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Item 8. Financial Statements and Supplementary Data

2023-03-27 compared with 2022-07-21 · 539 added, 860 removed, 506 unchanged (73% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

of Independent Registered Accounting Firm (PCAOB ID 199 )

STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Accounting Firm (PCAOB ID 199)

Report of Independent Registered Accounting Firm (PCAOB

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations

for the Years Ended December 31, 2021 and 2020 (as restated)

Consolidated Statements of

Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 (as restated)

Consolidated Statements of Cash Flows

for the Years Ended December 31, 2021 and 2020 (as restated)

Notes to Consolidated Financial

Statements (as restated)

Report of Independent Registered Public

Accounting Firm

Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting

To the Board of Directors and

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We have audited the accompanying consolidated

balance sheets of Lifeway Foods, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated

statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021,

and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present

fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations

and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally

accepted in the United States of America.

Restatement of the 2020 Financial Statements

As discussed in Note 1, the 2020 financial statements

have been restated to correct a misstatement.

balance sheet of Lifeway Foods, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statement

of operations, stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred

to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the

financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December

31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

As part of our audit we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

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Accordingly, we express no such opinion.

Our audits included performing procedures to assess

Our audit included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

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the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audit provide a reasonable basis for our opinion.

/s/ Mayer Hoffman McCann P.C.

We have served as the Company's auditor since 2015, which ended in 2022

Chicago, Illinois

July 21, 2022

Report of Independent Registered Public Accounting

Board of Directors and Stockholders

Lifeway Foods, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Lifeway

and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of operations, stockholders’

equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December

31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles

generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public

accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to

be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations

of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free

of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit

of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control

over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control

over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material

misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures

included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included

evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation

of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical audit matters

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We determined that there are no critical audit matters.

/s/ Mayer Hoffman McCann P.C.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2022.

Chicago, Illinois

July 21, 2022

March 27, 2023

LIFEWAY FOODS, INC.

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(In thousands)

(As Restated)

Current assets

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Operating lease right-of use asset

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Total intangible assets

Intangible assets, net

Current liabilities

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Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 9)

Stockholders’ equity

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(In thousands, except per share data)

(As Restated)

Cost of goods sold

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AND SUBSIDIARIES

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

For the Years Ended December 31, 2022 and 2021

(In thousands)

Balance, January 1, 2020 (As Restated)

Cumulative impact of change in accounting principles, net of tax

Balance, January 1, 2021

Treasury stock purchased

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(In thousands)

(As Restated)

Cash flows from operating activities:

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Accrued expenses

Operating lease asset amortization/liability

Accrued income taxes

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Purchases of property and equipment

Proceeds from sale of property and equipment

Acquisition, net of cash acquired

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Repayment of note payable

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

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Non-cash investing activities

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

Increase in right-of-use assets and operating lease obligations

Business acquisition escrow payable

Non-cash financing activities

Issuance of common stock under equity incentive plans

See accompanying notes to consolidated financial

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notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The consolidated financial statements include all of the assets, liabilities and results of operations of Lifeway’s wholly owned

subsidiaries (collectively “Lifeway” or the “Company”).

All inter-company balances and transactions have been

eliminated in the consolidated financial statements.

Restatement of Previously Issued Consolidated

Financial Statements

Lifeway has restated herein its consolidated financial

statements as of and for the year ended December 31, 2020.

In addition, the Company has restated its unaudited quarterly consolidated

financial statements for the first three quarters of the years ended December 31, 2020 and 2021, as presented in Note 17 – Correction

of previously issued unaudited consolidated financial statements.

Lifeway has also restated impacted amounts within the notes to the consolidated

financial statements, as applicable.

Restatement Background

During the preparation of the fiscal 2021 consolidated

financial statements, the Company identified an error in the accounting for its deferred income tax liabilities and goodwill.

Specifically,

in connection with its 2009 acquisition of Fresh Made, Inc., the Company did not record a deferred income tax liability and corresponding

increase to goodwill related to the difference in the book and income tax bases for the $3,700 Fresh Made indefinite-lived brand name

intangible asset acquired.

The error resulted in a $1,180 understatement- of both deferred income tax liabilities and goodwill of as of

January 1, 2020.

The Restatement had no impact on the Company’s Consolidated Statements of Operations, Consolidated Statements of

Cash Flows, or Consolidated Statements of Stockholders’ Equity during 2021 and 2020.

The impact of the Restatement on periods prior

to 2020 had no effect on opening retained earnings as of January 1, 2020.

The following table summarizes the impact of the

restatement adjustments on the Consolidated Balance Sheet for the year ended December 31, 2020.

Schedule of restatement adjustments

December 31, 2020

As Previously Reported

Restatement Adjustment

Current assets

Cash and cash equivalents

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

Inventories, net

Prepaid expenses and other current assets

Refundable income taxes

Total current assets

Property, plant and equipment, net

Operating lease right-of use asset

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Total intangible assets

Current liabilities

Accounts payable

Accrued expenses

Accrued income taxes

Total current liabilities

Line of credit

Operating lease liabilities

Deferred income taxes, net

Other long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity

Preferred stock, no par value;

2,500 shares authorized;

Common stock, no par value;

40,000 shares authorized;

17,274 shares issued;

15,604 shares outstanding at 2020

Paid-in capital

Treasury stock, at cost

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

The consolidated financial statements include all of the assets, liabilities and results of operations of Lifeway Foods, Inc.

wholly owned subsidiaries (collectively “Lifeway” or the “Company”).

All inter-company balances and transactions

have been eliminated in the consolidated financial statements.

Note 2 – Summary of significant accounting

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During the fourth quarter of 2021, the Company

completed an assessment of the useful life of its 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 will be effective January 1, 2022, at which

time the Company will begin amortizing the asset over 15 years.

The future amortization expense is included in the five-year intangible

asset amortization table in Note 5 – Goodwill and Intangible Assets.

completed an assessment of the useful life of its $ 3,700 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 asset over 15 years.

The future amortization expense is included in the five-year intangible asset amortization table in Note 5 – Goodwill and

Intangible Assets.

Going Concern

The Company follows the guidance in Accounting

Standards Codification (“ASC”) 205-40, Presentation of Financial Statements - Going Concern which requires management to assess

an entity’s ability to continue as a going concern and to provide related disclosure in certain circumstances.

There were no conditions

or events, when considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern

within one year after the date the financial statements are issued.

The Company follows the guidance in Accounting Standards

Codification (“ASC”) 205-40, Presentation of Financial Statements - Going Concern which requires management to assess an entity’s

ability to continue as a going concern and to provide related disclosure in certain circumstances.

There were no conditions or events,

when considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within

one year after the date the financial statements are issued.

Cash and cash equivalents

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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.

The Company places its cash and cash equivalents with high

credit quality financial institutions.

Lifeway has not experienced any losses in such accounts and believes the financial risks associated

with these financial instruments are minimal.

The Company has $ 580 of restricted cash which

is included in cash and cash equivalents as of December 31, 2021.

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.

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 sellers.

Lifeway from time to time may have bank deposits in

excess of insurance limits of the Federal Deposit Insurance Corporation.

The Company places its cash and cash equivalents with high credit

quality financial institutions.

Lifeway has not experienced any losses in such accounts and believes the financial risks associated with

these financial instruments are minimal.

The Company has no restricted cash as of December

The Restricted cash escrow funds of $ 580 were deposited by Lifeway in connection with the September 18, 2021 acquisition of

certain assets of Glen Oaks Farms, Inc.

The funds are security for the liability and indemnity obligations of seller as defined under

the asset purchase agreement.

The escrow funds were remitted to the sellers in August 2022.

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.

Lifeway sells food and beverage products across select

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

The Company also

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

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

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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.

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.

The Company 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 and beverage products

which provide immediate benefit to the customer.

Lifeway accounts for product shipping and handling

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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

Variable consideration, which includes 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.

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

and its inventory policies.

It generally does

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

Accounts Receivable

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The Company does not charge interest on past due accounts receivable.

Inventories are stated at the lower of cost or

net realizable value, valued on a first in, first out basis (“FIFO”).

The costs of finished goods inventories include raw

materials, direct labor, and overhead costs.

Inventories are stated at the lower of cost or net

realizable value, valued on a first in, first out basis (“FIFO”).

The costs of finished goods inventories include raw materials,

direct labor, and overhead costs.

Inventories are stated net of reserves for excess or obsolete inventory.

Property, plant and equipment

Property, plant and equipment are recorded at

Property, plant and equipment are recorded at cost.

Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets as follows:

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Intangible Assets

Goodwill and indefinite-lived intangible assets

Goodwill represents the excess purchase price

over the fair value of the net tangible and other identifiable intangible assets acquired.

Lifeway estimates the fair value of its one

reporting unit annually (as of December 31), or more frequently if certain conditions exist, using a combination of the fair values derived

from both the income approach and the market approach.

Under the income approach, it calculates the fair value of a reporting unit based

on the present value of estimated future cash flows.

Cash flow projections are based on the Company’s estimates of revenue growth

rates and operating margins, taking into consideration industry and market conditions.

The discount rate used to determine the present

value of future cash flows is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific

Goodwill represents the excess purchase price over

the fair value of the net tangible and other identifiable intangible assets acquired.

Lifeway estimates the fair value of its one reporting

unit annually (as of December 31), or more frequently if certain conditions exist, using a combination of the fair values derived from

both the income approach and the market approach.

Under the income approach, it calculates the fair value of a reporting unit based on

the present value of estimated future cash flows.

Cash flow projections are based on the Company’s estimates of revenue growth rates

and operating margins, taking into consideration industry and market conditions.

The discount rate used to determine the present value

of future cash flows is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific

characteristics and the uncertainty related to the business's ability to execute on the projected cash flows.

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value to determine if impairment is necessary.

Lifeway assesses whether indefinite-lived intangible

asset impairment exists using both qualitative and quantitative assessments annually in the fourth quarter or more frequently, if certain

conditions exist.

The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely

than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount.

If, based on this qualitative assessment,

the Company determines it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying

amount or if it elects not to perform a qualitative assessment, a quantitative assessment is performed to determine whether an indefinite-lived

intangible asset impairment exists.

Lifeway tests the indefinite-lived intangible assets for impairment by comparing the carrying value

to the fair value based on current revenue projections of the related operations, under the relief from royalty method.

Any excess of

the carrying value over the amount of fair value is recognized as an impairment.

Any such impairment would be recognized in full in the

reporting period in which it has been identified.

Definite lived intangible assets

Intangible assets

Intangible assets acquired in a business combination

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Identifiable intangible assets with finite lives are amortized

over their estimate useful lives as follows:

over their estimated useful lives as follows:

Schedule of intangible assets useful lives

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Customer relationships

All amortization expense related to intangible assets is recorded in

Amortization expense in the consolidated statements of operations.

Amortizable intangible assets are evaluated for

impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Lifeway conducts more

frequent impairment assessments if certain conditions exist, such as a change in the competitive landscape, any internal decisions to

pursue new or different strategies, a loss of a significant customer, or a significant change in the market place including changes in

the prices paid for its products or changes in the size of the market for its products.

If an evaluation of the undiscounted cash flows

indicates impairment, the asset is written down to its estimated fair value, which is generally based on discounted future cash flows.

If the estimated remaining useful life of an intangible asset is changed, the remaining carrying amount of the intangible asset is amortized

prospectively over the revised remaining useful life.

All amortization expense related to intangible assets is recorded in Amortization

expense in the consolidated statements of operations.

Amortizable intangible assets are evaluated for impairment

whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Lifeway conducts more frequent impairment

assessments if certain conditions exist, such as a change in the competitive landscape, any internal decisions to pursue new or different

strategies, a loss of a significant customer, or a significant change in the market place including changes in the prices paid for its

products or changes in the size of the market for its products.

If an evaluation of the undiscounted cash flows indicates impairment,

the asset is written down to its estimated fair value, which is generally based on discounted future cash flows.

If the estimated remaining

useful life of an intangible asset is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the

revised remaining useful life.

Fair value measurements

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upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – Quoted prices in

active markets for identical assets or liabilities.

Level 2 – Observable inputs

other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities

Level 1 – Quoted prices in active

markets for identical assets or liabilities.

Level 2 – Observable inputs other

than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities

in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term

of the assets or liabilities.

Inputs that are generally

unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset

or liability.

Lifeway’s financial assets and liabilities

that are not carried at fair value on a recurring basis include cash and cash equivalents, accounts receivable, other receivables, accounts

Level 3 – Inputs that are

generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in

pricing the asset or liability.

Lifeway’s financial assets and liabilities that

are not carried at fair value on a recurring basis include cash and cash equivalents, accounts receivable, other receivables, accounts

payable, accrued expenses and revolving line of credit for which carrying value approximates fair value.

The Company records its investments in equity

securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable

price changes in orderly transactions for the identical or a similar investment of the same issuer.

As of December 31, 2021, and 2020,

the Company has one investment without a readily determinable fair value which is recorded at $ 1,800 in other assets on the consolidated

balance sheet.

The investment cost of $ 1,800 includes a cumulative unrealized gain of $ 1,731 resulting from an observable price

change in 2019.

There were no upward or downward adjustments to the investment cost during 2021 or 2020.

The Provision for income taxes includes federal,

state, local and foreign income taxes currently payable, and those deferred because of temporary differences between the financial statement

securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from

observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

As of December 31,

2022, and 2021, the Company has one investment without a readily determinable fair value which is recorded at $ 1,800

in other assets on the consolidated balance sheet.

The investment cost of $ 1,800

includes a cumulative unrealized gain of $ 1,731

resulting from an observable price change in 2019.

There were no upward or downward adjustments to the investment cost during 2022

The Provision for income taxes includes federal, state,

local and foreign income taxes currently payable, and those deferred because of temporary differences between the financial statement

and tax bases of assets and liabilities.

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Share-based compensation

Share-based compensation expense is recognized

for equity awards over the vesting period based on their grant date fair value.

The fair value of restricted stock awards is equal to

the closing price of Lifeway’s stock on the date of grant.

The Company does not estimate forfeitures in measuring the grant date

fair value, but rather account for forfeitures as they occur.

Share-based compensation expense is recognized for

equity awards over the vesting period based on their grant date fair value.

The fair value of restricted stock awards is equal to the

closing price of Lifeway’s stock on the date of grant.

The Company does not estimate forfeitures in measuring the grant date fair

value, but rather account for forfeitures as they occur.

The Company issues share based equity awards from treasury shares.

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reported in Selling expense in the Company’s consolidated statements of operations.

Expenditures totaled $ 3,267 and $ 2,407 for the

years ended December 31, 2021 and 2020, respectively.

Expenditures totaled $ 3,353

for the years ended December 31, 2022 and 2021, respectively.

Earnings (loss) per common share

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31, 2022 and 2021, there were 322 and 236 common stock equivalents outstanding, respectively.

The Company is managed as a single reportable segment.

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

Issued by not yet effective

In October 2021, the FASB issued ASU No.

Issued but 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 does not expect the adoption of this ASU

to have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU No.

Reference Rate Reform (Topic 848):

2020-04, Reference

Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The new guidance provides

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 currently evaluating the impact

that the new guidance will have on the consolidated financial statements.

The new guidance provides 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 will adopt this new guidance effective January

1, 2023, and does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No.

Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, in November 2018 issued

an amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and in November 2019 issued

two amendments, ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic

Effective Dates, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses.

of new guidance amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than

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.

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

approach depending on the subtopic.

The guidance is effective for annual periods beginning after December 15, 2022, including interim

periods within those fiscal years, with early adoption permitted.

Management is currently evaluating the impact that the new guidance

will have on the consolidated financial statements.

2016-13, Financial

Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, in November 2018 issued an amendment,

ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and in November 2019 issued two amendments,

ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Dates, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses.

The series of new guidance

amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than 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.

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

on the subtopic.

The guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those

fiscal years, with early adoption permitted.

Management does not expect the adoption of this ASU to have a material impact on its consolidated

financial statements.

Note 3 – Inventories, net

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Note 5 – Goodwill and Intangible Assets

Prior year amounts have been restated to reflect

the correction of errors discussed in Note 1 – Basis of presentation.

Changes in the carrying amount of goodwill and indefinite-lived

intangible assets for the years ended December 31, 2021 and 2020 are as follows:

Goodwill consisted of the following:

Schedule of goodwill and indefinite-lived intangible assets

Balance at December 31, 2020, before accumulated impairment loses (As Restated)

Accumulated impairment loses

Balance at December 31, 2020 (As Restated)

Acquisition (1)

Balance at December 31, 2021, before accumulated impairment loses

Accumulated impairment losses

Balance at December 31, 2021

Refer to Note 16 for additional information regarding acquisition-related adjustments to goodwill

Balance at December 31, 2022

The Company performed the annual impairment assessment

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affect the determination of fair value and the conclusions of the quantitative goodwill test for the Company’s one reporting unit.

Indefinite-lived Intangible Assets

The Company performed the annual impairment assessment

on the indefinite-lived intangible asset as of December 31, 2021 and 2020, resulting in no impairment losses.

During the fourth quarter of 2021, the Company

completed an assessment of the useful life of its indefinite-lived brand name intangible asset and determined it should adjust the estimated

useful life from indefinite to 15 years.

The change in accounting estimate will be effective January 1, 2022, at which time the Company

will begin amortizing the asset over 15 years.

The future amortization expense is included in the five-year intangible asset amortization

table in the finite-lived intangible asset section below.

Finite-lived Intangible Assets

The gross carrying amounts and accumulated amortization

of finite-lived intangible assets consisted of the following:

Approximately $1,664 of goodwill is deductible

for income tax purposes.

Intangible Assets

The gross carrying amounts and accumulated amortization of intangible

assets consisted of the following:

Schedule of finite-lived intangible assets

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Customer relationship

Total finite lived intangible assets

Total intangible assets, net

Estimated amortization expense on intangible assets

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Note 6 – Accrued Expenses

Accrued expenses consist of:

Accrued expenses consisted of the following:

Schedule of accrued expenses

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Note 7 – Debt

Schedule of debt

Note payable consisted of the following:

Schedule of notes payable

Term loan due August 18, 2026.

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Credit Agreement

On September 30, 2020, Lifeway entered into the

Third Modification to the Amended and Restated Loan and Security Agreement, as amended, (the “Third Modification”) with its

existing lender.

The Third Modification amends the Amended and Restated Loan and Security Agreement, as amended, by removing the monthly

borrowing base reporting requirement effective September 30, 2020, including a covenant to maintain a quarterly minimum working capital

financial covenant, as defined, of no less than $11.25 million each of the fiscal quarters commencing the fiscal quarter ending December

31, 2020 through the expiration date, and eliminating the tier interest pricing structure.

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

On August 18, 2021, Lifeway entered into the Fourth

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

The termination date of the Term Loan is August

18, 2026, unless earlier terminated.

As amended, all outstanding amounts under the

revolving line of credit and term loan bear interest, at Lifeway’s election, at either the lender Base Rate (the Prime Rate minus

1.00 %) or the LIBOR plus 1.95 %, payable monthly in arrears.

Lifeway is also required to pay a quarterly unused revolving line of credit

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

There were no letters of

credit issued or outstanding as of December 31, 2021.

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 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 December 31, 2021.

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.

As amended, all outstanding amounts under the revolving

line of credit and term loan bear interest, at Lifeway’s election, at either the lender Base Rate (the Prime Rate minus 1.00 %) or

the LIBOR plus 1.95 %, payable monthly in arrears.

Lifeway is also required to pay a quarterly unused revolving line of credit fee of 0.20 %

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

The Modified Credit Agreement includes customary 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 December 31, 2022.

Revolving Credit Facility

As of December 31, 2021, the Company had $ 2,777

outstanding under the Revolving Credit Facility.

Lifeway had $ 2,223 available for future borrowings under the Revolving Credit Facility

as of December 31, 2021.

Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility as of December 31, 2021

As of December 31, 2022, the Company had $ 2,777 outstanding

under the Revolving Credit Facility.

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

Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility as of December 31, 2022 was 6.17 %.

Deferred Financing Costs

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Note 8 – Leases

Lifeway had operating leases for two retail stores

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

for operating expenses and taxes.

The Company terminated the operating leases during 2021.

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 one year to five years.

Some of its leases include options to extend the leases

for up to five years and have been included in its 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.

no residual value guarantees.

Lifeway does not currently have leases which meet the finance lease classification as defined under ASC

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.

The Company includes lease extension options, if applicable and reasonably certain to be exercised, in the 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.

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, 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

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Total lease expense was $ 229 and $ 304 (including short term leases) for the years ended December 31, 2022 and 2021, respectively.

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, it directs the use of the asset

and obtain substantially all the economic benefits of the asset.

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.

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

many of its leases such as real estate leases, the Company is unable to determine an implicit rate;

therefore, 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

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.

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.

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

When 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.

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

Future maturities of lease liabilities were as follows:

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The weighted-average remaining lease term for

its operating leases was 2.4 years as of December 31, 2021.

The weighted average discount rate of its operating leases was 12.60 % as of

December 31, 2021.

Cash paid for amounts included in the measurement of lease liabilities was $ 198 for the year ended December 31, 2021.

its operating leases was 2.7

years as of December 31, 2022.

The weighted average discount rate of its operating leases was 11.70 %

as of December 31, 2022.

Cash paid for amounts included in the measurement of lease liabilities was $ 151

and $ 198 for the year ended December 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 its business activities.

Lifeway records accruals for outstanding legal

matters when it believes it is probable that a loss will be incurred, and the amount of such loss can be reasonably estimated.

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

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

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.

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;

the case has or may be certified as a class action suit;

(iii) the outcome of preliminary motions;

(iv) the impact of discovery;

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;

(vii) 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 it

is unable to estimate a possible loss or range of loss.

Note 10 – Income taxes

The provision for income taxes consists of the

The provision for income taxes consists of the following:

Provision for income taxes

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Provision for income taxes

The following is a reconciliation of income tax expense computed at

The following is a reconciliation of income tax expense computed at the

federal statutory tax rate to income tax expense reported in the consolidated statement of operations:

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Provision for income taxes

Prior year amounts have been restated to reflect

the correction of errors discussed in Note 1 – Basis of presentation.

The tax effects of temporary differences giving rise to deferred

income tax assets and liabilities were:

The tax effects of temporary differences giving rise

to deferred income tax assets and liabilities were:

Schedule of deferred tax assets and liabilities

(As Restated)

Deferred tax liabilities attributable to:

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Net deferred tax liabilities

The following table details the Company's tax

attributes related to net operating losses for which it has recorded deferred tax assets.

The following table details the Company's tax attributes

related to net operating losses for which it has recorded deferred tax assets.

Schedule of tax attributes related to net operating losses

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Additions based on tax positions of prior years

Reduction for tax positions of prior years

Settlement for tax positions of prior years

Balance at December 31

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federal and state tax years remain open by statute.

The amount of unrecognized tax benefits that, if recognized, would impact the annual

effective tax rate was not significant as of December 31, 2021.

The annual effective tax rate would have decreased by 3.9% as of December

31, 2021 if the unrecognized tax benefits were recognized.

As of December 31, 2022, the unrecognized tax benefit is $0.

The amount of interest and penalties recognized

in the consolidated statements of operations was $ 0 and $( 16 ) during 2021 and 2020, respectively.

The amount of accrued interest and penalties

recognized in the consolidated balance sheets was $ 0 and $ 44 at December 31, 2021 and 2020, respectively.

in the consolidated statements of operations was $ 0

during 2022 and 2021, respectively.

The amount of accrued interest and penalties recognized in the consolidated balance sheets

was $ 0 at December

31, 2022 and 2021, respectively.

Note 11 – Stock-based and Other Compensation

In December 2015, Lifeway stockholders

approved 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.

December 31, 2021, 3.281

million shares remain available under the 2015 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.

Omnibus Incentive Plan

In December 2015, Lifeway stockholders approved 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

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 December 31, 2022, no shares remain available for award under the 2015 Omnibus Incentive Plan as it

was terminated on August 31, 2022.

However, any outstanding awards under the 2015 Omnibus Incentive Plan are unaffected by the termination

of the 2015 Omnibus Incentive Plan or by the approval of the 2022 Omnibus Incentive Plan (the “2022 Plan”) as described below.

On August 31, 2022, Lifeway stockholders approved

the 2022 Plan.

Under the 2022 Plan, the Compensation Committee of the Board of Directors may grant awards of various types of compensation,

including, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance

shares, performance units, cash-based awards and other stock-based awards.

The maximum number of shares authorized to be awarded under

the 2022 Plan is 3.25 million shares of common stock, which includes shares that remained available under the now terminated 2015 Omnibus

Incentive Plan.

Awards granted under the

2022 Plan are generally subject to a minimum vesting period of at least one year.

Awards may be subject to cliff-vesting or graded-vesting

conditions, with graded vesting starting no earlier than one year after the grant date.

The Plan Administrator may provide for shorter

vesting periods in an award agreement for no more than five percent of the maximum number of shares authorized for issuance under the

As of December 31, 2022, 3.00 million shares remain available to award under the 2022 Plan.

Stock Options

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Exercisable at December 31, 2022

As of December 31, 2019, all outstanding options

were vested and there was no remaining unearned compensation expense.

Lifeway measures the fair value of stock options

using the Black-Scholes option pricing model.

The expected term of options granted was based on the weighted average time of vesting and

the end of the contractual term.

The Company utilized this simplified method as it did not have sufficient historical exercise data to

provide a reasonable basis upon which to estimate the expected term.

Lifeway measures the

fair value of stock options using the Black-Scholes option pricing model.

The expected term of options granted was based on the weighted

average time of vesting and the end of the contractual term.

The Company utilized this simplified method as it did not have sufficient

historical exercise data to provide a reasonable basis upon which to estimate the expected term.

Restricted Stock Awards

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Schedule of RSA activity

Restricted Stock Awards

Weighted Average Grant Date Fair Value

Outstanding at December 31, 2021

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Outstanding at December 31, 2022

Weighted average grant date fair value per share outstanding

Vested and deferred at December 31, 2022

Lifeway expenses RSAs over the service period.

For the years ended December 31, 2021 and 2020 total stock-based compensation expense recognized in the consolidated statements of operations

the years ended December 31, 2022 and 2021 total stock-based compensation expense recognized in the consolidated statements of operations

was $ 279 and $ 264 , respectively.

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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 years ended December 31, 2021 and 2020, $ 0 and $ 49 was expensed as stock-based compensation expense in the consolidated

statements of operations, respectively.

As of December 31, 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.

For the years

ended December 31, 2021 and 2020, $ 145 and $ 112 was expensed under the 2019 Plan as stock-based compensation expense in the consolidated

statements of operations, respectively.

As of December 31, 2021, there was no remaining expense.

2019 Retention Award

During 2019, Lifeway awarded a special retention

grant (the “2019 Retention Award”) of restricted stock to 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 years ended December 31, 2021 and 2020, $ 8 and $ 87 was expensed as stock-based compensation expense in

the consolidated statements of operations, respectively.

As of December 31, 2021, there was no remaining expense.

Lifeway has established long-term incentive-based

compensation programs for certain senior executives and key employees pursuant to the terms of its incentive plans.

2020 CEO Incentive Award

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

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.

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As of December 31, 2022, the total remaining unearned compensation

was $ 359 , of which $ 229 will be recognized in 2022, $ 106 in 2023, and $ 24 in 2024, respectively, subject to vesting.

During Q2 2021, the

number of shares became fixed and determinable.

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

was $ 129 , of which $ 105 will be recognized in 2023, and $ 24 in 2024, respectively, subject to vesting.

During Q2 2021, the number of shares

became fixed and determinable.

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 year ended December 31, 2021, $ 386 was expensed under the 2021 Plan as stock-based

compensation expense in the consolidated statements of operations, respectively.

As of December 31, 2021, the total remaining unearned

compensation was $ 683 , of which $ 474 will be recognized in 2022, $ 181 in 2023, and $ 28 in 2024, respectively, subject to vesting.

December 31, 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 December 31, 2021.

When the number of shares awarded becomes fixed and determinable, the

award liability will be reclassified from liabilities to paid in capital.

The 2021 long-term equity incentive plan compensation

is based on Lifeway’s achievement of adjusted EBITDA performance versus the respective target established by the Board for 2021.

Under the 2021 plan, collectively the participants earned equity-based incentive compensation of $ 1,069 based on Lifeway’s achievement

of the respective financial target.

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.

For the years ended December 31, 2022 and 2021, $ 449 and $ 386 was expensed

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

As of December 31, 2022, the total remaining

unearned compensation was $ 234 , of which $ 194 will be recognized in 2023, and $ 40 in 2024, respectively, subject to vesting.

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

Therefore, the award liability was reclassified from long-term liabilities

to paid in capital.

2022 Equity Award

Under the 2022 long-term incentive plan, participants

can earn a specified number of target level Performance Share Units (“PSUs”) contingent upon the achievement of strategic

milestones during the three-year measurement period, which is fiscal year 2022 to 2024.

The strategic milestones are 1) 3-year cumulative

net revenue, and 2) 3-year cumulative adjusted EBITDA.

The target number of PSU awards are weighted 50% on net revenue and 50% on adjusted

Collectively, the participants can earn 125,066 PSUs at the target level.

Participants may earn more or less than the target

number of shares based on actual results, however the minimum and maximum number of shares that can be earned are bound by minimum and

maximum thresholds of net revenue and adjusted EBITDA.

The PSU awards will be earned and will vest, if at all, after the end of the three-year

measurement period based on achievement of the milestones.

The PSU awards do not vest during the three-year measurement period.

have a grant date fair value of $6.25 dollars per share.

For the twelve months ended December 31, 2022, $ 151

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

The 2022 long-term incentive plan also granted restricted

stock unit awards that contain only a service condition and vest on the passage of time in three equal installments on each of the first

three anniversaries of the August 31, 2022 grant date.

The stock-based compensation expense for these awards is included in the Restricted

Stock Award section above.

Non-Employee Director Plan

On August 31, 2022, Lifeway

stockholders approved the 2022 Non-Employee Director Equity and Deferred Compensation Plan (the

“ 2022 Director Plan”), which authorizes the grant of restricted stock units (“RSUs”), which will vest on

such schedule as the Company, in its sole discretion, shall determine.

Each non-employee director of the Company is eligible to be a participant

in the 2022 Director Plan until they no longer serve as a non-employee director.

As of the date of each annual shareholder meeting, the

Company may grant each director a number of RSUs for such year and set the vesting schedule for the RSUs granted.

Whether and how many

RSUs the Company will grant to directors in any year is subject to the sole discretion of the Company and shall in any event be subject

to the 2022 Director Plan’s overall share limits.

The maximum aggregate number of shares of common stock that may be issued under

the 2022 Directors Plan is 500 thousand shares.

As of December 31, 2022, 466 thousand shares remain available to award under the 2022

Director Plan.

The aggregate fair market value of shares underlying RSU compensation that may be issued as RSU compensation to a director

in any year shall not exceed $170.

In addition to the grant of RSUs, the 2022 Director Plan also provides for the deferral by electing

participants of all or part of their cash compensation (in 10% increments) into a deferred cash account, and they may defer all or part

of their cash and/or RSU compensation (in 10% increments) into a deferred RSU account.

Deferred benefits are paid in a lump sum upon the

applicable director’s departure from the Board of Directors.

Retirement Benefits

Lifeway has a defined contribution plan which

is available to substantially all full-time employees.

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

For the years ended December 31, 2021 and 2020 total contribution expense recognized in the consolidated statements of operations

was $ 432 and $ 420 , respectively.

Lifeway has a defined contribution plan which is available

to substantially all full-time employees.

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

the years ended December 31, 2022 and 2021 total contribution expense recognized in the consolidated statements of operations was $ 446

and $ 432 , 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 its 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.

Lifeway manufactures (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

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, sold in a variety of organic and non-organic sizes, flavors, and types.

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 consists primarily of cream, a byproduct of making our kefir.

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

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

ProBugs, a line of kefir products designed for children.

Drinkable Yogurt, solid in a variety of sizes and flavors

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

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

Lifeway has determined that it has one reportable

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

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

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.

the Company’s performance, has been identified as the Chief Executive Officer.

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.

Net sales of products by category were as follows

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Cream and other

ProBugs Kefir

Drinkable Yogurt

Other dairy (a)

__________________

Includes Lifeway Kefir Shop sales

ProBugs Kefir

Significant Customers – Sales

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Note 13 – Share repurchase program

On September 24, 2015, Lifeway’s Board of

Directors authorized a stock repurchase program (the “2015 stock repurchase program”) under which the Company may, from time

to time, repurchase shares of its common stock for an aggregate purchase price not to exceed the lesser of $ 3,500 or 250 shares.

1, 2017, the Board amended the 2015 stock repurchase program (the “2017 amendment”), by adding to (exclusive of the shares

previously authorized under the 2015 stock repurchase program) the authorization the lesser of $ 5,185 or 625 shares.

Under the amended

authorization, share repurchases may be executed through various means, including without limitation in the open market or in privately

negotiated transactions, in accordance with all applicable securities laws and regulations, including without limitation Rule 10b-18 of

the Securities Exchange Act of 1934, as amended.

The extent to which Lifeway repurchases its shares and the timing of such repurchases

will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations.

The repurchase

program does not obligate us to purchase any shares, and the program may be terminated, suspended, increased, or decreased by the Company’s

Board in its discretion at any time.

Pursuant to the share repurchase program, during

the year ended December 31, 2020, the Company repurchased 179 shares at a cost of $ 405 or approximately $ 2.27 per share.

the Company reached the amended threshold of 625 shares and therefore no shares of common stock remain available to be purchased under

the 2017 Repurchase Plan Amendment as of December 31, 2020.

Pursuant to the share repurchase program, during the

year ended December 31, 2020, the Company repurchased 179 shares at a cost of $ 405 or approximately $ 2.27 per share.

During 2020, the

Company reached the amended threshold of 625 shares and therefore no shares of common stock remain available to be purchased under the

2017 Repurchase Plan Amendment as of December 31, 2020.

On June 24, 2021, the Lifeway’s Board authorized

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Treasury shares are accounted for using the cost method.

Stock Purchase Agreement

On November 7, 2022, the Company entered into

a Stock Purchase Agreement with Ludmila Smolyansky (“Ms.

Smolyansky”), to purchase 850,340 shares of Lifeway common stock

The shares were repurchased during the fourth quarter of 2022.

Pursuant to the Stock Purchase Agreement, the

Company and Ms.

Smolyansky have agreed, among other things, that (i) Ms.

Smolyansky will sell the shares at a purchase price of $4.70

per share, which represents a twenty percent (20.0%) discount to the average closing price of the common stock on Nasdaq over the five

(5) trading day period ended on the trading day immediately preceding the date of the Stock Purchase Agreement and (ii) Ms.

will use a portion of the proceeds to satisfy in full certain obligations of Ms.

Smolyansky, which are secured by previously disclosed

pledges of common stock, causing all such pledges to be released.

The purchased shares will be held in treasury by the Company.

As a closing condition to the Stock Purchase Agreement,

Smolyansky and Mr.

Smolyansky delivered an executed amendment (the “Amendment”) to that certain Settlement Agreement dated

as of July 27, 2022 (the “Settlement Agreement”), between the Company and Ms.

Smolyansky and Mr.

to the Amendment, Ms.

Smolyansky and Mr.

Smolyansky each agree, among other things, to (i) grant the Company a right of first refusal,

subject to Danone North America Public Benefit Corporation’s (“Danone”) right of first refusal, on substantially similar

terms as Danone (ii) extend the standstill and all related terms under the Proxy Settlement Agreement through the date of the 2024 annual

meeting of the Company’s shareholders (the “Standstill”);

and (iii) to appear in person or by proxy and vote their respective

remaining shares of common stock beneficially owned, individually or otherwise, and controlled by either of them and over which they have

power and authority to vote during the Standstill (a) in accordance with the recommendations of the Board at any special meeting or annual

meeting of the shareholders with respect to any proposal(s) not related to the sale of the Company or all or substantially all of the

assets of the Company;

and (b) in proportion to the vote of the other shareholders with respect to any proposal relating to any vote on

the sale of the Company or all or substantially all of the assets of the Company.

Note 14 – Related party transactions

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”),

effective as of December 31, 2020, with the Chairperson.

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

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 termination.

Service fees earned by the Chairperson are included

in general and administrative expenses in the accompanying consolidated statements of operations and were $ 500 and $ 1,000 during the years

ended December 31, 2021, and 2020, 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,

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 $ 600 during the years ended December 31, 2021 and 2020, respectively.

Note 15 – COVID-19

The ultimate impact that the COVID-19

pandemic or any future pandemic or disease outbreak will have on Lifeway’s business and its consolidated results of operations is

To date, the Company has seen increased

customer and consumer demand for its products.

Lifeway has not experienced significant supply chain disruptions or labor supply shortages

and it has continued to be able to satisfy customer and consumer demand for its products.

However, COVID-19 pandemic, or any future pandemic,

may limit the availability of, or increase the cost of, employees, ingredients, packaging and other inputs necessary to produce Lifeway’s

products, and its operations may be negatively impacted.

In 2021, the Company’s costs increased primarily due to inflationary price

increases of milk, other ingredients, packaging materials, and freight.

However, because of market conditions or for competitive reasons,

the Company’s pricing actions may sometimes lag input cost changes, or it may not be able to pass along the full effect of increases

in raw materials and other input costs as it incurs them.

In 2022, social distancing, shelter-in-place

and work-from-home mandates and recommendations have begun to be ease.

The increased customer demand the Company has realized over the

past two years as consumers increased their at-home consumption and e-commerce purchasing during the COVID-19 pandemic may change or decrease

due to the decrease in social distancing and stay-at-home and work-from-home mandates and recommendations.

Lifeway is unable to predict

the nature and timing of when such change may occur, if at all.

The ultimate impact of the COVID-19

pandemic on the Company’s business will depend on many factors, including, among others, whether additional waves of COVID-19 or

different variants of COVID-19 will affect the United States and other markets and the duration of any social distancing and stay home

and work from home mandates or recommendations that may occur as a result of such COVID-19 wave or variant;

the Company’s ability

and the ability of its suppliers to continue to maintain production despite unprecedented demand in the food industry, supply chain disruptions,

tight labor markets and increased raw material and packaging costs;

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.

The Company cannot predict the duration

or scope of the disruption or the impact of any recovery from the impacts of COVID-19.

Therefore, the financial impact cannot be reasonably

estimated at this time.

Consulting Services

Lifeway obtains consulting services from Ludmila Smolyansky,

a member of the Company’s Board of Directors and former Chairperson of its Board of Directors.

On December 28, 2020, Lifeway entered

into an amended and restated consulting agreement (the “Agreement”), effective as of December 31, 2020, with Ms.

Under the terms and conditions of the Agreement, Ms.

Smolyansky will continue 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, and Ms.

Smolyansky will also be eligible for an annual performance fee target of $500 based on

the achievement of specified performance criteria.

The 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 Ms.

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

Service fees earned are included in general and administrative expenses

in the accompanying consolidated statements of operations and were $ 22 and $ 500 during the years ended December 31, 2022 and 2021, respectively.

Endorsement Agreement

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.

On September 6, 2022, the Company entered into an

agreement (the “Termination Agreement”) with Ms.

Smolyansky that terminated the Endorsement Agreement as of September 6, 2022.

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 and of no further force or effect except for the provisions

thereof that expressly survive termination.

Royalties earned are included in selling expenses

in the accompanying consolidated statements of operations and were $ 400 and $ 600 during the years ended December 31, 2022 and 2021, respectively.

Stock Purchase Agreement

See the November 2022 stock purchase agreement between Ms.

and the Company in Note 13.

Note 15 – Business Acquisition

On August 18, 2021, the Company completed the

acquisition of certain assets of Glen Oaks Farms Inc.

On August 18, 2021, the Company completed the acquisition

of certain assets of Glen Oaks 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 Glen Oaks Farms initiates Lifeway’s expansion outside of

kefir and into drinkable yogurt.

Glen Oaks is engaged in the manufacture, development,

and sale of probiotic drinkable yogurt.

The acquisition of Glen Oaks Farms initiates Lifeway’s expansion outside of kefir and into

drinkable yogurt.

The current distribution of Glen Oaks 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

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 Fresh Made 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 Glen Oaks

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 Glen Oaks Farms

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

The acquisition was

accounted for under the acquisition method of accounting and the results of operations were included in the Company’s consolidated

statement of operations from the date of acquisition.

The acquisition was accounted

for under the acquisition method of accounting and the results of operations were included in the Company’s consolidated statement

of operations from the date of acquisition.

Included in the Company’s consolidated statements of operations are the acquisition’s

4 unchanged sentences

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:

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

3 unchanged sentences

Total purchase price

The fair value for the customer relationships

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

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

9 unchanged sentences

The goodwill resulting from the acquisition is tax deductible.

Note 17 – Restatement of Previously Issued

Unaudited Consolidated Financial Statements

As described in Note 1 – Basis of presentation,

in lieu of filing quarterly reports on Form 10-Q for 2021, quarterly financial data for 2021 and 2020 (as restated) is included in this

Annual Report on Form 10-K in the tables that follow.

For a description of the referenced adjustments, please refer to Note 1.

Schedule Of Condensed Balance Sheet

March 31, 2020

As Previously Reported

Restatement Adjustment

Current assets

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,467 at March 31, 2020

Inventories, net

Prepaid expenses and other current assets

Refundable income taxes

Total current assets

Property, plant and equipment, net

Operating lease right-of use asset

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Total intangible assets

Current liabilities

Accounts payable

Accrued expenses

Accrued income taxes

Total current liabilities

Line of credit

Operating lease liabilities

Deferred income taxes, net

Other long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity

Preferred stock, no par value;

2,500 shares authorized;

Common stock, no par value;

40,000 shares authorized;

17,274 shares issued;

15,558 shares outstanding

Paid-in capital

Treasury stock, at cost

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

June 30, 2020

As Previously Reported

Restatement Adjustment

Current assets

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,300 at June 30, 2020

Inventories, net

Prepaid expenses and other current assets

Refundable income taxes

Total current assets

Property, plant and equipment, net

Operating lease right-of use asset

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Total intangible assets

Current liabilities

Accounts payable

Accrued expenses

Line of credit- current

Accrued income taxes

Total current liabilities

Operating lease liabilities

Deferred income taxes, net

Other long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity

Preferred stock, no par value;

2,500 shares authorized;

Common stock, no par value;

40,000 shares authorized;

17,274 shares issued;

15,592 shares outstanding

Paid-in capital

Treasury stock, at cost

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

September 30, 2020

As Previously Reported

Restatement Adjustment

Current assets

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,410 at September 30, 2020

Inventories, net

Prepaid expenses and other current assets

Refundable income taxes

Total current assets

Property, plant and equipment, net

Operating lease right-of use asset

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Total intangible assets

Current liabilities

Accounts payable

Accrued expenses

Accrued income taxes

Total current liabilities

Line of credit

Operating lease liabilities

Deferred income taxes, net

Other long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity

Preferred stock, no par value;

2,500 shares authorized;

Common stock, no par value;

40,000 shares authorized;

17,274 shares issued;

15,605 shares outstanding

Paid-in capital

Treasury stock, at cost

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

March 31, 2021

As Previously Reported

Restatement Adjustment

Current assets

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,100 at March 31, 2021

Inventories, net

Prepaid expenses and other current assets

Refundable income taxes

Total current assets

Property, plant and equipment, net

Operating lease right-of use asset

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Total intangible assets

Current liabilities

Accounts payable

Accrued expenses

Accrued income taxes

Total current liabilities

Line of credit

Operating lease liabilities

Deferred income taxes, net

Other long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity

Preferred stock, no par value;

2,500 shares authorized;

Common stock, no par value;

40,000 shares authorized;

17,274 shares issued;

15,604 shares outstanding

Paid-in capital

Treasury stock, at cost

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

June 30, 2021

As Previously Reported

Restatement Adjustment

Current assets

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,190 at June 30, 2021

Inventories, net

Prepaid expenses and other current assets

Refundable income taxes

Total current assets

Property, plant and equipment, net

Operating lease right-of use asset

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Total intangible assets

Current liabilities

Accounts payable

Accrued expenses

Accrued income taxes

Total current liabilities

Line of credit

Operating lease liabilities

Deferred income taxes, net

Other long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity

Preferred stock, no par value;

2,500 shares authorized;

Common stock, no par value;

40,000 shares authorized;

17,274 shares issued;

15,650 shares outstanding

Paid-in capital

Treasury stock, at cost

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

September 30, 2021

As Previously Reported

Restatement Adjustment

Current assets

Cash and cash equivalents

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

Inventories, net

Prepaid expenses and other current assets

Refundable income taxes

Total current assets

Property, plant and equipment, net

Operating lease right-of use asset

Intangible assets

Goodwill and indefinite-lived intangibles

Other intangible assets, net

Total intangible assets

Current liabilities

Current maturities of notes payable

Accounts payable

Accrued expenses

Accrued income taxes

Total current liabilities

Line of credit

Notes Payable

Operating lease liabilities

Deferred income taxes, net

Other long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity

Preferred stock, no par value;

2,500 shares authorized;

Common stock, no par value;

40,000 shares authorized;

17,274 shares issued;

15,435 shares outstanding

Paid-in capital

Treasury stock, at cost

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

Note 18 – Subsequent Events

On of January 4, 2022, the Company notified Ludmila

Smolyansky, consultant to the Company and Chairperson of the Company’s Board of Directors, that it was terminating the Amended and

Restated Consulting Agreement, dated as of December 28, 2020, effective as of January 17, 2022.

See Note 14 for details on the consulting

Smolyansky continues as Chairperson of the Board of Directors.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data