================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number: 0-17363
LIFEWAY FOODS, INC.
------------------------------------------------------------------------
(Exact name of small business issuer as specified in it charter)
Illinois 36-3442829
--------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6431 WEST OAKTON, MORTON GROVE, ILLINOIS 60053
----------------------------------------------
(Address of principal executive offices)
(847) 967-1010
----------------------------------------
(Issuer's telephone number)
---------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 30, 2005, the issuer had
8,392,455 shares of common stock, no par value, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
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INDEX
PART I - FINANCIAL INFORMATION.................................................3
ITEM 1. FINANCIAL STATEMENTS...............................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........17
ITEM 3. CONTROLS AND PROCEDURES...........................................19
PART II - OTHER INFORMATION...................................................19
ITEM 2. LEGAL PROCEEDINGS.................................................19
ITEM 5. OTHER INFORMATION.................................................20
ITEM 6. EXHIBITS..........................................................20
SIGNATURE.....................................................................21
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFEWAY FOODS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 and 2004
AND DECEMBER 31, 2004
June 30, December 31,
------------------------------ ------------
2005 2004 2004
------------ ------------ ------------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 2,024,384 $ 5,241,815 $ 5,773,285
Marketable securities 6,301,790 6,548,911 6,741,987
Accounts receivable, net of allowance for doubtful
accounts of $15,000 at June 30, 2005 and 2004
and December 31, 2004 2,556,808 1,921,537 2,024,036
Other receivables 106,896 87,473 72,137
Inventories 1,106,211 991,041 905,697
Prepaid expenses and other current assets 102,448 524 7,260
Deferred income taxes 55,352 51,480 --
Refundable income taxes 172,635 376,808 258,617
------------ ------------ ------------
TOTAL CURRENT ASSETS 12,426,524 15,219,589 15,783,019
PROPERTY AND EQUIPMENT, NET 7,757,150 3,531,856 3,420,138
INTANGIBLE ASSETS
Goodwill 75,800 -- 75,800
Other intangible assets, net of amortization of $59,379
and $26,990 at June 30, 2005 and December 31, 2004 376,621 -- 409,010
------------ ------------ ------------
TOTAL INTANGIBLE ASSETS 452,421 -- 484,810
TOTAL ASSETS $ 20,636,095 $ 18,751,445 $ 19,687,967
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of notes payable $ 12,662 $ 38,198 $ 8,784
Accounts payable 659,351 802,035 641,651
Accrued expenses 427,307 151,667 195,541
Deferred income taxes -- -- 36,214
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,099,320 991,900 882,190
NOTES PAYABLE 454,046 447,084 463,541
DEFERRED INCOME TAXES 381,049 434,837 424,039
STOCKHOLDERS' EQUITY
Common stock 6,509,267 6,509,267 6,509,267
Paid-in-capital 74,751 28,270 64,314
Stock subscription receivable -- (5,000) --
Treasury stock, at cost (1,043,685) (666,366) (649,039)
Retained earnings 13,156,711 11,019,724 11,874,475
Accumulated other comprehensive income (loss), net of taxes 4,636 (8,271) 119,180
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,701,680 16,877,624 17,918,197
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,636,095 $ 18,751,445 $ 19,687,967
============ ============ ============
See accompanying notes to financial statements.
3
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, December 31,
------------------------------ ------------------------------ ------------
2005 2004 2005 2004 2004
------------ ------------ ------------ ------------ ------------
SALES $ 5,072,567 $ 4,002,093 $ 9,729,427 $ 7,937,172 $ 16,319,210
Cost of goods sold 2,956,267 2,265,802 $ 5,534,223 4,365,000 9,034,971
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 2,116,300 1,736,291 4,195,204 3,572,172 7,284,239
Operating expenses 1,279,043 1,049,402 $ 2,434,223 1,931,431 4,333,788
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 837,257 686,889 1,760,981 1,640,741 2,950,451
Other income (expense):
Interest and dividend income 75,289 34,085 140,565 75,209 185,575
Interest expense (6,876) (7,907) (14,318) (15,518) (31,441)
Gain (loss) on sale of marketable
securities, net (36,153) 40,962 161,987 309,329 354,128
Gain (loss) on marketable securities
classified as trading 11,520 (27,758) 15,036 (27,758) (16,487)
Total other income 43,780 39,382 303,270 341,262 491,775
------------ ------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 881,037 726,271 2,064,251 1,982,003 3,442,226
Provision for income taxes 324,192 294,162 782,015 784,695 1,390,167
------------ ------------ ------------ ------------ ------------
NET INCOME $ 556,845 $ 432,109 $ 1,282,236 $ 1,197,308 $ 2,052,059
============ ============ ============ ============ ============
BASIC AND DILUTED EARNINGS PER
COMMON SHARE 0.07 0.05 0.15 0.14 0.24
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 8,397,699 8,437,544 8,415,080 8,437,544 8,439,159
============ ============ ============ ============ ============
COMPREHENSIVE INCOME
NET INCOME $ 556,845 $ 432,109 $ 1,282,236 $ 1,197,308 $ 2,052,059
Other comprehensive income (loss),
net of tax:
Unrealized gains (losses) on
marketable securities
(net of tax benefits) 36,251 (47,050) (20,471) (25,628) 170,107
Less reclassification adjustment
for gains (losses)
included in net income (net of taxes) 21,153 17,615 (94,073) (138,880) (207,164)
------------ ------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 614,249 $ 402,674 $ 1,167,692 $ 1,032,800 $ 2,015,002
============ ============ ============ ============ ============
See accompanying notes to financial statements.
4
Common Stock, No Par Value
10,000,000 Shares
Authorized # of Shares
----------------------------- of
# of Shares # of Shares Treasury Common Paid In
Issued Outstanding Stock Stock Capital
------------ ------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 2003 8,636,888 8,436,888 200,000 $ 6,509,267 $ --
Issuance of treasury stock -- 4,550 (4,550) -- 64,314
Other comprehensive income (loss):
Unrealized losses on securities, net of
taxes and reclassification adjustment -- -- -- -- --
Payment on subscription receivable -- -- -- -- --
Net income for the year
ended December 31, 2004 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 2004 8,636,888 8,441,438 195,450 $ 6,509,267 $ 64,314
Issuance of treasury stock -- 1,017 (1,017) -- 10,437
Redemption of treasury stock -- (50,000) 50,000 -- --
Other comprehensive income (loss):
Unrealized losses on securities, net of
taxes and reclassification adjustment -- -- -- -- --
Net income for the six months
ended June 30, 2005 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCES AT JUNE 30, 2005 8,636,888 8,392,455 244,433 $ 6,509,267 $ 74,751
============ ============ ============ ============ ============
Accumulated
Other
Stock Comprehensive
Subscription Treasury Retained Income (Loss),
Receivable Stock Earnings Net of Tax Total
------------ ------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 2003 $ (15,000) $ (679,956) $ 9,822,416 $ 156,237 $ 15,792,964
Issuance of treasury stock -- 30,917 -- -- 95,231
Other comprehensive income (loss):
Unrealized losses on securities, net of
taxes and reclassification adjustment -- -- -- (37,057) (37,057)
Payment on subscription receivable 15,000 -- -- -- 15,000
Net income for the year
ended December 31, 2004 -- -- 2,052,059 -- 2,052,059
------------ ------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 2004 $ -- $ (649,039) $ 11,874,475 $ 119,180 $ 17,918,197
Issuance of treasury stock -- 6,908 -- -- 17,345
Redemption of treasury stock -- (401,554) -- -- (401,554)
Other comprehensive income (loss):
Unrealized losses on securities, net of
taxes and reclassification adjustment -- -- -- (114,544) (114,544)
Net income for the six months
ended June 30, 2005 -- -- 1,282,236 -- 1,282,236
------------ ------------ ------------ ------------ ------------
BALANCES AT JUNE 30, 2005 $ -- $ (1,043,685) $ 13,156,711 $ 4,636 $ 18,701,680
============ ============ ============ ============ ============
See accompanying notes to financial statements.
5
Six Months Ended Year Ended
June 30, December 31,
------------------------------ ------------
2005 2004 2004
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
NET INCOME $ 1,282,236 $ 1,197,308 $ 2,052,059
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 318,346 315,315 669,994
Gain on sale of marketable securities, net (161,987) (309,329) (354,128)
(Gain)/Loss on marketable securities classified as trading (15,036) 27,758 16,487
Deferred income taxes (53,968) 58,335 45,560
Treasury stock issued for services 17,345 -- 95,231
(Increase) decrease in operating assets:
Accounts receivable (532,772) (121,396) (223,895)
Other receivables (34,759) 78,294 93,630
Inventories (200,514) (179,469) (94,125)
Refundable income taxes 85,982 (70,637) 47,554
Prepaid expenses and other current assets (95,188) 267 (6,469)
Increase (decrease) in operating liabilities:
Accounts payable 17,700 6,714 (153,670)
Accrued expenses 231,766 (31,933) 11,941
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 859,151 971,227 2,200,169
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Purchases of marketable securities (2,454,680) (5,111,087) (6,265,671)
Sale of marketable securities 2,876,669 4,861,951 6,096,652
Purchases of property and equipment (4,622,870) (114,439) (330,411)
Acquisition of Ilya's Farms, Inc.
net of assets acquired -- -- (511,800)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (4,200,881) (363,575) (1,011,230)
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Proceeds from stock subscription receivable -- 41,860 15,000
Purchases of treasury stock (401,554) 10,000 --
Repayment of notes payable (5,617) (15,516) (28,473)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (407,171) 36,344 (13,473)
------------ ------------ ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (3,748,901) 643,996 1,175,466
Cash and cash equivalents at the beginning of the period 5,773,285 4,597,819 4,597,819
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 2,024,384 $ 5,241,815 $ 5,773,285
============ ============ ============
See accompanying notes to financial statements.
6
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Note 1 - NATURE OF BUSINESS
Lifeway Foods, Inc. (The "Company") commenced operations in February 1986 and
incorporated under the laws of the state of Illinois on May 19, 1986. The
Company's principal business activity is the production of dairy products.
Specifically, the Company produces Kefir, a drinkable product which is similar
to but distinct from yogurt, in several flavors sold under the name "Lifeway's
Kefir;" a plain farmer's cheese sold under the name "Lifeway's Farmer's Cheese;"
a fruit sugar-flavored product similar in consistency to cream cheese sold under
the name of "Sweet Kiss;" and a dairy beverage, similar to Kefir, with increased
protein and calcium, sold under the name "Basics Plus." The Company also
produces several soy-based products under the name "Soy Treat" and a
vegetable-based seasoning under the name "Golden Zesta." The Company currently
distributes its products throughout the Chicago Metropolitan area through local
food stores. In addition, the products are sold throughout the United States and
Ontario, Canada by distributors. The Company also distributes some of its
products to Eastern Europe. During the year ended December 31, 2004 and for the
six months ended June 30, 2005 and 2004, export sales of the Company were
approximately $37,050, $0 and $37,050, respectively.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows:
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, LFI Enterprises, Inc. All
significant intercompany accounts and transactions have been
eliminated.
Use of estimates
----------------
The preparation of financial statements in conformity with the Public
Company Accounting Oversight Board (PCAOB) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition
-------------------
Sales represent sales of Company produced dairy products that are
recorded at the time of shipment. In addition, shipping costs invoiced
to the customers are included in net sales and the related cost in
cost of sales.
7
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Cash and cash equivalents
-------------------------
All highly liquid investments purchased with an original maturity of
three months or less are considered to be cash equivalents.
The Company maintains cash deposits at several institutions located in
the greater Chicago, Illinois and Philadelphia, Pennsylvania
metropolitan areas. Deposits at each institution are insured up to
$100,000 by the Federal Deposit Insurance Corporation or the
Securities Investor Protector Corporation.
Bank balances of amounts reported by financial institutions are
categorized as follows:
June 30, December 31,
------------------------- ----------
2005 2004 2004
---------- ---------- ----------
Amounts insured $ 403,372 $ 400,000 $ 472,341
Uninsured and uncollateralized amounts 1,916,182 5,069,650 5,456,188
---------- ---------- ----------
Total bank balances $2,319,554 $5,469,650 $5,928,529
========== ========== ==========
Marketable securities
---------------------
Marketable securities are classified as available-for-sale or trading
and are stated at fair value or quoted prices. Gains and losses
related to marketable securities sold are determined by the specific
identification method.
Accounts receivable
-------------------
Credit terms are extended to customers in the normal course of
business. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral.
Accounts receivable are recorded at invoice amounts, and reduced to
their estimated net realizable value by recognition of an allowance
for doubtful accounts. The Company's estimate of the allowance for
doubtful accounts is based upon historical experience, its evaluation
of the current status of specific receivables, and unusual
circumstances, if any. Accounts are considered past due if payment is
not made on a timely basis in accordance with the Company's credit
terms. Accounts considered uncollectible are charged against the
allowance.
Inventories
-----------
Inventories are stated at lower of cost or market, cost being
determined by the first-in, first-out method.
Property and equipment
----------------------
Property and equipment are stated at depreciated cost or fair value
where depreciated cost is not recoverable. Depreciation is computed
using the straight-line method. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is charged
to income as incurred; significant renewals and betterments are
capitalized.
Property and equipment are being depreciated over the following useful
lives:
Category Years
--------------------------- ---------
Buildings and improvements 31 and 39
Machinery and equipment 5 - 12
Office equipment 5 - 7
Vehicles 5
8
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Intangible assets
-----------------
The Company accounts for intangible assets at historical cost.
Intangible assets acquired in a business combination are recorded
under the purchase method of accounting at their estimated fair values
at the date of acquisition. Goodwill represents the excess purchase
price over the fair value of the net tangible and other intangible
assets acquired. Goodwill is not amortized. The Company amortizes
other intangible assets over their estimated useful lives, as
disclosed in the table below.
Goodwill is reviewed for impairment at least annually. The Company
will perform its annual impairment test on July 23 (or the first
business day immediately following that date). Since the Company only
has one reporting unit, the test is based on a fair value approach
applied for the entire company.
The Company will review intangible assets and their related useful
lives at least once a year to determine if any adverse conditions
exist that would indicate the carrying value of these assets may not
be recoverable. This review is called an impairment assessment. The
Company will conduct more frequent impairment assessments if certain
conditions exist, including: 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 market place
including changes in the prices paid for the Company's products or
changes in the size of the market for the Company's products.
If the estimate of an intangible asset's remaining useful life is
changed, the remaining carrying amount of the intangible asset is
amortized prospectively over the revised remaining useful life.
Intangible assets are being amortized over the following useful lives:
Category Years
-------------------------------- ---------------
Recipes 4
Customer lists and other
customer related intangibles 8
Lease agreement 7
Income taxes
------------
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax
purposes in different periods. Deferred taxes are classified as
current or non-current, depending on the classification of the assets
and liabilities to which they relate. Deferred taxes arising from
temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse.
The principal sources of temporary differences are different
depreciation and amortization methods for financial statement and tax
purposes, unrealized gains or losses related to marketable securities,
capitalization of indirect costs for tax purposes, and the recognition
of an allowance for doubtful accounts for financial statement
purposes.
Treasury stock
--------------
Treasury stock is recorded using the cost method.
9
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Advertising costs
-----------------
The Company expenses advertising costs as incurred. During the years
ended December 31, 2004 and for the six months ended June 30, 2005 and
2004, approximately $909,179, $544,189 and $409,461, of such costs
respectively, were expensed.
Earning per common share
------------------------
Earnings per common share were computed by dividing net income
available to common stockholders by the weighted average number of
common shares outstanding during the period. For all periods
presented, diluted and basic earnings per share were the same, as the
effect of dilutive securities options outstanding was not significant.
Note 3 - ACQUISITION OF ILYA'S FARMS, INC.
On July 23, 2004, LFI Enterprises, Inc., an Illinois corporation and
wholly owned subsidiary of Lifeway ("LFIE"), acquired certain assets
of Ilya's Farms, Inc., a Pennsylvania corporation. The aggregate
purchase price was $575,600, paid by LFIE in cash from its current
assets.
As a result of the acquisition LFIE now manufactures and distributes
certain cream cheese products under the brand name "Ilya's Farms" in
the Philadelphia, Pennsylvania metropolitan area. The results of
operations of the acquired business have been included in the
consolidated financial statements since the acquisition date.
The following table summarizes the values of the assets and inventory
acquired at the date of acquisition, July 23, 2004.
Assets and Inventory Acquired Value
------------------------------ ----------
Machinery and equipment $ 38,200
Inventory 25,600
Intangible assets 511,800
----------
$ 575,600
Total aggregate purchase price
==========
Intangible assets, and the related accumulated amortization, consist
of the following as of June 30, 2005:
Accumulated
Cost Amortization
---------- ----------
Recipes $ 43,600 $ 9,992
Customer lists and other customer
related intangibles 305,200 37,968
Lease acquisition 87,200 11,419
Goodwill 75,800 --
---------- ----------
$ 511,800 $ 59,379
========== ==========
10
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Note 3 - ACQUISITION OF ILYA'S FARMS, INC. - CONTINUED
Amortization expense is expected to be as follows for the 12 months
ending June 30:
2006 $ 64,777
2007 64,777
2008 64,777
2009 60,235
2010 50,244
Thereafter 71,811
---------
$ 376,621
=========
Amortization expense during the six months ended June 30, 2005 and
year ended December 31, 2004 was $32,389 and $26,990. Goodwill
amortization, for tax purposes, totaled $2,527 and $2,527 for the six
months ended June 30, 2005 and year ended December 31, 2004,
respectively.
Note 4 - MARKETABLE SECURITIES
The cost and fair value of marketable securities classified as
available for sale and trading are as follows:
Loss on
Marketable
Securities
Unrealized Unrealized Classified as Fair
June 30, 2005 Cost Gains Losses Trading Value
------------- ---------- ---------- ---------- ---------- ----------
Equities and Mutual
Funds $3,693,256 $ 200,374 $ (142,171) -- $3,751,459
Preferred Securities 40,000 -- (2,600) -- 37,400
Certificates of Deposit 150,000 -- (6,270) -- 143,730
Corporate Bonds 2,287,211 -- (42,900) -- 2,244,311
Municipal bonds,
maturing within five
years 24,875 1,466 -- -- 26,341
Government agency
obligations, maturing
after five years 100,000 -- -- (1,451) 98,549
---------- ---------- ---------- ---------- ----------
Total $6,295,342 $ 201,840 $ (193,941) (1,451) $6,301,790
========== ========== ========== ========== ==========
11
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Note 4 - MARKETABLE SECURITIES - Continued
Loss on
Marketable
Securities
Unrealized Unrealized Classified Fair
June 30, 2004 Cost Gains Losses as Trading Value
------------- ---------- ---------- ---------- ---------- ----------
Equities/Mutual Funds $3,605,678 $ 113,749 $ (90,838) $ -- $3,628,589
Preferred Securities 75,505 820 (2,245) -- 74,080
Certificates of Deposit 150,000 -- (8,460) -- 141,540
Corporate Bonds 1,474,120 -- (26,309) -- 1,447,811
Municipal bonds,
maturing within five
years 132,224 -- (808) -- 131,416
Government agency
Obligations,
maturing
After five years 1,153,234 -- -- (27,759) 1,125,475
---------- ---------- ---------- ---------- ----------
Total $6,590,761 $ 114,569 $ (128,660) $ (27,759) $6,548,911
========== ========== ========== ========== ==========
Loss on
Marketable
Securities
Unrealized Unrealized Classified Fair
December 31, 2004 Cost Gains Losses as Trading Value
----------------- ---------- ---------- ---------- ---------- ----------
Equities and Mutual
Funds $3,414,459 $ 341,230 $ (120,991) $ -- $3,634,698
Preferred Securities 65,000 596 -- -- 65,596
Certificates of Deposit 150,000 -- (4,935) -- 145,065
Corporate Bonds 1,639,275 -- (14,862) -- 1,624,413
Municipal bonds,
maturing within five
years 132,226 1,992 -- -- 134,218
Government agency
obligations, maturing
after five years 1,154,484 -- -- (16,487) 1,137,997
---------- ---------- ---------- ---------- ----------
Total $6,555,444 $ 343,818 $ (140,788) $ (16,487) $6,741,987
========== ========== ========== ========== ==========
Proceeds from the sale of marketable securities were $6,096,652,
$2,876,669 and $4,861,951 during the year ended December 31, 2004 and
for the six months ended June 30, 2005 and 2004, respectively.
12
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Note 4 - MARKETABLE SECURITIES - Continued
Gross gains of $354,128, $161,987 and $309,329 were realized on these
sales during the year ended December 31, 2004 and for the six months
ended June 30, 2005 and 2004, respectively.
Note 5 - INVENTORIES
Inventories consist of the following:
June 30, December 31,
----------------------------- ------------
2005 2004 2004
------------ ------------ ------------
Finished goods $ 489,160 $ 510,352 $ 404,206
Production supplies 359,625 244,197 297,791
Raw materials 257,426 236,492 203,700
------------ ------------ ------------
Total inventories $ 1,106,211 $ 991,041 $ 905,697
============ ============ ============
Note 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30, December 31,
----------------------------- ------------
2005 2004 2004
------------ ------------ ------------
Land $ 909,232 $ 470,900 $ 470,900
Buildings and improvements 6,427,993 2,439,321 2,481,257
Machinery and equipment 5,578,369 5,249,052 5,394,932
Vehicles 459,815 380,743 408,898
Office equipment 82,211 78,763 78,763
------------ ------------ ------------
13,457,620 8,618,779 8,834,750
Less accumulated depreciation 5,700,470 5,086,923 5,414,612
------------ ------------ ------------
Total property and equipment $ 7,757,150 $ 3,531,856 $ 3,420,138
============ ============ ============
On May 27, 2005, the Company acquired a 100,000 sq. ft. distribution &
warehouse facility at a total cost of $4,380,000 cash. Subsequent to
June 30, 2005, the Company obtained a long-term mortgage with a
domestic bank.
Depreciation expense during the year ended December 31, 2004 and for
the six months ended June 30, 2005 and 2004 was $643,004, $285,957 and
$315,315, respectively.
Note 7 - NOTES PAYABLE
Notes payable consist of the following:
June 30, December 31,
----------------------------- ------------
2005 2004 2004
------------ ------------ ------------
Mortgage note payable to a bank, payable in monthly
installments of $3,273 including interest at 6.25%,
with a balloon payment of $454,275 due September
25, 2006. Collateralized by real estate $ 466,708 $ 476,874 $ 472,325
Notes payable to finance companies; paid in full November 2004 -- 8,408 --
------------ ------------ ------------
Total notes payable 466,708 485,282 472,325
Less current maturities 12,662 38,198 8,784
------------ ------------ ------------
$ 454,046 $ 447,084 $ 463,541
Total long-term portion ============ ============ ============
13
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Maturities of notes payables are as follows:
As of June 30,
2005 $ 12,662
2006 454,046
---------
Total $ 466,708
=========
Note 8 - PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
For the
For the Six Months Ended Year Ended
June 30, December 31,
----------------------------- ------------
2005 2004 2004
------------ ------------ ------------
Current:
Federal $ 681,731 $ 591,271 $ 1,084,557
State 154,252 135,089 260,050
------------ ------------ ------------
Total current 835,983 726,360 1,334,607
Deferred (53,968) 58,335 45,560
------------ ------------ ------------
Provision for income taxes $ 782,015 $ 784,695 $ 1,390,167
============ ============ ============
A reconciliation of the provision for income taxes and the income tax
computed at the statutory rate is as follows:
For the
For the Six Months Ended Year Ended
June 30, December 31,
----------------------------- ------------
2005 2004 2004
------------ ------------ ------------
Federal income tax expense $ 701,846 $ 673,881 $ 1,084,921
computed at the statutory rate
State taxes, expense 99,455 95,493 251,283
Permanent book/tax differences (19,286) 15,321 53,963
------------ ------------ ------------
Provision for income taxes $ 782,015 $ 784,695 $ 1,390,167
============ ============ ============
14
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Amounts for deferred tax assets and liabilities are as follows:
For the
For the Six Months Ended Year Ended
June 30, December 31,
----------------------------- ------------
2005 2004 2004
------------ ------------ ------------
Non-current deferred tax liabilities
arising from:
Temporary differences - principally
Book/tax, accumulated depreciation $ (381,049) $ (434,837) $ (424,039)
Current deferred tax liability arising from:
Book/tax, unrealized losses (gains)
on marketable securities (3,262) 5,820 (83,850)
Current deferred tax assets arising
from:
Book/tax, inventory 58,614 45,660 47,636
------------ ------------ ------------
Total current deferred tax assets
(liabilities) 55,352 51,480 (36,214)
------------ ------------ ------------
Net deferred tax liability $ (325,697) $ (383,357) $ (460,253)
============ ============ ============
Note 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows:
(Unaudited) For the
For the Six Months Ended Year Ended
June 30, December 31,
----------------------------- ------------
2005 2004 2004
------------ ------------ ------------
Interest $ 14,318 $ 15,518 $ 31,441
Income taxes $ 751,757 $ 797,687 $ 1,298,348
Note 10 - STOCK OPTION PLANS
The Company has a registration statement filed with the Securities and
Exchange Commission in connection with a Consulting Service
Compensation Plan covering up to 600,000 of the Company's common stock
shares. Pursuant to such Plan, the Company may issue common stock or
options to purchase common stock to certain consultants, service
providers, and employees of the Company. There were 468,000 shares
available for issuance under the Plan at December 31, 2004 and at June
30, 2005 and 2004. The option price, number of shares, grant date, and
vesting terms are determined at the discretion of the Company's Board
of Directors.
As of December 31, 2004 and at June 30, 2005 and 2004, there were no
stock options outstanding or exercisable.
15
LIFEWAY FOODS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2005 and 2004
and December 31, 2004
Note 10 - STOCK OPTION PLANS - Continued
On February 12, 2004, Lifeway's Board of Directors approved awards of
an aggregate amount of 5,100 shares to be awarded under its Employee
and Consulting Services and Compensation Plan to certain employees and
consultants for services rendered to the Company. The stock awards
were made on April 1, 2004 and have vesting periods that vary from six
months to one year, depending upon the individual grantee. The expense
for the awards is measured as of April 1, 2004 at $20.93 per share for
5,100 shares, or a total stock award expense of $106,743. This expense
is being recognized as the stock awards vest beginning with the
recognition of $41,860 for 2,000 shares vested on April 1, 2004. There
were a total of 4,550 vested shares resulting in a stock award expense
of $95,231 for the year ended December 31, 2004, and an additional 550
shares vested during the quarter ended June 30, 2005 for an additional
expense of $11,512.
On May 23, 2005, Lifeway's Board of Directors approved awards of an
aggregate amount of 5,600 shares to be awarded under its Employee and
Consulting Services and Compensation Plan to certain employees and
consultants for services rendered to the Company. The stock awards
were made on June 1, 2005 and have vesting periods of one year. The
expense for the awards is measured as of June 1, 2005 at $12.50 per
share for 5,600 shares, or a total stock award expense of $70,000.
This expense will be recognized as the stock awards vest in 12 equal
portions of $5,833, or 466 shares per month for one year.
Note 11 - STOCK SPLIT
On February 12, 2004, the Board of Directors of the Company declared a
two-for-one stock split of the common stock of the Company payable on
March 8, 2004 to all of the Company's shareholders of record as of
February 27, 2004.
As a result of the stock split, shareholders received two shares of
common stock for every one share held on the record date. Upon
completion of the split, the total number of shares of common stock
outstanding increased from 4,218,444 to 8,436,888.
The earnings per share calculations as presented on the consolidated
statements of income and comprehensive income and the number of shares
issued and outstanding per statement of changes in stockholders'
equity have been adjusted to reflect split adjusted share amounts.
Note 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is as
follows at:
------------------------- ------------------------- -------------------------
June 30, June 30, December 31,
2005 2004 2005
------------------------- ------------------------- -------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash $2,024,384 $2,024,384 $5,241,815 $5,241,815 $5,773,285 $5,773,285
equivalents
Marketable securities $6,301,790 $6,301,790 $6,548,911 $6,548,911 $6,741,987 $6,741,987
Notes payable $ 466,708 $ 464,169 $ 485,282 $ 461,711 $ 472,325 $ 469,696
The carrying values of cash and cash equivalents, and marketable
securities approximate fair values. The fair value of the notes
payable is based on the discounted value of contractual cash flows.
The discount rate is estimated using rates currently offered for debt
with similar maturities.
Note 13 - PENDING LITIGATION
On December 4, 2004 a former employee requested a Motion for Summary
Judgment on the issue of Liability in a lawsuit filed against the
Company by the former employee. The motion was granted on February 10,
2005 and on February 18, 2005 the case was referred to a Magistrate
Judge for a settlement conference.
The lawsuit alleges non payment of overtime wages in violation of
federal employment laws, with an estimated amount between $40,000 and
$50,000. The suit was filed in the United States District Court for
the Northern District of Illinois on behalf of all employees who were
classified as non-exempt during 2001 through 2003. The Company has
accrued a $45,000 liability in anticipation of a settlement.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
COMPARISON OF QUARTER ENDED JUNE 30, 2005 TO QUARTER ENDED JUNE 30, 2004
------------------------------------------------------------------------
The following analysis should be read in conjunction with the unaudited
financial statements of the Company and related notes included elsewhere in this
quarterly report and the audited financial statements and Management's
Discussion and Analysis contained in our Form 10-KSB, for the fiscal year ended
December 31, 2004, and in the Management's Discussion and Analysis contained in
our Form 10-QSB, for the fiscal quarter ended March 31, 2005.
RESULTS OF OPERATIONS
Sales increased by $1,070,474 (approximately 27%) to $5,072,567 during the three
month period ended June 30, 2005 from $4,002,093 during the same three month
period in 2004. This increase is primarily attributable to increased sales and
awareness of Lifeway's existing drinkable dairy products including La Fruta, and
its flagship line, Kefir. Sav a Lot, which was one of Lifeway's largest
customers, and that accounted for $160,617 in sales in the second quarter 2004,
ceased ordering at the end of the second quarter of 2004, and therefore was
absent from the second quarter of 2005.
Lifeway's wholly-owned subsidiary, LFI Enterprises, Inc. ("LFIE") accounted for
$264,807 of total sales revenues during the second quarter of 2005. Of the total
$264,807 revenues from LFIE, $133,147 was earned due to sales of Lifeway's Kefir
and Farmer Cheese products sent from our Morton Grove, Illinois facility to
Philadelphia, Pennsylvania for distribution in the tri-state area of
Pennsylvania, New Jersey and New York. The remaining $131,660 of LFIE revenues
for the second quarter of 2005 was earned from sales of the Cream Cheese Gourmet
line of products acquired from Ilya's Farms, Inc. in the third quarter of 2004.
Cost of goods sold as a percentage of sales was approximately 58% during the
second quarter 2005, compared to about 57% during the same period in 2004. The
average cost of milk, Lifeway's largest cost of goods sold component, was
similar in the second quarter 2005 compared to the same period in 2004.
Beginning January 1, 2005, the minimum wage payable to Company's employees in
Illinois increased approximately 18%. This higher wage increase (and indirect
pressure for additional increases) has had a negative impact on our gross
margins in 2005, when compared to 2004. We intend to primarily offset these wage
increases by continuing to invest in the automation of our production processes.
As we increased our shipments, the rise in fuel and transportation costs in the
second quarter, when compared to the same period a year ago, had a negative
impact on our gross margins. We intend to primarily offset these higher
transportation costs by streamlining our operations and thereby decreasing our
operating expenses as a percentage of sales.
Operating expenses as a percentage of sales was approximately 25% during the
second quarter 2005, compared to about 26% during the same period in 2004. This
decrease is primarily attributable to our continuing efforts to improve our
production automation, through capital investments, thereby improving our
overall operating income. Lifeway also recognized an expense related to an
increase in a reserve established with respect to a lawsuit brought by a
previous employee, as discussed in Part II, Item 3 of this report.
Provision for income taxes was $324,192 during the second quarter 2005 compared
with $294,162 during the same period in 2004. Income taxes are discussed in Note
8 of the Notes to Consolidated Financial Statements.
COMPARISON OF SIX MONTH PERIOD ENDED JUNE 30, 2005 TO SIX MONTH PERIOD ENDED
----------------------------------------------------------------------------
JUNE 30, 2004
-------------
RESULTS OF OPERATIONS
Sales increased by $1,792,255 (approximately 23%) to $9,729,427 during the six
month period ended June 30, 2005 from $7,937,172 during the same six month
period in 2004. This increase is primarily attributable to increased sales and
awareness of Lifeway's existing drinkable dairy products including La Fruta, and
its flagship line, Kefir. Sav a Lot, which was one of Lifeway's largest
17
customers, and that accounted for $522,617 in sales during the first six months
of 2004, ceased ordering at the end of the second quarter of 2004, and therefore
was absent from this six month period.
Cost of goods sold as a percentage of sales was approximately 57% during the six
month period ended June 30, 2005, compared to about 55% during the same period
in 2004. The average cost of milk, Lifeway's largest cost of goods sold
component, was approximately 20% higher in the first quarter 2005, compared to
the same period in 2004, but was similar in the second quarter 2005 compared to
the same period in 2004. Beginning January 1, 2005, the minimum wage payable to
Company's employees in Illinois increased approximately 18%. This higher wage
increase (and indirect pressure for additional increases) has had a negative
impact on our gross margins in 2005, when compared to 2004. We intend to
primarily offset these wage increases by continuing to invest in the automation
of our production processes.
Total other income for the six months ended June 30, 2005 was $303,270, compared
with $341,262 during the same period in 2004. This decrease is primarily
attributable to a higher gain on the sale of marketable securities in 2004, when
compared to the same period in 2005.
SOURCES AND USES OF CASH
Net cash used in investing activities was $4,200,881 during the six months ended
June 30,2005, which is an increase of $3,837,306 compared to the same period in
2004. This increase is primarily due to the Company's purchase of a storage and
distribution facility.
Net cash used in financing activities was $407,171 during the six months June
30, 2005, which is an increase of $443,515 compared to the same period in 2004.
This increase is primarily attributable to the purchase of treasury stock. The
Company purchased 50,000 shares of its treasury stock at a total cost of
$401,554 in the first six months of 2005.
During the six month period ended June 20, 2005, Lifeway experienced positive
investing cash flows in the amount of $421,989. Our efforts in this regard
during the first two calendar quarters of 2005 also are reflected by a gain of
$177,023 on the sale of marketable securities evident on the Company's
consolidated income statement, which appears in this quarterly report. We
believe, given the current market conditions, our asset allocation strategy
offers a positive risk-reward ratio for the Company.
A significant portion of our assets are held in marketable securities. The
majority of our marketable securities are classified as available-for-sale on
our balance sheet, while the mortgage-backed securities are classified as
trading. All of these securities are stated thereon at market value as of the
end of the applicable period. Gains and losses on the portfolio are determined
by the specific identification method.
We anticipate being able to fund the Company's foreseeable liquidity
requirements internally. We continue to explore potential acquisition
opportunities in our industry in order to boost sales while leveraging our
distribution system to consolidate and lower costs.
OTHER DEVELOPMENTS
On May 23, 2005, Lifeway's Board of Directors approved awards of an aggregate
amount of 5,600 shares to be awarded under its Employee and Consulting Services
and Compensation Plan to certain employees and consultants for services rendered
to the Company. The stock awards were made on June 1, 2005 and have vesting
periods of one year. The expense for the awards is measured as of June 1, 2005
at $12.50 per share for 5,600 shares, or a total stock award expense of $70,000.
This expense will be recognized as the stock awards vest in 12 equal portions of
$5,833, or 466 shares per month for one year.
CRITICAL ACCOUNTING POLICIES
Lifeway's analysis and discussion of its financial condition and results of
operations are based upon its consolidated financial statements that have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). The preparation of financial statements in
accordance with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
US GAAP provides the framework from which to make these estimates, assumptions
and disclosures. Lifeway chooses accounting policies within US GAAP that
management believes are appropriate to accurately and fairly report Lifeway's
operating results and financial position in a consistent manner. Management
regularly assesses these policies in light of current and forecasted economic
conditions and has discussed the
18
development and selection of critical accounting policies with its audit
committee of the Board of Directors. For further information concerning
accounting policies, refer to Note 2 -- Nature of Business and Significant
Accounting Policies in the notes to the consolidated financial statements.
FORWARD LOOKING STATEMENTS
In this report, in reports subsequently filed by Lifeway with the SEC on Form
10-QSB and filed or furnished on Form 8-K, and in related comments by
management, our use of the words "believe," "expect," "anticipate," "estimate,"
"forecast," "objective," "plan," "goal," "project," "explore,"
"priorities/targets," and similar expressions is intended to identify
forward-looking statements. While these statements represent our current
judgment on what the future may hold, and we believe these judgments are
reasonable, actual results may differ materially due to numerous important
factors that are described in this report and other factors that may be
described in subsequent reports which Lifeway may file with the SEC on Form
10-QSB and filed or furnished on Form 8-K, including but not limited to:
o Changes in economic conditions, commodity prices;
o Shortages of and price increase for fuel, labor strikes or work
stoppages, market acceptance of the Company's new products;
o Significant changes in the competitive environment;
o Changes in laws, regulations, and tax rates; and
o Management's ability to achieve reductions in cost and employment
levels, to realize production efficiencies and to implement capital
expenditures, all at of the levels and times planned by management.
ITEM 3. CONTROLS AND PROCEDURES
The Chief Executive Officer and the Chief Accounting Officer conducted
an evaluation of the effectiveness of the Company's disclosure controls and
procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 as
of June 30, 2005. The Company has historically operated on strictly monitored
cost constraints. With that perspective, the Chief Executive Officer and the
Chief Accounting Officer concluded that the disclosure controls and procedures
are effective in ensuring that all material information required to be filed in
this quarterly report has been made known to them. However, based upon the
Company's recent growth and improved cash position, as well as consultation with
its auditors, management intends to implement additional procedures to improve
internal controls over financial reporting in 2005. Specifically, an enhanced
accounting software package has been identified and continues to be evaluated
which will permit enhanced data recording and internal reporting as well as
additional on-site accounting staff and some changes to the Company's internal
control procedures over financial reporting.
As of the date of this quarterly report, there have been no known
significant changes in internal controls or in other factors that could
significantly affect these controls subject to the date of such evaluation.
PART II - OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
On December 4, 2004, a former employee requested a Motion for Summary
Judgment on the issue of liability in a lawsuit filed against the Company by the
former employee. The motion was granted on February 10, 2005 and on February 18,
2005 the case was referred to a Magistrate Judge for a settlement conference.
The lawsuit alleges non payment of overtime wages in violation of federal
employment laws, with an estimated amount between $40,000 and $50,000. The suit
was filed in the United States District Court for the Northern District of
Illinois on behalf of all employees who were classified as non-exempt during
2001 through 2003. Outside counsel for the Company has advised that at this
stage in the proceedings it cannot offer an opinion as to the probable outcome.
The Company continues to vigorously defend this matter. While the Company still
believes the matter to be without merit, the Company believes the current
estimate exposure to have increased from the initial range of $7,500 to $15,000
to approximately $45,000. The Company has accrued a $45,000 liability in
anticipation of a settlement.
On April 14, 2003, Vera Smolyansky filed a complaint seeking
unspecified damages in the Circuit Court of Cook County, Illinois naming Lifeway
as a defendant. This case was dismissed, with prejudice on June 30, 2005.
19
ITEM 5. OTHER INFORMATION
On August 15, 2005, the Company announced its financial results for
the fiscal quarter and six months ended June, 30, 2005 and certain other
information. A copy of the Company's press release announcing these financial
results and certain other information is attached as Exhibit 99.1 hereto. The
information contained in Exhibit 99.1 hereto is being furnished, and should not
be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liabilities imposed by that
Section. The information contained in Exhibit 99.1 shall not be incorporated by
reference into any registration statement or other document or filing under the
Securities Act of 1933, as amended, except as may be expressly set forth in a
specific filing. The press release filed as an exhibit to this report includes
"safe harbor" language pursuant to the Private Securities Litigation Reform Act
of 1995, as amended, indicating that certain statements about the Company's
business and other matters contained in the press release are "forward-looking."
The press release also cautions investors that "forward-looking" statements may
be different from actual operating results. Finally, the press release states
that a more thorough discussion of risks and uncertainties which may affect the
Company's operating results is included in the Company's reports on file with
the Securities and Exchange Commission.
ITEM 6. EXHIBITS
Exhibit
Number Description
------- -----------
3.4 Amended and Restated By-laws (incorporated by reference to Exhibit
No. 3.5 of Lifeway's Current Report on Form 8-K dated and filed on
December 10, 2002). (File No. 000-17363)
3.5 Articles of Incorporation, as amended and currently in effect
(incorporated by reference to Exhibit 3.5 of Lifeway's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2000 and
filed on August 8, 2000). (File No. 000-17363)
11 Statement re: Computation of per share earnings (incorporated by
reference to Note 2 of the Consolidated Financial Statements)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Julie Smolyansky.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Edward P. Smolyansky.
32.1 Section 1350 Certification of Julie Smolyansky.
32.2 Section 1350 Certification of Edward P. Smolyansky.
99.1 Press Release dated August 15, 2005- "Lifeway Foods, Inc. Reports
Second Quarter and Six Months Results: Sales up 27% Net Income Up
29%"
20
SIGNATURE
In accordance with the requirements of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 15, 2005 LIFEWAY FOODS, INC.
By: /s/ Julie Smolyansky
------------------------
Julie Smolyansky
Chief Executive Officer,
President, and Director
/s/ Edward P. Smolyansky
------------------------
Chief Financial and
Accounting Officer and
Treasurer
21
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Julie Smolyansky.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Edward P. Smolyansky.
32.1 Section 1350 Certification of Julie Smolyansky.
32.2 Section 1350 Certification of Edward P. Smolyansky.
99.1 Press Release dated August 15, 2005- "Lifeway Foods, Inc. Reports
Second Quarter and Six Months Results: Sales up 27% Net Income Up
29%"
22