-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SAfT6XfOBWCwjaS3YJszzmiSURF5hrktxpgE/ScIB0lA+qrfADRTqCkZWqauyOqN 3d8xJmOkIwujTmosU0ADoQ== 0000950134-96-001856.txt : 19960513 0000950134-96-001856.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950134-96-001856 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIFEWAY FOODS INC CENTRAL INDEX KEY: 0000814586 STANDARD INDUSTRIAL CLASSIFICATION: DAIRY PRODUCTS [2020] IRS NUMBER: 363442829 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17363 FILM NUMBER: 96560372 BUSINESS ADDRESS: STREET 1: 7625 NORTH AUSTIN AVENUE CITY: SKOKIE STATE: IL ZIP: 60077 BUSINESS PHONE: 7089671010 MAIL ADDRESS: STREET 1: 7625 NORTH AUSTIN AVENUE CITY: SKOKIE STATE: IL ZIP: 60077 10QSB 1 FORM 10-QSB 1 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 March 31, 1996 [ ] 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 incorporation or organization) (IRS Employer Identification No.)
7625 North Austin Avenue, Skokie, Illinois 60077 - -------------------------------------------------------------------------------- (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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the issuer filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] 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 May 7, 1996, the issuer had 3,778,977 shares of common stock, no par value, outstanding. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] 2 INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements.
Page ---- Lifeway Foods, Inc. and Subsidiaries March 31, 1996 and 1995 Certified Public Accountants Report on Unaudited Financial Statements F-2 Consolidated Balance Sheets F-3 - F-4 Consolidated Statements of Income F-5 Consolidated Statements of Changes in Stockholders' Equity F-6 Consolidated Statements of Cash Flows F-7 - F-8 Notes to Consolidated Financial Statements F-9 - F-16 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 4 PART II - OTHER INFORMATION 6 SIGNATURES 8
2 3 PART I - FINANCIAL INFORMATION LIFEWAY FOODS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 3 4 LIFEWAY FOODS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 TABLE OF CONTENTS Certified Public Accountants Report on Financial Statements F-2 Consolidated Balance Sheets - March 31, 1996 and March 31, 1995 F-3 - F-4 Consolidated Statements of Income - for the years ended March 31, 1996 and 1995 F-5 Consolidated Statements of Changes in Stockholders' Equity - for the years ended March 31, 1996 and 1995 F-6 Consolidated Statement of Cash Flows - for the years ended March 31, 1996 and 1995 F-7 - F-8 Notes to Consolidated Financial Statements - March 31, 1996 and 1995 F-9 - F16
5 ROBERT L. DELORME CERTIFIED PUBLIC ACCOUNTANT 1010 JORIE BOULEVARD/SUITE 300 OAK BROOK, ILLINOIS 60521 (708) 571-1800 CERTIFIED PUBLIC ACCOUNTANTS REPORT ON FINANCIAL STATEMENTS To the Shareholders and Directors Lifeway Foods, Inc. Skokie, Illinois The accompanying balance sheets of Lifeway Foods, Inc. and Subsidiaries as of March 31, 1996 and 1995 and the related statements of income, changes in stockholders' equity and cash flows for the three months then ended were not audited by me and, accordingly, I do not express an opinion or any other form of assurance on them. The accompanying financial statement of Lifeway Foods, Inc. and subsidiaries as of December 31, 1995 and for the year then ended were audited by other auditors. They expressed an unqualified opinion on them in their report dated February 9, 1996. They have not performed any audit procedures since that date. /s/ ROBERT L. DELORME Robert L. DeLorme, C.P.A. Oak Brook, Illinois May 2, 1996 F-2 6 LIFEWAY FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
(UNAUDITED) MARCH 31, ----------------------- DECEMBER 31, ASSETS 1996 1995 1995 ---------- ---------- ---------- CURRENT ASSETS Cash and cash equivalent $ 828,217 $ 397,220 $ 702,107 Investments 330,000 165,772 329,411 Accounts receivable, net of allowance for doubtful accounts of $24,000 at March 31, 1995 and $48,000 at March 31, 1996 and December 31, 1995 598,780 588,624 604,621 Other receivables 26,200 29,700 26,200 Inventories 268,100 166,000 288,100 Prepaid expenses and other assets 62,107 46,502 21,206 Deferred income taxes 34,480 0 34,480 ---------- ---------- ---------- TOTAL CURRENT ASSET 2,147,884 1,393,818 2,006,125 PROPERTY AND EQUIPMENT Land 369,500 369,500 369,500 Buildings, machinery and equipment 2,192,433 2,192,944 2,175,637 ---------- ---------- ---------- Total property and equipment 2,561,933 2,562,444 2,545,137 Less: accumulated depreciation 916,000 757,677 868,769 ---------- ---------- ---------- PROPERTY AND EQUIPMENT, NET 1,645,933 1,804,767 1,676,368 OTHER ASSETS Intangible assets 330,343 330,343 330,343 Less; accumulated amortization 229,988 188,865 221,595 ---------- ---------- ---------- TOTAL OTHER ASSETS 100,355 141,478 108,748 ---------- ---------- ---------- TOTAL ASSETS $3,894,172 $3,340,063 $3,791,241 ========== ========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-3 7 LIFEWAY FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) MARCH 31, ----------------------- DECEMBER 31, 1996 1995 1995 ---------- ---------- ---------- CURRENT LIABILITIES Current maturities of notes payable $ 43,115 $ 41,887 $ 41,651 Accounts Payable 279,168 238,120 245,224 Accrued expenses 175,919 106,835 263,603 ---------- ---------- ---------- TOTAL CURRENT LIABILITIES 498,202 386,842 550,478 LONG-TERM LIABILITIES Notes payable 648,626 743,598 660,007 DEFERRED INCOME TAXES 45,395 47,259 45,395 MINORITY INTEREST 0 1,720 0 STOCKHOLDERS' EQUITY Common Stock 1,362,938 1,302,754 1,374,754 Retained Earnings 1,339,011 857,890 1,160,607 ---------- ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 2,701,949 2,160,644 2,535,361 ---------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,894,172 $3,340,063 $3,791,241 ========== ========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-4 8 LIFEWAY FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED ---------------------------- DECEMBER 31, 1996 1995 1995 ----------- ----------- ----------- SALES $ 1,258,639 $ 1,036,465 $ 4,497,560 COST OF GOODS SOLD 512,233 498,790 2,244,628 ----------- ----------- ----------- GROSS PROFIT 746,406 537,675 2,252,932 OPERATING EXPENSES 458,937 330,335 1,560,967 ----------- ----------- ----------- INCOME FROM OPERATIONS 287,469 207,340 691,965 OTHER INCOME (EXPENSE) Interest income 9,874 9,611 41,326 Interest expense (12,602) (16,466) (67,164) Gain on sale of assets 689 0 16,001 ----------- ----------- ----------- TOTAL OTHER INCOME (EXPENSE) (2,039) (6,855) (9,827) ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 285,430 200,485 682,138 PROVISION FOR INCOME TAXES 107,026 62,477 241,413 ----------- ----------- ----------- NET INCOME $ 178,404 $ 138,008 $ 440,725 =========== =========== =========== EARNINGS PER SHARE $ .05 $ .04 $ .12 =========== =========== =========== SHARES OUTSTANDING 3,778,977 3,731,777 3,785,377 =========== =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-5 9 LIFEWAY FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK, NO PAR VALUE 10,000,000 SHARES AUTHORIZED ----------------------------- SHARES ISSUED RETAINED AND OUTSTANDING AMOUNT EARNINGS --------------- ---------- ---------- BALANCES AT DECEMBER 31, 1994 3,729,777 1,302,754 719,882 Shares exchanged in no-cash transaction 55,600 72,000 0 Net income for the year ended December 31, 1995 0 0 440,725 ---------- ---------- ---------- BALANCES AT DECEMBER 31, 1995 3,785,377 1,374,754 1,160,607 Purchase of stock (6,400) (11,816) 0 Net income for the three months ended March 31, 1996 0 0 178,404 ---------- ---------- ---------- BALANCES AT MARCH 31, 1996 3,778,977 1,362,938 $1,339,011 ========== ========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-6 10 LIFEWAY FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED ------------------------ DECEMBER 31 1996 1995 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 178,404 $ 138,008 $ 440,725 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 55,624 56,952 230,565 Issuance of common stock in exchange for services rendered and interest expense 0 0 42,000 Increase in allowance for doubtful accounts 0 0 24,000 Deferred income taxes 0 0 (36,344) Gain on sale of asset (689) 0 (16,011) (Increase) decrease in operating assets: Accounts receivable 5,841 (61,913) (101,910) Other receivable 0 1,200 4,700 Inventories 20,000 (57,691) (179,791) Prepaid expenses and other assets (40,901) (20,735) 4,561 Increase (decrease) in operating liabilities: Accounts payable 33,944 (64,229) (57,125) Accrued expenses (87,684) (115,082) 89,964 --------- --------- --------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 164,651 (123,490) 445,334 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (100,000) (103,538) (167,315) Sale of investments 100,100 0 107,214 Purchase of property and equipment (16,796) (400) (48,194) Proceeds from sales of assets 0 0 51,323 --------- --------- --------- NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES (16,696) 103,138 (56,972) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of notes payable (9,917) (7,926) (91,753) Purchase of treasury stock (11,816) 0 0 Payments to minority shareholders 0 (70,000) (90,000) --------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES (21,733) (77,926) (181,753) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 126,110 (98,278) 206,609 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 702,107 495,498 495,498 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 828,217 $ 397,220 $ 702,107 ========= ========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-7 11 LIFEWAY FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED ----------------------- DECEMBER 31 1996 1995 1995 ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 12,602 $ 16,466 $ 67,164 ========== ========== ========== Cash paid for income taxes $ 90,900 $ 185,000 $ 190,760 ========== ========== ========== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Issuance of common stock in exchange for: Consulting fees $ 0 $ 0 $ 27,500 Minority shareholders - interest expense 0 0 14,500 ---------- ---------- ---------- Sub-total 0 0 42,000 Minority shareholders - stock 0 0 30,000 ---------- ---------- ---------- Total common stock issued $ 0 $ 0 $ 72,000 ========== ========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-8 12 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 AND DECEMBER 31, 1995 NOTE 1 - NATURE OF BUSINESS Lifeway Foods, Inc. (The "Company") commenced operations in February, 1986, and incorporated under the laws of the state of Illinois on May 19, 1986. The Company produces Kefir, a drinkable product which is similar to but distinct from yogurt in several flavors sold under the name "Lifeway's Kefir"; a line of drinkable yogurt; a plain farmer's cheese sold under the name "Lifeway's Farmer's Cheese"; and a fruit sugar-flavored product similar in consistency to cream cheese sold under the name of "Sweet Kiss." The Company currently distributes its products throughout the Chicago metropolitan area through local food stores. In addition, the products are sold in the states of California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Michigan, Minnesota, New Hampshire, New York, Ohio, Texas and Wisconsin. The Company has also expanded the distribution of its products internationally by exporting to Eastern Europe through its wholly-owned subsidiary Lifeway International, Inc. On September 30, 1992, the Company formed a wholly-owned subsidiary corporation, LFI Enterprises, Inc., (LFIE) incorporated in the state of Illinois. LFI Enterprises, Inc. was formed for the purpose of operating a "Russian" theme restaurant and supper club on the property acquired by the Company on October 9, 1992. The restaurant/supper club commenced its operations in late November 1992. Approximately 88.2% of Consolidated revenues and 156.8% of consolidated net income for the year ended December 31, 1995 were derived from the manufacturing of liquid yogurt and cheese products. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows: Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated, including $120,000 of rent paid by LFIE to the Company in 1995 for use of the restaurant which is owned by the Company. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 94., "Consolidation of all Majority-owed Subsidiaries", which requires the consolidation of all majority-owned subsidiaries unless control is temporary or does not rest with the majority owners. F-9 13 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 AND DECEMBER 31, 1995 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. Investments Effective December 31, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No 115 " Accounting for certain Debt and Equity Securities" (SFAS 115). In accordance with this Statement, securities are classified as held-to-maturity, available-for-sale or trading. The Company's investments include certificates of deposit with maturity dates greater than three months and US Treasury Bonds which are all short term and held-to-maturity. Securities classified as held-to-maturity are stated at cost adjusted for amortization of premiums and accretion of discounts. At December 31, 1995, cost approximated market value. The Company does not currently have any trading or available-for-sale securities. Inventory Inventories are stated at lower of cost or market, cost being determined by the first-in, first-out method. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Property and equipment are being depreciated over the following useful lives:
Category Years -------- ----- Buildings and improvements 31 Machinery and equipment 5-12 Office equipment 5-7
F-10 14 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 AND DECEMBER 31, 1995 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Intangible Assets Intangible Assets are stated at cost. Organization costs are amortized over five years using the straight-line method. Other intangible assets are amortized over the estimated useful lives of the assets using the straight-line method as follows: Covenant not to compete 10 years Trademark license 2.5 years U.P.C. Codes 7 years Customer lists 5 years
Income Taxes Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or noncurrent, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. The principal sources of temporary differences are different depreciation methods for financial statement and tax purposes, capitalization of indirect costs for tax purposes, use of allowance method for book purposes verses the direct method for tax purposes as to bad debts and amortization of customer list. Earning Per Common Share Earnings per common share were computed by dividing net income by weighted average number of shares of common stock outstanding during the year. For the year ended December 31, 1995, fully diluted and primary earnings per share were the same as there were no potentially dilutive common stock equivalents outstanding. See Note 11 for fully diluted earnings per share for the year ended December 31, 1994. NOTE 3 - INVENTORIES Inventories consisted of the following:
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED -------------------------- DECEMBER 31 1996 1995 1995 ---------- ---------- ---------- Finished goods $ 174,600 $ 70,000 $ 199,600 Production supplies 47,500 45,000 42,500 Raw materials 46,000 51,000 46,000 ---------- ---------- ---------- $ 268,100 $ 166,000 $ 288,100 ========== ========== ==========
F-11 15 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 AND DECEMBER 31, 1995 NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED -------------------------- DECEMBER 31 1996 1995 1995 ---------- ---------- ---------- Building and improvements $ 796,752 $ 796,752 $ 796,752 Machinery and equipment 1,234,635 1,258,091 1,218,213 Vehicles 109,877 89,906 109,877 Office equipment 51,169 48,195 50,795 ---------- ---------- ---------- $2,192,433 $2,192,944 $2,175,637 ========== ========== ==========
Depreciation charged to income for the three months ended March 31, 1996 and 1995 was $47,231 and $46,041 respectively, and $186,925 for the year ended December 31, 1995. NOTE 5 - NOTES PAYABLE
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED -------------------------- DECEMBER 31 1996 1995 1995 ---------- ---------- ---------- Mortgage note payable, 1st National Bank of Morton Grove, payable in monthly installments of $2,548, including interest at 7.5%, with a balloon payment of $184,900 due November 1998. Collateralized by real estate $ 224,368 $ 238,205 $ 227,464 Mortgage note payable, American National Bank and Trust Company of Chicago, payable in monthly installments of $4,498 including interest at 6.75%, with a balloon payment of $394,000 due August 1998. Collaterlized by real estate 457,021 480,272 462,638 Mortgage note payable, 1st Commercial Bank, payable in monthly installments of $624 including interest at 9.75%, due September 1996 Collateralized by real estate 0 51,952 0 Note payable, Glenview State Bank, payable in monthly installments of $460, including interest at 6.25%, due March, 1998. Collateralized by automobile 10,352 15,056 11,556 ---------- ---------- ---------- Total 691,741 785,485 701,658 Less current maturities 43,115 41,887 41,651 ---------- ---------- ---------- Total $ 648,626 $ 743,598 $ 660,007 ========== ========== ==========
Maturities of notes payable for the years ended December 31,are as follows: 1996 $ 41,651 1997 44,621 1998 615,386 --------- $ 701,658 =========
F-12 16 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 AND DECEMBER 31, 1995 NOTE 6 - PROVISION FOR INCOME TAXES The provision for income taxes consists of the following:
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED ------------------------ DECEMBER 31 1996 1995 1995 ---------- ---------- ---------- Current Federal $ 86,603 $ 53,057 $ 225,897 State 20,423 9,420 51,860 ---------- ---------- ---------- Total current 107,026 62,477 277,757 Deferred 0 0 (36,344) ---------- ---------- ---------- Provision for income taxes $ 107,026 $ 62,477 $ 241,413 ========== ========== ==========
A reconciliation of the provision for income taxes and the income tax computed at the statutory rate is as follows:
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED -------------------------- DECEMBER 31 1996 1995 1995 ---------- ---------- ---------- Federal income tax expense computed at the statutory rate $ 86,603 $ 53,057 $ 215,228 State taxes, expense 20,423 9,420 49,796 Book/tax, accumulated depreciation adjusted 0 0 (4,886) Book/tax, inventory adjustment 0 0 (16,319) Permanent book/tax difference 0 0 (2,406) ---------- ---------- ---------- Provision for income taxes $ 107,026 $ 62,477 $ 241,413 ========== ========== ==========
Amounts for deferred tax assets and liabilities as of December 31, 1995 are as follows: Long-term deferred tax liabilities arising from: Temporary differences - principally Book/tax, accumulated depreciation $ 48,873 Book/tax, accumulated amortization (3,478) -------- Total deferred tax liabilities 45,395 Short-term deferred tax assets arising from: Book/tax, allowance for doubtful accounts $(22,176) Book/tax, inventory (12,304) -------- Total deferred tax assets (34,480) -------- Net deferred tax liability $ 10,915 ========
F-13 17 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 AND DECEMBER 31, 1995 NOTE 7 - CUSTOMER AND CREDIT CONCENTRATIONS Concentrations of credit with regard to trade accounts receivable and sales are limited due to the fact the Company's customers are spread across different geographic areas. The customers are concentrated in the retail food industry. Two customers accounted for 5% and 3% of 1995 sales and 18% and 22% of trade accounts receivable as of December 31, 1995. NOTE 8 - ACQUISITION OF BUSINESS LINE On December 27, 1990, the Company purchased the Tuscan brand-name liquid yogurt customer list along with a limited license of the trademark and use of the Tuscan liquid yogurt UPC codes from a third party. In addition, the third party signed a Covenant Not to Compete which states that, for a period of ten (10) years from the date of the agreement, they shall not sell, produce, market or broker liquid yogurt products in the United States. The final purchase price of the assets was determined to be $286,000, which was allocated accordingly: Covenant Not to Compete $ 50,000 Customer List 6,000 Trademark 30,000 UPC Codes 200,000 --------- $ 286,000 =========
Total amortization charged against income for the years ended December 31, 1995 and 1994 was $43,640 and $47,241, respectively. NOTE 9 - FORMATION OF SUBSIDIARIES In 1992, the Company formed Lifeway International, Inc.("LLI") as a majority-owned subsidiary. In exchange for 98% of the issued and outstanding common stock, 2,320,000 shares, the Company transferred $108,000 in cash. The remaining 2% of the issued and outstanding common stock, 46,000 shares, was transferred to other shareholders ("Minority Shareholders") under a qualifying Rule 144 restricted stock issue in exchange for $145,000 in cash. In 1993, LII executed an Investment Agreement with the Svyatoshino Milk Plant Ukrainian Joint-Stock Company (Kiev, Ukraine) in which LII was to acquire a majority-ownership interest in Svyatoshino. Due to the political situation in the Ukraine, acquisition of the controlling interest is not anticipated in the near future. In lieu of this acquisition, LII has commenced exporting Kefir to Eastern Europe. In light of this change in business plan, the Company extended an exchange offer to the Minority Shareholders. See Note 11 for additional information. For the years ending December 31, 1995, LII had export sales totaling $141,708. On September 30, 1992, the Company formed LFI Enterprises, Inc. (LFIE) as a wholly-owned subsidiary. In exchange for all of the issued and outstanding common stock of LFIE, the Company transferred to LFIE $1,000 in cash. F-14 18 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 AND DECEMBER 31, 1995 NOTE 10 - BUSINESS SEGMENT INFORMATION The Company's significant business segments include the sale of dairy products and the operations of a restaurant. "Corporate and other" includes revenues and expenses of the company's export subsidiary, general corporate expenses, interest expense, and interest income. The Company's operations, by business segment for 1995 are as follows:
Dairy Corporate 1995 Products Restaurant & Other Consolidated - ------------------------- ---------- ---------- --------- ------------ Sales $3,965,707 $390,145 $ 141,708 $4,497,560 Net Income $ 691,055 $ 18,729 $(269,059) $ 440,725 Identifiable Assets $3,033,742 $654,413 $ 103,086 $3,791,241 Depreciation and Amortization $ 209,567 $ 12,129 $ 8,869 $ 230,565 Capital Additions $ 45,494 $ 2,700 $ 0 $ 48,194
NOTE 11 - EXCHANGE OFFER TO MINORITY SHAREHOLDERS During 1994, the Company determined that it would not be able to implement its original business plan for LII at this time (see Note 9). As a result, the Company conducted an exchange offer to the Minority Shareholders of LII, whereby each Minority Shareholder could alternatively exchange their shares for: 1) restricted common shares in the Company (including shares for interest on their investment) or, 2) receive a return of their original investment in cash plus interest on their investment paid in restricted common shares in the Company. During 1994, Minority Shareholders owning 8,000 shares in LII elected to cash out and were paid $25,000. During 1995, Minority Shareholders owning 28,800 shares in LII elected to cash out and were paid $90,000. In addition, these Minority Shareholders were entitled to 9,200 restricted common shares in the Company as payment of interest on their investment in LII. During 1995, Minority Shareholders owning 9,600 shares in LII elected to exchange their shares and were issued 26,400 restricted common shares of the Company, including 2,400 shares as payment of interest on their investment in LII. The total issue of 35,600 restricted common shares in the Company resulted in a .9% dilution of the current Company shareholder's interests. As of December 31, 1995, all minority interests in LII have been exchanged or cashed out under the terms of the exchange offer. Had the shares been issued in 1994, earnings per share for the year ended December 31, 1994 would have decreased $.0005. NOTE 12 - COMMON STOCK ISSUE During 1995, the Company received consulting services valued at $27,500. In lieu of cash, the Company issued 20,000 shares of common stock as payment for these services, which resulted in a .5% dilution of the current Company shareholder's interest. F-15 19 LIFEWAY FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 AND DECEMBER 31, 1995 NOTE 13 - CONCENTRATION OF RISK The Company maintains cash deposits at several banks located in the greater Chicago, Illinois metropolitan area. Deposits at each bank are insured by the Federal Deposit Insurance Corporation up to $100,000. Bank balances of amounts reported by financial institutions which are categorized as follows at December 31, 1995: Amounts insured by FDIC $ 231,589 Uninsured and uncollateralized amounts 788,158 ------------ Total bank balance $ 1,019,747 ============
NOTE 14 - INVESTMENTS The amortized cost and fair value of investments at December 31, 1995 were:
Amortized Fair Cost Value --------- --------- Certificates of Deposit $ 230,000 $ 230,000 U.S. Treasury Bond 99,411 99,411 --------- --------- Total Investment $ 329,411 $ 329,411 ========= =========
NOTE 15 - SUBSEQUENT EVENT On April 24, 1996, the Company entered into a Real Estate Sales Contract (the "Contract") to purchase a 110,000 square foot parcel of real property, zoned commercial, including a 46,000 square foot one-story building, located at 6431 Oakton Avenue, Morton Grove, Illinois for $1,325,000. The purchase enables the Company to further expand its production facilities and capacity. Under the terms, upon execution of the Contract, (1) the Company would be allowed a period of 45 days to inspect the property (the "inspection period"); and (2) the Company would place initial earnest monies totalling $10,000 in escrow. Additionally, upon expiration of the inspection period, the Company would place additional earnest monies totalling $290,000 in an interest bearing escrow account at Chicago Title and Trust Company, the direction to control of which shall be held by the Seller. The Company shall be entitled to the interest accruing thereunder unless they are in default of the Contract, in which case the Seller shall be entitled to the interest. The Contract is expressly contingent upon entering into a mutually acceptable agreement with the current tenant of the building to terminate its lease. If the Seller is unable to enter into a termination agreement with the Tenant prior to the negotiation period set forth in the Contract, the Company shall have either (a) the option to extend the negotiation period or (b) the right to terminate the Contract. In the event of termination, the Contract shall be null and void with all earnest monies plus interest earned thereon to be refunded to the Company together with the sum of $1,000 for cost reimbursements. F-16 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Material Changes in Results of Operations Net income increased by $40,396, up to $178,404 for the three month period ending March 31, 1996 from $138,008 during the same three month period in 1995. The components of this increase are detailed as follows: Sales and cost of goods sold increased by $222,174 and $13,443, respectively, up to $1,258,639 and $512,233 during the three month period ending March 31, 1996 from $1,036,465 and $498,790 during the same three month period in 1995, respectively. The increase is primarily attributable to increased sales of Kefir, Farmer's Cheese and the introduction of Golden Zesta. Costs of sales and gross margins of the Company increased proportionately with sales. Operating expenses increased by $128,602, up to $458,937 during the three month period ending March 31, 1996 from $330,335 during the same three month period in 1995. The increase is primarily attributable to (i) an increase in advertising expenses due to the Company's aggressive marketing campaign commencing in 1995; and (ii) an increase in salaries and payroll taxes incurred as additional employees were hired to support the Company's growth in production. The Company's balance in inventory increased by $102,100, up to $268,100 during the three-month period ending March 31, 1996, as compared to $166,000 during the three-month period ending March 31, 1995. The increase is primarily due to an increase in production and sales. Interest income increased slightly, up to $9,874 during the three month period ending March 31, 1996 from $9,611 during the same three month period in 1995. The increase is due to an increase in funds available for investments. Provision for income taxes increased by $44,549, up to $107,026 during the three month period ending March 31, 1996 from $62,477 during the same three month period in 1995. The increase is proportionate to the net income increase. (2) Material Changes in Financial Condition As of the three month period ending March 31, 1996 as compared to the three month period ending March 31, 1995, the Company had working capital in the amount of $1,649,682 as compared to $1,006,976, respectively; and cash on hand in the amounts of $828,217 as compared to $397,220, respectively. Cash flow from operations was generated by the primary business activity of the Company. As a result of its strong working capital position, the Company expects all cash requirements can be met internally for the remaining fiscal year. On January 26, 1996, the Board of Directors of the Company voted to repurchase up to 100,000 shares of the Company's Common Stock on the open market. The decision reflects the Board's belief that the Company's Common Stock is significantly undervalued. The resolution of the Board of Directors gave the Company one year to repurchase the shares to be held as treasury stock for general corporate purposes. As of May 7, 1996, the Company has repurchased a total of 6,400 of its Common Shares. On April 24, 1996, the Company entered into a Real Estate Sales Contract with a non-affiliated third party to purchase a 110,000 square foot parcel of real property, zoned industrial, including a 46,000 square foot one- story building, in Morton Grove, Illinois, for $1,325,000. (See, further, Item 5. Other Information.) The purchase will enable the Company to further expand its production facilities and capacity. The Company anticipates a move in date of December 1996. The Company has obtained preliminary approval of financing with the American National Bank in Chicago. It is proposed that the loan in the approximate amount of $1,000,000, the specified terms of which have not yet been determined, will be secured by the real estate, payable in monthly installments and carry the prime interest rate set by the Federal Reserve. The Company believes it has sufficient cash on hand to make the earnest money deposit requirement of $300,000, and will not need to raise additional funds to meet its cash 4 21 requirements for, among others, building upgrades, additional employees, equipment and inventory. Thereafter, the Company, on a gradual basis, will implement its three-year plan to increase production resulting in increased sales. Once full production capability is reached, the Company expects that its annual product sales will increase significantly. The Company expects to employ up to 40 more persons to operate this new production facility, on an as- needed basis, over the next three years. The Company is not aware of any circumstances or trends which would have a negative impact upon future sales or earnings. The Company believes it has sufficient funds available during the next fiscal year for the Common Stock repurchase and the earnest money deposit requirements for the property purchase discussed above. There have been no material fluctuations in the standard seasonal variations of the Company's business. 5 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Securities Holders None. Item 5. Other Information On April 24, 1996, the Company entered into a Real Estate Sales Contract (the "Contract") with a non-affiliated third party, to purchase a 110,000 square foot parcel of real property, zoned industrial, including a 46,000 square foot one-story building, located in Morton Grove, Illinois, for $1,325,000. The purchase enables the Company to further expand its production facilities and capacity. Pursuant to the terms of the Contract, upon its execution, (1) the Company placed initial earnest monies totaling $1,000 in escrow, and (2) the Company is allowed a period of 45 days to inspect the property (the "inspection period"). Additionally, upon expiration of the inspection period, the Company would place additional earnest monies totaling $290,000 in an interest bearing escrow account at Chicago Title and Trust Company, the direction to control of which shall be held by Seller. The Company shall be entitled to the interest accruing thereunder unless Purchaser is in default of the Contract, in which case Seller shall be entitled to the interest. The Contract is expressly contingent upon entering into a mutually acceptable agreement with the current tenant of the building to terminate its lease. If Seller is unable to enter into a termination agreement with the tenant prior to the negotiation period set forth in the Contract, the Company shall have either (a) the option to extend the negotiation period or (b) the right to terminate the Contract. In the event of termination, the Contract shall be null and void, and the earnest monies plus interest earned thereon shall be refunded to the Company, together with the sum of $1,000 for costs reimbursals. (See, further, Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations.) Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit Number and Brief Description - ------------------------------------ 3.1 Articles of Incorporation of issuer, with Certificate, and Amendments. (1) 3.2 Bylaws of issuer. (1) 3.3 Corrected Amendment to the Bylaws of issuer. (1) 10.1 Lifeway Foods, Inc. Consulting and Services Compensation Plan, dated June 5, 1995. (2) 10.2 Employment Agreement between issuer and Michael Smolyansky. (3)
6 23
10.4 Industrial Building Lease between Lifeway Foods, Inc. and Michael Smolyansky, and Addendum to Building Lease. (3) 10.5 Stock Option Agreements. (3) 10.6 Noncompetition, Nondisclosure, and Inventions Agreement. (3) 10.7 Restricted Stock Plan. (3) 10.8 Definitive Purchase Agreement between Lifeway Foods, Inc. and Johanna Farms, Inc., dated December 27, 1990. (3) 10.9 Real Estate Sales Contract, dated April 24, 1996, to purchase a 110,000 square foot parcel of real property, zoned industrial, in Morton Grove, Illinois. (4) 15.1 Letter on unaudited interim financial information. (5) 16.1 Letter of Robert L. DeLorme, C.P.A., dated March 3, 1995, stating its concurrence with the disclosure contained in the Company's Current Report on Form 8-K dated February 28, 1995. (3) 16.2 Letter of Gleeson, Sklar, Sawyers & Cumpata, L.L.P., Certified Public Accountants and Management Consultants, dated March 3, 1995, stating its concurrence with the disclosure contained in the Company's Current Report on Form 8-K dated February 28, 1995. (3)
--------------- (1) Incorporated by reference to the issuer's registration statement on Form S-18 (File No. 33-14329-C), and Post-Effective Amendments thereto. (2) Incorporated by reference to the issuer's registration statement on Form S-8 (File No. 33-93306). (3) Incorporated by reference to the issuer's Current Reports filed under cover of Form 8-K and amendments thereto. (4) Filed herewith. (5) Filed herewith at page F-2 of Item 1. Financial Statements. (b) Reports on Form 8-K The issuer incorporates by this reference its Current Report on Form 8-K dated February 28, 1995 relating to its change in accountants. 7 24 SIGNATURES 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. LIFEWAY FOODS, INC. By: /s/ Michael Smolyansky ----------------------------------- Michael Smolyansky, Chief Executive Officer, Chief Financial and Accounting Officer, President, Treasurer and Director Date: May 7, 1996 8 25 EXHIBIT INDEX
Page ---- 3.1 Articles of Incorporation of issuer, with Certificate, and Amendments. (1) 3.2 Bylaws of issuer. (1) 3.3 Corrected Amendment to the Bylaws of issuer. (1) 10.1 Lifeway Foods, Inc. Consulting and Services Compensation Plan, dated June 5, 1995. (2) 10.2 Employment Agreement between issuer and Michael Smolyansky. (3) 10.4 Industrial Building Lease between Lifeway Foods, Inc. and Michael Smolyansky, and Addendum to Building Lease. (3) 10.5 Stock Option Agreements. (3) 10.6 Noncompetition, Nondisclosure, and Inventions Agreement. (3) 10.7 Restricted Stock Plan. (3) 10.8 Definitive Purchase Agreement between Lifeway Foods, Inc. and Johanna Farms, Inc., dated December 27, 1990. (3) 10.9 Real Estate Sales Contract, dated April 24, 1996, to purchase a 110,000 square foot parcel of real property, zoned industrial, in Morton Grove, Illinois. (4) 15.1 Letter on unaudited interim financial information. (5) 16.1 Letter of Robert L. DeLorme, C.P.A., dated March 3, 1995, stating its concurrence with the disclosure contained in the Company's Current Report on Form 8-K dated February 28, 1995. (3) 16.2 Letter of Gleeson, Sklar, Sawyers & Cumpata, L.L.P., Certified Public Accountants and Management Consultants, dated March 3, 1995, stating its concurrence with the disclosure contained in the Company's Current Report on Form 8-K dated February 28, 1995. (3)
- --------------- (1) Incorporated by reference to the issuer's registration statement on Form S-18 (File No. 33-14329-C), and Post-Effective Amendments thereto. (2) Incorporated by reference to the issuer's registration statement on Form S-8 (File No. 33-93306). (3) Incorporated by reference to the issuer's Current Reports filed under cover of Form 8-K and amendments thereto. (4) Incorporated by reference to the issuer's Quarterly Report on Form 10-QSB for the period ended March 31, 1996. (5) Filed herewith at page F-2 of Item 1. Financial Statements. EX-10.9 2 RE SALES CONTRACT DATED 4/24/96 1 EXHIBIT 10.9 [LOGO] REAL ESTATE SALES CONTRACT 1. Lifeway Foods, Inc., or its nominee (Purchaser) ------------------------------------------------------------------- agrees to purchase at a price of $1,325,000.00 on the terms set forth --------------------- herein, the following described real estate in Cook County, Illinois: -------------- See Exhibit "A" attached hereto and by this reference made a part hereof. commonly known as 6431 Oakton, Morton Grove, Illinois 60053 , and with ----------------------------------------------- approximate lot dimensions of per x survey , together with the following ------- -------- property presently located thereon: All fixtures, equipment and personal property of Seller which are located on or about the Property including the walk-in freezer and CO2 tank located thereon, excluding (i) the property of "Tenant" (defined in the Rider), and (ii) one (1) Rheon Sheeting Machine owned by Seller's beneficiary. 2. American National Bank and Trust Company of Chicago u/t/a dated 3/14/89* ------------------------------------------------------------------------------ (Seller) agrees to sell the real estate and the property described above, if any, at the price and terms set forth herein, and to convey or cause to be conveyed to Purchaser or nominee title thereto by a recordable Trustee's ------------------ deed, with release of homestead rights, if any, and a proper bill of sale, subject only to: (a) covenants, conditions and restrictions of record; (b) and utility easements; (h) general taxes for the year 1996 and subsequent years; ------- and to *a/k/a Trust No. 10781805 3. Purchaser will pay $10,000.00 as earnest money upon the execution and -------------- delivery hereof to be applied on the purchase price, and agrees to pay or satisfy the balance of the purchase price, plus or minus prorations, as follows: (strike language and subparagraphs not applicable) (a) $290,000.00 by cashier's or certified check upon the expiration of the ----------------------------------------------------------------------------- Inspection Period defined in the Rider attached hereto (b) The payment of - ------------------------------------------------------- $1,025,000.00 by cashier's or certified check at the time of closing. - --------------------------------------------------------------------- 4. Seller, at his own expense, agrees to furnish Purchaser a current ALTA survey of the above real estate made, and so certified by the surveyor as having been made, in compliance with the ALTA Standards. 5. The time of closing shall be on December 1, 1996 subject to the terms of Paragraph 4 of the Rider, or on the date, if any, to which such time is extended by reason of paragraphs 2 or 10 of the Conditions and Stipulations hereafter becoming operative (whichever date is later), unless subsequently mutually agreed otherwise, at the office of Chicago Title Insurance Company, 171 N. Clark Street, Chicago, Illinois, provided title is shown to be good or is accepted by Purchaser. 6. Seller agrees to pay a broker's commission to Stein & Company and ERA-Lebovie Realty Group on Devon, Inc., provided the sale is closed in the amount set forth in the broker's listing contract or as follows: 7. The earnest money shall be held by See Rider attached hereto ------------------------------------------ 8. Seller warrants that Seller, its beneficiaries or agents of Seller or of its beneficiaries have received no written notices from any city, village or other governmental authority of zoning, building, fire or health code violations in respect to the real estate that have not been heretofore corrected. 9. A duplicate original of this contract, duly executed by the Seller and his spouse, if any, shall be delivered to the Purchaser within 5 days from the ------ date hereof, otherwise, at the Purchaser's option, this contract shall become null and void and the earnest money shall be refunded to the Purchaser. THERE IS A RIDER ATTACHED HERETO AND FORMING A PART HEREOF. This contract is subject to the Conditions and Stipulations set forth on the back page hereof, which Conditions and Stipulations are made a part of this contract. Dated April 24, 1996 ------------------------- Purchaser See Signature Rider Attached Hereto (Address) -------------------------------------- ------------------------ And Forming A Part Herof Purchaser (Address) -------------------------------------- ------------------------ Seller See Signature rider Attached Hereto (Address) -------------------------------------- ------------------------ And Forming A Part Hereof Seller (Address) -------------------------------------- ------------------------ *Form normally used for sale of property improved with multi-family structures of five or more units or of commercial or industrial properties. 2 CONDITIONS AND STIPULATIONS 1. Seller shall deliver or cause to be delivered to Purchaser or Purchaser's agent, no later than November 15, 1996, the plat of survey (if one is required to be delivered under the terms of this contract) and a title commitment for an owner's title insurance policy issued by Chicago Title Insurance Company in the amount of the purchase price, covering title to the real estate on or after the date hereof, showing title in the intended grantor subject only to (a) the general exceptions contained in the policy, (b) the title exceptions set forth above, and (c) title exceptions pertaining to liens or encumbrances of a definite or ascertainable amount which may be removed by the payment of money at the time of closing and which the Seller may so remove at any time by using the funds to be paid upon by the delivery of the deed (all of which are herein referred to as the permitted exceptions). The title commitment shall be conclusive evidence of good title as therein shown as to all matters insured by the policy, subject only to the exceptions as therein stated. Seller also shall furnish Purchaser an affidavit of title in customary form covering the date of closing and showing title in Seller subject only to the permitted exceptions in foregoing items (b) and (c) and unpermitted exceptions or defects in the title disclosed by the survey, if any, as to which the title insurer commits to extend insurance in the manner specified in paragraph 2 below. At Purchaser's expense, the parties will cause the general exceptions contained in the policy to be insured over at or prior to closing. 2. If the title commitment or plat of survey (if one is required to be delivered under the terms of this contract) discloses either unpermitted exceptions or survey matters that render the title unmarketable (herein referred to as "survey defects"). Seller shall have 30 days from the date of delivery thereof to have the exceptions removed from the commitment or to correct such survey defects or to have the title insurer commit to insure against loss or damage that may be occasioned by such exceptions or survey defects, and, in such event, the time of closing shall be 35 days after delivery of the commitment or the time expressly specified in paragraph 5 on the front page hereof, whichever is later. If Seller fails to have the exceptions removed or correct any survey defects, or in the alternative, to obtain the commitment for title insurance specified above as to such exceptions or survey defects within the specified time. Purchaser may terminate this contract or may elect, upon notice to Seller within 10 days after the expiration of the 30-day period, to take title as it then is with the right to deduct from the purchase price liens or encumbrances of a definite or ascertainable amount. If Purchaser does not so elect, this contract shall become null and void without further action of the parties. 3. Rents, premiums under assignable insurance policies, water and other utility charges, fuels, prepaid service contracts, general taxes, accrued interest on mortgage indebtedness, if any, and other similar items shall be adjusted ratably as of the time of closing. The amount of the current general taxes not then ascertainable shall be adjusted on the basis of 107% of the most recent ascertainable taxes, (1995) provided the assessed valuation shall not have been reduced below $533,168. If the 1995 assessed value is less than this amount, the 1996 tax proration will be recalculated using the Assessor's original valuation set forth here with the 1995 equalization factor and the 1995 tax rate multiplied by seven percent. All prorations are final. Existing leases, if any, shall then be assigned to Purchaser. Seller shall pay the amount of any stamp tax imposed by State law on the transfer of the title, and shall furnish a completed Real Estate Transfer Declaration signed by the Seller of the Seller's agent or or meet other requirements as established by any local ordinance with regard to a transfer or transaction tax; such tax required by local ordinance shall be paid by the party upon whom such ordinance places responsibility therefor. If such ordinance does not so place responsibility; the tax shall be paid by the Purchaser. 4. The provisions of the Uniform Vendor and Purchaser Risk Act of the State of Illinois shall be applicable to this contract. 5. If this contract is terminated, without Purchaser's fault at Purchaser's option, the earnest money, with interest, shall be returned to the Purchaser, or Purchaser may sue Seller for specific performance as Purchaser's sole remedy, but, if the termination is caused by the Purchaser's fault, then, upon notice to the Purchaser, the earnest money, with interest, shall be forfeited to the Seller as liquidated damages and Seller shall have no further claim against the Purchaser. 6. This sale shall be closed through an escrow with Chicago Title Insurance Company, using a "New York Style" closing, in accordance with the general provisions of the usual form of Deed and Money Escrow Agreement then in use by Chicago Title Insurance Company, with such special provisions inserted in the escrow agreement as may be required to conform with this contract. Upon the creation of such an escrow, anything herein to the contrary notwithstanding, payment of purchase price and delivery of deed shall be made through the escrow and this contract and the earnest money shall deposited in the escrow. The cost of the escrow shall be divided equally between Seller and Purchaser. 7. Time is of the essence of this contract. 8. All notices herein shall be in writing and shall be served on the parties at the addresses following their signatures. The mailing of a notice by registered or certified mail, return receipt requested or personal or courier deliver shall be sufficient service. Notices by mail shall be deemed served 3 days after mailing. 9. Alternative 1: Seller represents that he is not a "foreign person" as defined in Section 1445 of the Internal Revenue Code and is therefore exempt from the withholding requirements of said Section. Seller will furnish Purchaser at closing the Exemption Certification set forth in said Section. 10. (A) Purchaser and Seller agree that the disclosure requirements of the Illinois Responsible Property Transfer Act (do) apply to the transfer contemplated by this contract. (If requirements do not apply, strike (B) and (C) below.) (B) Seller agrees to execute and deliver to Purchaser and each mortgage lender of Purchaser such disclosure documents as may be required by the Illinois Responsible Property Transfer Act. (C) Purchaser agrees to notify Seller in writing of the name and post office address of each mortgage lender who has issued a commitment to finance the purchase hereunder, or any part thereof; such notice shall be furnished within 10 days after issuance of any such commitment, but in no event less than 40 days prior to delivery of the deed hereunder unless waived by such lender or lenders. Purchaser further agrees to place of record, simultaneously with the deed recorded pursuant to this contract, any disclosure statement furnished to Purchaser pursuant to paragraph 10(B) and, within 30 days after delivery of the deed hereunder, to file a true and correct copy of said disclosure document with the Illinois Environmental Protection Agency. 3 SIGNATURE RIDER ATTACHED TO AND FORMING PART OF REAL ESTATE SALES CONTRACT BETWEEN LIFEWAY FOODS, INC. ("PURCHASER") AND AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO AS TRUSTEE UNDER A TRUST AGREEMENT DATED MARCH 14, 1989 AND KNOWN AS TRUST NO. 10781805 AND 6431 OAKTON STREET ASSOCIATES (TOGETHER, THE "SELLER") PURCHASER: LIFEWAY FOODS, INC., an Illinois corporation ATTEST: By: MICHAEL SMOLYANSKY By: ------------------------------ --------------------------------- Its: PRESIDENT Its: ----------------------------- -------------------------------- SELLER: AMERICAN NATIONAL BANK AND TRUST COMPANY, not personally, but as Trustee as aforesaid ATTEST: By: [ILLEGIBLE] By: Attestation not required by ------------------------------ American National Bank and Trust Company of Chicago By Laws --------------------------------- Its: TRUST OFFICER Its: ----------------------------- --------------------------------- 6431 OAKTON STREET ASSOCIATES, an Illinois general partnership By: LARRY B. GOLDBERG ----------------------------- It: MANAGING GENERAL PARTNER ---------------------------- By: [ILLEGIBLE] ----------------------------- Its: PARTNER ---------------------------- 4 szl0415 REVISED 4/15/96 RIDER ATTACHED TO AND FORMING PART OF REAL ESTATE SALES CONTRACT BETWEEN LIFEWAY FOODS, INC. ("PURCHASER") AND AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO AS TRUSTEE UNDER TRUST AGREEMENT DATED MARCH 14, 1989 AND KNOWN AS TRUST NO. 10781805 AND 6431 OAKTON STREET ASSOCIATES (TOGETHER, THE "SELLER") 1. EARNEST MONEY. The $10,000.00 delivered by Purchaser upon the execution and delivery hereof in accordance with paragraph 3 of the printed contract (the "Initial Earnest Money") shall be held by Stein & Company, pursuant to the terms of a Joint Order Escrow Account. Upon the expiration of the Inspection Period (as defined below), the Initial Earnest Money and the $290,000.00 to be delivered by Purchaser in accordance with paragraph 3 of the printed contract (the "Additional Earnest Money" and, together with the Initial Earnest Money, the "Earnest Money") shall be deposited in an interest bearing Escrow Account at Chicago Title and Trust Company, the direction to control of which shall be held by Seller. Notwithstanding the foregoing, Seller shall not direct the escrowee to release the Earnest Money until the earlier of (i) five (5) business days after the notice to Purchaser of a default by Purchaser under the Contract; or (ii) the closing date. Purchaser shall be entitled to the interest accruing thereunder unless Purchaser is in default hereunder, in which case Seller shall be entitled to the interest. Notwithstanding the foregoing, Purchaser shall have the option of delivering to Seller an irrevocable letter of credit issued by American National Bank and Trust Company of Chicago in form acceptable to Seller in its sole discretion in place of the $300,000.00 cash. 2. INSPECTION CONTINGENCY. For a period commencing on the date the Seller accepts the Contract and continuing for a period not to exceed forty-five (45) days thereafter (the "Inspection Period"), Purchaser and its representatives shall have the right, at reasonable times (but not more often than four (4) times) during normal business hours and upon prior notice to Seller's broker, to enter upon the Property (subject to the rights of the "Tenant" described in paragraph 2 below) to make such inspections of the Property as Purchaser deems necessary and desirable, including, without limitation, environmental studies and inspection of the structure and utilities on the Property. No destructive testing shall be permitted. Purchaser shall promptly restore areas so inspected to the condition such areas were in immediately prior to making such inspection. Purchaser agrees to indemnify and hold harmless Seller from any loss, cost, damage or expense arising from Purchaser's and/or its independent contractors (including, but not limited to, its environmental consultants' inspection of the Property and Purchaser 5 or Purchaser's Independent Contractors shall, prior to such entry, provide Seller with evidence of commercial general liability insurance concerning such indemnity in an amount not less than One Million Dollars ($1,000,000.00), combined single limit per occurrence. Purchaser further agrees to deliver to Seller copies of any such reports prepared in connection with Purchaser's inspection of the Property. In the event that any such inspections disclose any conditions which would, in Purchaser's opinion, require environmental remediation or unusual expenditure for construction and utilization of the improvements intended by Purchaser to be constructed and/or used on the Property, Purchaser may terminate this Contract by giving written notice thereof to Seller prior to the expiration of the Inspection Period. In the event of such termination, this Contract shall be null and void (except for any obligations of Purchaser to restore the Property or under its indemnification obligation provided for in this paragraph) and Purchaser shall be entitled to a prompt return of the earnest money, plus interest earned thereon. Purchaser's failure to notify Seller in writing prior to the expiration of the Inspection Period shall be deemed a waiver of this provision and the Contract shall continue in full force and effect. Purchaser shall not interfere with the "Tenant" (as defined in paragraph 4 below) in conducting such inspection. 3. LEASE TERMINATION CONTINGENCY. Seller currently leases the Property to 6431 W. Oakton Bakery, L.L.C., an Illinois limited liability company ("Tenant") pursuant to the terms of a certain Lease between Seller and Tenant dated March 22, 1995. Seller and Purchaser acknowledge that the Lease currently expires at midnight on March 31, 1998. Seller has proposed to the Tenant that the Lease be terminated prior thereto and is negotiating with the Tenant for a lease termination agreement (the "Termination Agreement") to provide for the Lease to terminate on or before November 30, 1996 (the "Termination Date"). Seller will use reasonable efforts to enter into a Termination Agreement with Tenant within sixty (60) days from the date that Seller accepts this Contract or within fifteen (15) days of the time Purchaser waives its right to terminate the Contract under paragraph 2 hereof, whichever first occurs (the "Negotiation Period"). Purchaser consents to the early termination of the Lease and acknowledges that (a) the Termination Agreement may require the Tenant to pay Seller a lease termination payment (the "Termination Payment") that will be paid to Seller either upon execution and delivery of the Termination Agreement by Seller and Tenant or after the sale of the Property has been closed, and (b) the early termination of the Lease will benefit Purchaser since Purchaser will have the right to obtain possession of the Property on the Closing Date. Irrespective of when paid, the Termination Payment shall be the exclusive property of Seller and Purchaser shall have no rights to or claims on the Termination Payment. If Seller is unable to enter into the Termination Agreement with Tenant prior to the expiration of the Negotiation Period, Seller shall so notify Purchaser by providing Purchaser with a report of the status of negotiations and the time likely to be required to reach agreement and, at Purchaser's written election, given within five (5) days of receipt of Seller's notice, - 2 - 6 (a) the Negotiation Period shall be extended for an additional thirty (30) days, or (b) Purchaser may terminate this Contract. In the event of termination, this Contract shall be null and void, and the earnest money plus interest earned thereon shall be refunded to Purchaser together with the sum of $1,000.00 to reimburse Purchaser for part of the cost of Purchaser's environmental inspection. 4. CLOSING; POSSESSION. Notwithstanding anything contained in paragraph 5 of the printed contract to the contrary, at Seller's sole election, by written notice to Purchaser on or before November 1, 1996, the closing date shall be extended beyond December 1, 1996 up to the number of days equal to the number of days after May 1, 1996 until the date Purchaser waives its inspection contingency set forth in paragraph 2 above (the "Extended Closing Date"). Additionally, if Tenant does not vacate the Property on or before, the closing date, or Extended Closing Date if Seller exercises its rights hereunder, , Seller shall have the right to extend the closing for up to an additional fourteen (14) days (the "First Cure Period"). If Tenant has not vacated the Property on or before the expiration of the First Cure Period, Seller shall have the right to extend the closing for up to an additional fourteen (14) days (the "Second Cure Period"), provided that Seller shall pay to Purchaser as liquidated damages the sum of $750.00 for each day after the expiration of the First Cure Period that the closing is postponed. If Tenant has not vacated the Property after the Second Cure Period, Purchaser, by written notice to Seller given within five (5) days after the end of the Second Cure Period, may elect to terminate the Contract and receive a refund of the Earnest Money and the payments described in paragraph 3 above as Purchaser's sole and exclusive remedy. In such event, this Contract shall be null and void and, except for Purchaser's obligations under paragraph 2, neither party shall have any further rights or liability hereunder. Possession of the Property shall be delivered to Purchaser at Closing. 5. REPRESENTATIONS AND WARRANTIES. Seller represents and warrants that to the best of Seller's knowledge (which shall mean solely matters within the actual knowledge of the two (2) general partners of 6431 Oakton Street Associates ("Beneficiary") and not the knowledge of the Tenant): a. Seller has received no written notice from the Assessor of Cook County of a change in the assessed valuation of the Property for the year 1995. Seller will advise Purchaser of any notice from the Assessor of Cook County affecting the assessed value of the Property and of attempts, if any, to reduce the assessed value for 1996; b. Seller has received no written notice from the Village of Morton Grove with respect to special assessments or the existence of violations of the building and zoning ordinances of the municipality; - 3 - 7 c. The heating, ventilating, air-conditioning, electrical, plumbing fixtures, machinery, equipment and systems located on or about the Property are in working condition and will be so when possession is surrendered to Purchaser, ordinary wear and tear excepted; and d. Larry B. Goldberg and Craig P. Colmar, individually represent that they and Camille Marie Goldberg, a minor, and Alexandra Brittany Goldberg, a minor, are the general partners of 6431 Oakton Street Associates, an Illinois general partnership (the "Beneficiary"), which partnership is the sole beneficiary of and Craig Colmar and Larry Goldberg have the sole power to direct the Trustee. The Beneficiary and Trustee are collectively deemed to be the Seller. 6. PURCHASER'S AUTHORITY. Purchaser hereby represents and warrants to Seller that it has full power and authority to enter into and perform its obligations hereunder. 7. SELLER'S AUTHORITY. Seller hereby represents and warrants to Purchaser that it has full power and authority to enter into and perform its obligations hereunder. 8. AS-IS WHERE-IS. Purchaser acknowledges that except as expressly set forth in the Contract, Purchaser is purchasing the Property and personal property in "AS-IS" "WHERE-IS" condition, without representation or warranty of any kind as to the physical condition thereof or suitability for Purchaser's intended use. 9. RIGHT OF INSPECTION PRIOR TO CLOSING. Purchaser and its agents shall have the right to inspect the Property one (1) time during the forty-eight (48) hour period immediately prior to the Closing to assure Purchaser with respect to the condition of the Property and vacation of the Property by Tenant. 10. BROKER. Purchaser represents and warrants that it has not had any dealings with any broker or agent in connection with this Contract other than ERA-Lebovic Realty Group of Devon, Inc. and Stein & Company. The parties agree to indemnify, defend and hold harmless the other from and against any and all costs (including reasonable attorneys' fees), expense or liability for any compensation, commissions and charges claimed by any other broker or other agent with respect to this Contract or the negotiation thereof. 11. NOTICES. Copies of any notices delivered pursuant to paragraph 8 of the Conditions and Stipulations to the printed Contract shall be deliverer to: - 4 - 8 If to Seller: Miller, Shakman, Hamilton Kurtzon & Schlifke 208 South LaSalle Street Suite 1100 Chicago, Illinois 60604 Attention: Sharon Z. Letchinger If to Purchaser: Sheldon Belofsky 29 South LaSalle Street Suite 430 Chicago, Illinois 60603 12. AMENDMENTS. This Contract may be not be amended, modified or discharged except by an instrument in writing signed by Seller and Purchaser. 13. PARTIES IN INTEREST. All of the terms and provisions of this Contract will be binding on, will inure to the benefit of, and will be enforceable by the successors and permitted assigns of Seller and Purchaser. 14. HEADINGS. The headings contained in this Contract are for reference purposes only and will not in any way affect the meaning or interpretation of the text of this Contract. 15. CONSTRUCTION. The parties acknowledge that each party and its counsel have reviewed and revised this Contract, and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Contract or any amendments or exhibits thereto. 16. GOVERNING LAW. This Contract will be construed and enforced in accordance with the laws of the State of Illinois. 17. NUMBER. As used in this Contract, the singular will include the plural, and the plural will include the singular, as the context may require. 18. COUNTERPARTS. This Contract may be signed in multiple counterparts, each of which shall constitute an original. 19. CONFLICT. In the event of an inconsistency between the printed Contract and this Rider, the provisions of this Rider shall govern and control. 20. BENEFICIARY'S EXCULPATION. It is expressly understood and agreed by Purchaser that none of Beneficiary's agreements or representations and warranties herein are intended as personal agreements or representations and - 5 - 9 warranties of Beneficiary and none of the parties of Beneficiary shall have any liability personally for such agreements, representations or warranties, it being understood and agreed that any liability for breach of this agreement or of any representations or warranties by Seller shall be collectible only from Seller's interest in the Property and no personal liability is assumed by nor at any time may be asserted against Beneficiary, or its partners, agents, employees, legal representatives, successors or assigns, all such liability, if any, being expressly waived and released by Purchaser. PURCHASER: LIFEWAY FOODS, INC., an Illinois corporation ATTEST: By: MICHAEL SMOLYANSKY By: [ILLEGIBLE] ----------------------------- --------------------------- Its: President Its: ----------------------------- --------------------------- SELLER: AMERICAN NATIONAL BANK AND TRUST COMPANY, not personally, but as Trustee as aforesaid ATTEST: By: [ILLEGIBLE] By: Attestation not required by ----------------------------- American National Bank and Its: Trust Officer Trust Company of Chicago ----------------------------- By Laws Its: ----------------------------- 6431 OAKTON STREET ASSOCIATES, an Illinois general partnership By: LARRY B. GOLDBERG ----------------------------- Its: Managing General Partner ----------------------------- By: [ILLEGIBLE] ---------------------------- Its: Partner ----------------------------
- 6 - 10 EXHIBIT "A" LEGAL DESCRIPTION LOT 5, EXCEPT THE SOUTH 140 FEET THEREOF, MEASURED ALONG THE EAST AND WEST LINES OF SAID LOT 5, AND EXCEPT THE NORTH 10 FEET OF SAID LOT 5 TAKEN FOR WIDENING OAKTON STREET, IN ENJAY'S INDUSTRIAL SUBDIVISION, BEING A SUBDIVISION IN THE NORTH 1/2 OF THE NORTH EAST 1/4 OF SECTION 30, TOWNSHIP 41 NORTH, RANGE 13 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS P.I.N.: 10-30-202-011 ADDRESS: 6431 Oakton Street Morton Grove, Illinois 60053 EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 828,217 330,000 672,980 48,000 268,100 2,147,884 2,561,933 916,000 3,894,172 498,202 648,626 1,362,938 0 0 1,339,011 3,894,172 1,258,639 1,268,513 512,233 458,937 0 0 12,602 286,430 107,026 178,404 0 0 0 178,404 .05 .05
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