What changed in this filing

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Item 1. Financial Statements

2022-08-26 compared with 2021-11-15 · 329 added, 524 removed, 264 unchanged (76% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

September 30, 2021 and December 31, 2020

March 31, 2022 and December 31, 2021

(In thousands)

September 30,

Current assets

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,290 and $ 1,350 at September 30, 2021 and December 31, 2020 respectively

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,320 and $ 1,170 at March 31, 2022 and December 31, 2021 respectively

Inventories, net

5 unchanged sentences

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Intangible assets, net

Total intangible assets

14 unchanged sentences

2,500 shares authorized;

no shares issued or outstanding at September 30, 2021 and December 31, 2020

no shares issued or outstanding at March 31, 2022 and December 31, 2021

Common stock, no par value;

1 unchanged sentence

17,274 shares issued;

15,435 and 15,604 outstanding at September 30, 2021 and December 31, 2020, respectively

15,435 outstanding at March 31, 2022 and December 31, 2021, respectively

Paid-in capital

7 unchanged sentences

Consolidated Statements of Operations

For the three and nine months ended September

30, 2021 and 2020

For the three months ended March 31, 2022

(In thousands, except per share data)

2 unchanged sentences

Total cost of goods sold

Selling expenses

General and administrative

Selling expense

General and administrative expense

Amortization expense

Total operating expenses

Income from operations

Other income (expense):

(Loss) income from operations

Other (expense) income:

Interest expense

Gain on investments

Loss on sale of property and equipment

Other (expense) income, net

Total other income (expense)

Income before provision for income taxes

Provision for income taxes

Total other (expense) income

(Loss) income before provision for income taxes

(Benefit) provision for income taxes

Net (loss) income

Earnings (loss) per common share:

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Balance, January 1, 2021

Issuance of common stock in connection

with stock-based compensation

Treasury stock purchased

Stock-based compensation

Balance, March 31, 2021

Issuance of common stock in connection

with stock-based compensation

Stock-based compensation

Balance, June 30, 2020

Issuance of common stock

in connection with stock-based compensation

Stock-based compensation

Balance, September 30, 2020

LIFEWAY FOODS, INC.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’

Equity (continued)

(In thousands)

Balance, January 1, 2022

1 unchanged sentence

Balance, March 31, 2022

Issuance of common stock in connection

with stock-based compensation

Stock-based compensation

Balance, June 30, 2021

Issuance of common stock

in connection with stock-based compensation

Treasury stock purchased

Stock-based compensation

Balance, September 30, 2021

See accompanying notes to consolidated financial

3 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three months ended March 31,

Cash flows from operating activities:

Adjustments to reconcile net income to operating cash flow:

Net (loss) income

Adjustments to reconcile net (loss) income to

operating cash flow:

Depreciation and amortization

Non-cash interest expense

Non-cash rent expense

Bad debt expense

Deferred revenue

Stock-based compensation

Deferred income taxes

Loss (gain) on sale of property and equipment

Loss on sale of property and equipment

(Increase) decrease in operating assets:

6 unchanged sentences

Accrued income taxes

Net cash provided by operating activities

Net cash (used in) provided by operating

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from sale of property and equipment

Acquisition, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities:

Purchase of treasury stock

Payment of deferred financing cost

Proceeds from note payable

Repayment of note payable

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

1 unchanged sentence

Supplemental cash flow information:

Cash paid for income taxes, net of (refunds)

Cash paid for income taxes, net

Cash paid for interest

1 unchanged sentence

Increase (decrease) in right-of-use assets and operating lease obligations

Non-cash financing activities

Issuance of common stock under equity incentive plans

See accompanying notes to consolidated financial

4 unchanged sentences

Note 1 – Basis of Presentation

Basis of presentation

The accompanying unaudited consolidated financial

1 unchanged sentence

GAAP”) for interim

financial information, and do not include all of the information and disclosures required for complete, audited financial statements.

financial information, and do not include certain information and footnote disclosures required for complete, audited financial statements.

In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim

periods reported herein.

The consolidated financial statements and related notes should be read in conjunction with the consolidated

financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

of operations for interim periods are not necessarily indicative of the results to be expected for other interim periods or the full

A detailed description of our significant accounting

policies can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The consolidated financial statements and related notes should be read in conjunction with the consolidated financial

statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

of operations for any interim period are not necessarily indicative of future or annual results.

Principles of consolidation

Our consolidated financial statements include

The consolidated financial statements include

the accounts of Lifeway Foods, Inc.

1 unchanged sentence

All significant intercompany accounts and transactions have been eliminated.

Note 2 – Significant Accounting Policies

Restatement of Previously Issued Consolidated

Financial Statements

As previously disclosed in Note 1 to the Company’s

consolidated financial statements included in the 2021 Form 10-K, the Company identified past errors in the accounting for deferred income

tax liabilities and goodwill that resulted from a 2009 acquisition when preparing the 2021 consolidated financial statements.

2021 Form 10-K, the Company restated its historical consolidated financial statements to properly reflect the impact of the 2009 acquisition,

which resulted in adjustments to goodwill and deferred income tax liabilities in the affected periods.

The consolidated financial statements

for the three months ended March 31, 2021 included in this Quarterly Report on Form 10-Q have been similarly restated to reflect the

correction of these errors and should be read in conjunction with Notes 1 and 17 to the Company’s consolidated financial statements

included in the 2021 Form 10-K.

2 – Summary of Significant Accounting Policies

A detailed description of our significant accounting

policies can be found in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Use of estimates

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Cash and cash equivalents

Lifeway considers cash and all highly liquid

investments purchased with an original maturity of three months or less to be cash equivalents.

Cash and cash equivalents are stated

at cost, which approximates or equals fair value due to their short-term nature.

Lifeway from time to time may have bank deposits

in excess of insurance limits of the Federal Deposit Insurance Corporation.

Lifeway has not experienced any losses in such accounts and

believes it is not exposed to any significant credit risk related to its cash and cash equivalents.

The Company has $ 580 of restricted cash which

is included in cash and cash equivalents as of September 30, 2021.

is included in cash and cash equivalents as of March 31, 2022.

The restricted cash balance represents escrow funds deposited by Lifeway

in connection with the September 18, 2021 acquisition of certain assets of Glen Oaks Farms, Inc.

in connection with the August 18, 2021 acquisition of certain assets of GlenOaks Farms, Inc.

The funds are security for the liability

and indemnity obligations of seller as defined under the asset purchase agreement.

The funds will remain in escrow for twelve months

from the acquisition closing date, at which time the funds, less any amounts for outstanding seller obligations, will be remitted to

The funds will remain in escrow for twelve months from

the acquisition closing date, at which time the funds, less any amounts for outstanding seller obligations, will be remitted to the sellers.

Revenue recognition

We sell food and beverage products across select

product categories to customers predominantly within the United States (see Note 12, Segments, Products and Customers).

bulk cream, a byproduct of our fluid milk manufacturing process.

In accordance with ASC 606, Revenue from Contracts with Customers, we

recognize revenue when control over the products transfers to our customers, which generally occurs upon delivery to our customers or

their common carriers.

Lifeway sells food and beverage products across

select product categories to customers predominantly within the United States (see Note 12 - Segments, Products and Customers).

also sells bulk cream, a byproduct of its fluid milk manufacturing process.

In accordance with ASC 606, Revenue from Contracts with Customers,

Lifeway recognizes revenue when control over the products transfers to its customers, which generally occurs upon delivery to its customers

or their common carriers.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive

6 unchanged sentences

Performance obligations promised in a contract

are identified based on the goods or services that will be transferred to the customer, which is the delivery of food products which

provide immediate benefit to the customer.

We account for product shipping and handling

are identified based on the goods or services that will be transferred to the customer, which is the delivery of food products which provide

immediate benefit to the customer.

Lifeway accounts for product shipping and handling

as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of goods sold.

5 unchanged sentences

ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration.

As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in accordance with U.S.

inventory policies.

We do not have any significant deferred revenue or unbilled receivables at the end of a period.

We generally do not

receive noncash consideration for the sale of goods, nor do we grant payment financing terms greater than one year.

As such, the Company does not capitalize contract inception costs and it capitalizes product fulfillment costs in accordance with U.S.

GAAP and its inventory policies.

Lifeway does not have any significant deferred revenue or unbilled receivables at the end of a period.

It generally does not receive noncash consideration for the sale of goods, nor does it grant payment financing terms greater than one

Advertising and promotional costs

Lifeway expenses advertising costs as incurred

For the nine months ended September 30, 2021 and 2020 total advertising expenses were $ 2,892 and $ 1,700 respectively.

For the three months

ended September 30, 2021 and 2020 total advertising expenses were $ 726 and $ 380 , respectively.

and is reported in Selling expense in the Company’s consolidated statement of operations.

Total advertising expense was $ 1,204 and

$ 1,393 for the three months ended March 31, 2022 and 2021, respectively.

The Company is managed as a single reportable

The Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), reviews financial

information on an aggregate basis for purposes of allocating resources and assessing financial performance, as well as for making strategic

operational decisions and managing the organization.

Substantially all of Lifeway’s consolidated revenues relate to the sale of

cultured dairy products that it produces using the same processes and materials and are sold to consumers through a common network of

distributors and retailers in the United States.

Recent accounting pronouncements

In December 2019, the FASB issued Accounting

Standards Update (“ASU”) No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The new guidance

is intended to enhance and simplify various aspects of the accounting for income taxes.

The new guidance eliminates certain exceptions

to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes.

The Company adopted this guidance on January 1, 2021.

The adoption of this standard did not have a material impact on our consolidated

financial statements and disclosures.

Issued but not yet effective

In October 2021, the FASB issued ASU No.

Issued by not yet effective

In October 2021, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The new guidance

provides a single comprehensive accounting model on revenue recognition for contracts with customers and requires that the acquirer in

a business combination recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic

606 (Revenue from Contracts with Customers).

The new guidance provides a single comprehensive

accounting model on revenue recognition for contracts with customers and requires that the acquirer in a business combination recognize

and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022.

Early adoption is permitted, including adoption in an interim period.

With early adoption, the amendments are applied retrospectively

to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim

period of adoption and prospectively to all business combinations that occur on or after the date of initial application.

Management is

currently evaluating the impact that the new guidance will have on the consolidated financial statements.

Early adoption is permitted,

including adoption in an interim period.

With early adoption, the amendments are applied retrospectively to all business combinations

for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of adoption and prospectively

to all business combinations that occur on or after the date of initial application.

Management is evaluating the impact of the new guidance

and does not currently expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU No.

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The new guidance provides

optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and

other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

will be effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years.

is currently evaluating the impact that the new guidance will have on the consolidated financial statements.

optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions that reference LIBOR

or another reference rate expected to be discontinued because of reference rate reform.

The guidance will be effective prospectively as

of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years.

Management is evaluating the impact of the

new guidance and does not currently expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No.

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incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables.

This may result in

the earlier recognition of allowances for losses.

This may result in the

earlier recognition of allowances for losses.

The guidance should be applied on either a prospective transition or modified-retrospective

7 unchanged sentences

Schedule of inventories

September 30,

Finished goods

3 unchanged sentences

Schedule of property, plant and equipment

September 30,

Buildings and improvements

5 unchanged sentences

Note 5 – Goodwill and Intangible Assets

Goodwill and indefinite-lived intangible assets consisted of the following:

Goodwill & indefinite-lived intangible assets

Goodwill consisted of the following:

Schedule of goodwill

Balance at December 31, 2021, before accumulated impairment loses

Accumulated impairment loses

Accumulated impairment losses

Balance at December 31, 2021

Acquisition (1)

Balance at September 30, 2021

(1) Refer to Note 15 for additional information regarding acquisition-related adjustments to goodwill

Finite-lived Intangible Assets

Balance at March 31, 2022

Intangible Assets

Other intangible assets, net consisted of the following:

Schedule of other intangible assets

September 30, 2021

Schedule of finite-lived intangible assets

March 31, 2022

December 31, 2021

Intangible assets with finite lives:

Customer lists and other customer related intangibles

1 unchanged sentence

Total finite lived intangible assets

Intangible assets with indefinite lives:

Brand names (1)

Total intangible assets

(1) During the fourth quarter of 2021, the Company completed an assessment of the useful life of its one indefinite-lived

brand name intangible asset and determined that it should adjust the estimated useful life from an indefinite length to 15 years.

change in accounting estimate was effective January 1, 2022, at which time the Company began amortizing the intangible asset over 15 years.

The cost and accumulated amortization is included in Brand Names in the intangible assets with finite lives in the table above as of January

The Company has reclassified the $3,700 net book value as of December 31, 2021 from goodwill to finite lived intangible assets

to conform the presentation as of March 31, 2022.

Estimated amortization expense on intangible assets

for the next five years is as follows:

Schedule of amortization expense on intangible assets

Nine months ended December 31, 2022

Note 6 – Accrued Expenses

1 unchanged sentence

Schedule of accrued expenses

September 30,

Payroll and incentive compensation

4 unchanged sentences

Note payable consisted of the following:

Schedule of note payable

September 30,

Variable rate term loan due August 18, 2026.

Principal and interest (2.15% at September 30, 2021) payable monthly.

Schedule of debt

Term loan due August 18, 2026.

Interest (2.42% at March 31, 2022) payable monthly.

Unamortized deferred financing costs

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Total long-term portion

The scheduled maturities of the term loan, excluding deferred financing

costs, at March 31, 2022 are as follows:

Schedule of maturities of long-term debt

Nine months ended December 31, 2022

Total term loan

Credit Agreement

On August 18, 2021, Lifeway entered into the Fourth Modification (the

“Fourth Modification”) to the Amended and Restated Loan and Security Agreement (as amended and modified from time to time,

the “Credit Agreement” and, as amended and modified by the Fourth Modification, the “Modified Credit Agreement”)

with its existing lender and certain of its subsidiaries.

The Fourth Modification amends the Credit Agreement to provide for, among other

things, a $ 5 million term loan by the existing lender to the borrowers to be repaid in quarterly installments of principal and interest

over a term of five years (the “Term Loan”).

The termination date of the Term Loan is August 18, 2026 , unless earlier

Except for the addition of the Term Loan, the Credit Agreement remains substantively unchanged and in full force and effect.

On August 18, 2021, Lifeway entered into the Fourth

Modification (the “Fourth Modification”) to the Amended and Restated Loan and Security Agreement (as amended and modified

from time to time, the “Credit Agreement” and, as amended and modified by the Fourth Modification, the “Modified Credit

Agreement”) with its existing lender and certain of its subsidiaries.

The Fourth Modification amends the Credit Agreement to provide

for, among other things, a $5 million term loan by the existing lender to the borrowers to be repaid in quarterly installments of principal

and interest over a term of five years (the “Term Loan”).

The termination date of the Term Loan is August 18, 2026,

unless earlier terminated.

The Amended and Restated Loan and Security Agreement continues to provide Lifeway with a revolving line of

credit up to a maximum of $ 5 million (the “Revolving Loan”) and provides the Borrowers with an incremental facility not to

exceed $5 million (the “Incremental Facility” and together with the Revolving Loan, the “Loans”).

The Termination

Date of the Revolving Loan was extended to June 30, 2025 , unless earlier terminated.

Except for the addition of the Term Loan, the

Credit Agreement remains substantively unchanged and in full force and effect.

As amended, all outstanding amounts under the

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fee of 0.20 % and, in conjunction with the issuance of any letters of credit, a letter of credit fee of 0.20 %.

Revolving Credit Facility

As of September 30, 2021, we had $ 2,777 outstanding

under the Revolving Credit Facility.

We had $ 2,223 available for future borrowings under the Revolving Credit Facility as of September

Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility as of September 30, 2021 was 2.15 %.

Deferred Financing Costs

As of September 30, 2021, net unamortized deferred

financing costs of $ 24 related to the term loan were included as a direct deduction from outstanding long-term debt.

Except as described above, as amended, the Modified

Credit Agreement remains substantively unchanged and in full force and effect, including customary representations, warranties, and covenants

on the part of Lifeway, including financial covenants requiring us to maintain a fixed charge coverage ratio of no less than 1.25 to 1.00

each of the fiscal quarters ending through the expiration date.

The Modified Credit Agreement includes customary

representations, warranties, and covenants on the part of Lifeway, including financial covenants requiring us to maintain a fixed charge

coverage ratio of no less than 1.25 to 1.00, and a minimum working capital financial covenant, as defined, of no less than $11.25 million,

in each of the fiscal quarters ending through the expiration date.

The Modified Credit Agreement continues to provide for events of default,

including failure to repay principal and interest when due and failure to perform or violation of the provisions or covenants of the agreement,

as a result of which amounts due under the Modified Credit Agreement may be accelerated.

The loans and all other amounts due and owed

under the Credit Agreement and related documents are secured by substantially all of our assets.

We were in compliance with the fixed charge coverage

ratio and minimum working capital covenants at September 30, 2021.

including failure to repay principal and interest when due and failure to perform or violation of the provisions or covenants of the

agreement, as a result of which amounts due under the Modified Credit Agreement may be accelerated.

The loans and all other amounts due

and owed under the Credit Agreement and related documents are secured by substantially all of the Company’s assets.

Lifeway was in compliance with the fixed charge

coverage ratio and minimum working capital covenants at March 31, 2022.

Revolving Credit Facility

As of March 31, 2022, the Company had $ 2,777

outstanding under the Revolving Credit Facility.

The Company had $ 2,223

available for future borrowings under the Revolving Credit Facility as of March 31, 2022.

Lifeway’s interest rate on debt

outstanding under the Revolving Credit Facility as of March 31, 2022 was 2.24 %.

Note 8 – Leases

Lifeway had operating leases for two retail stores

for its Lifeway Kefir Shop subsidiary which includes fixed base rent payments as well as variable rent payments to reimburse the landlord

for operating expenses and taxes.

The Company terminated the operating lease of one of the Lifeway Kefir Shop retail stores during July

The Company terminated its office space leases in September 2020.

The Company also leases certain machinery and equipment with fixed

base rent payments and variable costs based on usage.

Remaining lease terms for these leases range from less than 1 year to 5 years.

of our leases include options to extend the leases for up to 5 years and have been included in our calculation of the right-of-use asset

and lease liabilities.

Lifeway includes only fixed payments for lease components in the measurement of the right-of-use asset and lease

Variable lease payments are those that vary because of changes in facts or circumstances occurring after the commencement date,

other than the passage of time.

The Company leases certain machinery and equipment

with fixed base rent payments and variable costs based on usage.

Remaining lease terms for these leases range from less than one year

to five years.

Some of its leases include options to extend the leases for up to 5 years and have been included in our calculation of

the right-of-use asset and lease liabilities.

Lifeway includes only fixed payments for lease components in the measurement of the right-of-use

asset and lease liability.

Variable lease payments are those that vary because of changes in facts or circumstances occurring after the

commencement date, other than the passage of time.

There are no residual value guarantees.

We do not currently have leases which meet the finance lease classification

as defined under ASC 842.

We do not record leases with an initial term of

12 months or less on the balance sheet.

Expense for these short-term leases is recorded on a straight-line basis over the lease term.

Total lease expense was $ 245 and $ 392 (including short term leases) for the nine months ended September 30, 2021 and 2020, respectively.

Total lease expense was $ 76 and $ 81 (including short term leases) for the three months ended September 30, 2021 and 2020, respectively.

Lifeway does not currently have leases which

meet the finance lease classification as defined under ASC 842.

Lifeway treats contracts as a lease when the contract

conveys the right to use a physically distinct asset for a period of time in exchange for consideration, we direct the use of the asset

conveys the right to use a physically distinct asset for a period of time in exchange for consideration, it directs the use of the asset

and obtain substantially all the economic benefits of the asset.

The Company does not record leases with an initial

term of 12 months or less on the balance sheet.

Expense for these short-term leases is recorded on a straight-line basis over the lease

Total lease expense was $ 65 and $ 78

(including short term leases) for the three months ended March 31, 2022 and 2021, respectively.

Right-of-use assets and lease liabilities are

measured and recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

We have elected the practical expedient to combine lease and non-lease components into a single component for all of its leases.

of our leases such as real estate leases, we are unable to determine an implicit rate;

therefore, we use our incremental borrowing rate

based on the information available at the commencement date in determining the present value of future payments for those leases.

options to extend or terminate the lease in the measurement of the right-of-use asset and lease liability when it is reasonably certain

that we will exercise such options.

Lifeway has elected the practical expedient to combine lease and non-lease components into a single component for all of its leases.

the Company is unable to determine an implicit interest rate, it uses its incremental borrowing rate based on the information available

at the commencement date in determining the present value of future payments for those leases.

Lifeway includes options to extend or terminate

the lease in the measurement of the right-of-use asset and lease liability when it is reasonably certain that it will exercise such options.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

2 unchanged sentences

Operating Leases

Three months ended December 31, 2021

Nine months ended March 31, 2022

Total lease payments

1 unchanged sentence

The weighted-average remaining lease term for

our operating leases was 2.5 years as of September 30, 2021.

The weighted average discount rate of our operating leases was 12.10 % as

of September 30, 2021.

Cash paid for amounts included in the measurement of lease liabilities was $ 153 and $ 328 the nine months ended

September 30, 2021 and 2020, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 46 and $ 56 for

the three months ended September 30, 2021 and 2020, respectively.

its operating leases was 2.4 years as of March 31, 2022.

The weighted average discount rate of its operating leases was 12.9 % as of March

Cash paid for amounts included in the measurement of lease liabilities was $ 43 and $ 142 for the three months ended March 31,

2022 and 2021, respectively.

Note 9 – Commitments and contingencies

Lifeway is engaged in various legal actions,

claims, audits, and proceedings arising in the normal course of business, including commercial disputes, product liabilities, intellectual

property matters and employment-related matters resulting from our business activities.

We record accruals for outstanding legal matters

when we believe it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated.

We evaluate, on

a periodic basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency

both probable and reasonably estimable.

If a loss contingency is not both probable and estimable, we do not establish an accrued liability.

Currently, none of our accruals for outstanding legal matters are material individually or in the aggregate to our financial position

and it is management’s opinion that the ultimate resolution of these outstanding legal matters will not have a material adverse

effect on our business, financial condition, results of operations, or cash flows.

However, if we ultimately are required to make payments

in connection with an adverse outcome, it is possible that it could have a material adverse effect on our business, financial condition,

results of operations or cash flows.

Lifeway’s contingencies are subject to

substantial uncertainties, including for each such contingency the following, among other factors:

(i) the procedural status of the case;

(ii) whether the case has or may be certified as a class action suit;

(iii) the outcome of preliminary motions;

(iv) the impact of discovery;

(v) whether there are significant factual issues to be determined or resolved;

(vi) whether the proceedings involve a large number of

parties and/or parties and claims in multiple jurisdictions or jurisdictions in which the relevant laws are complex or unclear;

the extent of potential damages, which are often unspecified or indeterminate;

and (viii) the status of settlement discussions, if any,

and the settlement posture of the parties.

Consequently, Lifeway cannot predict with any reasonable certainty the timing or outcome of

such contingencies, and we are unable to estimate a possible loss or range of loss.

Lifeway is involved in various legal proceedings,

claims, disputes, regulatory matters, audits, and proceedings arising in the ordinary course of, or incidental to the Company’s

business, including commercial disputes, product liabilities, intellectual property matters and employment-related matters.

Lifeway records provisions in the consolidated

financial statements for pending legal matters when it believes it is probable that a loss will be incurred and the amount of such loss

can be reasonably estimated.

The Company evaluates, on a periodic basis, developments in legal matters that could affect the amount of

any accrual and developments that would make a loss contingency both probable and reasonably estimable.

If a loss contingency is not

both probable and estimable, it does not establish an accrued liability.

Currently, none of its accruals for outstanding legal matters

are material individually or in the aggregate to its financial position and it is management’s opinion that the ultimate resolution

of these outstanding legal matters will not have a material adverse effect on its business, financial condition, results of operations,

or cash flows.

However, if the Company is ultimately required to make payments in connection with an adverse outcome, it is possible

that such contingency could have a material adverse effect on the Company’s business, financial condition, results of operations

or cash flows.

Note 10 – Income taxes

For each interim period, Lifeway estimates the

effective tax rate expected to be applicable for the full year and applies that rate to income before provision for income taxes for the

The effective tax rate for the nine months ended September 30, 2021 was 35.2 % compared to 29.3 % for the nine months ended September

The effective tax rate for the three months ended September 30, 2021 was 52.3 % compared to 29.5 % for the three months ended

September 30, 2020.

Our effective tax rate may change from period to period based on recurring and non-recurring factors including the

relative mix of pre-tax earnings (or losses), the underlying income tax rates applicable to various state and local taxing jurisdictions,

enacted tax legislation, the impact of non-deductible items, changes in valuation allowances, and the expiration of the statute of limitations

in relation to unrecognized tax benefits.

We record discrete income tax items such as enacted tax rate changes and completed tax audits

in the period in which they occur.

On March 27, 2020, the “Coronavirus Aid,

Relief, and Economic Security Act” (the CARES Act) was enacted.

The CARES act features several tax provisions and other measures

that assist businesses impacted by the economic effects of the COVID-19 pandemic.

The significant tax provisions include an increase

in the limitation of the tax deduction for interest expense from 30% to 50% of adjusted earnings in 2019 and 2020, a five-year carryback

allowance for net operating losses generated in tax years 2018-2020, increased charitable contribution limitations to 25% of taxable

income in 2020, and a retroactive technical correction to the 2017 Tax Cuts and Jobs Act that makes qualified improvement property placed

in service after December 31, 2017 eligible for bonus depreciation.

The Company has recorded a $ 245 income tax benefit related to the

net operating loss carryback provisions of the CARES Act for the nine months ended September 30, 2020.

Unrecognized tax benefits were $ 98 and $ 93 at

September 30, 2021 and 2020, respectively.

We do not expect material changes to our unrecognized tax benefits during the next twelve

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.

the outcome of tax audits cannot be predicted with certainty.

If a tax audit is resolved in a manner inconsistent with its expectations,

the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

We do not expect material

changes to our unrecognized tax benefits during the next twelve months.

Income taxes were recognized at effective rates

of 18.1 % and 31.2 %

for the three months ended March 31, 2022 and 2021, respectively.

The Company has historically calculated the provision

for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year income,

excluding unusual or infrequently occurring discrete items, for the reporting period.

In accordance with the authoritative guidance, the

Company used a discrete effective tax rate method to calculate income taxes for the quarter ended March 31, 2022 because small changes

in the estimated level and mix of annual income or loss by jurisdiction would result in significant changes in the estimated annual effective

tax rate making the historical method unreliable.

The Company’s effective

tax rate may change from period to period based on recurring and non-recurring factors including the relative mix of pre-tax earnings

(or losses), the jurisdictional mix of earnings, enacted tax legislation, state income taxes, the impact of non-deductible items, changes

in valuation allowances, settlement of tax audits, and the expiration of the statute of limitations in relation to unrecognized tax benefits.

The Company records discrete income tax items such as enacted tax rate changes and completed tax audits in the period in which they occur.

Unrecognized tax benefits were $ 0

and $ 96 at March 31, 2022 and 2021,

respectively.

The Company settled its one unrecognized tax benefit during the quarter ended March 31, 2022.

The Company does not expect

material changes to its unrecognized tax benefits during the next twelve months.

However, the outcome of tax audits cannot be predicted

with certainty.

If a tax audit is resolved in a manner inconsistent with its expectations, the Company could be required to adjust its

provision for income taxes in the period such resolution occurs.

Note 11 – Stock-based and Other Compensation

1 unchanged sentence

the 2015 Omnibus Incentive Plan, which authorized the issuance of an aggregate of 3.5 million shares to satisfy awards of stock options,

stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units to

qualifying employees.

Under the Plan, the Board or its Audit and Corporate Governance Committee approves stock awards to executive officers

and certain senior executives, generally in the form of restricted stock or performance shares.

The number of performance shares that

participants may earn depends on the extent to which the corresponding performance goals have been achieved.

Stock awards generally vest

over a three-year performance or service period.

At September 30, 2021, 3.281 million shares remain available under the Omnibus Incentive

While we plan to continue to issue awards pursuant to the Plan at least annually, we may choose to suspend the issuance of new

awards in the future and may grant additional awards at any time including issuing special grants of restricted stock, restricted stock

units, and stock options to attract and retain new and existing executives.

stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units to qualifying

Under the Plan, the Board or its Audit and Corporate Governance Committee approves stock awards to executive officers and certain

senior executives, generally in the form of restricted stock or performance shares.

The number of performance shares that participants

may earn depends on the extent to which the corresponding performance goals have been achieved.

Stock awards generally vest over a three-year

performance or service period.

At March 31, 2022, 3.281 million shares remain available under the Omnibus Incentive Plan.

While the Company

plans to continue to issue awards pursuant to the Plan at least annually, it may choose to suspend the issuance of new awards in the future

and may grant additional awards at any time including issuing special grants of restricted stock, restricted stock units, and stock options

to attract and retain new and existing executives.

Stock Options

The following table summarizes stock option activity during the nine

months ended September 30, 2021:

Stock option activity table

The following table summarizes stock option activity during the three

months ended March 31, 2022:

Schedule of stock option activity

exercise price

2 unchanged sentences

Outstanding at December 31, 2021

Outstanding at September 30, 2021

Exercisable at September 30, 2021

Outstanding at March 31, 2022

Exercisable at March 31, 2022

As of December 31, 2019, all outstanding options

1 unchanged sentence

Restricted Stock Awards

A Restricted Stock Award (“RSA”)

represents the right to receive one share of common stock in the future.

A Restricted Stock Award (“RSA”) represents

the right to receive one share of common stock in the future.

RSAs have no exercise price.

The grant date fair value of the

awards is equal to our closing stock price on the grant date.

The following table summarizes RSA activity during the three months ended

September 30, 2021.

RSA activity table

The grant date fair value of the awards is

equal to the Company’s closing stock price on the grant date.

Lifeway expenses RSAs over the service period.

Board members may elect

to defer receipt of their awards until their departure from the Board of Directors, subject to shareholder ratification at the 2022 annual

shareholders meeting.

The following table summarizes RSA activity during the three months ended March 31, 2022.

Schedule of RSA Activity

Restricted Stock Awards

Weighted Average Grant Date Fair Value

Outstanding at December 31, 2021

Shares issued upon vesting

Outstanding at September 30, 2021

Weighted average grant date fair value per share outstanding

We expense RSA’s over the service period.

For the nine months ended September 30, 2021 and 2020 total pre-tax stock-based compensation expense recognized in the consolidated statements

of operations was $ 106 and $ 51 , respectively.

For the nine months ended September 30, 2021 and 2020 tax-related benefits of $ 31 and $ 14 ,

Outstanding at March 31, 2022

Vested and deferred at March 31, 2022

For the three months ended March 31, 2022 and

2021 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ 63

respectively.

For the three months ended March 31, 2022 and 2021 tax-related benefits of $ 18

respectively, were also recognized.

For the three months ended September 30, 2021 and 2020 total pre-tax stock-based compensation expense

recognized in the consolidated statements of operations was $ 37 and $ 28 , respectively.

For the three months ended September 30, 2021 and

2020 tax-related benefits of $ 11 and $ 8 , respectively, were also recognized.

As of September 30, 2021, the total remaining unearned compensation

related to non-vested RSA’s was $ 159 , which is expected to be amortized over the weighted-average remaining service period of 1.38

Future compensation expense related to restricted stock awards was $ 135

as of March 31, 2022 and will be recognized on a weighted average basis over the next 1.12

Long-Term Incentive Plan Compensation

Lifeway established long-term incentive-based

compensation programs for fiscal year 2017 (the “2017 Plan”), fiscal year 2019 (the “2019 Plan”), and for fiscal

year 2021 (the “2021 Plan”) for certain senior executives and key employees (the “participants”).

Under the 2017

Plan, long-term incentive compensation is based on Lifeway’s achievement of certain sales and adjusted EBITDA performance levels

versus respective targets established by the Board for each fiscal year.

Under the 2019 Plan, long-term equity incentive compensation

is based on Lifeway’s achievement of four strategic milestones over a three-year period from Fiscal 2019 through Fiscal 2021.

the 2021 Plan, long-term incentive compensation is based on Lifeway’s achievement of adjusted EBITDA performance versus the respective

target established by the Board for 2021.

Under the 2017 Plan, collectively the participants

had the opportunity to earn cash and equity-based incentive compensation in amounts ranging from $0 to $11,025 depending on Lifeway’s

performance levels compared to the respective targets and the participants performance compared to their individual objectives.

portion of the incentive compensation is payable in restricted stock that vests one-third in each of the three years from the 2017 grant

For the nine months ended September 30, 2021 and 2020, $ 0 and $ 49 was expensed under the 2017 Plan as stock-based compensation

expense in the consolidated statements of operations, respectively.

For the three months ended September 30, 2021 and 2020, $ 0 was expensed

as stock-based compensation expense in the consolidated statements of operations, respectively.

As of September 30, 2021, there was no

remaining expense.

Under the 2019 Plan, collectively the participants

can earn equity-based incentive compensation in amounts ranging from $0 to $1,776 depending on Lifeway’s performance levels compared

to the respective targets.

The equity-based incentive compensation is payable in restricted stock that vests 50% of unvested shares in

year one, 50% of unvested shares in year two, and 100% of remaining unvested shares in year three from the 2019 grant date.

months ended September 30, 2021 and 2020, $ 89 and $ 90 was expensed under the 2019 Plan as stock-based compensation expense in the consolidated

statements of operations, respectively.

For the three months ended September 30, 2021 and 2020, $ 35 and $ 1 was expensed as stock-based

compensation expense in the consolidated statements of operations, respectively.

2019 Retention Award

During Q1 2019, we awarded a special retention

grant (the “2019 Retention Award”) of restricted stock to certain senior executives and key employees (the “participants”).

The equity-based incentive compensation is payable in restricted stock that vests one-third in March 2019, one-third in March 2020 and

one-third in March 2021.

For the nine months ended September 30, 2021 and 2020, $ 0 and $ 73 was expensed under the 2020 Retention Award

as stock-based compensation expense in the consolidated statements of operations, respectively.

For the three months ended September 30,

2021 and 2020, $ 0 and $ 15 was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.

As of September 30, 2021, there was no remaining expense.

compensation programs for fiscal year 2019 (the “2019 Plan”) and for fiscal year 2021 (the “2021 Plan”) for certain

senior executives and key employees (the “participants”).

The 2019 Plan long-term equity incentive compensation is based

on Lifeway’s achievement of four strategic milestones over a three-year period from Fiscal 2019 through Fiscal 2021.

The 2021 Plan

long-term incentive compensation is based on Lifeway’s achievement of adjusted EBITDA performance versus the respective target

established by the Board for 2021.

2020 CEO Incentive Award

During the fourth quarter 2020, we awarded a long-term

equity-based incentive of $750 to our Chief Executive Officer (the “2020 CEO Award”) depending on Lifeways 2020 performance

levels compared to the respective targets.

The equity-based incentive compensation is payable in restricted stock that vests one-third

in April 2022, one-third in April 2023, and one-third in April 2024.

The issuance of vested equity awards is subject to approval under

the Stock Purchase Agreement dated October 1, 1999.

For the nine months ended September 30, 2021 and 2020, $ 255 and $ 0 was expensed as

stock-based compensation expense in the consolidated statements of operations, respectively.

For the three months ended September 30,

2021 and 2020, $ 85 and $ 0 was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.

As of September 30, 2021, the total remaining unearned compensation was $ 445 , of which $ 87 will be recognized in 2021, $ 229 in 2022, $ 105

in 2023, and $ 24 in 2024, respectively, subject to vesting.

During the fourth quarter 2020, Lifeway awarded

a long-term equity-based incentive of $ 750 to its Chief Executive Officer (the “2020 CEO Award”) depending on Lifeways 2020

performance levels compared to the respective targets.

The equity-based incentive compensation is payable in restricted stock that vests

one-third in April 2022, one-third in April 2023, and one-third in April 2024.

The issuance of vested equity awards is subject to approval

under the Stock Purchase Agreement dated October 1, 1999.

For the three months ended March 31, 2022 and 2021, $ 85 and $ 90 was expensed

as stock-based compensation expense in the consolidated statements of operations, respectively.

As of March 31, 2022, the total remaining

unearned compensation was $ 274 , of which $ 144 will be recognized in 2022, $ 106 in 2023, $ 24 in 2024, respectively, subject to vesting.

During Q2 2021, the number of shares awarded became fixed and determinable.

Therefore, the award liability was reclassified from long-term liabilities to paid in capital.

Therefore, the award liability was reclassified from long-term

liabilities to paid in capital.

2021 Equity Award

Under the 2021 Plan, collectively the participants

can earn equity-based incentive compensation in amounts ranging from $0 to $1,069 depending on Lifeway’s achievement of the respective

financial target.

The equity-based incentive compensation is payable in restricted stock that is expected to vest one-third in March

2022, one-third in March 2023, and one-third in March 2024.

For the nine months ended September 30, 2021, $ 150

was expensed under the 2021 Plan as stock-based compensation expense in the consolidated statements of operations, respectively.

For the three months ended September 30, 2021, $ 150

was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.

As of September 30,

Under the 2021 Plan, collectively the

participants can earn equity-based incentive compensation in amounts ranging from $ 0

depending on Lifeway’s achievement of the respective financial target.

The equity-based incentive compensation is payable in

restricted stock that is expected to vest one-third in March 2022, one-third in March 2023, and one-third in March 2024.

three months ended March 31, 2022 and 2021, $ 166

and $0 was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.

As of March 31,

2022, the total remaining unearned compensation was $ 516 ,

2 unchanged sentences

in 2023, $ 39

in 2023, and $ 28

in 2024, respectively, subject to vesting.

As of September 30, 2021, the number of shares to be awarded is not fixed and determinable.

Therefore, the liability is classified in accrued expenses and other long-term liabilities as of September 30, 2021.

When the number

of shares awarded becomes fixed and determinable, the award liability will be reclassified from liabilities to paid in capital.

As of March 31, 2022, the number of shares to be awarded is not fixed and determinable.

Therefore, the liability is classified in accrued expenses and other long-term liabilities as of March 31, 2022.

When the number of

shares awarded becomes fixed and determinable, the award liability will be reclassified from liabilities to paid in capital.

Retirement Benefits

1 unchanged sentence

is available to substantially all full-time employees.

Under the terms of the plan, we match employee contributions under a prescribed

For the nine months ended September 30, 2021 and 2020 total contribution expense recognized in the consolidated statements of

operations was $ 315 and $ 307 , respectively.

For the three months ended September 30, 2021 and 2020 total contribution expense recognized

in the consolidated statements of operations was $ 97 and $ 93 , respectively.

Note 12 – Segments, Products and Customers

Lifeway’s 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.

We manufacture (directly or through co-packers)

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

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.

Under the terms of the plan, the Company matches employee contributions under a

prescribed formula.

For the three months ended March 31, 2022 and 2021 total contribution expense recognized in the consolidated statements

of operations was $ 129 and $ 113 , respectively.

– Products and Customers

Lifeway’s primary product is drinkable kefir.

The Company manufactures (directly or through a co-manufacturer) and markets products under the Lifeway, Fresh Made, and GlenOaks Farms

brand names, as well as under private labels on behalf of certain customers.

The Company’s product categories are:

Drinkable Kefir, a cultured dairy product 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.

Cream and other, which primarily consists of cream, a byproduct of raw milk processing.

Drinkable Yogurt, sold in a variety of sizes and flavors.

Other Dairy, which includes

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

Frozen Kefir, available

in soft serve and pint-size containers.

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

our 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.

Net sales of products by category were as follows

for the nine months ended September 30:

ProBugs, a line of kefir products designed for children.

Other Dairy, which primarily consists of Fresh Made butter and sour cream.

Net sales by product category were as

follows for the three months ended March 31:

Schedule of sales of products by category

1 unchanged sentence

Cream and other

ProBugs Kefir

Drinkable yogurt

Frozen Kefir (a)

Includes Lifeway Kefir

Net sales of products by category were as follows

for the three months ended September 30:

Drinkable Kefir other than ProBugs

Cream and other

ProBugs Kefir

Drinkable yogurt

Frozen Kefir (a)

Includes Lifeway Kefir

Significant Customers – Sales

1 unchanged sentence

Two major customers accounted for approximately

23 % and 21 % of net sales for the nine months ended September 30, 2021 and 2020, respectively.

Two major customers accounted for approximately

23 % and 22 % of net sales for the three months ended September 30, 2021 and 2020, respectively.

21 % and 22 % of net sales for the three months ended March 31, 2022 and 2021, respectively.

Note 13 – Related Party Transactions

Lifeway obtains consulting services from the

Chairperson of its board of directors.

Lifeway obtains consulting services from the Chairperson

of its Board of Directors.

On December 28, 2020, Lifeway entered into an amended and restated consulting agreement (the “Agreement”),

1 unchanged sentence

Under the terms and conditions of the Agreement, the Chairperson will continue

to provide consulting services with respect to, among other things, our business strategy, international expansion and product management

and expansion.

to provide consulting services with respect to, among other things, the Company’s business strategy, international expansion and

product management and expansion.

For the services, the Company will pay an annual service fee of $ 500 .

The Chairperson will also be eligible for an annual

performance fee target of $500 based on the achievement of specified performance criteria.

The Chairpersons annual service fee and target

bonus amounts are subject to periodic change by the Compensation Committee of the Company’s Board of Directors on 30 days’

prior written notice to the Chairperson.

The Agreement shall continue until either party provides at least a 10-day written notice of

Service fees earned by the Chairperson are included

in general and administrative expenses in the accompanying consolidated statements of operations and were $ 375 and $ 750 during each of

the nine months ended September 30, 2021 and 2020, respectively.

Service fees earned are included in general and administrative expenses

in the accompanying consolidated statements of operations and were $ 125 and $ 250 during each of the three months ended September 30, 2021

and 2020, respectively.

During the nine months ended September 30, 2021, the Company recorded $ 282 related to estimated earnings under

the fiscal year 2021 annual performance fee target.

During the three months ended September 30, 2021, the Company recorded $ 94 related

to estimated earnings under the fiscal year 2021 annual performance fee target.

This amount is included in general and administrative

expenses in the accompanying consolidated statements of operations.

The Chairperson will also be eligible

for an annual performance fee target of $ 500 based on the achievement of specified performance criteria.

The Chairpersons annual service

fee and target bonus amounts are subject to periodic change by the Compensation Committee of the Company’s Board of Directors on

30 days’ prior written notice to the Chairperson.

The Agreement shall continue until either party provides at least a 10-day written

notice of termination.

On January 4, 2022, the Company notified the Chairperson that it was terminating the agreement effective January

The Chairperson will continue as Chairperson of the Board of Directors.

Service fees earned are included in general and

administrative expenses in the accompanying consolidated statements of operations and were $ 22

and $ 125 during

each of the three months ended March 31, 2022 and 2021, respectively.

Lifeway is also a party to a royalty agreement

with the Chairperson of its board of directors under which we pay the Chairperson a royalty based on the sale of certain Lifeway products,

with the Chairperson of its Board of Directors under which it pays the Chairperson a royalty based on the sale of certain Lifeway products,

not to exceed $ 50 in any fiscal month.

Royalties earned by the Chairperson are included in selling expenses in the accompanying consolidated

statements of operations and were $ 450 during the nine months ended September 30, 2021 and 2020.

Royalties earned are included in selling

expenses in the accompanying consolidated statements of operations and were $ 150 during each of the three months ended September 30, 2021

Note 14 – COVID-19

The ultimate impact that the COVID-19 pandemic or any future pandemic

or disease outbreak will have on our business and our consolidated results of operations is uncertain.

have seen increased customer and consumer demand for our products as consumers initially began pantry loading and have increased their

at-home consumption as a result of social distancing and stay-at-home and work-from-home mandates and recommendations.

However, this

increased customer and consumer demand may decrease in the coming months if and when the need for social distancing and stay-at-home

and work-from-home mandates and recommendations decrease, and we are unable to predict the nature and timing of when that impact may

occur, if at all.

date we have not experienced supply chain constraints, and we have continued to be able to fully satisfy customer and consumer demand

for our products, the continued unprecedented demand for food and other consumer packaged goods products as a result of the COVID-19

pandemic or any future pandemic may limit the availability of, or increase the cost of, ingredients, packaging and other raw materials

necessary to produce our products, and our operations may be negatively impacted.

Additionally, pandemics or disease outbreaks could

result in a widespread health crisis that could adversely affect economies and financial markets, consumer spending and confidence levels

resulting in an economic downturn that could affect customer and consumer demand for our products.

to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control,

including the duration and severity of any pandemic or disease outbreak, as well as third party actions taken to contain its spread and

mitigate public health effects.

impact of the COVID-19 pandemic on our business will depend on many factors, including, among others, the duration of social distancing

and stay-at-home and work-from-home mandates and recommendations and whether additional waves of COVID-19 or different variants of COVID-19

will affect the United States and other markets, our ability and the ability of our suppliers to continue to operate our and their manufacturing

facilities and maintain the supply chain without material disruption and procure ingredients, packaging and other raw materials when

needed despite unprecedented demand in the food industry, and the extent to which macroeconomic conditions resulting from the pandemic

and the pace of the subsequent recovery may impact consumer eating and shopping habits.

We cannot predict the duration or scope of the

Therefore, the financial impact cannot be reasonably estimated at this time.

Note 15 – Business Acquisition

On August 18, 2021, the Company completed the acquisition of certain

assets of GlenOaks Farms Inc.

for a purchase price of $ 5,800 in cash.

Glen Oaks is engaged in the manufacture, development, and sale of

probiotic drinkable yogurt.

The acquisition of GlenOaks Farms initiates Lifeway’s expansion outside of kefir and into drinkable

The current distribution of GlenOaks Farms in western U.S.

retailers is strategically significant for Lifeway as the Company seeks

to further grow its presence in this region.

From a portfolio perspective, it complements the Company’s eastern U.S.

presence with

the Freshmade brand and national strength with Lifeway.

The acquisition was funded through the proceeds of a $ 5,000 note payable (see

Note 7) and the Company’s existing cash resources.

Management considers the purchase of

Glenoaks Farms Inc.

to consist of inputs, processes and outputs and has accounted for the purchase as a business combination.

acquisition was accounted for under the acquisition method of accounting and the results of operations were included in our

consolidated statement of operations from the date of acquisition.

Included in the Company’s consolidated statements of

operations are the acquisition’s net sales of $ 739

and income before income taxes of approximately $ 112

from the date of acquisition through September 30, 2021.

The Company incurred approximately $ 83

in acquisition-related costs which are expensed as incurred and included in general and administrative expense on the consolidated

statement of operations.

Pro-forma results of operation have not been presented as the effect would not be material to the

Company’s results of operations for any periods presented.

The following table

summarizes the preliminary purchase price allocation of the fair value of intangible assets acquired and liabilities assumed:

Schedule of purchase price allocation

Customer relationships

Assets acquired

Liabilities assumed

Total purchase price

The purchase price allocation

in the table above is preliminary and subject to the finalization of the Company’s valuation analysis.

The fair value for the customer

relationships at the acquisition date were determined using the excess earnings method under the income approach.

The brand name fair

value was determined using the relief from royalty method.

The customer relationship and brand name intangible assets have an estimated

life of 15 years and will be amortized over that period.

The fair value measurements of intangible assets are based on significant unobservable

inputs, and thus represent Level 3 inputs.

Significant assumptions used in assessing the fair values of intangible assets include discounted

future cash flows, customer attrition rates, and royalty rates.

Goodwill arises principally as a result of category expansion opportunities

to better serve its regional and national customers.

The goodwill resulting from the acquisition is tax deductible.

Royalties earned are included in selling expenses in the accompanying consolidated statements of

operations and were $ 150 during each of the three months ended March 31, 2022 and 2021.

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-Q

Item 1. Financial Statements