What changed in this filing

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Item 1. Financial Statements

2024-05-14 compared with 2023-11-13 · 270 added, 342 removed, 303 unchanged (67% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

September 30, 2023 and December 31, 2022

March 31, 2024 and December 31, 2023

(In thousands)

September 30,

March 31, 2024

Current assets

Cash and cash equivalents

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

Accounts receivable, net of allowance for credit losses and discounts & allowances of $ 1,640 and $ 1,270 at March 31, 2024 and December 31, 2023 respectively

Inventories, net

11 unchanged sentences

Total current liabilities

Line of credit

Operating lease liabilities

5 unchanged sentences

2,500 shares authorized;

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

no shares issued or outstanding at March 31, 2024 and December 31, 2023

Common stock, no par value;

1 unchanged sentence

17,274 shares issued;

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

14,691 outstanding at March 31, 2024 and December 31, 2023

Paid-in capital

3 unchanged sentences

Total liabilities and stockholders' equity

See accompanying notes to consolidated financial

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC.

1 unchanged sentence

Consolidated Statements of Operations

For the three and nine months ended September

30, 2023 and 2022

For the three ended March 31, 2024 and 2023

(In thousands, except per share data)

Three Months Ended

September 30,

Nine months Ended

September 30,

Cost of goods sold

1 unchanged sentence

Total cost of goods sold

Selling expenses

General and administrative

Selling expense

General and administrative expense

Amortization expense

3 unchanged sentences

Interest expense

Gain on sale of property and equipment

Other (expense) income, net

Other income (expense), net

Total other income (expense)

Income before provision for income taxes

Provision (benefit) for income taxes

Earnings per common share:

Weighted average common shares:

See accompanying notes to consolidated financial

Provision for income taxes

Net earnings per common share:

Weighted average common shares outstanding:

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

(In thousands)

2 unchanged sentences

Balance, March 31, 2023

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.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

(In thousands)

2 unchanged sentences

Balance, March 31, 2024

Issuance of common stock in connection with stock-based compensation

Stock-based compensation

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

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC.

2 unchanged sentences

(In thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

3 unchanged sentences

Non-cash interest expense

Bad debt expense

Deferred revenue

Gain on sale of equipment

(Increase) decrease in operating assets:

9 unchanged sentences

Purchases of property and equipment

Proceeds from sales of equipment

Acquisition, net of cash acquired

Purchase of investments

Net cash used in investing activities

2 unchanged sentences

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

1 unchanged sentence

Supplemental cash flow information:

Cash paid for income taxes, net

Cash paid for income taxes, net of (refunds)

Cash paid for interest

1 unchanged sentence

Accrued purchase of property and equipment

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

See accompanying notes to consolidated financial

Right-of-use assets obtained in exchange for lease obligations

See accompanying notes to consolidated financial statements

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”).

1 unchanged sentence

Note 2 – Summary of Significant Accounting

Our significant accounting policies, which are

summarized in detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, have not materially changed.

The following

is a description of certain of our significant accounting policies.

Our significant accounting policies, which are summarized

in detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, have not materially changed.

The following is

a description of certain of our significant accounting policies.

Use of estimates

13 unchanged sentences

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.

Customer concentration

Sales are predominately to companies in the retail

food industry located within the United States.

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.

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.

Advertising and promotional costs

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

$ 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

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.

Advertising costs are expensed as incurred and reported

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

Total advertising expense was $ 1,372 and $ 1,463 for the

three months ended March 31, 2024 and 2023, respectively.

The Company is managed as a single reportable segment.

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

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

decisions and managing the organization.

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

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

retailers in the United States.

Recent accounting pronouncements

In October 2021, the Financial Accounting Standards

Issued but not yet effective

In November 2023, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The new guidance provides a single comprehensive

accounting model on revenue recognition for contracts with customers and requires that the acquirer in a business combination recognize

and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022.

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.

In March 2020, the FASB issued ASU No.

Reference Rate Reform (Topic 848):

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

The new guidance provides

optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions that reference LIBOR

or another reference rate expected to be discontinued because of reference rate reform.

The guidance will be effective prospectively as

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

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.

Financial Instruments – Credit Losses (Topic 326):

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

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

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

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

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

than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables.

This may result

in the earlier recognition of allowances for losses.

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

approach depending on the subtopic.

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

periods within those fiscal years, with early adoption permitted.

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.

Segment Reporting (Topic 280):

to Reportable Segment Disclosures.

The new guidance requires entities to report incremental information about significant segment expenses

included in a segment’s profit or loss measure as well as the name and title of the chief operating decision maker.

also requires interim disclosures related to reportable segment profit or loss and assets that had previously only been disclosed annually.

The new standard is effective for our annual period ending December 31, 2024 and our interim periods during the fiscal year ending December

The guidance does not affect recognition or measurement in the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU No.

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures that requires entities to disclose additional information

about federal, state, and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid.

standard also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities.

The guidance is effective for our fiscal year ending December 31, 2024.

The guidance does not affect recognition or measurement in the

Company’s consolidated financial statements.

Note 3 – Inventories, net

1 unchanged sentence

Schedule of inventories

September 30,

Finished goods

3 unchanged sentences

Schedule of property, plant and equipment

September 30,

Buildings and improvements

7 unchanged sentences

Schedule of goodwill

Balance at December 31, 2022, before accumulated impairment loses

Accumulated impairment losses

Balance at December 31, 2023

Balance at September 30, 2023

Accumulated impairment losses

Balance at March 31, 2024

Accumulated impairment losses

Intangible Assets

1 unchanged sentence

Schedule of finite-lived intangible assets

September 30, 2023

March 31, 2024

December 31, 2023

Customer lists and other customer related intangibles

Customer relationship

Customer relationships

Total intangible assets, net

2 unchanged sentences

Schedule of estimated amortization expense on intangible assets

Three months ended December 31, 2023

Nine months ended December 31, 2024

The weighted-average remaining amortization expense

period for the customer relationship and brand name intangible assets is 12.3 and 12.6 years, respectively, as of March 31, 2024.

weighted-average remaining amortization expense period for total intangible assets is 12.5 years as of March 31, 2024.

Note 6 – Accrued Expenses

1 unchanged sentence

Schedule of accrued expenses

September 30,

Payroll and incentive compensation

5 unchanged sentences

Schedule of debt

September 30,

Term loan due August 18, 2026.

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

Interest (7.39% at March 31, 2024) payable monthly.

Unamortized deferred financing costs

3 unchanged sentences

The scheduled maturities of the term loan, excluding deferred financing

costs, at September 30, 2023 are as follows:

costs, at March 31, 2024 are as follows:

Schedule of maturities of long-term debt

Three months ended December 31, 2023

Nine months ended December 31, 2024

Total term loan

Credit Agreement

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.

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 million .

The termination date of the term loan is August 18, 2026 , unless

earlier terminated.

The termination date of the revolving credit facility is June 30, 2025 , unless earlier terminated.

All outstanding amounts under the Credit Agreement

1 unchanged sentence

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

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 Credit Agreement includes customary representations,

7 unchanged sentences

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 September 30, 2023.

Lifeway was in compliance with the fixed charge coverage

ratio and minimum working capital covenants at March 31, 2024.

Revolving Credit Facility

As of March 31, 2024, the Company had $ 0 outstanding

under the Revolving Credit Facility.

The Company had $ 5,000 available for future borrowings under the Revolving Credit Facility as of

March 31, 2024.

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.

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.

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.

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 $ 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

Total lease expense was $ 35 and $ 31 (including short term leases) for the three months ended March 31, 2024 and 2023, respectively.

Future maturities of lease liabilities were as follows:

Schedule of future maturities of lease liabilities

Operating Leases

Three months ended December 31, 2023

Nine months ended December 31, 2024

Total lease payments

Present value of lease liabilities

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.

The weighted-average remaining lease term for its

operating leases was 3.5 years as of March 31, 2024.

The weighted average discount rate of its operating leases was 9.49 % as of March

Cash paid for amounts included in the measurement of lease liabilities was $ 24 and $ 25 for the three months ended March 31,

2024 and 2023, respectively.

Note 9 – Commitments and contingencies

2 unchanged sentences

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

Lifeway records provisions in the consolidated

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

can be reasonably 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

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.

Note 10 – Income taxes

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.

Income taxes were recognized at effective rates of

30.8 % and 37.9 % for the three months ended March 31, 2024 and 2023, 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

9 unchanged sentences

in pre-tax income in 2024 compared to 2023.

Unrecognized tax benefits were $ 0 at September

Unrecognized tax benefits were $ 0 at March 31, 2024

and 2023, respectively.

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

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

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 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

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 2015 Omnibus Incentive Plan, the Board of Directors or its Compensation Committee approves stock

awards to executive officers and certain senior executives, generally in the form of restricted stock or performance shares.

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 March 31, 2024, 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.

7 unchanged sentences

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,

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 March 31, 2024, 2.64

million shares remain available to award under the 2022 Plan.

Stock Options

The following table summarizes stock option activity during the nine

months ended September 30, 2023:

The following table summarizes stock option activity during the three months

ended March 31, 2024:

Schedule of stock option activity

2 unchanged sentences

intrinsic value

(In thousands)

Outstanding at December 31, 2023

Outstanding at September 30, 2023

Exercisable at September 30, 2023

Outstanding at March 31, 2024

Exercisable at March 31, 2024

Restricted Stock Units

6 unchanged sentences

The following

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

Schedule of RSU Activity

table summarizes RSU activity during the three months ended March 31, 2024.

Schedule of RSUs Activity

Restricted Stock Units

Weighted Average Grant Date Fair Value

(In thousands)

Outstanding at December 31, 2023

Shares issued upon vesting

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

Outstanding at March 31, 2024

Vested and deferred at March 31, 2024

For the three months ended March 31, 2024 and 2023

total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ 233 and $ 104 , respectively.

For the three months ended March 31, 2024 and 2023 tax-related benefits of $ 65 and $ 29 , respectively, were also recognized.

Future compensation

expense related to restricted stock units was $ 918 as of March 31, 2024 and will be recognized on a weighted average basis over the next

Long-Term Incentive Plan Compensation

2 unchanged sentences

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 Lifeway’s 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.

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.

The issuance of vested equity awards is subject to approval

under the Stock Purchase Agreement dated October 1, 1999.

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 September 30,

2023 and 2022, $ 18 and $ 44 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 $ 42 , of which $ 18 will be recognized in 2023, and $ 24 in 2024,

respectively, subject to vesting.

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.

The issuance of vested equity awards is subject to

approval under the Stock Purchase Agreement dated October 1, 1999.

For the three months ended March 31, 2024 and 2023, $ 18 and $ 43 was

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

As of March 31, 2024, the total

remaining unearned compensation of $ 6 will be recognized in 2024, 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 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.

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

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 three months ended March 31, 2024 and 2023, $ 33 and $ 84 was

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

As of March 31, 2024, the total

remaining unearned compensation of $ 7 will be recognized in 2024, 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.

Under the 2022 long-term incentive plan, participants

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

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

The strategic milestones are 1) 3-year cumulative

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

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

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

Participants may earn more or less than the target number of shares based on actual results, however the minimum and maximum number

of shares that can be earned are bound by minimum and maximum thresholds of net revenue and adjusted EBITDA.

The PSU awards will be

earned and will vest, if at all, after the end of the three-year measurement period based on achievement of the milestones.

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.

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 Units section above.

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 three months ended March 31, 2024 and 2023, $ 156 and $ 112 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 Units section above.

2023 Equity Award

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have a grant date fair value of $6.88 dollars per share.

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

For the three months ended March 31, 2024 and 2023, $ 130 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.

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.

2024 Equity Award

Under the 2024 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 2024 to 2026.

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 64,986 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 $13.73 dollars per share.

For the three months ended March 31, 2024 and 2023, $ 102 and $ 0 was expensed

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

The 2024 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 January 10, 2024 grant date.

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

Stock Units section above.

Non-Employee Director Plan

9 unchanged sentences

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.

As of March 31, 2024, 430 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

3 unchanged sentences

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 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.

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 three months ended March 31, 2024 and 2023, total contribution expense recognized in the consolidated statements of operations

was $ 193 and $ 150 , 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

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

Schedule of weighted average number of shares outstanding

Three Months Ended

Nine months Ended

September 30,

(In Thousands)

2 unchanged sentences

Weighted average diluted common shares outstanding

Note 13 – Related Party Transactions

Consulting Services

Lifeway obtained consulting services from Ludmila

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

On January 4, 2022, the

Company notified Ms.

Smolyansky that it was terminating the amended and restated consultancy agreement effective January 17, 2022.

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 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

Lifeway was also a party to an endorsement agreement,

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

Chairperson of its Board of Directors (the “Endorsement Agreement”) under which it paid the Chairperson a royalty based on

the sale of certain Lifeway products, not to exceed $50 in any fiscal month.

On September 6, 2022, the Company entered into

an agreement (the “Termination Agreement”) with Ms.

Smolyansky that terminated the Endorsement Agreement as of September 6,

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.

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 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.

Note 13 – Disaggregation of Revenue and Significant Customers

Lifeway’s primary product is drinkable kefir.

The Company manufactures (directly or through a co-manufacturer) and markets products under the Lifeway, Fresh Made, and GlenOaks Farms

brand names, as well as under private labels on behalf of certain customers.

The Company’s product categories are:

Drinkable kefir, a cultured dairy product sold in a variety of organic and non-organic sizes, flavors, and types.

European-style soft cheeses, including farmer cheese, white cheese, and Sweet Kiss.

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

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

ProBugs, a line of kefir products designed for children.

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

Net sales of products by category were as follows

for the three months ended March 31:

Schedule of sales of products by category

Drinkable Kefir other than ProBugs

Cream and other

Drinkable Yogurt

ProBugs Kefir

Significant Customers

Sales are predominately to companies in the retail

food industry located within the United States.

Two major customers accounted for approximately 25 % and 24 % of net sales for the three

months ended March 31, 2024 and 2023, respectively.

Geographic Information

Net sales outside the of the United States represented

less than 1% of total consolidated net sales for the three months ended March 31, 2024 and 2023.

Net sales are determined based on the

destination where the products are shipped by Lifeway.

All the Company’s long-lived assets are in the

United States.

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