What changed in this filing

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Item 1. Financial Statements

2026-08-13 compared with 2026-05-14 · 277 added, 241 removed, 332 unchanged (61% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

March 31, 2026 and December 31, 2025

June 30, 2026 and December 31, 2025

(In thousands)

March 31, 2026

June 30, 2026

Current assets

Cash and cash equivalents

Accounts receivable, net of allowance for credit losses and discounts & allowances of $ 2,530

and $ 1,730 at March 31, 2026 and December 31, 2025, respectively

Accounts receivable, net of allowance for credit losses and discounts & allowances of $ 2,800 and $ 1,730 at June 30, 2026 and December 31, 2025, respectively

Inventories, net

22 unchanged sentences

17,274 shares issued;

15,282 and 15,232 outstanding

at March 31, 2026 and December 31, 2025, respectively

15,105 and 15,232 outstanding at June 30, 2026 and December 31, 2025, respectively

Treasury stock, at cost

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 months ended March 31, 2026 and

For the three and six months ended June 30, 2026

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Cost of goods sold

8 unchanged sentences

Interest expense

Gain on sales of investments

Fair Value Loss on investments

Gain on sale of investments

Other income (expense), net

Total other (expense) income

Total other income (expense)

Income before provision for income taxes

2 unchanged sentences

Weighted average common shares outstanding:

See accompanying notes to consolidated financial

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

(In thousands)

3 unchanged sentences

Balance, March 31, 2025

LIFEWAY FOODS, INC.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’

(In thousands)

Issuance of common stock in connection with stock-based compensation

Stock-based compensation

Balance, June 30, 2025

Balance, January 1, 2026

3 unchanged sentences

Balance, March 31, 2026

See accompanying notes to consolidated financial

Issuance of common Stock

Repurchase of common stock

Stock-based compensation

Balance, June 30, 2026

See accompanying notes to consolidated financial statements

LIFEWAY FOODS, INC.

2 unchanged sentences

(In thousands)

Three months ended March

Six months ended June 30,

Cash flows from operating activities:

4 unchanged sentences

Bad debt expense

Gain on sale of equipment

Gain on sale of investments

9 unchanged sentences

Other long-term liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from sale of equipment

Proceeds from sale of investments

1 unchanged sentence

Cash flows from financing activities:

Purchase of treasury stock

Borrowings under line of credit

11 unchanged sentences

Accrued purchase of property and equipment

Right-of-use assets obtained in exchange for lease

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.

14 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, 2025, 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, 2025, 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.

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

Advertising costs are expensed as incurred and

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

Total advertising expense was $ 3,375 and $ 2,136

for the three months ended March 31, 2026 and 2025, respectively.

Advertising costs are expensed as incurred and reported

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

Total advertising expense was $ 8,162 and $ 4,418 for the

six months ended June 30, 2026 and 2025, respectively.

Total advertising expense was $ 4,787 and $ 2,282 for the three months ended June

30, 2026 and 2025, respectively.

Fair value measurements

2 unchanged sentences

The Company received cash proceeds of $ 5,206 and recognized

a gain on the sale of investment of $ 3,352 during the three months ended March 31, 2025.

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.

a gain on the sale of investment of $ 3,407 during the six months ended June 30, 2025.

The Company received cash proceeds of $ 54 and recognized

a gain on the sale of investment of $ 54 during the three months ended June 30, 2025.

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

30 unchanged sentences

Accumulated impairment losses

Balance at March 31, 2026

Balance at June 30, 2026

Accumulated impairment losses

2 unchanged sentences

Schedule of other intangible assets

March 31, 2026

June 30, 2026

December 31, 2025

5 unchanged sentences

Schedule of future amortization expense on intangible assets

Nine months ended December 31, 2026

Six months ended December 31, 2026

The weighted-average remaining amortization expense

period for the customer relationship and brand name intangible assets is 10.3 and 10.6 years, respectively, as of March 31, 2026.

weighted-average remaining amortization expense period for total intangible assets is 10.5 years as of March 31, 2026.

period for the customer relationship and brand name intangible assets is 10.1 and 10.4 years, respectively, as of June 30, 2026.

The weighted-average

remaining amortization expense period for total intangible assets is 10.3 years as of June 30, 2026.

Note 6 – Accrued Expenses

7 unchanged sentences

Revolving Credit Facility

On February 5, 2025,

the Company entered into the Fifth Modification to the Amended and Restated Loan and Security Agreement (the “Fifth Modification”)

On February 5, 2025, the

Company entered into the Fifth Modification to the Amended and Restated Loan and Security Agreement (the “Fifth Modification”)

with its current lender.

The Fifth Modification, among other things, (i) increased the commitment for revolving loans under the Credit

Agreement from $5,000 to $ 25,000 , with interest payable at either the lender Base Rate (the Prime Rate minus 1.00%) or the SOFR plus 1.75%,

(ii) extended the termination date of the Credit Agreement to February 5, 2028, (iii) replaced the quarterly minimum working capital financial

covenant with a financial covenant to maintain a maximum cash flow leverage ratio of no greater than 2.00 to 1.00 for each fiscal quarter

commencing with the fiscal quarter ending March 31, 2025, (iv) increased the quarterly unused revolving line of credit fee to 0.25%, and

(v) increased the letter of credit fee to 1.00%.

The remaining material terms and conditions of the Credit Agreement remain substantially

The Company had no outstanding borrowings at the time of entry into the Fifth Modification.

On December 29, 2025,

the Company entered into the Sixth Modification to the Amended and Restated Loan and Security Agreement (the “Sixth Modification”)

Agreement from $5,000 to $ 25,000 , with interest payable at either the lender Base Rate (the Prime Rate minus 1.00%) or the Secured Overnight

Financing Rate (“SOFR”) plus 1.75%, (ii) extended the termination date of the Credit Agreement to February 5, 2028, (iii)

replaced the quarterly minimum working capital financial covenant with a financial covenant to maintain a maximum cash flow leverage ratio

of no greater than 2.00 to 1.00 for each fiscal quarter commencing with the fiscal quarter ending March 31, 2025, (iv) increased the quarterly

unused revolving line of credit fee to 0.25%, and (v) increased the letter of credit fee to 1.00%.

The remaining material terms and conditions

of the Credit Agreement remain substantially unchanged.

The Company had no outstanding borrowings at the time of entry into the Fifth

Modification.

On December 29, 2025, the

Company entered into the Sixth Modification to the Amended and Restated Loan and Security Agreement (the “Sixth Modification”)

with its current lender.

7 unchanged sentences

The Company had no outstanding borrowings at the time of entry into the Sixth Modification.

As of March 31, 2026, the Company had $ 7,000

outstanding under the Revolving Credit Facility.

The Company had $ 18,000

available for future borrowings under the Revolving Credit Facility as of March 31, 2026.

Lifeway’s interest rate on debt

outstanding under the Revolving Credit Facility as of March 31, 2026 was 5.54 %.

Lifeway was in compliance with the fixed charge

coverage ratio and maximum cash flow leverage ratio covenants at March 31, 2026.

As of June 30, 2026, the Company had $ 22,000 outstanding

under the Revolving Credit Facility and net unamortized deferred financing costs of $ 55 related to the Revolving Credit Facility which

were included as a direct deduction from the outstanding line of credit.

The Company had $ 3,000 available for future borrowings under

the Revolving Credit Facility as of June 30, 2026.

Lifeway’s interest rate on debt outstanding under the Revolving Credit Facility

as of June 30, 2026 was 5.48 %.

Interim Funding Agreement

On June 30, 2026, the Company entered into a Master

Security Agreement (the “MSA”) with its current lender.

The MSA provides for loan advances under an Interim Funding Agreement

(the “Interim Funding Agreement”) to finance or refinance the acquisition of equipment, subject to lender’s acceptance

of collateral documentation, up to $ 22,000,000 in the aggregate, during an interim funding period which expires June 30, 2027 .

on the loan advances is payable monthly in arrears at the 1-month Term SOFR plus 1.65 %.

Upon the conclusion of loan advances under the

Interim Funding Agreement, and the execution of a Collateral Schedule by lender and Lifeway, all loan advances outstanding on the date

of such Collateral Schedule (the “Conversion Date”), shall be converted into the Equipment Guidance Line Note (the “Note”).

The note is payable in monthly installments of principal and interest and matures five years after the Conversion Date.

Interest is payable

monthly in arrears at the 1-month Term SOFR plus 1.65 %.

There were no advances outstanding under the Interim

Funding Agreement as of June 30, 2026.

Lifeway was in compliance with the fixed charge coverage

ratio and maximum cash flow leverage ratio covenants at June 30, 2026.

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 $ 62 and $ 37 (including short term leases) for the three months ended March 31, 2026 and 2025, respectively.

Future maturities of lease liabilities were as

Total lease expense was $ 135 and $ 95 (including short term leases) for the six months ended June 30, 2026 and 2025, respectively.

Total lease expense was $ 73 and $ 58 (including short term leases) for the three months ended June 30, 2026 and 2025, respectively.

Future maturities of lease liabilities were as follows:

Schedule of future maturities of lease liabilities

Operating Leases

Nine months ended December 31, 2026

Six months ended December 31, 2026

Total lease payments

Present value of lease liabilities

The weighted-average remaining lease term for

its operating leases was 4.3 years as of March 31, 2026.

The weighted average discount rate of its operating leases was 9.70 % as of March

Cash paid for amounts included in the measurement of lease liabilities was $ 45 and $ 19 for the three months ended March 31,

2026 and 2025, respectively.

The weighted-average remaining lease term for its

operating leases was 4.1 years as of June 30, 2026.

The weighted average discount rate of its operating leases was 9.74 % as of June 30,

Cash paid for amounts included in the measurement of lease liabilities was $ 90 and $ 47 for the six months ended June 30, 2026 and

2025, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 45 and $ 28 for the three months ended

June 30, 2026 and 2025, 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 25.3 % and 28.7 % for the three months ended March 31, 2026 and 2025, respectively.

The change in the Company’s effective tax rate

is primarily driven by the increase in pre-tax book income and changes in the amount of non-deductible officer compensation and non-deductible

stock-based compensation expense.

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.

of 28.0 % and 28.4 % for the six months ended June 30, 2026 and 2025, respectively.

Income taxes were recognized at effective rates of 68.7 %

and 28.1 % for the three months ended June 30, 2026 and 2025, respectively.

Statutory Federal and state tax rates remained consistent from

2025 to 2026.

The Company has items that are nondeductible or are discrete adjustments to tax expense.

The Company consistently reflects

non-deductible officer compensation expense, non-deductible stock-based compensation expense and separate state tax rates from period

Although similar items were reflected in the three months ended June 30 , 2026, the percentage effect is different due to the

difference in pre-tax income in the three months ended June 30, 2026 compared to the same period in 2025.

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

4 unchanged sentences

income tax items such as enacted tax rate changes and completed tax audits in the period in which they occur.

On July 4, 2025, the One Big Beautiful Bill Act

(“OBBBA”) was signed into law, which includes a broad range of tax reform provisions that may affect the Company’s financial

The OBBBA changes to corporate taxation include, but are not limited to, 100% bonus depreciation for purchases of qualified property,

an elective deduction for domestic research and experimental expenditures, changes to the definition of adjusted taxable income for purposes

of determining the interest deduction limitation under Internal Revenue Code Section 163(j), and a more favorable tax rate on Foreign-Derived

Deduction Eligible Income and income from non-U.S.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”)

was signed into law, which includes a broad range of tax reform provisions that may affect the Company’s financial results.

OBBBA changes to corporate taxation include, but are not limited to, 100% bonus depreciation for purchases of qualified property, an elective

deduction for domestic research and experimental expenditures, changes to the definition of adjusted taxable income for purposes of determining

the interest deduction limitation under Internal Revenue Code Section 163(j), and a more favorable tax rate on Foreign-Derived Deduction

Eligible Income and income from non-U.S.

subsidiaries (Net CFC Tested Income).

The OBBBA does not have a material impact on

our estimated annual effective tax rate.

The OBBBA does not have a material impact on our estimated

annual effective tax rate.

Management is assessing the impact on cash flows for the current fiscal year.

Note 11 – Stock-based and Other Compensation

Employee Incentive and Non-Employee Director

Employee Incentive and Non-Employee Director Plans

The Board of Directors adopted, and the Company’s

6 unchanged sentences

The maximum number of shares authorized to be awarded under the Plan is 3.25 million.

March 31, 2026, 2.57 million shares remain available to award under the Plan.

June 30, 2026, 2.57 million shares remain available to award under the Plan.

Lifeway stockholders approved the 2022 Non-Employee

1 unchanged sentence

The maximum aggregate number of shares that may be issued under the 2022 Director Plan is 500 thousand.

As of March 31, 2026, 379

As of June 30, 2026, 376

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

3 unchanged sentences

Three Months Ended

Six Months Ended

(In Thousands)

2 unchanged sentences

Stock Options

The following table summarizes stock option activity during the three

months ended March 31, 2026:

The following table summarizes stock option activity during the six months

ended June 30, 2026:

Schedule of stock option activity

4 unchanged sentences

Outstanding at December 31, 2025

Outstanding at March 31, 2026

Exercisable at March 31, 2026

Outstanding at June 30, 2026

Exercisable at June 30, 2026

Restricted Stock Units

Restricted stock unit awards generally vest in

approximately three equal installments on each yearly anniversary of the grant date.

Certain non-employee directors have elected to defer

receipt of their awards until their departure from the Board of Directors.

The following table summarizes restricted stock

unit activity during the three months ended March 31, 2026.

Restricted stock unit awards generally vest in approximately

three equal installments on each yearly anniversary of the grant date.

Certain non-employee directors have elected to defer receipt of

their awards until their departure from the Board of Directors.

The following table summarizes restricted stock unit

activity during the six months ended June 30, 2026.

Schedule of RSU activity

4 unchanged sentences

Shares settled in cash

Nonvested, at March 31, 2026

Earned and deferred at March 31, 2026

Nonvested, at June 30, 2026

Earned and deferred at June 30, 2026

Unrecognized compensation expense related to nonvested

restricted stock units was $ 759 as of March 31, 2026 and will be recognized over a weighted average period of 1.1 years.

restricted stock units was $ 559 as of June 30, 2026 and will be recognized over a weighted average period of 0.9 years.

The grant date

1 unchanged sentence

Performance Units

Performance unit awards are granted to certain

members of management.

Performance unit awards are granted to certain members

of management.

These awards include both service and performance conditions.

For performance unit awards granted in fiscal

years 2024 through 2026, performance goals are established upfront and are measured over a cumulative three-year measurement period.

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

The target number of performance unit

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

Participants may earn more or less than the target number of units,

and 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.

These awards will be converted to stock upon vesting.

The following table summarizes performance unit

activity during the three months ended March 31, 2026.

For performance unit awards granted in fiscal years

2024 through 2026, performance goals are established upfront and are measured over a cumulative three-year measurement period.

The performance

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

The target number of performance unit awards are

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

Participants may earn more or less than the target number of units, and 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.

The following table summarizes performance unit activity

during the six months ended June 30, 2026.

Schedule of performance units

Weighted Average Grant

Date Fair Value

Weighted Average Grant Date Fair Value

(In thousands)

1 unchanged sentence

Shares issued upon vesting

Nonvested, at March 31, 2026

Includes 51 thousand

additional shares granted in connection with the vesting of the 2023 award in 2026 due to above-target performance in accordance

with the terms of the award.

Nonvested, at June 30, 2026

Includes 51 thousand additional shares granted in connection with the vesting of the 2023 award in 2026 due to above-target performance in accordance with the terms of the award.

Unrecognized compensation expense related to nonvested

performance units is estimated to be approximately $ 1,627 as of March 31, 2026 and are expected to be recognized over a weighted average

performance units is estimated to be approximately $ 1,365 as of June 30, 2026 and is expected to be recognized over a weighted average

period of 1.1 years.

The grant date fair value of the awards is equal to the Company’s closing price on the grant date.

Deferred Time-Vested and Performance-Based

On March 6, 2026, the Company granted deferred

cash awards, consisting of time-vested and performance-based awards, to the Chief Executive Officer and Chief of Staff.

These awards were

issued as part of the Company’s fiscal-year 2026 long-term incentive program, structured as cash awards to comply with the Company’s

contractual obligations prohibiting the issuance of equity to the Chief Executive Officer and certain of her affiliates.

Deferred Time-Vested and Performance-Based Cash

On March 6, 2026, the Company granted deferred cash

awards, consisting of time-vested and performance-based awards, to the Chief Executive Officer and Chief of Staff.

These awards were issued

as part of the Company’s fiscal-year 2026 long-term incentive program, structured as cash awards to comply with the Company’s

contractual obligations applicable at the time of the grant prohibiting the issuance of equity to the Company’s Chief Executive

Officer and certain of her affiliates.

The deferred time-vested cash awards vest in approximately

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

The target cash awards are weighted 50% on net revenue and

50% on adjusted EBITDA.

Participants may earn more or less than the target cash award, and are bound by minimum and maximum thresholds

of net revenue and adjusted EBITDA.

The deferred performance-based cash awards will be earned and will vest, if at all, after the end

of the three-year measurement period.

The target cash awards are weighted 50% on net revenue and 50% on adjusted EBITDA.

Participants may earn more or less than the target cash award, and are bound by minimum and maximum thresholds of net revenue and adjusted

The deferred performance-based cash awards will be earned and will vest, if at all, after the end of the three-year measurement

The deferred cash awards may be settled in cash, common

stock or a combination of cash and common stock at the discretion of the Company.

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 three months ended March 31, 2026 and 2025, total contribution expense recognized in the consolidated statements

of operations was $ 251 and $ 261 , 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 six months ended June 30, 2026 and 2025, total contribution expense recognized in the consolidated statements of operations was

$ 473 and $ 413 , respectively.

For the three months ended June 30, 2026 and 2025, total contribution expense recognized in the consolidated

statements of operations was $ 222 and $ 152 , 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 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 per share:

Schedule of weighted average number of shares outstanding

Three Months Ended

Six Months Ended

(In thousands)

2 unchanged sentences

Weighted average diluted common shares outstanding

Note 13 – Disaggregation of Revenue and Significant Customers

The Company has one reportable segment, which

manufactures and distributes cultured dairy products.

Our products are produced using the same processes and materials and are sold to

consumers through a common network of distributors and retailers.

The Company derives revenue primarily in North America and manages the

business activities on a consolidated basis.

The business activities include selling cultured dairy products across various channels including

retail-direct, distributor, and direct store delivery in a refrigerated format.

We operate our business with a centralized financial systems

infrastructure, and we share centralized resources for procurement and general and administrative activities.

The accounting policies

of the segment are the same as those described in the Summary of Significant Accounting Policies for the Company.

Refer to Note 1 for

additional information.

The Chief Executive Officer (“CEO”)

has been identified as our Chief Operating Decision Maker (“CODM”).

The Company manages operations on a company-wide basis,

thereby making determinations as to the allocation of resources as one segment.

13 – Reportable Segments and Disaggregated Revenue

The Company has one reportable segment, which manufactures

and distributes cultured dairy products.

Our products are produced using the same processes and materials and are sold to consumers through

a common network of distributors and retailers.

The Company derives revenue primarily in North America and manages the business activities

on a consolidated basis.

The business activities include selling cultured dairy products across various channels including retail-direct,

distributor, and direct store delivery in a refrigerated format.

We operate our business with a centralized financial systems infrastructure,

and we share centralized resources for procurement and general and administrative activities.

The accounting policies of the segment are

the same as those described in the Summary of Significant Accounting Policies for the Company.

Refer to Note 1 for additional information.

The Chief Executive Officer (“CEO”) has

been identified as our Chief Operating Decision Maker (“CODM”).

The Company manages operations on a company-wide basis, thereby

making determinations as to the allocation of resources as one segment.

The CODM uses consolidated single-segment financial information

3 unchanged sentences

as total assets.

Products from which the reportable segment

derives its revenue

Products from which the reportable segment derives

Lifeway’s primary product is drinkable kefir.

6 unchanged sentences

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.

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

Net sales of products by category were as follows

for the three months ended March 31:

Schedule of segment products by category

Drinkable Kefir other than ProBugs

for the six months ended June 30:

Schedule of net sales products by category

Drinkable Kefir

Cream and other

Drinkable Yogurt

ProBugs Kefir

Net sales of products by category were as follows

for the three months ended June 30:

Drinkable Kefir

Cream and other

Drinkable Yogurt

Beginning in the second quarter of 2026, ProBugs Kefir

net sales are included in Drinkable Kefir.

Prior period amounts have been reclassified in the three and six-month tables above.

Significant Customers

1 unchanged sentence

food industry located within the United States.

Two major customers accounted for a total of 26 % and 24 % of net sales for the three months

ended March 31, 2026 and 2025, respectively.

Two major customers accounted for a total of 25 % of net sales for the six months ended

June 30, 2026 and 2025.

Two major customers accounted for a total of 25 % of net sales for the three months ended June 30, 2026 and 2025.

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, 2026 and 2025.

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.

less than 1% of total consolidated net sales for the six and three months ended June 30, 2026 and 2025.

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.

Note 14 – Shareholder Rights Plan

On November 4, 2024, the Company adopted a Shareholder

Rights Agreement (the “Rights Agreement”) and designated 40 shares of preferred stock as Series A Junior Participating Preferred

Stock, none of which are issued or outstanding as of December 31, 2025.

Pursuant to the Rights Agreement, the Company’s board of

directors declared a dividend of one preferred share purchase right (each a “Right”) for each outstanding share of Company

common stock to stockholders of record as of the close of business on November 18, 2024.

Each Right entitles its holder, subject to the

terms of the Rights Agreement, to purchase from the Company one one-thousandth of one share of Series A Junior Participating Preferred

Stock, no par value, of the Company at an exercise price of $ 130 .00 per Right, subject to adjustment.

Rights will attach to any shares

of Company common stock that become outstanding after November 18, 2024 and prior to the earlier of the Distribution Time (as defined

in the Rights Agreement) and the redemption or expiration of the Rights, and in certain other circumstances described in the Rights Agreement.

On October 29, 2025, the Company entered into

Amendment No.

1 to the Shareholder Rights Agreement (the “Rights Agreement”).

The Rights Agreement was originally scheduled

to expire at the end of November 4, 2025.

The Company entered into the Amendment, which extended the expiration to the end of October

29, 2026 (and made other conforming changes to the Rights Agreement).

No other material changes were made to the Rights Agreement.

On June 5, 2026, the board of directors authorized

and directed the Company to redeem rights of shareholders outstanding on June 5, 2026 to a dividend of Series A Junior Participating Preferred

Stock (the “Rights”) declared pursuant to that certain Shareholder Rights Agreement with Computershare Trust Company, N.A.,

as rights agent dated November 4, 2024, as amended (as amended from time to time, the “Rights Agreement”).

Upon such redemption,

the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the redemption price of $ 0.001 for

each Right so held and the Rights Agreement will terminate and be of no further force or effect.

Note 15 – Organic Milk Supply

To increase the supply of organic milk available

to the Company for the manufacture of finished goods, the Company purchased mature dairy cows (or the “herd”) which will be

managed by a third-party dairy facility (the “Dairy”), and entered into a supply and purchase agreement (“SPA”)

with a COOP (the “COOP”) to purchase the milk produced by the herd.

The Company purchased 799 mature dairy cows during 2025

for $ 2,870 .

As amended in September 2025, the Company entered

into a sixty month agreement (the “Herd Agreement”) with a third-party Dairy who will manage care of the herd, milk the herd,

and sell the milk to the COOP under the SPA, with a right to purchase the herd at the end of the agreement period for a nominal amount.

To increase the supply of organic milk available to

the Company for the manufacture of finished goods, the Company purchased mature dairy cows (or the “herd”) which will be managed

by a third-party dairy facility (the “Dairy”), and entered into a supply and purchase agreement (“SPA”) with a

COOP (the “COOP”) to purchase the milk produced by the herd.

The Company purchased 799 mature dairy cows during 2025 for $ 2,870 .

On September 15, 2025, the Company entered into the

First Amended Herd Agreement (the “Herd Agreement”) with the Dairy who will manage care of the herd, milk the herd, and sell

the milk to the COOP under the SPA, with a right to purchase the herd at the end of the sixty-month agreement period for a nominal amount.

Beginning December 1, 2025, the Dairy will make monthly payments to Lifeway over the five year agreement period in exchange for its right

to possess and control the herd, including the right to sell milk produced by the herd to the COOP.

The herd agreement is treated as a sale of non-financial assets to

a party that is not a customer.

The Company will recognize a sale upon the delivery of each herd to the Dairy, with interest income recognized

over the agreement period.

The Company has recorded $ 824 in prepaid and other current assets and $ 2,046 in other assets as of March 31,

2026 related to the herd agreement with no recorded gain or loss on sale.

The Company records the purchases of dairy cows as investing

outflows, principal payments received as investing inflows and interest income as operating inflows on the statement of cash flows.

On June 30, 2026, the Company entered into the Second

Amended Herd Agreement with the Dairy, with an effective date (“effective date”) of April 1, 2026.

The Second Amendment, among

other things, (1) modifies the agreement period to thirty-six months from the effective date, and (2) modifies the monthly payment amount

to Lifeway over the thirty-six month agreement period.

The herd agreement is treated as a sale of non-financial

assets to a party that is not a customer.

The Company will recognize a sale upon the delivery of each herd to the Dairy, with interest

income recognized over the agreement period.

The Company has recorded $ 830 in prepaid and other current assets and $ 1,836 in other assets

as of June 30, 2026 related to the herd agreement with no recorded gain or loss on sale during 2026 or 2025.

The Company records the purchases

of dairy cows as investing outflows, principal payments received as investing inflows, and interest income as operating inflows on the

statement of cash flows.

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