What changed in this filing

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Item 1. Financial Statements

2022-09-26 compared with 2022-08-26 · 197 added, 189 removed, 404 unchanged (49% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

March 31, 2022 and December 31, 2021

June 30, 2022 and December 31, 2021

(In thousands)

1 unchanged sentence

Cash and cash equivalents

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

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,220 and $ 1,170 at June 30, 2022 and December 31, 2021 respectively

Inventories, net

4 unchanged sentences

Operating lease right-of-use asset

Intangible assets

Intangible assets, net

Total intangible assets

Current liabilities

13 unchanged sentences

2,500 shares authorized;

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

no shares issued or outstanding at June 30, 2022 and December 31, 2021

Common stock, no par value;

1 unchanged sentence

17,274 shares issued;

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

15,473 and 15,435 outstanding at June 30, 2022 and December 31, 2021, respectively

Paid-in capital

7 unchanged sentences

Consolidated Statements of Operations

For the three months ended March 31, 2022

For the three and six months ended June 30,

2022 and 2021

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Cost of goods sold

1 unchanged sentence

Total cost of goods sold

Selling expense

General and administrative expense

Selling expenses

General and administrative

Amortization expense

Total operating expenses

(Loss) income from operations

Other (expense) income:

Income from operations

Other income (expense):

Interest expense

Gain on investments

Loss on sale of property and equipment

Other (expense) income, net

Total other (expense) income

(Loss) income before provision for income taxes

(Benefit) provision for income taxes

Net (loss) income

Total other income (expense)

Income before provision for income taxes

Provision for income taxes

Earnings (loss) per common share:

8 unchanged sentences

Balance, March 31, 2021

Issuance of common stock in connection with stock-based compensation

Stock-based compensation

Balance, June 30, 2021

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, 2022

See accompanying notes to consolidated financial

3 unchanged sentences

(In thousands)

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to

operating cash flow:

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

9 unchanged sentences

Accrued income taxes

Net cash (used in) provided by operating

Net cash (used in) provided by operating activities

Cash flows from investing activities:

34 unchanged sentences

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

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.

In the 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 and six months ended June 30, 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.

Note 2 – Summary of Significant Accounting

A detailed description of our significant accounting

12 unchanged sentences

The Company has $ 580 of restricted cash which

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

is included in cash and cash equivalents as of June 30, 2022.

The restricted cash balance represents escrow funds deposited by Lifeway

4 unchanged sentences

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

Revenue recognition

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

in exchange for these goods or services, using the five-step method required by ASC 606.

For the Company, the contract is the approved

sales order, which may also be supplemented by other agreements that formalize various terms and conditions with customers.

applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the

customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining

to the customer.

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.

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.

Any taxes collected on behalf of government authorities are excluded from net revenues.

Variable consideration, which typically includes

volume-based rebates, known or expected pricing or revenue adjustments, such as trade discounts, allowances for non-saleable products,

product returns, trade incentives and coupon redemption, is estimated utilizing the most likely amount method.

Key sales terms, such as pricing and quantities

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

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

2 unchanged sentences

Total advertising expense was $ 1,738 and

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

$ 2,166 for the six months ended June 30, 2022 and 2021, respectively.

For the three months ended June 30, 2022 and 2021 total advertising

expenses were $ 533 and $ 773 , respectively.

The Company is managed as a single reportable

48 unchanged sentences

Management is currently evaluating the impact that the new guidance

will have on the consolidated financial statements.

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

Note 3 – Inventories, net

18 unchanged sentences

Balance at December 31, 2021

Balance at March 31, 2022

Balance at June 30, 2022

Intangible Assets

1 unchanged sentence

Schedule of finite-lived intangible assets

March 31, 2022

June 30, 2022

December 31, 2021

6 unchanged sentences

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.

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.

The 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 1, 2022.

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:

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 June 30, 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

Six months ended December 31, 2022

Note 6 – Accrued Expenses

9 unchanged sentences

Term loan due August 18, 2026.

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

Interest (3.55% at June 30, 2022) payable monthly.

Unamortized deferred financing costs

3 unchanged sentences

The scheduled maturities of the term loan, excluding deferred financing

costs, at March 31, 2022 are as follows:

costs, at June 30, 2022 are as follows:

Schedule of maturities of long-term debt

Nine months ended December 31, 2022

Six months ended December 31, 2022

Total term loan

7 unchanged sentences

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.

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.

As amended, all outstanding amounts under the

4 unchanged sentences

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 the Company’s assets.

representations, warranties, and covenants, including financial covenants requiring the Company 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 the Company’s assets.

Lifeway was in compliance with the fixed charge

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

coverage ratio and minimum working capital covenants at June 30, 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 %.

As of June 30, 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

June 30, 2022.

Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility as of June 30, 2022 was 3.07 %.

Note 8 – Leases

18 unchanged sentences

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.

Total lease expense was $ 147 and $ 169 (including short term leases) for the six months ended June 30, 2022 and 2021, respectively.

Total lease expense was $ 82 and $ 91 (including short term leases) for the three months ended June 30, 2022 and 2021, respectively.

Right-of-use assets and lease liabilities are

9 unchanged sentences

Operating Leases

Nine months ended March 31, 2022

Six months ended June 30, 2022

Total lease payments

1 unchanged sentence

The weighted-average remaining lease term for

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,

its operating leases was 2.39 years as of June 30, 2022.

The weighted average discount rate of its operating leases was 13.33 % as of June

Cash paid for amounts included in the measurement of lease liabilities was $ 85 and $ 107 for the six months ended June 30, 2022

and 2021, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 42 and $ 52 for the three months ended

June 30, 2022 and 2021, respectively.

Note 9 – Commitments and contingencies

7 unchanged sentences

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

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.

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

Note 10 – Income taxes

Income taxes were recognized at effective rates

of 18.1 % and 31.2 %

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

of 14.5 % and 31.2 % for the six months ended June 30, 2022 and 2021, respectively.

The effective tax rate for the three months ended June

30, 2022 was 35.3 % compared to 31.1 % for the three months ended June 30, 2022.

The Company has historically calculated the provision

2 unchanged sentences

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.

Company used a discrete effective tax rate method to calculate income taxes for the quarter and year to date periods ended June 30, 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 $ 97 at June

30, 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.

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

8 unchanged sentences

performance or service period.

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

At June 30, 2022, 3.248 million shares remain available under the Omnibus Incentive Plan.

While the Company

3 unchanged sentences

Stock Options

The following table summarizes stock option activity during the three

months ended March 31, 2022:

The following table summarizes stock option activity during the six

months ended June 30, 2022:

Schedule of stock option activity

3 unchanged sentences

Outstanding at December 31, 2021

Outstanding at March 31, 2022

Exercisable at March 31, 2022

Outstanding at June 30, 2022

Exercisable at June 30, 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 the Company’s closing stock price on the grant date.

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.

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 six months ended June 30, 2022.

Schedule of RSA Activity

3 unchanged sentences

Shares issued upon vesting

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.

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

Outstanding at June 30, 2022

Vested and deferred at June 30, 2022

For the six months ended June 30,2022 and 2021

total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ 127 and $ 69 , respectively.

For the six months ended June 30,2022 and 2021 tax-related benefits of $ 35 and $ 20 , respectively, were also recognized.

For the three

months ended June 30, 2022 and 2021 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations

was $ 64 and $ 33 , respectively.

For the three months ended June 30, 2022 and 2021 tax-related benefits of $ 17 and $ 9 , respectively, were

also recognized.

Future compensation expense related to restricted stock awards was $ 72 as of June 30, 2022 and will be recognized on

a weighted average basis over the next 1.20 years.

Long-Term Incentive Plan Compensation

2 unchanged sentences

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 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.

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

6 unchanged sentences

under the Stock Purchase Agreement dated October 1, 1999.

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

For the six months ended June 30, 2022 and 2021, $ 142 and $ 170 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.

For the three months ended June 30, 2022

and 2021, $ 57 and $ 80 was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.

of June 30, 2022, the total remaining unearned compensation was $ 217 , of which $ 87 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

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

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 six months ended June 30, 2022 and 2021, $ 278 and $ 0 was expensed as stock-based

compensation expense in the consolidated statements of operations, respectively.

For the three months ended June 30, 2022 and 2021, $ 112

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 ,

of which $ 283

will be recognized in 2022, $ 194

in 2023, $ 39

in 2024, respectively, subject to vesting.

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.

As of June 30, 2022,

the total remaining unearned compensation was $ 404 , of which $ 171 will be recognized in 2022, $ 194 in 2023, $ 39 in 2024, respectively,

subject to vesting.

During Q2 2022, the number of shares awarded became fixed and determinable.

Therefore, the award liability was reclassified

from long-term liabilities to paid in capital.

Retirement Benefits

3 unchanged sentences

prescribed formula.

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

For the six months ended June 30, 2022 and 2021 total contribution expense recognized in the consolidated statements

of operations was $ 231 and $ 218 , respectively.

– Products and Customers

For the three months ended June 30, 2022 and 2021 total contribution expense recognized

in the consolidated statements of operations was $ 102 and $ 105 , respectively.

Note 12 – Products and Customers

Lifeway’s primary product is drinkable kefir.

8 unchanged sentences

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:

Net sales by product category were as follows

for the six months ended June 30:

Schedule of sales of products by category

3 unchanged sentences

ProBugs Kefir

Net sales of products by category were as follows

for the three months ended June 30:

Drinkable Kefir other than ProBugs

Cream and other

Drinkable yogurt

ProBugs Kefir

Significant Customers – Sales

1 unchanged sentence

Two major customers accounted for approximately

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

22 % of net sales for the six months ended June 30, 2022 and 2021.

Two major customers accounted for approximately 22 % and 23 % of net sales

for the three months ended June 30, 2022 and 2021, respectively.

Note 13 – Related Party Transactions

14 unchanged sentences

notice of termination.

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

On January 4, 2022, the Company notified the Chairperson

that it was terminating the agreement effective January 17, 2022.

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 it pays the Chairperson a royalty based on the sale of certain Lifeway products,

administrative expenses in the accompanying consolidated statements of operations and were $ 22 and $ 250 during each of the six months

ended June 30, 2022 and 2021, respectively.

Service fees earned are included in general and administrative expenses in the accompanying

consolidated statements of operations and were $ 0 and $ 125 during each of the three months ended June 30, 2022 and 2021, respectively.

Lifeway is also a party to an endorsement agreement, dated as March

14, 2016, by and between the Company and Ludmila Smolyansky, a member of the Company’s Board of Directors and former Chairperson

of its Board of Directors (the “Endorsement Agreement”) 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 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.

operations and were $ 300 during each of the six months ended June 30, 2022 and 2021.

Royalties earned were $ 150 during each of the three

months ended June 30, 2022 and 2021.

Note 14 – Subsequent Events

On September 6, 2022, the Company entered into

an agreement (the “Termination Agreement”) with Ludmila Smolyansky to terminate the Endorsement Agreement.

Pursuant to the Termination

Agreement, the Company and Ms.

Smolyansky have agreed, among other things, that (i) the Company will pay Ms.

Smolyansky a lump sum payment

of $400,000, (ii) Ms.

Smolyansky will no longer have any further claims against the Company

under the Endorsement Agreement, and (iii) the Endorsement Agreement was terminated as of September 6, 200 and of no further force or

effect except for the provisions thereof that expressly survive termination.

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