerings, demand for our products and our sales volumes could be negatively
impacted.
Additionally, due to high levels of competition,
certain of our key retailers may demand price concessions on our products or may become more resistant to price increases for our products.
Increased price competition and resistance to price increases have had, and may continue to have, a negative effect on our results of
operations.
**We may not be able to successfully implement our business strategy
for our brands on a timely basis or at all.**
We believe that our future success depends, in
part, on our ability to implement our strategy of leveraging our existing brands with our new products to maintain our market position
in our product categories; drive increased sales; acquire or establish new brands; and create strategic alliances including potential
joint ventures. Our ability to implement this strategy depends, among other things, on our ability to:
|
|
|
enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products; | |
|
|
|
| |
|
|
|
compete successfully in the product categories in which we choose to operate; | |
|
|
|
| |
|
|
|
introduce timely, new, cost-effective, and appealing products and innovate successfully within our existing product categories; | |
|
|
|
| |
|
|
|
develop and maintain consumer interest in and demand for our brands considering prevailing consumer tastes and preferences; | |
|
|
|
| |
|
|
|
increase our brand recognition and loyalty; | |
|
|
|
| |
|
|
|
enter into strategic arrangements with third-party suppliers to obtain necessary raw materials; | |
|
|
|
| |
|
|
|
identify suitable acquisition candidates or joint venture partners and accurately assess their value, growth potential, strengths, weaknesses, contingent and other liabilities, and potential profitability; | |
|
|
|
| |
|
|
|
negotiate acquisitions and joint ventures on terms acceptable to us; and | |
|
|
|
| |
|
|
|
integrate acquired brands, products, or joint ventures into our company and our business strategy. | |
| | 7 | | |
If we fail to execute these and other important
elements of our business strategy, our business and results of operations could be adversely affected.
One key element of our business strategy is to
introduce timely, new, cost-effective, and appealing products and to innovate successfully within our existing product categories. However,
consumer tastes and preferences change rapidly, and evolve over time. Factors that may affect consumer tastes and preferences include:
|
|
|
dietary trends and increased attention to nutritional values, such as the sugar, fat, protein, fiber or calorie content of different foods and beverages; | |
|
|
|
| |
|
|
|
concerns regarding the health effects of specific ingredients and nutrients, such as sugar, other sweeteners, dairy, soybeans, nuts, oils, vitamins, fiber and minerals; | |
|
|
|
| |
|
|
|
concerns regarding the public health consequences associated with obesity, particularly among young people; | |
|
|
|
| |
|
|
|
decisions by yogurt and non-dairy beverage manufacturers to mislabel their products as kefir in order to benefit from our branding and marketing efforts, a marketing ploy that can cause significant confusion and misunderstanding among consumers; and | |
|
|
|
| |
|
|
|
increased awareness of the environmental and social effects of food processing. | |
Our future investments may not produce the results
we expect when we expect them for a variety of reasons including those described herein. Our future product development and innovation
will be reliant on our ability to identify and develop potential new growth opportunities. This process is inherently risky and will result
in investments of substantial time and resources for which we may not achieve any return or value. Successful product development and
innovation is also affected by our ability to launch new or improved products successfully and on a timely and cost-effective basis.
We may have to pay cash, incur debt, or issue
equity, equity-linked, or debt securities to fund our business strategy, or may be unable to fund that strategy. Any of these events could
adversely affect our financial results and our business. We could experience similar effects if we invest resources in a strategy that
ultimately proves unsuccessful. If, due to a failure of our strategy or any other reason, consumer demand for our products declines, our
sales volumes, results of operations, and our business could be negatively affected, and we may not be able to create or sustain growth
or successfully implement our business strategy.
**Interruption of our supply chain could affect
our ability to manufacture or distribute products, could adversely affect our business and sales, and/or could increase our operating
costs and capital expenditures.**
We have several supply agreements with suppliers
and co-packers that require them to provide us with certain ingredients, packaging, other inputs, and finished goods. For certain items,
we rely on a single supplier or co-packer as our sole source for the item. Our suppliers and co-packers are subject to risk, including
labor disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply constraints, and general
economic and political conditions that could limit their ability to timely provide us with acceptable product. Although other sources
are available for these items, if our current sources are unable to fulfill our needs for any reason, we may not be able to timely engage
a replacement source that can timely provide us with acceptable products or on terms favorable to us or at all, which could disrupt our
ability to manufacture and distribute products. Such disruptions could have a material adverse effect on our business, consolidated financial
condition or results of operations.
| | 8 | | |
**Disruption of our manufacturing or distribution
chains or information technology systems, including disruption due to cybersecurity threats, could adversely affect our business.**
The success of our business depends, in part,
on maintaining a strong manufacturing platform and we rely primarily on internal production resources to fulfill our manufacturing needs.
Our ongoing initiatives to expand our manufacturing platform and our productive capacity could fail to achieve such objectives and, in
any case, could increase our operating costs beyond our expectations and could require significant additional capital expenditures. If
we cannot maintain sufficient production, warehousing, and distribution capacity, either internally or through third party agreements,
we may be unable to meet customer demand and/or our manufacturing, distribution, and warehousing costs may increase, which could negatively
affect our business.
Furthermore, damage or disruption to our manufacturing
or distribution capabilities due to weather, natural disaster, fire, environmental incident, terrorism, cybersecurity threats and other
security breaches, pandemic, strikes, the financial or operational instability of key distributors, warehousing, and transportation providers,
or other reasons could impair our ability to manufacture or distribute our products.
We rely on a limited number of production and
distribution facilities. A disruption in operations at any of these facilities or any other disruption in our supply chain relating to
common carriers, supply of raw materials and finished goods, or otherwise, whether as a result of casualty, natural disaster, power loss,
telecommunications failure, cybersecurity threat, terrorism, labor shortages, contractual disputes or other causes, could significantly
impair our ability to operate our business and adversely affect our relationship with our customers. Furthermore, our insurance coverage
may not be adequate to cover all related costs.
Our information technology systems are also critical
to the operation of our business and essential to our ability to successfully perform day-to-day operations. These systems include, without
limitation, networks, applications, and outsourced services in connection with the operation of our business. A failure of our information
technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies,
and sales losses, causing our business to suffer. In addition, our information technology systems may be vulnerable to damage or interruption
from circumstances beyond our control, including fire, natural disasters, systems failures, and cybersecurity threats. Cybersecurity threats
in particular are persistent, evolve quickly and include, without limitation, computer viruses, unauthorized attempts to access information,
denial of service attacks, and other electronic security breaches. Like our customers, suppliers, subcontractors and other third parties
with whom we do business generally, we expect that we will continue to be the subject of cybersecurity threats. In some cases, we must
rely on the safeguards put in place by the third parties with whom we do business to protect against security threats. We believe we have
implemented appropriate measures and controls and have invested in sufficient resources to appropriately identify and monitor these threats
and mitigate potential risks, including risks involving our customers and suppliers. However, there can be no assurance that any such
actions will be sufficient to prevent cybersecurity breaches, disruptions to mission critical systems, the unauthorized release of sensitive
information or corruption of data, or harm to facilities or personnel.
These threats and other events could disrupt our
operations, or the operations of our customers, suppliers, subcontractors and other third parties; could require significant management
attention and resources; could result in the loss of business, regulatory actions and potential liability; and could negatively impact
our reputation among our customers and the public. Any of these outcomes could have a negative impact on our financial condition, results
of operations, or liquidity.
**Our debt and financial obligations could
adversely affect our financial condition, our ability to obtain future financing, and our ability to operate our business.**
Although the Company does not have any indebtedness
outstanding as of December 31, 2025, the Company may incur indebtedness in the future. Outstanding debt obligations could adversely affect
our financial condition and limit our ability to successfully implement our business strategy. Furthermore, from time to time, we may
need additional financing to support our business and pursue our business strategy, including strategic acquisitions. Our ability to obtain
additional financing, if and when required, will depend on our operating performance, the condition of the capital markets, and other
factors. We cannot assure that additional financing will be available to us on favorable terms when required, or at all. If we raise additional
funds through the issuance of equity, equity-linked, or debt securities, those securities may have rights, preferences, or privileges
senior to those of our common stock, and, in the case of equity and equity-linked securities, our existing stockholders may experience
dilution.
| | 9 | | |
As of December 31, 2025, we had $0 outstanding
under the Revolving Credit Facility. Our loan agreement contains certain restrictions and requirements that among other things:
|
|
|
require us to maintain a quarterly fixed charge coverage ratio and minimum working capital ratio; | |
|
|
|
| |
|
|
|
limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes; | |
|
|
|
| |
|
|
|
limit our future ability to refinance our indebtedness on terms acceptable to us or at all; | |
|
|
|
| |
|
|
|
limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan; and | |
|
|
|
| |
|
|
|
impose on us financial and operational restrictions. | |
Our ability to meet our debt service obligations
will depend on our future performance, which will be affected by the other risk factors described in this Annual Report on Form 10-K.
If we do not generate enough cash flow to pay our debt service obligations, we may be required to refinance all or part of our existing
debt, sell our assets, borrow more money or raise equity. There is no guarantee that we will be able to take any of these actions on a
timely basis, on terms satisfactory to us, or at all.
Our Revolving Credit Facility bears interest at
variable rates. If market interest rates increase, it will increase our debt service requirements, which could adversely affect our cash
flow.
Our loan agreements also contain provisions that restrict our ability
to:
|
|
|
borrow money or guarantee debt; | |
|
|
|
| |
|
|
|
create liens; | |
|
|
|
| |
|
|
|
make specified types of investments and acquisitions; | |
|
|
|
| |
|
|
|
pay dividends on or redeem or repurchase stock; | |
|
|
|
| |
|
|
|
enter into new lines of business; | |
|
|
|
| |
|
|
|
enter into transactions with affiliates; and | |
|
|
|
| |
|
|
|
sell assets or merge with other companies. | |
These restrictions on the operation of our business
could harm our ability to execute on our business strategy by, among other things, limiting our ability to take advantage of financing,
merger and acquisition opportunities, and other corporate opportunities. Various risks, uncertainties, and events beyond our control could
affect our ability to comply with these covenants. Unless cured or waived, a default would permit lenders to accelerate the maturity of
the debt under the credit agreement and to foreclose upon the collateral securing the debt.
| | 10 | | |
**Loss of our key management or other personnel,
or an inability to attract such management and other personnel, could negatively impact our business.**
We depend on the skills, working relationships,
and continued services of key personnel, including our experienced senior management team. We also depend on our ability to attract and
retain qualified personnel to operate and expand our business. If we lose one or more members of our senior management team whose responsibilities
cannot otherwise be distributed among our other officers, or if we fail to attract talented new employees, our business and results of
operations could be negatively affected.
**Employee strikes and other labor-related
disruptions may adversely affect our operations.**
We have a union contract governing the terms and
conditions of employment for a significant portion of our manufacturing workforce in Illinois. Although we believe union relations since
the unions certification as the exclusive bargaining representative of this portion of our workforce have been amicable, there
is no assurance that this will continue in the future or that we will not be subject to future union organizing activity. There are potential
adverse effects of labor disputes with our own employees or by others who provide warehousing, transportation, and distribution, both
domestic and foreign, of our raw materials or other products. Strikes or work stoppages or other business interruptions could occur if
we are unable to renew collective bargaining agreements on satisfactory terms or enter into new agreements on satisfactory terms, which
could impair manufacturing and distribution of our products or result in a loss of sales, which could adversely impact our business, financial
condition, or results of operations. The terms and conditions of existing, renegotiated, or new collective bargaining agreements could
also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to
adapt to changing business needs or strategy.
**Our intellectual property rights are valuable, and any inability
to protect them could reduce the value of our products and brands.**
We consider our intellectual property rights,
particularly our trademarks, but also our copyrights, registered domain names, and proprietary trade secrets, technology, know-how, processes
and other proprietary rights to be a significant and valuable aspect of our business. We attempt to protect our intellectual property
rights by relying on a combination of trademark, copyright, trade dress, trade secret, and other intellectual property laws, and domain
name dispute resolution systems; as well as licensing agreements, third-party confidentiality, nondisclosure, and assignment agreements;
and by policing third-party misuses of our intellectual property. Our failure to obtain or maintain adequate protection of our intellectual
property rights, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual
property, may diminish our competitiveness and could materially harm our business.
We also face the risk of claims that we have infringed
third parties intellectual property rights. Any claims of intellectual property infringement, even those without merit, could be
expensive and time consuming to defend, cause us to cease making, licensing, or using products that incorporate the challenged intellectual
property, require us to redesign or rebrand our products or packaging, divert managements attention and resources, or require us
to enter into royalty or licensing agreements to obtain the right to use a third partys intellectual property. Any royalty or licensing
agreements, if required, may not be available to us on acceptable terms or at all. Additionally, a successful claim of infringement against
us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of
certain products, any of which could have a negative effect on our results of operations.
| | 11 | | |
**A substantial portion of our common stock
is held by members of the Smolyansky family, Danone and Divisadero Street Partners, L.P. (Divisadero), and they have the
ability to control the outcome of matters submitted for stockholder approval.**
Our five largest shareholders, Julie Smolyansky
(the Companys chief executive officer and the daughter of our founder), Edward Smolyansky (our former chief operations officer
and son of our founder), Ludmila Smolyansky (a former member of our Board and the widow of our founder), Danone North America PBC and
its affiliates (collectively, Danone) and Divisadero, beneficially owned approximately 18%, 20%, 6%, 23% and 9% of the Companys
outstanding common stock, respectively, as of December 31, 2025. Certain of these shareholders, together, could significantly influence
any matter requiring approval by our stockholders, including the election or removal of all of our directors, amendments to our articles
of incorporation and the approval or rejection of any merger, change of control, or other significant corporate transaction. It is unlikely
that any person interested in acquiring Lifeway will be able to do so without obtaining the consent of some combination of Julie Smolyansky,
Edward Smolyansky, Ludmila Smolyansky, Danone and Divisadero. The interests of the Smolyansky family members, Danone and Divisadero could
differ from those of other stockholders in ways that could be adverse to the interests of other stockholders. By exercising their influence,
such stockholders could cause Lifeway to take actions that are at odds with the investment goals of institutional, short-term, non-voting,
or other non-controlling investors, or that have a negative effect on our stock price. Additionally, concentration of ownership could
also harm the market price of our common stock if investors perceive disadvantages in owning stock in a company of which a substantial
portion of common stock is beneficially owned by a small number of stockholders.
**Our business could be adversely affected
as a result of proposals to acquire the Company or other actions taken by stockholders related to a possible acquisition of the Company.**
Proposals to acquire the Company that we may receive
in the future and any other actions by stockholders or others relating to a potential change of control transaction involving the Company
could interfere with our ability to execute our strategic plans, make it more difficult to attract and retain qualified executives and
employees, cause management distraction, require us to utilize more resources than anticipated towards review of strategic alternatives
and result in the loss of potential business opportunities, any of which could have a material negative impact on the Company. In addition,
our business and operations may be harmed to the extent that our customers or suppliers or others believe that we cannot effectively compete
in the marketplace without completing a transaction, or if there is customer, supplier or employee uncertainty surrounding the future
direction of our product offerings and our strategy. There can be no assurance that any such transaction will be completed now or in the
future.
Any proposals that we may receive in the future
or any actual or perceived actions by our stockholders or others relating to a potential transaction involving the Company may cause significant
fluctuations in our stock price based upon temporary or speculative market perceptions or other factors that do not necessarily reflect
the Companys underlying fundamentals and prospects.
**The actions of certain of our shareholders
could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and adversely impact our stock
price.**
We value constructive input from investors and
regularly engage in dialogue with our shareholders regarding strategy and performance. Our Board and management team are committed to
acting in the best interests of all of our shareholders.
We may be subject to shareholder activism in the
future, including nominations of candidates for election to our Board to replace current Board members or other shareholder proposals,
which could cause us to incur significant expense, hinder execution of our business strategy and adversely impact the market price of
Company common stock. Shareholder actions, including potential proxy contests, require significant time and attention by management and
our Board, potentially interfering with our ability to execute our strategic plan. Such shareholder action could give rise to perceived
uncertainties as to our future, adversely affect our relationships with our employees, customers or suppliers and make it more difficult
to attract and retain qualified personnel and business partners. These perceived uncertainties may also be exploited by our competitors
or other shareholders, which could result in lost business opportunities and make it more difficult to execute on our long-term strategic
plan. If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business,
financial condition and operating results would be adversely affected. We may be required to incur significant legal fees and other expenses
related to shareholder actions, and the attention of our management may be diverted by such actions. Any of these impacts could materially
and adversely affect our business, operating results and financial condition, and the market price of Company common stock could be subject
to significant fluctuation or otherwise be adversely affected. If individuals are elected or appointed to our Board with a specific agenda,
the ability of our Board to function effectively could be adversely affected, which could in turn adversely affect our ability to effectively
and timely implement our strategic plan and create additional value for our shareholders, and adversely affect our business, operating
results and financial condition.
| | 12 | | |
**Litigation regarding the Stockholders
Agreement may be protracted and costly.**
Danone has filed suit in the Circuit Court of Cook County, Law Division,
in part, to enforce the Stockholders Agreement. Pursuant to the Cooperation Agreement, the parties have jointly sought a stay of
the pending litigation relating. If such litigation is recommenced, it may be protracted and expensive, and under certain circumstances,
the Company may be required to reimburse Danone for its legal fees incurred in connection with such litigation.
**Our shareholder rights plan includes terms
and conditions that could discourage a takeover or other transaction that stockholders may consider favorable.**
On November 4, 2024, in response to Danones
original proposal and Danones substantial ownership position in the Company, our Board approved and adopted the Shareholder Rights
Agreement with Computershare Trust Company, N.A., as rights agent (the Rights Agreement), and declared a dividend of one
preferred share purchase right (each, a Right) for each outstanding share of Company common stock to stockholders of record
at the close of business on November 18, 2024. Each Right entitles its holder, subject to the terms of the Rights Agreement, to purchase
from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, no par value, of the Company at an exercise
price of $130.00 per Right, subject to adjustment. Rights will generally become exercisable only if any person or entity (or any persons
or entities acting as a group) acquires 20% or more of the outstanding shares of Company common stock (or, to the extent any person, entity
or group beneficially owned 20% or more of the outstanding shares of Company common stock as of immediately prior to the first public
announcement of the adoption of the Rights Agreement, such person, entity or group acquires any additional shares). If Rights become exercisable,
all holders of Rights (other than the person, entity or group triggering the Rights Agreement, whose Rights will become void and will
not be exercisable) will have the right to purchase from the Company for $130.00, subject to certain potential adjustments, shares of
Company common stock having a market value of twice that amount. The Rights Agreement was originally scheduled to expire on November 4,
2025. On October 29, 2025, the Company and the Rights Agent entered into the Amendment No. 1 to Shareholder Rights Agreement (the Amendment)
which extended the scheduled expiration of the Rights Agreement to October 29, 2026, unless earlier terminated or the Rights are redeemed
or exchanged by the Board. Additional information regarding the Rights Agreement and the Amendment are contained in the Companys
Current Report on Form 8-K filed with the SEC on November 5, 2024 and the Companys Current Report on Form 8-K filed with the SEC
on October 30, 2025, respectively.
The Rights Agreement will cause substantial dilution
to any person, entity or group that acquires beneficial ownership of 20% or more of the outstanding shares of Company common stock (or,
to the extent any person, entity or group beneficially owned 20% or more of the outstanding shares of Company common stock as of immediately
prior to the first public announcement of the adoption of the Rights Agreement, such person, entity or group acquires any additional shares).
As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to discourage any person, entity or group
from gaining a control or control-like position in the Company or engaging in other tactics, potentially disadvantaging the interests
of the Companys stockholders, without negotiating with the Board and without paying an appropriate control premium to all stockholders.
The Rights Agreement has similar provisions to those of other plans adopted by publicly-held companies in comparable circumstances. It
is intended to protect stockholders interests, including by providing the Board sufficient time to make informed judgments and
take actions that are in the best interests of all of the Companys stockholders and other stakeholders. Nevertheless, the Rights
Agreement may be considered to have certain anti-takeover effects, including potentially discouraging a third party from attempting to
obtain a substantial position in the Company common stock or seeking to obtain control of the Company and discouraging a takeover attempt
that stockholders may consider favorable or that could result in a premium over the market price of Company common stock. Even in the
absence of a takeover attempt, the Rights Agreement may adversely affect the prevailing market price of Company common stock if it is
viewed as discouraging takeover attempts in the future.
| | 13 | | |
**Adverse economic conditions in the United
States or any of the other countries in which we conduct significant business in the future could negatively affect our business, financial
condition and results of operations.**
Many of our products may be considered discretionary
items for consumers. Consumer spending on discretionary products is influenced by general economic conditions and the availability of
discretionary income. Adverse economic conditions in the United States, our primary market, or any of the other jurisdictions in which
we conduct significant business in the future, such as the current inflationary economic environment, rising interest rates, financial
distress caused by recent or potential bank failures and the associated banking crisis, an economic recession, depression or downturn,
a tightening of the credit markets, high energy prices or higher unemployment levels, may lead to decreased consumer spending, reduced
credit availability and a decline in consumer confidence and demand, each of which poses a risk to our business. For example, US and global
markets have in the past experienced volatility and disruption due to interest rate and inflation increases, as well as the continued
escalation of geopolitical tensions, including those as a result of the conflicts between Russia and Ukraine and in the Middle East. Although
our business has not yet been materially negatively impacted by such inflationary pressures, we cannot be certain that neither we nor
our consumers will be materially impacted by continued pressures.
The change in administration following the 2024
United States presidential election could further impact trade and tariff policies, and could also result in substantial changes to fiscal,
tax, or regulatory policies that may impact our business. These additional tariffs, as well as a governments adoption of buy
national policies or retaliation by another government against such tariffs or policies have introduced significant uncertainty
into the market and may affect the prices of and demand for our products, as well as the cost to acquire machinery and equipment from
international sources, which could have a material and adverse effect on our business, financial condition and results of operations.
Other significant events may impact economic conditions
and affect discretionary spending, including events such as catastrophic environmental disasters or global pandemics. As global economic
conditions continue to be volatile and economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable
and subject to reductions due to credit constraints and uncertainties about the future. A decrease in consumer spending or in retailer
and consumer confidence and demand for our products could have a significant negative impact on our net sales and profitability, including
our operating margins and return on invested capital. These economic conditions could cause some of our retail customers or suppliers
to experience cash flow or credit problems and impair their financial condition, which could disrupt our business and adversely affect
product orders, payment patterns and default rates and increase our bad debt expense.
**The increasing use of artificial intelligence
technologies by our competitors, customers, and suppliers could impact our competitive position.**
Artificial intelligence (AI) and
machine learning technologies are rapidly evolving and are increasingly being adopted across industries, including in manufacturing. Our
competitors, customers, and suppliers may adopt AI technologies that could affect our competitive position. If we fail to effectively
adopt and integrate AI technologies, or if our competitors do so more successfully, we could experience a decline in our competitive position.
We may also face risks from AI technologies used
by third parties, including vendors, customers, and service providers, over which we have limited control. Any material disruption to
our supply chain or competitive disadvantage resulting from third-party AI adoption could adversely affect our business, financial condition,
and results of operations.
**RISKS RELATED TO OUR INDUSTRY**
**The consolidation of our customers or the
loss of any of our largest customers could negatively impact our sales and results of operations.**
Customers, such as supermarkets and food distributors,
continue to consolidate. This consolidation has produced larger, more sophisticated organizations with increased negotiating and buying
power that are able to resist price increases or demand increased promotional programs, as well as operate with lower inventories, decrease
the number of brands that they carry and increase their emphasis on private label products, all of which could negatively impact our business.
The consolidation of retail customers also increases the risk that a significant adverse impact on their business could have a corresponding
material adverse impact on our business.
| | 14 | | |
Two of our customers together accounted for 24%
of our net sales in the fiscal year ended December 31, 2025. Where we enter into written agreements with our customers, they are generally
terminable after short notice periods by the customer. In addition, our customers sometimes award contracts based on competitive bidding,
which could result in lower profits for contracts we win and the loss of business for contracts we lose. The loss of any large customer,
the reduction of purchasing levels, or the cancellation of any business from a large customer for an extended period of time could negatively
affect our sales and results of operations.
We rely on sales made by or through our independent
distributors to customers. Distributors purchase directly for their own account for resale. The loss of, or business disruption at, one
or more of these distributors may harm our business. If we are required to obtain additional or alternative distribution agreements or
arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our inability
to enter into satisfactory distribution agreements may inhibit our ability to implement our business plan or to establish markets necessary
to expand the distribution of our products successfully.
**We are subject to the risk of product contamination
and product liability claims, which could harm our reputation, force us to recall products and incur substantial costs.**
The sale of food products for human consumption
involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, inadvertent mislabeling,
product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced
during the storage, processing, handling or transportation phases. We also may be subject to liability if our products or production processes
violate applicable laws or regulations, including environmental, health, and safety requirements, or in the event our products cause injury,
illness, or death.
Under certain circumstances, we may be required
to recall or withdraw products, suspend production of our products, or cease operations, which may lead to a material adverse effect on
our business. In addition, customers may cancel orders for such products as a result of such events. Even if a situation does not necessitate
a recall or market withdrawal, and even if we and each of our co-packers and suppliers comply in all material respects with all applicable
laws and regulations, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful
or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm, including
the risk of reputational harm being magnified and/or distorted through the rapid dissemination of information over the Internet, including
through news articles, blogs, chat rooms, and social media, could adversely affect our reputation with existing and potential customers
and consumers and our corporate and brand image. Moreover, claims or liabilities of this type might not be covered by our insurance or
by any rights of indemnity or contribution that we may have against others. We maintain product liability and product recall insurance
in amounts that we believe to be adequate. However, we cannot be sure that we will not incur claims or liabilities for which we are not
insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall could have a
material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
**We rely on independent certification for several of our products
and facilities.**
We rely on independent certification, such as
certifications of our products as organic, or gluten-free, to differentiate our products from others. The
loss of any independent certifications could adversely affect our market position as a probiotic-based product and natural, better
for you foods company, which could harm our business. We rely on independent SQF certification at some of our facilities, a certification
that some of our customers require us to maintain.
We must comply with the requirements of independent
organizations or certification authorities in order to label our products as certified. For example, we can lose our organic
certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production
run. In addition, all organic raw materials must be certified organic or organic compliant. Our products could lose their organic certifications
if our raw material suppliers lose their organic certifications. Similarly, we could lose our SQF certification if we do not meet the
requirements of the SQF Code. The loss of these certifications could cause us to lose customers that require Lifeway products and/or facilities
to carry some or all of them, which could negatively affect our sales and results of operations.
| | 15 | | |
**Increases in the cost of milk could reduce
our gross margin and profit.**
Conventional and organic milk, our primary raw
material, is an agricultural commodity that is subject to price fluctuations. Conventional milk prices were lower in fiscal 2025 than
the prior year, and there can be no assurance that such prices will remain at these levels in the future. The supply and price of milk
may be impacted by, among other things, weather, natural disasters, real or perceived supply shortages, lower dairy and crop yields, general
increases in farm inputs and costs of production, political and economic conditions, labor actions, government actions, and trade barriers.
Increases in the market price for milk or over-order premiums charged by producers may also impact our ability to enter into purchase
commitments at a fixed price. There can be no assurance that our purchasing practices will mitigate future price risk. As a result, increases
in the cost of milk could have an adverse impact on our profitability.
In addition, the dairy industry continues to experience
periodic imbalances between supply and demand for organic milk. Industry regulation and the costs of organic farming compared to costs
of conventional farming can impact the supply of organic milk in the market. Oversupply levels of organic milk can increase competitive
pressure on our products and pricing, while supply shortages can cause higher input costs and reduce our ability to deliver product to
our customers. Cost increases in raw materials and other inputs could cause our profits to decrease significantly compared to prior periods,
as we may be unable to increase our prices to offset the increased cost of these raw materials and other inputs. If we are unable to obtain
raw materials and other inputs for our products or offset any increased costs for such raw materials and inputs, our business could be
negatively affected.
**Reduced availability of raw materials and
other inputs, as well as increased costs for them, could adversely affect us.**
Our business depends heavily on raw materials
and other inputs in addition to conventional and organic raw milk, such as cultures, flavoring, packaging material, and other commodities.
Our raw materials are generally sourced from third-party suppliers, and we are not assured of continued supply, pricing, or exclusive
access to raw materials from any of these suppliers. For market conditions or competitive reasons, our customer pricing actions may lag
input cost changes, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur
them.
The organic ingredients we use in some of our
products are less plentiful and available from a fewer number of suppliers than their conventional counterparts. Competition with other
manufacturers in the procurement of organic product ingredients may increase in the future if consumer demand for organic products exceeds
the supply.
**Our business is subject to various food,
environmental, and health and safety laws and regulations, which may increase our compliance costs, subject us to liabilities, or otherwise
adversely affect our business.**
Our business operations are subject to numerous
requirements in the United States relating to food safety, production, and marketing, as well as the protection of the environment, and
health and safety matters. The food production and marketing industry is subject to a variety of federal, state, local, and foreign laws
and regulations, including food safety requirements related to the ingredients, manufacture, processing, storage, marketing, advertising,
labeling, and distribution of our products, as well as those related to worker health and workplace safety. Our activities, both in and
outside of the United States, are subject to extensive regulation. We are regulated by, among other federal and state authorities, the
FDA, USDA, the U.S. Federal Trade Commission (FTC), and the U.S. Departments of Commerce, and Labor, as well as by similar
authorities in the foreign countries in which we do business. Environmental laws including the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the National Organic Standards of the U.S.
Department of Agriculture, as well as similar state and local statutes and regulations in the United States and in each of the foreign
countries in which we do business apply to our business operations as well. These laws and regulations govern, among other things, air
emissions and the discharge of wastewater and other pollutants, the use of refrigerants, the handling and disposal of hazardous materials,
and the cleanup of contamination in the environment. In addition, the marketing and advertising of our products could make us the target
of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations, and we may be subject
to initiatives that limit or prohibit the marketing and advertising of our products to children.
| | 16 | | |
We are also subject to federal laws and regulations
relating to our organic products and production. For example, as required by the National Organic Program (NOP), we rely
on third parties to certify certain of our products and production locations as organic. Regulations and formal and informal positions
taken by the NOP pursuant to the Organic Foods Production Act of 1990, which created the NOP, are subject to continued review and scrutiny.
Changes in these laws or regulations or the introduction
of new laws or regulations could increase our compliance costs, increase other costs of doing business for us, our customers, or our suppliers,
or restrict our actions, which could adversely affect our results of operations. In some cases, new laws and regulations or other federal
and state regulatory initiatives could interrupt distribution of our products or force changes in our production processes and our products.
Governmental regulations also affect taxes and levies, healthcare costs, energy usage, immigration, and other labor issues, all of which
may have a direct or indirect effect on our business or those of our customers or suppliers. These costs could negatively affect our results
of operations and financial condition. Further, if we are found to be in violation of applicable laws and regulations in these areas,
we could be subject to civil remedies, including third-party claims for property damage or personal injury, fines, injunctions, recalls,
cleanup costs, and other civil sanctions, as well as potential criminal sanctions, any of which could have a material adverse effect on
our business.
**ITEM 1B.UNRESOLVED
STAFF COMMENTS**
None.
**ITEM 1C.CYBERSECURITY**
**Risk Management and
Strategy**
Our cybersecurity program is designed to assess,
identify, and manage material risks from cybersecurity threats, and protect and preserve the confidentiality, integrity, and continued
availability of all information owned by, or in the care of, the Company. Cybersecurity risks are incorporated into the Companys
broader risk management process to evaluate and address cybersecurity risks in alignment with our business objectives and operational
needs. As part of the cybersecurity program, we utilize a combination of internal technology, which we continue to analyze and update
as necessary, and a third-party managed security service provider and their platform to monitor, evaluate and respond to cyber activity.
We monitor and assess the information gathered by our security tools and services to identify gaps, exposures, or weaknesses in our overall
security approach, and make the necessary changes to address such findings.
*Impact of Cybersecurity Risks and Threats*
We are not aware of having experienced any risks
from cybersecurity threats or incidents through the date of this Report that have materially affected the Company, its business strategy,
results of operation or financial condition or are reasonably likely to have such an effect over the long term. This does not guarantee
that future incidents or threats will not have a material impact or that we are not currently the subject of an undetected incident or
threat that may have such an impact.
Additional information on cybersecurity risk we
face is discussed in Part I, Item A Risk Factors, which should be read in conjunction with the foregoing information.
**Governance**
*Board of Directors*
Our Board of Directors oversees our risk management
process, and cybersecurity risks are monitored as a part of the broader program. Our Board has delegated the primary responsibility to
oversee risks from cybersecurity threats to the Audit and Corporate Governance Committee. The Chief Financial Officer and our Director
of IT present updates to the Audit and Corporate Governance Committee and the full Board of Directors, on, among other things, the Companys
cyber risks and threats, the status of projects to strengthen the Companys information security systems, and the emerging threat
landscape.
| | 17 | | |
*Management*
Our Chief Financial Officer is responsible for
management oversight of our information security program and controls, which includes cybersecurity risk management. Our Director of IT
is responsible for the development, operation, and maintenance of our information security program and controls. The Director of IT has
extensive experience in the information technology field, and cybersecurity knowledge and skills gained through relevant experiences.
The Director and Chief Financial Officer regularly review potential risks and measures implemented by the Company to identify and mitigate
cyber security risks.
**ITEM 2.PROPERTIES**
We operate the following facilities:
|
Location |
|
Owned / Leased |
|
Principal Use | |
|
Morton Grove, Illinois |
|
Owned |
|
Production facility, principal executive offices | |
|
Waukesha, Wisconsin |
|
Owned |
|
Production facility, warehousing and distribution, administrative offices | |
|
Niles, Illinois |
|
Owned |
|
Warehousing and distribution, administrative offices | |
|
Philadelphia, Pennsylvania |
|
Owned |
|
Production facility, warehousing and distribution, administrative offices | |
Lifeway believes that its facilities are adequate
for its current needs and that suitable additional space will be available on commercially acceptable terms as required. We believe that
we have adequate insurance coverage for all our properties.
**ITEM 3.****LEGAL PROCEEDINGS**
From time to time, we are engaged in litigation
matters arising in the ordinary course of business. While the results of litigation and claims cannot be predicted with certainty, Lifeway
believes that no such matter is reasonably likely to have a material adverse effect on our financial position or results of operations.
**ITEM 4.MINE
SAFETY DISCLOSURES**
Not applicable.
| | 18 | | |
**PART II**
**ITEM 5.MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**
****
The Companys common stock is listed on
the Nasdaq Global Market under the symbol LWAY. Trading commenced on March 29, 1988. As of March 7, 2026, there were 49
shareholders of record of our common stock.
****
**Dividend Policy**
Lifeway does not routinely declare and pay dividends.
From time to time however our Board of Directors may declare and pay dividends depending on our operating cash flow, financial condition,
capital requirements and such other factors as the Board of Directors may deem relevant.
There were no dividends declared or paid in fiscal
2025 or 2024.
**Purchases of Equity Securities by the Issuer**
None.
**ITEM 6.[RESERVED]**
**ITEM 7.MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
The following discussion and analysis of the financial
condition and results of operations as of and for the years ended December 31, 2025 and 2024 should be read in conjunction with the audited
consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. In
addition to historical information, the following discussion contains certain forward-looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations
and intentions. These statements may be identified by the use of words such as may, could, believe,
future, depend, expect, will, result, can, remain,
assurance, subject to, require, limit, impose, guarantee,
restrict, continue, become, predict, likely, opportunities,
effect, change, and estimate, and similar terms or terminology, or the negative of such terms
or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable
assumptions within the bounds of our knowledge of our business, our actual results could differ materially from those discussed in these
statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the Risk Factors
section in Part I, Item 1A. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information
becomes available or other events occur in the future.
| | 19 | | |
**Recent Developments**
****
****
*Cooperation Agreement*
On September 30, 2025, the Company and Danone entered into a Cooperation
Agreement (the Cooperation Agreement) pursuant to which, among other things:
|
| The Company refreshed its Board, electing four new directors (the New Independent Directors)
selected in accordance with the Cooperation Agreement who are (1) independent under Nasdaq rules and (2) unaffiliated with Julie Smolyansky,
the Companys Chief Executive Officer, her spouse, Edward Smolyansky, Ludmila Smolyansky (the foregoing collectively, the
Smolyansky Family), Danone, the Company and any director of the Company. Additionally, Jody Levy and Perfecto Sanchez, former
members of the Board, resigned and Pol Sikar was not nominated to stand for re-election at the Companys 2025 annual meeting of
shareholders. Additional changes to the Board during the quarter ended December 31, 2025, include the appointment of Dorri McWhorter as
Chairperson of the Board, resignation of Ms. McWhorter from the Compensation Committee of the Board, the appointment of Andee Harris
as a member of the Audit and Corporate Governance Committee of the Board and the appointment of Susan Hultquist and Kirk Chartier to the
Compensation Committee of the Board. | |
|
| The Company and Danone jointly stayed the pending litigation relating to the Stockholders Agreement,
dated October 1, 1999, by and among the Company, Danone Foods, Inc., Michael Smolyansky, Ludmila Smolyansky, Julie Smolyansky and Edward
Smolyansky (as amended, the Stockholders Agreement). | |
|
| Danone waived certain of its right under that certain Stockholders Agreement,
including its right to Board representation, and agreed that its consent will not be required for the Company to issue bona fide equity-based
compensation to members of management (excluding Julie Smolyansky, her immediate family and their affiliates) so long as the grants are
on market terms and are approved by the Companys Compensation Committee (a majority of which must be New Independent Directors); | |
|
| The Company agreed to hold its 2026 annual meeting of shareholders on or before June 30, 2026 and to include
as nominees for election a slate of seven individuals (unless the size of the Board is increased by adding any additional directors through
the process required in the Cooperation Agreement) that includes the New Independent Directors and that excludes Jason Scher. Danone has
agreed to vote all of the shares of Common Stock it beneficially owns in favor of this slate if nominated in accordance with the Cooperation
Agreement. | |
|
| Danone agreed that if, at any time prior to June 30, 2026, Edward Smolyansky or Ludmila Smolyansky or
any person with whom Edward Smolyansky or Ludmila Smolyansky has formed a group (as such term is defined under the Exchange Act, and the
rules and regulations promulgated thereunder) calls a special meeting of the Companys shareholders or commences a consent solicitation,
Danone will vote or consent, as applicable, with respect to all shares of Common Stock it beneficially owns in accordance with the Boards
recommendations on all matters relating to Board composition and, with certain exceptions, the Companys organizational documents. | |
|
| The Company filed a shelf registration statement with the SEC covering the resale of all
shares of Common Stock beneficially owned by Danone and its affiliates, which registration statement was declared effective by the SEC.
The Cooperation Agreement provides that Danone may not request more than (a) two underwritten offerings not involving any road
show, which is commonly known as a block trade or (b) one underwritten offering that is not a block trade under the
registration statement of which this prospectus forms a part in any 60-day period. The Company also agreed to use reasonable best efforts
to take such further action as Danone may reasonably request, all to the extent required from time to time, to enable Danone to sell shares
of Registrable Stock (as defined in the Stockholders Agreement) without registration under the Securities Act within the safe harbor
provided by Rule 144 thereunder. | |
|
| Both the Company and Danone, on behalf of themselves and their respective affiliates and representatives,
agreed to mutual non-disparagement provisions, effective until two years after Danone and its affiliates cease to beneficially own any
shares of Common Stock. | |
| | 20 | | |
All of Danones obligations (other than
the non-disparagement covenants) cease to apply upon certain triggering events, including breaches of the Cooperation Agreement
by the Company or certain statements by the Company, Julie Smolyansky or any of their respective affiliates or representatives challenging
the validity of the Cooperation Agreement or the Stockholders Agreement. Additionally, if Julie Smolyansky is deemed to have breached
the Cooperation Agreement while she is Chief Executive Officer of the Company, such breach will be a triggering event under the Cooperation
Agreement unless the Board terminates Julie Smolyansky for cause as a result of such breach within a specified time period.
All of the Companys obligations under the Stockholders
Agreement (other than those relating to Danones registration rights and rights with respect to inspection of our books and records)
cease to apply after Danone and its affiliates no longer collectively beneficially own at least 761,438 (as adjusted for any reverse stock
split or similar recapitalization). The Companys obligations under the Cooperation Agreement (other than the non-disparagement
covenants) cease to apply after Danone and its affiliates cease to beneficially own any shares of Common Stock.
****
*Debt Refinancing*
**
On February 5, 2025,
the Company entered into the Fifth Modification to the Amended and Restated Loan and Security Agreement (the Fifth Modification)
with its current lender. The Fifth Modification, among other things, (i) increased the commitment for revolving loans under the Credit
Agreement from $5,000 to $25,000, with interest payable at either the lender Base Rate (the Prime Rate minus 1.00%) or the SOFR plus 1.75%,
(ii) extended the termination date of the Credit Agreement to February 5, 2028 and (iii) replaced the quarterly minimum working capital
financial covenant with a financial covenant to maintain a maximum cash flow leverage ratio of no greater than 2.00 to 1.00 for each fiscal
quarter commencing with the fiscal quarter ending March 31, 2025. The remaining material terms and conditions of the Credit Agreement
remain substantially unchanged. The Company had no outstanding borrowings at the time of entry into the Fifth Modification.
On December 29, 2025,
the Company entered into the Sixth Modification to the Amended and Restated Loan and Security Agreement (the Sixth Modification)
with its current lender. The Sixth Modification, provides for, among other things, (i) modification of the Fixed Charge Coverage Ratio
only for the period from December 31, 2025 through June 30, 2027 to exclude the Waukesha, WI unfinanced capital expenditures attributable
to plant optimization and manufacturing capacity expansion as approved by Lender, up to $50,000 (ii) modification of the Change of Control
definition to reflect that specified changes to the Companys board of directors do not constitute a Change of Control and (iii)
extended the termination date of the Credit Agreement to February 5, 2029. The remaining material terms and conditions of the Credit Agreement
remain substantially unchanged. The Company had no outstanding borrowings at the time of entry into the Sixth Modification.
*Organic Milk Supply*
To increase the supply of organic milk available
to the Company for the manufacture of finished goods, the Company is purchasing mature dairy cows (or the herd) which will
be managed by a third-party dairy facility (the Dairy), and entered into a supply and purchase agreement (SPA)
with a COOP (the COOP) to purchase the milk produced by the herd. The Company purchased 799 mature dairy cows during 2025
for $2,870.
As amended in September 2025, the Company entered
into a sixty month agreement (the Herd Agreement) with a third-party Dairy who will manage care of the herd, milk the herd,
and sell the milk to the COOP under the SPA, with a right to purchase the herd at the end of the agreement period for a nominal amount.
Beginning December 1, 2025, the Dairy will make monthly payments to Lifeway over the five year agreement period in exchange for its right
to possess and control the herd, including the right to sell milk produced by the herd to the COOP.
The herd agreement is treated as a sale of non-financial
assets to a party that is not a customer. The Company will recognize a sale upon the delivery of each herd to the Dairy, with interest
income recognized over the agreement period. The Company has recorded $635 in prepaid and other current assets and $2,235 in other assets
as of December 31, 2025 related to the herd agreement with no recorded gain or loss on sale. The Company records the purchases of dairy
cows as investing outflows, principal payments received as investing inflows and interest income as operating inflows on the statement
of cash flows.
**
**
**
**
| | 21 | | |
**
****
**Trends and Uncertainties**
****
*Current Macroeconomic Environment*
We continue to monitor
macroeconomic conditions and global trade developments, including inflation in key input costs, recently implemented tariffs, and the
potential for additional or modified tariffs or export controls. These evolving global trade policies may contribute to increased supply
chain complexity, commodity cost volatility, and broader economic uncertainty. We do not currently expect these conditions to have
a material adverse impact on our operations or financial results. We are primarily a United States based manufacturer sourcing a vast
majority of our inputs domestically. In addition, all our domestically produced products are sold to customers in the United States. We
expect the accelerating consumer focus on health and wellness to drive increased demand for our products.
**Results of Operations**
****
**Comparison of Year Ended December 31, 2025
to Year Ended December 31, 2024 (in thousands)**
The following table presents certain information
concerning our financial results, including information presented as a percentage of consolidated net sales:
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
|
| |
$ | | |
% | | |
$ | | |
% | | |
|
| |
| | |
| | |
| | |
| | |
|
Net sales | |
| 212,496 | | |
| 100.0% | | |
| 186,820 | | |
| 100% | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Cost of goods sold | |
| 150,850 | | |
| 71.0% | | |
| 135,400 | | |
| 72.5% | | |
|
Depreciation expense | |
| 3,440 | | |
| 1.6% | | |
| 2,846 | | |
| 1.5% | | |
|
Total cost of goods sold | |
| 154,290 | | |
| 72.6% | | |
| 138,246 | | |
| 74.0% | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Gross profit | |
| 58,206 | | |
| 27.4% | | |
| 48,574 | | |
| 26.0% | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Selling expense | |
| 19,891 | | |
| 9.4% | | |
| 14,743 | | |
| 7.9% | | |
|
General & administrative expense | |
| 21,603 | | |
| 10.2% | | |
| 19,439 | | |
| 10.4% | | |
|
Amortization expense | |
| 540 | | |
| 0.3% | | |
| 540 | | |
| 0.3% | | |
|
Total operating expenses | |
| 42,034 | | |
| 19.9% | | |
| 34,722 | | |
| 18.6% | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Income from operations | |
| 16,172 | | |
| 7.5% | | |
| 13,852 | | |
| 7.4% | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Other income (expense): | |
| | | |
| | | |
| | | |
| | | |
|
Interest expense | |
| (77 | ) | |
| (0.0% | ) | |
| (105 | ) | |
| (0.1% | ) | |
|
Fair Value loss on investment | |
| (95 | ) | |
| (0.0% | ) | |
| | | |
| 0.0% | | |
|
Gain on sale of investment | |
| 3,407 | | |
| 1.6% | | |
| | | |
| 0.0% | | |
|
Gain (loss) on sale of equipment | |
| | | |
| (0.0% | ) | |
| (8 | ) | |
| 0.0% | | |
|
Other income (expense), net | |
| 279 | | |
| 0.1% | | |
| 230 | | |
| 0.1% | | |
|
Total other income (expense) | |
| 3,514 | | |
| 1.7% | | |
| 117 | | |
| 0.0% | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Income before provision for income taxes | |
| 19,686 | | |
| 9.2% | | |
| 13,969 | | |
| 7.4% | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Provision for income taxes | |
| 5,827 | | |
| 2.7% | | |
| 4,944 | | |
| 2.6% | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Net income | |
| 13,859 | | |
| 6.5% | | |
| 9,025 | | |
| 4.8% | | |
| | 22 | | |
**Net Sales**
Net sales were $212,496 for the year ended December
31, 2025, an increase of $25,676 or 13.7% versus prior year. The net sales increase was primarily driven by higher volumes of our branded
drinkable kefir. The fiscal year 2024 benefited from a customer relationship we strategically exited in the third quarter of 2024, and
a significant distributor shifting from Lifeway delivered to customer pick-up in late 2024, which resulted in lower net sales and lower
freight out expense. On a comparable basis adjusting for these two factors, the Companys net sales increased approximately 19%
in the fiscal year 2025 compared to fiscal year 2024.
**Gross Profit**
Gross profit as a percentage of net sales increased
to 27.4% during the year ended December 31, 2025 from 26.0% during the same period in 2024. The increase versus the prior year was driven
by higher volumes of our branded products, which provided manufacturing efficiencies and the favorable impact of conventional milk pricing.
**Selling Expenses**
Selling expenses increased by $5,148 to $19,891
during the year ended December 31, 2025 from $14,473 during the same period in 2024. Selling expenses as a percentage of net sales increased
to 9.4% during the year ended December 31, 2025 from 7.9% during the same period in 2024. The increase is primarily a result of our continued
investments in marketing activities to drive brand awareness and sales volumes.
**General and Administrative Expenses**
General and administrative expenses increased
$2,164 to $21,603 during the year ended December 31, 2025 from $19,439 during the same period in 2024. The Company incurred approximately
$6,200 of legal and professional fees associated with Danones unsolicited purchase proposal and non-routine stockholder action
during 2025. During 2024, the Company incurred approximately $4,500 of legal and professional fees associated with Danones unsolicited
purchase proposal, non-routine stockholder action, and the CEO retention bonus awarded in the fourth quarter of 2024.
**Provision for Income Taxes**
The provision for income taxes includes federal,
state and local income taxes. The provision for income taxes was $5,827 and $4,944 during the year ended December 31, 2025, and 2024,
respectively.
The effective income tax rate was 29.6% in 2025 compared to 35.4% in
2024. The statutory federal and state tax rates remained consistent from 2024 to 2025. The Company consistently reflects non-deductible
items such as non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards, and
separate state tax rates from year to year. Although similar items were reflected in 2025, the percentage effect is different primarily
due to the decrease in certain non-deductible compensation in 2025 compared to 2024.
The Companys effective tax rate may change
from period to period based on recurring and non-recurring factors including the relative mix of pre-tax earnings (or losses), the underlying
income tax rates applicable to various state and local taxing jurisdictions, enacted tax legislation, the impact of non-deductible items,
changes in valuation allowances, settlement of tax audits, and the expiration of the statute of limitations in relation to unrecognized
tax benefits. The Company records discrete income tax items such as enacted tax rate changes in the period in which they occur.
Section 162(m) of the Internal Revenue Code (the
Code) limits the deductibility of compensation paid to certain of our executives to the extent their total compensation
exceeds $1 million in any taxable year.
| | 23 | | |
On July 4, 2025, the One Big Beautiful Bill Act
("OBBBA") was signed into law, which includes a broad range of tax reform provisions that may affect the Companys financial
results. The OBBBA changes to corporate taxation include, but are not limited to, 100% bonus depreciation for purchases of qualified property,
an elective deduction for domestic research and experimental expenditures, changes to the definition of adjusted taxable income for purposes
of determining the interest deduction limitation under Internal Revenue Code Section 163(j), and a more favorable tax rate on Foreign-Derived
Deduction Eligible Income and income from non-U.S. subsidiaries (Net CFC Tested Income). The OBBBA does not have a material impact on
our estimated annual effective tax rate or cash flows in the current fiscal year.
Income taxes are discussed
in Note 10 in the Notes to the Consolidated Financial Statements.
**Liquidity and Capital Resources**
Management assesses the Companys
liquidity in terms of its ability to generate cash to fund its operating, investing, and financing activities. The Company remains in
a strong financial position, and believes that its cash flow from operations, revolving credit facility, and cash and cash equivalents
will continue to provide sufficient liquidity for its working capital needs, capital resource requirements, and growth initiatives and
to ensure the continuation of the Company as a going concern.
If additional borrowings are needed,
$25,000 was available under the Revolving Credit Facility as of December 31, 2025 (see Note 7, Debt). We are in compliance with the terms
of the Credit Agreement and expect to meet foreseeable financial requirements. The success of our business and financing strategies will
continue to provide us with the financial flexibility to take advantage of various opportunities as they arise. To date, we have been
successful in generating cash and obtaining financing as needed. However, if a serious economic or credit market crisis ensues, it could
have a negative effect on our liquidity, results of operations and financial condition.
The Companys most significant
ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing
and distribution, trade and promotions, advertising and marketing, and tax liabilities) as well as expenditures for property, plant and
equipment.
Long-term cash
requirements primarily relate to funding long-term debt repayments (see Note 7, Debt) and deferred income taxes (see Note 10, Income Taxes).
**Cash Flow**
The following table is derived from our Consolidated
Statement of Cash Flows:
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Net Cash Flows Provided By (Used In): | |
| | | |
| | | |
|
Operating activities | |
$ | 10,948 | | |
$ | 12,962 | | |
|
Investing activities | |
$ | (22,040 | ) | |
$ | (6,682 | ) | |
|
Financing activities | |
$ | (65 | ) | |
$ | (2,750 | ) | |
*Operating Activities*
**
Net cash provided by operating activities was
$10,948 in 2025 compared to $12,962 in 2024. The decrease was primarily due to the change in working capital.
**
**
**
**
**
| | 24 | | |
**
*Investing Activities*
**
Net cash used in investing activities was $22,040
in 2025 compared to $6,682 in 2024. The increase in cash used reflects our planned capital spending increase during 2025 compared to 2024.
The increase in purchases of property and equipment
is primarily driven by the expansion of manufacturing capacity and modernization of our Waukesha, Wisconsin facility. This project will
enable Lifeway to meet increasing sales demand and will double the facilitys manufacturing capacity and improve packaging efficiency,
as well as other operational improvements. The Company currently estimates investing approximately $48,000. As of December 31, 2025, $21,547
is included on the consolidated balance sheet in property, plant and equipment, with cumulative cash paid of $20,926. The project will
be funded primarily through cash on-hand and cash flow from operations, with further requirements available under the Companys
revolving credit facility. The project is expected to be completed during the fourth fiscal quarter of 2026.
The increase in cash used was partially offset
by cash proceeds of $5,152 received in the first quarter and $54 in the second quarter of 2025 from the sale of our Simple Mills investment.
Our capital spending is focused in three core
areas: growth, cost reduction, and facility improvements. Growth capital spending supports capacity expansion and new product innovation
and enhancements. Cost reduction and facility improvements support manufacturing efficiency, safety, and productivity. We continue to
make capital expenditures primarily to modernize manufacturing facilities and support productivity initiatives.
**
*Financing Activities*
Net cash used in financing activities was $65
in 2025 compared to $2,750 in 2024. The cash used in 2025 represents credit agreement amendment expenses incurred during the first quarter.
The cash used in 2024 represented the quarterly principal payments under the term loan, which was paid in full during the second quarter
of 2024.
**Debt Obligations**
The Company is party to an Amended and Restated
Loan and Security Agreement (as amended and modified from time to time, the Credit Agreement) with its existing lender and
certain of its subsidiaries. The Credit Agreement provides for, among other things, a revolving line of credit up to a maximum of $25,000
(the Revolving Credit Facility) and an incremental facility not to exceed $5,000. The termination date of the revolving
credit facility is February 5, 2029, unless earlier terminated.
As of December 31, 2025, the Company had $0 outstanding
under the Revolving Credit Facility. The Company had $25,000 available for future borrowings under the Revolving Credit Facility as of
December 31, 2025.
All outstanding amounts under the revolving line
of credit bear interest at the Secured Overnight Financing Rate (SOFR), plus 1.75%. Interest is payable monthly in arrears.
Lifeway is also required to pay a quarterly unused line fee of 0.25% on the Revolving Credit Facility, and in conjunction with the issuance
of any letters of credit, a letter of credit fee of 1.00%.
The Credit Agreement includes customary representations,
warranties, and covenants, including financial covenants requiring the Company to maintain a fixed charge coverage ratio of no less than
1.25 to 1.00, and a maximum cash flow leverage ratio of no greater than 2.00 to 1.00 for each fiscal quarter commencing with the fiscal
quarter ending March 31, 2025.
The Company is in compliance with all applicable
financial debt covenants as of December 31, 2025. See Note 7 to our Consolidated Financial Statements for additional information regarding
our indebtedness and related agreements.
| | 25 | | |
**Off-Balance Sheet Arrangements**
****
We do not have any off-balance sheet financing
arrangements.
**Critical Accounting Estimates**
****
Critical accounting estimates are defined as those
most important to the portrayal of a companys financial condition and results, and require the most difficult, subjective, or complex
judgments. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP with no need for
the application of our judgement. In certain circumstances, the preparation of our Consolidated Financial Statements in conformity with
U.S. GAAP requires us to use our judgment to make certain estimates and assumptions. These estimates affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported
amounts of net sales and expenses during the reporting period. We believe in the quality and reasonableness of our critical accounting
estimates; however, materially different amounts might be reported under different conditions or using assumptions, estimates or making
judgments different from those that we have applied. Management has discussed the development and selection of these critical accounting
policies, as well as our significant accounting policies (see Note 2 to the Consolidated Financial Statements), with the Audit and Corporate
Governance Committee of our Board of Directors. We have identified the policies described below as our critical accounting policies that
require us to make subjective or complex judgments.
*Goodwill impairment*
**
Goodwill totaled $11,704 as of December 31, 2025.
Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired.
Goodwill is not amortized.
The Company has one reporting unit within its
single reportable segment. We review and evaluate our goodwill for potential impairment at a minimum annually, as of December 31, or more
frequently if circumstances indicate that impairment is possible. We completed our annual goodwill impairment analysis as of December
31, 2025. Our assessment did not result in impairment.
In testing goodwill for impairment, the Company
has the option to perform a qualitative test (also known as Step 0) or a quantitative test (Step 1). Under
the Step 0 test, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of
the reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry
and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific
events. If after assessing these qualitative factors, the Company determines it is more-likely-than-not that the fair value
of the reporting unit is less than the carrying value, then performing the Step 1 quantitative test is necessary.
Step 1 of the quantitative test requires comparison
of the fair value of the Companys one reporting unit to the carrying value. If the carrying value of the reporting unit is less
than the fair value, no impairment exists. Otherwise, the Company would recognize an impairment charge for the amount by which the carrying
amount of the reporting unit exceeds its fair value up to the amount of goodwill allocated to the reporting unit.
Under a Step 1 quantitative test, we estimate
the fair value of our one reporting unit using a combination of the fair values derived from both the income approach and the market approach.
Under the income approach, the Company uses a discounted cash flow methodology which requires management to make significant estimates
and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth
rates, and long-term discount rates, among others. The discount rate used to determine the present value of future cash flows is based
on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty
related to the businesss ability to execute on the projected cash flows. For the market approach, the Company uses the guideline
public company method. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable
publicly traded companies with similar operating and investment characteristics. The Company also reconciles the fair value of its reporting
unit to its current market capitalization, allowing for a reasonable control premium.
| | 26 | | |
*Sales discounts & allowance*
**
We offer various trade promotions and sales incentive
programs to customers and consumers. From time to time, we grant certain sales discounts to customers which are classified as a reduction
in sales. The measurement and recognition of discounts and allowances involve the use of judgment, and our estimates are made based on
historical experience and specific customer program accruals. Differences between estimated and actual discount and allowance costs are
normally not material and are recognized in earnings in the period such differences are determined. The process for analyzing trade promotion
programs could impact our results of operations and trade spending accruals depending on how actual results of the programs compare to
original estimates. As of December 31, 2025, we had $1,730 of accrued discounts and allowances.
*Share-based compensation*
Certain members of management and non-employee
directors receive various forms of share-based payment awards, and we recognize compensation expense for these awards based on their grant
date fair values. The grant date fair value of Restricted Stock Units (RSUs) and Performance Share Unit (PSUs)
awards is equal to the Companys closing stock price on the grant date. The Company granted RSU and PSU awards during 2025 to employees.
The PSU awards are contingent upon the achievement of strategic milestones during a three-year measurement period. The expense recognition
of PSU awards therefore requires management to make judgements and estimates at the end of each reporting period as to the cumulative
three-year milestone achievements. Changes in managements estimate of the three-year cumulative milestone achievements are recognized
as change in management estimate in a subsequent period. We do not estimate forfeitures in measuring the grant date fair value of RSUs
and PSUs but rather account for forfeitures as they occur. Forfeitures have historically been immaterial. See Note 11 to our consolidated
financial statements for further detail.
*Income taxes*
We pay income taxes based on tax statutes, regulations,
and case law of the various jurisdictions in which we operate. At any given time, multiple tax years are subject to audit by the various
taxing authorities. Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are
recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for
the years in which the differences are expected to reverse. The assumptions about future taxable income require the use of significant
judgment and are consistent with the plans and estimates we are using to manage our underlying businesses.
We recognize an income tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based
on the technical merits of the position. The income tax benefit recognized in our financial statements from such a position is measured
based on the largest estimated benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. These judgments
and estimates made at a point in time may change based on the outcome of tax audits and changes to, or further interpretations of, regulations.
If such changes take place, there is a risk that our tax rate may increase or decrease in any period, which would impact our earnings.
Future business results may affect deferred tax liabilities or the valuation of deferred tax assets over time.
**Recent Accounting Pronouncements.**
See Note 2, Summary of Significant Accounting
Policies, in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information
regarding recent accounting pronouncements.
| | 27 | | |
**ITEM 7A.QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
****
Not applicable.
**ITEM 8.FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA**
****
|
Report of Independent Registered Accounting Firm (PCAOB ID 248) |
F-1 | |
|
Consolidated Balance Sheets as of December 31, 2025 and 2024 |
F-2 | |
|
Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 |
F-3 | |
|
Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2025 and 2024 |
F-4 | |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 |
F-5 | |
|
Notes to Consolidated Financial Statements |
F-6 | |
****
| | 28 | | |
****
**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM**
Board of Directors and Stockholders
Lifeway Foods, Inc.
****
**Opinion on the financial statements**
We have audited the accompanying consolidated
balance sheets of Lifeway Foods, Inc. (an Illinois corporation) and subsidiaries (the Company) as of December 31, 2025 and
2024, the related consolidated statements of operations, stockholders equity, and cash flows for each of the two years in the period
ended December 31, 2025, and the related notes (collectively referred to as the financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025
and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity
with accounting principles generally accepted in the United States of America.
**Basis for opinion**
These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
****
**Critical audit matters**
The critical audit matters are matters arising
from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Companys auditor since 2022.
Chicago, Illinois
March 17, 2026
****
| | F-1 | | |
****
**LIFEWAY FOODS, INC. AND SUBSIDIARIES**
**Consolidated Balance Sheets**
**December 31, 2025 and 2024**
**(In thousands)**
|
| |
| | |
| | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Current assets | |
| | | |
| | | |
|
Cash and cash equivalents | |
$ | 5,571 | | |
$ | 16,728 | | |
|
Accounts receivable, net of allowance for credit losses and discounts & allowances of $1,730 and $1,590 at December 31, 2025 and 2024, respectively | |
| 16,643 | | |
| 15,424 | | |
|
Inventories, net | |
| 11,890 | | |
| 8,678 | | |
|
Prepaid expenses and other current assets | |
| 2,627 | | |
| 2,144 | | |
|
Refundable income taxes | |
| 325 | | |
| 631 | | |
|
Total current assets | |
| 37,056 | | |
| 43,605 | | |
|
| |
| | | |
| | | |
|
Property, plant and equipment, net | |
| 48,282 | | |
| 26,862 | | |
|
Operating lease right-of use asset | |
| 465 | | |
| 118 | | |
|
Goodwill | |
| 11,704 | | |
| 11,704 | | |
|
Intangible assets, net | |
| 5,818 | | |
| 6,358 | | |
|
Other assets | |
| 2,285 | | |
| 1,900 | | |
|
Total assets | |
$ | 105,610 | | |
$ | 90,547 | | |
|
| |
| | | |
| | | |
|
Current liabilities | |
| | | |
| | | |
|
Accounts payable | |
$ | 11,008 | | |
$ | 10,401 | | |
|
Accrued expenses | |
| 5,413 | | |
| 5,103 | | |
|
Accrued income taxes | |
| 218 | | |
| | | |
|
Total current liabilities | |
| 16,639 | | |
| 15,504 | | |
|
| |
| | | |
| | | |
|
Operating lease liabilities | |
| 360 | | |
| 70 | | |
|
Deferred income taxes, net | |
| 2,792 | | |
| 3,062 | | |
|
Total liabilities | |
| 19,791 | | |
| 18,636 | | |
|
| |
| | | |
| | | |
|
Commitments and contingencies (Note 9) | |
| | | |
| | | |
|
| |
| | | |
| | | |
|
Stockholders equity | |
| | | |
| | | |
|
Preferred stock, no par value; 2,500 shares authorized; none issued | |
| | | |
| | | |
|
Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,232 and 15,100 shares outstanding at 2025 and 2024 | |
| 6,509 | | |
| 6,509 | | |
|
Treasury stock, at cost | |
| (13,214 | ) | |
| (14,052 | ) | |
|
Paid-in capital | |
| 3,843 | | |
| 4,632 | | |
|
Retained earnings | |
| 88,681 | | |
| 74,822 | | |
|
Total stockholders equity | |
| 85,819 | | |
| 71,911 | | |
|
| |
| | | |
| | | |
|
Total liabilities and stockholders equity | |
$ | 105,610 | | |
$ | 90,547 | | |
**See accompanying notes to consolidated financial
statements**
****
| | F-2 | | |
****
**LIFEWAY FOODS, INC. AND SUBSIDIARIES**
**Consolidated Statements of Operations**
**For the Years Ended December 31, 2025 and 2024**
**(In thousands, except per share data)**
|
| |
| | |
| | |
|
| |
2025 | | |
2024 | | |
|
| |
| | |
| | |
|
Net sales | |
$ | 212,496 | | |
$ | 186,820 | | |
|
| |
| | | |
| | | |
|
Cost of goods sold | |
| 150,850 | | |
| 135,400 | | |
|
Depreciation expense | |
| 3,440 | | |
| 2,846 | | |
|
Total cost of goods sold | |
| 154,290 | | |
| 138,246 | | |
|
| |
| | | |
| | | |
|
Gross profit | |
| 58,206 | | |
| 48,574 | | |
|
| |
| | | |
| | | |
|
Selling expenses | |
| 19,891 | | |
| 14,743 | | |
|
General and administrative | |
| 21,603 | | |
| 19,439 | | |
|
Amortization expense | |
| 540 | | |
| 540 | | |
|
Total operating expenses | |
| 42,034 | | |
| 34,722 | | |
|
| |
| | | |
| | | |
|
Income from operations | |
| 16,172 | | |
| 13,852 | | |
|
| |
| | | |
| | | |
|
Other income (expense): | |
| | | |
| | | |
|
Interest expense | |
| (77 | ) | |
| (105 | ) | |
|
Fair value loss on investment | |
| (95 | ) | |
| | | |
|
Gain on sale of investment | |
| 3,407 | | |
| | | |
|
Gain (loss) on sale of property and equipment | |
| | | |
| (8 | ) | |
|
Other income | |
| 279 | | |
| 230 | | |
|
Total other income (expense) | |
| 3,514 | | |
| 117 | | |
|
| |
| | | |
| | | |
|
Income before provision for income taxes | |
| 19,686 | | |
| 13,969 | | |
|
| |
| | | |
| | | |
|
Provision for income taxes | |
| 5,827 | | |
| 4,944 | | |
|
| |
| | | |
| | | |
|
Net income | |
$ | 13,859 | | |
$ | 9,025 | | |
|
| |
| | | |
| | | |
|
Net earnings per common share: | |
| | | |
| | | |
|
Basic | |
$ | 0.91 | | |
$ | 0.61 | | |
|
Diluted | |
$ | 0.89 | | |
$ | 0.60 | | |
|
| |
| | | |
| | | |
|
Weighted average common shares outstanding: | |
| | | |
| | | |
|
Basic | |
| 15,200 | | |
| 14,769 | | |
|
Diluted | |
| 15,539 | | |
| 15,130 | | |
**See accompanying notes to consolidated financial
statements**
****
| | F-3 | | |
****
**LIFEWAY FOODS, INC. AND SUBSIDIARIES**
**Consolidated Statements of Stockholders
Equity**
**For the Years Ended December 31, 2025 and 2024**
**(In thousands)**
|
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| |
Common
Stock | | |
| | |
| | |
| | |
|
| |
Issued | | |
In treasury | | |
Paid-In | | |
Retained | | |
Total | | |
|
| |
Shares | | |
$ | | |
Shares | | |
$ | | |
Capital | | |
Earnings | | |
Equity | | |
|
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Balance, January 1, 2024 | |
| 17,274 | | |
$ | 6,509 | | |
| (2,583 | ) | |
$ | (16,695 | ) | |
$ | 4,825 | | |
$ | 65,797 | | |
$ | 60,436 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Issuance of common stock in connection
with stock-based compensation | |
| | | |
| | | |
| 398 | | |
| 2,573 | | |
| (2,790 | ) | |
| | | |
| (217 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Issuance of common stock on exercise
of stock options | |
| | | |
| | | |
| 11 | | |
| 70 | | |
| 36 | | |
| | | |
| 106 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Stock-based compensation | |
| | | |
| | | |
| | | |
| | | |
| 2,561 | | |
| | | |
| 2,561 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 9,025 | | |
| 9,025 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance, December 31, 2024 | |
| 17,274 | | |
$ | 6,509 | | |
| (2,174 | ) | |
$ | (14,052 | ) | |
$ | 4,632 | | |
$ | 74,822 | | |
$ | 71,911 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Issuance of common stock in connection
with stock-based compensation | |
| | | |
| | | |
| 129 | | |
| 819 | | |
| (2,750 | ) | |
| | | |
| (1,931 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Issuance of common stock on exercise
of stock options | |
| | | |
| | | |
| 3 | | |
| 19 | | |
| 14 | | |
| | | |
| 33 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Stock-based compensation | |
| | | |
| | | |
| | | |
| | | |
| 1,947 | | |
| | | |
| 1,947 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 13,859 | | |
| 13,859 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance, December 31, 2025 | |
| 17,274 | | |
$ | 6,509 | | |
| (2,042 | ) | |
$ | (13,214 | ) | |
$ | 3,843 | | |
$ | 88,681 | | |
$ | 85,819 | | |
**See accompanying notes to consolidated financial
statements**
| | F-4 | | |
**LIFEWAY FOODS, INC. AND SUBSIDIARIES**
**Consolidated Statements of Cash Flows**
**For the Years Ended December 31, 2025 and 2024**
**(In thousands)**
****
|
| |
| | |
| | |
|
| |
2025 | | |
2024 | | |
|
| |
| | |
| | |
|
Cash flows from operating activities: | |
| | | |
| | | |
|
Net income | |
$ | 13,859 | | |
$ | 9,025 | | |
|
Adjustments to reconcile net income to operating cash flow: | |
| | | |
| | | |
|
Depreciation and amortization | |
| 3,980 | | |
| 3,386 | | |
|
Stock-based compensation | |
| 1,947 | | |
| 2,446 | | |
|
Non-cash interest expense | |
| 19 | | |
| 17 | | |
|
(Gain) loss on sale of equipment | |
| (115 | ) | |
| 8 | | |
|
Gain on sale of investments | |
| (3,407 | ) | |
| | | |
|
Fair value loss on investment | |
| 96 | | |
| | | |
|
Deferred income taxes | |
| (270 | ) | |
| 61 | | |
|
(Increase) decrease in operating assets: | |
| | | |
| | | |
|
Accounts receivable | |
| (1,219 | ) | |
| (1,550 | ) | |
|
Inventories | |
| (3,212 | ) | |
| 426 | | |
|
Prepaid expenses and other current assets | |
| 151 | | |
| (125 | ) | |
|
Refundable income taxes | |
| 306 | | |
| (631 | ) | |
|
Increase (decrease) in operating liabilities: | |
| | | |
| | | |
|
Accounts payable | |
| 238 | | |
| 156 | | |
|
Accrued expenses | |
| (1,643 | ) | |
| 217 | | |
|
Accrued income taxes | |
| 218 | | |
| (474 | ) | |
|
Net cash provided by operating activities | |
| 10,948 | | |
| 12,962 | | |
|
| |
| | | |
| | | |
|
Cash flows from investing activities: | |
| | | |
| | | |
|
Purchases of property and equipment | |
| (27,361 | ) | |
| (6,697 | ) | |
|
Proceeds from sale of equipment | |
| 115 | | |
| 15 | | |
|
Proceeds from sale of investments | |
| 5,206 | | |
| | | |
|
Net cash used in investing activities | |
| (22,040 | ) | |
| (6,682 | ) | |
|
| |
| | | |
| | | |
|
Cash flows from financing activities: | |
| | | |
| | | |
|
Repayment of note payable | |
| | | |
| (2,750 | ) | |
|
Payment of deferred financing costs | |
| (65 | ) | |
| | | |
|
Net cash used in financing activities | |
| (65 | ) | |
| (2,750 | ) | |
|
| |
| | | |
| | | |
|
Net (decrease) increase in cash and cash equivalents | |
| (11,157 | ) | |
| 3,530 | | |
|
Cash and cash equivalents at the beginning of the period | |
| 16,728 | | |
| 13,198 | | |
|
Cash and cash equivalents at the end of the period | |
$ | 5,571 | | |
$ | 16,728 | | |
|
| |
| | | |
| | | |
|
Supplemental cash flow information: | |
| | | |
| | | |
|
Cash paid for income taxes, net of (refunds) | |
$ | 5,588 | | |
$ | 5,987 | | |
|
Cash paid for interest | |
$ | 58 | | |
$ | 98 | | |
|
Non-cash investing activities | |
| | | |
| | | |
|
Accrued purchase of property and equipment | |
$ | 774 | | |
$ | 407 | | |
|
Right-of-use assets obtained in exchange for lease obligations | |
$ | 426 | | |
$ | | | |
**See accompanying notes to consolidated financial
statements**
****
****
****
****
| | F-5 | | |
****
****
**LIFEWAY FOODS, INC. AND SUBSIDIARIES**
**Notes to Consolidated Financial Statements**
**December 31, 2025 and 2024**
**(In thousands)**
**Note 1 Basis of presentation**
The consolidated financial statements and accompanying
notes have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
The consolidated financial statements include all of the assets, liabilities and results of operations of Lifeway Foods, Inc. and its
wholly owned subsidiaries (collectively Lifeway or the Company). All inter-company balances and transactions
have been eliminated in the consolidated financial statements.
**Note 2 Summary of significant accounting
policies**
Use of estimates
The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to use judgement 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 consolidated financial statements, and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates
made in preparing the consolidated financial statements include the reserve for promotional allowances, the valuation of goodwill and
intangible assets, stock-based and incentive compensation, and deferred income taxes.
Cash and cash equivalents
Lifeway considers cash and all highly liquid investments
purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which
approximates or equals fair value due to their short-term nature.
Lifeway from time to time may have bank deposits
in excess of insurance limits of the Federal Deposit Insurance Corporation. The Company places its cash and cash equivalents with high
credit quality financial institutions. Lifeway has not experienced any losses in such accounts and believes the financial risks associated
with these financial instruments are minimal.
Revenue Recognition
Lifeway sells food and beverage products across
select product categories to customers predominantly within the United States (see Note 13 Disaggregation of Revenue, Significant
Customers, and Geographic Information). The Company also sells bulk cream, a byproduct of its fluid milk manufacturing process. In accordance
with ASC 606, Revenue from Contracts with Customers, Lifeway recognizes revenue when control over the products transfers to its customers,
which generally occurs upon delivery to its customers or their common carriers. The amount of revenue recognized reflects the consideration
to which the Company expects to be entitled to receive in exchange for these goods or services, using the five-step method required by
ASC 606.
For the Company, the contract is the approved
sales order, which may also be supplemented by other agreements that formalize various terms and conditions with customers. The Company
applies judgment in determining the customers ability and intention to pay, which is based on a variety of factors including the
customers historical payment experience or, in the case of a new customer, published credit and financial information pertaining
to the customer.
| | F-6 | | |
Performance obligations promised in a contract
are identified based on the goods or services that will be transferred to the customer, which is the delivery of food and beverage products
which provide immediate benefit to the customer.
Lifeway accounts for product shipping and handling
as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of goods sold.
Any taxes collected on behalf of government authorities are excluded from net revenues.
Variable consideration, which includes known or
expected pricing or revenue adjustments, such as trade discounts, allowances for non-saleable products, product returns, trade incentives
and coupon redemption, is estimated utilizing the most likely amount method.
Key sales terms, such as pricing and quantities
ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration.
As such, the Company does not capitalize contract inception costs and it capitalizes product fulfillment costs in accordance with U.S.
GAAP and its inventory policies. It generally does not receive noncash consideration for the sale of goods, nor does it grant payment
financing terms greater than one year.
Accounts Receivable
Lifeway provides credit terms to customers in-line
with industry standards and maintains allowances for potential credit losses based on historical collection experiences and the current
economic condition of specific customers. All accounts receivables have an original term of less than one year. Customer balances are
written off after all collection efforts are exhausted. Estimated product returns, which have not been material, are deducted from sales
at the time of revenue recognition. The Company does not charge interest on past due accounts receivable. Accounts receivable, less allowances
was $16,643, $15,424 and $13,875, as of December 31, 2025, 2024, and 2023 respectively.
Inventories
Inventories are stated at the lower of cost or
net realizable value, valued on a first in, first out basis (FIFO). The costs of finished goods inventories include raw
materials, direct labor, and overhead costs. Inventories are stated net of reserves for excess or obsolete inventory.
Property, plant and equipment
Property, plant and equipment are recorded at
cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets as follows:
|
Schedule of property and equipment, estimated useful lives |
|
| |
|
Asset |
|
Useful Life | |
|
Buildings and improvements |
|
10 39 years | |
|
Machinery and equipment |
|
5 12 years | |
|
Office equipment |
|
3 7 years | |
|
Vehicles |
|
5 years | |
|
Leasehold improvements |
|
Shorter of expected useful life or lease term | |
The Company performs impairment tests when circumstances
indicate that the carrying value of an asset may not be recoverable. Expenditures for repairs and maintenance, which do not improve or
extend the life of the assets, are expensed as incurred.
| | F-7 | | |
Goodwill
Goodwill represents the excess purchase price
over the fair value of the net tangible and other identifiable intangible assets acquired. Goodwill is not amortized, but it is subject
to an annual assessment for impairment, which the Company performs on its one reporting unit during the fourth quarter (as of December
31), or more frequently if events occur or circumstances change such that it is more likely than not that an impairment may exist.
In testing goodwill for impairment, the Company
has the option to perform a qualitative test (also known as Step 0) or a quantitative test (Step 1). Under
the Step 0 test, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of
the reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry
and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific
events. If after assessing these qualitative factors, the Company determines it is more-likely-than-not that the fair value
of the reporting unit is less than the carrying value, then performing the Step 1 quantitative test is necessary.
Step 1 of the quantitative test requires comparison
of the fair value of the Companys one reporting unit to the carrying value. If the carrying value of the reporting unit is less
than the fair value, no impairment exists. Otherwise, the Company would recognize an impairment charge for the amount by which the carrying
amount of the reporting unit exceeds its fair value up to the amount of goodwill allocated to the reporting unit.
Under a Step 1 quantitative test, we estimate
the fair value of our one reporting unit using a combination of the fair values derived from both the income approach and the market approach.
Under the income approach, the Company uses a discounted cash flow methodology which requires management to make significant estimates
and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth
rates, and long-term discount rates, among others. The discount rate used to determine the present value of future cash flows is based
on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty
related to the businesss ability to execute on the projected cash flows. For the market approach, the Company uses the guideline
public company method. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable
publicly traded companies with similar operating and investment characteristics. The Company also reconciles the fair value of its reporting
unit to its current market capitalization, allowing for a reasonable control premium.
Intangible Assets
Intangible assets acquired in a business combination
are recorded at their estimated fair values at the date of acquisition. Identifiable intangible assets with finite lives are amortized
over their estimated useful lives as follows:
|
Schedule of intangible assets useful lives |
|
| |
|
Asset |
|
Useful Life | |
|
Recipes |
|
4 years | |
|
Brand names |
|
15 years | |
|
Formula |
|
10 years | |
|
Customer lists |
|
5-10 years | |
|
Customer relationships |
|
15 years | |
All amortization expense related to intangible assets is recorded in
Amortization expense in the consolidated statements of operations.
Amortizable intangible assets are evaluated for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Lifeway conducts more
frequent impairment assessments if certain conditions exist, such as a change in the competitive landscape, any internal decisions to
pursue new or different strategies, a loss of a significant customer, or a significant change in the marketplace including changes in
the prices paid for its products or changes in the size of the market for its products. If an evaluation of the undiscounted cash flows
indicates impairment, the asset is written down to its estimated fair value, which is generally based on discounted future cash flows.
If the estimated remaining useful life of an intangible asset is changed, the remaining carrying amount of the intangible asset is amortized
prospectively over the revised remaining useful life.
| | F-8 | | |
Fair value measurements
Fair value is estimated by applying the following
hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy
upon the lowest level of input that is available and significant to the fair value measurement:
**Level 1 **Quoted prices in
active markets for identical assets or liabilities.
**Level 2 **Observable inputs
other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities
in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
**Level 3 **Inputs that are
generally unobservable and typically reflect managements estimate of assumptions that market participants would use in pricing
the asset or liability.
Lifeways financial assets and liabilities
that are not carried at fair value on a recurring basis include cash and cash equivalents, accounts receivable, other receivables, accounts
payable, accrued expenses and revolving line of credit for which carrying value approximates fair value.
The Company records its investments in equity
securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable
price changes in orderly transactions for the identical or a similar investment of the same issuer. In February 2025, the Companys
$1,800 equity investment in Simple Mills was liquidated as a result of the sale of Simple Mills. The Company received cash proceeds of
$5,206 and recognized a gain on the sale of investment of $3,407 during 2025.
Income taxes
The Provision for income taxes includes federal,
state, local and foreign income taxes currently payable, and those deferred because of temporary differences between the financial statement
and tax bases of assets and liabilities. Deferred tax assets or liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities using enacted tax rates expected to apply to taxable income in the year in which
the deferred tax assets or liabilities are expected to be realized or settled. The principal sources of temporary differences are different
depreciation and amortization methods for financial statement and tax purposes, incentive compensation, unrealized gain, capitalization
of indirect inventory costs for tax purposes, reserves for excess and obsolete inventory and the allowance for doubtful accounts. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely not that a tax benefit will not be realized. Deferred income
tax expense or benefit is based on the changes in the asset or liability from period to period.
Lifeway analyzes filing positions in all the federal
and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company
recognizes the income tax benefit from an uncertain tax position when it is more likely than not that, based on technical merits, the
position will be sustained upon examination, including resolutions of any related appeals or litigation processes. It applies a more likely
than not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, Lifeway recognizes the amount of tax
benefit that has a greater than 50% likelihood of being ultimately realized upon settlement. Future changes in judgment related to the
expected ultimate resolution of uncertain tax positions will affect earnings in the period of such change. For those income tax positions
where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.
The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities, statute expirations and
the recognition and measurement criteria under accounting for uncertainty in income taxes. Lifeway recognizes penalties and interest related
to unrecognized tax benefits in the provision (benefit) for income taxes in the consolidated statements of operations.
| | F-9 | | |
Share-based compensation
Share-based compensation expense is recognized
for equity awards over the vesting period based on their grant date fair value. The fair value of restricted stock and performance share
awards are equal to the closing price of Lifeways stock on the date of grant. The Company does not estimate forfeitures in measuring
the grant date fair value, but rather account for forfeitures as they occur.
The fair value of stock options are measured using
the Black-Scholes option pricing model. The expected term of options granted was based on the weighted average time of vesting and the
end of the contractual term. The Company utilized this simplified method as it did not have sufficient historical exercise data to provide
a reasonable basis upon which to estimate the expected term.
The Company issues share-based equity awards from
treasury shares.
Treasury stock
Treasury stock is recorded using the cost method.
Advertising costs
Advertising costs are expensed as incurred and
reported in Selling expense in the Companys consolidated statements of operations. Total advertising expense was $9,837 and $5,447
for the years ended December 31, 2025 and 2024, respectively.
Earnings per common share
Basic earnings per common share is computed by
dividing net income available to common stockholders by the weighted average number of common shares issued and outstanding during the
reporting period. Diluted earnings per common share is computed by dividing net income available to common stockholders by the weighted
average number of common shares issued and outstanding and the effect of all dilutive common stock equivalents related to the Companys
outstanding stock-based compensation awards outstanding during the reporting period.
Segments
The Company is managed as a single reportable
segment. The Chief Executive Officer, who is the Companys Chief Operating Decision Maker (CODM), reviews financial
information on an aggregate basis for purposes of allocating resources and assessing financial performance, as well as for making strategic
operational decisions and managing the organization. Substantially all of Lifeways consolidated revenues relate to the sale of
cultured dairy products that it produces using the same processes and materials and are sold to consumers through a common network of
distributors and retailers in the United States.
****
****
****
****
****
****
| | F-10 | | |
****
Recent accounting pronouncements
*Issued but not yet effective*
In November 2024, the Financial Accounting Standards
Board (FASB) issued ASU 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation
Disclosures (Topic 220-40): Disaggregation of Income Statement Expenses. The new standard requires additional disclosure of certain amounts
included in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. The new standard
is effective on a prospective basis, with the option for retrospective application, for our annual period ending December 31, 2027, and
our interim periods during the fiscal year ending December 31, 2028. The new standard does not affect recognition or measurement in the
Companys consolidated financial statements. Upon adoption, the impact of ASU 2024-03 will be limited to certain notes to the Consolidated
Financial Statements.
*Adopted*
In December 2023, the FASB issued ASU No. 2023-09:Income
Taxes (Topic 740): Improvements to Income Tax Disclosures that requires entities to disclose additional information about federal, state,
and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid. The new standard also eliminates
certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The new standard
is effective for our fiscal year ending December 31, 2025, and our interim periods during the fiscal year ending December 31, 2026. The
Company adopted the standard retrospectively during the fourth quarter of 2025. The guidance did not affect recognition or measurement
in the Companys consolidated financial statements. See Note 12 Income Taxes for additional disclosures.
**Note 3 Inventories, net**
|
Schedule of inventories | |
| | |
| | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Ingredients | |
$ | 4,141 | | |
$ | 2,519 | | |
|
Packaging | |
| 3,452 | | |
| 2,855 | | |
|
Finished goods | |
| 4,297 | | |
| 3,304 | | |
|
Total inventories, net | |
$ | 11,890 | | |
$ | 8,678 | | |
****
**Note 4 Property, Plant and Equipment, net**
|
Schedule of property, plant and equipment | |
| | |
| | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Land | |
$ | 1,565 | | |
$ | 1,565 | | |
|
Buildings and improvements | |
| 24,497 | | |
| 23,520 | | |
|
Machinery and equipment | |
| 43,433 | | |
| 38,181 | | |
|
Vehicles | |
| 477 | | |
| 477 | | |
|
Office equipment | |
| 694 | | |
| 758 | | |
|
Construction in process | |
| 19,803 | | |
| 2,163 | | |
|
| |
| 90,469 | | |
| 66,664 | | |
|
Less accumulated depreciation | |
| (42,187 | ) | |
| (39,802 | ) | |
|
Total property, plant and equipment, net | |
$ | 48,282 | | |
$ | 26,862 | | |
****
| | F-11 | | |
****
**Note 5 Goodwill and Intangible Assets**
*Goodwill*
Goodwill consisted of the following:
|
Schedule of goodwill | |
| | |
|
| |
Total | | |
|
Balance at December 31, 2024 | |
| | | |
|
Goodwill | |
$ | 12,948 | | |
|
Accumulated impairment losses | |
| (1,244 | ) | |
|
| |
$ | 11,704 | | |
|
| |
| | | |
|
| |
| | | |
|
Balance at December 31, 2025 | |
| | | |
|
Goodwill | |
$ | 12,948 | | |
|
Accumulated impairment losses | |
| (1,244 | ) | |
|
| |
$ | 11,704 | | |
The Company performed an annual Step 1
impairment assessment for its single reporting unit as of December 31, 2025 and an annual Step 0 impairment assessment for its
single reporting unit as of December 31, 2024, noting no
impairment loss.
Approximately
$1,664 of goodwill is deductible for income tax purposes.
*Intangible Assets*
The gross carrying amounts and accumulated amortization of intangible
assets consisted of the following:
|
Schedule of other intangible assets | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| |
December 31, 2025 | | |
December 31, 2024 | | |
|
| |
Gross | | |
| | |
Net | | |
Gross | | |
| | |
Net | | |
|
| |
Carrying | | |
Accumulated | | |
Carrying | | |
Carrying | | |
Accumulated | | |
Carrying | | |
|
| |
Amount | | |
Amortization | | |
Amount | | |
Amount | | |
Amortization | | |
Amount | | |
|
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
Recipes | |
$ | 44 | | |
$ | (44 | ) | |
$ | | | |
$ | 44 | | |
$ | (44 | ) | |
$ | | | |
|
Customer lists and other customer related intangibles | |
| 4,529 | | |
| (4,529 | ) | |
| | | |
| 4,529 | | |
| (4,529 | ) | |
| | | |
|
Customer relationship | |
| 3,385 | | |
| (1,692 | ) | |
| 1,693 | | |
| 3,385 | | |
| (1,532 | ) | |
| 1,853 | | |
|
Brand names | |
| 7,948 | | |
| (3,823 | ) | |
| 4,125 | | |
| 7,948 | | |
| (3,443 | ) | |
| 4,505 | | |
|
Formula | |
| 438 | | |
| (438 | ) | |
| | | |
| 438 | | |
| (438 | ) | |
| | | |
|
Total intangible assets, net | |
$ | 16,344 | | |
$ | (10,526 | ) | |
$ | 5,818 | | |
$ | 16,344 | | |
$ | (9,986 | ) | |
$ | 6,358 | | |
| | F-12 | | |
Estimated amortization expense on intangible assets
for the next five years is as follows:
|
Schedule of future amortization expense on intangible assets |
|
|
| |
|
Year |
|
Amortization |
| |
|
2026 |
|
$ |
540 |
| |
|
2027 |
|
$ |
540 |
| |
|
2028 |
|
$ |
540 |
| |
|
2029 |
|
$ |
540 |
| |
|
2030 |
|
$ |
540 |
| |
The weighted-average remaining amortization expense
period for the customer relationship and brand name intangible assets is 10.6 and 10.9 years, respectively, as of December 31, 2025. The
weighted-average remaining amortization expense period for total intangible assets is 10.8 years as of December 31, 2025.
**Note 6 Accrued Expenses**
Accrued expenses consisted of the following:
|
Schedule of accrued expenses | |
| | |
| | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Payroll and incentive compensation | |
$ | 4,386 | | |
$ | 4,188 | | |
|
Real estate taxes | |
| 483 | | |
| 468 | | |
|
Accrued utilities | |
| 189 | | |
| 193 | | |
|
Current portion of operating lease liabilities | |
| 106 | | |
| 47 | | |
|
Other | |
| 249 | | |
| 207 | | |
|
Total accrued expenses | |
$ | 5,413 | | |
$ | 5,103 | | |
**Note 7 Debt**
*Revolving Credit Facility*
On February 5, 2025,
the Company entered into the Fifth Modification to the Amended and Restated Loan and Security Agreement (the Fifth Modification)
with its current lender. The Fifth Modification, among other things, (i) increased the commitment for revolving loans under the Credit
Agreement from $5,000 to $25,000, with interest payable at either the lender Base Rate (the Prime Rate minus 1.00%) or the SOFR plus 1.75%,
(ii) extended the termination date of the Credit Agreement to February 5, 2028, (iii) replaced the quarterly minimum working capital financial
covenant with a financial covenant to maintain a maximum cash flow leverage ratio of no greater than 2.00 to 1.00 for each fiscal quarter
commencing with the fiscal quarter ending March 31, 2025, (iv) increased the quarterly unused revolving line of credit fee to 0.25%, and
(v) increased the letter of credit fee to 1.00%. The remaining material terms and conditions of the Credit Agreement remain substantially
unchanged. The Company had no outstanding borrowings at the time of entry into the Fifth Modification.
On December 29, 2025,
the Company entered into the Sixth Modification to the Amended and Restated Loan and Security Agreement (the Sixth Modification)
with its current lender. The Sixth Modification, provides for, among other things, (i) modification of the Fixed Charge Coverage Ratio
only for the period from December 31, 2025 through June 30, 2027 to exclude the Waukesha, WI unfinanced capital expenditures attributable
to plant optimization and manufacturing capacity expansion as approved by Lender, up to $50,000 (ii) modification of the Change of Control
definition to reflect that specified changes to the Companys board of directors do not constitute a Change of Control and (iii)
extended the termination date of the Credit Agreement to February 5, 2029. The remaining material terms and conditions of the Credit Agreement
remain substantially unchanged. The Company had no outstanding borrowings at the time of entry into the Sixth Modification.
| | F-13 | | |
As of December 31, 2025, the Company had $0 outstanding
under the Revolving Credit Facility. The Company had $25,000 available for future borrowings under the Revolving Credit Facility as of
December 31, 2025.
The Credit Agreement includes customary representations,
warranties, and covenants, including financial covenants requiring the Company to maintain a fixed charge coverage ratio of no less than
1.25 to 1.00, and a maximum cash flow leverage ratio of no greater than 2.00 to 1.00 for each fiscal quarter commencing with the fiscal
quarter ending March 31, 2025, in each of the fiscal quarters ending through the expiration date. The Credit Agreement provides for events
of default, including failure to repay principal and interest when due and failure to perform or violation of the provisions or covenants
of the agreement, as a result of which amounts due under the Credit Agreement may be accelerated. The loans and all other amounts due
and owed under the Credit Agreement and related documents are secured by substantially all of the Companys assets.
Lifeway was in compliance with the fixed charge
coverage ratio and maximum cash flow leverage ratio covenants at December 31, 2025.
**Note 8 Leases**
The Company leases certain machinery and equipment
with fixed base rent payments and variable costs based on usage. Remaining lease terms for these leases range from less than one year
to six years. The Company includes lease extension options, if applicable and reasonably certain to be exercised, in the calculation of
the right-of-use asset and lease liabilities. Lifeway includes only fixed payments for lease components in the measurement of the right-of-use
asset and lease liability. Variable lease payments are those that vary because of changes in facts or circumstances occurring after the
commencement date, other than the passage of time. There are no residual value guarantees. Lifeway does not currently have leases which
meet the finance lease classification as defined under ASC 842.
Lifeway treats contracts as a lease when the contract
conveys the right to use a physically distinct asset for a period of time in exchange for consideration, it directs the use of the asset
and obtains substantially all the economic benefits of the asset.
Right-of-use assets and lease liabilities are
measured and recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.
Lifeway has elected the practical expedient to combine lease and non-lease components into a single component for all of its leases. When
the Company is unable to determine an implicit interest rate, it uses its incremental borrowing rate based on the information available
at the commencement date in determining the present value of future payments for those leases. Lifeway includes options to extend or terminate
the lease in the measurement of the right-of-use asset and lease liability when it is reasonably certain that it will exercise such options.
Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company does not record leases with an initial
term of 12 months or less on the balance sheet. Expense for these short-term leases is recorded on a straight-line basis over the lease
term. Total lease expense was $209 and $148 (including short term leases) for the years ended December 31, 2025 and 2024, respectively.
Future maturities of lease liabilities were as follows:
|
Schedule of future maturities of lease liabilities |
|
|
| |
|
Year |
|
Operating Leases |
| |
|
2026 |
|
$ |
149 |
| |
|
2027 |
|
|
141 |
| |
|
2028 |
|
|
132 |
| |
|
2029 |
|
|
85 |
| |
|
2030 |
|
|
57 |
| |
|
Thereafter |
|
|
20 |
| |
|
Total lease payments |
|
|
584 |
| |
|
Less: Interest |
|
|
(118 |
) | |
|
Present value of lease liabilities |
|
$ |
466 |
| |
The weighted-average remaining lease term for
its operating leases was 4.2 years as of December 31, 2025. The weighted average discount rate of its operating leases was 10.59% as of
December 31, 2025. Cash paid for amounts included in the measurement of lease liabilities was $110 and $89 for the year ended December
31, 2025 and 2024, respectively.
| | F-14 | | |
**Note 9 Commitments and Contingencies**
****
*Litigation*
**
Lifeway is involved in various legal proceedings,
claims, disputes, regulatory matters, audits, and proceedings arising in the ordinary course of, or incidental, to the Companys
business, including commercial disputes, product liabilities, intellectual property matters and employment-related matters.
**
Lifeway records provisions in the consolidated
financial statements for pending legal matters when it believes it is probable that a loss will be incurred and the amount of such loss
can be reasonably estimated. The Company evaluates, on a periodic basis, developments in legal matters that could affect the amount of
any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both
probable and estimable, it does not establish an accrued liability. Currently, none of its accruals for outstanding legal matters are
material individually or in the aggregate to its financial position and it is managements opinion that the ultimate resolution
of these outstanding legal matters will not have a material adverse effect on its business, financial condition, results of operations,
or cash flows. However, if the Company is ultimately required to make payments in connection with an adverse outcome, it is possible that
such contingency could have a material adverse effect on the Companys business, financial condition, results of operations or cash
flows.
****
**Note 10 Income taxes**
The provision for income taxes consists of the
following:
|
Schedule of provision for income taxes |
|
|
|
|
|
| |
|
|
|
For the Years Ended December 31, |
| |
|
|
|
2025 |
|
|
2024 |
| |
|
Current: |
|
|
|
|
|
| |
|
Federal |
|
$ |
4,333 |
|
|
$ |
3,371 |
| |
|
State and local |
|
|
1,764 |
|
|
|
1,512 |
| |
|
Total current |
|
|
6,097 |
|
|
|
4,883 |
| |
|
Deferred |
|
|
(270) |
|
|
|
61 |
| |
|
Provision for income taxes |
|
$ |
5,827 |
|
|
$ |
4,944 |
| |
The following is a reconciliation of income tax
expense computed at the U.S. federal statutory tax rate to income tax expense reported in the consolidated statement of operations:
|
Schedule of reconciliation to effective rate for income taxes |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
2025 |
|
|
2024 |
| |
|
|
|
Amount |
|
|
Percentage |
|
|
Amount |
|
|
Percentage |
| |
|
Federal income tax at statutory rate |
|
$ |
4,137 |
|
|
|
21.0% |
|
|
$ |
2,933 |
|
|
|
21.0% |
| |
|
State and local income tax, net (a) |
|
|
1,135 |
|
|
|
5.8% |
|
|
|
737 |
|
|
|
5.3% |
| |
|
Section 162m |
|
|
479 |
|
|
|
2.4% |
|
|
|
1,074 |
|
|
|
7.7% |
| |
|
Stock based compensation |
|
|
46 |
|
|
|
0.2% |
|
|
|
167 |
|
|
|
1.2% |
| |
|
Other permanent differences |
|
|
31 |
|
|
|
0.2% |
|
|
|
29 |
|
|
|
0.2% |
| |
|
Change in tax laws or rates |
|
|
(1) |
|
|
|
0.0% |
|
|
|
2 |
|
|
|
0.0% |
| |
|
Other |
|
|
|
|
|
|
0.0% |
|
|
|
2 |
|
|
|
0.0% |
| |
|
Provision for income taxes |
|
$ |
5,827 |
|
|
|
29.6% |
|
|
$ |
4,944 |
|
|
|
35.4% |
| |
|
(a) | State taxes in Illinois made up the majority (greater than 50 percent) of this category. | |
The income taxes paid (net of refunds) to a jurisdiction that represent
greater than 5% of the total income taxes paid are as follows:
|
Schedule of income paid (net of refunds) to a jurisdiction | |
| | |
| | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Federal | |
$ | 3,846 | | |
$ | 4,151 | | |
|
State | |
| | | |
| | | |
|
Illinois | |
| 1,087 | | |
| 1,134 | | |
|
California | |
| | | |
| 338 | | |
|
Other (individually below 5% of total income taxes paid) | |
| 655 | | |
| 364 | | |
|
| |
$ | 5,588 | | |
$ | 5,987 | | |
| | F-15 | | |
The tax effects of temporary differences giving
rise to deferred income tax assets and liabilities were:
|
Schedule of deferred tax assets and liabilities | |
| | |
| | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Deferred tax liabilities attributable to: | |
| | | |
| | | |
|
Accumulated depreciation and amortization | |
$ | (4,196 | ) | |
$ | (3,829 | ) | |
|
Unrealized gains | |
| | | |
| (467 | ) | |
|
Total deferred tax liabilities | |
| (4,196 | ) | |
| (4,296 | ) | |
|
Deferred tax assets attributable to: | |
| | | |
| | | |
|
Net operating losses | |
| 6 | | |
| 6 | | |
|
Unrealized loss | |
| 23 | | |
| | | |
|
Accrued compensation | |
| 480 | | |
| 454 | | |
|
Incentive compensation | |
| 550 | | |
| 499 | | |
|
Inventory | |
| 349 | | |
| 279 | | |
|
Allowances for doubtful accounts and discounts | |
| 2 | | |
| 2 | | |
|
Other | |
| (6 | ) | |
| (6 | ) | |
|
Total net deferred tax assets | |
| 1,404 | | |
| 1,234 | | |
|
Net deferred tax liabilities | |
$ | (2,792 | ) | |
$ | (3,062 | ) | |
The following table details the Companys
tax attributes related to net operating losses for which it has recorded deferred tax assets.
|
Schedule of tax attributes related to net operating losses |
|
|
|
|
|
|
|
|
|
|
| |
|
Tax Attributes |
|
Gross Amount |
|
|
Net Amount |
|
|
Expiration Years |
| |
|
State net operating losses |
|
$ |
116 |
|
|
$ |
6 |
|
|
2035 |
| |
|
|
|
|
|
|
|
$ |
6 |
|
|
|
| |
Lifeway is subject to U.S. federal income tax
as well as income tax in multiple state and city jurisdictions. With limited exceptions, Lifeways calendar year 2022 and subsequent
federal and state tax years remain open by statute. As of December 31, 2025, the unrecognized tax benefit is $0.
The amount of interest and penalties recognized
in the consolidated statements of operations was $0 during 2025 and 2024, respectively. The amount of accrued interest and penalties recognized
in the consolidated balance sheets was $0 at December 31, 2025 and 2024, respectively.
On July 4, 2025, the One Big Beautiful Bill Act
("OBBBA") was signed into law, which includes a broad range of tax reform provisions that may affect the Companys financial
results. The OBBBA changes to corporate taxation include, but are not limited to, 100% bonus depreciation for purchases of qualified property,
an elective deduction for domestic research and experimental expenditures, changes to the definition of adjusted taxable income for purposes
of determining the interest deduction limitation under Internal Revenue Code Section 163(j), and a more favorable tax rate on Foreign-Derived
Deduction Eligible Income and income from non-U.S. subsidiaries (Net CFC Tested Income). The OBBBA does not have a material impact on
our estimated annual effective tax rate or cash flows in the current fiscal year.
| | F-16 | | |
**Note 11 Stock-based and Other Compensation**
*Employee Incentive and Non-Employee Director
Plans*
The Board of Directors adopted, and the Companys
stockholders approved, the Lifeway Foods, Inc. 2022 Omnibus Incentive Plan (the Plan). Under the Plan, the
Compensation Committee may grant awards of various types of compensation, including nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other
stock-based awards to qualifying employees. The maximum number of shares authorized to be awarded under the Plan is 3.25 million. As of
December 31, 2025, 2.61 million shares remain available to award under the Plan.
Lifeway stockholders approved the 2022 Non-Employee
Director Equity and Deferred Compensation Plan (the 2022 Director Plan), which authorizes the grant of restricted stock
units. The maximum aggregate number of shares that may be issued under the 2022 Director Plan is 500 thousand. As of December 31, 2025,
382 thousand shares remain available to award under the 2022 Director Plan.
Total compensation expense related to stock-based
payments and the related income tax benefit recognized in net income are as follows:
|
Schedule of compensation expense related to stock-based payments | |
| | |
| | |
|
| |
Year Ended | | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
| |
(In Thousands) | | |
|
Compensation expense related to stock-based payments | |
$ | 1,947 | | |
$ | 2,446 | | |
|
Related income tax benefit | |
$ | 545 | | |
| 685 | | |
*Stock Options*
**
The following table summarizes stock option activity
during the year ended December 31, 2025:
|
Schedule of stock option activity |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Options |
|
|
Weighted
average
exercise price |
|
|
Weighted
average
remaining
contractual life |
|
|
Aggregate
intrinsic value |
| |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding at December 31, 2024 |
|
|
30 |
|
|
$ |
10.42 |
|
|
|
1.21 |
|
|
$ |
426 |
| |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Exercised |
|
|
(3 |
) |
|
|
11.10 |
|
|
|
|
|
|
|
|
| |
|
Forfeited |
|
|
(14 |
) |
|
|
11.10 |
|
|
|
|
|
|
|
|
| |
|
Outstanding at December 31, 2025 |
|
|
13 |
|
|
|
9.57 |
|
|
|
0.49 |
|
|
|
193 |
| |
|
Exercisable at December 31, 2025 |
|
|
13 |
|
|
|
9.57 |
|
|
|
0.49 |
|
|
|
193 |
| |
| | F-17 | | |
*Restricted Stock Units*
**
Restricted stock unit awards are granted to certain
members of management and the Board of Directors. Restricted stock unit awards generally vest based on the passage of time in approximately
three equal installments on each of the first three anniversaries of the grant date. Certain non-employee directors have elected to defer
receipt of their awards until their departure from the Board of Directors.
The following table summarizes restricted stock
unit activity during the year ended December 31, 2025.
|
Schedule of RSU activity |
|
|
|
|
|
| |
|
|
|
Restricted
Stock Units |
|
|
Weighted Average Grant
Date Fair Value |
| |
|
|
|
(In thousands) |
|
|
|
| |
|
Nonvested, at December 31, 2024 |
|
|
190 |
|
|
$ |
8.77 |
| |
|
Granted |
|
|
36 |
|
|
|
24.21 |
| |
|
Shares issued upon vesting |
|
|
(42 |
) |
|
|
9.68 |
| |
|
Forfeited |
|
|
(13 |
) |
|
|
11.74 |
| |
|
Nonvested, at December 31, 2025 |
|
|
171 |
|
|
|
11.55 |
| |
|
Earned and deferred, at December 31, 2025 |
|
|
80 |
|
|
|
9.05 |
| |
Unrecognized compensation expense related to nonvested
restricted stock units was $785 as of December 31, 2025 and will be recognized over a weighted average period of 1.1 years. The grant
date fair value of the awards is equal to the Companys closing price on the grant date.
*Performance Units*
Performance unit awards are granted to certain
members of management. These awards include both service and performance conditions.
For performance unit awards granted in fiscal
years 2023 through 2025, performance goals are established upfront and are measured over a cumulative three-year measurement period. The
performance goals are 1) 3-year cumulative net revenue, and 2) 3-year cumulative adjusted EBITDA. The target number of performance unit
awards are weighted 50% on net revenue and 50% on adjusted EBITDA. Participants may earn more or less than the target number of units,
and are bound by minimum and maximum thresholds of net revenue and adjusted EBITDA. The PSU awards will be earned and will vest, if at
all, after the end of the three-year measurement period. These awards will be converted to stock upon vesting.
The following table summarizes performance unit
activity during the year ended December 31, 2025.
|
Schedule of performance units | |
| | |
| | |
|
| |
Performance Units | | |
Weighted Average Grant Date Fair Value | | |
|
| |
| (In thousands) | | |
| | | |
|
Nonvested at December 31, 2024 | |
| 306 | | |
$ | 8.08 | | |
|
Granted (1) | |
| 91 | | |
| 13.45 | | |
|
Shares issued upon vesting | |
| (174 | ) | |
| 6.25 | | |
|
Forfeited | |
| (24 | ) | |
| 8.41 | | |
|
Nonvested at December 31, 2025 | |
| 199 | | |
$ | 12.10 | | |
|
|
(1) |
Includes 55 thousand additional shares granted in connection with the vesting of the 2022 award in 2025 due to above-target performance in accordance with the terms of the award. | |
Unrecognized compensation expense related to nonvested
performance units is estimated to be approximately $1,281 as of December 31, 2025 and are expected to be recognized over a weighted average
period of 1.4 years. The grant date fair value of the awards is equal to the Companys closing price on the grant date.
| | F-18 | | |
*Retirement Benefits*
Lifeway has a defined contribution plan which
is available to substantially all full-time employees. Under the terms of the plan, the Company matches employee contributions under a
prescribed formula. For the years ended December 31, 2025 and 2024 total contribution expense recognized in the consolidated statements
of operations was $736 and $650, respectively.
**Note 12 Earnings Per Share**
The following table summarizes the effects of
the share-based compensation awards on the weighted average number of shares outstanding used in calculating diluted earnings per share:
|
Schedule of weighted average number of shares outstanding | |
| | |
| | |
|
| |
Year Ended | | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
| |
(In thousands) | | |
|
Weighted average common shares outstanding | |
| 15,200 | | |
| 14,769 | | |
|
Assumed exercise/vesting of equity awards | |
| 339 | | |
| 361 | | |
|
Weighted average diluted common shares outstanding | |
| 15,539 | | |
| 15,130 | | |
**Note 13 Disaggregation of Revenue, Significant Customers,
and Geographic Information**
The Company has one reportable segment, which
manufactures and distributes cultured dairy products. Our products are produced using the same processes and materials and are sold to
consumers through a common network of distributors and retailers. The Company derives revenue primarily in North America and manages the
business activities on a consolidated basis. The business activities include selling cultured dairy products across various channels including
retail-direct, distributor, and direct store delivery in a refrigerated format. We operate our business with a centralized financial systems
infrastructure, and we share centralized resources for procurement and general and administrative activities. The accounting policies
of the segment are the same as those described in the Summary of Significant Accounting Policies for the Company. Refer to Note 1 for
additional information.
The Chief Executive Officer (CEO)
has been identified as our Chief Operating Decision Maker (CODM). The Company manages operations on a company-wide basis,
thereby making determinations as to the allocation of resources as one segment. The CODM uses consolidated single-segment financial information
to assess performance for the segment and decides how to allocate resources based on the Companys consolidated net income (loss), which
is reported on the Consolidated Statement of Operations. The measure of segment assets is reported on the Consolidated Balance Sheet as
total assets.
| | F-19 | | |
*Products from which the reportable segment
derives its revenue*
Lifeways primary product is drinkable kefir.
The Company manufactures (directly or through a co-manufacturer) and markets products under the Lifeway, Fresh Made, and GlenOaks Farms
brand names, as well as under private labels on behalf of certain customers.
The Companys product categories are:
|
|
|
Drinkable kefir, a cultured dairy product sold in a variety of organic and non-organic sizes, flavors, and types. | |
|
|
|
European-style soft cheeses, including farmer cheese, white cheese, and Sweet Kiss. | |
|
|
|
Cream and other, which primarily consists of cream, a byproduct of raw milk processing. | |
|
|
|
Drinkable yogurt, sold in a variety of sizes and flavors. | |
|
|
|
ProBugs, a line of kefir products designed for children. | |
|
|
|
Other dairy, which primarily consists of Fresh Made butter and sour cream. | |
Net sales of products by category were as follows
for the years ended December 31:
|
Schedule of segment products by category |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
2025 |
|
|
2024 |
| |
|
In thousands |
|
$ |
|
|
% |
|
|
$ |
|
|
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Drinkable Kefir other than ProBugs |
|
|
181,423 |
|
|
|
85% |
|
|
|
153,493 |
|
|
|
82% |
| |
|
Cheese |
|
|
16,571 |
|
|
|
8% |
|
|
|
14,554 |
|
|
|
8% |
| |
|
Cream and other |
|
|
8,693 |
|
|
|
4% |
|
|
|
8,299 |
|
|
|
4% |
| |
|
Drinkable Yogurt |
|
|
2,284 |
|
|
|
1% |
|
|
|
5,619 |
|
|
|
3% |
| |
|
ProBugs Kefir |
|
|
2,214 |
|
|
|
1% |
|
|
|
3,421 |
|
|
|
2% |
| |
|
Other dairy |
|
|
1,311 |
|
|
|
1% |
|
|
|
1,434 |
|
|
|
1% |
| |
|
Net Sales |
|
|
212,496 |
|
|
|
100% |
|
|
|
186,820 |
|
|
|
100% |
| |
****
**Significant Customers**
Sales are predominately to companies in the retail
food industry located within the United States. Two major customers accounted for a total of 24% and 25% of net sales for the years ended
December 31, 2025 and 2024, respectively. Two major customers accounted for a total of 24% and 26% of accounts receivable as of December
31, 2025 and 2024, respectively.
**Geographic Information**
Net sales outside the of the United States represented
less than 1% of total consolidated net sales in 2025 and 2024. Net sales are determined based on the destination where the products are
shipped by Lifeway.
All the Companys long-lived assets are
in the United States.
| | F-20 | | |
**Note 14 Shareholder Rights Plan**
On November 4, 2024, the Company adopted a Shareholder
Rights Agreement (the Rights Agreement) and designated 40 shares of preferred stock as Series A Junior Participating Preferred
Stock, none of which are issued or outstanding as of December 31, 2025. Pursuant to the Rights Agreement, the Companys board of
directors declared a dividend of one preferred share purchase right (each a Right) for each outstanding share of Company
common stock to stockholders of record as of the close of business on November 18, 2024. Each Right entitles its holder, subject to the
terms of the Rights Agreement, to purchase from the Company one one-thousandth of one share of Series A Junior Participating Preferred
Stock, no par value, of the Company at an exercise price of $130.00 per Right, subject to adjustment. Rights will attach to any shares
of Company common stock that become outstanding after November 18, 2024 and prior to the earlier of the Distribution Time (as defined
in the Rights Agreement) and the redemption or expiration of the Rights, and in certain other circumstances described in the Rights Agreement.
On October 29, 2025, the Company entered into
Amendment No. 1 to the Shareholder Rights Agreement (the Rights Agreement). The Rights Agreement was originally scheduled
to expire at the end of November 4, 2025. The Company entered into the Amendment, which extended the expiration to the end of October
29, 2026 (and made other conforming changes to the Rights Agreement). No other material changes were made to the Rights Agreement.
**Note 15 Organic Milk Supply**
To increase the supply of organic milk available
to the Company for the manufacture of finished goods, the Company is purchasing mature dairy cows (or the herd) which will
be managed by a third-party dairy facility (the Dairy), and entered into a supply and purchase agreement (SPA)
with a COOP (the COOP) to purchase the milk produced by the herd. The Company purchased 799 mature dairy cows during 2025
for $2,870.
As amended in September 2025, the Company entered
into a sixty month agreement (the Herd Agreement) with a third-party Dairy who will manage care of the herd, milk the herd,
and sell the milk to the COOP under the SPA, with a right to purchase the herd at the end of the agreement period for a nominal amount.
Beginning December 1, 2025, the Dairy will make monthly payments to Lifeway over the five year agreement period in exchange for its right
to possess and control the herd, including the right to sell milk produced by the herd to the COOP.
The herd agreement is treated as a sale of non-financial
assets to a party that is not a customer. The Company will recognize a sale upon the delivery of each herd to the Dairy, with interest
income recognized over the agreement period. The Company has recorded $635 in prepaid and other current assets and $2,235 in other assets
as of December 31, 2025 related to the herd agreement with no recorded gain or loss on sale. The Company records the purchases of dairy
cows as investing outflows, principal payments received as investing inflows and interest income as operating inflows on the statement
of cash flows.
****
****
****
****
****
****
| | F-21 | | |
****
**ITEM 9.CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**
None.
**ITEM 9A.CONTROLS AND PROCEDURES**
**Evaluation of Disclosure Controls and Procedures**
We maintain disclosure controls and procedures
that are designed to ensure material information required to be disclosed in our reports that we file or submit under the Exchange Act
is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms, and that such information
is accumulated and communicated to our management, including our principal executive officer, principal financial officer and principal
accounting officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the
disclosure controls and procedures, we recognize that a control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have
been detected.
As of December 31, 2025 (the Evaluation
Date), we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities
Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, our principal executive officer and principal financial
officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance
level as of December 31, 2025 in ensuring that information required to be disclosed by us under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified under the Exchange Act rules.
**Managements Annual Report on Internal
Control Over Financial Reporting**
Management is responsible for establishing and
maintaining adequate internal control over financial reporting as such term is identified in Exchange Act Rules 13a-15(f). Internal control
over financial reporting is a process designed by, or under the supervision of, our principal executive officer, principal financial officer
and principal accounting officer, and effected by the Board of Directors, management, and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those
policies and procedures that:
|
|
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; | |
|
|
|
| |
|
|
|
provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our consolidatedfinancial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures of the Company are being made only in accordance with authorizations of our management and our directors; and | |
|
|
|
| |
|
|
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements. | |
Internal control over financial reporting has
inherent limitations which may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions or because the level of compliance with related
policies or procedures may deteriorate.
| | 29 | | |
Management, including our Chief Executive Officer
and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2025.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded that our internal
control over financial reporting was effective as of December 31, 2025.
**Changes in Internal Control over Financial
Reporting**
****
There were no changes in our internal control
over financial reporting that occurred during 2025 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
****
**ITEM 9B.OTHER INFORMATION**
****
During the quarter ended December 31, 2025, no
director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading
arrangement, as each term is defined in Item 408(a) of Regulation S-K.
****
**ITEM 9C.DISCLOSURE REGARDING
FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS**
****
Not applicable.
| | 30 | | |
**PART III**
****
**ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**
****
Information required by this Item 10 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K and is incorporated herein by reference.
**Code of Conduct and Code of Ethics**
We have adopted a Code of Conduct applicable to
all members of the Board, executive officers, and employees and a Code of Ethics applicable to all members of the Board and executive
officers, including our principal executive officer and principal financial officer. The Code of Conduct and the Code of Ethics are available
on our available on our website at www.lifewaykefir.com. Information contained on the website is not incorporated by reference in, or
considered part of, this proxy statement. We intend to disclose on our website any amendments to, or any waivers under, the Code of Ethics
that are required to be disclosed by the rules of the SEC or Nasdaq.
**ITEM 11.
EXECUTIVE COMPENSATION**
****
Information required by this Item 11 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K and is incorporated herein by reference.
**ITEM 12.SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**
****
Information required by this Item 12 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K and is incorporated herein by reference.
**ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE**
****
Information required by this Item 13 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K and is incorporated herein by reference.
**ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES**
****
Information required by this Item 14 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K and is incorporated herein by reference.
****
****
****
****
****
****
| | 31 | | |
****
**PART IV**
****
**ITEM 15.EXHIBITS, FINANCIAL
STATEMENT SCHEDULES**
****
|
|
1. |
A list of the Financial Statements and Financial Statement Schedules filed as part of this Report is set forth in Part II, Item 8, which list is incorporated herein by reference. | |
|
|
|
| |
|
|
2. |
Financial Statement Schedules Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements | |
|
|
|
| |
|
|
3. |
Exhibits. | |
****
|
No. |
|
Description |
|
Form |
|
Period Ending |
|
Exhibit |
|
Filing
Date | |
|
|
|
|
|
|
|
|
|
| |
|
3.1 |
|
Articles of Incorporation, as amended and currently in effect |
|
10-K |
|
12/31/2013 |
|
3.2 |
|
4/2/2014 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
3.2 |
|
Certificate of Designations of Series A Junior Participating Preferred Stock of Lifeway Foods, Inc., effective as of November 4, 2024 |
|
10-Q |
|
9/30/2024 |
|
3.1 |
|
11/14/2024 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
3.3 |
|
Second Amended and Restated Bylaws, as amended and currently in effect |
|
Filed herewith |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
4.1 |
|
Description of Securities |
|
Filed herewith |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
4.2 |
|
Shareholder Rights Agreement, dated as of November 4, 2024, by and between Lifeway Foods, Inc. and Computershare Trust Company, N.A., as rights agent |
|
8-A |
|
|
|
4.1 |
|
11/5/2024 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
4.3 |
|
Amendment No. 1 to Shareholder Rights Agreement, dated as of October 29, 2025, by and between the Company and Computershare Trust
Company, N.A., as rights agent
|
|
8-A12B/A |
|
|
|
4.2 |
|
10/29/25 | |
|
4.4 |
|
Cooperation Agreement, dated as of September 30, 2025, by and between Lifeway Foods, Inc. and Danone North America PBC |
|
8-K |
|
|
|
4.1 |
|
10/1/2025 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.1** |
|
Stockholders Agreement dated October 1, 1999 by and among Danone Foods, Inc., Lifeway Foods, Inc., Michael Smolyansky and certain other parties |
|
8-K |
|
|
|
10.11 |
|
10/12/1999 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.2** |
|
Letter Agreement dated December 24, 1999 by and among Danone Foods, Inc., Lifeway Foods, Inc., Michael Smolyansky and certain other parties |
|
8-K |
|
|
|
10.12 |
|
1/12/2000 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.3 |
|
Amended and Restated Loan and Security Agreement dated as of May 7, 2018 among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender. |
|
8-K |
|
|
|
10.1 |
|
5/11/2018 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.4 |
|
Employment Agreement by and between the Company and Amy Feldman, dated as of October 29, 2018 |
|
8-K |
|
|
|
10.1 |
|
11/1/2018 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.5 |
|
Employment Agreement by and between the Company and Eric Hanson, dated as of January 18, 2019 |
|
8-K |
|
|
|
10.1 |
|
1/23/2019 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.6 |
|
First Modification to Amended and Restated Loan and Security Agreement dated as of April 10, 2019 among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender. |
|
10-K |
|
12/31/2018 |
|
10.10 |
|
4/15/2019 | |
****
****
****
****
| | 32 | | |
****
|
No. |
|
Description |
|
Form |
|
Period Ending |
|
Exhibit |
|
Filing
Date | |
|
|
|
|
|
|
|
|
|
| |
|
10.7 |
|
Second Modification to Amended and Restated Loan and Security Agreement, effective as of December 10, 2019 by and among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender. |
|
8-K |
|
|
|
10.1 |
|
12/10/2019 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.8 |
|
Third Modification to Amended and Restated Loan and Security Agreement dated as of September 30, 2020 among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender. |
|
10-Q |
|
9/30/2020 |
|
10.1 |
|
10/6/2020 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.9 |
|
Fourth Modification to Amended and Restated Loan and Security Agreement, dated as of August 18, 2021, by and among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender |
|
8-K |
|
|
|
10.1 |
|
8/20/2021 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.10 |
|
Fifth Modification to Amended and Restated Loan and Security Agreement, dated as of February 5, 2025, by and among Lifeway Foods, Inc., Fresh Made, Inc., Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender |
|
8-K |
|
|
|
10.1 |
|
2/7/2025 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.11 |
|
Sixth Modification to Amended and Restated Loan and Security Agreement dated as of December 29, 2025, by and among Lifeway Foods, Inc., Fresh Made, Inc., Lifeway Wisconsin, Inc. and CIBC Bank USA, as Lender |
|
8-K |
|
|
|
10.1 |
|
12/30/2025 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.12+ |
|
Lifeway Foods, Inc. Omnibus Incentive Plan |
|
8-K |
|
|
|
10.2 |
|
12/18/2015 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.13+ |
|
Notice of Restricted Stock Unit Award |
|
8-K |
|
|
|
10.3 |
|
12/18/2015 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.14+ |
|
Notice of Performance Unit Award |
|
8-K |
|
|
|
10.4 |
|
12/18/2015 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.15+ |
|
Notice of Restricted Stock Award |
|
8-K |
|
|
|
10.5 |
|
12/18/2015 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.16+ |
|
Notice of Non-Qualified Stock Option Award |
|
8-K |
|
|
|
10.6 |
|
12/18/2015 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.17+ |
|
Lifeway Foods, Inc. 2022 Omnibus Incentive Plan |
|
8-K |
|
|
|
10.1 |
|
9/2/2022 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.18+ |
|
Form of Notice of Restricted Stock Unit Award under the Lifeway Foods, Inc. 2022 Omnibus Incentive Plan |
|
10-Q |
|
9/30/2022 |
|
10.7 |
|
11/14/2022 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.19+ |
|
Form of Notice of Performance-Based Restricted Stock Unit Award under the 2022 Omnibus Incentive Plan |
|
10-Q |
|
9/30/2022 |
|
10.8 |
|
11/14/2022 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.20+ |
|
Form of Notice of Deferred Time-Vested Cash Award |
|
8-K |
|
|
|
10.1 |
|
3/11/2026 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.21+ |
|
Form of Notice of Deferred Performance Based Cash Award |
|
8-K |
|
|
|
10.2 |
|
3/11/2026 | |
| | 33 | | |
|
No. |
|
Description |
|
Form |
|
Period Ending |
|
Exhibit |
|
Filing
Date | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.22+ |
|
Lifeway Foods, Inc. 2022 2022 Non-Employee Director Equity and Deferred Compensation Plan |
|
8-K |
|
|
|
10.2 |
|
9/2/2022 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.23+ |
|
Form of Notice of Restricted Stock Unit Award under the Lifeway Foods, Inc. 2022 Non-Employee Director Equity and Deferred Compensation Plan |
|
10-Q |
|
9/30/2022 |
|
10.6 |
|
11/14/2022 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.24+ |
|
First Amendment to the 2022 Non-Employee Director Equity and Deferred Compensation Plan |
|
10-Q |
|
6/30/2024 |
|
10.1 |
|
8/13/2024 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.25+ |
|
Restricted Stock Unit Award Agreement, dated as of April 27, 2022, by and between the Company and Jason Scher |
|
10-K |
|
12/31/2022 |
|
10.29 |
|
3/27/2023 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.26+ |
|
Amended and Restated Employment Agreement, dated as of December 23, 2024, by and between the Company and Julie Smolyansky |
|
8-K |
|
|
|
10.1 |
|
12/23/2024 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.27+ |
|
Retention Bonus Agreement, dated as of December 23, 2025, by and between the Company and Julie Smolyansky |
|
8-K |
|
|
|
10.2 |
|
12/23/2024 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
10.28 |
|
Separation Agreement dated as of June 16, 2025, between Lifeway Foods, Inc. and Amy Feldman. |
|
8-K |
|
|
|
10.1 |
|
6/23/2025 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
19.1 |
|
Lifeway Foods, Inc. Policy on Insider Trading |
|
10-K |
|
12/31/24 |
|
19.1 |
|
3/14/2025 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
21 |
|
List of Subsidiaries of the Registrant |
|
Filed
Herewith |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
23.1 |
|
Consent of Grant Thornton LLP |
|
Filed Herewith |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
24.1 |
|
Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Julie Smolyansky |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Eric Hanson |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
32.1* |
|
Section 1350 Certification of Julie Smolyansky |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
32.2* |
|
Section 1350 Certification of Eric Hanson |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
97 |
|
Lifeway Foods, Inc. Incentive Compensation Clawback Policy |
|
10-K |
|
12/31/24 |
|
97 |
|
3/14/2025 | |
|
101* |
|
The following financial statements from the Companys Annual Report on Form 10-K for the year ended December 31, 2025, formatted in inline XBRL, include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. | |
**__________________**
|
+ |
Indicates a management contract or compensatory plan or arrangement. | |
|
* |
This exhibit is furnished and not deemed filed with the Securities and Exchange Commission, and is not incorporated by reference into any filing of Lifeway Foods, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of filing this Form 10-K and irrespective of any general incorporation language contained in such filing. | |
|
** |
The Company believes this agreement is null and void but has included it in this Exhibit List for completeness. | |
**ITEM 16.FORM 10-K SUMMARY**
****
Not applicable.
| | 34 | | |
****
**SIGNATURES**
****
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
LIFEWAY FOODS, INC. |
| |
|
|
|
| |
|
|
|
|
| |
|
Date: March 17, 2026 |
By: |
/s/ Julie Smolyansky |
| |
|
|
|
Julie Smolyansky |
| |
|
|
|
Chief Executive Officer, President, and Director |
| |
|
|
|
|
| |
|
Date: March 17, 2026 |
By: |
/s/ Eric Hanson |
| |
|
|
|
Eric Hanson |
| |
|
|
|
Chief Financial & Accounting Officer |
| |
| | 35 | | |
**POWER OF ATTORNEY**
KNOW ALL MEN BY THESE PRESENTS, that each individual
whose signature appears below hereby constitutes and appoints Julie Smolyansky and Eric Hanson, and each of them individually, his or
her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and
all amendments to this Report together with all schedules and exhibits thereto, (ii) act on, sign and file with the Securities and Exchange
Commission any and all exhibits to this Report and any and all exhibits and schedules thereto, (iii) act on, sign and file any and all
such certificates, notices, communications, reports, instruments, agreements and other documents as may be necessary or appropriate in
connection therewith and (iv) take any and all such actions which may be necessary or appropriate in connection therewith, granting unto
such agents, proxies and attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act
and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, and hereby
approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact, any of them or any of his, her or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
|
Date: March 17, 2026 |
|
/s/ Julie Smolyansky |
| |
|
|
|
Julie Smolyansky |
| |
|
|
|
Chief Executive Officer, President, and Director |
| |
|
|
|
(Principal Executive Officer) |
| |
|
Date: March 17, 2026 |
|
/s/ Eric Hanson |
| |
|
|
|
Eric Hanson |
| |
|
|
|
Chief Financial & Accounting Officer |
| |
|
|
|
(Principal Financial & Accounting Officer) |
| |
|
Date: March 17, 2026 |
|
/s/ Kirk Chartier |
| |
|
|
|
Kirk Chartier |
| |
|
|
|
Director |
| |
|
Date: March 17, 2026 |
|
/s/ Juan Carlos Dalto |
| |
|
|
|
Juan Carlos Dalto |
| |
|
|
|
Director |
| |
|
Date: March 17, 2026 |
|
/s/ Rachel Drori |
| |
|
|
|
Rachel Drori |
| |
|
|
|
Director |
| |
|
Date: March 17, 2026 |
|
/s/ Andee Harris |
| |
|
|
|
Andee Harris |
| |
|
|
|
Director |
| |
|
Date: March 17, 2026 |
|
/s/ Susan Hultquist |
| |
|
|
|
Susan Hultquist |
| |
|
|
|
Director |
| |
|
Date: March 17, 2026 |
|
/s/ Dorri McWhorter |
| |
|
|
|
Dorri McWhorter |
| |
|
|
|
Director |
| |
|
Date: March 17, 2026 |
|
/s/ Jason Scher |
| |
|
|
|
Jason Scher |
| |
|
|
|
Director |
| |
| | 36 | | |