What changed in this filing

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Item 1. Business

2022-07-21 compared with 2021-03-25 · 265 added, 284 removed, 33 unchanged (94% of the section changed)

ITEM 1 BUSINESS

Lifeway was founded in 1986 by Michael

and Ludmila Smolyansky shortly after their emigration from Russia to the United States.

Smolyansky were the first

to successfully introduce kefir to the U.S.

consumer on a commercial scale, initially catering to ethnic consumers in the Chicago,

Illinois metropolitan area.

In the over thirty years that have followed, Lifeway has grown to become the largest producer and marketer

of kefir in the U.S.

and an important player in the broader market spaces of probiotic-based products and natural, “better

for you”

Our primary product is drinkable kefir,

a cultured dairy product.

Lifeway was founded in 1986 by Michael Smolyansky

shortly after he and his wife, Ludmila Smolyansky, emigrated from Eastern Europe to the United States.

Lifeway was the first to successfully

introduce kefir to the U.S.

consumer on a commercial scale, initially catering to ethnic consumers in the Chicago, Illinois metropolitan

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

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

Our primary product is drinkable kefir, a cultured

dairy product.

Lifeway Kefir is tart and tangy, high in protein, calcium and vitamin D.

Thanks to our exclusive blend

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

at the time of manufacture.

Thanks to our exclusive blend of kefir cultures,

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

We manufacture (directly or through co-packers)

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

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

Our product categories are:

Drinkable Kefir, sold in a variety of organic and non-organic sizes, flavors, and types, including low-fat, non-fat, whole milk, protein, and BioKefir (a 3.5 oz.

kefir with additional probiotic cultures).

European-style soft cheeses, including farmer cheese, white cheese, and Sweet Kiss.

Cream and other, which consists primarily of cream, a byproduct of making our kefir.

ProBugs, a line of kefir products designed for children.

Other Dairy, which includes Cupped Kefir and Icelandic Skyr, a line of strained kefir and yogurt products in resealable cups.

Frozen Kefir, available in both soft serve and pint-size containers.

Net sales of products by category were

as follows for the years ended December 31:

Drinkable Kefir, sold in

a variety of organic and non-organic sizes, flavors, and types;

European-style

soft cheeses, including farmer cheese, white cheese, and Sweet Kiss;

and other, which consists primarily of cream, a byproduct of making our kefir;

a line of kefir products designed for children;

Drinkable Yogurt, sold

in a variety of sizes and flavors;

Other Dairy, which

consists primarily of Fresh Made butter and sour cream.

Net sales of products by category were as follows

for the years ended December 31:

Drinkable Kefir other than ProBugs

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ProBugs Kefir

Frozen Kefir (a)

Includes Lifeway Kefir Shop sales

Product innovation and new product

Lifeway is committed to maintaining its

positions as the leading producer of kefir and a recognized leader in the market for probiotic products.

We routinely evaluate

opportunities for new product flavors and formulations, improved package design, new product configurations and other innovation

opportunities.

Beyond our core drinkable kefir products, we have an ongoing effort to extend the strength of the Lifeway brand

and leverage the capabilities of the Lifeway organization into categories both inside and outside of the dairy aisle, including

into non-food categories and into additional channels, such as gyms and fitness studios.

In 2020, we maintained the level of focus

on product innovations, packaging innovations, and growth opportunities.

These product innovation and development efforts have

led to additional revenue opportunities from Plantiful and Kefir minis.

Lifeway considers research and development

of new products to be a significant part of our overall business philosophy.

Where possible, we leverage our existing staff and

facilities to conduct our innovation, research, and development efforts, rather than maintaining a dedicated research and development

staff and facilities or relying solely on third parties.

In 2020, in light of the Covid-19 outbreak, and our focus was on expanding

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

Drinkable Yogurt

Other dairy (a)

Includes Lifeway Kefir

Product innovation and new product development

Lifeway is committed to maintaining its positions

as the leading producer of kefir and a recognized leader in the market for probiotic products.

We routinely evaluate opportunities for

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

our core drinkable kefir products, we have an ongoing effort to extend the strength of the Lifeway brand and leverage the capabilities

of the Lifeway organization into categories both inside and outside of the dairy aisle, including into non-food categories and into additional

channels, such as gyms and fitness studios.

In 2021, we maintained the level of focus on product innovations, packaging innovations,

and growth opportunities.

These product innovation and development efforts have led to additional revenue opportunities.

Lifeway considers research and development of

new products to be a significant part of our overall business philosophy.

Where possible, we leverage our existing staff and facilities

to conduct our innovation, research, and development efforts, rather than maintaining a dedicated research and development staff and facilities

or relying solely on third parties.

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

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

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

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

Manufacturing

During 2020 and 2019, approximately 99%

of our revenue was derived from products manufactured at our own facilities.

We currently operate the following manufacturing and

distribution facilities:

Morton Grove, Illinois, which produces drinkable kefir, drinkable ProBugs kefir, Kefir Cups, and cheese products;

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

Niles, Illinois, which stores and serves as a distribution point for products, including those manufactured by co-packers;

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

During 2021 and 2020, approximately 98% and 99%

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

We currently operate the following manufacturing

and distribution facilities:

Morton Grove, Illinois,

which produces drinkable kefir, drinkable ProBugs kefir, and cheese products;

Waukesha, Wisconsin, which

produces drinkable kefir products and from which we store and distribute products;

Niles, Illinois, which

stores and serves as a distribution point for products;

Philadelphia, Pennsylvania,

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

We own these manufacturing facilities.

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

In addition to the products manufactured

in our own facilities, independent manufacturers (“co-packers”) manufacture some of our products.

We have co-packer

agreements to manufacture drinkable and frozen kefir in Ireland and the United Kingdom, respectively, to serve our European markets.

During 2020 and 2019, approximately 1% of our revenue was derived from products manufactured by co-packers.

Our co-packers

are audited regularly by our staff and are required to follow our specifications and Good Manufacturing Practices (GMPs).

Additionally,

the co-packers are required to ensure our products are manufactured in accordance with our quality and safety specifications and

that they are compliant with all applicable laws and regulations.

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

In addition to the products manufactured in our

own facilities, independent manufacturers (“co-packers”) manufacture some of our products.

We have a co-packer agreement to

manufacture drinkable yogurt in California.

We have co-packer agreements to manufacture drinkable and frozen kefir in Ireland and the

United Kingdom, respectively, to serve our European markets.

During 2021 and 2020, approximately 2% and 1% of our revenue, respectively,

was derived from products manufactured by co-packers.

Our domestic co-packer is Safe Quality Food (“SQF”) certified and follows

Good Manufacturing Practices (GMPs).

Additionally, the co-packers are required to ensure our products are manufactured in accordance with

our quality specifications and that they are compliant with all applicable laws and regulations.

SALES AND DISTRIBUTION

Sales Organization

We sell our products primarily through

our direct sales force, brokers, and distributors.

Our sales organization strives to cultivate strong, collaborative relationships

with our customers that facilitate favorable shelf placement for our products, which we believe will drive sales volumes when combined

with our marketing efforts and our brand strength.

Our relationships with food brokers provide additional retail customer coverage

as a supplement to our direct sales force.

Distribution inside the United

Lifeway’s products reach the consumer

through four primary “route-to-market”

We sell our products primarily through our direct

sales force, brokers, and distributors.

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

that facilitate favorable shelf placement for our products, which we believe will drive sales volumes when combined with our marketing

efforts and our brand strength.

Our relationships with food brokers provide additional retail customer coverage as a supplement to our

direct sales force.

Distribution inside the United States

Lifeway’s products reach the consumer through

three primary “route-to-market” pathways:

Retail-direct;

Direct store delivery (“DSD”);

Retail sales.

Under the retail-direct channel, we sell

our products to the retailer that either the retailer’s carrier picks up or Lifeway ships through third party carriers for

delivery to those retailers’

Direct store delivery (“DSD”).

Under the retail-direct channel, we sell our products

to retailers and deliver it through either the retailers’ carriers or third-party carriers that deliver to such retailers’

distribution centers.

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

Customers in this route-to-market grouping include Kroger, Walmart and Trader Joe’s.

Under the retail direct model, optimal

product merchandising, assortments and product presentation are attended to by the retailer with limited support from Lifeway’s

broker network.

Sales to our retail-direct customers represent approximately 45% of our total net sales for the year ended 2020.

Under the distributor channel, we sell

our products to distributors that either the distributor’s carrier picks up or Lifeway ships through third party carriers

for delivery to those distributors’

Customers in this route-to-market grouping

include Kroger, Walmart and Trader Joe’s.

Under the retail direct-model, optimal product merchandising, assortments and product

presentation are attended to by the retailer with limited support from Lifeway’s broker network.

Sales to our retail-direct customers

represent approximately 46% of our total net sales for the year ended 2021.

Under the distributor channel, we sell our products

to distributors and deliver it through either the distributors’ carriers or third-party carriers that deliver to such distributors’

designated warehouses.

In turn, our distributors then sell and ship our products to their

retail customers.

Our distributors often use a DSD model of their own to make deliveries directly to individual stores, but they

also make deliveries to retailers’

distribution centers.

Our distributor customers include United Natural Foods (UNFI), KeHE

Distributors, and C&S Wholesale Grocers.

The distributor attends to optimal product merchandising, assortments, and product

presentations at the retail end of the channel, with support from Lifeway’s direct sales force and broker network.

to our distributor customers represent approximately 50% of our total net sales for year ended 2020.

Under the direct store delivery (DSD) route

to market, we distribute our products directly to the retailer using Company-owned vehicles and a team of Lifeway merchandisers

In turn, our distributors then sell and ship our products to their retail customers.

Our distributors often use

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

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

The distributor

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

direct sales force and broker network.

Sales to our distributor customers represented approximately 51% of our total net sales for year

Under the direct store delivery (DSD) route to

market, we sell our products to retailers and deliver it directly to the store using Company-owned vehicles and a team of Lifeway merchandisers

who engage face-to-face with store management to ensure optimal product assortments and presentations.

We operate our DSD model

in the Chicago, Illinois metropolitan area only.

Sales to our DSD customers represent approximately 3% of our total net sales for

the year ended 2020.

In the Chicago, Illinois metropolitan area,

Lifeway operates two retail stores and a food truck under its Lifeway Kefir Shop subsidiary.

The Lifeway Kefir Shop sells its frozen

and drinkable kefir products, as well as certain Lifeway products, through these retail outlets.

Sales through these retail outlets

represented less than 1% of net sales for the year ended 2020.

We operate our DSD model in the

Chicago, Illinois metropolitan area only.

Sales to our DSD customers represent approximately 2% of our total net sales for the year ended

In the Chicago, Illinois metropolitan area, Lifeway

operated two retail stores and a food truck under its Lifeway Kefir Shop subsidiary.

This subsidiary was closed during 2021.

Kefir Shop sold frozen and drinkable kefir products, as well as certain Lifeway products, through these retail outlets.

Sales through

these retail outlets represented less than 1% of net sales for the year ended 2021.

Distribution outside of the U.S .

Substantially all of Lifeway’s products

are distributed within the United States;

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

of South America and the Caribbean.

Additionally, Lifeway products reach consumers in the United Kingdom, Ireland, Norway, Sweden,

and the Middle East under third party co-manufacturing agreements and in-country broker and distributor arrangements.

Sales outside

the United States represents approximately 2% of net sales for the year ended 2020.

Channel- and Market-Specific Distribution and Broker

Representation Arrangements

Lifeway’s generally standardized

agreements with independent distributors and food brokers allow us the latitude to establish new relationships as the opportunities

and needs arise.

Where appropriate given the relationship, market, and business opportunity, we offer exclusive channels, markets,

and/or territories to our distributors and brokers.

We provide our independent distributors

with products at wholesale prices for distribution to their retail accounts.

Lifeway believes that the prices at which we sell

our products to distributors are competitive with the prices generally paid by distributors for similar products in the markets

Due to the perishable nature of our products and the costs associated with moving product back through the channel, we

do not offer return privileges to any of our distributors or channel customers;

however, from time to time we do provide our customers

with allowances for non-saleable product.

Lifeway engages independent food brokers

generally on a commission basis, subject in some cases to a minimum commission guarantee.

The commissions vary based on the scope

of services provided and customers served.

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

South America and the Caribbean.

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

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

Sales outside the United States represented

approximately 2% of net sales for the year ended 2021.

Channel- and Market-Specific Distribution and Broker Representation

Lifeway’s generally standardized agreements

with independent distributors and food brokers allow us the latitude to establish new relationships as opportunities and needs arise.

Where appropriate given the relationship, market, and business opportunity, we offer exclusive channels, markets, and/or territories to

our distributors and brokers.

We provide our independent distributors with

products at wholesale prices for distribution to their retail accounts.

Lifeway believes that the prices at which we sell our products

to distributors are competitive with the prices generally paid by distributors for similar products in the markets served.

perishable nature of our products and the costs to return, we do not offer return privileges to any of our distributors or channel customers;

however, from time to time we do provide our customers with allowances for non-saleable product.

Lifeway engages independent food brokers generally

on a commission basis, subject in some cases to a minimum commission guarantee.

The commissions vary based on the scope of services provided

and customers served.

Our brokers represent our products to a variety of prospective buyers.

could be specialty stores, retail grocery chains, wholesalers, foodservice operators and distributors, drug chains, mass merchandisers,

industrial users, schools and universities, or military installations.

With support from our direct sales force, brokers may provide

other value-added services.

These may include scheduling and coordinating promotions, merchandising, centralized ordering, and

data collection services.

We use a combination of sales incentives,

trade promotions, and consumer promotions to market our products.

These buyers could be specialty stores,

retail grocery chains, wholesalers, foodservice operators and distributors, drug chains, mass merchandisers, industrial users, schools

and universities, or military installations.

With support from our direct sales force, brokers may provide other value-added services.

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

We use a combination of sales incentives, trade

promotions, and consumer promotions to market our products.

Sales Incentives and Trade Promotion

Lifeway offers various sales incentives

and trade promotional programs to its retailer and distributor customers from time to time in the normal course of business.

sales incentives and trade promotion programs typically include rebates, in-store display and demo allowances, allowances for non-saleable

product, coupons, and other trade promotional activities.

Trade promotions support price features, displays, and other merchandising

of our products by our retail and distributor customers.

We record these arrangements as a reduction to net sales in our consolidated

statements of operations.

Consumer Promotions and Marketing

We engage in an ongoing and wide variety

of marketing and media campaigns - primarily digital and social media, print advertising in some newspapers and magazines, and,

to a lesser extent, targeted television advertising.

We complement these marketing and media efforts by sponsoring cultural and

community events, and various festivals, as well as participating in industry-related trade shows and in-store promotional events.

Our consumer marketing efforts also include cooperative advertising programs with our retail customers and various couponing campaigns,

online consumer relationship programs, and other similar forms of promotions.

Lifeway offers various sales incentives and trade

promotional programs to its retailer and distributor customers from time to time in the normal course of business.

These sales incentives

and trade promotion programs typically include rebates, in-store display and demo allowances, allowances for non-saleable product, coupons,

and other trade promotional activities.

Trade promotions support price features, displays, and other merchandising of our products by

our retail and distributor customers.

We record these arrangements as a reduction to net sales in our consolidated statements of operations.

Consumer Promotions and Marketing Campaigns

We engage in an ongoing and wide variety of marketing

and media campaigns - primarily digital and social media, print advertising, and television advertising.

We complement these marketing

and media efforts by sponsoring cultural and community events, and various festivals, as well as participating in industry-related trade

shows and in-store promotional events.

Our consumer marketing efforts also include cooperative advertising programs with our retail customers

and various couponing campaigns, online consumer relationship programs, and other similar forms of promotions.

Our marketing efforts are aimed at stimulating

demand with new and existing consumers by elevating awareness and consumption of kefir and probiotics, as well as enhancing our

brand equity.

Our awareness marketing seeks to promote the verifiable nutritional profile, purity, benefits, and good taste of

Lifeway competes with a limited number

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

However, Lifeway’s

kefir-based products compete with other dairy products, notably spoonable and drinkable yogurt, and, increasingly, with non-dairy

probiotic products that incorporate kefir cultures but are not kefir.

Many of our competitors are well-established and have significantly

greater financial resources than Lifeway to promote their products.

We purchase our ingredients such as raw

milk, pectin, and fruit purees from unaffiliated suppliers.

In addition, we purchase significant quantities of packaging materials

to package our products and natural gas and electricity to operate our facilities.

Purchases are made through purchase orders or

contracts, and price, delivery terms, and product specifications vary.

Although the prices for our principal inputs can fluctuate

based on economic, weather, and other conditions, Lifeway believes it has ready access to multiple suppliers for all ingredient,

packaging, and other input requirements.

demand with new and existing consumers by elevating awareness and consumption of kefir and probiotics, as well as enhancing our brand

Our awareness marketing seeks to promote the verifiable nutritional profile, purity, benefits, and good taste of our kefir.

Lifeway competes with a limited number of other

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

However, Lifeway’s kefir-based

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

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

We purchase our ingredients such as milk, pectin,

and other ingredients from unaffiliated suppliers.

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

products and natural gas and electricity to operate our facilities.

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

delivery terms, and product specifications vary.

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

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

input requirements.

MAJOR CUSTOMERS

During the year ended December 31, 2020,

two customers collectively accounted for approximately 21% of our total net sales.

These customers collectively accounted for approximately 22% of net accounts receivable

as of December 31, 2020.

Lifeway has determined that it has one

reportable segment based on how our chief operating decision maker manages the business and in a manner consistent with the internal

reporting provided to the chief operating decision maker.

The chief operating decision maker, who is responsible for allocating

resources and assessing Company performance, has been identified collectively as the Chief Financial Officer, the Chief Operating

Officer, the Chief Executive Officer and Chairperson of the board of directors.

Substantially all of our consolidated revenues

relate to the sale of cultured dairy products that we produce using the same processes and materials and are sold to consumers

through a common network of distributors and retailers in the United States.

Since October 1999, Danone SA, through

subsidiaries (collectively “Danone”), has been the beneficial owner of approximately 22% of the outstanding common

stock of Lifeway.

Lifeway and Danone are parties to a Stockholders’

Agreement dated October 1, 1999, which as amended provides

Danone the right to designate one director nominee, provides Danone with anti-dilutive rights relating to certain future offerings

and issuances of capital stock, and grants Danone limited registration rights.

During the year ended December 31, 2021, two customers

collectively accounted for approximately 23% of our total net sales.

These customers collectively accounted for approximately 32% of net

accounts receivable as of December 31, 2021.

Lifeway has determined that it has one reportable

segment based on how our chief operating decision maker manages the business and, in a manner, consistent with the internal reporting

provided to the chief operating decision maker.

The chief operating decision maker, who is responsible for allocating resources and assessing

Company performance, has been identified collectively as the Chief Executive Officer and, Chief Financial Officer.

Substantially all of

our consolidated revenues relate to the sale of cultured dairy products that we produce using the same processes and materials and are

sold to consumers through a common network of distributors and retailers in the United States.

Since October 1999, Danone SA, through subsidiaries

(collectively “Danone”), has been the beneficial owner of approximately 22% of the outstanding common stock of Lifeway.

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

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

and grants Danone limited registration rights.

INTELLECTUAL PROPERTY

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We own many domestic and international trademarks and service marks.

In addition, we own

numerous registered and unregistered copyrights, registered domain names, and proprietary trade secrets, trade dress, technology,

know-how, processes, and other proprietary rights that are not registered.

Depending on the jurisdiction, trademarks are generally

valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become

Registrations of trademarks can also generally be renewed indefinitely as long as the trademarks are in use.

licenses to use certain trademarks inside and outside of the United States and to certain product formulas, all subject to the

terms of the agreements under which such licenses are granted.

Lifeway’s policy is to pursue registration of intellectual

property whenever appropriate.

We protect our intellectual property rights by relying on a combination of trademark, copyright,

trade dress, trade secret and other intellectual property laws, and domain name dispute resolution systems;

as well as licensing

agreements, third-party confidentiality, nondisclosure, and assignment agreements;

and by policing third-party misuses of our intellectual

We regard the Lifeway family of trademarks and other intellectual property as having substantial value and as being an

important factor in the marketing of our products.

The loss of such protection would have a material adverse impact on our operations

and share price.

Lifeway is subject to extensive regulation

by federal, state, and local governmental authorities.

In the United States, agencies governing the manufacture, marketing, and

distribution of our products include, among others, the Federal Trade Commission (“FTC”), the United States Food &

Drug Administration (“FDA”), the United States Department of Agriculture (“USDA”), the United States Environmental

Protection Agency (“EPA”), the Occupational Safety and Health Administration (“OSHA”), and their state

and local equivalents.

Under various statutes, these agencies prescribe, among other things, the requirements and standards for

quality, safety, and representation of our products to consumers.

We are also subject to federal laws and regulations relating

to our products and production.

For example, as required by the National Organic Program (“NOP”), we rely on third

parties to certify certain of our products and production locations as organic.

Additionally, our facilities are subject to various

laws and regulations regarding the release of material into the environment and the protection of the environment in other ways.

Internationally, we are subject to the

laws and regulatory authorities of the foreign jurisdictions in which we manufacture and sell our products, including the Food

Standards Agency in the United Kingdom;

the National Service of Health, Food Safety and Agro-Food Quality (known by its Spanish-language

acronym “SENASICA”) and the Federal Commission for the Protection from Sanitary Risks (“COFEPRIS”) in Mexico;

In addition, we own numerous

registered and unregistered copyrights, registered domain names, and proprietary trade secrets, trade dress, technology, know-how, processes,

and other proprietary rights that are not registered.

Depending on the jurisdiction, trademarks are generally valid as long as they are

in use and/or their registrations are properly maintained, and they have not been found to have become generic.

Registrations of trademarks

can also generally be renewed indefinitely as long as the trademarks are in use.

We also have licenses to use certain trademarks inside

and outside of the United States and to certain product formulas, all subject to the terms of the agreements under which such licenses

Lifeway’s policy is to pursue registration of intellectual property whenever appropriate.

We protect our intellectual

property rights by relying on a combination of trademark, copyright, trade dress, trade secret and other intellectual property laws,

and domain name dispute resolution systems;

as well as licensing agreements, third-party confidentiality, nondisclosure, and assignment

and by policing third-party misuses of our intellectual property.

We regard the Lifeway family of trademarks and other intellectual

property as having substantial value and as being an important factor in the marketing of our products.

The loss of such protection would

have a material adverse impact on our operations and share price.

Lifeway is subject to extensive regulation by

federal, state, and local governmental authorities.

In the United States, agencies governing the manufacture, marketing, and distribution

of our products include, among others, the Federal Trade Commission (“FTC”), the United States Food & Drug Administration

(“FDA”), the United States Department of Agriculture (“USDA”), the United States Environmental Protection Agency

(“EPA”), the Occupational Safety and Health Administration (“OSHA”), and their state and local equivalents.

various statutes, these agencies prescribe, among other things, the requirements and standards for quality, safety, and representation

of our products to consumers.

We are also subject to federal laws and regulations relating to our products and production.

as required by the National Organic Program (“NOP”), we rely on third parties to certify certain of our products and production

locations as organic.

Additionally, our facilities are subject to various laws and regulations regarding the release of material into

the environment and the protection of the environment in other ways.

Internationally, we are subject to the laws and

regulatory authorities of the foreign jurisdictions in which we manufacture and sell our products, including the Food Standards Agency

in the United Kingdom;

the National Service of Health, Food Safety and Agro-Food Quality (known by its Spanish-language acronym “SENASICA”)

and the Federal Commission for the Protection from Sanitary Risks (“COFEPRIS”) in Mexico;

the Food Safety Authority in Ireland;

and the European Food Safety Authority, which supports the European Commission, as well as

individual country, province, state, and local regulations.

and the European Food Safety Authority, which supports the European Commission, as well as individual country, province, state, and local

MILK INDUSTRY REGULATION

Our primary raw material is conventional

and organic raw milk.

The federal government establishes minimum prices for raw milk purchased in federally regulated areas.

states have established their own rules for determining minimum prices.

The federal government announces prices for raw milk each

While we are subject to federal government regulations that establish minimum prices for milk, the prices we pay producers

of organic raw milk are generally well above such minimum prices, as organic milk production is generally costlier, and organic

milk therefore commands a price premium.

In addition to the prices for raw milk, we also pay producer (“over-order”)

premiums, federal order administration costs, and other related charges that vary by milk product, location, and supplier.

Lifeway takes appropriate precautions to

ensure the safety of our products.

In addition to routine inspections by state and federal regulatory agencies, including the USDA

and FDA, we have instituted Company-wide quality systems that address topics such as supplier control;

ingredient, packaging, and

product specifications;

Our primary raw material is milk.

government establishes minimum prices for raw milk purchased in federally regulated areas.

Some states have established their own rules

for determining minimum prices.

The federal government announces prices for raw milk each month.

While we are subject to federal government

regulations that establish minimum prices for milk, and we also pay producer (“over-order”) premiums, federal order administration

costs, and other related charges that vary by milk product, location, and supplier.

Lifeway takes appropriate precautions to ensure

the safety of our products.

In addition to routine inspections by state and federal regulatory agencies, including the USDA and FDA,

we have instituted Company-wide quality systems that address topics such as supplier control;

ingredient, packaging, and product specifications;

preventive maintenance;

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and sanitation.

Each of our facilities also has in place a hazard

analysis critical control points (“HACCP”) plan that identifies critical pathways for contaminants and mandates control

measures that must be used to prevent, eliminate or reduce relevant food-borne hazards.

To the extent that the federal Food Safety

Modernization Act applies to Lifeway’s business, we develop food safety plans and implement preventive measures to protect

against food contamination.

We also maintain a product recall plan, including lot identifiability and traceability measures that

allow us to act quickly to reduce the risk of consumption of any product that we suspect may pose a health issue.

We maintain various types of insurance,

including product liability and product recall coverages, which we believe to be sufficient to cover potential product liabilities.

We have also implemented the Safe Quality

Food (“SQF”) program at most of our facilities.

SQF is a fully integrated food safety and quality management protocol

designed specifically for the food sector.

The SQF Code, based on universally accepted CODEX Alimentarius, HACCP guidelines and

the Global Food Safety Initiative (“GFSI”) standards, offers a comprehensive methodology to manage food safety and

quality simultaneously.

SQF certification provides an independent and external validation that a product, process or service complies

with international, regulatory and other specified standards.

Our Waukesha, Morton Grove, and Niles facilities are SQF certified.

Lifeway’s business is not seasonal.

As of December 31, 2020, we employed approximately

316 employees, approximately 103 of which were members of a union bargaining unit.

Each of our facilities also has in place a hazard analysis critical control points

(“HACCP”) plan that identifies critical pathways for contaminants and mandates control measures that must be used to prevent,

eliminate or reduce relevant food-borne hazards.

To the extent that the federal Food Safety Modernization Act applies to Lifeway’s

business, we develop food safety plans and implement preventive measures to protect against food contamination.

We also maintain a product

recall plan, including lot identifiability and traceability measures that allow us to act quickly to reduce the risk of consumption of

any product that we suspect may pose a health issue.

We maintain various types of insurance, including

product liability and product recall coverages, which we believe to be sufficient to cover potential product liabilities.

We have also implemented the SQF program at our

Illinois and Wisconsin facilities.

SQF is a fully integrated food safety and quality management protocol designed specifically for the

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

standards, offers a comprehensive methodology to manage food safety and quality simultaneously.

SQF certification provides an independent

and external validation that a product, process or service complies with international, regulatory and other specified standards.

Lifeway’s business is not seasonal.

As of December 31, 2021, we employed 280 full-time

and two part-time employees, of which 93 were members of a union bargaining unit.

AVAILABLE INFORMATION

Lifeway maintains a corporate website for

investors at www.lifewayfoods.com and it makes available, free of charge, through this website its annual report on Form 10-K,

quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that we file with or furnish to the

SEC as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Lifeway maintains a corporate website for investors

at www.lifewayfoods.com and makes available, free of charge, through this website its annual report on Form 10-K, quarterly reports on

Form 10-Q, current reports on Form 8-K, and amendments to those reports that we file with or furnish to the SEC as soon as reasonably

practicable after we electronically file such material with, or furnish it to, the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business