LIFEWAY FOODS, INC. 10-Q 季度報告摘要（截至 2026 年 3 月 31 日）

LIFEWAY FOODS, INC. 10-Q

 
 false
 --12-31
 Q1
 2026
 0000814586
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1
 1
 
 
 
 
 
 
 
 0000814586
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:CommonStockNoParValueMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:PreferredStockPurchaseRightsMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 
 2026-05-08
 
 
 
 
 0000814586
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:CommonStockMember
 
 
 
 2024-12-31
 
 
 
 
 0000814586
 
 us-gaap:TreasuryStockCommonMember
 
 
 
 2024-12-31
 
 
 
 
 0000814586
 
 us-gaap:AdditionalPaidInCapitalMember
 
 
 
 2024-12-31
 
 
 
 
 0000814586
 
 us-gaap:RetainedEarningsMember
 
 
 
 2024-12-31
 
 
 
 
 0000814586
 
 
 2024-12-31
 
 
 
 
 0000814586
 
 us-gaap:CommonStockMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:TreasuryStockCommonMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:AdditionalPaidInCapitalMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:RetainedEarningsMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:CommonStockMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:TreasuryStockCommonMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:AdditionalPaidInCapitalMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:RetainedEarningsMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:CommonStockMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:TreasuryStockCommonMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:AdditionalPaidInCapitalMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:RetainedEarningsMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:CommonStockMember
 
 
 
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:TreasuryStockCommonMember
 
 
 
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:AdditionalPaidInCapitalMember
 
 
 
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:RetainedEarningsMember
 
 
 
 2025-03-31
 
 
 
 
 0000814586
 
 
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:CommonStockMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:TreasuryStockCommonMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:AdditionalPaidInCapitalMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:RetainedEarningsMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:LandMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:LandMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 LWAY:BuildingAndImprovementsMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:BuildingAndImprovementsMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:MachineryAndEquipmentMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:MachineryAndEquipmentMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:VehiclesMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:VehiclesMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:OfficeEquipmentMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:OfficeEquipmentMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:ConstructionInProgressMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:ConstructionInProgressMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 LWAY:RecipesMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:RecipesMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 LWAY:CustomerListsAndOtherCustomerRelatedIntangiblesMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:CustomerListsAndOtherCustomerRelatedIntangiblesMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:CustomerRelationshipsMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:CustomerRelationshipsMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 LWAY:BrandNamesMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:BrandNamesMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 LWAY:FormulaMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:FormulaMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:CustomerRelationshipsMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:BrandNamesMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:RevolvingCreditFacilityMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:RevolvingCreditFacilityMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:OmnibusIncentivePlan2022Member
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:DirectorPlan2022Member
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:RestrictedStockUnitsRSUMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:RestrictedStockUnitsRSUMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:PerformanceSharesMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:PerformanceSharesMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:DefinedContributionPlanMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:DefinedContributionPlanMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 us-gaap:StockOptionMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:StockOptionMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:StockOptionMember
 
 
 
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:RestrictedStockUnitsRSUMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:PerformanceSharesMember
 
 
 
 2025-12-31
 
 
 
 
 0000814586
 
 us-gaap:SalesRevenueNetMember
 LWAY:TwoCustomersMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 us-gaap:SalesRevenueNetMember
 LWAY:TwoCustomersMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:DrinkableKefirotherthanProBugsMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:DrinkableKefirotherthanProBugsMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:DrinkableKefirotherthanProBugsMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:DrinkableKefirotherthanProBugsMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:CheeseMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:CheeseMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:CheeseMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:CheeseMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:CreamAndOtherMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:CreamAndOtherMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:CreamAndOtherMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:CreamAndOtherMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:DrinkableYogurtMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:DrinkableYogurtMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:DrinkableYogurtMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:DrinkableYogurtMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:ProBugsKefirMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:ProBugsKefirMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:ProBugsKefirMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:ProBugsKefirMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:OtherDairyMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:OtherDairyMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:OtherDairyMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:OtherDairyMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:NetSalesMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:NetSalesMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2026-01-01
 2026-03-31
 
 
 
 
 0000814586
 
 LWAY:NetSalesMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:NetSalesMember
 us-gaap:SalesRevenueNetMember
 us-gaap:CustomerConcentrationRiskMember
 
 
 
 2025-01-01
 2025-03-31
 
 
 
 
 0000814586
 
 LWAY:SeriesAJuniorParticipatingPreferredStockMember
 
 
 
 2024-11-04
 
 
 
 
 0000814586
 
 LWAY:HerdAgreementMember
 
 
 
 2026-03-31
 
 
 
 iso4217:USD
 
 
 xbrli:shares
 
 
 
 
 iso4217:USD
 
 
 xbrli:shares
 
 
 
 
 xbrli:pure
 
 
 LWAY:Cows
 
 
 LWAY:Integer
 
 
 
 
 

 Table of
Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒       QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2026

 

☐       TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to
__________

 

Commission File Number: 001-42398

 

LIFEWAY FOODS, INC.

(Exact name of registrant as specified in
its charter)

 

 
 Illinois
 36-3442829

 
 
 (State or other jurisdiction of

 incorporation or organization)

 
 (I.R.S. Employer

 Identification No.)

 
 

6431 West Oakton, Morton Grove, IL 60053

(Address of principal executive offices, zip
code)

 

(847) 967-1010

(Registrant’s telephone number, including
area code)

 

Securities registered under Section 12(b) of
the Exchange Act:

 

 
 Title of each class
 Trading Symbol(s)
 Name of each exchange on which registered

 
 Common Stock, No Par Value
 LWAY
 Nasdaq Global Market

 
 Preferred Stock Purchase Rights
 None
 Nasdaq Global Market

 
 

Securities registered under Section 12(g) of
the Exchange Act:

None

 

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant
has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐

 

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”,
and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

 
  
 Large accelerated Filer ☐
 Accelerated Filer ☐

 
  
 Non-accelerated Filer ☒
 Smaller reporting company ☒

 
  
 Emerging growth company ☐
  

 
 

If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Number of shares of Common Stock, no par value, outstanding as of May
8, 2026: 15,281,888.

 

 

 

    

  

 

 

TABLE OF CONTENTS

 

 
 PART I – FINANCIAL INFORMATION
  

 
  
  

 
 Item 1.
 Financial Statements.
 3

 
 Item 2.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 19

 
 Item 3.
 Quantitative and Qualitative Disclosures About Market Risk.
 24

 
 Item 4.
 Controls and Procedures.
 25

 
  
  

 
 PART II – OTHER INFORMATION
  

 
  
  

 
 Item 1.
 Legal Proceedings.
 26

 
 Item 1A.
 Risk Factors.
 26

 
 Item 2.
 Unregistered Sales of Equity Securities and Use of Proceeds.
 26

 
 Item 3.
 Defaults Upon Senior Securities.
 26

 
 Item 5.
 Other Information.
 26

 
 Item 6.
 Exhibits.
 26

 
  
 Signatures.
 27

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  2 

  

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 2026 and December 31, 2025

(In thousands)

 

 

 
  
  
  
  
  
  
  
  
  

 
  
  
 March 31, 2026
  
 December 31,

 
  
  
 (Unaudited)
  
 2025

 
 Current assets
  
  
  
  
  
  
  
  

 
 Cash and cash equivalents
  
 $
 5,604
  
  
 $
 5,571
  

 
 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
  
  
 22,985
  
  
  
 16,643
  

 
 Inventories, net
  
  
 11,452
  
  
  
 11,890
  

 
 Prepaid expenses and other current assets
  
  
 2,588
  
  
  
 2,627
  

 
 Refundable income taxes
  
  
 41
  
  
  
 325
  

 
 Total current assets
  
  
 42,670
  
  
  
 37,056
  

 
  
  
  
  
  
  
  
  
  

 
 Property, plant and equipment, net
  
  
 57,844
  
  
  
 48,282
  

 
 Operating lease right-of-use asset
  
  
 553
  
  
  
 465
  

 
 Goodwill
  
  
 11,704
  
  
  
 11,704
  

 
 Intangible assets, net
  
  
 5,683
  
  
  
 5,818
  

 
 Other assets
  
  
 2,051
  
  
  
 2,285
  

 
 Total assets
  
 $
 120,505
  
  
 $
 105,610
  

 
  
  
  
  
  
  
  
  
  

 
 Current liabilities
  
  
  
  
  
  
  
  

 
 Accounts payable
  
 $
 13,845
  
  
 $
 11,008
  

 
 Accrued expenses
  
  
 4,589
  
  
  
 5,413
  

 
 Accrued income taxes
  
  
 1,518
  
  
  
 218
  

 
 Total current liabilities
  
  
 19,952
  
  
  
 16,639
  

 
  
  
  
  
  
  
  
  
  

 
 Line of credit
  
  
 6,939
  
  
  
 –
  

 
 Operating lease liabilities
  
  
 426
  
  
  
 360
  

 
 Deferred income taxes, net
  
  
 2,792
  
  
  
 2,792
  

 
 Other long-term liabilities
  
  
 74
  
  
  
 –
  

 
 Total liabilities
  
  
 30,183
  
  
  
 19,791
  

 
  
  
  
  
  
  
  
  
  

 
 Commitments and contingencies (Note 9)
  
  
 –
  
  
  
 –
  

 
  
  
  
  
  
  
  
  
  

 
 Stockholders’ equity
  
  
  
  
  
  
  
  

 
 Preferred stock, no par value; 2,500 shares authorized; none issued
  
  
 –
  
  
  
 –
  

 
 Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,282 and 15,232 outstanding
 at March 31, 2026 and December 31, 2025, respectively
  
  
 6,509
  
  
  
 6,509
  

 
 Treasury stock, at cost
  
  
 (12,889
 )
  
  
 (13,214
 )

 
 Paid-in capital
  
  
 3,347
  
  
  
 3,843
  

 
 Retained earnings
  
  
 93,355
  
  
  
 88,681
  

 
 Total stockholders’ equity
  
  
 90,322
  
  
  
 85,819
  

 
  
  
  
  
  
  
  
  
  

 
 Total liabilities and stockholders’ equity
  
 $
 120,505
  
  
 $
 105,610
  

 

 

 

See accompanying notes to consolidated financial
statements

 

  3 

  

 

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the three months ended March 31, 2026 and
2025

(Unaudited)

(In thousands, except per share data)

 
  
  
  
  
  
  
  
  
  

 
  
  
 2026
  
 2025

 
  
  
  
  
  

 
 Net Sales
  
 $
 63,012
  
  
 $
 46,091
  

 
  
  
  
  
  
  
  
  
  

 
 Cost of goods sold
  
  
 44,741
  
  
  
 34,254
  

 
 Depreciation expense
  
  
 920
  
  
  
 802
  

 
 Total cost of goods sold
  
  
 45,661
  
  
  
 35,056
  

 
  
  
  
  
  
  
  
  
  

 
 Gross profit
  
  
 17,351
  
  
  
 11,035
  

 
  
  
  
  
  
  
  
  
  

 
 Selling expense
  
  
 6,188
  
  
  
 4,698
  

 
 General and administrative expense
  
  
 4,703
  
  
  
 4,628
  

 
 Amortization expense
  
  
 135
  
  
  
 135
  

 
 Total operating expenses
  
  
 11,026
  
  
  
 9,461
  

 
  
  
  
  
  
  
  
  
  

 
 Income from operations
  
  
 6,325
  
  
  
 1,574
  

 
  
  
  
  
  
  
  
  
  

 
 Other income (expense):
  
  
  
  
  
  
  
  

 
 Interest expense
  
  
 (68
 )
  
  
 (14
 )

 
 Gain on sales of investments
  
  
 –
  
  
  
 3,352
  

 
 Other income (expense), net
  
  
 –
  
  
  
 54
  

 
 Total other (expense) income
  
  
 (68
 )
  
  
 3,392
  

 
  
  
  
  
  
  
  
  
  

 
 Income before provision for income taxes
  
  
 6,257
  
  
  
 4,966
  

 
  
  
  
  
  
  
  
  
  

 
 Provision for income taxes
  
  
 1,583
  
  
  
 1,426
  

 
  
  
  
  
  
  
  
  
  

 
 Net income
  
 $
 4,674
  
  
 $
 3,540
  

 
  
  
  
  
  
  
  
  
  

 
 Net earnings per common share:
  
  
  
  
  
  
  
  

 
 Basic
  
 $
 0.31
  
  
 $
 0.23
  

 
 Diluted
  
 $
 0.30
  
  
 $
 0.23
  

 
  
  
  
  
  
  
  
  
  

 
 Weighted average common shares outstanding:
  
  
  
  
  
  
  
  

 
 Basic
  
  
 15,257
  
  
  
 15,134
  

 
 Diluted
  
  
 15,559
  
  
  
 15,333
  

 
 

 

See accompanying notes to consolidated financial
statements

 

 

 

  4 

  

 

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’
Equity

(Unaudited)

(In thousands)

 
   
     
     
     
     
     
     
    

 
   
 Common Stock 
   
   
  

 
   
 Issued 
 In treasury 
 Paid-In 
 Retained 
 Total

 
   
 Shares 
 $ 
 Shares 
 $ 
 Capital 
 Earnings 
 Equity

 
 Balance, January 1, 2025 
  17,274  
 $6,509  
  (2,174) 
 $(14,052) 
 $4,632  
 $74,822  
 $71,911 

 
   
     
     
     
     
     
     
    

 
 Issuance of common stock 
  –  
  –  
  103  
  669  
  (2,278) 
  –  
  (1,609)

 
   
     
     
     
     
     
     
    

 
 Stock-based compensation 
  –  
  –  
  –  
  –  
  326  
  –  
  326 

 
   
     
     
     
     
     
     
    

 
 Net income 
  –  
  –  
  –  
  –  
  –  
  3,540  
  3,540 

 
   
     
     
     
     
     
     
    

 
 Balance, March 31, 2025 
  17,274  
 $6,509  
  (2,071) 
 $(13,383) 
 $2,680  
 $78,362  
 $74,168 

 

 

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’
Equity

(Unaudited)

(In thousands)

 

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

 
  
  
 Common Stock
  
  
  
  
  
  

 
  
  
 Issued
  
 In treasury
  
 Paid-In
  
 Retained
  
 Total

 
  
  
 Shares
  
 $
  
 Shares
  
 $
  
 Capital
  
 Earnings
  
 Equity

 
 Balance, January 1, 2026
  
  
 17,274
  
  
 $
 6,509
  
  
  
 (2,042
 )
  
 $
 (13,214
 )
  
 $
 3,843
  
  
 $
 88,681
  
  
 $
 85,819
  

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

 
 Issuance of common Stock
  
  
 –
  
  
  
 –
  
  
  
 50
  
  
  
 325
  
  
  
 (761
 )
  
  
 –
  
  
  
 (436
 )

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

 
 Equity award settled in cash
  
  
 –
  
  
  
 –
  
  
  
 –
  
  
  
 –
  
  
  
 (283
 )
  
  
 –
  
  
  
 (283
 )

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

 
 Stock-based compensation
  
  
 –
  
  
  
 –
  
  
  
 –
  
  
  
 –
  
  
  
 548
  
  
  
 –
  
  
  
 548
  

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

 
 Net income
  
  
 –
  
  
  
 –
  
  
  
 –
  
  
  
 –
  
  
  
 –
  
  
  
 4,674
  
  
  
 4,674
  

 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

 
 Balance, March 31, 2026
  
  
 17,274
  
  
 $
 6,509
  
  
  
 (1,992
 )
  
 $
 (12,889
 )
  
 $
 3,347
  
  
 $
 93,355
  
  
 $
 90,322
  

 
 

 

See accompanying notes to consolidated financial
statements

 

 

 

  5 

  

 

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 
  
  
  
  
  
  
  
  
  

 
  
  
 Three months ended March
 31,

 
  
  
 2026
  
 2025

 
 Cash flows from operating activities:
  
  
  
  
  
  
  
  

 
 Net income
  
 $
 4,674
  
  
 $
 3,540
  

 
 Adjustments to reconcile net income to operating cash flow:
  
  
  
  
  
  
  
  

 
 Depreciation and amortization
  
  
 1,055
  
  
  
 937
  

 
 Stock-based compensation
  
  
 548
  
  
  
 326
  

 
 Non-cash interest expense
  
  
 5
  
  
  
 3
  

 
 Bad debt expense
  
  
 87
  
  
  
 –
  

 
 Gain on sale of investments
  
  
 –
  
  
  
 (3,352
 )

 
 Fair value loss on investment
  
  
 –
  
  
  
 20
  

 
 (Increase) decrease in operating assets:
  
  
  
  
  
  
  
  

 
 Accounts receivable
  
  
 (6,429
 )
  
  
 (1,259
 )

 
 Inventories
  
  
 438
  
  
  
 (563
 )

 
 Prepaid expenses and other current assets
  
  
 228
  
  
  
 136
  

 
 Refundable income taxes
  
  
 283
  
  
  
 631
  

 
 Increase (decrease) in operating liabilities:
  
  
  
  
  
  
  
  

 
 Accounts payable
  
  
 3,397
  
  
  
 1,401
  

 
 Accrued expenses
  
  
 (1,282
 )
  
  
 (2,765
 )

 
 Accrued income taxes
  
  
 1,300
  
  
  
 795
  

 
 Other long-term liabilities
  
  
 74
  
  
  
 –
  

 
 Net cash provided by (used in) operating activities
  
  
 4,378
  
  
  
 (150
 )

 
  
  
  
  
  
  
  
  
  

 
 Cash flows from investing activities:
  
  
  
  
  
  
  
  

 
 Purchases of property and equipment
  
  
 (11,041
 )
  
  
 (2,219
 )

 
 Proceeds from sale of investments
  
  
 –
  
  
  
 5,152
  

 
 Net cash (used in) provided by investing activities
  
  
 (11,041
 )
  
  
 2,933
  

 
  
  
  
  
  
  
  
  
  

 
 Cash flows from financing activities:
  
  
  
  
  
  
  
  

 
 Borrowings under line of credit
  
  
 8,000
  
  
  
 –
  

 
 Repayments under line of credit
  
  
 (1,000
 )
  
  
 –
  

 
 Payment of deferred financing costs
  
  
 (21
 )
  
  
 (65
 )

 
 Equity award settled in cash
  
  
 (283
 )
  
  
 –
  

 
 Net cash provided by (used in) financing activities
  
  
 6,696
  
  
  
 (65
 )

 
  
  
  
  
  
  
  
  
  

 
 Net increase in cash and cash equivalents
  
  
 33
  
  
  
 2,718
  

 
  
  
  
  
  
  
  
  
  

 
 Cash and cash equivalents at the beginning of the period
  
  
 5,571
  
  
  
 16,728
  

 
  
  
  
  
  
  
  
  
  

 
 Cash and cash equivalents at the end of the period
  
 $
 5,604
  
  
 $
 19,446
  

 
  
  
  
  
  
  
  
  
  

 
 Supplemental cash flow information:
  
  
  
  
  
  
  
  

 
 Cash paid for income taxes, net of (refunds)
  
 $
 –
  
  
 $
 –
  

 
 Cash paid for interest
  
 $
 45
  
  
 $
 11
  

 
  
  
  
  
  
  
  
  
  

 
 Non-cash investing activities
  
  
  
  
  
  
  
  

 
 Accrued purchase of property and equipment
  
 $
 216
  
  
 $
 239
  

 
 Right-of-use assets obtained in exchange for lease
 obligations
  
 $
 119
  
  
 $
 8
  

 
 

 

See accompanying notes to consolidated financial
statements

 

 

 

  6 

  

 

 

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data)

 

 

Note 1 – Basis of Presentation

 

The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim
financial information, and do not include certain information and footnote disclosures required for complete, audited financial statements.
In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim
periods reported herein. The consolidated financial statements and related notes should be read in conjunction with the consolidated financial
statements and related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Results of operations
for any interim period are not necessarily indicative of future or annual results.

 

Principles of consolidation

 

The consolidated financial statements include
the accounts of Lifeway Foods, Inc. and all its wholly owned subsidiaries (collectively “Lifeway” or the “Company”).
All significant intercompany accounts and transactions have been eliminated.

 

Note 2 – Summary of 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

 

The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the
consolidated financial statements include the reserve for promotional allowances, the valuation of goodwill and intangible assets, stock-based
and incentive compensation, and deferred income taxes.

 

Cash and cash equivalents

 

Lifeway considers cash and all highly liquid investments
purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which
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.

 

 

 

  7 

  

 

 

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.

  

Fair value measurements

 

In February 2025, the Company’s $1,800 equity
investment in Simple Mills was liquidated as a result of the sale of Simple Mills. The Company received cash proceeds of $5,152 and recognized
a gain on the sale of investment of $3,352 during the three months ended March 31, 2025.

 

Segments

 

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

 

Issued but not yet effective

 

In November 2024, the Financial Accounting Standards
Board (“FASB”) issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation
Disclosures (Topic 220-40): Disaggregation of Income Statement Expenses. The new standard requires additional disclosure of certain amounts
included in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. The new standard
is effective on a prospective basis, with the option for retrospective application, for our annual period ending December 31, 2027, and
our interim periods during the fiscal year ending December 31, 2028. The new standard does not affect recognition or measurement in the
Company’s consolidated financial statements. Upon adoption, the impact of ASU 2024-03 will be limited to certain notes to the Consolidated
Financial Statements.

 

Note 3 – Inventories, net

 
 Schedule of inventories 
     
    

 
   
 March 31, 
 2026 
 December 31,
 2025

 
 Ingredients 
 $3,816  
 $4,141 

 
 Packaging 
  3,172  
  3,452 

 
 Finished goods 
  4,464  
  4,297 

 
 Total inventories, net 
 $11,452  
 $11,890 

 

 

 

 

  8 

  

 

 

Note 4 – Property, Plant and Equipment, net

 
 Schedule of property, plant and equipment 
     
    

 
   
 March 31, 
 2026 
 December 31,
 2025

 
 Land 
 $1,565  
 $1,565 

 
 Buildings and improvements 
  24,508  
  24,497 

 
 Machinery and equipment 
  43,675  
  43,433 

 
 Vehicles 
  477  
  477 

 
 Office equipment 
  694  
  694 

 
 Construction in process 
  30,031  
  19,803 

 
   
  100,950  
  90,469 

 
 Less accumulated depreciation 
  (43,106) 
  (42,187)

 
 Total property, plant and equipment, net 
 $57,844  
 $48,282 

 

 

Note 5 – Goodwill and Intangible Assets 

 

Goodwill

 

Goodwill consisted of the following:

 
 Schedule of goodwill 
  

 
   
 Total

 
 Balance at December 31, 2025 
    

 
 Goodwill 
 $12,948 

 
 Accumulated impairment losses 
  (1,244)

 
   
 $11,704 

 

 

 
   
  

 
 Balance at March 31, 2026 
  

 
 Goodwill 
 $12,948 

 
 Accumulated impairment losses 
  (1,244)

 
   
 $11,704 

 

 

 

 

  9 

  

 

 

Intangible Assets

 

Other intangible assets, net consisted of the following:

 
 Schedule of other intangible assets
   
   
   
  

 
   
 March 31, 2026 
 December 31, 2025

 
   
 Gross 
   
 Net 
 Gross 
   
 Net

 
   
 Carrying 
 Accumulated 
 Carrying 
 Carrying 
 Accumulated 
 Carrying

 
   
 Amount 
 Amortization 
 Amount 
 Amount 
 Amortization 
 Amount

 
   
   
   
   
   
   
  

 
 Recipes 
 $44  
 $(44) 
 $–  
 $44  
 $(44) 
 $– 

 
 Customer lists and other customer related intangibles 
  4,529  
  (4,529) 
  –  
  4,529  
  (4,529) 
  – 

 
 Customer relationships 
  3,385  
  (1,732) 
  1,653  
  3,385  
  (1,692) 
  1,693 

 
 Brand names 
  7,948  
  (3,918) 
  4,030  
  7,948  
  (3,823) 
  4,125 

 
 Formula 
  438  
  (438) 
  –  
  438  
  (438) 
  – 

 
 Total intangible assets, net 
 $16,344  
 $(10,661) 
 $5,683  
 $16,344  
 $(10,526) 
 $5,818 

 

 

Estimated amortization expense on intangible assets
for the next five years is as follows:

 
 Schedule of future amortization expense on intangible assets 
    

 
 Year 
 Amortization

 
 Nine months ended December 31, 2026 
 $405 

 
 2027 
 $540 

 
 2028 
 $540 

 
 2029 
 $540 

 
 2030 
 $540 

 

 

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

  

Note 6 – Accrued Expenses 

 

Accrued expenses consisted of the following:

 
 Schedule of accrued expenses 
     
    

 
   
 March 31,
 2026 
 December 31,
 2025

 
 Payroll and incentive compensation 
 $3,416  
 $4,386 

 
 Real estate taxes 
  372  
  483 

 
 Utilities 
  239  
  189 

 
 Current portion of operating lease liabilities 
  127  
  106 

 
 Other 
  435  
  249 

 
 Total accrued expenses 
 $4,589  
 $5,413 

 

 

 

 

  10 

  

 

 

Note 7 – Debt

 

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”)
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
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. The Sixth Modification, provides for, among other things, (i) modification of the Fixed Charge Coverage Ratio
only for the period from December 31, 2025 through June 30, 2027 to exclude the Waukesha, WI unfinanced capital expenditures attributable
to plant optimization and manufacturing capacity expansion as approved by Lender, up to $50,000 (ii) modification of the Change of Control
definition to reflect that specified changes to the Company’s board of directors do not constitute a Change of Control and (iii)
extended the termination date of the Credit Agreement to February 5, 2029. 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 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.

 

Note 8 – Leases

 

The Company leases certain machinery and equipment
with fixed base rent payments and variable costs based on usage. Remaining lease terms for these leases range from less than one year
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
asset and lease liability. Variable lease payments are those that vary because of changes in facts or circumstances occurring after the
commencement date, other than the passage of time. There are no residual value guarantees. Lifeway does not currently have leases which
meet the finance lease classification as defined under ASC 842.

 

Lifeway treats contracts as a lease when the contract
conveys the right to use a physically distinct asset for a period of time in exchange for consideration, it directs the use of the asset
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. 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.
Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

 

 

  11 

  

 

 

The Company does not record leases with an initial
term of 12 months or less on the balance sheet. Expense for these short-term leases is recorded on a straight-line basis over the lease
term. 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
follows:

 
 Schedule of future maturities of lease liabilities 
    

 
 Year 
 Operating Leases

 
 Nine months ended December 31, 2026 
 $132 

 
 2027 
  169 

 
 2028 
  153 

 
 2029 
  106 

 
 2030 
  78 

 
 Thereafter 
  41 

 
 Total lease payments 
  679 

 
 Less: Interest 
  (126)

 
 Present value of lease liabilities 
 $553 

 

 

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
31, 2026. 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.

 

Note 9 – Commitments and contingencies

 

Litigation

 

Lifeway is involved in various legal proceedings,
claims, disputes, regulatory matters, audits, and proceedings arising in the ordinary course of, or incidental, to the Company’s
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
flows.

 

 

 

  12 

  

 

 

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.

 

The Company’s effective tax rate may change
from period to period based on recurring and non-recurring factors including the relative mix of pre-tax earnings (or losses), the jurisdictional
mix of earnings, enacted tax legislation, state income taxes, the impact of non-deductible items, changes in valuation allowances, settlement
of tax audits, and the expiration of the statute of limitations in relation to unrecognized tax benefits. The Company records discrete
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
results. 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. subsidiaries (Net CFC Tested Income). 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
Plans

 

The Board of Directors adopted, and the Company’s
stockholders approved, the “Lifeway Foods, Inc. 2022 Omnibus Incentive Plan” (the “Plan”). Under the Plan, the
Compensation Committee 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 to qualifying employees. The maximum number of shares authorized to be awarded under the Plan is 3.25 million. As of
March 31, 2026, 2.57 million shares remain available to award under the Plan.

 

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. The maximum aggregate number of shares that may be issued under the 2022 Director Plan is 500 thousand. As of March 31, 2026, 379
thousand shares remain available to award under the 2022 Director Plan.

 

Total compensation expense related to stock-based
payments and the related income tax benefit recognized in net income are as follows:

 
 Schedule of compensation expense related to stock-based payments 
     
    

 
   
 Three Months Ended

 
   
 March 31,

 
   
 2026 
 2025

 
   
 (In Thousands)

 
 Compensation expense related to stock-based payments 
 $548  
 $326 

 
 Related income tax benefit 
  154  
  91 

 

 

 

 

  13 

  

 

 

Stock Options

 

The following table summarizes stock option activity during the three
months ended March 31, 2026:

 
 Schedule of stock option activity 
   
   
   
  

 
   
 Options 
 Weighted 
 average 
 exercise price 
 Weighted 
 average 
 remaining contractual life 
 Aggregate 
 intrinsic value

 
   
  (In thousands)  
     
     
    

 
 Outstanding at December 31, 2025 
  13  
 $9.57  
  0.49  
 $193 

 
 Granted 
  –  
  –  
  –  
  – 

 
 Exercised 
  –  
  –  
  –  
  – 

 
 Forfeited 
  –  
  –  
  –  
  – 

 
 Outstanding at March 31, 2026 
  13  
 $9.57  
  0.24  
 $128 

 
 Exercisable at March 31, 2026 
  13  
 $9.57  
  0.24  
 $128 

 

 

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.

 
 Schedule of RSU activity 
     
    

 
   
 Restricted 
 Stock Units  
 Weighted Average Grant Date Fair Value 

 
   
 (In thousands)  
    

 
 Nonvested, at December 31, 2025 
  171  
 $11.55 

 
 Granted 
  9  
  21.50 

 
 Shares issued upon vesting 
  (23) 
  10.22 

 
 Shares settled in cash 
  (13) 
  6.25 

 
 Forfeited 
  –  
  – 

 
 Nonvested, at March 31, 2026 
  144  
 $12.90 

 
 Earned and deferred at March 31, 2026 
  90  
 $9.44 

 

 

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

 

 

 

  14 

  

 

 

Performance Units

 

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. 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. These awards will be converted to stock upon vesting.

 

The following table summarizes performance unit
activity during the three months ended March 31, 2026.

 
 Schedule of performance units
  
  
  
  

 
  
  
 Performance 

 Units
  
 Weighted Average Grant
 Date Fair Value

 
  
  
 (In thousands)
  
  
  
  

 
 Nonvested, at December 31, 2025
  
  
 199
  
  
 $
 12.10
  

 
 Granted (1)
  
  
 70
  
  
  
 10.78
  

 
 Shares issued upon vesting
  
  
 (47
 )
  
  
 6.88
  

 
 Forfeited
  
  
 –
  
  
  
 –
  

 
 Nonvested, at March 31, 2026
  
  
 222
  
  
  
 12.79
  

 

 

 
 (1)
 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
period of 1.4 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
Cash Awards

 

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.

 

The deferred time-vested cash awards vest in approximately
three equal installments on each yearly anniversary of the grant date.

 

The deferred performance-based cash award 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 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.

 

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.

 

 

 

  15 

 

 

 

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:

 
 Schedule of weighted average number of shares outstanding 
     
    

 
   
 Three Months Ended

 
   
 March 31,

 
   
 2026 
 2025

 
   
 (In Thousands)

 
 Weighted average common shares outstanding 
  15,257  
  15,134 

 
 Assumed exercise/vesting of equity awards 
  302  
  199 

 
 Weighted average diluted common shares outstanding 
  15,559  
  15,333 

 

 

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. The CODM uses consolidated single-segment financial information
to assess performance for the segment and decides how to allocate resources based on the Company’s consolidated net income (loss),
which is reported on the C