Document And Entity Information
v4.1.212.0
Document And Entity Information
 6 Months Ended
Jun. 30, 2011
Document And Entity Information  
Document Type 10-Q
Amendment Flag false
Document Period End Date Jun. 30, 2011
Document Fiscal Year Focus 2011
Document Fiscal Period Focus Q2
Entity Registrant Name LIFEWAY FOODS INC
Entity Central Index Key 0000814586
Current Fiscal Year End Date --12-31
Entity Filer Category Smaller Reporting Company
Entity Common Stock, Shares Outstanding 16,430,809

Consolidated Statements Of Financial Condition
v4.1.212.0
Consolidated Statements Of Financial Condition (USD $)
Jun. 30, 2011
Dec. 31, 2010
Jun. 30, 2010
ASSETS      
Cash and cash equivalents $ 1,398,523 $ 3,229,939 $ 858,490
Investments 1,172,193 1,079,232 3,411,804
Certificates of deposits in financial institutions 300,000 250,000 550,000
Inventories 5,608,151 3,985,374 4,154,719
Accounts receivable, net of allowance for doubtful accounts and discounts 8,891,068 6,793,276 7,780,512
Prepaid expenses and other current assets 199,866 158,315 70,130
Other receivables 9,825 104,680 142,389
Deferred income taxes 394,376 328,470 389,249
Refundable income taxes   906,748  
Total current assets 17,974,002 16,836,034 17,357,293
Property and equipment, net 15,237,279 15,152,713 14,890,327
Intangible assets      
Goodwill and other non amortizable brand assets 14,068,091 14,068,091 13,806,091
Other intangible assets, net of accumulated amortization of $2,696,023 and $1,931,091 at June 30, 2011 and 2010 and $2,304,107 at December 31, 2010, respectively 5,609,977 6,001,893 5,907,909
Total intangible assets 19,678,068 20,069,984 19,714,000
Other assets     500,000
Total assets 52,889,349 52,058,731 52,461,620
LIABILITIES AND STOCKHOLDERS' EQUITY      
Checks written in excess of bank balances 1,709,050 1,341,210 847,374
Current maturities of notes payable 1,892,042 2,851,610 4,431,873
Accounts payable 4,174,835 4,183,481 2,259,236
Accrued expenses 552,058 509,459 531,553
Accrued income taxes 378,482   604,323
Total current liabilities 8,706,467 8,885,760 8,674,359
Notes payable 5,957,795 6,122,225 6,397,780
Deferred income taxes 3,329,537 3,401,728 3,262,795
Total liabilities 17,993,799 18,409,713 18,334,934
Stockholders' equity      
Common stock, no par value; 20,000,000 shares authorized; 17,273,776 shares issued; 16,430,809 shares outstanding at June 30, 2011; 17,273,776 shares issued; 16,657,478 shares outstanding at June 30, 2010; 17,273,776 shares issued; 16,536,657 shares outstanding at December 31, 2010 6,509,267 6,509,267 6,509,267
Paid-in-capital 2,032,516 2,032,516 2,018,727
Treasury stock, at cost (7,397,344) (6,425,546) (5,256,054)
Retained earnings 33,767,188 31,575,875 30,906,602
Accumulated other comprehensive income (loss), net of taxes (16,077) (43,094) (51,856)
Total stockholders' equity 34,895,550 33,649,018 34,126,686
Total liabilities and stockholders' equity $ 52,889,349 $ 52,058,731 $ 52,461,620

Consolidated Statements Of Financial Condition (Parenthetical)
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Consolidated Statements Of Financial Condition (Parenthetical) (USD $)
Jun. 30, 2011
Dec. 31, 2010
Jun. 30, 2010
Consolidated Statements Of Financial Condition      
Accumulated amortization $ 2,696,023 $ 2,304,107 $ 1,931,091
Common stock, no par value      
Common stock, shares authorized 20,000,000 20,000,000 20,000,000
Common stock, shares issued 17,273,776 17,273,776 17,273,776
Common stock, shares outstanding 16,430,809 16,536,657 16,657,478

Consolidated Statements Of Income And Comprehensive Income
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Consolidated Statements Of Income And Comprehensive Income (USD $)
 3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2011
Jun. 30, 2010
Jun. 30, 2011
Jun. 30, 2010
Dec. 31, 2010
Consolidated Statements Of Income And Comprehensive Income          
Sales $ 19,913,003 $ 15,546,556 $ 38,960,269 $ 31,510,715 $ 63,543,445
Less: discounts and allowances (1,715,085) (1,261,195) (3,458,448) (2,336,208) (5,043,552)
Net Sales 18,197,918 14,285,361 35,501,821 29,174,507 58,499,893
Cost of goods sold 12,535,368 8,454,095 22,186,640 16,530,707 36,926,973
Depreciation expense 390,694 281,220 767,207 684,595 1,393,745
Total cost of goods sold 12,926,062 8,735,315 22,953,847 17,215,302 38,320,718
Gross profit 5,271,856 5,550,046 12,547,974 11,959,205 20,179,175
Selling expenses 2,790,507 1,741,886 5,012,315 3,736,733 7,603,098
General and administrative 1,585,178 1,478,062 3,177,907 2,968,219 5,576,908
Amortization expense 195,957 175,761 391,916 351,521 724,537
Total Operating Expenses 4,571,642 3,395,709 8,582,138 7,056,473 13,904,543
Income from operations 700,214 2,154,337 3,965,836 4,902,732 6,274,632
Other income (expense):          
Interest and dividend income 17,094 53,176 34,687 107,684 260,552
Rental income 650 2,800 650 4,035 11,785
Interest expense (72,298) (80,164) (134,428) (176,106) (350,997)
Gain (loss) on sale of investments, net 541 84,043 (2,056) 54,784 250,480
Total other income (expense) (54,013) 59,855 (101,147) (9,603) 171,820
Income before provision for income taxes 646,201 2,214,192 3,864,689 4,893,129 6,446,452
Provision for income taxes 380,659 1,029,688 1,673,376 1,939,936 2,823,986
Net income 265,542 1,184,504 2,191,313 2,953,193 3,622,466
Basic and diluted earnings per common share $ 0.02 $ 0.07 $ 0.13 $ 0.18 $ 0.22
Weighted average number of shares outstanding 16,434,314 16,701,539 16,461,981 16,731,549 16,663,557
COMPREHENSIVE INCOME          
Net income 265,542 1,184,504 2,191,313 2,953,193 3,622,466
Other comprehensive income (loss), net of tax:          
Unrealized gains on investments (net of tax) 10,404 (55,842) 25,855 (9,339) 114,297
Less reclassification adjustment for (gains) losses included in net income (net of taxes) (305) (49,333) 1,162 (32,158) (147,032)
Comprehensive income $ 275,641 $ 1,079,329 $ 2,218,330 $ 2,911,696 $ 3,589,731

Consolidated Statements Of Changes In Stockholders' Equity
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Consolidated Statements Of Changes In Stockholders' Equity (USD $)
Common Stock [Member]
Paid In Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Member]
Total
Balance at Dec. 31, 2009 $ 6,509,267 $ 1,965,786 $ (3,846,773) $ 27,953,409 $ (10,359) $ 32,571,330
Balance, treasury stock, shares at Dec. 31, 2009     495,221      
Balance, shares outstanding at Dec. 31, 2009 16,778,555          
Balance, shares issued at Dec. 31, 2009 17,273,776          
Redemption of stock, shares (129,841)   129,841      
Redemption of stock     (1,418,657)     (1,418,657)
Issuance of treasury stock for compensation, shares 8,764   (8,764)      
Issuance of treasury stock for compensation   52,941 9,376     62,317
Other comprehensive income (loss):            
Unrealized gains on securities, net of taxes and reclassification adjustment         (41,497) (41,497)
Net income       2,953,193   2,953,193
Balance at Jun. 30, 2010 6,509,267 2,018,727 (5,256,054) 30,906,602 (51,856) 34,126,686
Balance, treasury stock, shares at Jun. 30, 2010     616,298      
Balance, shares issued at Jun. 30, 2010 17,273,776         17,273,776
Balance, shares outstanding at Jun. 30, 2010 16,657,478         16,657,478
Balance at Dec. 31, 2009 6,509,267 1,965,786 (3,846,773) 27,953,409 (10,359) 32,571,330
Balance, treasury stock, shares at Dec. 31, 2009     495,221      
Balance, shares outstanding at Dec. 31, 2009 16,778,555          
Balance, shares issued at Dec. 31, 2009 17,273,776          
Redemption of stock, shares (252,398)   252,398      
Redemption of stock     (2,666,288)     (2,666,288)
Issuance of treasury stock for compensation, shares 10,500   (10,500)      
Issuance of treasury stock for compensation   66,730 87,515     154,245
Issuance of treasury stock for Fresh Made acquisition            
Other comprehensive income (loss):            
Unrealized gains on securities, net of taxes and reclassification adjustment         (32,735) (32,735)
Net income       3,622,466   3,622,466
Balance at Dec. 31, 2010 6,509,267 2,032,516 (6,425,546) 31,575,875 (43,094) 33,649,018
Balance, treasury stock, shares at Dec. 31, 2010     737,119      
Balance, shares issued at Dec. 31, 2010 17,273,776         17,273,776
Balance, shares outstanding at Dec. 31, 2010 16,536,657         16,536,657
Redemption of stock, shares (105,848)   105,848      
Redemption of stock     (971,798)     (971,798)
Issuance of treasury stock for compensation            
Other comprehensive income (loss):            
Unrealized gains on securities, net of taxes and reclassification adjustment         27,017 27,017
Net income       2,191,313   2,191,313
Balance at Jun. 30, 2011 $ 6,509,267 $ 2,032,516 $ (7,397,344) $ 33,767,188 $ (16,077) $ 34,895,550
Balance, treasury stock, shares at Jun. 30, 2011     842,967      
Balance, shares issued at Jun. 30, 2011 17,273,776         17,273,776
Balance, shares outstanding at Jun. 30, 2011 16,430,809         16,430,809

Consolidated Statements Of Cash Flows
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Consolidated Statements Of Cash Flows (USD $)
 6 Months Ended 12 Months Ended
Jun. 30, 2011
Jun. 30, 2010
Dec. 31, 2010
Cash flows from operating activities:      
Net income $ 2,191,313 $ 2,953,193 $ 3,622,466
Adjustments to reconcile net income to net cash flows from operating activities, net of acquisition:      
Depreciation and amortization 1,159,123 1,036,116 2,118,282
Loss (Gain) on sale of investments, net 2,056 (54,784) (250,480)
Deferred income taxes (156,040) (290,465) (96,918)
Treasury stock issued for compensation   62,317 154,245
Increase in allowance for doubtful accounts 20,000   17,754
(Increase) decrease in operating assets:      
Accounts receivable (2,117,792) (1,780,774) (811,292)
Other receivables 94,855 (92,631) (54,922)
Inventories (1,622,777) (857,743) (682,398)
Refundable income taxes 906,748 1,308,978 402,230
Prepaid expenses and other current assets (41,551) (29,433) (117,618)
Increase (decrease) in operating liabilities:      
Accounts payable (8,646) (504,764) 1,419,479
Accrued expenses 42,599 (82,791) (104,885)
Income taxes payable 378,482 604,323  
Net cash provided by operating activities 848,370 2,271,542 5,615,943
Cash flows from investing activities:      
Purchases of investments (582,697) (538,852) (2,161,552)
Proceeds from sale of investments 532,640 1,502,724 5,669,158
Investments in certificates of deposits (50,000)    
Proceeds from redemption of certificates of deposit   102,545 402,005
Purchases of property and equipment (747,250) (1,292,741) (2,229,274)
Acquisition of the assets of First Juice     (270,000)
Net cash provided by (used in) investing activities (847,307) (226,324) 1,410,337
Cash flows from financing activities:      
Proceeds of note payable 250,000 250,000 250,000
Checks written in excess of bank balances 367,840 504,398 998,234
Purchases of treasury stock (971,798) (1,418,657) (2,666,288)
Repayment of notes payable (1,478,521) (1,152,876) (3,008,694)
Net cash used in financing activities (1,832,479) (1,817,135) (4,426,748)
Net (decrease) increase in cash and cash equivalents (1,831,416) 228,083 2,599,532
Cash and cash equivalents at the beginning of the period 3,229,939 630,407 630,407
Cash and cash equivalents at the end of the period $ 1,398,523 $ 858,490 $ 3,229,939

Nature Of Business
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Nature Of Business
 6 Months Ended
Jun. 30, 2011
Nature Of Business  
Nature Of Business

Note 1 – NATURE OF BUSINESS

 

Lifeway Foods, Inc. (The "Company") commenced operations in February 1986 and incorporated under the laws of the state of Illinois on May 19, 1986. The Company's principal business activity is the production of dairy products. Specifically, the Company produces Kefir, a drinkable product which is similar to but distinct from yogurt, in several flavors sold under the name "Lifeway's Kefir;" a plain farmer's cheese sold under the name "Lifeway's Farmer's Cheese;" a fruit sugar-flavored product similar in consistency to cream cheese sold under the name of "Sweet Kiss;" and a dairy beverage, similar to Kefir, with increased protein and calcium, sold under the name "Basics Plus."  The Company also produces a vegetable-based seasoning under the name "Golden Zesta." The Company currently distributes its products throughout the Chicago Metropolitan area and various cities in the East Coast through local food stores.  In addition, the products are sold throughout the United States and Ontario, Canada by distributors. The Company also distributes some of its products to Eastern Europe.

Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2011
Summary Of Significant Accounting Policies  
Summary Of Significant Accounting Policies

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows:

 

Basis of presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of Management, necessary for fair statement of results for the interim periods.

 

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, LFI Enterprises, Inc., Helios Nutrition, Ltd., Pride of Main Street, L.L.C., Starfruit, L.L.C., Fresh Made, Inc. and Starfruit Franchisor, L.L.C.  In 2010, the Company acquired the assets of First Juice, Inc. ("First Juice") and consolidated the operations into the operations of the Company.  All significant intercompany accounts and transactions have been eliminated.  The financial statements include the results of operations from the acquisition of the assets of First Juice from October 14, 2010 through the end of the period (see Note 3).

 

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.  Significant estimates made in preparing the consolidated financial statements include the allowance for doubtful accounts and discounts, the valuation of investment securities, the valuation of goodwill, intangible assets, and deferred taxes.

 

Revenue Recognition

Sales of Company produced dairy products are recorded at the time of shipment and the following four criteria have been met: (i)  The product has been shipped and the Company has no significant remaining obligations; (ii)  Persuasive evidence of an agreement exists; (iii)  The price to the buyer is fixed or determinable and (iv)  Collection is probable.  In addition, shipping costs invoiced to the customers are included in net sales and the related cost in cost of sales.  Discounts and allowances are reported as a reduction of gross sales unless the allowance is attributable to an identifiable benefit separable from the purchase of the product, the value of which can be reasonably estimated, which would be charged to the appropriate expense account.

 

 

Cash and cash equivalents

All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.

 

The Company maintains cash deposits at several institutions located in the greater Chicago, Illinois and Philadelphia, Pennsylvania metropolitan areas.

 

Investments

All investment securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses on available-for-sale securities are reported as a separate component of stockholders' equity. Amortization, accretion, interest and dividends, realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are recorded in other income. All of the Company's securities are subject to a periodic impairment evaluation. This evaluation depends on the specific facts and circumstances. Factors that we consider in determining whether an other-than-temporary decline in value has occurred include: the market value of the security in relation to its cost basis; the financial condition of the investee; and the intent and ability to retain the investment for a sufficient period of time to allow for possible recovery in the market value of the investment.

 

Accounts receivable

Credit terms are extended to customers in the normal course of business.  The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral.

 

Accounts receivable are recorded at invoice amounts, and reduced to their estimated net realizable value by recognition of an allowance for doubtful accounts and anticipated discounts.  The Company's estimate of the allowances for doubtful accounts and anticipated discounts are based upon historical experience, its evaluation of the current status and contract terms of specific receivables, and unusual circumstances, if any.  Accounts are considered past due if payment is not made on a timely basis in accordance with the Company's credit terms.  Accounts considered uncollectible are charged against the allowance.

 

Inventories

Inventories are stated at the lower of cost or market, cost being determined by the first-in, first-out method.

 

Property and equipment

Property and equipment is stated at depreciated cost or fair value where depreciated cost is not recoverable.  Depreciation is computed using the straight-line method.  When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized.

 

Property and equipment is being depreciated over the following useful lives:

 

Category

 

Years

Buildings and improvements

 

31 and 39

Machinery and equipment

 

5 – 12

Office equipment

 

5 – 7

Vehicles

 

5

 

Intangible assets acquired in business combinations

The Company accounts for intangible assets at historical cost.  Intangible assets acquired in a business combination are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition.  Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired.  Goodwill is not amortized, but is reviewed for impairment at least annually.  Brand assets represent the fair value of brands acquired.  Brand assets have an indefinite life and therefore are not amortized, rather are reviewed periodically for impairment.  The Company amortizes other intangible assets over their estimated useful lives, as disclosed in the table below.

 

The Company reviews intangible assets and their related useful lives at least once per year to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable.   The Company conducts more frequent impairment assessments if certain conditions exist, including:  a change in the competitive landscape, any internal decisions to pursue new or different strategies, a loss of a significant customer, or a significant change in the market place including changes in the prices paid for the Company's products or changes in the size of the market for the Company's products.

 

If the estimate of an intangible asset's remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life.

 

Intangible assets are being amortized over the following useful lives:

 

Category

 

Years

Recipes

 

4

Customer lists and other customer related intangibles

 

7-10

Lease agreement

 

7

Trade names

 

15

Formula

 

10

Customer relationships

 

12

 

 

 

 

Income taxes

Deferred income taxes are the result of temporary differences that arise from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate.  Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.

 

The principal sources of temporary differences are different depreciation and amortization methods for financial statement and tax purposes, unrealized gains or losses related to investments, capitalization of indirect costs for tax purposes, purchase price adjustments, and the recognition of an allowance for doubtful accounts for financial statement purposes.

 

 

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The only periods subject to examination for the Company's federal return are the 2009 and 2010 tax years. The Company believes that its income tax filing positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.

 

During the year ended December 31, 2010, the IRS completed a review of the Company's 2007 and 2008 federal tax return filings, resulting in a liability of approximately $220,000 being recognized and paid during 2010.  The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There were no such items during the periods covered in this report.

 

Treasury stock

Treasury stock is recorded using the cost method.

 

Advertising and promotional costs

The Company expenses advertising costs as incurred.  For the year ended December 31, 2010 and for the six months ended June 30, 2011 and 2010 total advertising costs and promotional discounts and allowances were $7,433,554, $5,363,466 and $3,634,684, respectively.  Of these totals, $2,390,002, $1,905,018, and $1,298,476 were classified as advertising expenses and $5,043,552, $3,458,448, and $2,336,208 were considered to be promotional discounts and allowances and were classified as reductions of sales for the year ended December 31, 2010 and the six months ended June 30, 2011 and 2010, respectively.

 

Earnings per common share

Earnings per common share were computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.  For the six months ended June 30, 2011 and 2010 and for the year ended December 31, 2010, diluted and basic earnings per share were the same, as the effect of dilutive securities options outstanding was not significant.

 

Reclassification

Certain 2010 balance sheet amounts have been reclassified to conform to the 2011 presentation.


Acquisitions
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Acquisitions
 6 Months Ended
Jun. 30, 2011
Acquisitions  
Acquisitions

 Note 3 – ACQUISITIONS

 

On October 14, 2010, Lifeway purchased certain assets of First Juice, Inc., a producer of organic fruit and vegetable juice beverages designed for children.  The consideration for substantially all of the assets was an aggregate of $770,000, consisting of a $500,000 previous investment in preferred stock and an additional $270,000 cash paid in 2010.  Production was moved to Lifeway facilities upon closing of the acquisition.  The acquisition was consummated to expand the Company's presence in the children's market, increase distribution channels for existing Lifeway products, and increase diversification of the Company's products.   There were no significant liabilities assumed.  Acquisition costs for legal and professional fees have been included in General and Administrative costs and were not significant.  The entire amount of goodwill resulting from the acquisition is tax deductible.

 

The estimated fair value of assets acquired, including the real property, and liabilities assumed consisted of the following:

 

Trade names

 

$

268,000

 

Other current assets

 

 

6,000

 

Customer lists

 

 

199,000

 

Fixed assets

 

 

35,000

 

Non amortizable goodwill and brand asset

 

 

262,000

 

       Total fair value of assets acquired and liabilities assumed

 

$

770,000

 

 

Had the acquisition occurred on January 1, 2010, the impact on the gross revenue and net income of the Company would not have been significant and would have had no impact on earnings per share for the full year ended December 31, 2010.

Intangible Assets
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Intangible Assets
 6 Months Ended
Jun. 30, 2011
Intangible Assets  
Intangible Assets

Note 4 – INTANGIBLE ASSETS

 

Intangible assets, and the related accumulated amortization, consist of the following:

 

 

 

June 30, 2011

 

 

June 30, 2010

 

 

December 31, 2010

 

 

 

Cost

 

 

Accumulated Amortization

 

 

Cost

 

 

Accumulated Amortization

 

 

Cost

 

 

Accumulated Amortization

 

Recipes

 

$

43,600

 

 

$

43,600

 

 

$

43,600

 

 

$

43,600

 

 

$

43,600

 

 

$

43,600

 

Customer lists and other customer related intangibles

 

 

4,504,200

 

 

 

1,292,997

 

 

 

4,305,200

 

 

 

803,744

 

 

 

4,504,200

 

 

 

1,039,323

 

Lease acquisition

 

 

87,200

 

 

 

83,559

 

 

 

87,200

 

 

 

73,707

 

 

 

87,200

 

 

 

79,941

 

Customer relationship

 

 

985,000

 

 

 

403,586

 

 

 

985,000

 

 

 

321,490

 

 

 

985,000

 

 

 

362,526

 

Trade names

 

 

2,248,000

 

 

 

656,931

 

 

 

1,980,000

 

 

 

517,000

 

 

 

2,248,000

 

 

 

585,267

 

Formula

 

 

438,000

 

 

 

215,350

 

 

 

438,000

 

 

 

171,550

 

 

 

438,000

 

 

 

193,450

 

 

 

$

8,306,000

 

 

$

2,696,023

 

 

$

7,839,000

 

 

$

1,931,091

 

 

$

8,306,000

 

 

$

2,304,107

 

 

Amortization expense is expected to be as follows for the 12 months ending June 30:

 

2012

 

$

780,200

 

2013

 

 

722,217

 

2014

 

 

711,367

 

                         2015

 

 

711,367

 

2016

 

 

711,367

 

Thereafter

 

 

1,973,459

 

 

 

$

5,609,977

 

 

Amortization expense during the six months ended June 30, 2011 and 2010 and the year ended December 31, 2010 was $391,916, $351,521 and $724,537, respectively.

Investments
v4.1.212.0
Investments
 6 Months Ended
Jun. 30, 2011
Investments  
Investments

Note 5 – INVESTMENTS

 

The cost and fair value of investments classified as available for sale are as follows:

 

June 30, 2011

 

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

211,831

 

 

$

3,034

 

 

$

( 35,930

)

 

$

178,934

 

Mutual Funds

 

 

114,362

 

 

 

2,022

 

 

 

( 798

)

 

 

115,586

 

Preferred Securities

 

 

203,514

 

 

 

---

 

 

 

( 5,719

)

 

 

197,795

 

Corporate Bonds

 

 

670,941

 

 

 

12,251

 

 

 

( 3,315

)

 

 

679,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,200,648

 

 

$

17,307

 

 

$

( 45,762

)

 

$

1,172,193

 

 

June 30, 2010

 

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

653,068

 

 

$

26,400

 

 

$

( 117,892

)

 

$

561,576

 

Mutual Funds

 

 

206,961

 

 

 

3,056

 

 

 

( 7,853

)

 

 

202,164

 

Preferred Securities

 

 

272,629

 

 

 

6,650

 

 

 

( 64,789

)

 

 

214,490

 

Corporate Bonds

 

 

1,751,719

 

 

 

89,355

 

 

 

( 30,140

)

 

 

1,810,934

 

Government Agency Obligations

 

 

615,767

 

 

 

8,625

 

 

 

( 1,752

)

 

 

622,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

3,500,144

 

 

$

134,086

 

 

$

( 222,426

)

 

$

3,411,804

 

 

December 31, 2010

 

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

225,573

 

 

$

16,173

 

 

$

( 68,974

)

 

$

172,772

 

Mutual Funds

 

 

202,108

 

 

 

4,661

 

 

 

( 2,017

)

 

 

204,752

 

Preferred Securities

 

 

228,514

 

 

 

—

 

 

 

( 18,329

)

 

 

210,185

 

Corporate Bonds

 

 

496,451

 

 

 

843

 

 

 

( 5,771

)

 

 

491,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,152,646

 

 

$

21,677

 

 

$

( 95,091

)

 

$

1,079,232

 

 

 

Proceeds from the sale of investments were $5,669,158, $532,640 and $1,502,724 during the year ended December 31, 2010 and for the six months ended June 30, 2011 and 2010, respectively.

 

Gross gains of $451,420, $27,622 and $120,850 and gross losses of $200,940, $29,678 and $66,066 were realized on these sales during the year ended December 31, 2010 and for the six months ended June 30, 2011 and 2010, respectively.

 

 

The following table shows the gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2011 and 2010 and at December 31, 2010:

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

June 30, 2011

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

103,939

 

 

$

(4,791

)

 

$

41,845

 

 

$

(31,139

)

 

$

145,784

 

 

$

(35,930

)

Mutual Funds

 

 

30,350

 

 

 

(541

)

 

 

22,165

 

 

 

(257

)

 

 

52,515

 

 

 

(798

)

Preferred Securities

 

 

—

 

 

 

—

 

 

 

197,795

 

 

 

(5,719

)

 

 

197,795

 

 

 

(5,719

)

Corporate Bonds

 

 

148,812

 

 

 

(3,315

)

 

 

—

 

 

 

—

 

 

 

148,812

 

 

 

(3,315

)

 

 

$

283,101

 

 

$

(8,647

)

 

$

261,805

 

 

$

(37,115

)

 

$

544,906

 

 

$

(45,762

)

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

June 30, 2010

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

58,222

 

 

$

(10,953

)

 

$

154,154

 

 

$

(106,939

)

 

$

212,376

 

 

$

(117,892

)

Mutual Funds

 

 

278

 

 

 

(4

)

 

 

99,486

 

 

 

(7,849

)

 

 

99,764

 

 

 

(7,853

)

Preferred Securities

 

 

—

 

 

 

—

 

 

 

193,090

 

 

 

(64,789

)

 

 

193,090

 

 

 

(64,789

)

Corporate Bonds

 

 

499,285

 

 

 

(26,989

)

 

 

181,076

 

 

 

(3,151

)

 

 

680,361

 

 

 

(30,140

)

Government Agency

   Obligations

 

 

—

 

 

 

—

 

 

 

84,775

 

 

 

(1,752

)

 

 

84,775

 

 

 

(1,752

)

 

 

$

557,785

 

 

$

(37,946

)

 

$

712,581

 

 

$

(184,480

)

 

$

1,270,366

 

 

$

(222,426

)

 

 

 

Less Than 12 Months

 

 

12 Months or Greater

 

 

Total

 

December 31, 2010

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

Fair Value

 

 

Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

$

48,202

 

 

$

(11,675

)

 

$

101,467

 

 

$

(57,299

)

 

$

149,669

 

 

$

(68,974

)

Mutual Funds

 

 

—

 

 

 

—

 

 

 

85,061

 

 

 

(2,017

)

 

 

85,061

 

 

 

(2,017

)

Preferred Securities

 

 

—

 

 

 

—

 

 

 

210,185

 

 

 

(18,329

)

 

 

210,185

 

 

 

(18,329

)

Corporate Bonds

 

 

146,710

 

 

 

(2,296

)

 

 

122,532

 

 

 

(3,475

)

 

 

269,242

 

 

 

(5,771

)

 

 

$

194,912

 

 

$

(13,971

)

 

$

519,245

 

 

$

(81,120

)

 

$

714,157

 

 

$

(95,091

)

 

Equities, Mutual Funds, Preferred Securities, Corporate Bonds and Government Agency Obligations - The Company's investments in equity securities, mutual funds, corporate bonds and government agency obligations consist of investments in common stock, preferred stock and debt securities of companies in various industries.  As of June 30, 2011, there were eleven equity securities, fifteen mutual fund securities, two preferred securities, and two corporate bond securities that had unrealized losses. The Company evaluated the near-term prospects of the issuer in relation to the severity and duration of the impairment. Based on that evaluation and the Company's ability and intent to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider any material investments to be other-than-temporarily impaired at June 30, 2011.

Inventories
v4.1.212.0
Inventories
 6 Months Ended
Jun. 30, 2011
Inventories  
Inventories

Note 6 – INVENTORIES

 

Inventories consist of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2011

 

 

2010

 

 

2010

 

Finished goods

 

$

2,320,692

 

 

$

1,405,538

 

 

$

1,636,988

 

Production supplies

 

 

1,944,159

 

 

 

1,657,546

 

 

 

1,527,064

 

Raw materials

 

 

1,343,300

 

 

 

1,091,635

 

 

 

821,322

 

Total inventories

 

$

5,608,151

 

 

$

4,154,719

 

 

$

3,985,374

 

Property And Equipment
v4.1.212.0
Property And Equipment
 6 Months Ended
Jun. 30, 2011
Property And Equipment  
Property And Equipment

Note 7 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2011

 

 

2010

 

 

2010

 

Land

 

$

1,178,160

 

 

$

1,178,160

 

 

$

1,178,160

 

Buildings and improvements

 

 

11,477,053

 

 

 

11,051,821

 

 

 

11,328,860

 

Machinery and equipment

 

 

14,112,020

 

 

 

13,182,669

 

 

 

13,713,649

 

Vehicles

 

 

1,211,760

 

 

 

963,245

 

 

 

976,745

 

Office equipment

 

 

366,064

 

 

 

299,110

 

 

 

352,135

 

Construction in process

 

 

153,255

 

 

 

---

 

 

 

96,990

 

 

 

 

28,498,312

 

 

 

26,675,005

 

 

 

27,646,539

 

Less accumulated depreciation

 

 

13,261,033

 

 

 

11,784,678

 

 

 

12,493,826

 

Total property and equipment

 

$

15,237,279

 

 

$

14,890,327

 

 

$

15,152,713

 

 

Depreciation expense during the six months ended June 30, 2011 and 2010 and for the year ended December 31, 2010 was $767,207, $684,595 and $1,393,745, respectively.

Accrued Expenses
v4.1.212.0
Accrued Expenses
 6 Months Ended
Jun. 30, 2011
Accrued Expenses  
Accrued Expenses

Note 8 – ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2011

 

 

2010

 

 

2010

 

Accrued payroll and payroll taxes

 

$

252,592

 

 

$

161,175

 

 

$

181,274

 

Accrued property tax

 

 

274,374

 

 

 

299,254

 

 

 

273,876

 

Other

 

 

25,092

 

 

 

71,124

 

 

 

54,309

 

 

 

$

552,058

 

 

$

531,553

 

 

$

509,459

 

Notes Payable
v4.1.212.0
Notes Payable
 6 Months Ended
Jun. 30, 2011
Notes Payable  
Notes Payable

Note 9 – NOTES PAYABLE

 

Notes payable consist of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2011

 

 

2010

 

 

2010

 

 

 

 

 

 

 

 

 

 

 

Note payable to Private Bank in monthly installments of $42,222, plus variable interest rate, currently at 2.761%, with a balloon payment of $5,066,667 due February 6, 2014.  Collateralized by substantially all assets of the Company.

 

$

6,375,556

 

 

$

6,904,444

 

 

 

6,628,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Line of credit with Private Bank at variable interest rate, currently at 2.761%.  The agreement has been extended with terms allowing borrowings up to $2.0 million, maturing on May 31, 2012.  Collateralized by substantially all assets of the Company.

 

 

---

 

 

 

750,000

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Line of credit with Morgan Stanley for borrowings up to $2.8 million at variable interest rate, currently at 2.94% due on demand.  Collateralized by investments with a fair value of $877,623, and cash and CD's totaling $1,253,446 at June 30, 2011.

 

 

1,370,695

 

 

 

2,303,090

 

 

 

2,344,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable to Ilya Mandel & Michael Edelson, subordinated to Private Bank, payable in quarterly installments of $341,875, plus interest at the floating rate per annum (3.25% at June 30, 2010).  This balance was paid in full during August, 2010.

 

 

 

 

 

 

872,119

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note payable to Fletcher Jones of Chicago, Ltd LLC in monthly installments of $1,768.57 at 6.653%, due May 24, 2017, secured by transportation equipment

 

 

103,586

 

 

 

---

 

 

 

---

 

Total notes payable

 

 

7,849,837

 

 

 

10,829,653

 

 

 

8,973,835

 

Less current maturities

 

 

1,892,042

 

 

 

4,431,873

 

 

 

2,851,610

 

Total long-term portion

 

$

5,957,795

 

 

$

6,397,780

 

 

 

6,122,225

 

 

In accordance with the Private Bank agreements referenced above, the Company is subject to minimum fixed charged ratio and tangible net worth thresholds.  At June 30, 2011, the Company was in compliance with these covenants.

 

Maturities of notes payables are as follows:

 

For the Period Ended June 30,

 

 

 

 

 

 

2012

 

$

1,892,042

 

2013

 

 

522,384

 

2014

 

 

5,379,031

 

Thereafter

 

 

56,380

 

Total

 

$

7,849,837

 

Provision For Income Taxes
v4.1.212.0
Provision For Income Taxes
 6 Months Ended
Jun. 30, 2011
Provision For Income Taxes  
Provision For Income Taxes

Note 10 – PROVISION FOR INCOME TAXES

 

The provision for income taxes consists of the following:

 

 

 

For the Six Months Ended

 

 

For the Year

Ended

 

 

 

June 30,

 

 

December 31,

 

 

 

2011

 

 

2010

 

 

2010

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

1,173,349

 

 

$

1,759,484

 

 

 

2,269,819

 

State and local

 

 

656,067

 

 

 

470,917

 

 

 

651,085

 

Total current

 

 

1,829,416

 

 

 

2,230,401

 

 

 

2,920,904

 

Deferred

 

 

( 156,040

)

 

 

( 290,465

)

 

 

( 96,918

)

Provision for income taxes

 

$

1,673,376

 

 

$

1,939,936

 

 

 

2,823,986

 

 

A reconciliation of the provision for income taxes and the income tax computed at the statutory rate is as follows:

 

 

 

For the Six Months Ended

 

 

For the Year

Ended

 

 

 

June 30,

 

 

December 31,

 

 

 

2011

 

 

2010

 

 

2010

 

Federal income tax expense computed at the statutory rate

 

$

1,313,994

 

 

$

1,663,664

 

 

$

2,180,228

 

State and local tax expense, net

 

 

367,146

 

 

 

234,870

 

 

 

651,085

 

Permanent differences

 

 

(73,711

) 

 

 

( 92,868

)

 

 

( 117,247

)

Tax credits and other

 

 

65,947

 

 

 

134,270

 

 

 

109,920

 

Provision for income taxes