What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-03-25 compared with 2020-04-14 · 183 added, 177 removed, 235 unchanged (61% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the Nasdaq

Global Market under the symbol “LWAY.”

Our common stock is listed on the

Nasdaq Global Market under the symbol “LWAY.”

Trading commenced on March 29, 1988.

As of March 16, 2020, there were approximately

147 holders of record of Lifeway’s Common Stock.

As of March 8, 2021, there

were approximately 59 holders of record of Lifeway’s Common Stock, one of which was Cede & Co., a nominee for

Depository Trust Company, or DTC, and 75 financial institutions as nominees for beneficial owners or in “street

the shares of which were deposited into participant accounts at DTC and are considered to be held of record

by Cede & Co.

as one stockholder.

Common stock price

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4/1/2020 to 4/30/2020

5/1/2019 to 5/31/2019

6/1/2019 to 6/30/2019

8/1/2019 to 8/31/2019

9/1/2019 to 9/30/2019

Fiscal Year 2020

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The program has no expiration date.

As of April 2020, the Company had reached the amended threshold of 625 shares and therefore no shares of common stock remain available to be purchased under the 2017 Repurchase Plan Amendment.

SELECTED FINANCIAL DATA

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General & administrative % to net sales

Goodwill and intangible asset impairment

Amortization expense

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Total operating expense % to net sales

Loss from operations

Loss from operations % to net sales

Income (loss) from operations

Income (loss) from operations % to net sales

Net sales were $102,026 for the year ended

December 31, 2019, a decrease of $9,688 or 9.4% versus prior year.

The net sales softness continued to reflect the overall lower

consumption in the dairy and cultured dairy product categories.

Versus prior year, the decline was primarily driven by lower volumes

of our branded drinkable kefir and cupped kefir and Skyr sales, partially offset by the incremental volume of new item introductions.

December 31, 2020, an increase of $8,364 or 8.9% versus prior year.

The net sales increase was primarily driven by higher volumes

of our branded drinkable kefir, partially offset by lower cream revenues associated with a decline in the market price of butter

Gross profit as a percentage of net sales

decreased to 23.6% during the year ended December 31, 2019 from 25.0% during the same period in 2018.

The lower gross profit percentage

primarily reflects category sales softness, the unfavorable impact of operating leverage that arises from lower net sales relative

to fixed costs, and increased freight costs and depreciation, partially offset by a reduction in variable costs.

increased to 26.4% during the year ended December 31, 2020 from 23.6% during the same period in 2019.

The increase versus the prior

year was primarily due to the impact of favorable milk pricing, and to a lesser extent favorable freight costs.

Selling Expenses

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to $10,197 during the year ended December 31, 2020 from $11,062 during the same period in 2019.

The decreased selling expenses

primarily reflect the reduction in advertising and marketing programs with lower efficiency and compensation savings from organizational

changes made in 2018.

Selling expenses as a percentage of net sales were 11.8% during the year ended December 31, 2019 compared

to 13.0% for the same period in 2018.

The decrease versus prior year

primarily reflects a reduction in advertising and marketing expense, such as trade shows and other marketing events which were

postponed due to COVID-19 and the lower planned spending on in-store demonstrations in 2020 compared to 2019.

Selling expenses

as a percentage of net sales were 10.0% during the year ended December 31, 2020 compared to 11.8% for the same period in 2019.

General and Administrative Expenses

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$1,167 or 9.1% to $11,661 during the year ended December 31, 2020 from $12,828 during the same period in 2019.

The decrease is primarily

a result of lower compensation expense due to organizational changes made in 2018, and lower professional fees, partially offset

by increased legal expenses.

Goodwill and Intangible Asset Impairment

During the fourth quarter of fiscal 2018,

we recorded a goodwill impairment charge of $1,244.

See Note 5, Goodwill and Intangible Assets, in the Notes to the Consolidated

Financial Statements included in Item 8 of this Form 10-K.

The decrease is

primarily a result of lower compensation expense due to organizational changes made in 2019 and lower incentive compensation, partially

offset by increased professional fee expense.

Provision for Income Taxes

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federal, state and local income taxes.

Income tax expense was $782 during the year ended December 31, 2019, compared to a benefit

for income taxes of $225 during the same period in 2018.

Income tax expense was $1,596 and $782 during the year ended December 31, 2020 and 2019,

respectively.

Our effective income tax rate (ETR) for

the year ended December 31, 2020 was 33.1% compared to an ETR of 63.3% in the same period last year.

The increase in the effective

tax rate was primarily due to the separate state tax rates, non-deductible officer compensation expense, non-deductible compensation

expense related to equity incentive awards, and the provision for unrecognized tax benefits.

The increase in the effective tax

rate from 2018 to 2019 is due to the fact that the company has a number of items that are nondeductible or are discrete adjustments

to tax expense.

Although similar items were reflected in 2018, the percentage effect is substantially different due to the difference

in pre-tax income in 2019 compared to the pre-tax loss in 2018.

Section 162(m) of the Code limits the deductibility

of compensation paid to certain of our executives.

Under the Act’s amendments to Section 162(m), no tax deduction in taxable

years beginning after December 31, 2017 is allowed for compensation paid to any covered employee to the extent that the total compensation

for that covered employee exceeds $1,000,000 in any taxable year.

Although the Act eliminated the prior tax deduction under Section

162(m) for performance-based executive compensation, it included a transition rule under which the changes to Section 162(m) will

not apply to awards made to our covered employees who had the right to participate in our 2015 Omnibus Incentive Plan pursuant

to written binding contracts in effect as of November 2, 2017, as long as those contracts have not subsequently been modified in

any material respect.

Accordingly, subject to further guidance from the Treasury Department and the Internal Revenue Service (“IRS”),

the performance-based compensation paid to our executives under our Omnibus Plan remained eligible for the Section 162(m) exemption

The decrease in effective

tax rate is primarily the result of separate state tax rates, non-deductible compensation expense related to equity incentive awards,

the provision for unrecognized tax benefits and a benefit recognized in 2020 due to the enactment of the “Coronavirus Aid,

Relief, and Economic Security Act”

(the CARES Act).

The Company consistently reflects 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 2019, the percentage effect is substantially different due to the difference in pre-tax

income in 2020 compared to 2019.

Our 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, and the expiration of the statute of limitations in relation to unrecognized tax benefits.

We record 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.

Under the Tax Cuts and

Jobs Act (the “Act”) amendments to Section 162(m), no tax deduction in taxable years beginning after December 31, 2017

is allowed for compensation paid to any covered employee to the extent that the total compensation for that covered employee exceeds

$1,000,000 in any taxable year.

Although the Act eliminated the prior tax deduction under Section 162(m) for performance-based

executive compensation, it included a transition rule under which the changes to Section 162(m) will not apply to awards made to

our covered employees who had the right to participate in our 2015 Omnibus Incentive Plan pursuant to written binding contracts

in effect as of November 2, 2017, as long as those contracts have not subsequently been modified in any material respect.

subject to further guidance from the Treasury Department and the Internal Revenue Service (“IRS”), the performance-based

compensation paid to our executives under our Omnibus Plan remained eligible for the Section 162(m) exemption in 2019.

in 2020, compensation exceeding the threshold for covered employees is non-deductible for income tax purposes.

Income taxes are

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Net Income (Loss)

We reported a net income of $453 or $0.03

per basic and diluted common share for the year ended December 31, 2019 compared to a net loss of $(3,086) or $(0.19) per basic

and diluted common share in the same period in 2018.

We reported net income of $3,232 or $0.21

per basic and diluted common share for the year ended December 31, 2020 compared to net income of $453 or $0.03 per basic and diluted

common share in the same period in 2019.

Liquidity and Capital Resources

We expect to meet our foreseeable liquidity

and capital resource requirements through anticipated cash flows from operations;

our revolving credit facility;

cash equivalents to ensure the continuation of the Company as a going concern.

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.

The impact that the recent COVID-19

outbreak will have on our consolidated results of operations is uncertain.

Lifeway has seen increased orders from retail customers

in North America and Europe in March 2020 in response to increased consumer demand for food at home in response to government mandated

social distancing and shelter in place orders in the United States and the immune boosting quality of our products.

However near-term

elevated retail customer orders may decrease in the coming months, and we are unable to predict the nature and timing of when that

impact may occur, if at all.

As a result of the Covid-19 pandemic, restrictions on public gatherings or interactions, a decrease

in available workforce at our facilities or our suppliers, adverse effects the economies and financial markets, consumer spending

and confidence levels could affect customers’

demand for our products or our ability to produce, transport and sell our products.

Neither the duration nor scope of any disruption can be predicted.

Therefore, the financial impact cannot be reasonably estimated

at this time.

ultimate impact that the COVID-19 pandemic or any future pandemic or disease outbreak will have on our business and our consolidated

results of operations is uncertain.

we have seen increased customer and consumer demand for our products as consumers initially began pantry loading and have increased

their at-home consumption as a result of social distancing and stay-at-home and work-from-home mandates and recommendations.

this increased customer and consumer demand may decrease in the coming months if and when the need for social distancing and stay-at-home

and work-from-home mandates and recommendations decrease, and we are unable to predict the nature and timing of when that impact

may occur, if at all.

to date we have not experienced supply chain constraints, and we have continued to be able to fully satisfy customer and

consumer demand for our products, the continued unprecedented demand for food and other consumer packaged goods products as a

result of the COVID-19 pandemic or any future pandemic may limit the availability of, or increase the cost of, ingredients,

packaging and other raw materials necessary to produce our products, and our operations may be negatively impacted.

Additionally, pandemics or disease outbreaks could result in a widespread health crisis that could adversely affect economies

and financial markets, consumer spending and confidence levels resulting in an economic downturn that could affect customer

and consumer demand for our products.

efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond

our control, including the duration and severity of any pandemic or disease outbreak, as well as third party actions taken to contain

its spread and mitigate public health effects.

ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others, the duration of

social distancing and stay-at-home and work-from-home mandates and recommendations and whether additional waves of COVID-19 or

different variants of COVID-19 will affect the United States and other markets, our ability and the ability of our suppliers to

continue to operate our and their manufacturing facilities and maintain the supply chain without material disruption and procure

ingredients, packaging and other raw materials when needed despite unprecedented demand in the food industry, and the extent to

which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating and

shopping habits.

We cannot predict the duration or scope of the disruption.

Therefore, the financial impact cannot be reasonably

estimated at this time.

To date, our manufacturing facilities

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and sale of products in the near term.

At this time, the COVID-19 pandemic has

not materially impacted on our operations.

We expect to meet our foreseeable liquidity and capital resource requirements through

anticipated cash flows from operations;

our revolving credit facility;

and cash and cash equivalents to ensure the continuation

of the Company as a going concern.

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.

Given the dynamic nature of COVID-19, we will continue to

assess our liquidity needs while continuing to manage our discretionary spending and investment strategies.

Sources and Uses of Cash

Lifeway had a net increase in cash and

cash equivalents of $838 during the year ended December 31, 2019 compared to a net decrease in cash and cash equivalents of $1,980

in the same period in 2018.

cash equivalents of $4,090 during the year ended December 31, 2020 and a net increase in cash and cash equivalents of $838 in the

same period in 2019.

The drivers of the year over year change are as follows:

Net cash provided by operating activities

was $3,811 during the year ended December 31, 2019 compared to net cash provided by operating activities of $2,417 in the same

period in 2018.

The increase in cash provided by operating activities is primarily due to the change in working capital and income

tax refunds received in 2019.

was $6,385 and $3,811 during the year ended December 31, 2020 and 2019, respectively.

The increase in cash provided by operating

activities is primarily due to the increase in cash generated through higher revenues and reduced expenses in 2020, offset by the

change in working capital.

Net cash used in investing activities was

$838 during the year ended December 31, 2019 compared to net cash used in investing activities of $2,720 in the same period in

The lower level of net cash used in investing activities in 2019 reflects lower capital spending.

Capital spending was $1,178

during the year ended December 2019 compared to $2,824 in 2018.

$1,890 during the year ended December 31, 2020 compared to net cash provided by investing activities of $838 in the same period

The increase of net cash used in investing activities in 2020 reflects higher capital spending.

In addition, during 2019,

the Company tendered approximately 45.6% of one of its investments recorded under the cost method on the consolidated balance sheets

for cash proceeds of $1,509.

See financing section below for use of those proceeds.

We received net proceeds of $474 related to

the sale of our Skokie, IL facility during 2019.

Capital spending was $1,895 during the year ended December 2020 compared to $1,178

Our capital spending is focused in three core areas:

reduction, and facility improvements.

Growth capital spending supports new product innovation and enhancements.

Cost reduction

spending supports manufacturing efficiency, safety and productivity.

We received net proceeds of $474 related to the sale of our

Skokie, IL facility during Q3 2019.

During Q4 2019, the Company tendered approximately 45.6% of one of its investments recorded

under the cost method on the consolidated balance sheets for cash proceeds of $1,509.

See financing section below for use of those

growth, cost reduction, and facility improvements.

Growth capital

spending supports new product innovation and enhancements.

Cost reduction and facility improvements support manufacturing efficiency,

safety and productivity.

Net cash used in financing activities was

$3,811 during the year ended December 31, 2019 compared to net cash used in financing activities of $1,677 in the same period in

Under the terms of its line of credit agreement (see Note 7), we utilized proceeds from our federal and state income tax

refunds to repay $1,330 on our revolving line of credit during the first quarter of 2019.

We utilized the proceeds from the sale

of our Skokie, IL facility to repay $459 on our revolving line of credit during the third quarter of 2019.

We utilized proceeds

from the sale of our investment described in the investing section above to make a mandatory prepayment of $1,484 on our revolving

line of credit during the fourth quarter of 2019.

On November 1, 2017, Lifeway’s Board approved an increase in the aggregate

amount under our previously announced 2015 stock repurchase program (the “2017 Repurchase Plan Amendment”), by adding

to (i.e., exclusive of the shares previously authorized under the 2015 stock repurchase program) the authorization the lesser of

$5,185 or 625 shares.

We repurchased approximately 211 shares of common stock at a cost of $538 during the year ended December

31, 2019 under the 2017 Repurchase Plan Amendment.

$405 and $3,811 during the years ended December 31, 2020 and 2019, respectively.

Under the terms of our line of credit agreement

(see Note 7), we utilized proceeds from our federal and state income tax refunds to repay $1,330 on our revolving line of credit

We utilized the proceeds from the sale of our Skokie, IL facility to repay $459 on our revolving line of credit during

We utilized proceeds from the sale of our investment described in the investing section above to make a mandatory prepayment

of $1,484 on our revolving line of credit during 2019.

On November 1, 2017, Lifeway’s Board

approved an increase in the aggregate amount under our previously announced 2015 stock repurchase program (the “2017 Repurchase

Plan Amendment”), by adding to (i.e., exclusive of the shares previously authorized under the 2015 stock repurchase program)

the authorization the lesser of $5,185 or 625 shares.

We repurchased approximately 179 shares of common stock at a cost of $405

during the year ended December 31, 2020 under the 2017 Repurchase Plan Amendment.

We may execute transactions from time to time

in the open market or by private negotiation, in accordance with all applicable securities laws and regulations.

We intend to hold

repurchased shares in treasury for general corporate purposes, including issuances under our 2015 Omnibus Incentive Plan.

shares are accounted for using the cost method.

Revolving credit facility

On April 10, 2019, effective March 31,

2019, Lifeway entered into the First Modification to the Amended and Restated Loan and Security Agreement (the “Modified

Revolving Credit Facility”) with its existing lender.

Under the amendment, the Modified Revolving Credit Facility provides

for a revolving line of credit up to a maximum of $9 million (the “Revolving Loan”) with an incremental facility not

to exceed $5 million (the “Incremental Facility”

and together with the Revolving Loan, the “Loans”).

On December 10, 2019, Lifeway entered into

the Second Modification to the Amended and Restated Loan and Security Agreement, as amended, (the “Second Modification”)

We repurchased approximately 211 shares of common

stock at a cost of $538 during the year ended December 31, 2019 under the 2017 Repurchase Plan Amendment.

We may execute transactions

from time to time in the open market or by private negotiation, in accordance with all applicable securities laws and regulations.

We intend to hold repurchased shares in treasury for general corporate purposes, including issuances under our 2015 Omnibus Incentive

Debt Obligations

On September 30, 2020, Lifeway entered

into the Third Modification to the Amended and Restated Loan and Security Agreement, as amended, (the “Third Modification”)

with its existing lender.

The Second Modification amends the Amended and Restated Loan and Security Agreement, as amended, by redefining

the “Borrowing Base”

and further clarifying the definitions of “Eligible Accounts”

and “Eligible

Inventory.”

The “Borrowing Base”

under this amendment means, generally, an amount equal to the sum of (a) 85%

of the unpaid amount of all eligible accounts receivable, plus (b) 50% of the value of all eligible inventory.

The Second Modification

also addresses the calculation of interest after the potential discontinuance of LIBOR and its replacement with a replacement benchmark

interest rate.

All outstanding amounts under the Loans

bear interest, based on a level of the Senior Debt to EBITDA ratio, at Lifeway’s election, at either the lender Base Rate

(the greater of either the Federal Funds Rate plus 0.0% to 0.5%, or the Prime Rate) or the LIBOR plus 2.25% to 3.00%, payable monthly

Lifeway is also required to pay a quarterly unused line fee of 0.25% and, in conjunction with the issuance of any letters

of credit, a letter of credit fee.

As amended, the Modified Revolving Credit

Facility contains customary representations, warranties, and covenants on the part of Lifeway, including financial covenants requiring

us to achieve a minimum EBITDA threshold for each of the fiscal quarters through December 31, 2019, and maintain a fixed charge

coverage ratio of no less than 1.25 to 1.0 each of the fiscal quarters ending through the expiration date.

The Modified Revolving

Credit Facility also provides for events of default, including failure to repay principal and interest when due and failure to

The Third Modification amends the Amended and Restated Loan and Security Agreement, as amended, by removing

the monthly borrowing base reporting requirement effective September 30, 2020, including a covenant to maintain a quarterly minimum

working capital financial covenant, as defined, of no less than $11.25 million each of the fiscal quarters commencing the fiscal

quarter ended December 31, 2020 through the expiration date, and eliminating the tier interest pricing structure.

The Amended and

Restated Loan and Security Agreement continues to provide Lifeway with a revolving line of credit up to a maximum of $5 million

(the “Revolving Loan”) and provides the Borrowers with an incremental facility not to exceed $5 million (the “Incremental

Facility”

and together with the Revolving Loan, the “Loans”).

The Termination Date of the Revolving Loan was

extended to June 30, 2025, unless earlier terminated.

Except as described above, amended, the

Modified Revolving Credit Facility remains substantively unchanged and in full force and effect, including customary representations,

warranties, and covenants on the part of Lifeway, including financial covenants requiring us to maintain a fixed charge coverage

ratio of no less than 1.25 to 1.00 each of the fiscal quarters ending through the expiration date.

The Modified Revolving Credit

Facility continues to provide 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 Modified Revolving

Credit Facility may be accelerated.

We were in compliance with the applicable covenants as of December 31, 2019.

As of December 31, 2020, we had $2,768

net of $9 of unamortized deferred financing costs, outstanding under the Revolving Credit Facility.

We had $2,223 available for

future borrowings as of December 31, 2020.

As amended, all outstanding amounts under

the Loans bear interest, at Lifeway’s election, at either the lender Base Rate (the Prime Rate minus 1.00%) or the LIBOR

plus 1.95%, payable monthly in arrears.

Lifeway is also required to pay a quarterly unused line fee of 0.20% and, in conjunction

with the issuance of any letters of credit, a letter of credit fee of 0.20%.

Lifeway’s interest rate on debt outstanding

under our Revolving Credit Facility as of December 31, 2020 was 2.10%.

We are in compliance with all applicable

financial debt covenants as of December 31, 2020.

See Note 7 to our Consolidated Financial Statements for additional information

regarding our indebtedness and related agreements.

Off-Balance Sheet Arrangements

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in an impairment.

The fair value exceeded the carrying value by 2.4%.

Goodwill represents the excess purchase price over the fair

value of the net tangible and other identifiable intangible assets acquired.

We estimate the fair value of our one reporting unit

annually (as of December 31), or more frequently if certain conditions exist, using a combination of the fair values derived from

both the income approach and the market approach.

Under the income approach, we calculate the fair value of a reporting unit based

on the present value of estimated future cash flows.

Cash flow projections are based on our estimates of revenue growth rates and

operating margins, taking into consideration industry and market conditions.

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 business's ability to execute on the projected cash flows.

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 resulting fair value, based on the income and market approaches, is then compared

to the carrying value to determine if impairment is necessary.

The Company completed its annual goodwill

impairment analysis as of December 31, 2018, which indicated the carrying value of our reporting unit exceeded its fair value by

Accordingly, we recorded a $1,244 non-cash impairment charge in 2018.

The goodwill impairment loss is included in Goodwill

and intangible asset impairment on the Consolidated Statements of Operations.

Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable

intangible assets acquired.

We estimate the fair value of our one reporting unit annually (as of December 31), or more frequently

if certain conditions exist, using a combination of the fair values derived from both the income approach and the market approach.

Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash

Cash flow projections are based on our estimates of revenue growth rates and operating margins, taking into consideration

industry and market conditions.

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 business's ability to execute on the projected cash flows.

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 resulting fair value, based on the income and market approaches, is then compared to the carrying value to determine if impairment

is necessary.

We reviewed our indefinite lived intangible

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and management estimates of future performance.

Our assessment did not result in an impairment in 2019 and 2018.

Our assessment did not result in an impairment in 2020.

Sales discounts & allowance.

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regulations, and case law of the various jurisdictions in which we operate.

At any one time, multiple tax years are subject to

At any given time, multiple tax years are subject to

audit by the various taxing authorities.

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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 Form 10-K for information regarding recent accounting

See Note 2, Summary of Significant Accounting Policies, in

the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for information regarding recent accounting

pronouncements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity