What changed in this filing

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Item 1. Financial Statements

2023-11-13 compared with 2023-08-14 · 252 added, 233 removed, 393 unchanged (55% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

June 30, 2023 and December 31, 2022

September 30, 2023 and December 31, 2022

(In thousands)

September 30,

Current assets

Cash and cash equivalents

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

Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $ 1,430 and $ 1,820 at September 30, 2023 and December 31, 2022 respectively

Inventories, net

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2,500 shares authorized;

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

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

Common stock, no par value;

1 unchanged sentence

17,274 shares issued;

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

14,691 and 14,645 outstanding at September 30, 2023 and December 31, 2022, respectively

Paid-in capital

7 unchanged sentences

Consolidated Statements of Operations

For the three and six months ended June 30,

For the three and nine months ended September

30, 2023 and 2022

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine months Ended

September 30,

Cost of goods sold

5 unchanged sentences

Total operating expenses

Income (loss) from operations

Income from operations

Other income (expense):

3 unchanged sentences

Total other income (expense)

Income (loss) before provision for income taxes

Income before provision for income taxes

Provision (benefit) for income taxes

Net income (loss)

Earnings (loss) per common share:

Earnings per common share:

Weighted average common shares:

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Balance, March 31, 2022

Issuance of common stock

in connection with stock-based compensation

Issuance of common stock in connection with stock-based compensation

Stock-based compensation

Balance, June 30, 2022

Issuance of common stock in connection with stock-based compensation

Stock-based compensation

Balance, September 30, 2022

LIFEWAY FOODS, INC.

8 unchanged sentences

Balance, June 30, 2023

Issuance of common stock in connection with stock-based compensation

Stock-based compensation

Balance, September 30, 2023

See accompanying notes to consolidated financial

3 unchanged sentences

(In thousands)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to operating cash flow:

Adjustments to reconcile net income to operating cash flow:

Depreciation and amortization

12 unchanged sentences

Accrued income taxes

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sales of equipment

Acquisition, net of cash acquired

Purchase of investments

Net cash used in investing activities

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food industry located within the United States.

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.

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

months ended September 30, 2023 and 2022, respectively.

Two major customers accounted for approximately 24 % and 23 % of net sales for the

three months ended September 30, 2023 and 2022, respectively.

Advertising and promotional costs

Lifeway expenses advertising costs as incurred and

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

Lifeway expenses advertising costs as incurred

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

Total advertising expense was $ 2,884 and

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.

$ 2,585 for the nine months ended September 30, 2023 and 2022, respectively.

Total advertising expense was $ 878 and $ 848 for the three

months ended September 30, 2023 and 2022, respectively.

The Company is managed as a single reportable

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

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

The 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.

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Schedule of inventories

September 30,

Finished goods

3 unchanged sentences

Schedule of property, plant and equipment

September 30,

Buildings and improvements

10 unchanged sentences

Balance at December 31, 2022

Balance at June 30, 2023

Balance at September 30, 2023

Intangible Assets

1 unchanged sentence

Schedule of finite-lived intangible assets

June 30, 2023

September 30, 2023

December 31, 2022

5 unchanged sentences

Schedule of estimated amortization expense on intangible assets

Six months ended December 31, 2023

Three months ended December 31, 2023

Note 6 – Accrued Expenses

1 unchanged sentence

Schedule of accrued expenses

September 30,

Payroll and incentive compensation

Real estate taxes

Accrued utilities

Current portion of operating lease liabilities

3 unchanged sentences

Schedule of debt

September 30,

Term loan due August 18, 2026.

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

Interest (7.40% at September 30, 2023) payable monthly.

Unamortized deferred financing costs

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The scheduled maturities of the term loan, excluding deferred financing

costs, at June 30, 2023 are as follows:

costs, at September 30, 2023 are as follows:

Schedule of maturities of long-term debt

Six months ended December 31, 2023

Three months ended December 31, 2023

Total term loan

Credit Agreement

On August 18, 2021, Lifeway entered into the Fourth

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

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

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

The Fourth Modification amends the Credit Agreement to provide

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

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

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

earlier terminated.

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

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

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

The Termination Date

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

As amended, all outstanding amounts under the

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

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

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

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

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.

The Company is party to an Amended and

Restated Loan and Security Agreement (as amended and modified from time to time, the “Credit Agreement”) with its

existing lender and certain of its subsidiaries.

The Credit Agreement provides for, among other things, a $ 5

million term loan to be repaid in quarterly installments of principal and interest over a term of five years, a revolving

line of credit up to a maximum of $ 5

million (the “Revolving Credit Facility”) and an incremental facility not to exceed $ 5

The termination date of the term loan is August

18, 2026 , unless earlier terminated.

The termination date of the revolving line of credit is June

30, 2025 , unless earlier terminated.

All outstanding amounts under the Credit Agreement

bear interest at the Secured Overnight Financing Rate (“SOFR”), plus 2.07% .

Interest is payable monthly in arrears.

As of September 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 September 30, 2023.

Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility as of September 30, 2023

The 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 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 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 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

June 30, 2023.

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

coverage ratio and minimum working capital covenants at September 30, 2023.

Note 8 – Leases

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

to five years.

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

of the right-of-use asset and lease liabilities.

to six years.

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

the right-of-use asset and lease liabilities.

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

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

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.

Total lease expense was $ 102 and $ 191 (including short term leases) for the nine months ended September 30, 2023 and 2022, respectively.

Total lease expense was $ 41 and $ 44 (including short term leases) for the three months ended September 30, 2023 and 2022, respectively.

Future maturities of lease liabilities were as

1 unchanged sentence

Operating Leases

Six months ended December 31, 2023

Three months ended December 31, 2023

Total lease payments

Present value of lease liabilities

The weighted-average remaining lease term for its

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.

The weighted-average remaining lease term for

its operating leases was 3.50 years as of September 30, 2023.

The weighted average discount rate of its operating leases was 10.08 % as

of September 30, 2023.

Cash paid for amounts included in the measurement of lease liabilities was $ 70 and $ 121 for the nine months ended

September 30, 2023 and 2022, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 24 and $ 35 for

the three months ended September 30, 2023 and 2022, respectively.

Note 9 – Commitments and contingencies

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Note 10 – Income taxes

Income taxes were recognized at effective rates of

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

during interim reporting periods by applying an estimate of the annual effective tax rate for the full year, excluding unusual or infrequently

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

Income taxes were recognized at effective rates

of 32.5 % and ( 0.8 )% for the nine months ended September 30, 2023 and 2022, respectively.

Income taxes were recognized at effective rates

of 30.8 % and 11.7 % for the three months ended September 30, 2023 and 2022, respectively.

The Company calculates the provision for income

taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year, excluding unusual or

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

The Company’s effective tax rate may change

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Although similar items were reflected in 2023, the percentage effect is different due to the difference

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

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.

in pre-tax income in 2023 compared to 2022.

Unrecognized tax benefits were $ 0 at September

30, 2023 and 2022, respectively.

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

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

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

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

The number of performance shares that participants

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

Stock awards generally vest over a three-year

performance or service period.

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

terminated on August 31, 2022.

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

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

On August 31, 2022, Lifeway

stockholders approved the 2022 Plan.

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

types of compensation, including, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted

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

The maximum number of shares authorized

to be awarded under the 2022 Plan is 3.25 million shares of common stock, which includes shares that remained available under the now

terminated 2015 Omnibus Incentive Plan.

Awards granted under the

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

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

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

The Plan Administrator may provide for shorter

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

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

Under the 2015 Omnibus Incentive Plan, the

Board of Directors or its Audit and Corporate Governance Committee approves stock awards to executive officers and certain senior

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

The number of performance shares that participants may

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

Stock awards generally vest over a

three-year performance or service period.

At September 30, 2023, no shares remain available for award under the 2015 Omnibus

Incentive Plan as it was terminated on August 31, 2022.

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

unaffected by the termination of the 2015 Omnibus Incentive Plan or by the approval of the 2022 Omnibus Incentive Plan (the

“2022 Plan”) as described below.

On August 31, 2022, Lifeway stockholders approved

the 2022 Plan.

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

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

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

The maximum number of shares authorized to be awarded under

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

Incentive Plan.

Awards granted under the 2022 Plan are generally

subject to a minimum vesting period of at least one year.

Awards may be subject to cliff-vesting or graded-vesting conditions, with graded

vesting starting no earlier than one year after the grant date.

The Plan Administrator may provide for shorter vesting periods in an award

agreement for no more than five percent of the maximum number of shares authorized for issuance under the 2022 Plan.

As of September 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 six

months ended June 30, 2023:

The following table summarizes stock option activity during the nine

months ended September 30, 2023:

Schedule of stock option activity

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Outstanding at December 31, 2022

Outstanding at June 30, 2023

Exercisable at June 30, 2023

Restricted Stock Awards

A Restricted Stock Award (“RSA”) represents

Outstanding at September 30, 2023

Exercisable at September 30, 2023

Restricted Stock Units

A Restricted Stock Unit (“RSU”) represents

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

RSAs have no exercise price.

RSUs have no exercise price.

The grant date fair value of the awards is

determined by the Company’s closing stock price on the grant date.

Lifeway expenses RSAs over the vesting period.

Lifeway expenses RSUs over the vesting period.

The following

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

Schedule of RSA Activity

Restricted Stock Awards

table summarizes RSU activity during the nine months ended September 30, 2023.

Schedule of RSU Activity

Restricted Stock Units

Weighted Average Grant Date Fair Value

1 unchanged sentence

Shares issued upon vesting

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.

Outstanding at September 30, 2023

Vested and deferred at September 30, 2023

For the nine months ended September 30, 2023

and 2022 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ 356

respectively.

For the nine months ended September 30,2023 and 2022 tax-related benefits of $ 100

respectively, were also recognized.

For the three months ended September 30, 2023 and 2022 total pre-tax stock-based compensation

expense recognized in the consolidated statements of operations was $ 154

respectively.

For the three months ended September 30, 2023 and 2022 tax-related benefits of $ 43

respectively, were also recognized.

Future compensation expense related to restricted stock units was $ 832

as of September 30, 2023 and will be recognized on a weighted average basis over the next 1.44

Long-Term Incentive Plan Compensation

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2020 CEO Incentive Award

During the fourth quarter 2020, Lifeway awarded a

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

During the fourth quarter 2020, Lifeway awarded

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

performance levels compared to the respective targets.

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under the Stock Purchase Agreement dated October 1, 1999.

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

The 2021 long-term equity incentive plan compensation

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

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

of the respective financial target.

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

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

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

For the nine months ended September 30, 2023 and 2022, $ 87 and $ 186 was expensed

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

For the three months ended June 30, 2023

For the three months ended September 30,

2023 and 2022, $ 18 and $ 44 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.

As of September 30, 2023, the total remaining unearned compensation was $ 42 , of which $ 18 will be recognized in 2023, and $ 24 in 2024,

respectively, subject to vesting.

2021 Equity Award

Under the 2022 long-term incentive plan, participants

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

milestones during the three-year Measurement Period, which is fiscal year 2022 to 2024.

The strategic milestones are 1) 3-year cumulative

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

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

The 2021 long-term equity incentive plan

compensation is based on Lifeway’s achievement of adjusted EBITDA performance versus the respective target established by the

Board of Directors for 2021.

Under the 2021 plan, collectively the participants earned equity-based incentive compensation of $ 1,069

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

The equity-based incentive compensation is payable in

restricted stock that vests one-third in April 2022, one-third in April 2023, and one-third in April 2024.

For the nine months ended

September 30, 2023 and 2022, $ 161

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

For the three months

ended September 30, 2023 and 2022, $ 33

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

As of September 30,

2023, the total remaining unearned compensation was $ 73 ,

of which $ 33

will be recognized in 2023, $ 40

in 2024, respectively, subject to vesting.

2022 Equity Award

Under the 2022 long-term incentive plan,

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

achievement of strategic milestones during the three-year Measurement Period, which is fiscal year 2022 to 2024.

The strategic

milestones are 1) 3-year cumulative net revenue, and 2) 3-year cumulative adjusted EBITDA.

The target number of PSU awards are

weighted 50% on net revenue and 50% on adjusted EBITDA.

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

Participants may earn more or less than the target number

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

thresholds of net revenue and adjusted EBITDA.

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

measurement period based on achievement of the milestones.

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

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

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

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.

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

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

the nine months ended September 30, 2023 and 2022, $ 356 and $ 31 was expensed as stock-based compensation expense in the consolidated

statements of operations, respectively.

For the three months ended September 30, 2023 and 2022, $ 116 and $ 31 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

2 unchanged sentences

The stock-based compensation expense for these awards is included

in the Restricted Stock Award section above.

in the Restricted Stock Units section above.

2023 Equity Award

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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 June 16, 2023 grant date.

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

Stock Award section above.

For the nine months ended September 30, 2023 and 2022, $ 118 and $ 0 was expensed

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

For the three months ended September 30,

2023 and 2022, $ 102 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 June 16, 2023 grant date.

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

the Restricted Stock Units section above.

Non-Employee Director Plan

On August 31, 2022, Lifeway

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

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

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

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

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

As of the date of each annual shareholder meeting, the

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

Whether and how many

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

to the 2022 Director Plan’s overall share limits.

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

the 2022 Directors Plan is 500 thousand shares.

As of 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

year shall not exceed $170.

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

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

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

Deferred benefits are paid in a lump sum upon the applicable

director’s departure from the Board of Directors.

On August 31, 2022, Lifeway stockholders approved

the 2022 Non-Employee Director Equity and Deferred Compensation Plan (the “2022 Director Plan”), which authorizes the grant

of restricted stock units (“RSUs”), which will vest on such schedule as the Company, in its sole discretion, shall determine.

Each non-employee director of the Company is eligible to be a participant in the 2022 Director Plan until they no longer serve as a non-employee

As of the date of each annual shareholder meeting, the Company may grant each director a number of RSUs for such year and set

the vesting schedule for the RSUs granted.

Whether and how many RSUs the Company will grant to directors in any year is subject to the

sole discretion of the Company and shall in any event be subject to the 2022 Director Plan’s overall share limits.

The maximum aggregate

number of shares of common stock that may be issued under the 2022 Director Plan is 500 thousand shares.

As of September 30, 2023, 438

thousand shares remain available to award under the 2022 Director Plan.

The aggregate fair market value of shares underlying RSU compensation

that may be issued as RSU compensation to a director in any year shall not exceed $170.

In addition to the grant of RSUs, the 2022 Director

Plan also provides for the deferral by electing participants of all or part of their cash compensation (in 10% increments) into a deferred

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

benefits are paid in a lump sum upon the applicable director’s departure from the Board of Directors.

Retirement Benefits

Lifeway has a defined contribution plan which is available

to substantially all full-time employees.

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

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.

Lifeway has a defined contribution plan which

is available to substantially all full-time employees.

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

prescribed formula.

For the nine months ended September 30, 2023 and 2022 total contribution expense recognized in the consolidated statements

of operations was $ 364 and $ 328 , respectively.

For the three months ended September 30, 2023 and 2022, total contribution expense recognized

in the consolidated statements of operations was $ 106 and $ 97 , respectively.

Note 12 - Earnings Per Share

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine months Ended

September 30,

(In thousands)

10 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 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

and $ 22 during each of the nine months ended September 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 September

30, 2023 and 2022.

Endorsement Agreement

6 unchanged sentences

Smolyansky that terminated the Endorsement Agreement as of September 6,

Pursuant to the Termination

Agreement, the Company and Ms.

Pursuant to the Termination Agreement, the Company

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

thereof that expressly survive termination.

Smolyansky a lump sum payment of $400, (ii) Ms.

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 $ 400 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.

of the nine months ended September 30, 2023 and 2022, respectively.

Royalties earned were $ 0 and $ 100 during each of the three months

ended September 30, 2023 and 2022, respectively.

Note 14 – Subsequent Event

On October 6, 2023, the Company paid the outstanding

line of credit balance of $2,777 in full.

There were no amounts outstanding under the line of credit after October 6, 2023, through the

date of filing of these financial statements.

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