David Kanen, President of KWM writes letter to CEO and board of LWAY calling for a sale of the company. Mr Kanen also stated his intention to vote his shares in favor of the director slate proposed by Edward and Ludmilla Smolansky who own 31.3% of LWAY sha

Dear Ms. Julie Smolyansky and LWAY Directors,

KWM owns over 600,000 shares of LWAY (Nasdaq: LWAY) an amount approximating 4.1%We intend to vote our shares in support of the recent slate nominated by Edward and Ludmilla Smolyansky. It appears as though you and the board have failed to form a strategic committeeAs agreed in their standstill and thus have triggered a breach, enabling them to vote their shares against the incumbent board. While we are not legal experts, the evidence seems overwhelming that you have failed to act in good faith. Furthermore, if you did pursue strategic alternatives and hired an investment banker (unlikely), please be transparent and reveal the details immediately.

We have spent a considerable amount of time reviewing Lifeway’s governance, operations, sales strategy, products, and executive compensation. We believe the current board and CEO have been mis-managing the business and not acting in the best interest of its shareholders. We further believe the company’s stock is undervalued, but cannot realize a greater value with the current CEO and board. This has been proven by 5 years of revenue growth with minimal to no profitability and a stock price that has never reached above $8 in the last 5 years.

We would like to highlight the following items:

A passive and overpaid board
A CEO who rarely showed up to the Morton Grove office when she resided in Illinois . Even worse, she currently resides in California and is not “hands-on “.
A gathering of employees who are in some way tied to a friendship with the CEO and collect a paycheck , that is not necessarily based on merit and results.
A Chief of Staff who is the spouse of the CEO and does not have any formal employment agreement, yet collects a six-figure salary
A CEO who collects a million dollars in income regardless of stock performance
And most importantly, a CEO who doesn’t seems to care about the company’s profitability nor shareholders.This is clearly the case as our stock has remained under $8 for 5 years while revenue continues to grow

We believe Lifeway’s core Kefir brand can grow revenue significantly in the hands of a skilled management team and CEO who actually shows up to work daily. We need to be focused on profitability and scaling. The company has a significant catalyst with the price of milk (their core input) continuing to come down which will boost gross margins. Sadly, Julie has yet to boost its net profit margin. Even without milk prices coming down, there are other tailwinds we want to highlight which strengthen our case for the company to be better managed.

Kefir is a rapidly expanding category in North America and has multiple tailwinds as seen by growth in demand for probiotic beverages and an ever-growing amount of health conscious consumers , specifically focused on gut health. As investors, it is painful to watch a strong brand be mishandled, and essentially be the executive team’s personal bank account in our opinion. In fact, through speaking with former employees, we’ve concluded a toxic work environment exists. Some workers have been threatened during their time at Lifeway and eventually fired. We were told that Julie used company funds for personal purposes, and this was grounds to switch auditors. While this is our belief and we cannot prove it, as current shareholders, we cannot remain silent, and as LWAY continues flounder. We encourage all shareholders to support a proper strategic review and ultimately a sale of the company.

We will vote in favor of Ludmilla and Edward’s Board nominees and believe now is the right time to explore strategic alternatives.

Based on our due diligence of comparable transactions, a fair value for LWAY should be between 1.5- 2 x Revenue. This would yield a value of between $15-$20 per share. Keep in mind the company also has Real estate worth an estimated $10 mill.

We believe the board is misaligned with shareholders and is unwilling to stand-up to the current CEO and address the ongoing profitability issues. We are formally putting all directors on notice. You have a fiduciary responsibility to maximize shareholder value! We are a public company, WE ARE NOT JULIE SMOLANSKY ENTERPRISES!We will be holding all of you accountable, to ensure shareholders are prioritized.

Sincerely,

David Kanen

President/CEO Kanen Wealth Management

dkanen@kanenadvisory.com

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