What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-20 compared with 2023-03-27 · 129 added, 136 removed, 149 unchanged (64% of the section changed)

Lifeway was founded in 1986 by Michael Smolyansky,

shortly after he and his wife, Ludmila Smolyansky, 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

In the thirty-six years that have followed, Lifeway has grown to become the largest producer and marketer of kefir in the U.S.

an important player in the broader market spaces of probiotic-based products and natural, “better for you” foods.

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.

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.

Our primary product is drinkable kefir, a cultured

2 unchanged sentences

Thanks to our exclusive blend of kefir cultures,

each cup of kefir contains 12 live and active cultures and 25 to 30 billion beneficial CFU (Colony Forming Units) at the time of manufacture.

We manufacture (directly or through co-packers) and

market products under the Lifeway, Fresh Made and Glen Oaks Farms brand names, as well as under private labels on behalf of certain customers.

each cup of our flagship low fat kefir contains 12 live and active cultures and 25 to 30 billion beneficial CFU (Colony Forming Units)

at the time of manufacture.

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

Our product categories are:

15 unchanged sentences

We routinely evaluate opportunities for

new product 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;

maintained the level of focus on product innovations, packaging innovations, and growth opportunities.

These product innovation and development

efforts have led to additional revenue opportunities.

new product development, flavors and formulations, improved package design, new product configurations and other innovation avenues.

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;

Lifeway considers research and development of

3 unchanged sentences

or relying solely on third parties.

Until the second half of 2021, in light of the COVID-19 outbreak, our focus was on expanding sales

of our current products, and less on new product development.

In August 2021, we purchased the Glen Oaks Farms drinkable yogurt product

line, and launched our drinkable oat-based kefir product line in December 2021.

Manufacturing

During 2022 and 2021, approximately 96% and 98% of

our revenue, respectively, was derived from products manufactured at our own facilities.

During 2023 and 2022, approximately 93% and 96%

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, drinkable ProBugs kefir, and cheese products;

Waukesha, Wisconsin, which produces drinkable kefir products and from which we store and distribute products;

Niles, Illinois, which stores and serves as a distribution point for products;

Philadelphia, Pennsylvania, which produces drinkable kefir, cheese, and butter products, from which we store and distribute products.

We own these manufacturing facilities.

All our fixed

assets associated with manufacturing, storage, and distribution of our products are in the United States.

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;

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.

In addition to the products manufactured in our

1 unchanged sentence

We have a co-packer agreement to

manufacture drinkable yogurt in California.

We have a co-packer agreement to manufacture drinkable kefir in Ireland, to serve our European

During 2022 and 2021, approximately 4% and 2% 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.

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.

During 2023 and 2022, approximately 7% and 4% 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

3 unchanged sentences

Our sales organization strives to cultivate strong, collaborative relationships with our customers

that facilitate favorable shelf placement for our products, which we believe will drive 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

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.

Distribution inside the United States

7 unchanged sentences

In turn, our retailers then deliver the products to their respective stores.

Customers in this route-to-market grouping

include Kroger, Walmart and Trader Joe’s.

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 50% of our total net sales for the year

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 50% of our total net sales for the year ended 2023.

Under the distributor channel, we sell our products

4 unchanged sentences

a DSD model of their own to make deliveries directly to individual stores, but they also make deliveries to retailers’ distribution

Our distributor customers include United Natural Foods (UNFI), KeHE Distributors, and C&S Wholesale Grocers.

The distributor

attends to optimal product merchandising, assortment, and product presentations at the retail end of the channel, with support from Lifeway’s

direct sales force and broker network.

Sales to our distributor customers represented approximately 48% of our total net sales for year

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

The distributor attends to optimal product merchandising, assortment, and product presentations at the retail end of the channel,

with support from Lifeway’s direct sales force and broker network.

Sales to our distributor customers represent approximately 48%

of our total net sales for year ended 2023.

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 2023.

Distribution outside of the U.S .

Substantially all of Lifeway’s products

are distributed within the United States;

however, certain of our distributors sell our products to retailers in Mexico and portions of

South America and the Caribbean.

Additionally, Lifeway products reach consumers in the United Kingdom, Ireland, and the Middle East under

third party co-manufacturing agreements and in-country broker and distributor arrangements.

Sales outside the United States represented

approximately 1% of net sales for the year ended 2022.

Lifeway’s primary market is the United States;

however, certain of our distributors based in the United States sell our products to retailers in Mexico and portions of 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 approximately 2%

of net sales for the year ended 2023.

Channel- and Market-Specific Distribution and Broker Representation

22 unchanged sentences

scheduling and coordinating promotions, merchandising, centralized ordering, and data collection services.

We use a combination of sales incentives, trade promotions,

and consumer promotions to market our products.

Sales Incentives and Trade Promotion Allowances

We use a combination of sales incentives, trade

promotions, and consumer promotions to market our products.

Sales Incentives and Trade Promotion

Lifeway offers various sales incentives and trade

17 unchanged sentences

Our awareness marketing seeks to promote the positive nutritional attributes and flavor of our products.

Lifeway competes with a limited number of other domestic

kefir producers and consequently faces a small amount of direct competition for kefir products.

However, Lifeway’s kefir-based products

compete with other dairy products, such as spoonable and drinkable yogurt, and, increasingly, with non-dairy probiotic products.

of our competitors are well-established and have significantly greater financial resources than Lifeway to promote their products.

We purchase our ingredients such as milk, pectin,

Lifeway competes with a limited number of other

domestic kefir producers and consequently faces a small amount of direct competition for kefir products.

However, Lifeway’s 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.

We purchase our ingredients such as milk, cultures,

and other ingredients from unaffiliated suppliers.

In addition, we purchase significant quantities of packaging materials to package our

products and natural gas and electricity to operate our facilities.

In addition, we purchase significant quantities of ingredients and product packaging

materials and natural gas and electricity to operate our facilities.

Purchases are made through purchase orders or contracts, and price,

delivery terms, and product specifications vary.

Although the prices for our principal inputs can fluctuate based on economic, weather,

and other conditions, Lifeway believes it has ready access to alternative suppliers for all critical ingredients, packaging, and other

input requirements.

The prices for our principal inputs can fluctuate based on economic, weather, and other

Lifeway believes it has access to alternative suppliers for critical ingredients, packaging, and other input requirements.

MAJOR CUSTOMERS

11 unchanged sentences

distributors and retailers in the United States.

Since October 1999, Danone SA, through subsidiaries

(collectively “Danone”), has been the beneficial owner of approximately 24% of the outstanding common stock of Lifeway.

and Danone are parties to a Stockholders’ Agreement dated October 1, 1999, which as amended provides Danone the right to designate

one director nominee, provides Danone with anti-dilutive rights relating to certain future offerings and issuances of capital stock, and

grants Danone limited registration rights.

Since October 1999, Danone North America Public

Benefit Corporation, through predecessors, affiliates and/or subsidiaries (collectively “Danone”), has been the beneficial

owner of 20% or more of the outstanding common stock of Lifeway.

Lifeway and Danone are parties to a Stockholders’ Agreement dated

October 1, 1999, which as amended provides Danone the right to designate one director nominee, provides Danone with anti-dilutive rights

relating to certain future offerings and issuances of capital stock, and grants Danone limited registration rights.

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 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.

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

Lifeway’s 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;

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.

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

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.

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.

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

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

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”)

7 unchanged sentences

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.

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.

While 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.

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 quality systems that address topics such as supplier control;

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.

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;

12 unchanged sentences

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.

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

The SQF Code, based on universally accepted CODEX Alimentarius, HACCP guidelines and the Global Food Safety Initiative (“GFSI”)

4 unchanged sentences

As of December 31, 2023, we employed 288 full-time

and two part-time employees, of which 103 were members of a union bargaining unit.

and one part-time employee, of which 98 were members of a union bargaining unit in Illinois.

AVAILABLE INFORMATION

Lifeway maintains a corporate website for investors

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.

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.

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 1. Business