Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Lifeway Foods disclosed 20 risk factors in its most recent earnings report. Lifeway Foods reported the most risks in the “Finance & Corporate” category.

Risk Overview Q3, 2024

Risk Distribution

35% Finance & Corporate

30% Production

10% Tech & Innovation

10% Legal & Regulatory

10% Ability to Sell

5% Macro & Political

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2020

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Lifeway Foods Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q3, 2024

Main Risk Category

Finance & Corporate

With 7 Risks

Finance & Corporate

With 7 Risks

Number of Disclosed Risks

From last report

S&P 500 Average: 31

From last report

S&P 500 Average: 31

Recent Changes

2Risks added

0Risks removed

1Risks changed

Since Sep 2024

2Risks added

0Risks removed

1Risks changed

Since Sep 2024

Number of Risk Changed

From last report

S&P 500 Average: 3

From last report

S&P 500 Average: 3

See the risk highlights of Lifeway Foods in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 20

Finance & Corporate

Total Risks: 7/20 (35%)Above Sector Average

Share Price & Shareholder Rights5 | 25.0%

Share Price & Shareholder Rights - Risk 1

Changed

Our business could be adversely affected as a result of uncertainty regarding proposals or other actions taken by stockholders related to the consideration of a possible future transaction.

On September 23, 2024, Danone North America PBC made an unsolicited proposal to acquire all of the shares of Company common stock that Danone does not already own for $25.00 per share (the "Proposal"). On November 4, 2024, we announced that our Board determined that the proposal substantially undervalues the Company and is not in the best interests of the Company and its stockholders or other stakeholders. Addressing the Proposal, similar future proposals and any other actions by stockholders or others relating to a potential change of control transaction involving the Company could interfere with our ability to execute our strategic plans, make it more difficult to attract and retain qualified executives and employees, cause management distraction, require us to utilize more resources than anticipated towards review of strategic alternatives and result in the loss of potential business opportunities, any of which could have a material negative impact on the Company. In addition, our business and operations may be harmed to the extent that our customers, suppliers and others believe that we cannot effectively compete in the marketplace without completing a transaction, or there is customer, supplier or employee uncertainty surrounding the future direction of our product offerings and our strategy on a continued basis. There can be no assurance that any transaction will be completed now or in the future. We have had to, and may continue to be forced to, incur fees and other expenses related to the Proposal, including for third-party advisors. Further, the Proposal, similar future proposals and any actual or perceived actions by our stockholders or others relating to a potential transaction involving the Company may cause significant fluctuations in our stock price based upon temporary or speculative market perceptions or other factors that do not necessarily reflect the Company's underlying fundamentals and prospects.

Share Price & Shareholder Rights - Risk 2

Added

Our shareholder rights plan includes terms and conditions that could discourage a takeover or other transaction that stockholders may consider favorable.

On November 4, 2024, in response to the Proposal and Danone's substantial ownership position in the Company, our Board approved and adopted the Rights Agreement and declared a dividend of one Right for each outstanding share of Company common stock to stockholders of record at the close of business on November 18, 2024. Each Right entitles its holder, subject to the terms of the Rights Agreement, to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, no par value, of the Company at an exercise price of $130.00 per Right, subject to adjustment. Rights will generally become exercisable only if any person or entity (or any persons or entities acting as a group) acquires 20% or more of the outstanding shares of Company common stock (or, to the extent any person, entity or group beneficially owned 20% or more of the outstanding shares of Company common stock as of immediately prior to the first public announcement of the adoption of the Rights Agreement, such person, entity or group acquires any additional shares). If Rights become exercisable, all holders of Rights (other than the person, entity or group triggering the Rights Agreement, whose Rights will become void and will not be exercisable) will have the right to purchase from the Company for $130.00, subject to certain potential adjustments, shares of Company common stock having a market value of twice that amount. The Rights Agreement expires on November 4, 2025, unless earlier terminated or the Rights are redeemed or exchanged by the Board. Additional information regarding the Rights Agreement is contained in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on November 5, 2024. The Rights Agreement will cause substantial dilution to any person, entity or group that acquires beneficial ownership of 20% or more of the outstanding shares of Company common stock (or, to the extent any person, entity or group beneficially owned 20% or more of the outstanding shares of Company common stock as of immediately prior to the first public announcement of the adoption of the Rights Agreement, such person, entity or group acquires any additional shares). As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to discourage any person, entity or group from gaining a control or control-like position in the Company or engaging in other tactics, potentially disadvantaging the interests of the Company's stockholders, without negotiating with the Board and without paying an appropriate control premium to all stockholders. The Rights Agreement has similar provisions to those of other plans adopted by publicly-held companies in comparable circumstances. It is intended to protect stockholders' interests, including by providing the Board sufficient time to make informed judgments and take actions that are in the best interests of all of the Company's stockholders and other stakeholders. Nevertheless, the Rights Agreement may be considered to have certain anti-takeover effects, including potentially discouraging a third party from attempting to obtain a substantial position in the Company common stock or seeking to obtain control of the Company and discouraging a takeover attempt that stockholders may consider favorable or that could result in a premium over the market price of Company common stock. Even in the absence of a takeover attempt, the Rights Agreement may adversely affect the prevailing market price of Company common stock if it is viewed as discouraging takeover attempts in the future.

Share Price & Shareholder Rights - Risk 3

Added

The actions of certain of our stockholders could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and adversely impact our stock price.

We value constructive input from investors and regularly engage in dialogue with our stockholders regarding strategy and performance. Our Board and management team are committed to acting in the best interests of all of our stockholders. Two of the Company's stockholders, Edward Smolyansky (our former Chief Operations Officer and the son of our founder) and Ludmila Smolyansky (a former member of our Board and the widow of our founder (together with Mr. Smolyansky (the "Family Stockholders")), filed a Schedule 13D/A with the SEC on August 14, 2024 announcing their intention, among other things, to nominate seven director candidates for election to our Board and replace seven of the eight members of our Board. The Family Stockholders subsequently filed a preliminary consent solicitation statement with the SEC in furtherance of this objective, and they have made public statements critical of our Board, management and strategy and repeatedly called for the sale of the Company. A contested election with respect to the Company's directors could require us to incur substantial legal, public relations and other advisory fees and proxy solicitation expenses. Further, we may choose to initiate, or may become subject to, litigation as a result of proposals by the Family Stockholders or other stockholders or proxy contests or matters relating thereto, which would serve as a further distraction to our Board and management and could require us to incur significant additional costs. We may be subject to continued or similar activism in the future, which could cause us to incur significant expense, hinder execution of our business strategy and adversely impact the market price of Company common stock. Stockholder actions, including potential proxy contests, require significant time and attention by management and our Board, potentially interfering with our ability to execute our strategic plan. Such stockholder action could give rise to perceived uncertainties as to our future, adversely affect our relationships with our employees, customers or suppliers and make it more difficult to attract and retain qualified personnel and business partners. These perceived uncertainties may also be exploited by our competitors and/or other stockholders, which could result in lost business opportunities and make it more difficult to execute on our long-term strategic plan. If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business, financial condition and operating results would be adversely affected. We may be required to incur significant legal fees and other expenses related to stockholder actions, and the attention of our management may be diverted by such actions. Any of these impacts could materially and adversely affect our business, operating results and financial condition, and the market price of Company common stock could be subject to significant fluctuation or otherwise be adversely affected. If individuals are elected or appointed to our Board with a specific agenda or who do not agree with our strategic plan, the ability of our Board to function effectively could be adversely affected, which could in turn adversely affect our ability to effectively and timely implement our strategic plan and create additional value for our stockholders, and/or adversely affect our business, operating results and financial condition.

Share Price & Shareholder Rights - Risk 4

Danone has certain rights under the Shareholder Agreement which give Danone the ability to control or influence the outcome of certain matters, including our ability to compensate our officers and directors in accordance with market standards, to undertake certain offerings of securities, and to consummate mergers and acquisitions or other strategic alternatives for the Company.

Although Danone holds less than 25% of our common stock, the rights Danone has under the Shareholder Agreement may prevent us from offering market standard compensation to our officers and directors or prevent third parties from making offers to enter into certain strategic transactions. Danone's exercise of their rights under the Shareholder Agreement have prevented us from consummating the issuance of certain equity as part of market standard compensation terms and amounts to certain officers and directors which could prevent us from attracting and retaining qualified key personnel. Additionally, it is possible that any offers to acquire Lifeway or purchase Lifeway equity in an offering will be made at reduced prices, if made at all, as a result of certain of Danone's rights under the Shareholder Agreement, including, without limitation, its right of first refusal on shares issued by the Company. Danone's interests may not always be aligned with other stockholders' interests. By exercising its rights under the Shareholder Agreement, Danone could prevent Lifeway from taking actions that are consistent with the investment goals of institutional, short-term, non-voting, or other non-controlling investors, or that would have a positive effect on our stock price.

Share Price & Shareholder Rights - Risk 5

The Smolyansky family controls a substantial portion of our common stock and has the ability to control the outcome of matters submitted for stockholder approval.

Although the members of the Smolyansky family together control less than 50% of our common stock collectively, they could significantly influence any matter requiring approval by our stockholders, including the election of all of our directors and the approval or rejection of any merger, change of control, or other significant corporate transaction. It is unlikely that any person interested in acquiring Lifeway will be able to do so without obtaining the consent of some members of the Smolyansky family. The Smolyansky family's interests may not always be aligned with other stockholders' interests. By exercising their influence, members of the Smolyansky family could cause Lifeway to take actions that are at odds with the investment goals of institutional, short-term, non-voting, or other non-controlling investors, or that have a negative effect on our stock price.

Debt & Financing1 | 5.0%

Debt & Financing - Risk 1

Our debt and financial obligations could adversely affect our financial condition, our ability to obtain future financing, and our ability to operate our business.

We have outstanding debt obligations that could adversely affect our financial condition and limit our ability to successfully implement our business strategy. Furthermore, from time to time, we may need additional financing to support our business and pursue our business strategy, including strategic acquisitions. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets, and other factors. We cannot assure that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked, or debt securities, those securities may have rights, preferences, or privileges senior to those of our common stock, and, in the case of equity and equity-linked securities, our existing stockholders may experience dilution. As of December 31, 2023, we had $0 outstanding under the Revolving Credit Facility and $2.73 million outstanding under the note payable, net of $17 thousand of unamortized deferred financing. Our loan agreements contain certain restrictions and requirements that among other things: - require us to maintain a quarterly fixed charge coverage ratio and minimum working capital ratio; - limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes; - limit our future ability to refinance our indebtedness on terms acceptable to us or at all; - limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan; and - impose on us financial and operational restrictions. Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described in this Annual Report on Form 10-K. If we do not generate enough cash flow to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity. There is no guarantee that we will be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all. Our Revolving Credit Facility and term loan bear interest at variable rates. If market interest rates increase, it will increase our debt service requirements, which could adversely affect our cash flow. Our loan agreements also contain provisions that restrict our ability to: - borrow money or guarantee debt; - create liens; - make specified types of investments and acquisitions; - pay dividends on or redeem or repurchase stock; - enter into new lines of business; - enter into transactions with affiliates; and - sell assets or merge with other companies. These restrictions on the operation of our business could harm our ability to execute on our business strategy by, among other things, limiting our ability to take advantage of financing, merger and acquisition opportunities, and other corporate opportunities. Various risks, uncertainties, and events beyond our control could affect our ability to comply with these covenants. Unless cured or waived, a default would permit lenders to accelerate the maturity of the debt under the credit agreement and to foreclose upon the collateral securing the debt.

Corporate Activity and Growth1 | 5.0%

Corporate Activity and Growth - Risk 1

We may not be able to successfully implement our business strategy for our brands on a timely basis or at all.

We believe that our future success depends, in part, on our ability to implement our strategy of leveraging our existing brands with our new products to maintain our market position in our product categories; drive increased sales; acquire or establish new brands; and create strategic alliances including potential joint ventures. Our ability to implement this strategy depends, among other things, on our ability to: - enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products; - compete successfully in the product categories in which we choose to operate; - introduce timely, new, cost-effective, and appealing products and innovate successfully within our existing product categories; - develop and maintain consumer interest in and demand for our brands considering prevailing consumer tastes and preferences; - increase our brand recognition and loyalty; - enter into strategic arrangements with third-party suppliers to obtain necessary raw materials; - identify suitable acquisition candidates or joint venture partners and accurately assess their value, growth potential, strengths, weaknesses, contingent and other liabilities, and potential profitability; - negotiate acquisitions and joint ventures on terms acceptable to us; and - integrate acquired brands, products, or joint ventures into our company and our business strategy. If we fail to execute these and other important elements of our business strategy, our business and results of operations could be adversely affected. One key element of our business strategy is to introduce timely, new, cost-effective, and appealing products and to innovate successfully within our existing product categories. However, consumer tastes and preferences change rapidly, and evolve over time. Factors that may affect consumer tastes and preferences include: - dietary trends and increased attention to nutritional values, such as the sugar, fat, protein, fiber or calorie content of different foods and beverages; - concerns regarding the health effects of specific ingredients and nutrients, such as sugar, other sweeteners, dairy, soybeans, nuts, oils, vitamins, fiber and minerals; - concerns regarding the public health consequences associated with obesity, particularly among young people; - decisions by yogurt and non-dairy beverage manufacturers to mislabel their products as "kefir" in order to benefit from our branding and marketing efforts, a marketing ploy that can cause significant confusion and misunderstanding among consumers; and - increased awareness of the environmental and social effects of food processing. Our future investments may not produce the results we expect when we expect them for a variety of reasons including those described herein. Our future product development and innovation will be reliant on our ability to identify and develop potential new growth opportunities. This process is inherently risky and will result in investments of substantial time and resources for which we may not achieve any return or value. Successful product development and innovation is also affected by our ability to launch new or improved products successfully and on a timely and cost-effective basis. We may have to pay cash, incur debt, or issue equity, equity-linked, or debt securities to fund our business strategy, or may be unable to fund that strategy. Any of these events could adversely affect our financial results and our business. We could experience similar effects if we invest resources in a strategy that ultimately proves unsuccessful. If, due to a failure of our strategy or any other reason, consumer demand for our products declines, our sales volumes, results of operations, and our business could be negatively affected, and we may not be able to create or sustain growth or successfully implement our business strategy.

Production

Total Risks: 6/20 (30%)Above Sector Average

Manufacturing1 | 5.0%

Manufacturing - Risk 1

We are subject to the risk of product contamination and product liability claims, which could harm our reputation, force us to recall products and incur substantial costs.

The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, inadvertent mislabeling, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the storage, processing, handling or transportation phases. We also may be subject to liability if our products or production processes violate applicable laws or regulations, including environmental, health, and safety requirements, or in the event our products cause injury, illness, or death. Under certain circumstances, we may be required to recall or withdraw products, suspend production of our products, or cease operations, which may lead to a material adverse effect on our business. In addition, customers may cancel orders for such products as a result of such events. Even if a situation does not necessitate a recall or market withdrawal, and even if we and each of our co-packers and suppliers comply in all material respects with all applicable laws and regulations, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm, including the risk of reputational harm being magnified and/or distorted through the rapid dissemination of information over the Internet, including through news articles, blogs, chat rooms, and social media, could adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image. Moreover, claims or liabilities of this type might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability and product recall insurance in amounts that we believe to be adequate. However, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.

Employment / Personnel2 | 10.0%

Employment / Personnel - Risk 1

Employee strikes and other labor-related disruptions may adversely affect our operations.

We have a union contract governing the terms and conditions of employment for a significant portion of our manufacturing workforce in Illinois. Although we believe union relations since the union's certification as the exclusive bargaining representative of this portion of our workforce have been amicable, there is no assurance that this will continue in the future or that we will not be subject to future union organizing activity. There are potential adverse effects of labor disputes with our own employees or by others who provide warehousing, transportation, and distribution, both domestic and foreign, of our raw materials or other products. Strikes or work stoppages or other business interruptions could occur if we are unable to renew collective bargaining agreements on satisfactory terms or enter into new agreements on satisfactory terms, which could impair manufacturing and distribution of our products or result in a loss of sales, which could adversely impact our business, financial condition, or results of operations. The terms and conditions of existing, renegotiated, or new collective bargaining agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy.

Employment / Personnel - Risk 2

Loss of our key management or other personnel, or an inability to attract such management and other personnel, could negatively impact our business.

We depend on the skills, working relationships, and continued services of key personnel, including our experienced senior management team. We also depend on our ability to attract and retain qualified personnel to operate and expand our business. If we lose one or more members of our senior management team whose responsibilities cannot otherwise be distributed among our other officers, or if we fail to attract talented new employees, our business and results of operations could be negatively affected.

Supply Chain2 | 10.0%

Supply Chain - Risk 1

Interruption of our supply chain could affect our ability to manufacture or distribute products, could adversely affect our business and sales, and/or could increase our operating costs and capital expenditures.

We have several supply agreements with suppliers and co-packers that require them to provide us with certain ingredients, packaging, other inputs, and finished goods. For certain items, we rely on a single supplier or co-packer as our sole source for the item. Our suppliers and co-packers are subject to risk, including labor disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply constraints, and general economic and political conditions that could limit their ability to timely provide us with acceptable product. Although other sources are available for these items, if our current sources are unable to fulfill our needs for any reason, we may not be able to timely engage a replacement source that can timely provide us with acceptable products or on terms favorable to us or at all, which could disrupt our ability to manufacture and distribute products. Such disruptions could have a material adverse effect on our business, consolidated financial condition or results of operations.

Supply Chain - Risk 2

Reduced availability of raw materials and other inputs, as well as increased costs for them, could adversely affect us.

Our business depends heavily on raw materials and other inputs in addition to conventional and organic raw milk, such as sweeteners, diesel fuel, packaging material, resin, and other commodities. Our raw materials are generally sourced from third-party suppliers, and we are not assured of continued supply, pricing, or exclusive access to raw materials from any of these suppliers. In 2023, costs to us increased primarily due to inflationary price increases of other ingredients, packaging materials, and freight. However, for market conditions or competitive reasons, our pricing actions may also lag input cost changes, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them. The organic ingredients we use in some of our products are less plentiful and available from a fewer number of suppliers than their conventional counterparts. Competition with other manufacturers in the procurement of organic product ingredients may increase in the future if consumer demand for organic products increases.

Costs1 | 5.0%

Costs - Risk 1

Increases in the cost of milk could reduce our gross margin and profit.

Conventional and organic milk, our primary raw material, is an agricultural commodity that is subject to price fluctuations. Conventional milk prices were lower in fiscal 2023 than the prior year, and there can be no assurance that such prices will remain at these levels in the future. The supply and price of milk may be impacted by, among other things, weather, natural disasters, real or perceived supply shortages, lower dairy and crop yields, general increases in farm inputs and costs of production, political and economic conditions, labor actions, government actions, and trade barriers. Increases in the market price for milk or over-order premiums charged by producers may also impact our ability to enter into purchase commitments at a fixed price. There can be no assurance that our purchasing practices will mitigate future price risk. As a result, increases in the cost of milk could have an adverse impact on our profitability. In addition, the dairy industry continues to experience periodic imbalances between supply and demand for organic milk. Industry regulation and the costs of organic farming compared to costs of conventional farming can impact the supply of organic milk in the market. Oversupply levels of organic milk can increase competitive pressure on our products and pricing, while supply shortages can cause higher input costs and reduce our ability to deliver product to our customers. Cost increases in raw materials and other inputs could cause our profits to decrease significantly compared to prior periods, as we may be unable to increase our prices to offset the increased cost of these raw materials and other inputs. If we are unable to obtain raw materials and other inputs for our products or offset any increased costs for such raw materials and inputs, our business could be negatively affected.

Tech & Innovation

Total Risks: 2/20 (10%)Above Sector Average

Trade Secrets1 | 5.0%

Trade Secrets - Risk 1

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.

We consider our intellectual property rights, particularly our trademarks, but also our copyrights, registered domain names, and proprietary trade secrets, technology, know-how, processes and other proprietary rights to be a significant and valuable aspect of our business. We attempt to protect our intellectual property rights by relying on a combination of trademark, copyright, trade dress, trade secret, and other intellectual property laws, and domain name dispute resolution systems; as well as licensing agreements, third-party confidentiality, nondisclosure, and assignment agreements; and by policing third-party misuses of our intellectual property. Our failure to obtain or maintain adequate protection of our intellectual property rights, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially harm our business. We also face the risk of claims that we have infringed third parties' intellectual property rights. Any claims of intellectual property infringement, even those without merit, could be expensive and time consuming to defend, cause us to cease making, licensing, or using products that incorporate the challenged intellectual property, require us to redesign or rebrand our products or packaging, divert management's attention and resources, or require us to enter into royalty or licensing agreements to obtain the right to use a third party's intellectual property. Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. Additionally, a successful claim of infringement against us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of certain products, any of which could have a negative effect on our results of operations.

Cyber Security1 | 5.0%

Cyber Security - Risk 1

Disruption of our manufacturing or distribution chains or information technology systems, including disruption due to cybersecurity threats, could adversely affect our business.

The success of our business depends, in part, on maintaining a strong production platform and we rely primarily on internal production resources to fulfill our manufacturing needs. Our ongoing initiatives to expand our production platform and our productive capacity could fail to achieve such objectives and, in any case, could increase our operating costs beyond our expectations and could require significant additional capital expenditures. If we cannot maintain sufficient production, warehousing, and distribution capacity, either internally or through third party agreements, we may be unable to meet customer demand and/or our manufacturing, distribution, and warehousing costs may increase, which could negatively affect our business. Furthermore, damage or disruption to our manufacturing or distribution capabilities due to weather, natural disaster, fire, environmental incident, terrorism, cybersecurity threats and other security breaches, pandemic, strikes, the financial or operational instability of key distributors, warehousing, and transportation providers, or other reasons could impair our ability to manufacture or distribute our products. We rely on a limited number of production and distribution facilities. A disruption in operations at any of these facilities or any other disruption in our supply chain relating to common carriers, supply of raw materials and finished goods, or otherwise, whether as a result of casualty, natural disaster, power loss, telecommunications failure, cybersecurity threat, terrorism, labor shortages, contractual disputes or other causes, could significantly impair our ability to operate our business and adversely affect our relationship with our customers. Furthermore, our insurance coverage may not be adequate to cover all related costs. Our information technology systems are also critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. These systems include, without limitation, networks, applications, and outsourced services in connection with the operation of our business. A failure of our information technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies, and sales losses, causing our business to suffer. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, and cybersecurity threats. Cybersecurity threats in particular are persistent, evolve quickly and include, without limitation, computer viruses, unauthorized attempts to access information, denial of service attacks, and other electronic security breaches. Like our customers, suppliers, subcontractors and other third parties with whom we do business generally, we expect that we will continue to be the subject of cybersecurity threats. In some cases, we must rely on the safeguards put in place by the third parties with whom we do business to protect against security threats. We believe we have implemented appropriate measures and controls and have invested in sufficient resources to appropriately identify and monitor these threats and mitigate potential risks, including risks involving our customers and suppliers. However, there can be no assurance that any such actions will be sufficient to prevent cybersecurity breaches, disruptions to mission critical systems, the unauthorized release of sensitive information or corruption of data, or harm to facilities or personnel. These threats and other events could disrupt our operations, or the operations of our customers, suppliers, subcontractors and other third parties; could require significant management attention and resources; could result in the loss of business, regulatory actions and potential liability; and could negatively impact our reputation among our customers and the public. Any of these outcomes could have a negative impact on our financial condition, results of operations, or liquidity.

Legal & Regulatory

Total Risks: 2/20 (10%)Below Sector Average

Regulation2 | 10.0%

Regulation - Risk 1

Our business is subject to various food, environmental, and health and safety laws and regulations, which may increase our compliance costs, subject us to liabilities, or otherwise adversely affect our business.

Our business operations are subject to numerous requirements in the United States relating to food safety, production, and marketing, as well as the protection of the environment, and health and safety matters. The food production and marketing industry is subject to a variety of federal, state, local, and foreign laws and regulations, including food safety requirements related to the ingredients, manufacture, processing, storage, marketing, advertising, labeling, and distribution of our products, as well as those related to worker health and workplace safety. Our activities, both in and outside of the United States, are subject to extensive regulation. We are regulated by, among other federal and state authorities, the FDA, USDA, the U.S. Federal Trade Commission ("FTC"), and the U.S. Departments of Commerce, and Labor, as well as by similar authorities in the foreign countries in which we do business. Environmental laws including the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the National Organic Standards of the U.S. Department of Agriculture, as well as similar state and local statutes and regulations in the United States and in each of the foreign countries in which we do business apply to our business operations as well. These laws and regulations govern, among other things, air emissions and the discharge of wastewater and other pollutants, the use of refrigerants, the handling and disposal of hazardous materials, and the cleanup of contamination in the environment. In addition, the marketing and advertising of our products could make us the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations, and we may be subject to initiatives that limit or prohibit the marketing and advertising of our products to children. We are also subject to federal laws and regulations relating to our organic products and production. For example, as required by the National Organic Program ("NOP"), we rely on third parties to certify certain of our products and production locations as organic. Regulations and formal and informal positions taken by the NOP pursuant to the Organic Foods Production Act of 1990, which created the NOP, are subject to continued review and scrutiny. Changes in these laws or regulations or the introduction of new laws or regulations could increase our compliance costs, increase other costs of doing business for us, our customers, or our suppliers, or restrict our actions, which could adversely affect our results of operations. In some cases, new laws and regulations or other federal and state regulatory initiatives could interrupt distribution of our products or force changes in our production processes and our products. Governmental regulations also affect taxes and levies, healthcare costs, energy usage, immigration, and other labor issues, all of which may have a direct or indirect effect on our business or those of our customers or suppliers. These costs could negatively affect our results of operations and financial condition. Further, if we are found to be in violation of applicable laws and regulations in these areas, we could be subject to civil remedies, including third-party claims for property damage or personal injury, fines, injunctions, recalls, cleanup costs, and other civil sanctions, as well as potential criminal sanctions, any of which could have a material adverse effect on our business.

Regulation - Risk 2

We rely on independent certification for several of our products and facilities.

We rely on independent certification, such as certifications of our products as "organic," or "gluten-free," to differentiate our products from others. The loss of any independent certifications could adversely affect our market position as a probiotic-based product and natural, "better for you" foods company, which could harm our business. We rely on independent SQF certification at some of our facilities, a certification that some of our customers require us to maintain. We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified. For example, we can lose our "organic" certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run. In addition, all organic raw materials must be certified organic or organic compliant. Our products could lose their organic certifications if our raw material suppliers lose their organic certifications. Similarly, we could lose our SQF certification if we do not meet the requirements of the SQF Code. The loss of these certifications could cause us to lose customers that require Lifeway products and/or facilities to carry some or all of them, which could negatively affect our sales and results of operations.

Ability to Sell

Total Risks: 2/20 (10%)Below Sector Average

Competition1 | 5.0%

Competition - Risk 1

Our product categories face a high level of competition, which could negatively impact our sales and results of operations.

We compete with a limited number of other domestic kefir producers and consequently face a small amount of direct competition for kefir products. However, our kefir-based products compete with other dairy products, notably spoonable and drinkable yogurt, and, increasingly, with non-dairy probiotic products that incorporate kefir cultures but are not kefir. We face significant competition for limited retailer shelf space in each of our product categories. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, and our ability to identify and satisfy consumer tastes and preferences. We believe that our brands have benefited in many cases from being the first to introduce products in their categories, and their success has attracted competition from other food and beverage companies that produce branded products, as well as from private label competitors. Some of our competitors, such as Danone, General Mills, Chobani, Hain Celestial Group, and Nestle, have substantial financial and marketing resources. These competitors and others may be able to introduce innovative products more quickly or market their products more successfully than we can, which could cause our growth rate to be slower than we anticipate and could cause sales to decline. We also compete with producers of non-dairy products, such as Millennium Products and PepsiCo, that have lower ingredient and production-related costs. As a result, these competing producers may be able to offer their products to customers at a lower price point. This could cause us to lower our prices, resulting in lower profitability or, in the alternative, cause us to lose market share if we fail to lower prices. Furthermore, private label competitors are generally able to sell their products at lower prices because private label products typically have lower marketing costs than their branded counterparts. If our products fail to compete successfully with other branded or private label offerings, demand for our products and our sales volumes could be negatively impacted. Additionally, due to high levels of competition, certain of our key retailers may demand price concessions on our products or may become more resistant to price increases for our products. Increased price competition and resistance to price increases have had, and may continue to have, a negative effect on our results of operations.

Demand1 | 5.0%

Demand - Risk 1

The consolidation of our customers or the loss of any of our largest customers could negatively impact our sales and results of operations.

Customers, such as supermarkets and food distributors, continue to consolidate. This consolidation has produced larger, more sophisticated organizations with increased negotiating and buying power that are able to resist price increases or demand increased promotional programs, as well as operate with lower inventories, decrease the number of brands that they carry and increase their emphasis on private label products, all of which could negatively impact our business. The consolidation of retail customers also increases the risk that a significant adverse impact on their business could have a corresponding material adverse impact on our business. Two of our customers together accounted for 24% of our net sales in the fiscal year ended December 31, 2023. Where we enter into written agreements with our customers, they are generally terminable after short notice periods by the customer. In addition, our customers sometimes award contracts based on competitive bidding, which could result in lower profits for contracts we win and the loss of business for contracts we lose. The loss of any large customer, the reduction of purchasing levels, or the cancellation of any business from a large customer for an extended period of time could negatively affect our sales and results of operations. We rely on sales made by or through our independent distributors to customers. Distributors purchase directly for their own account for resale. The loss of, or business disruption at, one or more of these distributors may harm our business. If we are required to obtain additional or alternative distribution agreements or arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory distribution agreements may inhibit our ability to implement our business plan or to establish markets necessary to expand the distribution of our products successfully.

Macro & Political

Total Risks: 1/20 (5%)Below Sector Average

Economy & Political Environment1 | 5.0%

Economy & Political Environment - Risk 1

General economic or geopolitical conditions, including inflationary conditions, Russia's invasion of Ukraine, the Israel Gaza conflict, and the impact of pandemics such as COVID-19, may disrupt our business, including, among other things, consumption patterns, supply chain, and production processes, each of which could materially and adversely affect our business, financial condition and results of operations.

The United States and other key international economies have experienced significant economic and market downturns in the past, and are likely to experience additional cyclical downturns from time to time in which economic activity is impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, inflation, bankruptcies and overall uncertainty with respect to the economy. These economic conditions can arise suddenly and the full impact of such conditions can be difficult to predict, such as the future expectations in this inflationary environment. In addition, geopolitical and domestic political developments, such as existing and potential trade wars and other events beyond our control, such as Russia's invasion of Ukraine, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets. The actual or perceived effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as COVID-19, could also materially and adversely affect the Company's business, financial condition and results of operations. Adverse and uncertain economic conditions, such as those caused by inflation or the COVID-19 pandemic, may impact distributor, retailer and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our suppliers, distributors, retailers, consumers and creditors may suffer. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns. Distributors and retailers may become more conservative in response to these conditions and seek to reduce their inventories. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with existing distributors and retailer customers, our ability to attract new consumers, the financial condition of our consumers, and our ability to provide products that appeal to consumers at attractive prices. Prolonged unfavorable economic conditions may have an adverse effect on the Company's sales, which could materially and adversely affect its business, financial condition and results of operations.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

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