What changed in this filing

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Item 9A. Controls and Procedures

2023-03-27 compared with 2022-07-21 · 146 added, 1408 removed, 34 unchanged (98% of the section changed)

CONTROLS AND PROCEDURES.

AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures

that are designed to ensure material information required to be disclosed in our reports that we file or submit under the Exchange Act

is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such

information is accumulated and communicated to our management, including our principal executive officer, principal financial officer

and principal accounting officer, as appropriate, to allow timely decisions regarding required financial disclosure.

In designing and

evaluating the disclosure controls and procedures, we recognize that a control system, no matter how well designed and operated, can

provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Because of the inherent limitations

in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,

within a company have been detected.

As of December 31, 2021 (the “Evaluation

Date”), we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal

financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities

Exchange Act of 1934 (the “Exchange Act”)).

Based on this evaluation, our principal executive officer and principal financial

officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance

level as of December 31, 2021 in ensuring that information required to be disclosed by us under the Exchange Act is recorded, processed,

summarized, and reported within the time periods specified under the Exchange Act rules.

Management’s Annual Report on Internal

Control Over Financial Reporting

Management is responsible for establishing and

maintaining adequate internal control over financial reporting as such term is identified in Exchange Act Rules 13a-15(f).

Internal control

over financial reporting is a process designed by, or under the supervision of, our principal executive officer, principal financial

officer and principal accounting officer, and effected by the Board of Directors, management, and other personnel, to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance

with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes

those policies and procedures that:

pertain to the maintenance

of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

provide reasonable assurance

that our transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance

with accounting principles generally accepted in the United States of America, and that our receipts and expenditures of the Company

are being made only in accordance with authorizations of our management and our directors;

provide reasonable assurance

regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material

effect on our consolidated financial statements.

Internal control over financial reporting has

inherent limitations which may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods

are subject to the risk that controls may become inadequate because of changes in conditions or because the level of compliance with

related policies or procedures may deteriorate.

We maintain disclosure controls and procedures that

are designed to ensure material information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded,

processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is

accumulated and communicated to our management, including our principal executive officer, principal financial officer and principal accounting

officer, as appropriate, to allow timely decisions regarding required financial disclosure.

In designing and evaluating the disclosure

controls and procedures, we recognize that a control system, no matter how well designed and operated, can provide only reasonable, not

absolute, assurance that the objectives of the control system are met.

Because of the inherent limitations in all control systems, no

evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been

As of December 31, 2022 (the “Evaluation Date”),

we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial

officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange

Act of 1934 (the “Exchange Act”)).

Based on this evaluation, our principal executive officer and principal financial officer

have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance level

as of December 31, 2022 in ensuring that information required to be disclosed by us under the Exchange Act is recorded, processed, summarized,

and reported within the time periods specified under the Exchange Act rules.

Management’s Annual Report on Internal Control

Over Financial Reporting

Management is responsible for establishing and maintaining

adequate internal control over financial reporting as such term is identified in Exchange Act Rules 13a-15(f).

Internal control over financial

reporting is a process designed by, or under the supervision of, our principal executive officer, principal financial officer and principal

accounting officer, and effected by the Board of Directors, management, and other personnel, to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting

principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and

procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures of the Company are being made only in accordance with authorizations of our management and our directors;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements.

Internal control over financial reporting has inherent

limitations which may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are

subject to the risk that controls may become inadequate because of changes in conditions or because the level of compliance with related

policies or procedures may deteriorate.

Management, including our Chief Executive Officer

3 unchanged sentences

Based on this assessment, management has concluded that our internal

control over financial reporting was not effective as of December 31, 2021 as a result of the material weakness discussed below.

Material Weaknesses in Internal Control over

Financial Reporting

A “material weakness” is a deficiency,

or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material

misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management has determined

that the Company had a material weakness in its internal control over financial reporting as described below.

During the preparation of the fiscal 2021 consolidated

financial statements, the Company determined that 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 basis 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.

A material weakness existed as the Company did

not operate effective internal controls over income taxes to identify and correct the impact of a material error in the accounting for

income taxes associated with the 2009 Fresh Made acquisition.

The material weakness resulted in material errors

arising as a result of our 2009 acquisition that were corrected through the Restatement of the consolidated financial statements as of

and for the year ended December 31, 2020, as described in Note 1, “Basis of Presentation” to the consolidated financial statements,

and the correction of the unaudited quarterly financial information for fiscal years 2021 and 2020 as described in Note 17, “Restatement

of Previously Issued Unaudited Consolidated Financial Statements.” 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

Management’s Remediation Plan

We have identified and begun to implement steps

designed to remediate the material weakness described in this Item 9A and to enhance our overall control environment.

Management has reviewed

the reconciliation of the book and tax basis of all intangible assets as of December 31, 2021 and determined that all intangible assets

are properly reconciled and recorded in the financial statements.

Management is currently evaluating its policies and procedures related

to accounting for deferred income taxes and goodwill of acquired intangible assets and plans to implement adequate controls to ensure

that (i) the deferred income tax effects of acquired intangible assets are properly accounted for and disclosed in the period of acquisition,

(ii) the goodwill allocation associated with any acquired intangible assets are properly accounted for and disclosed in the period of

acquisition, and (iii) the resulting intangible asset deferred income tax assets and liabilities are assessed and reconciled periodically

to the book – tax differences in the underlying assets and liabilities to determine whether any adjustment is necessary.

to complete the remediation process as promptly as possible, but cannot at this time estimate how long it will take to remediate the material

We will not consider the material weakness remediated until our enhanced controls are operational for a sufficient period of

time and tested, enabling management to conclude that the enhanced controls are operating effectively.

Changes in Internal Control over Financial

Except as discussed above under Management’s

Remediation Plan, there were no changes in our internal control over financial reporting that occurred during 2021 that have materially

affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

control over financial reporting was effective as of December 31, 2022.

Remediation of the Material Weakness

During 2022, management evaluated our policies

and procedures related to accounting for deferred income taxes and goodwill of acquired intangible assets.

We have implemented controls

to ensure that (i) the goodwill allocation associated with any acquired intangible assets are properly accounted for and disclosed in

the period of acquisition, and (ii) the deferred income tax effects of acquired intangible assets are properly accounted for and disclosed

in the period of acquisition.

Changes in Internal Control over Financial Reporting

Except as discussed above, there were no changes in

our internal control over financial reporting that occurred during 2022 that have materially affected, or are reasonably likely to materially

affect, our internal control over financial reporting.

REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information About Our Directors

Ludmila Smolyansky, Director

Board Leadership Roles:

• Chairperson

LUDMILA SMOLYANSKY was appointed as a Director

by the Board to fill a vacancy created by an increase of the maximum number of Directors up to seven and unanimously elected as the Chairperson

of the Board in November 2002.

Ludmila Smolyansky has been the operator of several independent delicatessen and gourmet food distributorship

businesses, and imported food distributorships, and been a leading force in the health food market for over 40 years.

Michael Smolyansky,

her husband, founded Lifeway and Ms.

Smolyansky served as our General Manager.

Smolyansky retired as a Lifeway employee.

She has continued to serve Lifeway as its Chairperson of the Board and served as a consultant to Lifeway from 2011 until January 2022.

Ludmila Smolyansky currently holds no other directorship in any other reporting company.

She is the mother of Julie Smolyansky (the Chief

Executive Officer of the Company) and Edward Smolyansky (Former Chief Operating Officer of the Company).

Key Attributes, Experience and Skills:

Smolyansky brings

many years of food industry experience, historical perspective, and operational expertise to the Board.

Her knowledge qualified her for

service on our Board.

Julie Smolyansky, Chief Executive Officer, President, Secretary and Director

Board Leadership Roles:

Director Since:

JULIE SMOLYANSKY was appointed as a Director and

elected President and Chief Executive Officer of Lifeway by the Board to fill the vacancies in those positions created by the death of

her father, Michael Smolyansky, in June 2002.

She was appointed as Secretary effective as of January 1, 2020.

She is a graduate with a

bachelor’s degree from the University of Illinois at Chicago.

Prior to her appointment, Ms.

Smolyansky spent six years as Lifeway’s

Director of Sales and Marketing.

Smolyansky also served as Lifeway’s Chief Financial Officer and Treasurer from 2002 to 2004.

Under her leadership, Lifeway has brought its products into the mainstream, boosted annual revenues tenfold, and expanded distribution

throughout the United States, Mexico, the United Kingdom, and Ireland, as well as portions of Central and South America and the Caribbean.

She has been named to Fortune Business’s ‘40 under 40,’ Fortune’s 55 Most Influential Women on Twitter and Fast

Company’s Most Creative People in Business 1000.

She holds no other directorships in any other reporting company.

is the daughter of Ludmila Smolyansky (the Chairperson of the Board), and sister of Edward Smolyansky (Former Chief Operating Officer

of the Company).

The Smolyansky family maintains a controlling interest in the Company, and the Board believes it is appropriate to provide

for continuity of the representation of the Smolyansky family on the Board as a component of Lifeway’s succession planning strategy.

Key Attributes, Experience and Skills:

Smolyansky brings to the Board over twenty

years of extensive experience in the dairy and consumer packaged goods industries including advertising;

marketing and communications;

public relations;

digital, social, and event marketing;

and consumer insights.

Smolyansky provides the Board with unique perspectives

and invaluable, in-depth knowledge of Lifeway, including strategic growth opportunities;

relationships with key customers and

competitive product positioning;

Company culture;

and all other aspects of Lifeway’s operations.

Executive Officer of a publicly traded company, Ms.

Smolyansky brings experience working with the investor community and financial institutions.

In addition, as a member of our founding family, Ms.

Smolyansky is a recognized and prominent visionary and leader in the dairy and probiotic

products industry with an in-depth knowledge of manufacturers, distributors, and retailers across all of our channels of distribution.

Edward Smolyansky, Director

Director Since:

Board Leadership Roles:

EDWARD SMOLYANSKY was elected as a Director in

Smolyansky was appointed as Chief Financial and Accounting Officer and Treasurer of Lifeway in November 2004 and appointed

as the Chief Operating Officer (“COO”) and Secretary in 2012.

He resigned his titles as Chief Financial Officer on January

1, 2016 and as COO on August 8, 2016.

Smolyansky retained his title of Chief Operating Officer when the Board appointed Mr.

as Treasurer and as Secretary on October 4, 2019 and served as such until January 2022.

He also served as Lifeway’s Controller from

June 2002 until 2004.

He received his bachelor’s degree in finance from Loyola University of Chicago in December 2001.

no other directorships in any other reporting company.

Smolyansky is the brother of Julie Smolyansky (the Chief Executive Officer

of the Company) and the son of Ludmila Smolyansky (the Chairperson of the Board).

Key Attributes, Experience and Skills:

financial and operations experience in the dairy and consumer packaged goods industries qualified him for service on the Board .

Pol Sikar, Director

Director Since:

Board Leadership Roles:

• Independent

• Member, Audit and

Corporate Governance Committee

POL SIKAR has served as a Lifeway director since

our inception in February 1986.

He holds a master’s degree from the Odessa State Institute of Civil Engineering in Russia.

than 40 years, he has been President and a major shareholder of Montrose Glass & Mirror Co., a company providing glass and mirror

products to the wholesale and retail trade in the greater Chicago area.

Sikar devotes as much time as necessary to the business of

the Company and currently holds no other directorships in any other reporting company.

Key Attributes, Experience and Skills:

Sikar brings a historical perspective to the

Board along with executive and entrepreneurial experiences that provide Lifeway with insights into operational and strategic planning,

and financial matters.

His longtime service and institutional knowledge about Lifeway provide him with a broad understanding of the operational,

financial, and strategic issues facing public companies like ours.

His executive, operational, and financial experience make him well

qualified for service on our Board.

Jason Scher, Director

Director Since:

Board Leadership Roles:

• Lead Independent

• Chairperson, Audit

and Corporate Governance Committee

• Audit Committee

Financial Expert

• Chairperson, Compensation

JASON SCHER was elected as a Director of the Company

in July 2012.

Scher is the manager of JAMP, LLP, an investment fund.

From 2016 to present Mr.

Scher has been a principal investor

and advisor focused on early-stage companies.

From 2004 until 2016, Mr.

Scher was the Chief Operating Officer of Vosges Haut-Chocolat,

a leading manufacturer of super premium chocolate and confections in the US.

From 2000 to 2004, Mr.

Scher was a principal in RP3 Development,

a New York based construction management and development company that performed work nationwide.

Prior to that, Mr.

Scher was employed

by COSI Sandwich Bar in their real estate and construction group.

Scher devotes as much time as necessary to the business of the Company

and currently holds no other directorships in any other reporting company.

Key Attributes, Experience and Skills:

Scher brings manufacturing, financial and

strategic experience to the Board, including a record of operational excellence in the food industry, and strategic experience across

multiple industries from real estate to retail to the Board.

In addition, he has advised a private company board;

been an operational,

team, and project leader;

and served as a senior executive for nearly twenty years.

His experience has provided him with a broad understanding

of the operational, financial, and strategic issues facing public companies like ours.

His industry, operational, and financial experience

makes him well qualified for service on our Board.

Jody Levy, Director

Director Since:

Board Leadership Roles:

• Independent Director

• Member, Audit and

Corporate Governance Committee

• Member, Compensation

JODY LEVY was elected as a director of Lifeway

to fill a vacancy on the Board on February 11, 2020.

Levy is an entrepreneur, having founded many different types of companies.

has also acted as chief executive officer of companies at all stages of development from inception to operating with $200mm in annual

Levy founded World Waters, LLC, the parent company of WTRMLN WTR and served as its Creative Director and Chief Executive

Officer from founding until the company’s sale in 2020.

Levy is currently the chief executive officer and a director of Summit

Group Endeavors LLC (since January 2021) and Summit Series LLC (since September 2020), related companies that produce annual ideas conference

for the thought leaders of our time.

Since January 2021, Ms.

Levy has also been a director of Summit Junto LLC, an entity related to Summit

Group Endeavors LLC and Summit Series LLC, which produces global events.

Levy founded, and has since served as chief executive

officer of LabElymental, a company that helps people get healthy and happy, and NeuroPraxis, a mind repatterning meditation app.

executive officer of companies at all stages of development, Ms.

Levy has lead all departments within a company and understands the department

functions and the intersection among them and how to optimize, manage and scale corporate efficiency and production.

Levy has been

a partner in, and advisor to, GEM&BOLT Mezcal since 2014.

She also served as a director of Pinata, a company that offers a system

for data driven task management for work, from 2017 to 2019.

Levy has a Bachelor of Arts from School of the Art Institute of Chicago.

Levy devotes as much time as necessary to Lifeway business and currently holds no other directorships in any other reporting company.

Key Attributes, Experience and Skills:

Levy’s breadth of experience in manufacturing,

marketing and sale of consumer packaged goods, specifically health foods, as well as her financial expertise, depth of knowledge about

all aspects of manufacturing companies and her leadership experience make her well qualified to be a member of our Board.

Dorri McWhorter, Director

Director Since:

Board Leadership Roles:

• Independent Director

• Audit Committee

Financial Expert

• Audit Committee

• Compensation Committee

DORRI MCWHORTER was elected as a Director of the

Company in August 2020.

McWhorter became CEO of YMCA Chicago in 2021.

From 2013 until 2021, Ms.

McWhorter was the CEO of YWCA Metropolitan

Chicago transforming the organization from a traditional social service organization to 21st Century social enterprise.

Increasing impact

and organizational sustainability, YWCA Metropolitan Chicago’s operating budget quadrupled.

The organization has been an active

contributor to many critical initiatives across the region, and under Ms.

McWhorter’s leadership, YWCA Metropolitan Chicago expanded

its service footprint to 10 new locations, completed seven mergers and acquisitions, implemented paid family leave and developed a retirement

plan to include retirement options for thousands of childcare providers and small business owners.

McWhorter led the effort to develop

an exchange-traded fund (ETF) for women’s empowerment (NYSE:

WOMN) in partnership with Impact Shares, which is the first non-profit

investment advisor to develop an ETF product.

McWhorter is a 2019 Inductee in the Chicago Innovation Hall of Fame.

also a Certified Public Accountant (CPA).

Prior to joining the YWCA, she was a partner at Crowe Horwath, LLP, one of the largest accounting

firms in the U.S.

She also held senior positions with Snap-on Incorporated and Booz Allen Hamilton.

McWhorter serves on the boards of directors of Green Thumb Industries

GTBIF), William Blair Funds and Skyway Concession Company (Chicago Skyway).

She is also active in the accounting profession

and serves on the Financial Accounting Standards Advisory Council and having served as a member of the Board of Directors of the American

Institute of Certified Public Accountants (AICPA) and a past Chairperson of the Board of Directors for the Illinois CPA Society.

also serves as Co-Chair of the Advisory Board of the First Women’s Bank (in development).

McWhorter received a BBA from the

University of Wisconsin-Madison, an MBA from Northwestern University’s Kellogg School of Management, and an honorary Doctor of Humane

Letters from Lake Forest College.

Key Attributes, Experience and Skills:

McWhorter’s breadth of experience in

health platforms, and her financial and accounting expertise and business experience as Chief Financial Officer make her a valuable addition

to our Board.

In addition, Ms.

McWhorter has been an operational, team, and project leader;

and served as a senior executive, board member

and community leader for over twenty years.

Her experience has provided her with a broad understanding of the financial, and strategic

issues facing health related companies like ours.

Her industry and financial experience make her well qualified for service on our Board.

Corporate Governance Guidelines and Code of

Conduct and Ethics

We have adopted Corporate Governance Guidelines

and a Code of Conduct and Ethics applicable to all members of the Board, executive officers, and employees, including our principal executive

officer and principal financial officer.

The Corporate Governance Guidelines, the Code of Conduct and Ethics, and other corporate governance

documents are available on Lifeway’s website at www.lifewayfoods.com.

Any person may, without charge, request a copy of the Corporate

Governance Guidelines and/or Code of Conduct and Ethics by contacting Lifeway at (847) 967-1010 or by email at info@lifeway.net.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our

directors, executive officers, and persons who beneficially own more than 10% of Lifeway’s Common Stock to file reports of ownership

and changes in ownership with the SEC and to furnish us with copies of all such reports they file.

Based on our review of the copies of

such forms that we received, or written representations from certain reporting persons, we believe that none of our directors, executive

officers, or persons who beneficially own more than 10% of Lifeway’s Common Stock failed to comply with Section 16(a) reporting

requirements in the fiscal year ended December 31, 2021, with the exception of two Form 4s for Ludmila Smolyansky reporting eight transactions

and four transactions, respectively, late, a Form 4 for Edward Smolyansky reporting two transactions late, a Form 4 for Amy Feldman reporting

one transaction late, two Forms 4s for Eric Hanson reporting one transaction late each, a Form 4 for Julie Smolyansky reporting two transactions

late, a Form 4 for Dorri McWhorter reporting one transaction late, a Form 4 for Jason Scher reporting one transaction late, a Form 4 for

Pol Sikar reporting one transaction late and a Form 4 for Jody Levy reporting one transaction late.

Director Recommendations by Shareholders

Consistent with the Board’s Corporate Governance

Guidelines, the Board will consider any candidates recommended by shareholders on the same basis that it considers recommendations from

other sources.

The recommendation must, at a minimum, include evidence of the shareholder’s ownership of Lifeway stock, along with

the candidate’s name and qualifications for service as a Board member, and a document signed by the candidate indicating the candidate’s

willingness to serve, if elected.

The Board and our Audit and Corporate Governance Committee will evaluate such recommendations in accordance

with the Audit and Corporate Governance Committee’s charter, the Bylaws and the director nominee criteria described above.

In considering

a candidate submitted by shareholders, the Board will take into consideration the needs of the Board and the qualifications of the candidate.

Nevertheless, just as with recommendations from other sources, the Board may choose not to consider an unsolicited recommendation if no

vacancy exists on the Board and/or the Board does not perceive a need to increase number of directors on the Board.

Audit and Corporate Governance Committee

To eliminate unnecessary redundancies in our independent

committee structure given the size of our company and Board, we have chosen to combine our audit and nominating committees into an Audit

and Corporate Governance Committee.

The Audit and Corporate Governance Committee, comprised of a majority of the Board’s independent

directors, fulfills the Board’s delegated audit and nominating duties as a single, integrated committee.

Scher serves as the Chairperson of the Audit

and Corporate Governance Committee and Lead Independent Director and Ms.

McWhorter and Mr.

Sikar serve as members of the Audit

and Corporate Governance Committee.

The Board has determined that each member of the

Audit and Corporate Governance Committee (1) is “independent” as defined by applicable SEC rules and the listing standards

of Nasdaq, (2) has not participated in the preparation of our financial statements or those of any of our current subsidiaries at any

time during the past three years, and (3) is able to read and understand fundamental financial statements, including a balance sheet,

income statement, and cash flow statement.

In addition, the Board determined that Mr.

Scher and Ms.

McWhorter are financially literate

and financially sophisticated, as those terms are defined under the rules of Nasdaq, and were “audit committee financial experts,”

as defined by applicable SEC rules.

During our fiscal year ended December 31, 2021,

the Audit and Corporate Governance Committee held nine meetings (including regularly scheduled and special meetings).

Audit and Corporate Governance

The Audit and Corporate Governance Committee oversees

the adequacy and effectiveness of our internal controls and meets with Lifeway’s internal and independent auditors to review these

internal controls and to discuss other financial reporting matters.

The Audit and Corporate Governance Committee is also responsible for

the selection, appointment, compensation, and oversight of both our independent auditors and our internal audit function.

audit function reports directly to the Audit and Corporate Governance Committee, and not management.

The Audit and Corporate Governance

Committee reviews the financial reporting and accounting principles and standards and the audited financial statements to be included

in the annual report.

It also reviews the quarterly financial results and related disclosures.

Additionally, the Audit and Corporate Governance

Committee is responsible for the review and oversight of all related party transactions and other potential conflict of interest situations

between and among Lifeway and its officers, directors, employees, and principal shareholders.

The Audit and Corporate Governance Committee

relies on the expertise and knowledge of management, our internal auditor, and our independent auditor in carrying out these oversight

responsibilities.

Director Nominations

The Audit and Corporate Governance Committee selects,

evaluates, and recommends to the Board qualified candidates for election or appointment to the Board, including by identifying individuals

qualified to become Board members and members of Board committees;

and recommending to the Board director nominees for the next annual

meeting of shareholders or for appointment to vacancies on the Board.

The Audit and Corporate Governance Committee also provides oversight

to management when Lifeway conducts succession planning or searches for individuals to serve as executive officers.

The Audit and Corporate Governance Committee does

not have specific minimum qualifications that it believes that a director nominee must meet.

However, the Audit and Corporate Governance

Committee believes that director candidates should, among other things, possess high degrees of integrity and honesty;

have literacy in

financial and business matters;

have no material affiliations with our direct competitors, suppliers, or vendors;

and preferably have

experience in our business and other relevant business fields (for example, finance, accounting, law and banking).

As a matter of policy,

the Audit and Corporate Governance Committee considers diversity together with other factors when evaluating candidates but

does not have a specific diversity requirement.

The Audit and Corporate Governance Committee meets

in advance of each of our annual meetings of shareholders to identify and evaluate the skills and characteristics of each director candidate

for nomination for election as a director.

The Audit and Corporate Governance Committee reviews the candidates in accordance with the

skills and qualifications set forth in the Audit and Corporate Governance Committee Charter and the rules of the SEC and Nasdaq.

and Corporate Governance Committee evaluates all director nominees on the same basis, regardless of whether the nominee is recommended

by a director, management, or a shareholder.

Compensation Committee

The Compensation Committee is a standing committee

of the Board.

The Compensation Committee’s principal purposes are to review and approve corporate goals and objectives relevant

to compensation of the Company’s Named Executive Officers (as defined below), make recommendations regarding compensation for non-employee

directors and administer the Company’s incentive and equity compensation plans.

The Compensation Committee’s objectives and

philosophy with respect to the fiscal 2021 executive compensation program, and the actions taken by the Compensation Committee in fiscal

2021 with respect to the compensation of our Named Executive Officers, are described below in “Compensation Discussion and Analysis.”

The Compensation Committee also is responsible

for evaluating and making recommendations to the Board regarding director compensation.

In addition, the Compensation Committee is responsible

for conducting an annual risk evaluation of the Company’s compensation practices, policies and programs.

Scher serves as the Chairperson of the Compensation

Committee and Ms.

McWhorter serve as members of the Compensation Committee.

The Board has determined each member of the Compensation

Committee is “independent” as defined by applicable SEC rules and the listing standards of NASDAQ.

During our fiscal

year ended December 31, 2021, the Compensation Committee held six meetings (including regularly scheduled and special meetings).

Information about our Executive Officers

Our executive officers are Ms.

Julie Smolyansky,

President, Chief Executive Officer and Secretary;

Eric Hanson, Chief Financial and Accounting Officer and Treasurer;

Senior Executive Vice President of Sales.

Smolyansky is also a Director, and we have

included her biographical information above in the section “Information about our Directors.”

All of our Executive Officers have employment agreements that we

more fully describe below under “Employment agreements severance, and change-in-control arrangements between Lifeway and Named Executive

Eric Hanson, Chief Financial Officer and Treasurer

Officer Since:

ERIC HANSON is our Chief Financial and Accounting

Officer and Treasurer.

Hanson has served as our Chief Accounting Officer since May 2018, and as our Corporate Controller since July

He also served as our interim Chief Financial Officer from May 2018 through August 2018 before we permanently appointed him to that

position in November 2018.

Prior to joining Lifeway, he served as Director of External Reporting for The Azek Company in Skokie, Illinois

from 2014 through July 2016;

and as Audit Manager for Deloitte & Touche, LLP in Chicago, Illinois from 2012 through 2014.

held various senior financial positions with Crowe Horwath from 2003 through 2012 and has over 20 years of financial reporting experience.

Hanson holds a Bachelor of Science in Finance from the University of Illinois and an MBA from Northwestern University’s Kellogg

School of Management.

Amy Feldman, Senior Executive Vice President, Sales

Officer Since:

AMY FELDMAN is our Senior Executive Vice President

Amy previously held the top sales executive position for Lifeway Foods from 2009 through 2011.

She returned to Lifeway effective

October 31, 2018.

Feldman has spent over 20 years in the food industry building business, brands, and teams, specifically within the

fresh and natural foods arena.

From 2017 through 2018, she served as the Senior Executive Vice President of Sales at Next Phase Enterprises,

a club and mass channel food sales firm.

From 2015 through 2017, Ms.

Feldman was Vice President of Sales, Channel Development for Mondelez

International’s Enjoy Life Foods subsidiary where she was responsible for developing strategy and introducing the brand through

various trade channels such as foodservice, e-commerce, small format, and international.

Prior to joining Enjoy Life, she was the Vice

President of Sales, Independent Grocery Channel for Chicago-based KeHE Distributors from 2011 through 2015.

Amy began her career at Sara

Lee and holds a Bachelor in Business Administration in Food Marketing from Western Michigan University, an MBA from Golden Gate University,

and a Culinary Certificate from Kendall College.

Information required by this Item 10 will be included

in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on

Form 10-K and is incorporated herein by reference.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Although SEC rules do not require smaller reporting

companies to include a Compensation Discussion and Analysis (“CD&A”) in their Form 10-K or proxy statement, Lifeway has

elected to voluntarily disclose this additional information in order to provide shareholders with information regarding current executive

compensation.

Through discussions with shareholders, we have

learned that our investors favor compensation plans for our executives tied to specific performance measures that incentivize long-term

performance and value creation.

In 2019, only 52.5% of the votes cast supported our Say on Pay Proposal.

Shareholders we spoke to after

our 2019 Say on Pay Proposal requested increased independent control of compensation, in particular for individuals related to any executive

officer or director, and increased independent oversight of our compensation practices more generally.

We listened and implemented the

following changes.

CHANGES TO COMPENSATION PROCESSES AND

Increased, and revised the structure of, independent oversight of compensation

We created a standing compensation committee governed by a charter available on our website, www.lifewaykefir.com, whose members are independent

from management.

Compensation Committee refined the performance review process to ensure information gathered from sources unrelated to the employee or

consultant being reviewed.

Compensation Committee engages and has the sole power to terminate the compensation consultant ensuring independence of the compensation

consultant from management.

Human resources leads review of management job duties and quality of work

resulting in changes to corporate management structure and providing a more structured framework for performance review and compensation

benchmarking.

Rationalized total compensation packages of management based on market rates for performance of relevant responsibilities at peer group

companies, resulting in an increase of CEO and CFO compensation and a reduction in COO and consultant compensation.

o Decreased aggregate

compensation of Named Executive Officers and Ludmila Smolyansky by $364,182 between 2019 and 2021;

o Further reductions

in the aggregate compensation of Named Executive Officers and Ludmila Smolyansky are expected in 2022 in the aggregate amount of approximately

$600,000 based on the reduction of $1 million of compensation obligations to Edward Smolyansky and Ludmila Smolyansky, offset partially

by the inclusion of another executive officer as Named Executive Officer.

Adopted new human resource policies, software and training.

Implemented requirement of six hours per year of ongoing director corporate governance education through NACD programming and made the same

available to our CEO and CFO

Increased independent control

of certain compensation

Our Board delegated to the Compensation Committee all authority to review the compensation for certain insiders, including our CEO, Julie

Smolyansky if she is not CEO, Edward Smolyansky, Ludmila Smolyansky and family members of any executive officer or director.

Increased independent

oversight of other

Our Compensation Committee is responsible for reviewing, and recommending to the Board, compensation of executive officers and vice presidents

other than those for whom the Compensation Committee has been delegated all authority.

Increased independent

control of compensation paid to

Ludmila Smolyansky

We amended and restated Ludmila Smolyansky’s consulting agreement to provide for fees and Company performance thresholds to be set

by the Compensation Committee and reviewed and adjusted at least annually.

We subsequently terminated the amended and restated agreement.

Limitations on incentive awards

Incentive awards must be based on annual performance goals

Increase alignment of executive and officer interests with shareholders’

Adopted a revised Executive and Director Stock Ownership and Holding Policy increasing ultimate share ownership requirements to 200% of

base salary or fees from 100% to further align executive officer and director interests with shareholders.

Adopted, subject to shareholder approval, an arrangement to allow independent directors to convert some or all of their 2021-2022 Board

Year compensation to restricted stock units.

This CD&A explains our overall compensation

philosophy, describes the material components of our executive compensation programs, and details the determinations made by the Board

and our Compensation Committee for the compensation awarded to each of the Company’s Chief Executive Officer and its two other most

highly compensated individuals who were serving as executive officers at the end of the last fiscal year, for services rendered in all

capacities during the last fiscal year (the “Named Executive Officers” or “NEOs”) for fiscal 2021.

as of December 31, 2021 were:

Julie Smolyansky

Chief Executive Officer, President and Secretary

Edward Smolyansky*

Chief Operating Officer

Chief Financial and Accounting Officer and Treasurer

Smolyansky ceased being an employee of Lifeway

on January 4, 2022.

The tables that follow this CD&A contain specific

data about the compensation earned by our NEOs for fiscal 2021.

The discussion below is intended to help readers understand the detailed

information provided in the compensation tables and put that information into the context of our overall executive compensation program.

Executive Compensation Philosophy

Our executive compensation program is based on the following objectives:

Balancing compensation program elements and levels that attract and motivate talented executives with forms of compensation that are performance-based and/or aligned with shareholder interests and the promotion of growth in Lifeway business and value;

Setting target total direct compensation (base salary, annual incentives, and long-term incentives) and related performance requirements for executives by reference to compensation ranges for peer group companies that are similarly situated to Lifeway;

Appropriately adjusting total direct compensation to reflect the performance of each executive over time (as reflected in individual annual goals) as well as our annual and long-term business performance (as reflected in various corporate financial performance goals).

We actively recruit, train and retain talented

employees to understand, manage and operate our unique production process for kefir, which is not widely known, requires some specific

knowledge and skills to perform and to support and to manage the sales, communications, marketing and other activities of the Company.

We have built our management team through promotion and recruiting that limits the risks posed by the loss of any particular executive

officer or vice president and provides for a smooth transition of responsibilities in the case of such loss.

Training and retaining our

employees allows for a smooth transition of the workload and responsibilities of any manager who leaves the Company.

Past departures of

members of our management team are limited and when they have occurred have caused no issues for production, distribution or sales of

our products.

We consider, among other factors, our specific challenges and achievements along with our financial performance and growth

when approving executive officer compensation.

Our Compensation Committee is composed solely

of independent directors.

Current members of our Compensation Committee are Mr.

Pursuant to the powers

granted to the Compensation Committee in its charter, in 2021 the Compensation Committee reviewed the then current compensation for executive

officers, compensation processes, the then current compensation philosophy of the Company, the companies that comprised our peer group

and reports and advice from our compensation consultants.

Based on these reviews, the Compensation Committee revised and approved the

peer group companies and made changes to the processes of setting and paying compensation, including salaries and bonuses, to our Named

Executive Officers.

The Compensation Committee also further adjusted compensation setting processes to ensure it receives objective market

data and reviews of performance of our Named Executive Officers from independent sources.

Additional discussion of changes to our compensation

setting process and procedures can be found above.

The Compensation Committee reviews our compensation

design and philosophy on an annual basis to ensure that our executive compensation program continues to evolve to support our strategy

and objectives and aligns with our shareholders’ interests.

In 2021, the Compensation Committee revised our compensation design

to provide for a pool, as a percentage of Adjusted EBITDA, divided among our vice presidents and executive officers, including our Named

Executive Officers.

Role of the Compensation Committee

Our Compensation Committee assists our Board by

discharging responsibilities relating to the compensation of our executive officers, including our NEOs.

The Compensation Committee currently

has responsibility over certain matters relating to the competitive compensation of our executive officers, and directors as well as matters

relating to equity-based plans.

Each member of our Compensation Committee is independent in accordance with the criteria of independence

set forth in Rules 5605(a)(2) and 5605(d) of the Nasdaq Listing Rules and Rules 10C-1 and 16b-3 of the Securities Exchange Act of 1934.

We believe that their independence from management allows the members of the Compensation Committee to provide unbiased consideration

of performance reviews, peer group data, and various elements that could be included in an executive compensation program for which the

Compensation Committee is responsible.

We believe that independent directors are able to apply independent judgment about which elements

best achieve our compensation objectives.

The Compensation Committee is authorized to retain

and terminate, without Board or management approval, the services of an independent compensation consultant to provide advice and assistance.

The Compensation Committee has the sole authority to approve the consultant’s fees and other retention terms.

The Chairperson of

the Compensation Committee reviews, negotiates and executes any engagement letters with compensation consultants engaged by the Compensation

All compensation consultants will report directly to the Compensation Committee.

Role of our Compensation Consultant

The Compensation Committee engaged Aon’s

Human Capital Solutions practice, a division of Aon plc (“Aon”), an independent compensation consultant, to conduct a comprehensive review

and analysis of our executive and non-employee director compensation programs and to make recommendations for compensation related to

Aon does not perform any other work for the Company.

The Compensation Committee reviews the independence of Aon in light

of SEC rules and Nasdaq listing standards regarding compensation consultants.

The Compensation Committee has reviewed the level of services

provided to Lifeway by Aon and does not believe the services give rise to a conflict of interest or compromise Aon’s independence

in advising the Compensation Committee in 2021.

The 2021 Compensation Program Design

Elements of Compensation

For the year ended December 31, 2021, the compensation

for our named executive officers generally consisted of a base salary, cash bonus opportunities, and equity awards.

These elements (and

the amounts of compensation opportunity under each element) were selected because we believe they are market prevalent and competitive

elements of compensation and necessary to help us attract executive talent.

Below is a more detailed summary of the current

executive compensation program as it relates to our NEOs.

Base Salaries

The NEOs receive a base salary to compensate them

for the services they provide to us.

The base salary payable to each named executive officer is intended to provide a fixed component

of compensation reflecting the executive’s skill set, experience, role, and responsibilities.

As previously disclosed above, the

Compensation Committee has changed the process, quality and amount of information gathered in the process of compensation setting.

a result of such changed and additional information gathering, and taking into account the results of those efforts, previous responsibility

changes, the uncertainties in 2020 caused by the COVID-19 pandemic, the Company’s performance and success through those uncertainties,

in 2021, no changes were made to the base salaries of the CEO or CFO.

Instead, the incentive awards available to the CEO and CFO were

adjusted to provide increased total compensation and an increased portion of that compensation tied to Company performance.

Additionally,

the COO’s total compensation was adjusted to reduce his base salary in 2021 to further align his compensation to his responsibilities,

performance and market rates for individuals performing similar functions in our peer group.

Julie Smolyansky’s base salary for 2021

was $1,000,000.

Smolyansky’s base salary for 2021 was

initially $1,000,000, but was reduced to $500,000 effective February 1, 2021.

Hanson’s base salary for 2021 was $325,000.

The actual salaries paid to each named executive

officer for 2021 are set forth below this CD&A in the Summary Compensation Table in the column entitled “Salary.”

2021 Annual Incentive Plan

For fiscal 2021, our CEO and CFO were eligible

to receive annual cash incentive awards under the Lifeway Omnibus Plan (as defined below) based on financial performance of the Company.

The 2021 award cycle had a one-year performance period and awards were based on achievement of a targeted goal of earnings before interest,

income taxes, depreciation and amortization as adjusted for non-recurring or non-operational expenses such as stock-based compensation,

gain/loss on sale of equipment, deferred revenue, and gain/loss on investments (“Adjusted EBITDA”) set by the Compensation

The Compensation Committee believes Adjusted EBITDA is a more transparent and accurate way to measure the Company’s performance

because it reflects non-recurring or non-operational expenses such as stock-based compensation, gain/loss on sale of equipment, deferred

revenue, and gain/loss on investments.

There was also a minimum threshold Net Sales goal that had to be achieved in order for any bonus

to be funded for the year.

That minimum threshold was set at $100 million by the Compensation Committee.

Actual Net Sales were $119.1

million, exceeding the minimum threshold.

Once the Net Sales funding trigger was met, under

the annual incentive plan for fiscal 2021, if the targeted level of Adjusted EBITDA is also met as determined by the Compensation Committee,

the target bonus is paid.

Performance above target results in a payout of a higher percentage of salary.

Performance below target results

in a lower bonus payout, or no payout if the minimum threshold (floor) of Adjusted EBITDA is not met.

100% of the annual incentive award

is based on financial performance.

During the fiscal year, the Compensation Committee

approved the annual financial performance targets and targeted incentive payouts for the Company’s NEOs for fiscal 2021 under the

annual incentive plan, namely the Adjusted EBITDA threshold/floor, target and stretch/maximum levels of performance.

The table below shows, for each NEO that received

an award, the target and maximum annual incentive award, the threshold, target, stretch and maximum expectation with respect to Adjusted

EBITDA financial performance and the actual bonus payout for 2021.

The financial goals used to determine NEO bonus funding are identical

to those used to fund bonuses for other bonus-eligible executives and employees.

The award calculation is interpolated on a sliding calculation,

not a cliff achievement at each level.

Maximum Award

Financial Performance (Adjusted EBITDA in thousands)

Actual Performance (in thousands)

Actual Award (in thousands)

Threshold/Floor

Cash Award at Financial Performance Level (in thousands)

Julie Smolyansky

Actual Adjusted EBITDA performance was more than 40% above target, resulting in actual cash incentives above target as

well for each NEO (approximately 190% of target for each).

The Compensation Committee determined this level of annual cash incentive was

earned based on significantly exceeding the target and stretch levels of financial performance set for the fiscal year.

Equity Incentive Compensation

We maintain the Lifeway Foods, Inc.

Incentive Plan (the “Omnibus Plan”).

The Omnibus Plan provides eligible participants (including our NEOs) the opportunity

to participate in equity programs and incentivize them to work towards the long-term performance goals of Lifeway.

We believe that such

awards function as a compelling incentive and retention tool.

As described in further detail in the Outstanding

Equity Awards at Fiscal Year End Table and related footnotes below this CD&A, the following equity awards under the Omnibus Plan were

granted to our NEOs in 2021 as part of our equity program:

on April 20, 2022, the Compensation Committee confirmed the achievement of

the Adjusted EBITDA target for the 2021 fiscal year and authorized issuance to Julie Smolyansky and Eric Hanson of 125,000 and 18,958

shares of restricted stock, respectively, calculated by dividing the award value by the fair market value on the date the issuance was

One-third of the restricted stock awards vests immediately upon issuance, one-third on the one year anniversary of issuance

and one-third on the second anniversary of issuance, subject to the executive’s continued service through the applicable vesting

No shares will be issued to Ms.

Smolyansky unless and until Danone provides consent to the issuance as further discussed below.

Perquisites and Benefits

We provide executive officers and other key managers

with perquisites and other personal benefits not otherwise available to all employees that the Compensation Committee believes are reasonable

and consistent with our overall compensation program and philosophy.

These benefits are provided to enable us to attract and retain these

executive officers and key managers.

The Audit and Corporate Governance Committee has periodically reviewed, and the Compensation Committee

will continue to periodically review, the levels of these perquisites provided to our executive officers together with management and

the relevant Committee’s independent compensation consultant.

Of these benefits, the most significant ongoing

benefit is providing each of our CEO and COO use of a Company leased vehicle.

In exploring, planning, and implementing the expansion of

Lifeway’s product distribution, overseeing production at our facilities and in supporting and developing the Lifeway brand and sales,

our CEO and COO travel extensively.

We do not provide additional compensation or bonuses to cover, reimburse, or otherwise “gross-up”

any income tax owed on this compensation.

Our CFO does not receive a vehicle related benefit.

Our executive officers, including NEOs, are eligible

for health, dental, vision, life insurance, short- and long-term disability insurance, and 401(k) benefits to the same extent and subject

to the same conditions as all other salaried employees at Lifeway.

Our executive officers, including NEOs, may also claim executive health

examination expenses each year, subject to a cap designed to cover a majority of the program fees (but not any associated medical expenses)

for such executive health programs available in the Chicago, Illinois area.

We treat this health examination expense as taxable compensation

and provide a tax gross-up to encourage the use of this benefit by our executive officers.

Our NEOs also receive certain internet and

telecommunications services allowances.

Accounting and Tax Considerations

Tax Deductibility under Section 162(m).

Section 162(m) of the Internal Revenue Code (“Section 162(m)”) limits the deductibility for federal income tax purposes of

certain compensation paid in any year by a publicly held corporation to its “covered employees” as defined by Section 162(m)

(generally, our current and former NEOs) to $1 million per executive (the “$1 million cap”).

The Compensation Committee believes

it is appropriate to retain the flexibility to authorize payments of compensation that may exceed the $1 million cap if, in the Compensation

Committee’s judgment, it is in the Company’s best interest to do so.

We generally will continue to emphasize performance-based

compensation, even though it may no longer be deductible.

Accounting Considerations.

the accounting implications of our executive compensation program.

In addition, accounting treatment is just one of many factors impacting

plan design and pay determinations.

Our executive compensation program is designed to achieve a favorable accounting and tax treatment

so long as doing so does not conflict with the intended plan design or program objectives.

The Committee’s Process for Setting Executive Compensation

Benchmarking and Analysis:

To set total compensation guidelines, the Compensation

Committee reviewed market data of companies that are comparable to Lifeway and that it believed compete with Lifeway for executive talent,

business, and capital.

The Committee reviewed both specific data from public proxy filings from peer group companies and general industry

data for comparable companies that are included in proprietary third-party surveys.

In identifying and approving the peer group of

companies, the Committee considered market information available through public proxy filings and through Aon’s Global Compensation

Aon’s Human Capital Solutions (“HCS”) business is a leading executive compensation consulting practice.

Committee, together with Aon HCS, review the gathered data for each of our NEOs and other key employee positions based on the scope of

each employee’s responsibilities at Lifeway as compared to responsibilities of equivalent positions within companies included in

the peer group.

Since Lifeway is somewhat smaller, on average, in terms of revenue than the peer group, regression analysis was utilized

to size-adjust the compensation data to Lifeway’s revenue scope of each NEO role.

The Committee believed that it was necessary to

consider this market data in making compensation decisions to attract and retain talent.

In selecting peer organizations, the Committee

generally considered the following screening criteria:

Market capitalization;

Whether the company is representative of the labor market for executive talent for Lifeway.

Castle Brands, Craft Brew Alliance, and Youngevity

Alliance were removed from Lifeway’s peer group for fiscal 2021 compensation planning given that the companies were no longer publicly

As part of our review, we added several companies to expand the peer group for fiscal year 2021 compensation planning:

Solutions, Celsius Holdings, e.l.f Beauty, Natural Alternatives, New Age, and Reed’s.

All met the criteria set out by the Committee

and enhanced the peer group by making the group more robust in terms of size/number of companies.

Our fiscal 2021 peer group consisted of the following

Peer group used for fiscal year 2021 compensation planning

Agrofresh Solutions

Limoneira Company

Bridgford Foods Corp.

Medifast Inc.

Celsius Holdings

Coffee Holding Co., Inc.

MGP Ingredients Inc.

Natural Alternatives International

Crimson Wine Group, Ltd.

Primo Water Corp

Farmer Bros Co

S&W Seed Company

Freshpet, Inc.

The Simply Good Foods Co.

Tootsie Roll Industries, Inc.

Turning Point Brands Inc.

In consultation with Aon, the Compensation Committee

found this peer group representative of an appropriate executive labor market and pay benchmarking perspective.

While this analysis informed

the decisions of the Compensation Committee and was a reference point on the range of compensation opportunities, the Compensation Committee

did not tie executive officer compensation to specific market percentiles.

In making determinations regarding executive

officer compensation, in addition to benchmarking, the Compensation Committee considered several other factors such as our financial

performance and financial condition, individual executive performance, tenure, expertise, the importance of the role, potential for

future contributions, and comparative pay levels among the members of the senior executive team, as well as input of the

compensation consultant and, subject to conformity with independent analyses of all other information by the Compensation Committee,

and, other than with respect to Julie Smolyansky and Mr.

Smolyansky, management recommendations.

The Compensation Committee

typically followed most of these recommendations;

however, the Committees has sole authority for the final compensation

determination and may have set total compensation and incentive opportunities below, at, or above median amounts.

The Compensation Committee’s Process for Setting Compensation

The Compensation Committee followed the below

process and practice as closely as possible when setting executive compensation levels:

The Compensation Committee reviews and adjusts base salaries, if necessary, based on its review of the competitive analysis prepared by Aon, changes in title and/or job responsibilities, results of performance reviews and/or changes in our performance or financial condition and other factors discussed in this CD&A.

As part of the evaluation process, the Compensation Committee solicits comments from management and employees and may consult the other disinterested Board members and its independent compensation consultant.

Additionally, the executive officers have an opportunity to provide input regarding their contributions to Lifeway’s performance and achievement of any individual goals for the period being assessed.

Incentive compensation for executive officers is approved by the Compensation Committee for each fiscal year.

After the end of the relevant fiscal year for which incentive compensation was set, the Compensation Committee certifies Lifeway’s achievement of financial performance goals, if met, for that prior fiscal year and determines the level of incentive compensation awards for its executive officers earned based on such achievement, if any.

Pursuant to its charter, the Compensation Committee has been delegated all Board

authority to review performance of, and set the base salary and incentive awards for, employees and consultants who are family members

of any director or executive officer of the Company, including Julie Smolyansky and Mr.

In accordance with its charter, the

Compensation Committee reviews performance and recommends for Board approval the base salary and incentive awards for each other executive

officer, including Mr.

Hanson, and vice presidents other than those who are family members of a director or executive officer for whom

authority is specifically delegated to the Compensation Committee.

Separate from the corporate goals which provide performance measures for incentive

awards, the Compensation Committee establishes individual performance goals and objectives for each executive officer.

Such goals and

objectives are tracked by the human resources department, which provides additional information to the Compensation Committee when reviewing

individual responsibilities and performance.

The Compensation Committee’s compensation consultant typically provide input and recommendations

to the Committee as well.

The Compensation Committee then determines the performance goals and objectives for the current fiscal year.

The Compensation Committee also has the discretion to make

equity-based and cash-based grants under the Omnibus Plan to eligible individuals for purposes of compensation, retention, or

promotion, and in connection with commencement of employment.

Information About Our Executive Team

Information our executive team is set forth above

Directors, Executive Officers and Corporate Governance.

NEO Summary Compensation for Fiscal Years 2021 and 2020

The following table sets forth certain information

concerning compensation received by Lifeway’s NEOs, consisting of our Chief Executive Officer and the two other most highly paid

executive officers for services rendered in all capacities during fiscal year 2020 and 2021.

Summary Compensation Table

Name and Principal Position(s)

Awards (2)(3)

Nonequity incentive plan compensation (3) ($)

All Other Compensation (4) ($)

Julie Smolyansky

Chief Executive Officer,

President and Secretary

Edward Smolyansky (6)

Former Chief Operating Officer

Chief Financial and

Accounting Officer,

______________________

Discretionary bonuses approved for individual NEOs based on (i) the NEO’s individual

contributions to the Company’s performance (including their individual performance relative to the factors covered by the Omnibus

(ii) the nature and extent of the Company’s accomplishments;

(iii) input from the Board and other NEOs;

(iv) individual contributions,

roles, and responsibilities, which, by their nature, can involve subjective assessments;

and (v) other factors deemed significant.

Stock Awards are grants of shares with time-based vesting requirements made pursuant to the Omnibus Plan.

reported in this column represent the value of such awards consistent with the estimate of aggregate compensation cost to be recognized

in accordance with U.S.

GAAP over the service period for the stock awards granted for the relevant fiscal year.

As discussed below in

the section “Consent by Danone to Equity Issuances,” we must obtain Danone’s consent before issuing these stock awards

when they vest (if at all).

Pursuant to their terms, Mr.

Smolyansky’s equity incentive awards, which were not vested upon cessation

of his employment, were forfeited.

Details about the Bonus, Stock Awards, and Non-equity incentive plan compensation

assuming achievement (i) at or below threshold, (ii) at target, (ii) at maximum, and comparing those values to the actual value of incentive

compensation for our NEOs, are set forth in the table below.

Incentive Compensation Awards Detail

Potential Value of Incentive

Plan Compensation

Actual Value of Total Incentive Compensation

Name and Principal Position(s)

Threshold ($)

Julie Smolyansky

Chief Executive Officer,

President and Secretary

Edward Smolyansky

Former Chief Operating

Chief Financial and

Accounting Officer,

Consists of (i) $750,000 under the 2021 short term incentive plan and (ii) $416,347 under the 2019 long term incentive plan based on performance of the Company in 2021.