What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 207 added, 161 removed, 419 unchanged (47% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

March 31, 2023 and December 31, 2022

June 30, 2023 and December 31, 2022

(In thousands)

1 unchanged sentence

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,750 and $ 1,820 at March 31, 2023 and December 31, 2022 respectively

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,390 and $ 1,820 at June 30, 2023 and December 31, 2022 respectively

Inventories, net

19 unchanged sentences

2,500 shares authorized;

no shares issued or outstanding at March 31, 2023 and December 31, 2022

no shares issued or outstanding at June 30, 2023 and December 31, 2022

Common stock, no par value;

1 unchanged sentence

17,274 shares issued;

14,645 outstanding at March 31, 2023 and December 31, 2022

14,656 and 14,645 outstanding at June 30, 2023 and December 31, 2022, respectively

Paid-in capital

3 unchanged sentences

Total liabilities and stockholders' equity

See accompanying notes to consolidated financial statements

See accompanying notes to consolidated financial

LIFEWAY FOODS, INC.

1 unchanged sentence

Consolidated Statements of Operations

For the three months ended March 31, 2023 and 2022

For the three and six months ended June 30,

2023 and 2022

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Cost of goods sold

1 unchanged sentence

Total cost of goods sold

Selling expense

General and administrative expense

Selling expenses

General and administrative

Amortization expense

1 unchanged sentence

Income (loss) from operations

Other (expense) income:

Other income (expense):

Interest expense

Gain on sale of property and equipment

Other (expense) income, net

Total other (expense) income

Total other income (expense)

Income (loss) before provision for income taxes

3 unchanged sentences

Weighted average common shares:

See accompanying notes to consolidated financial statements

See accompanying notes to consolidated financial

LIFEWAY FOODS, INC.

5 unchanged sentences

Balance, March 31, 2022

Issuance of common stock

in connection with stock-based compensation

Stock-based compensation

Balance, June 30, 2022

LIFEWAY FOODS, INC.

5 unchanged sentences

Balance, March 31, 2023

See accompanying notes to consolidated financial statements

Issuance of common stock in connection with stock-based compensation

Stock-based compensation

Balance, June 30, 2023

See accompanying notes to consolidated financial

LIFEWAY FOODS, INC.

2 unchanged sentences

(In thousands)

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization

Stock-based compensation

Non-cash interest expense

Bad debt expense

Deferred revenue

Stock-based compensation

Gain on sale of equipment

(Increase) decrease in operating assets:

9 unchanged sentences

Purchases of property and equipment

Proceeds from sales of equipment

Net cash used in investing activities

11 unchanged sentences

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

See accompanying notes to consolidated financial statements

See accompanying notes to consolidated financial

LIFEWAY FOODS, INC.

13 unchanged sentences

Principles of consolidation

The consolidated financial statements include the

accounts of Lifeway Foods, Inc.

The consolidated financial statements include

the accounts of Lifeway Foods, Inc.

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

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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.

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.

Customer concentration

1 unchanged sentence

food industry located within the United States.

Two major customers accounted for approximately 24 % and 21 % of net sales for the three

months ended March 31, 2023 and 2022, respectively.

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

ended June 30, 2023 and 2022, respectively.

Two major customers accounted for approximately 22 % of net sales for the three months ended

June 30, 2023 and 2022.

Advertising and promotional costs

2 unchanged sentences

Total advertising expense was $ 2,006 and $ 1,738

for the three months ended March 31, 2023 and 2022, 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.

for the six months ended June 30, 2023 and 2022, respectively.

Total advertising expense was $ 543 and $ 533 for the three months ended

June 30, 2023 and 2022, respectively.

The Company is managed as a single reportable

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

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

operational decisions and managing the organization.

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

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

distributors and retailers in the United States.

Recent accounting pronouncements

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

The Company adopted this standard during the

first quarter of 2023.

The adoption did not have a material impact on the Company’s financial statements.

ASU was effective upon issuance and allowed companies to adopt the amendments on a prospective basis through December 31, 2024.

In June 2016, the FASB issued ASU No.

34 unchanged sentences

Balance at December 31, 2022

Balance at March 31, 2023

Balance at June 30, 2023

Intangible Assets

1 unchanged sentence

Schedule of finite-lived intangible assets

March 31, 2023

June 30, 2023

December 31, 2022

4 unchanged sentences

for the next five years is as follows:

Schedule of amortization expense on intangible assets

Nine months ended December 31, 2023

Schedule of estimated amortization expense on intangible assets

Six months ended December 31, 2023

Note 6 – Accrued Expenses

3 unchanged sentences

Real estate taxes

Accrued utilities

Current portion of operating lease liabilities

4 unchanged sentences

Term loan due August 18, 2026.

Interest (6.71% at March 31, 2023) payable monthly.

Interest (7.10% at June 30, 2023) payable monthly.

Unamortized deferred financing costs

3 unchanged sentences

The scheduled maturities of the term loan, excluding deferred financing

costs, at March 31, 2023 are as follows:

costs, at June 30, 2023 are as follows:

Schedule of maturities of long-term debt

Nine months ended December 31, 2023

Six months ended December 31, 2023

Total term loan

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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 March 31, 2023.

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 %.

On June 26, 2023, the Company executed the Early

Opt-In Election and Related Amendment to Loan Documents (the “SOFR Election”).

Under the SOFR election, the interest rate

on the Company’s outstanding borrowings after June 30, 2023, will transition from LIBOR to the Secured Overnight Financing Rate

(“SOFR”), plus 2.07%.

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 June 30, 2023.

Revolving Credit Facility

As of March 31, 2023, the Company had $ 2,777 outstanding

As of June 30, 2023, the Company had $ 2,777 outstanding

under the Revolving Credit Facility.

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

March 31, 2023.

Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility as of March 31, 2023 was 6.66 %.

June 30, 2023.

Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility as of June 30, 2023 was 7.14 %.

Note 8 – Leases

15 unchanged sentences

and obtains 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.

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.

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.

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

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

Lifeway includes options to extend or terminate

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

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

The Company does not record leases with an initial

1 unchanged sentence

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

Total lease expense was $ 31 and $ 65 (including short term leases) for the three months ended March 31, 2023 and 2022, respectively.

Future maturities of lease liabilities were as follows:

Future maturities of lease liabilities

Total lease expense was $ 61 and $ 147 (including short term leases) for the six months ended June 30, 2023 and 2022, respectively.

Total lease expense was $ 30 and $ 82 (including short term leases) for the three months ended June 30, 2023 and 2022, respectively.

Future maturities of lease liabilities were as

Schedule of future maturities of lease liabilities

Operating Leases

Nine months ended December 31, 2023

Six months ended December 31, 2023

Total lease payments

1 unchanged sentence

The weighted-average remaining lease term for its

operating leases was 2.54 years as of March 31, 2023.

The weighted average discount rate of its operating leases was 11.67 % as of March

Cash paid for amounts included in the measurement of lease liabilities was $ 25 and $ 43 for the three months ended March 31,

operating leases was 2.36 years as of June 30, 2023.

The weighted average discount rate of its operating leases was 11.54 % as of June

Cash paid for amounts included in the measurement of lease liabilities was $ 46 and $ 85 for the six months ended June 30, 2023

and 2022, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 21 and $ 42 for the three months ended

June 30, 2023 and 2022, respectively.

Note 9 – Commitments and contingencies

2 unchanged sentences

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

13 for subsequent event litigation.

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 records provisions in the consolidated

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

can be reasonably estimated.

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

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

If a loss contingency is not both

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

Currently, none of its accruals for outstanding legal matters are

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

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

or cash flows.

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

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

Note 10 – Income taxes

Income taxes were recognized at effective rates of

for the three months ended March 31, 2023 and 2022, respectively.

The change in the Company’s effective tax rate for the three

months ended March 31, 2023 compared to 2022 is primarily driven by the change in method for calculation of period expense.

period applies the estimated annual rate method.

As described below, the period ended March 31, 2022 applied the discrete rate method.

33.8 % and 14.5 % for the six months ended June 30, 2023 and 2022, respectively.

Income taxes were recognized at effective rates of 32.6 %

and 35.3 % for the three months ended June 30, 2023 and 2022, respectively.

The Company calculates the provision for income taxes

1 unchanged sentence

occurring discrete items, and applies that rate to income (loss) before provision for income taxes for the period.

In accordance with

the authoritative guidance, the Company used a discrete effective tax rate method to calculate income taxes for the quarter ended March

31, 2022 because small changes in the estimated level and mix of annual income or loss by jurisdiction would result in significant changes

in the estimated annual effective tax rate making the historical method unreliable.

The Company’s effective tax rate may change

9 unchanged sentences

in pre-tax income (loss) in 2023 compared to 2022.

Unrecognized tax benefits were $ 0 at March 31, 2023

and 2022, respectively.

Unrecognized tax benefits were $ 0 at June 30, 2023

The Company does not expect material changes to its unrecognized tax benefits during the next twelve months.

the outcome of tax audits cannot be predicted with certainty.

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

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

Note 11 – Stock-based and Other Compensation

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

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

4 unchanged sentences

performance or service period.

At March 31, 2023, no shares remain available for award under the 2015 Omnibus Incentive Plan as it was

At June 30, 2023, no shares remain available for award under the 2015 Omnibus Incentive Plan as it was

terminated on August 31, 2022.

15 unchanged sentences

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 March 31, 2023, 3.00 million shares remain available to award under the 2022 Plan.

As of June 30, 2023, 2.77 million shares remain available to award under the 2022 Plan.

Stock Options

The following table summarizes stock option activity during the three months

ended March 31, 2023:

The following table summarizes stock option activity during the six

months ended June 30, 2023:

Schedule of stock option activity

3 unchanged sentences

Outstanding at December 31, 2022

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Outstanding at June 30, 2023

Exercisable at June 30, 2023

Restricted Stock Awards

6 unchanged sentences

The following

table summarizes RSA activity during the three months ended March 31, 2023.

table summarizes RSA activity during the six months ended June 30, 2023.

Schedule of RSA Activity

3 unchanged sentences

Shares issued upon vesting

Outstanding at March 31, 2023

Vested and deferred at March 31, 2023

For the three months ended March 31, 2023 and 2022

total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ 104 and $ 63 , respectively.

For the three months ended March 31, 2023 and 2022 tax-related benefits of $ 29 and $ 18 , respectively, were also recognized.

Future compensation

expense related to restricted stock awards was $ 417 as of March 31, 2023 and will be recognized on a weighted average basis over the next

Outstanding at June 30, 2023

Vested and deferred at June 30, 2023

For the six months ended June 30,2023 and 2022 total

pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ 202 and $ 127 , respectively.

the six months ended June 30,2023 and 2022 tax-related benefits of $ 57 and $ 35 , respectively, were also recognized.

For the three months

ended June 30, 2023 and 2022 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was

$ 98 and $ 64 , respectively.

For the three months ended June 30, 2023 and 2022 tax-related benefits of $ 28 and $ 17 , respectively, were also

Future compensation expense related to restricted stock awards was $ 686 as of June 30, 2023 and will be recognized on a weighted

average basis over the next 1.40 years.

Long-Term Incentive Plan Compensation

9 unchanged sentences

under the Stock Purchase Agreement dated October 1, 1999.

For the three months ended March 31, 2023 and 2022, $ 43 and $ 85 was expensed

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

As of March 31, 2023, the total remaining

unearned compensation was $ 86 , of which $ 62 will be recognized in 2023, and $ 24 in 2024, respectively, subject to vesting.

For the six months ended June 30, 2023 and 2022, $ 69 and $ 142 was expensed as

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

For the three months ended June 30, 2023

and 2022, $ 26 and $ 57 was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.

of June 30, 2023, the total remaining unearned compensation was $ 60 , of which $ 36 will be recognized in 2023, and $ 24 in 2024, respectively,

subject to vesting.

2021 Equity Award

5 unchanged sentences

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

For the three months ended March 31, 2023 and 2022, $ 84 and $ 166 was expensed

For the six months ended June 30, 2023 and 2022, $ 128 and $ 278 was expensed

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

As of March 31, 2023, the total remaining

unearned compensation was $ 150 , of which $ 110 will be recognized in 2023, $ 40 in 2024, respectively, subject to vesting.

For the three months ended June 30, 2023

and 2022, $ 44 and $ 112 was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.

of June 30, 2023, the total remaining unearned compensation was $ 106 , of which $ 66 will be recognized in 2023, $ 40 in 2024, respectively,

subject to vesting.

2022 Equity Award

13 unchanged sentences

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

For the three months ended March 31, 2023 and 2022, $ 112 and $ 0 was expensed

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

For the six months ended June 30, 2023 and 2022, $ 240 and $ 0 was expensed as

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

For the three months ended June 30, 2023 and 2022,

$ 127 and $ 0 was 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.

2023 Equity Award

Under the 2023 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 2023 to 2025.

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 115,622 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 $6.88 dollars per share.

For the six months ended June 30, 2023 and 2022, $ 16 and $ 0 was expensed as stock-based

compensation expense in the consolidated statements of operations, respectively.

For the three months ended June 30, 2023 and 2022,

$ 16 and $ 0 was expensed as stock-based compensation expense in the consolidated statements of operations, respectively.

The 2023 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.

three anniversaries of the June 16, 2023 grant date.

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

14 unchanged sentences

the 2022 Directors Plan is 500 thousand shares.

As of March 31, 2023, 466 thousand shares remain available to award under the 2022 Director

As of June 30, 2023, 466 thousand shares remain available to award under the 2022 Director

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

9 unchanged sentences

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

For the three months ended March 31, 2023 and 2022, total contribution expense recognized in the consolidated statements of operations

was $ 150 and $ 129 , respectively.

For the six months ended June 30, 2023 and 2022 total contribution expense recognized in the consolidated statements of operations was

$ 258 and $ 231 , respectively.

For the three months ended June 30, 2023 and 2022, total contribution expense recognized in the consolidated

statements of operations was $ 108 and $ 102 , respectively.

Note 12 - Earnings Per Share

The following table summarizes the effects of the share-based compensation

awards on the weighted average number of shares outstanding used in calculating diluted earnings (loss) per share:

Schedule of weighted average number of shares

Three Months Ended

Six Months Ended

(In thousands)

Weighted average common shares outstanding

Assumed exercise/vesting of equity awards

Weighted average diluted common shares outstanding

Note 13 – Related Party Transactions

6 unchanged sentences

fees earned are included in general and administrative expenses in the accompanying consolidated statements of operations and were $ 0

and $ 22 during each of the three months ended March 31, 2023 and 2022, respectively.

and $ 22 during each of the six months ended June 30, 2023 and 2022, respectively.

Service fees earned are included in general and administrative

expenses in the accompanying consolidated statements of operations and were $ 0 during each of the three months ended June 30, 2023 and

Endorsement Agreement

3 unchanged sentences

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.

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,

1 unchanged sentence

Agreement, the Company and Ms.

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

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

Smolyansky a lump sum payment

of $400, (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

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 were $ 0 and $ 150 during each of the

three months ended March 31, 2023 and 2022, respectively.

Note 13 – Subsequent Events

On April 14, 2023, the Company filed a lawsuit against

Ludmila Smolyansky, a current director of the Company (“Ms.

Smolyansky”), and Edward Smolyansky, a former director and

executive officer of the Company (“Mr.

Smolyansky,” and together with Ms.

Smolyansky, the “Defendants”) in

the Circuit Court of Cook County, Illinois.

The Company alleged, among other claims, that the Defendants breached their contractual obligations

under the Proxy Settlement Agreement, the Employment Settlement Agreement between the Company and Mr.

Smolyansky and the Endorsement Termination

Agreement between the Company and Ms.

Smolyansky (collectively, the “Agreements”), as applicable, by publicly making statements

which negatively commented upon the Company, including the Company’s corporate activities, Board and management and submitting what

was purported to be an alternate slate of director nominees for consideration at this Annual Meeting in violation of the Proxy Settlement

The Company is seeking recovery of at least $100 from Mr.

Smolyansky and at least

$400 from Ms.

Royalties earned were $ 0 and $ 300 during each

of the six months ended June 30, 2023 and 2022, respectively.

Royalties earned were $ 0 and $ 150 during each of the three months ended

June 30, 2023 and 2022, respectively.

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

What changed 10-Q

Item 1. Financial Statements