LIFEWAY FOODS, INC. Form 10-K

 false 2024 FY 0000814586

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 2024-11-04

 2024-10-01

 UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 Form 10-K

 ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the fiscal year ended December 31, 2024

 or

 TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from ____________ to ____________

 Commission file number: 000-17363

 LIFEWAY FOODS, INC.

 (Exact name of registrant as specified in its charter)

 Illinois

 36-3442829

 (State or other jurisdiction of

 (I.R.S. Employer

 incorporation or organization)

 Identification No.)

 6431 West Oakton St., Morton Grove, Illinois 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 if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

 Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

 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.

 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 has
filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. Yes No

 If securities are registered pursuant to Section 12(b)
of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements.

 Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's
executive officers during the relevant recovery period pursuant to §240.10D-1(b).

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

 The aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which the stock was last sold as of June 30, 2024 ($12.77 per
share as quoted on the Nasdaq Global Market) was $ 74,355,253.

 As of March 14, 2025, 15,203,241 shares
of the registrant's common stock, no par value, were outstanding.

 Portions of the Registrant's definitive
proxy statement to be filed no later than 120 days after the close of the fiscal year covered by this report on Form 10-K are incorporated
by reference into Part III.

 Page

 Item 1.

 Business

 Item 1A.

 Risk Factors

 Item 1B.

 Unresolved Staff Comments

 Item 1C

 Cybersecurity

 Item 2.

 Properties

 Item 3.

 Legal Proceedings

 Item 4.

 Mine Safety Disclosures

 Item 5.

 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item 6.

 [RESERVED]

 Item 7.

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item 7A.

 Quantitative and Qualitative Disclosures about Market Risk

 Item 8.

 Financial Statements and Supplementary Data

 2 7

 Item 9.

 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 2 8

 Item 9A.

 Controls and Procedures

 Item 9B.

 Other Information

 2 9

 Item 9C.

 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections

 2 9

 Item 10.

 Directors, Executive Officers and Corporate Governance

 Item 11.

 Executive Compensation

 Item 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item 13.

 Certain Relationships and Related Transactions and Director Independence

 Item 14.

 Principal Accountant Fees and Services

 Item 15.

 Exhibits, Financial Statement Schedules

 Item 16.

 Form 10-K Summary

 Signatures

 i

 FORWARD LOOKING STATEMENTS

 In connection with the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, readers are advised that this document, and any document incorporated by reference
herein, may contain forward looking statements. Forward looking statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those indicated by the forward looking statements. These statements use words, variations
of words, and negatives of words such as "may," "could," "believe," "future," "depend,"
"expect," "will," "result," "can," "remain," "assurance," "subject to,"
"require," "limit," "impose," "guarantee," "restrict," "continue," "become,"
"predict," "likely," "opportunities," "effect," "change," and "estimate."
Examples of forward looking statements include, but are not limited to, (i) projections of revenues, income or loss, earnings or losses
per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of Lifeway Foods, Inc.'s
(which, together with its subsidiaries as the context requires, may be referred to as "Lifeway", the "Company",
"our", "we" or "us") plans and objectives, including the introduction of new products, or estimates
or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) statements of future economic performance,
and (iv) statements of assumptions underlying other statements and statements about the Company or its business.

 Forward looking statements are based on management's
beliefs, assumptions, estimates and observations of future events based on information available to our management at the time the statements
are made and include any statements that do not relate to any historical or current fact. These statements are not guarantees of future
performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may
differ materially from what is expressed, implied or forecast by our forward looking statements due in part to the risks, uncertainties,
and assumptions that include:

 the actions of our competitors and suppliers, including those related to price competition;

 the actions and decisions of our customers or consumers;

 our ability to successfully implement our business strategy;

 changes in the pricing of commodities;

 the effects of government regulation;

 the impact of proposals to acquire the Company or actions taken by stockholders, including actions related to a possible acquisition of the Company;

 disruptions to our supply chain, or our manufacturing and distribution capabilities, including those due to cybersecurity threats, wars or pandemics; and

 the other risks and uncertainties that are set forth in Item 1, "Business", Item 1A "Risk Factors" and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and that are described from time to time in our filings with the U.S. Securities and Exchange Commission (the "SEC").

 These factors are not necessarily all of the important
factors that could cause actual results to differ materially from those expressed in any of our forward looking statements. Other unknown
or unpredictable factors could also have material adverse effects on future results. We intend these forward looking statements to speak
only at the date made. Except as otherwise required to be disclosed in periodic reports required to be filed by us with the SEC, we have
no duty to update these statements, and we undertake no obligation to publicly update or revise any forward looking statements, whether
as a result of new information, future events or otherwise.

 ii

 ITEM 1. BUSINESS

 OVERVIEW

 Lifeway was founded in 1986 by Michael Smolyansky,
ten years after he and his family emigrated from Eastern Europe to the United States. Lifeway was the first to successfully introduce
kefir to the U.S. consumer on a commercial scale, initially catering to ethnic consumers in the Chicago, Illinois metropolitan area. Lifeway
has grown to become the largest producer and marketer of kefir in the U.S. and an important player in the broader market spaces of probiotic-based
products and natural, "better for you" foods.

 PRODUCTS

 Our primary product is drinkable kefir, a cultured
dairy product. Lifeway kefir is tart and tangy, high in protein, calcium and vitamin D. Thanks to our exclusive blend of kefir cultures,
each cup of our flagship low fat kefir contains 12 live and active cultures and 25 to 30 billion beneficial CFU (Colony Forming Units)
at the time of manufacture.

 We manufacture (directly or through co-packers) and
market products under the Lifeway, Fresh Made and GlenOaks Farms brand names, as well as under private labels on behalf of certain customers.

 Our product categories are:

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

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

 Cream and other, which consists primarily of cream, a byproduct of making our kefir;

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

 ProBugs, a line of kefir products designed for children;

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

 Net sales of products by category were as follows
for the years ended December 31:

 2024

 2023

 In thousands

 $

 %

 $

 %

 Drinkable Kefir other than ProBugs

 $
 153,493

 82%

 $
 127,726

 80%

 Cheese

 14,554

 8%

 13,781

 9%

 Cream and other

 8,299

 4%

 7,382

 4%

 Drinkable Yogurt

 5,619

 3%

 6,236

 4%

 Probugs Kefir

 3,421

 2%

 3,429

 2%

 Other dairy

 1,434

 1%

 1,569

 1%

 Net Sales

 $

 100%

 $

 100%

 Product innovation and new product development

 Lifeway is committed to maintaining its positions
as the leading producer of kefir and a recognized leader in the market for probiotic products. We routinely evaluate opportunities for
new product development, flavors and formulations, improved package design, new product configurations and other innovation avenues. Beyond
our core drinkable kefir products, we have an ongoing effort to extend the strength of the Lifeway brand and leverage the capabilities
of the Lifeway organization into fresh categories and into additional channels of trade, such as Convenience; Foodservice; Club; and Drug.

 Lifeway considers research and development of new
products to be a significant part of our overall business philosophy. Where possible, we leverage our existing staff and facilities to
conduct our innovation, research, and development efforts, rather than maintaining a dedicated research and development staff and facilities
or relying solely on third parties.

 PRODUCTION

 Manufacturing

 During 2024 and 2023, approximately 94% and 93%
our revenue, respectively, was derived from products manufactured at our own facilities. We currently operate the following manufacturing
and distribution facilities:

 Morton Grove, Illinois, which produces drinkable kefir and cheese products;

 Waukesha, Wisconsin, which produces drinkable kefir products and from which we warehouse and distribute products;

 Niles, Illinois, which stores and serves as a warehouse and distribution point for products; and

 Philadelphia, Pennsylvania, which produces drinkable kefir, cheese, and other dairy products, from which we warehouse and distribute products.

 All our fixed assets associated with manufacturing,
storage, and distribution of our products are in the United States.

 Co-Packers

 In addition to the products manufactured in our
own facilities, independent manufacturers ("co-packers") manufacture some of our products. We have a co-packer agreement to
manufacture drinkable yogurt and a small percentage of our Lifeway kefir product in California. We have a co-packer agreement to manufacture
drinkable kefir in Ireland, to serve our European markets. During 2024 and 2023, approximately 6% and 7% of our revenue, respectively,
was derived from products manufactured by co-packers. Our domestic co-packer is Safe Quality Food ("SQF") certified and follows
Good Manufacturing Practices ("GMPs"). Additionally, the co-packers are required to ensure our products are manufactured in
accordance with our quality specifications and that they are compliant with all applicable laws and regulations.

 SALES AND DISTRIBUTION

 Sales Organization

 We sell our products primarily through our direct
sales force, brokers, and distributors. Our sales organization strives to cultivate strong, collaborative relationships with our customers
that facilitate favorable shelf placement for our products, which we believe drives sales volumes when combined with our marketing efforts
and our brand strength. Our relationships with food brokers provide additional customer coverage as a supplement to our direct sales force.

 Distribution inside the United States

 Lifeway's products reach the consumer through
three primary "route-to-market" pathways:

 Retail-direct;

 Distributor; and

 Direct store delivery ("DSD").

 Under the retail-direct channel, we sell our products
to retailers and deliver it through either the retailers' carriers or third-party carriers that deliver to such retailers'
distribution centers. In turn, our retailers then deliver the products to their respective stores. Under the retail direct-model, optimal
product merchandising, assortment and product presentation are attended to by the retailer. Sales to our retail-direct customers represent
approximately 52% of our total net sales for the year ended 2024.

 Under the distributor channel, we sell our products
to distributors and deliver it through either the distributors' carriers or third-party carriers that deliver to such distributors'
designated warehouses. In turn, our distributors then sell and ship our products to their retail customers. Our distributors often use
a DSD model of their own to make deliveries directly to individual stores, but they also make deliveries to retailers' distribution
centers. The distributor attends to optimal product merchandising, assortment, and product presentations at the retail end of the channel,
with support from Lifeway's direct sales force and broker network. Sales to our distributor customers represent approximately 46%
of our total net sales for year ended 2024.

 Under the direct store delivery ("DSD")
route to market, we sell our products to retailers and deliver it directly to the store using Company-owned vehicles and a team of Lifeway
merchandisers who engage face-to-face with store management to ensure optimal product assortments and presentations. We operate our DSD
model in the Chicago, Illinois metropolitan area only. Sales to our DSD customers represent approximately 2% of our total net sales for
the year ended 2024.

 Distribution outside of the U.S.

 Lifeway's primary market is the United States;
however, certain distributors based in the United States sell our products to retailers in Mexico, portions of Central and South America
and the Caribbean. Additionally, Lifeway products reach consumers in France, Ireland, and the Middle East under third party co-manufacturing
agreements and in-country broker and distributor arrangements. Sales distributed outside the United States represented approximately 3%
of net sales for the year ended 2024.

 Channel- and Market-Specific Distribution and Broker Representation
Arrangements

 Lifeway's generally standardized agreements
with independent distributors and food brokers allow us the latitude to establish new relationships as opportunities and needs arise.
Where appropriate given the relationship, market, and business opportunity, we offer exclusive channels, markets, and/or territories to
our distributors and brokers.

 We provide our independent distributors with products
at wholesale prices for distribution to their retail accounts. Lifeway believes that the prices at which we sell our products to distributors
are competitive with the prices generally paid by distributors for similar products in the markets served. Due to the perishable nature
of our products and the costs to return, we do not offer return privileges to any of our distributors or channel customers; however, from
time to time we do provide our customers with allowances for non-saleable product.

 Lifeway engages independent food brokers generally
on a commission basis, subject in some cases to a minimum commission guarantee. The commissions vary based on the scope of services provided
and customers served. Our brokers represent our products to a variety of prospective buyers. These buyers could be specialty stores, retail
grocery chains, wholesalers, foodservice operators and distributors, drug chains, mass merchandisers, industrial users, schools and universities,
or military installations. With support from our direct sales force, brokers may provide other value-added services. These may include
scheduling and coordinating promotions, merchandising, centralized ordering, and data collection services.

 MARKETING

 We use a combination of sales incentives, trade promotions,
and consumer promotions to market our products.

 Sales Incentives and Trade Promotion Allowances

 Lifeway offers various sales incentives and trade
promotional programs to its retailer and distributor customers from time to time in the normal course of business. These sales incentives
and trade promotion programs include rebates, in-store display and demo allowances, allowances for non-saleable product, coupons, and
other trade promotional activities. Trade promotions support price features, displays, and other merchandising of our products by our
retail and distributor customers. We record these arrangements as a reduction to net sales in our consolidated statements of operations.

 Consumer Promotions and Marketing Campaigns

 We engage in an ongoing and wide variety of marketing
and media campaigns – primarily digital and social media, print advertising, television advertising, and event marketing. We complement
these marketing and media efforts with industry-related trade shows and in-store promotional events. Our consumer marketing efforts also
include cooperative advertising programs with our retail customers and various couponing campaigns, online consumer relationship programs,
and other similar forms of promotions.

 Our marketing efforts are aimed at stimulating demand
with new and existing consumers by elevating awareness and consumption of kefir and probiotics, as well as enhancing our brand equity.
Our awareness marketing seeks to promote the positive nutritional attributes and flavor of our products.

 COMPETITION

 Lifeway competes with a limited number of other domestic
kefir producers and consequently faces a small amount of direct competition for kefir products. However, Lifeway's kefir-based products
compete with other dairy products, such as spoonable and drinkable yogurt, and, increasingly, with non-dairy probiotic products. Many
of our competitors are well-established and have significantly greater financial resources than Lifeway to promote their products.

 SUPPLIERS

 We purchase our ingredients such as milk, cultures,
and other ingredients from unaffiliated suppliers. In addition, we purchase significant quantities of ingredients and product packaging
materials and utilities, such as natural gas and electricity to operate our facilities. Purchases are made through purchase orders or
contracts, and price, delivery terms, and product specifications vary. The prices for our principal inputs can fluctuate based on economic,
weather, and other conditions. Lifeway believes it has access to alternative suppliers for critical ingredients, packaging, and other
input requirements.

 MAJOR CUSTOMERS

 During the year ended December 31, 2024, two customers
accounted for a total of 25% of our total net sales. Two customers accounted for a total of 26% of net accounts receivable as of December
31, 2024.

 SEGMENTS

 Lifeway has determined that it has one reportable
segment based on how our chief operating decision maker manages the business and in a manner consistent with the internal reporting provided
to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing Company
performance, has been identified as the Chief Executive Officer. Substantially all our consolidated revenues relate to the sale of cultured
dairy products that we produce using the same processes and materials and are sold to consumers through a common network of distributors
and retailers in the United States.

 INTELLECTUAL PROPERTY

 We believe that our rights in our trademarks and service
marks are important to our marketing efforts to develop brand recognition and differentiate our brand from our competitors and are a valuable
part of our business. We own many domestic and international trademarks and service marks. In addition, we own numerous registered and
unregistered copyrights, registered domain names, and proprietary trade secrets, trade dress, technology, know-how, processes, and other
proprietary rights that are not registered. Depending on the jurisdiction, trademarks are generally valid as long as they are in use and/or
their registrations are properly maintained, and they have not been found to have become generic. Registrations of trademarks can also
generally be renewed indefinitely as long as the trademarks are in use. We also have licenses to use certain trademarks inside and outside
of the United States and to certain product formulas, all subject to the terms of the agreements under which such licenses are granted.
Lifeway's policy is to pursue registration of intellectual property whenever appropriate. We protect our intellectual property rights
by relying on a combination of trademark, copyright, trade dress, trade secret and other intellectual property laws, and domain name dispute
resolution systems; as well as licensing agreements, third-party confidentiality, nondisclosure, and assignment agreements; and by policing
third-party misuses of our intellectual property. We regard the Lifeway family of trademarks and other intellectual property as having
substantial value and as being an important factor in the marketing of our products. The loss of such protection would have a material
adverse impact on our operations and share price.

 REGULATION

 Lifeway is subject to extensive regulation by federal,
state, and local governmental authorities. In the United States, agencies governing the manufacture, marketing, and distribution of our
products include, among others, the Federal Trade Commission ("FTC"), the United States Food & Drug Administration ("FDA"),
the United States Department of Agriculture ("USDA"), the United States Environmental Protection Agency ("EPA"),
the Occupational Safety and Health Administration ("OSHA"), and their state and local equivalents. Under various statutes,
these agencies prescribe, among other things, the requirements and standards for quality, safety, and representation of our products to
consumers. We are also subject to federal laws and regulations relating to our products and production. For example, as required by the
National Organic Program ("NOP"), we rely on third parties to certify certain of our products and production locations as
organic. Additionally, our facilities are subject to various laws and regulations regarding the release of material into the environment
and the protection of the environment in other ways.

 Internationally, we are subject to the laws and regulatory
authorities of the foreign jurisdictions in which we manufacture and sell our products, including the Food Standards Agency in the United
Kingdom; the National Service of Health, Food Safety and Agro-Food Quality (known by its Spanish-language acronym "SENASICA")
and the Federal Commission for the Protection from Sanitary Risks ("COFEPRIS") in Mexico; the Food Safety Authority in Ireland;
and the European Food Safety Authority, which supports the European Commission, as well as individual country, province, state, and local
regulations.

 Changes in these laws or regulations, or the introduction
of new laws or regulations, could increase the costs of doing business for the Company, our customers, or suppliers, or restrict our actions,
causing our results of operations to be adversely affected.

 MILK INDUSTRY REGULATION

 Our primary raw material is milk. The federal government
establishes minimum prices for raw milk purchased in federally regulated areas. Some states have established their own rules for determining
minimum prices. The federal government announces prices for raw milk each month. We are subject to federal government regulations that
establish minimum prices for milk, and we also pay producer ("over-order") premiums, federal order administration costs, and
other related charges that vary by milk product, location, and supplier.

 FOOD SAFETY

 Lifeway takes appropriate precautions to ensure the
safety of our products. In addition to routine inspections by state and federal regulatory agencies, including the USDA and FDA, we have
instituted Company-wide systems that address topics such as supplier control; ingredient, packaging, and product specifications; preventive
maintenance; pest control; and sanitation. Each of our facilities also has in place a hazard analysis critical control points ("HACCP")
plan that identifies critical pathways for contaminants and mandates control measures that must be used to prevent, eliminate or reduce
relevant food-borne hazards. To the extent that the federal Food Safety Modernization Act applies to Lifeway's business, we develop
food safety plans and implement preventive measures to protect against food contamination. We also maintain a product recall plan, including
lot identifiability and traceability measures that allow us to act quickly to reduce the risk of consumption of any product that we suspect
may pose a health issue.

 We maintain various types of insurance, including
product liability and product recall coverages, which we believe to be sufficient to cover potential product liabilities.

 We have also implemented the SQF program at our Illinois
and Wisconsin facilities. SQF is a fully integrated food safety and quality management protocol designed specifically for the food sector.
The SQF Code, based on universally accepted CODEX Alimentarius, HACCP guidelines and the Global Food Safety Initiative ("GFSI")
standards, offers a comprehensive methodology to manage food safety and quality simultaneously. SQF certification provides an independent
and external validation that a product, process or service complies with international, regulatory and other specified standards.

 SEASONALITY

 Lifeway's business is not seasonal.

 EMPLOYEES

 As of December 31, 2024, we employed 291 full-time
and one part-time employee, of which 100 were members of a union bargaining unit in Illinois.

 AVAILABLE INFORMATION

 Lifeway maintains a corporate website at www.lifewayfoods.com
and makes available, free of charge, through this website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports that we file with or furnish to the SEC as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report.

 ITEM 1A. RISK FACTORS

 In evaluating and understanding us and our business,
you should carefully consider the risks described below, in conjunction with all of the other information included in this Annual Report
on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained
in Part II, Item 7. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that
we are unaware of, or that we currently believe are not material, may become important factors that adversely affect our business. If
any of the events or circumstances described in the following risk factors actually occurs, our business, financial condition, results
of operations, and future prospects could be materially and adversely affected.

 RISKS RELATED TO OUR BUSINESS

 Our product categories face a high level of
competition, which could negatively impact our sales and results of operations.

 We compete with a limited number of other domestic
kefir producers and consequently face a small amount of direct competition for kefir products. However, our kefir-based products compete
with other dairy products, notably spoonable and drinkable yogurt, and, increasingly, with non-dairy probiotic products that incorporate
kefir cultures but are not kefir. We face significant competition for limited retailer shelf space in each of our product categories.
Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness
of marketing, promotional activity, and our ability to identify and satisfy consumer tastes and preferences. We believe that our brands
have benefited in many cases from being the first to introduce products in their categories, and their success has attracted competition
from other food and beverage companies that produce branded products, as well as from private label competitors. Some of our competitors,
such as Danone, General Mills, Chobani, Hain Celestial Group, and Nestle, have substantial financial and marketing resources. These competitors
and others may be able to introduce innovative products more quickly or market their products more successfully than we can, which could
cause our growth rate to be slower than we anticipate and could cause sales to decline.

 We also compete with producers of non-dairy products
that have lower ingredient and production-related costs. As a result, these competing producers may be able to offer their products to
customers at a lower price point. This could cause us to lower our prices, resulting in lower profitability or, in the alternative, cause
us to lose market share if we fail to lower prices. Furthermore, private label competitors are generally able to sell their products at
lower prices because private label products typically have lower marketing costs than their branded counterparts. If our products fail
to compete successfully with other branded or private label offerings, demand for our products and our sales volumes could be negatively
impacted.

 Additionally, due to high levels of competition, certain
of our key retailers may demand price concessions on our products or may become more resistant to price increases for our products. Increased
price competition and resistance to price increases have had, and may continue to have, a negative effect on our results of operations.

 We may not be able to successfully implement our business strategy
for our brands on a timely basis or at all.

 We believe that our future success depends, in part,
on our ability to implement our strategy of leveraging our existing brands with our new products to maintain our market position in our
product categories; drive increased sales; acquire or establish new brands; and create strategic alliances including potential joint ventures.
Our ability to implement this strategy depends, among other things, on our ability to:

 enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products;

 compete successfully in the product categories in which we choose to operate;

 introduce timely, new, cost-effective, and appealing products and innovate successfully within our existing product categories;

 develop and maintain consumer interest in and demand for our brands considering prevailing consumer tastes and preferences;

 increase our brand recognition and loyalty;

 enter into strategic arrangements with third-party suppliers to obtain necessary raw materials;

 identify suitable acquisition candidates or joint venture partners and accurately assess their value, growth potential, strengths, weaknesses, contingent and other liabilities, and potential profitability;

 negotiate acquisitions and joint ventures on terms acceptable to us; and

 integrate acquired brands, products, or joint ventures into our company and our business strategy.

 If we fail to execute these and other important elements
of our business strategy, our business and results of operations could be adversely affected.

 One key element of our business strategy is to introduce
timely, new, cost-effective, and appealing products and to innovate successfully within our existing product categories. However, consumer
tastes and preferences change rapidly, and evolve over time. Factors that may affect consumer tastes and preferences include:

 dietary trends and increased attention to nutritional values, such as the sugar, fat, protein, fiber or calorie content of different foods and beverages;

 concerns regarding the health effects of specific ingredients and nutrients, such as sugar, other sweeteners, dairy, soybeans, nuts, oils, vitamins, fiber and minerals;

 concerns regarding the public health consequences associated with obesity, particularly among young people;

 decisions by yogurt and non-dairy beverage manufacturers to mislabel their products as "kefir" in order to benefit from our branding and marketing efforts, a marketing ploy that can cause significant confusion and misunderstanding among consumers; and

 increased awareness of the environmental and social effects of food processing.

 Our future investments may not produce the results
we expect when we expect them for a variety of reasons including those described herein. Our future product development and innovation
will be reliant on our ability to identify and develop potential new growth opportunities. This process is inherently risky and will result
in investments of substantial time and resources for which we may not achieve any return or value. Successful product development and
innovation is also affected by our ability to launch new or improved products successfully and on a timely and cost-effective basis.

 We may have to pay cash, incur debt, or issue equity,
equity-linked, or debt securities to fund our business strategy, or may be unable to fund that strategy. Any of these events could adversely
affect our financial results and our business. We could experience similar effects if we invest resources in a strategy that ultimately
proves unsuccessful. If, due to a failure of our strategy or any other reason, consumer demand for our products declines, our sales volumes,
results of operations, and our business could be negatively affected, and we may not be able to create or sustain growth or successfully
implement our business strategy.

 Interruption of our supply chain could affect
our ability to manufacture or distribute products, could adversely affect our business and sales, and/or could increase our operating
costs and capital expenditures.

 We have several supply agreements with suppliers and
co-packers that require them to provide us with certain ingredients, packaging, other inputs, and finished goods. For certain items, we
rely on a single supplier or co-packer as our sole source for the item. Our suppliers and co-packers are subject to risk, including labor
disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply constraints, and general economic
and political conditions that could limit their ability to timely provide us with acceptable product. Although other sources are available
for these items, if our current sources are unable to fulfill our needs for any reason, we may not be able to timely engage a replacement
source that can timely provide us with acceptable products or on terms favorable to us or at all, which could disrupt our ability to manufacture
and distribute products. Such disruptions could have a material adverse effect on our business, consolidated financial condition or results
of operations.

 Disruption of our manufacturing or distribution
chains or information technology systems, including disruption due to cybersecurity threats, could adversely affect our business.

 The success of our business depends, in part, on maintaining
a strong manufacturing platform and we rely primarily on internal production resources to fulfill our manufacturing needs. Our ongoing
initiatives to expand our manufacturing platform and our productive capacity could fail to achieve such objectives and, in any case, could
increase our operating costs beyond our expectations and could require significant additional capital expenditures. If we cannot maintain
sufficient production, warehousing, and distribution capacity, either internally or through third party agreements, we may be unable to
meet customer demand and/or our manufacturing, distribution, and warehousing costs may increase, which could negatively affect our business.

 Furthermore, damage or disruption to our manufacturing
or distribution capabilities due to weather, natural disaster, fire, environmental incident, terrorism, cybersecurity threats and other
security breaches, pandemic, strikes, the financial or operational instability of key distributors, warehousing, and transportation providers,
or other reasons could impair our ability to manufacture or distribute our products.

 We rely on a limited number of production and distribution
facilities. A disruption in operations at any of these facilities or any other disruption in our supply chain relating to common carriers,
supply of raw materials and finished goods, or otherwise, whether as a result of casualty, natural disaster, power loss, telecommunications
failure, cybersecurity threat, terrorism, labor shortages, contractual disputes or other causes, could significantly impair our ability
to operate our business and adversely affect our relationship with our customers. Furthermore, our insurance coverage may not be adequate
to cover all related costs.

 Our information technology systems are also critical
to the operation of our business and essential to our ability to successfully perform day-to-day operations. These systems include, without
limitation, networks, applications, and outsourced services in connection with the operation of our business. A failure of our information
technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies,
and sales losses, causing our business to suffer. In addition, our information technology systems may be vulnerable to damage or interruption
from circumstances beyond our control, including fire, natural disasters, systems failures, and cybersecurity threats. Cybersecurity threats
in particular are persistent, evolve quickly and include, without limitation, computer viruses, unauthorized attempts to access information,
denial of service attacks, and other electronic security breaches. Like our customers, suppliers, subcontractors and other third parties
with whom we do business generally, we expect that we will continue to be the subject of cybersecurity threats. In some cases, we must
rely on the safeguards put in place by the third parties with whom we do business to protect against security threats. We believe we have
implemented appropriate measures and controls and have invested in sufficient resources to appropriately identify and monitor these threats
and mitigate potential risks, including risks involving our customers and suppliers. However, there can be no assurance that any such
actions will be sufficient to prevent cybersecurity breaches, disruptions to mission critical systems, the unauthorized release of sensitive
information or corruption of data, or harm to facilities or personnel.

 These threats and other events could disrupt our operations,
or the operations of our customers, suppliers, subcontractors and other third parties; could require significant management attention
and resources; could result in the loss of business, regulatory actions and potential liability; and could negatively impact our reputation
among our customers and the public. Any of these outcomes could have a negative impact on our financial condition, results of operations,
or liquidity.

 Our debt and financial obligations could adversely
affect our financial condition, our ability to obtain future financing, and our ability to operate our business.

 Although the Company does not have any indebtedness
outstanding as of December 31, 2024, the Company may incur indebtedness in the future. Outstanding debt obligations could adversely affect
our financial condition and limit our ability to successfully implement our business strategy. Furthermore, from time to time, we may
need additional financing to support our business and pursue our business strategy, including strategic acquisitions. Our ability to obtain
additional financing, if and when required, will depend on our operating performance, the condition of the capital markets, and other
factors. We cannot assure that additional financing will be available to us on favorable terms when required, or at all. If we raise additional
funds through the issuance of equity, equity-linked, or debt securities, those securities may have rights, preferences, or privileges
senior to those of our common stock, and, in the case of equity and equity-linked securities, our existing stockholders may experience
dilution. Although the Company believes that the Stockholders' Agreement, dated as of October 1, 1999 (and as amended on December
24, 1999 and as extended in certain respects in eight extensions executed by certain of the parties to the Stockholders' Agreement,
the last of which was dated as of December 31, 2009 (the "Stockholders' Agreement")), by and among Danone North America
Public Benefit Corporation or an affiliate thereof (collectively, "Danone"), Lifeway and certain Lifeway shareholders, is
invalid, the Stockholders' Agreement purports to limit the Company's ability to issue shares of Company common stock or convertible
securities outside of specified, limited situations without providing Danone a right of first refusal, in the case of issuances of Company
common stock, or first obtaining Danone's prior consent, in the case of issuances of securities convertible into Company common
stock in excess of a specified amount. If the Stockholders' Agreement is valid or if third parties are unwilling to participate
in transactions due to the uncertainty relating to the validity of the Stockholders' Agreement, the Company may not be able to raise
additional funds through the issuance of equity or equity-linked securities.

 As of December 31, 2024, we had $0 outstanding under
the Revolving Credit Facility and note payable. Our loan agreements contain certain restrictions and requirements that among other things:

 require us to maintain a quarterly fixed charge coverage ratio and minimum working capital ratio;

 limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes;

 limit our future ability to refinance our indebtedness on terms acceptable to us or at all;

 limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan; and

 impose on us financial and operational restrictions.

 Our ability to meet our debt service obligations will
depend on our future performance, which will be affected by the other risk factors described in this Annual Report on Form 10-K. If we
do not generate enough cash flow to pay our debt service obligations, we may be required to refinance all or part of our existing debt,
sell our assets, borrow more money or raise equity. There is no guarantee that we will be able to take any of these actions on a timely
basis, on terms satisfactory to us, or at all.

 Our Revolving Credit Facility bears interest at variable
rates. If market interest rates increase, it will increase our debt service requirements, which could adversely affect our cash flow.

 Our loan agreements also contain provisions that restrict our ability to:

 borrow money or guarantee debt;

 create liens;

 make specified types of investments and acquisitions;

 pay dividends on or redeem or repurchase stock;

 enter into new lines of business;

 enter into transactions with affiliates; and

 sell assets or merge with other companies.

 These restrictions on the operation of our business
could harm our ability to execute on our business strategy by, among other things, limiting our ability to take advantage of financing,
merger and acquisition opportunities, and other corporate opportunities. Various risks, uncertainties, and events beyond our control could
affect our ability to comply with these covenants. Unless cured or waived, a default would permit lenders to accelerate the maturity of
the debt under the credit agreement and to foreclose upon the collateral securing the debt.

 Loss of our key management or other personnel,
or an inability to attract such management and other personnel, could negatively impact our business.

 We depend on the skills, working relationships,
and continued services of key personnel, including our experienced senior management team. We also depend on our ability to attract and
retain qualified personnel to operate and expand our business. If we lose one or more members of our senior management team whose responsibilities
cannot otherwise be distributed among our other officers, or if we fail to attract talented new employees, our business and results of
operations could be negatively affected.

 Employee strikes and other labor-related
disruptions may adversely affect our operations.

 We have a union contract governing the terms and
conditions of employment for a significant portion of our manufacturing workforce in Illinois. Although we believe union relations since
the union's certification as the exclusive bargaining representative of this portion of our workforce have been amicable, there
is no assurance that this will continue in the future or that we will not be subject to future union organizing activity. There are potential
adverse effects of labor disputes with our own employees or by others who provide warehousing, transportation, and distribution, both
domestic and foreign, of our raw materials or other products. Strikes or work stoppages or other business interruptions could occur if
we are unable to renew collective bargaining agreements on satisfactory terms or enter into new agreements on satisfactory terms, which
could impair manufacturing and distribution of our products or result in a loss of sales, which could adversely impact our business, financial
condition, or results of operations. The terms and conditions of existing, renegotiated, or new collective bargaining agreements could
also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to
adapt to changing business needs or strategy.

 Our intellectual property rights are valuable, and any inability
to protect them could reduce the value of our products and brands.

 We consider our intellectual property rights,
particularly our trademarks, but also our copyrights, registered domain names, and proprietary trade secrets, technology, know-how, processes
and other proprietary rights to be a significant and valuable aspect of our business. We attempt to protect our intellectual property
rights by relying on a combination of trademark, copyright, trade dress, trade secret, and other intellectual property laws, and domain
name dispute resolution systems; as well as licensing agreements, third-party confidentiality, nondisclosure, and assignment agreements;
and by policing third-party misuses of our intellectual property. Our failure to obtain or maintain adequate protection of our intellectual
property rights, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual
property, may diminish our competitiveness and could materially harm our business.

 We also face the risk of claims that we have infringed
third parties' intellectual property rights. Any claims of intellectual property infringement, even those without merit, could be
expensive and time consuming to defend, cause us to cease making, licensing, or using products that incorporate the challenged intellectual
property, require us to redesign or rebrand our products or packaging, divert management's attention and resources, or require us
to enter into royalty or licensing agreements to obtain the right to use a third party's intellectual property. Any royalty or licensing
agreements, if required, may not be available to us on acceptable terms or at all. Additionally, a successful claim of infringement against
us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of
certain products, any of which could have a negative effect on our results of operations.

 A substantial portion of our common stock
is held by members of the Smolyansky family and Danone, and they have the ability to control the outcome of matters submitted for stockholder
approval.

 Our four largest shareholders, Julie Smolyansky
(the Company's chief executive officer and the daughter of our founder), Edward Smolyansky (our former chief operations officer
and son of our founder), Ludmila Smolyansky (a former member of our Board and the widow of our founder) and Danone, beneficially owned
approximately 18%, 21%, 8% and 23% of the Company's outstanding common stock, respectively, as of December 31, 2024. Certain of
these shareholders, together, could significantly influence any matter requiring approval by our stockholders, including the election
or removal of all of our directors, amendments to our articles of incorporation and the approval or rejection of any merger, change of
control, or other significant corporate transaction. It is unlikely that any person interested in acquiring Lifeway will be able to do
so without obtaining the consent of some combination of Julie Smolyansky, Edward Smolyansky, Ludmila Smolyansky and Danone. The interests
of the Smolyansky family members and Danone could differ from those of other stockholders in ways that could be adverse to the interests
of other stockholders. By exercising their influence, such stockholders could cause Lifeway to take actions that are at odds with the
investment goals of institutional, short-term, non-voting, or other non-controlling investors, or that have a negative effect on our stock
price. Additionally, concentration of ownership could also harm the market price of our common stock if investors perceive disadvantages
in owning stock in a company of which a substantial portion of common stock is beneficially owned by a small number of stockholders.

 Our business could be adversely affected
as a result of proposals to acquire the Company or other actions taken by stockholders related to a possible acquisition of the Company.

 In September 2024, Danone publicly made an unsolicited
proposal to acquire all of the shares of Company common stock that it did not already own for $25.00 per share of Company common stock,
subject to due diligence, among other things. Then in November 2024, Danone revised its proposal to $27.00 per share of Company common
stock. Our Board carefully considered the initial proposal and the revised proposal in consultation with the Company's independent
financial and legal advisors, and ultimately determined that both proposals substantially undervalued the Company and were not in the
best interests of the Company or its stockholders or other stakeholders. These proposals, similar proposals that we may receive in the
future and any other actions by stockholders or others relating to a potential change of control transaction involving the Company could
interfere with our ability to execute our strategic plans, make it more difficult to attract and retain qualified executives and employees,
cause management distraction, require us to utilize more resources than anticipated towards review of strategic alternatives and result
in the loss of potential business opportunities, any of which could have a material negative impact on the Company. In addition, our business
and operations may be harmed to the extent that our customers or suppliers or others believe that we cannot effectively compete in the
marketplace without completing a transaction, or if there is customer, supplier or employee uncertainty surrounding the future direction
of our product offerings and our strategy. There can be no assurance that any such transaction will be completed now or in the future.

 We have had to, and may continue to be required
to, incur fees and other expenses related to Danone's proposals, including for third-party advisors. Further, Danone's proposals,
similar future proposals that we may receive in the future or any actual or perceived actions by our stockholders or others relating to
a potential transaction involving the Company may cause significant fluctuations in our stock price based upon temporary or speculative
market perceptions or other factors that do not necessarily reflect the Company's underlying fundamentals and prospects.

 The actions of certain of our stockholders
could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and adversely impact our stock
price.

 We value constructive input from investors and
regularly engage in dialogue with our stockholders regarding strategy and performance. Our Board and management team are committed to
acting in the best interests of all of our stockholders.

 Two of the Company's largest stockholders,
Edward Smolyansky and Ludmila Smolyansky, filed a Schedule 13D/A with the U.S. Securities and Exchange Commission (the "SEC")
on August 14, 2024 announcing their intention, among other things, to nominate seven director candidates for election to our Board and
replace seven of the eight members of our Board. Edward and Ludmila Smolyansky subsequently filed a preliminary consent solicitation statement
with the SEC in furtherance of this objective, and they have made public statements critical of our Board, management and strategy, repeatedly
called for the sale of the Company and publicly supported a sale of the Company for $25 per share. A contested election with respect to
the Company's directors could require us to incur substantial legal, public relations and other advisory fees and proxy solicitation
expenses. Further, we may choose to initiate, or may become subject to, litigation as a result of proposals by Edward and Ludmila Smolyansky
or other stockholders or proxy contests or matters relating thereto, which would serve as a further distraction to our Board and management
and could require us to incur significant additional costs.

 We may be subject to continued or similar activism
in the future, which could cause us to incur significant expense, hinder execution of our business strategy and adversely impact the market
price of Company common stock. Stockholder actions, including potential proxy contests, require significant time and attention by management
and our Board, potentially interfering with our ability to execute our strategic plan. Such stockholder action could give rise to perceived
uncertainties as to our future, adversely affect our relationships with our employees, customers or suppliers and make it more difficult
to attract and retain qualified personnel and business partners. These perceived uncertainties may also be exploited by our competitors
or other stockholders, which could result in lost business opportunities and make it more difficult to execute on our long-term strategic
plan. If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business,
financial condition and operating results would be adversely affected. We may be required to incur significant legal fees and other expenses
related to stockholder actions, and the attention of our management may be diverted by such actions. Any of these impacts could materially
and adversely affect our business, operating results and financial condition, and the market price of Company common stock could be subject
to significant fluctuation or otherwise be adversely affected. If individuals are elected or appointed to our Board with a specific agenda,
the ability of our Board to function effectively could be adversely affected, which could in turn adversely affect our ability to effectively
and timely implement our strategic plan and create additional value for our stockholders, and adversely affect our business, operating
results and financial condition.

 Litigation regarding the Stockholders'
Agreement may be protracted and costly.

 As previously disclosed by the Company, the Company
believes that the Stockholders' Agreement is void ab initio and unenforceable. Danone has filed suit in the Circuit Court
of Cook County, Law Division, in part, to enforce the Stockholders' Agreement. The litigation regarding the Stockholders'
Agreement may be protracted and expensive, and under certain circumstances, the Company may be required to reimburse Danone for its legal
fees incurred in connection with such litigation. Further, the uncertainty relating to the status of the Stockholders' Agreement
may cause third parties to refuse to engage in activities that are purportedly prohibited by the Stockholders' Agreement.

 Our shareholder rights plan includes terms
and conditions that could discourage a takeover or other transaction that stockholders may consider favorable.

 On November 4, 2024, in response to Danone's
original proposal and Danone's substantial ownership position in the Company, our Board approved and adopted the Shareholder Rights
Agreement with Computershare Trust Company, N.A., as rights agent (the "Rights Agreement"), and declared a dividend of one
preferred share purchase right (each, a "Right") for each outstanding share of Company common stock to stockholders of record
at 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 a 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 generally become exercisable only if any person or entity (or any persons
or entities acting as a group) acquires 20% or more of the outstanding shares of Company common stock (or, to the extent any person, entity
or group beneficially owned 20% or more of the outstanding shares of Company common stock as of immediately prior to the first public
announcement of the adoption of the Rights Agreement, such person, entity or group acquires any additional shares). If Rights become exercisable,
all holders of Rights (other than the person, entity or group triggering the Rights Agreement, whose Rights will become void and will
not be exercisable) will have the right to purchase from the Company for $130.00, subject to certain potential adjustments, shares of
Company common stock having a market value of twice that amount. The Rights Agreement expires on November 4, 2025, unless earlier terminated
or the Rights are redeemed or exchanged by the Board. Additional information regarding the Rights Agreement is contained in the Company's
Current Report on Form 8-K filed with the SEC on November 5, 2024.

 The Rights Agreement will cause substantial dilution
to any person, entity or group that acquires beneficial ownership of 20% or more of the outstanding shares of Company common stock (or,
to the extent any person, entity or group beneficially owned 20% or more of the outstanding shares of Company common stock as of immediately
prior to the first public announcement of the adoption of the Rights Agreement, such person, entity or group acquires any additional shares).
As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to discourage any person, entity or group
from gaining a control or control-like position in the Company or engaging in other tactics, potentially disadvantaging the interests
of the Company's stockholders, without negotiating with the Board and without paying an appropriate control premium to all stockholders.
The Rights Agreement has similar provisions to those of other plans adopted by publicly-held companies in comparable circumstances. It
is intended to protect stockholders' interests, including by providing the Board sufficient time to make informed judgments and
take actions that are in the best interests of all of the Company's stockholders and other stakeholders. Nevertheless, the Rights
Agreement may be considered to have certain anti-takeover effects, including potentially discouraging a third party from attempting to
obtain a substantial position in the Company common stock or seeking to obtain control of the Company and discouraging a takeover attempt
that stockholders may consider favorable or that could result in a premium over the market price of Company common stock. Even in the
absence of a takeover attempt, the Rights Agreement may adversely affect the prevailing market price of Company common stock if it is
viewed as discouraging takeover attempts in the future.

 Adverse economic conditions in the United
States or any of the other countries in which we conduct significant business in the future could negatively affect our business, financial
condition and results of operations.

 Many of our products may be considered discretionary
items for consumers. Consumer spending on discretionary products is influenced by general economic conditions and the availability of
discretionary income. Adverse economic conditions in the United States, our primary market, or any of the other jurisdictions in which
we conduct significant business in the future, such as the current inflationary economic environment, rising interest rates, financial
distress caused by recent or potential bank failures and the associated banking crisis, an economic recession, depression or downturn,
a tightening of the credit markets, high energy prices or higher unemployment levels, may lead to decreased consumer spending, reduced
credit availability and a decline in consumer confidence and demand, each of which poses a risk to our business. For example, US and global
markets have in the past experienced volatility and disruption due to interest rate and inflation increases, as well as the continued
escalation of geopolitical tensions, including those as a result of the conflicts between Russia and Ukraine and in the Middle East. Although
our business has not yet been materially negatively impacted by such inflationary pressures, we cannot be certain that neither we nor
our consumers will be materially impacted by continued pressures.

 The change in administration following the 2024
United States presidential election could further impact trade and tariff policies, and could also result in substantial changes to fiscal,
tax, or regulatory policies that may impact our business. These additional tariffs, as well as a government's adoption of "buy
national" policies or retaliation by another government against such tariffs or policies have introduced significant uncertainty
into the market and may affect the prices of and demand for our products, as well as the cost to acquire machinery and equipment from
international sources, which could have a material and adverse effect on our business, financial condition and results of operations.

 Other significant events may impact economic conditions
and affect discretionary spending, including events such as catastrophic environmental disasters or global pandemics. As global economic
conditions continue to be volatile and economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable
and subject to reductions due to credit constraints and uncertainties about the future. A decrease in consumer spending or in retailer
and consumer confidence and demand for our products could have a significant negative impact on our net sales and profitability, including
our operating margins and return on invested capital. These economic conditions could cause some of our retail customers or suppliers
to experience cash flow or credit problems and impair their financial condition, which could disrupt our business and adversely affect
product orders, payment patterns and default rates and increase our bad debt expense.

 RISKS RELATED TO OUR INDUSTRY

 The consolidation of our customers or the
loss of any of our largest customers could negatively impact our sales and results of operations.

 Customers, such as supermarkets and food distributors,
continue to consolidate. This consolidation has produced larger, more sophisticated organizations with increased negotiating and buying
power that are able to resist price increases or demand increased promotional programs, as well as operate with lower inventories, decrease
the number of brands that they carry and increase their emphasis on private label products, all of which could negatively impact our business.
The consolidation of retail customers also increases the risk that a significant adverse impact on their business could have a corresponding
material adverse impact on our business.

 Two of our customers together accounted for 25%
of our net sales in the fiscal year ended December 31, 2024. Where we enter into written agreements with our customers, they are generally
terminable after short notice periods by the customer. In addition, our customers sometimes award contracts based on competitive bidding,
which could result in lower profits for contracts we win and the loss of business for contracts we lose. The loss of any large customer,
the reduction of purchasing levels, or the cancellation of any business from a large customer for an extended period of time could negatively
affect our sales and results of operations.

 We rely on sales made by or through our independent
distributors to customers. Distributors purchase directly for their own account for resale. The loss of, or business disruption at, one
or more of these distributors may harm our business. If we are required to obtain additional or alternative distribution agreements or
arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our inability
to enter into satisfactory distribution agreements may inhibit our ability to implement our business plan or to establish markets necessary
to expand the distribution of our products successfully.

 We are subject to the risk of product contamination
and product liability claims, which could harm our reputation, force us to recall products and incur substantial costs.

 The sale of food products for human consumption involves
the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, inadvertent mislabeling, product
contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during
the storage, processing, handling or transportation phases. We also may be subject to liability if our products or production processes
violate applicable laws or regulations, including environmental, health, and safety requirements, or in the event our products cause injury,
illness, or death.

 Under certain circumstances, we may be required to
recall or withdraw products, suspend production of our products, or cease operations, which may lead to a material adverse effect on our
business. In addition, customers may cancel orders for such products as a result of such events. Even if a situation does not necessitate
a recall or market withdrawal, and even if we and each of our co-packers and suppliers comply in all material respects with all applicable
laws and regulations, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful
or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm, including
the risk of reputational harm being magnified and/or distorted through the rapid dissemination of information over the Internet, including
through news articles, blogs, chat rooms, and social media, could adversely affect our reputation with existing and potential customers
and consumers and our corporate and brand image. Moreover, claims or liabilities of this type might not be covered by our insurance or
by any rights of indemnity or contribution that we may have against others. We maintain product liability and product recall insurance
in amounts that we believe to be adequate. However, we cannot be sure that we will not incur claims or liabilities for which we are not
insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall could have a
material adverse effect on our business, consolidated financial condition, results of operations or liquidity.

 We rely on independent certification for several of our products
and facilities.

 We rely on independent certification, such as certifications
of our products as "organic," or "gluten-free," to differentiate our products from others. The loss of any independent
certifications could adversely affect our market position as a probiotic-based product and natural, "better for you" foods
company, which could harm our business. We rely on independent SQF certification at some of our facilities, a certification that some
of our customers require us to maintain.

 We must comply with the requirements of independent
organizations or certification authorities in order to label our products as certified. For example, we can lose our "organic"
certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production
run. In addition, all organic raw materials must be certified organic or organic compliant. Our products could lose their organic certifications
if our raw material suppliers lose their organic certifications. Similarly, we could lose our SQF certification if we do not meet the
requirements of the SQF Code. The loss of these certifications could cause us to lose customers that require Lifeway products and/or facilities
to carry some or all of them, which could negatively affect our sales and results of operations.

 Increases in the cost of milk could reduce our
gross margin and profit.

 Conventional and organic milk, our primary raw material,
is an agricultural commodity that is subject to price fluctuations. Conventional milk prices were higher in fiscal 2024 than the prior
year, and there can be no assurance that such prices will remain at these levels in the future. The supply and price of milk may be impacted
by, among other things, weather, natural disasters, real or perceived supply shortages, lower dairy and crop yields, general increases
in farm inputs and costs of production, political and economic conditions, labor actions, government actions, and trade barriers. Increases
in the market price for milk or over-order premiums charged by producers may also impact our ability to enter into purchase commitments
at a fixed price. There can be no assurance that our purchasing practices will mitigate future price risk. As a result, increases in the
cost of milk could have an adverse impact on our profitability.

 In addition, the dairy industry continues to experience
periodic imbalances between supply and demand for organic milk. Industry regulation and the costs of organic farming compared to costs
of conventional farming can impact the supply of organic milk in the market. Oversupply levels of organic milk can increase competitive
pressure on our products and pricing, while supply shortages can cause higher input costs and reduce our ability to deliver product to
our customers. Cost increases in raw materials and other inputs could cause our profits to decrease significantly compared to prior periods,
as we may be unable to increase our prices to offset the increased cost of these raw materials and other inputs. If we are unable to obtain
raw materials and other inputs for our products or offset any increased costs for such raw materials and inputs, our business could be
negatively affected.

 Reduced availability of raw materials and other
inputs, as well as increased costs for them, could adversely affect us.

 Our business depends heavily on raw materials
and other inputs in addition to conventional and organic raw milk, such as sweeteners, diesel fuel, packaging material, resin, and other
commodities. Our raw materials are generally sourced from third-party suppliers, and we are not assured of continued supply, pricing,
or exclusive access to raw materials from any of these suppliers. In 2024, costs to us increased modestly due to inflationary price increases.
However, for market conditions or competitive reasons, our customer pricing actions may lag input cost changes, or we may not be able
to pass along the full effect of increases in raw materials and other input costs as we incur them.

 The organic ingredients we use in some of our
products are less plentiful and available from a fewer number of suppliers than their conventional counterparts. Competition with other
manufacturers in the procurement of organic product ingredients may increase in the future if consumer demand for organic products exceeds
the supply.

 Our business is subject to various food, environmental,
and health and safety laws and regulations, which may increase our compliance costs, subject us to liabilities, or otherwise adversely
affect our business.

 Our business operations are subject to numerous requirements
in the United States relating to food safety, production, and marketing, as well as the protection of the environment, and health and
safety matters. The food production and marketing industry is subject to a variety of federal, state, local, and foreign laws and regulations,
including food safety requirements related to the ingredients, manufacture, processing, storage, marketing, advertising, labeling, and
distribution of our products, as well as those related to worker health and workplace safety. Our activities, both in and outside of the
United States, are subject to extensive regulation. We are regulated by, among other federal and state authorities, the FDA, USDA, the
U.S. Federal Trade Commission ("FTC"), and the U.S. Departments of Commerce, and Labor, as well as by similar authorities
in the foreign countries in which we do business. Environmental laws including the Clean Air Act, the Clean Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, and the National Organic Standards of the U.S. Department
of Agriculture, as well as similar state and local statutes and regulations in the United States and in each of the foreign countries
in which we do business apply to our business operations as well. These laws and regulations govern, among other things, air emissions
and the discharge of wastewater and other pollutants, the use of refrigerants, the handling and disposal of hazardous materials, and the
cleanup of contamination in the environment. In addition, the marketing and advertising of our products could make us the target of claims
relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations, and we may be subject to initiatives
that limit or prohibit the marketing and advertising of our products to children.

 We are also subject to federal laws and regulations
relating to our organic products and production. For example, as required by the National Organic Program ("NOP"), we rely
on third parties to certify certain of our products and production locations as organic. Regulations and formal and informal positions
taken by the NOP pursuant to the Organic Foods Production Act of 1990, which created the NOP, are subject to continued review and scrutiny.

 Changes in these laws or regulations or the introduction
of new laws or regulations could increase our compliance costs, increase other costs of doing business for us, our customers, or our suppliers,
or restrict our actions, which could adversely affect our results of operations. In some cases, new laws and regulations or other federal
and state regulatory initiatives could interrupt distribution of our products or force changes in our production processes and our products.
Governmental regulations also affect taxes and levies, healthcare costs, energy usage, immigration, and other labor issues, all of which
may have a direct or indirect effect on our business or those of our customers or suppliers. These costs could negatively affect our results
of operations and financial condition. Further, if we are found to be in violation of applicable laws and regulations in these areas,
we could be subject to civil remedies, including third-party claims for property damage or personal injury, fines, injunctions, recalls,
cleanup costs, and other civil sanctions, as well as potential criminal sanctions, any of which could have a material adverse effect on
our business.

 ITEM 1B. UNRESOLVED
STAFF COMMENTS

 None.

 ITEM 1C. CYBERSECURITY

 Risk Management and Strategy

 Our cybersecurity program is designed to assess,
identify, and manage material risks from cybersecurity threats, and protect and preserve the confidentiality, integrity, and continued
availability of all information owned by, or in the care of, the Company. Cybersecurity risks are incorporated into the Company's
broader risk management process to evaluate and address cybersecurity risks in alignment with our business objectives and operational
needs. As part of the cybersecurity program, we utilize a combination of internal technology, which we continue to analyze and update
as necessary, and a third-party managed security service provider and their platform to monitor, evaluate and respond to cyber activity.
We monitor and assess the information gathered by our security tools and services to identify gaps, exposures, or weaknesses in our overall
security approach, and make the necessary changes to address such findings.

 Impact of Cybersecurity Risks and Threats

 We are not aware of having experienced any risks
from cybersecurity threats or incidents through the date of this Report that have materially affected the Company, its business strategy,
results of operation or financial condition or are reasonably likely to have such an effect over the long term. This does not guarantee
that future incidents or threats will not have a material impact or that we are not currently the subject of an undetected incident or
threat that may have such an impact.

 Additional information on cybersecurity risk we
face is discussed in Part I, Item A – Risk Factors, which should be read in conjunction with the foregoing information.

 Governance

 Board of Directors

 Our Board of Directors oversees our risk management
process, and cybersecurity risks are monitored as a part of the broader program. Our Board has delegated the primary responsibility to
oversee risks from cybersecurity threats to the Audit and Corporate Governance Committee. The Chief Financial Officer presents updates
to the Audit and Corporate Governance Committee and the full Board of Directors, on, among other things, the Company's cyber risks
and threats, the status of projects to strengthen the Company's information security systems, and the emerging threat landscape.

 Management

 Our Chief Financial Officer is responsible for management
oversight of our information security program and controls, which includes cybersecurity risk management. Our Director of IT ("Director")
is responsible for the development, operation, and maintenance of our information security program and controls. The Director has extensive
experience in the information technology field, and cybersecurity knowledge and skills gained through relevant experiences. The Director
and Chief Financial Officer regularly review potential risks and measures implemented by the Company to identify and mitigate cyber security
risks.

 ITEM 2. PROPERTIES

 We operate the following facilities:

 Location

 Owned / Leased

 Principal Use

 Morton Grove, Illinois

 Owned

 Production facility, principal executive offices

 Waukesha, Wisconsin

 Owned

 Production facility, warehousing and distribution, administrative offices

 Niles, Illinois

 Owned

 Warehousing and distribution, administrative offices

 Philadelphia, Pennsylvania

 Owned

 Production facility, warehousing and distribution, administrative offices

 Lifeway believes that its facilities are adequate
for its current needs and that suitable additional space will be available on commercially acceptable terms as required. We believe that
we have adequate insurance coverage for all our properties.

 ITEM 3. LEGAL PROCEEDINGS

 From time to time, we are engaged in litigation matters
arising in the ordinary course of business. While the results of litigation and claims cannot be predicted with certainty, Lifeway believes
that no such matter is reasonably likely to have a material adverse effect on our financial position or results of operations.

 ITEM 4. MINE
SAFETY DISCLOSURES

 Not applicable.

 ITEM 5. MARKET FOR
REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 The Company's common stock is listed on the
Nasdaq Global Market under the symbol "LWAY." Trading commenced on March 29, 1988. As of March 7, 2025, there were approximately
 53 shareholders of record of our common stock.

 Dividend Policy

 Lifeway does not routinely declare and pay dividends.
From time to time however our Board of Directors may declare and pay dividends depending on our operating cash flow, financial condition,
capital requirements and such other factors as the Board of Directors may deem relevant.

 There were no dividends declared or paid in fiscal
2024 or 2023.

 Purchases of Equity Securities by the Issuer

 None.

 ITEM 6. [RESERVED]

 ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 The following discussion and analysis of the financial
condition and results of operations as of and for the years ended December 31, 2024 and 2023 should be read in conjunction with the audited
consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. In
addition to historical information, the following discussion contains certain forward-looking statements within the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations
and intentions. These statements may be identified by the use of words such as "may," "could," "believe,"
"future," "depend," "expect," "will," "result," "can," "remain,"
"assurance," "subject to," "require," "limit," "impose," "guarantee,"
"restrict," "continue," "become," "predict," "likely," "opportunities,"
"effect," "change," and "estimate," and similar terms or terminology, or the negative of such terms
or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable
assumptions within the bounds of our knowledge of our business, our actual results could differ materially from those discussed in these
statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the "Risk Factors"
section in Part I, Item 1A. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information
becomes available or other events occur in the future.

 Recent Developments

 Unsolicited Proposal

 On November 5, 2024, we announced that our board
of directors (our "Board") determined, after careful and thorough consideration in consultation with the Company's independent
financial and legal advisors, that the unsolicited proposal made on September 23, 2024 by Danone North America PBC ("Danone")
to acquire all of the shares of the Company that it did not already own for $25.00 per share, substantially undervalued the Company and
was not in the best interests of the Company or its stockholders or other stakeholders. In connection with that determination, we entered
into a Shareholder Rights Agreement with Computershare Trust Company, N.A., as rights agent (the "Rights Agreement"). Pursuant
to the Rights Agreement, our Board 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 also 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 November 15, 2024, Danone revised its offer
to acquire all of the shares of the Company that it did not already own from $25.00 per share to $27.00 per share. On November 20, 2024,
we announced our Board's determination that, after careful and thorough consideration in consultation with the Company's independent
financial and legal advisors, the revised unsolicited proposal substantially undervalued the Company and was not in the best interests
of the Company or its stockholders or other stakeholders. On November 26, we announced additional information regarding the information
the Board used to come to this determination.

 Debt Refinancing

 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 and (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. 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.

 Products

 In October 2024, we began to roll out our first
products with 100% lactose free labeling. Our products were already up to 99% lactose free, so we are pleased to further attract consumers
with our new Organic Whole Milk Flavor Fusion items that have this added benefit, along with decreased sugar content. In demand flavors
including Hot Honey, Matcha Latte, and Passionfruit Lychee are new additions to our portfolio. The entire lineup is loaded with high-quality
bioavailable nutrients, and plays to our strengths, as our organic products have been incredibly successful to date.

 We expect health and wellness trends to continue to
be a tailwind for our entire premium product portfolio. We plan to continue to invest behind our key products to capture more and more
of this growing market,

 Distribution Strategy

 In September 2024, we announced our first expansion
of Kefir distribution in the South African market. In November 2024, we announced our expansion within Dubai and the UAE. The offering
of 32oz Lifeway Kefir, 8oz Lactose-Free Lifeway Kefir, ProBugs and farmer cheese, exported from the United States, is expected to begin
shipping in the first quarter of 2025 and will become available in supermarkets and hypermarkets in Dubai and across the Emirates. We
are taking a measured, and thoughtful approach to global expansion, as we seek markets that are primed for success and can be accessed
without a major initial investment.

 Trends and Uncertainties

 Current Macroeconomic Environment

 We have not experienced significant supply chain disruptions
or labor supply shortages and have continued to satisfy customer and consumer demand for our products. Management continues to proactively
manage the supply and transportation of materials used to produce and package our products, staffing, and transportation of our products
to customers. This proactive planning has allowed the Company to meet increased demand.

 Results of Operations

 Comparison of Year Ended December 31, 2024 to Year
Ended December 31, 2023 (in thousands)

 The following table presents certain information concerning
our financial results, including information presented as a percentage of consolidated net sales:

 Year Ended December 31,

 2024

 2023

 $

 %

 $

 %

 Net sales

 100.0%

 100.0%

 Cost of goods sold

 135,400

 72.5%

 115,060

 71.9%

 Depreciation expense

 2,846

 1.5%

 2,622

 1.6%

 Total cost of goods sold

 138,246

 74.0%

 117,682

 73.5%

 Gross profit

 48,574

 26.0%

 42,441

 26.5%

 Selling expenses

 14,743

 7.9%

 11,776

 7.4%

 General & administrative expenses

 19,439

 10.4%

 13,130

 8.2%

 Amortization expense

 0.3%

 0.3%

 Total operating expenses

 34,722

 18.6%

 25,446

 15.9%

 Income from operations

 13,852

 7.4%

 16,995

 10.6%

 Other income (expense):

 Interest expense

 (105
)

 (0.1%
)

 (384
)

 (0.2%
)

 Gain (loss) on sale of property and equipment

 (8
)

 0.0%

 0.0%

 Other income

 0.1%

 0.0%

 Total other income (expense)

 0.0%

 (346
)

 (0.2%
)

 Income before provision for income taxes

 13,969

 7.4%

 16,649

 10.4%

 4,944

 2.6%

 5,282

 3.3%

 9,025

 4.8%

 7.1%

 Net Sales

 Net sales were $186,820 for the year ended December
31, 2024, an increase of $26,697 or 16.7% versus prior year. The net sales increase was primarily driven by higher volumes of our branded
drinkable kefir.

 Gross Profit

 Gross profit as a percentage of net sales decreased
to 26.0% during the year ended December 31, 2024 from 26.5% during the same period in 2023. The decrease versus the prior year was driven
by the unfavorable impact of milk pricing, and to a lesser extent the increase in other input costs, partially offset by favorable transportation
costs.

 Selling Expenses

 Selling expenses increased by $2,967 to $14,743
during the year ended December 31, 2024 from $11,776 during the same period in 2023. Selling expenses as a percentage of net sales increased
to 7.9% during the year ended December 31, 2024 from 7.4% during the same period in 2023. The increase is primarily a result of our continued
investments in marketing activities to drive brand awareness and sales volumes.

 General and Administrative Expenses

 General and administrative expenses increased
$6,309 to $19,439 during the year ended December 31, 2024 from $13,130 during the same period in 2023. Legal and professional fees associated
with non-routine stockholder action and the Danone unsolicited purchase proposal, and the CEO retention bonus awarded in the fourth quarter
of 2024, account for approximately 75% of the increase. General and administrative stock-based compensation expense increased $784 compared
to the same period in 2023.

 Provision for Income Taxes

 The provision for income taxes includes federal,
state and local income taxes. The provision for income taxes was $4,944 and $5,282 during the year ended December 31, 2024 and 2023, respectively.

 The effective income tax rate was 35.4% in 2024
compared to 31.7% in 2023. The statutory Federal and state tax rates remained consistent from 2023 to 2024. The Company consistently reflects
non-deductible items such as non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive
awards and separate state tax rates from year to year. Although similar items were reflected in 2024, the percentage effect is different
primarily due to the increase in certain non-deductible compensation in 2024 compared to 2023. The increase is partially offset by the
difference in pre-tax income in 2024 compared to 2023.

 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 underlying
income tax rates applicable to various state and local taxing jurisdictions, enacted tax legislation, 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 in the period in which they occur.

 Section 162(m) of the Internal Revenue Code (the
"Code") limits the deductibility of compensation paid to certain of our executives to the extent their total compensation
exceeds $1 million in any taxable year.

 Income taxes are discussed
in Note 10 in the Notes to the Consolidated Financial Statements.

 Liquidity and Capital Resources

 Management
assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing, and financing activities.
The Company remains in a strong financial position, and while it has been impacted by the macroeconomic challenges with commodity inflation
and other input cost increases, the Company believes that its cash flow from operations, revolving credit facility, and cash and cash
equivalents will continue to provide sufficient liquidity for its working capital needs, capital resource requirements, and growth initiatives
and to ensure the continuation of the Company as a going concern.

 If additional
borrowings are needed, $5,000 was available under the Revolving Credit Facility as of December 31, 2024 (see Note 7, Debt). We are in
compliance with the terms of the Credit Agreement and expect to meet foreseeable financial requirements. The success of our business and
financing strategies will continue to provide us with the financial flexibility to take advantage of various opportunities as they arise.
To date, we have been successful in generating cash and obtaining financing as needed. However, if a serious economic or credit market
crisis ensues, it could have a negative effect on our liquidity, results of operations and financial condition.

 The Company's most significant ongoing
short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and
distribution, trade and promotions, advertising and marketing, and income tax liabilities) as well as expenditures for property, plant,
and equipment.

 Long-term cash
requirements primarily relate to funding long-term debt repayments (see Note 7, Debt) and deferred income taxes (see Note 10, Income Taxes).

 Cash Flow

 The following table is derived from our Consolidated
Statement of Cash Flows:

 Year Ended

 2024

 2023

 Net Cash Flows Provided By (Used In):

 Operating activities

 $
 12,962

 $
 16,941

 Investing activities

 $
 (6,682
)

 $
 (4,410
)

 Financing activities

 $
 (2,750
)

 $
 (3,777
)

 Operating Activities

 Net cash provided by operating activities was $12,962
in 2024 compared to $16,941 in 2023. The decrease was primarily due to lower cash earnings driven by non-routine stockholder action, and
the change in working capital.

 Investing Activities

 Net cash used in investing activities was $6,682 in
2024 compared to $4,410 in 2023. The increase in cash used reflects our planned capital spending increase during 2024 compared to 2023.
Our capital spending is focused in three core areas: growth, cost reduction, and facility improvements. Growth capital spending supports
increased production capacity, new product innovation and enhancements. Cost reduction and facility improvements support manufacturing
efficiency, safety, and productivity. We continue to make capital expenditures primarily to modernize manufacturing facilities and support
productivity initiatives.

 Financing Activities

 Net cash used in financing activities was
$2,750 in 2024 compared to $3,777 in 2023. The cash used represents the quarterly principal payments under the term loan. The Company
paid the outstanding term loan balance of $2,250 in full during the second quarter of 2024.

 Debt Obligations

 The Company is party to an Amended and Restated
Loan and Security Agreement (as amended and modified from time to time, the "Credit Agreement") with its existing lender and
certain of its subsidiaries. The Credit Agreement provides for, among other things, a $5,000 term loan to be repaid in quarterly installments
of principal and interest over a term of five years, a revolving line of credit up to a maximum of $5,000 (the "Revolving Credit
Facility") and an incremental facility not to exceed $5,000. The termination date of the term loan is August 18, 2026, unless earlier
terminated. The term loan was terminated during the second quarter of 2024 upon payment of the outstanding loan balance in full. The termination
date of the revolving credit facility is June 30, 2025, unless earlier terminated.

 As of December 31, 2024, the Company had $0 outstanding
under the Revolving Credit Facility and note payable. The Company had $5,000 available for future borrowings under the Revolving Credit
Facility as of December 31, 2024.

 All outstanding amounts under the loans bear interest
at the Secured Overnight Financing Rate ("SOFR"), plus 2.07%. Interest is payable monthly in arrears. Lifeway is also required
to pay a quarterly unused line fee of 0.20% on the Revolving Credit Facility, and in conjunction with the issuance of any letters of credit,
a letter of credit fee of 0.20%.

 The Company is in compliance with all applicable
financial debt covenants as of December 31, 2024. See Note 7 to our Consolidated Financial Statements for additional information regarding
our indebtedness and related agreements.

 Off-Balance Sheet Arrangements

 We do not have any off-balance sheet financing
arrangements as defined in Item 303(a)(4) of Regulation S-K.

 Critical Accounting Estimates

 Critical accounting estimates are defined as those
most important to the portrayal of a company's financial condition and results, and require the most difficult, subjective, or complex
judgments. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP with no need for
the application of our judgement. In certain circumstances, the preparation of our Consolidated Financial Statements in conformity with
U.S. GAAP requires us to use our judgment to make certain estimates and assumptions. These estimates affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported
amounts of net sales and expenses during the reporting period. We believe in the quality and reasonableness of our critical accounting
estimates; however, materially different amounts might be reported under different conditions or using assumptions, estimates or making
judgments different from those that we have applied. Management has discussed the development and selection of these critical accounting
policies, as well as our significant accounting policies (see Note 2 to the Consolidated Financial Statements), with the Audit and Corporate
Governance Committee of our Board of Directors. We have identified the policies described below as our critical accounting policies that
require us to make subjective or complex judgments.

 Goodwill impairment

 Goodwill totaled $11,704 as of December 31, 2024.
Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired.
Goodwill is not amortized.

 The Company has one reporting unit within its single
reportable segment. We review and evaluate our goodwill for potential impairment at a minimum annually, as of December 31, or more frequently
if circumstances indicate that impairment is possible. We completed our annual goodwill impairment analysis as of December 31, 2024. Our
assessment did not result in an impairment.

 In testing goodwill for impairment, the Company has
the option to perform a qualitative test (also known as "Step 0") or a quantitative test ("Step 1"). Under the
Step 0 test, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the
reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry
and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific
events. If after assessing these qualitative factors, the Company determines it is "more-likely-than-not" that the fair value
of the reporting unit is less than the carrying value, then performing the Step 1 quantitative test is necessary.

 Step 1 of the quantitative test requires comparison
of the fair value of the Company's one reporting unit to the carrying value. If the carrying value of the reporting unit is less
than the fair value, no impairment exists. Otherwise, the Company would recognize an impairment charge for the amount by which the carrying
amount of the reporting unit exceeds its fair value up to the amount of goodwill allocated to the reporting unit.

 Under a Step 1 quantitative test, we estimate the
fair value of our one reporting unit using a combination of the fair values derived from both the income approach and the market approach.
Under the income approach, the Company uses a discounted cash flow methodology which requires management to make significant estimates
and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth
rates, and long-term discount rates, among others. The discount rate used to determine the present value of future cash flows is based
on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty
related to the business's ability to execute on the projected cash flows. For the market approach, the Company uses the guideline
public company method. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable
publicly traded companies with similar operating and investment characteristics. The Company also reconciles the fair value of its reporting
unit to its current market capitalization, allowing for a reasonable control premium.

 Sales discounts & allowance

 We offer various trade promotions and sales incentive
programs to customers and consumers. From time to time, we grant certain sales discounts to customers which are classified as a reduction
in sales. The measurement and recognition of discounts and allowances involve the use of judgment and our estimates are made based on
historical experience and specific customer program accruals. Differences between estimated and actual discount and allowance costs are
normally not material and are recognized in earnings in the period such differences are determined. The process for analyzing trade promotion
programs could impact our results of operations and trade spending accruals depending on how actual results of the programs compare to
original estimates. As of December 31, 2024, we had $1,590 of accrued discounts and allowances.

 Share-based compensation

 Certain employees and non-employee directors receive
various forms of share-based payment awards, and we recognize compensation expense for these awards based on their grant date fair values.
The grant date fair value of Restricted Stock Units ("RSUs") and Performance Share Unit ("PSUs") awards is equal
to the Company's closing stock price on the grant date. The Company granted RSU and PSU awards during 2024 to employees. The PSU
awards are contingent upon the achievement of strategic milestones during a three-year measurement period. The expense recognition of
PSU awards therefore requires management to make judgements and estimates at the end of each reporting period as to the cumulative three-year
milestone achievements. Changes in managements estimate of the three-year cumulative milestone achievements are recognized as change in
management estimate in a subsequent period. We do not estimate forfeitures in measuring the grant date fair value of RSUs and PSUs, but
rather account for forfeitures as they occur. Forfeitures have historically been immaterial. See Note 11 to our consolidated financial
statements for further detail.

 Income taxes

 We pay income taxes based on tax statutes, regulations,
and case law of the various jurisdictions in which we operate. At any given time, multiple tax years are subject to audit by the various
taxing authorities. Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are
recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for
the years in which the differences are expected to reverse. The assumptions about future taxable income require the use of significant
judgment and are consistent with the plans and estimates we are using to manage our underlying businesses.

 We recognize an income tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based
on the technical merits of the position. The income tax benefit recognized in our financial statements from such a position is measured
based on the largest estimated benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. These judgments
and estimates made at a point in time may change based on the outcome of tax audits and changes to, or further interpretations of, regulations.
If such changes take place, there is a risk that our tax rate may increase or decrease in any period, which would impact our earnings.
Future business results may affect deferred tax liabilities or the valuation of deferred tax assets over time.

 Recent Accounting Pronouncements.

 See Note 2, Summary of Significant Accounting Policies,
in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information regarding
recent accounting pronouncements.

 ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

 Not applicable.

 ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

 Report of Independent Registered Accounting Firm (PCAOB ID 248)

 Consolidated Balance Sheets as of December 31, 2024 and 2023

 Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023

 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2024 and 2023

 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023

 Notes to Consolidated Financial Statements

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

 Board of Directors and Stockholders

 Lifeway Foods, Inc.

 Opinion on the financial statements

 We have audited the accompanying consolidated
balance sheets of Lifeway Foods, Inc. (an Illinois corporation) and subsidiaries (the "Company") as of December 31, 2024
and 2023, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

 Basis for opinion

 These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 Critical audit matters

 The critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.

 /s/ GRANT
THORNTON LLP

 We have served as the Company's auditor since 2022.

 Chicago, Illinois

 March 14, 2025

 F- 1

 Consolidated Balance Sheets

 December 31, 2024 and 2023

 2024

 2023

 Current assets

 Cash and cash equivalents

 $
 16,728

 $
 13,198

 Accounts receivable, net of allowance for credit losses and discounts & allowances of $ 1,590 and $ 1,270 at December 31, 2024 and 2023, respectively

 15,424

 13,875

 Inventories, net

 8,678

 9,104

 Prepaid expenses and other current assets

 2,144

 2,019

 Refundable income taxes

 –

 Total current assets

 43,605

 38,196

 Property, plant and equipment, net

 26,862

 22,764

 Operating lease right-of use asset

 11,704

 11,704

 Intangible assets, net

 6,358

 6,898

 Other assets

 1,900

 1,900

 Total assets

 $
 90,547

 $
 81,654

 Current liabilities

 Current portion of note payable

 $
 –

 $
 1,250

 Accounts payable

 10,401

 9,976

 Accrued expenses

 5,103

 4,916

 Accrued income taxes

 –

 Total current liabilities

 15,504

 16,616

 Note payable

 –

 1,483

 Operating lease liabilities

 Deferred income taxes, net

 3,062

 3,001

 Total liabilities

 18,636

 21,218

 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; 15,100 and 14,691 shares outstanding at 2024 and 2023

 6,509

 6,509

 Paid-in capital

 4,632

 4,825

 Treasury stock, at cost

 ( 14,052
)

 ( 16,695
)

 Retained earnings

 74,822

 65,797

 Total stockholders' equity

 71,911

 60,436

 Total liabilities and stockholders' equity

 $
 90,547

 $
 81,654

 See accompanying notes to consolidated financial
statements

 F- 2

 Consolidated Statements of Operations

 For the Years Ended December 31, 2024 and 2023

 (In thousands, except per share data)

 2024

 2023

 Net sales

 $

 $

 Cost of goods sold

 135,400

 115,060

 Depreciation expense

 2,846

 2,622

 Total cost of goods sold

 138,246

 117,682

 Gross profit

 48,574

 42,441

 Selling expenses

 14,743

 11,776

 General and administrative

 19,439

 13,130

 Amortization expense

 Total operating expenses

 34,722

 25,446

 Income from operations

 13,852

 16,995

 Other income (expense):

 Interest expense

 ( 105
)

 ( 384
)

 Gain (loss) on sale of property and equipment

 ( 8
)

 Other income

 Total other income (expense)

 ( 346
)

 Income before provision for income taxes

 13,969

 16,649

 4,944

 5,282

 $
 9,025

 $

 Net earnings per common share:

 Basic

 $
 0.61

 $
 0.77

 Diluted

 $
 0.60

 $
 0.75

 Weighted average common shares outstanding:

 Basic

 14,769

 14,667

 Diluted

 15,130

 15,103

 See accompanying notes to consolidated financial
statements

 F- 3

 Consolidated Statements of Stockholders' Equity

 For the Years Ended December 31, 2024 and 2023

 Common
 Stock

 Issued

 In treasury

 Paid-In

 Retained

 Total

 Shares

 $

 Shares

 $

 Capital

 Earnings

 Equity

 Balance, January 1, 2023

 17,274

 $
 6,509

 ( 2,629
)

 $
 ( 16,993
)

 $
 3,624

 $
 54,430

 $
 47,570

 Issuance of common stock in connection with stock-based compensation

 –

 –

 ( 364
)

 –

 ( 66
)

 Stock-based compensation

 –

 –

 –

 –

 1,565

 –

 1,565

 –

 –

 –

 –

 –

 Balance, December 31, 2023

 17,274

 $
 6,509

 ( 2,583
)

 $
 ( 16,695
)

 $
 4,825

 $
 65,797

 $
 60,436

 Issuance of common stock in connection with stock-based compensation

 –

 –

 2,573

 ( 2,790
)

 –

 ( 217
)

 Issuance of common stock on exercise of stock options

 –

 –

 –

 Stock-based compensation

 –

 –

 –

 –

 2,561

 –

 2,561

 Net Income

 –

 –

 –

 –

 –

 9,025

 9,025

 Balance, December 31, 2024

 17,274

 $
 6,509

 ( 2,174
)

 $
 ( 14,052
)

 $
 4,632

 $
 74,822

 $
 71,911

 See accompanying notes to consolidated financial
statements

 F- 4

 Consolidated Statements of Cash Flows

 For the Years Ended December 31, 2024 and 2023

 2024

 2023

 Cash flows from operating activities:

 $
 9,025

 $

 Adjustments to reconcile net income to operating cash flow:

 Depreciation and amortization

 3,386

 3,162

 Non-cash interest expense

 Bad debt expense

 –

 Stock-based compensation

 2,446

 1,497

 Deferred income taxes

 ( 28
)

 Loss (gain) on sale of property and equipment

 ( 34
)

 (Increase) decrease in operating assets:

 Accounts receivable

 ( 1,550
)

 ( 2,463
)

 Inventories

 Prepaid expenses and other current assets

 ( 125
)

 ( 574
)

 Refundable income taxes

 ( 631
)

 Increase (decrease) in operating liabilities:

 Accounts payable

 1,859

 Accrued expenses

 1,102

 Accrued income taxes

 ( 474
)

 Net cash provided by operating activities

 12,962

 16,941

 Cash flows from investing activities:

 Purchases of property and equipment

 ( 6,697
)

 ( 4,351
)

 Proceeds from sale of equipment

 Purchase of investments

 –

 ( 100
)

 Net cash used in investing activities

 ( 6,682
)

 ( 4,410
)

 Cash flows from financing activities:

 Repayment of line of credit

 –

 ( 2,777
)

 Repayment of note payable

 ( 2,750
)

 ( 1,000
)

 Net cash used in financing activities

 ( 2,750
)

 ( 3,777
)

 Net increase in cash and cash equivalents

 3,530

 8,754

 Cash and cash equivalents at the beginning of the period

 13,198

 4,444

 Cash and cash equivalents at the end of the period

 $
 16,728

 $
 13,198

 Supplemental cash flow information:

 Cash paid for income taxes, net of (refunds)

 $
 5,987

 $
 4,792

 Cash paid for interest

 $

 $

 Non-cash investing activities

 Accrued purchase of property and equipment

 $

 $

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

 $
 –

 $

 See accompanying notes to consolidated financial
statements

 F- 5

 Notes to Consolidated Financial Statements

 December 31, 2024 and 2023

 Note 1 – Basis of presentation

 The consolidated financial statements and accompanying
notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
The consolidated financial statements include all of the assets, liabilities and results of operations of Lifeway Foods, Inc. and its
wholly owned subsidiaries (collectively "Lifeway" or the "Company"). All inter-company balances and transactions
have been eliminated in the consolidated financial statements.

 Note 2 – Summary of significant accounting
policies

 Use of estimates

 The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to use judgement 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 the
reported amounts of net sales 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.

 Revenue Recognition

 Lifeway sells food and beverage products across select
product categories to customers predominantly within the United States (see Note 13 – Disaggregation of Revenue, Significant Customers,
and Geographic Information). The Company also sells bulk cream, a byproduct of its fluid milk manufacturing process. In accordance with
ASC 606, Revenue from Contracts with Customers, Lifeway recognizes revenue when control over the products transfers to its customers,
which generally occurs upon delivery to its customers or their common carriers. The amount of revenue recognized reflects the consideration
to which the Company expects to be entitled to receive in exchange for these goods or services, using the five-step method required by
ASC 606.

 For the Company, the contract is the approved sales
order, which may also be supplemented by other agreements that formalize various terms and conditions with customers. The Company applies
judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's
historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

 F- 6

 Performance obligations promised in a contract are
identified based on the goods or services that will be transferred to the customer, which is the delivery of food and beverage products
which provide immediate benefit to the customer.

 Lifeway accounts for product shipping and handling
as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of goods sold.
Any taxes collected on behalf of government authorities are excluded from net revenues.

 Variable consideration, which includes known or expected
pricing or revenue adjustments, such as trade discounts, allowances for non-saleable products, product returns, trade incentives and coupon
redemption, is estimated utilizing the most likely amount method.

 Key sales terms, such as pricing and quantities ordered,
are established on a frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As
such, the Company does not capitalize contract inception costs and it capitalizes product fulfillment costs in accordance with U.S. GAAP
and its inventory policies. It generally does not receive noncash consideration for the sale of goods, nor does it grant payment financing
terms greater than one year.

 Accounts Receivable

 Lifeway provides credit terms to customers in-line
with industry standards and maintains allowances for potential credit losses based on historical collection experiences and the current
economic condition of specific customers. All accounts receivables have an original term of less than one year. Customer balances are
written off after all collection efforts are exhausted. Estimated product returns, which have not been material, are deducted from sales
at the time of revenue recognition. The Company does not charge interest on past due accounts receivable. Accounts receivable, less allowances was $ 15,424, $ 13,875 and $ 11,414,
as of December 31, 2024, 2023, and 2022 respectively.

 Inventories

 Inventories are stated at the lower of cost or net
realizable value, valued on a first in, first out basis ("FIFO"). The costs of finished goods inventories include raw materials,
direct labor, and overhead costs. Inventories are stated net of reserves for excess or obsolete inventory.

 Property, plant and equipment

 Property, plant and equipment are recorded at cost.
Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets as follows:

 Schedule of property and equipment, estimated useful lives

 Asset

 Useful Life

 Buildings and improvements

 10 – 39 years

 Machinery and equipment

 5 – 12 years

 Office equipment

 3 – 7 years

 Vehicles

 5 years

 Leasehold improvements

 Shorter of expected useful life or lease term

 The Company performs impairment tests when circumstances
indicate that the carrying value of an asset may not be recoverable. Expenditures for repairs and maintenance, which do not improve or
extend the life of the assets, are expensed as incurred.

 F- 7

 Goodwill represents the excess purchase price over
the fair value of the net tangible and other identifiable intangible assets acquired. Goodwill is not amortized, but it is subject to
an annual assessment for impairment, which the Company performs on its one reporting unit during the fourth quarter (as of December 31),
or more frequently if events occur or circumstances change such that it is more likely than not that an impairment may exist.

 In testing goodwill for impairment, the Company has
the option to perform a qualitative test (also known as "Step 0") or a quantitative test ("Step 1"). Under the
Step 0 test, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the
reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry
and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific
events. If after assessing these qualitative factors, the Company determines it is "more-likely-than-not" that the fair value
of the reporting unit is less than the carrying value, then performing the Step 1 quantitative test is necessary.

 Step 1 of the quantitative test requires comparison
of the fair value of the Company's one reporting unit to the carrying value. If the carrying value of the reporting unit is less
than the fair value, no impairment exists. Otherwise, the Company would recognize an impairment charge for the amount by which the carrying
amount of the reporting unit exceeds its fair value up to the amount of goodwill allocated to the reporting unit.

 Under a Step 1 quantitative test, we estimate the
fair value of our one reporting unit using a combination of the fair values derived from both the income approach and the market approach.
Under the income approach, the Company uses a discounted cash flow methodology which requires management to make significant estimates
and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth
rates, and long-term discount rates, among others. The discount rate used to determine the present value of future cash flows is based
on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty
related to the business's ability to execute on the projected cash flows. For the market approach, the Company uses the guideline
public company method. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable
publicly traded companies with similar operating and investment characteristics. The Company also reconciles the fair value of its reporting
unit to its current market capitalization, allowing for a reasonable control premium.

 Intangible Assets

 Intangible assets acquired in a business combination
are recorded at their estimated fair values at the date of acquisition. Identifiable intangible assets with finite lives are amortized
over their estimated useful lives as follows:

 Schedule of intangible assets useful lives

 Asset

 Useful Life

 Recipes

 4 years

 Brand names

 15 years

 Formula

 10 years

 Customer lists

 5-10 years

 Customer relationships

 15 years

 All amortization expense related to intangible assets is recorded in Amortization
expense in the consolidated statements of operations.

 Amortizable intangible assets are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Lifeway conducts more frequent impairment
assessments if certain conditions exist, such as a change in the competitive landscape, any internal decisions to pursue new or different
strategies, a loss of a significant customer, or a significant change in the marketplace including changes in the prices paid for its
products or changes in the size of the market for its products. If an evaluation of the undiscounted cash flows indicates impairment,
the asset is written down to its estimated fair value, which is generally based on discounted future cash flows. If the estimated remaining
useful life of an intangible asset is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the
revised remaining useful life.

 F- 8

 Fair value measurements

 Fair value is estimated by applying the following
hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy
upon the lowest level of input that is available and significant to the fair value measurement:

 Level 1 – Quoted prices in active
markets for identical assets or liabilities.

 Level 2 – Observable inputs other
than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities
in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities.

 Level 3 – Inputs that are generally
unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset
or liability.

 Lifeway's financial assets and liabilities that
are not carried at fair value on a recurring basis include cash and cash equivalents, accounts receivable, other receivables, accounts
payable, accrued expenses and revolving line of credit for which carrying value approximates fair value.

 The Company records its investments in equity securities
without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes
in orderly transactions for the identical or a similar investment of the same issuer. As of December 31, 2024, and 2023, the Company has
one equity investment without a readily determinable fair value which is recorded at $ 1,800 in other assets on the consolidated balance
sheet. The investment cost of $ 1,800 for this equity investment includes a cumulative unrealized gain of $ 1,731 resulting from an observable
price change in 2019. There were no upward or downward observable price change adjustments to the equity investment cost during 2024 or
2023.

 Income taxes

 The Provision for income taxes includes federal, state,
local and foreign income taxes currently payable, and those deferred because of temporary differences between the financial statement
and tax bases of assets and liabilities. Deferred tax assets or liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities using enacted tax rates expected to apply to taxable income in the year in which
the deferred tax assets or liabilities are expected to be realized or settled. The principal sources of temporary differences are different
depreciation and amortization methods for financial statement and tax purposes, incentive compensation, unrealized gain, capitalization
of indirect inventory costs for tax purposes, reserves for excess and obsolete inventory and the allowance for doubtful accounts. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely not that a tax benefit will not be realized. Deferred income
tax expense or benefit is based on the changes in the asset or liability from period to period.

 Lifeway analyzes filing positions in all the federal
and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company
recognizes the income tax benefit from an uncertain tax position when it is more likely than not that, based on technical merits, the
position will be sustained upon examination, including resolutions of any related appeals or litigation processes. It applies a more likely
than not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, Lifeway recognizes the amount of tax
benefit that has a greater than 50% likelihood of being ultimately realized upon settlement. Future changes in judgment related to the
expected ultimate resolution of uncertain tax positions will affect earnings in the period of such change. For those income tax positions
where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.
The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities, statute expirations and
the recognition and measurement criteria under accounting for uncertainty in income taxes. Lifeway recognizes penalties and interest related
to unrecognized tax benefits in the provision (benefit) for income taxes in the consolidated statements of operations.

 F- 9

 Share-based compensation

 Share-based compensation expense is recognized for
equity awards over the vesting period based on their grant date fair value. The fair value of restricted stock and performance share awards
are equal to the closing price of Lifeway's stock on the date of grant. The Company does not estimate forfeitures in measuring the
grant date fair value, but rather account for forfeitures as they occur.

 The fair value of stock options are measured using
the Black-Scholes option pricing model. The expected term of options granted was based on the weighted average time of vesting and the
end of the contractual term. The Company utilized this simplified method as it did not have sufficient historical exercise data to provide
a reasonable basis upon which to estimate the expected term.

 The Company issues share-based equity awards from
treasury shares.

 Treasury stock

 Treasury stock is recorded using the cost method.

 Advertising costs

 Advertising costs are expensed as incurred and reported
in Selling expense in the Company's consolidated statements of operations. Total advertising expense was $ 5,447 and $ 3,733 for the
years ended December 31, 2024 and 2023, respectively.

 Earnings per common share

 Basic earnings per common share is computed by dividing
net income available to common stockholders by the weighted average number of common shares issued and outstanding during the reporting
period. Diluted earnings per common share is computed by dividing net income available to common stockholders by the weighted average
number of common shares issued and outstanding and the effect of all dilutive common stock equivalents related to the Company's
outstanding stock-based compensation awards outstanding during the reporting period.

 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.

 F- 10

 In December 2023, the FASB issued ASU No. 2023-09: Income
Taxes (Topic 740): Improvements to Income Tax Disclosures that requires entities to disclose additional information about federal, state,
and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid. The new standard also eliminates
certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The new standard
is effective for our fiscal year ending December 31, 2025, and our interim periods during the fiscal year ending December 31, 2026. The
guidance does not affect recognition or measurement in the Company's consolidated financial statements. Upon adoption, the impact
of ASU 2023-09 will be limited to certain notes to the Consolidated Financial Statements.

 Adopted

 In November 2023, the FASB issued Accounting Standards
Update ("ASU") No. 2023-07: Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new standard
requires entities to report incremental information about significant segment expenses included in a segment's profit or loss measure
as well as the name and title of the chief operating decision maker. The new standard also requires interim disclosures related to reportable
segment profit or loss and assets that had previously only been disclosed annually. The new standard is effective for our annual period
ending December 31, 2024 and our interim periods during the fiscal year ending December 31, 2025. The Company adopted this standard during
the fourth quarter of 2024. The new standard did not affect recognition or measurement in the Company's consolidated financial statements.

 Note 3 – Inventories, net

 Schedule of inventories

 2024

 2023

 Ingredients

 $
 2,519

 $
 2,929

 Packaging

 2,855

 3,014

 Finished goods

 3,304

 3,161

 Total inventories, net

 $
 8,678

 $
 9,104

 Note 4 – Property, Plant and Equipment, net

 Schedule of property, plant and equipment

 2024

 2023

 Land

 $
 1,565

 $
 1,565

 Buildings and improvements

 23,520

 21,661

 Machinery and equipment

 38,181

 33,573

 Vehicles

 Office equipment

 1,072

 Construction in process

 2,163

 2,154

 66,664

 60,730

 Less accumulated depreciation

 ( 39,802
)

 ( 37,966
)

 Total property, plant and equipment, net

 $
 26,862

 $
 22,764

 F- 11

 Note 5 – Goodwill and Intangible Assets

 Goodwill consisted of the following:

 Schedule of goodwill

 Total

 Balance at December 31, 2023

 $
 12,948

 Accumulated impairment losses

 ( 1,244
)

 $
 11,704

 Balance at December 31, 2024

 $
 12,948

 Accumulated impairment losses

 ( 1,244
)

 $
 11,704

 The Company performed an annual Step 0 impairment
assessment for its single reporting unit as of December 31, 2024 and 2023, noting no impairment loss.

 Approximately $1,664 of goodwill is deductible for
income tax purposes.

 Intangible Assets

 The gross carrying amounts and accumulated amortization of intangible assets
consisted of the following:

 Schedule of other intangible assets

 December 31, 2024

 December 31, 2023

 Gross

 Net

 Gross

 Net

 Carrying

 Accumulated

 Carrying

 Carrying

 Accumulated

 Carrying

 Amortization

 Amortization

 Recipes

 $

 $
 ( 44
)

 $
 –

 $

 $
 ( 44
)

 $
 –

 Customer lists and other customer
 related intangibles

 4,529

 ( 4,529
)

 –

 4,529

 ( 4,529
)

 –

 Customer relationship

 3,385

 ( 1,532
)

 1,853

 3,385

 ( 1,372
)

 2,013

 Brand names

 7,948

 ( 3,443
)

 4,505

 7,948

 ( 3,063
)

 4,885

 Formula

 ( 438
)

 –

 ( 438
)

 –

 Total intangible assets, net

 $
 16,344

 $
 ( 9,986
)

 $
 6,358

 $
 16,344

 $
 ( 9,446
)

 $
 6,898

 F- 12

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

 Schedule of future amortization expense on intangible assets

 Year

 Amortization

 2025

 $

 2026

 $

 2027

 $

 2028

 $

 2029

 $

 The weighted-average remaining amortization expense
period for the customer relationship and brand name intangible assets is 11.6 and 11.9 years, respectively, as of December 31, 2024. The
weighted-average remaining amortization expense period for total intangible assets is 11.8 years as of December 31, 2024.

 Note 6 – Accrued Expenses

 Accrued expenses consisted of the following:

 Schedule of accrued expenses

 2024

 2023

 Payroll and incentive compensation

 $
 4,188

 $
 3,853

 Real estate taxes

 Accrued utilities

 Current portion of operating lease liabilities

 Other

 Total accrued expenses

 $
 5,103

 $
 4,916

 Note 7 – Debt

 Note payable consisted of the following:

 Schedule of note payable

 2024

 2023

 Term loan due August 18, 2026. Interest payable monthly.

 $
 –

 $
 2,750

 Unamortized deferred financing costs

 –

 ( 17
)

 Total note payable

 –

 2,733

 Less current portion

 –

 ( 1,250
)

 Total long-term portion

 $
 –

 $
 1,483

 The Company paid the outstanding term loan balance
of $ 2,250 in full during the second quarter of 2024 and expensed the remaining unamortized deferred financing costs.

 F- 13

 Credit Agreement

 The Company is party to an Amended and Restated
Loan and Security Agreement (as amended and modified from time to time, the "Credit Agreement") with its existing lender and
certain of its subsidiaries. The Credit Agreement provides for, among other things, a $ 5,000 term loan to be repaid in quarterly installments
of principal and interest over a term of five years, a revolving line of credit up to a maximum of $ 5,000 (the "Revolving Credit
Facility") and an incremental facility not to exceed $ 5,000. The termination date of the term loan is August 18, 2026, unless earlier
terminated. The termination date of the revolving credit facility is June 30, 2025, unless earlier terminated.

 All outstanding amounts under the Credit Agreement
bear interest at the Secured Overnight Financing Rate ("SOFR"), plus 2.07%. Interest is payable monthly in arrears. Lifeway
is also required to pay a quarterly unused revolving line of credit fee of 0.20 % and, in conjunction with the issuance of any letters
of credit, a letter of credit fee of 0.20 %.

 The Credit Agreement includes customary representations,
warranties, and covenants, including financial covenants requiring the Company to maintain a fixed charge coverage ratio of no less than
1.25 to 1.00, and a minimum working capital financial covenant, as defined, of no less than $11,250, in each of the fiscal quarters ending
through the expiration date. The Credit Agreement provides for events of default, including failure to repay principal and interest when
due and failure to perform or violation of the provisions or covenants of the agreement, as a result of which amounts due under the Credit
Agreement may be accelerated. The loans and all other amounts due and owed under the Credit Agreement and related documents are secured
by substantially all of the Company's assets.

 Lifeway was in compliance with the fixed charge
coverage ratio and minimum working capital covenants at December 31, 2024.

 Revolving Credit Facility

 As of December 31, 2024, the Company had $ 0 outstanding
under the Revolving Credit Facility. The Company had $ 5,000 available for future borrowings under the Revolving Credit Facility as of
December 31, 2024.

 See Footnote 15 – Subsequent Events, for the
February 2025 credit agreement amendment which increased the revolving loan commitment from $ 5,000 to $ 25,000.

 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.

 F- 14

 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.

 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 $ 148 and $ 138 (including short term leases) for the years ended December 31, 2024 and 2023, respectively.

 Future maturities of lease liabilities were as follows:

 Schedule of future maturities of lease liabilities

 Year

 Operating Leases

 2025

 $

 2026

 2027

 2028

 2029

 Thereafter

 Total lease payments

 Less: Interest

 ( 16
)

 Present value of lease liabilities

 $

 The weighted-average remaining lease term for its
operating leases was 3.4 years as of December 31, 2024. The weighted average discount rate of its operating leases was 8.51 % as of December
31, 2024. Cash paid for amounts included in the measurement of lease liabilities was $ 89 and $ 94 for the year ended December 31, 2024
and 2023, 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.

 F- 15

 Note 10 – Income taxes

 The provision for income taxes consists of the following:

 Schedule of provision for income taxes

 For the Years Ended December 31,

 2024

 2023

 Current:

 Federal

 $
 3,371

 $
 3,591

 State and local

 1,512

 1,719

 Total current

 4,883

 5,310

 Deferred

 ( 28
)

 $
 4,944

 $
 5,282

 The following is a reconciliation of income tax expense
computed at the U.S. federal statutory tax rate to income tax expense reported in the consolidated statement of operations:

 Schedule of reconciliation to effective rate for income taxes

 2024

 2023

 Percentage

 Percentage

 Federal income tax at statutory rate

 $
 2,933

 21.0 %

 $
 3,496

 21.0 %

 State and local tax, net

 5.3 %

 1,126

 6.8 %

 Other permanent differences

 0.2 %

 0.1 %

 Section 162m

 1,074

 7.7 %

 2.6 %

 Stock based compensation

 1.2 %

 1.2 %

 Change in tax rates

 0.0 %

 0.0 %

 Other

 0.0 %

 –

 – %

 $
 4,944

 35.4 %

 $
 5,282

 31.7 %

 The tax effects of temporary differences giving rise
to deferred income tax assets and liabilities were:

 Schedule of deferred tax assets and liabilities

 2024

 2023

 Deferred tax liabilities attributable to:

 Accumulated depreciation and amortization

 $
 ( 3,829
)

 $
 ( 3,519
)

 Unrealized gains

 ( 467
)

 ( 469
)

 Total deferred tax liabilities

 ( 4,296
)

 ( 3,988
)

 Deferred tax assets attributable to:

 Net operating losses

 Accrued compensation

 Incentive compensation

 Inventory

 Allowances for doubtful accounts and discounts

 Other

 ( 6
)

 ( 6
)

 Total net deferred tax assets

 1,234

 Net deferred tax liabilities

 $
 ( 3,062
)

 $
 ( 3,001
)

 F- 16

 The following table details the Company's tax
attributes related to net operating losses for which it has recorded deferred tax assets.

 Schedule of tax attributes related to net operating losses

 Tax Attributes

 Gross Amount

 Net Amount

 Expiration Years

 State net operating losses

 $

 $

 2035

 $

 Lifeway is subject to U.S. federal income tax as well
as income tax in multiple state and city jurisdictions. With limited exceptions, Lifeway's calendar year 2021 and subsequent federal
and state tax years remain open by statute. As of December 31, 2024, the unrecognized tax benefit is $ 0.

 The amount of interest and penalties recognized in
the consolidated statements of operations was $ 0 during 2024 and 2023, respectively. The amount of accrued interest and penalties recognized
in the consolidated balance sheets was $ 0 at December 31, 2024 and 2023, respectively.

 Note 11 – Stock-based and Other Compensation

 Omnibus Incentive Plan

 In December 2015, Lifeway stockholders approved
the 2015 Omnibus Incentive Plan, which authorized the issuance of an aggregate of 3.5 million shares to satisfy awards of stock options,
stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units to qualifying
employees. At December 31, 2024, no shares remain available for award under the 2015 Omnibus Incentive Plan as it was terminated on August
31, 2022. However, any outstanding awards under the 2015 Omnibus Incentive Plan are unaffected by the termination of the 2015 Omnibus
Incentive Plan or by the approval of the 2022 Omnibus Incentive Plan (the "2022 Plan") as described below.

 On August 31, 2022, Lifeway stockholders approved
the 2022 Plan. Under the 2022 Plan, the Compensation Committee of the Board of Directors may grant awards of various types of compensation,
including, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance
shares, performance units, cash-based awards and other stock-based awards. The maximum number of shares authorized to be awarded under
the 2022 Plan is 3.25 million shares of common stock, which includes shares that remained available under the now terminated 2015 Omnibus
Incentive Plan.

 Awards granted under
the 2022 Plan are generally subject to a minimum vesting period of at least one year. Awards may be subject to cliff-vesting or graded-vesting
conditions, with graded vesting starting no earlier than one year after the grant date. The Plan Administrator may provide for shorter
vesting periods in an award agreement for no more than five percent of the maximum number of shares authorized for issuance under the
2022 Plan. As of December 31, 2024, 2.64 million shares remain available to award under the 2022 Plan.

 F- 17

 Stock Options

 The following table summarizes stock option activity
during the year ended December 31, 2024:

 Schedule of stock option activity

 Options

 Weighted
 average
 exercise price

 Weighted
 average
 remaining
 contractual life

 Aggregate
 intrinsic value

 Outstanding at December 31, 2023

 $
 10.42

 2.21

 $

 Granted

 –

 –

 –

 –

 Exercised

 ( 11
)

 10.41

 –

 –

 Forfeited

 –

 –

 –

 –

 Outstanding at December 31, 2024

 10.42

 1.21

 Exercisable at December 31, 2024

 10.42

 1.21

 Restricted Stock Units

 A Restricted Stock Unit ("RSU") represents
the right to receive one share of common stock in the future. RSUs have no exercise price. The following table summarizes RSU activity
during the year ended December 31, 2024.

 Schedule of RSU activity

 Restricted Stock Units

 Weighted Average Grant Date Fair Value

 Nonvested, at December 31, 2023

 $
 6.89

 Granted

 13.12

 Shares issued upon vesting

 ( 74
)

 6.84

 Forfeited

 –

 –

 Nonvested, at December 31, 2024

 8.77

 Earned and deferred, at December 31, 2024

 7.56

 For the years ended December 31, 2024 and 2023 total
pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $ 904 and $ 506, respectively. For
the years ended December 31, 2024 and 2023 tax-related benefits of $ 253 and $ 142, respectively, were also recognized. Future compensation
expense related to nonvested restricted stock units was $ 615 as of December 31, 2024 and will be recognized over a weighted-average period
of 1.29 years.

 Long-Term Incentive Plan Compensation

 Lifeway has established long-term incentive-based
compensation programs for certain senior executives and key employees pursuant to the terms of its incentive plans.

 F- 18

 2020 CEO Incentive Award

 During 2020, Lifeway awarded a long-term equity-based
incentive of $ 750 to its Chief Executive Officer (the "2020 CEO Award") based on Lifeway's 2020 performance levels compared
to the respective targets. The equity-based incentive compensation is payable in restricted stock that vests one-third in April 2022,
one-third in April 2023, and one-third in April 2024. The issuance of vested equity awards is subject to approval under the Stock Purchase
Agreement dated October 1, 1999. The RSU awards have a grant date fair value of $5.13 dollars per share. For the years ended December
31, 2024 and 2023, $ 24 and $ 105 was expensed as stock-based compensation expense in the consolidated statements of operations. As of December
31, 2024, all stock-based compensation expense has been recognized.

 2021 Equity Award

 The 2021 long-term equity incentive plan compensation
is based on Lifeway's achievement of adjusted EBITDA performance versus the respective target established by the Board for 2021.
Under the 2021 plan, collectively the participants earned equity-based incentive compensation of $ 1,069 based on Lifeway's achievement
of the respective financial target. The equity-based incentive compensation is payable in restricted stock that vests one-third in April
2022, one-third in April 2023, and one-third in April 2024. The RSU awards have a grant date fair value of $6.00 dollars per share. For
the years ended December 31, 2024 and 2023, $ 40 and $ 194 was expensed as stock-based compensation expense in the consolidated statements
of operations, respectively. As of December 31, 2024, all stock-based compensation expense has been recognized.

 2022 Equity Award

 Under the 2022 long-term incentive plan, participants
can earn a specified number of target level Performance Share Units ("PSUs") contingent upon the achievement of strategic
milestones during the three-year measurement period, which is fiscal year 2022 to 2024. The strategic milestones are 1) 3-year cumulative
net revenue, and 2) 3-year cumulative adjusted EBITDA. The target number of PSU awards are weighted 50% on net revenue and 50% on adjusted
EBITDA. Collectively, the participants can earn 125,066 PSUs at the target level. Participants may earn more or less than the target number
of shares based on actual results, however the minimum and maximum number of shares that can be earned are bound by minimum and maximum
thresholds of net revenue and adjusted EBITDA. The PSU awards will be earned and will vest, if at all, after the end of the three-year
measurement period based on achievement of the milestones. The PSU awards do not vest during the three-year measurement period. The PSUs
have a grant date fair value of $6.25 dollars per share. For the twelve months ended December 31, 2024, and 2023, $ 542 and $ 473 was expensed
as stock-based compensation expense in the consolidated statements of operations, respectively. As of December 31, 2024, all stock-based
compensation expense has been recognized.

 The 2022 long-term incentive plan also granted restricted
stock unit awards that contain only a service condition and vest on the passage of time in three equal installments on each of the first
three anniversaries of the August 31, 2022 grant date. The stock-based compensation expense for these awards is included in the Restricted
Stock Units section above.

 2023 Equity Award

 Under the 2023 long-term incentive plan, participants
can earn a specified number of target level Performance Share Units ("PSUs") contingent upon the achievement of strategic
milestones during the three-year Measurement Period, which is fiscal year 2023 to 2025. The strategic milestones are 1) 3-year cumulative
net revenue, and 2) 3-year cumulative adjusted EBITDA. The target number of PSU awards are weighted 50% on net revenue and 50% on adjusted
EBITDA. Collectively, the participants can earn 115,622 PSUs at the target level. Participants may earn more or less than the target number
of shares based on actual results, however the minimum and maximum number of shares that can be earned are bound by minimum and maximum
thresholds of net revenue and adjusted EBITDA. The PSU awards will be earned and will vest, if at all, after the end of the three-year
measurement period based on achievement of the milestones. The PSU awards do not vest during the three-year measurement period. The PSUs
have a grant date fair value of $6.88 dollars per share. For the twelve months ended December 31, 2024 and 2023, $ 491 and $ 219 was expensed
as stock-based compensation expense in the consolidated statements of operations, respectively.

 F- 19

 The 2023 long-term incentive plan also granted restricted
stock unit awards that contain only a service condition and vest on the passage of time in three equal installments on each of the first
three anniversaries of the June 16, 2023 grant date. The stock-based compensation expense for these awards is included in the Restricted
Stock Units section above.

 2024 Equity Award

 Under the 2024 long-term incentive plan, participants
can earn a specified number of target level Performance Share Units ("PSUs") contingent upon the achievement of strategic
milestones during the three-year Measurement Period, which is fiscal year 2024 to 2026. The strategic milestones are 1) 3-year cumulative
net revenue, and 2) 3-year cumulative adjusted EBITDA. The target number of PSU awards are weighted 50% on net revenue and 50% on adjusted
EBITDA. Collectively, the participants can earn 64,986 PSUs at the target level. Participants may earn more or less than the target number
of shares based on actual results, however the minimum and maximum number of shares that can be earned are bound by minimum and maximum
thresholds of net revenue and adjusted EBITDA. The PSU awards will be earned and will vest, if at all, after the end of the three-year
measurement period based on achievement of the milestones. The PSU awards do not vest during the three-year measurement period. The PSUs
have a grant date fair value of $13.73 per share. For the twelve months ended December 31, 2024 and 2023, $ 445 and $ 0 was expensed as
stock-based compensation expense in the consolidated statements of operations, respectively.

 The 2024 long-term incentive plan also granted restricted
stock unit awards that contain only a service condition and vest on the passage of time in three equal installments on each of the first
three anniversaries of the January 10, 2024 grant date. The stock-based compensation expense for these awards is included in the Restricted
Stock Units section above.

 Non-Employee Director Plan

 On August 31, 2022, Lifeway stockholders approved
the 2022 Non-Employee Director Equity and Deferred Compensation Plan (the "2022 Director Plan"), which authorizes the grant
of restricted stock units ("RSUs"), which will vest on such schedule as the Company, in its sole discretion, shall determine.
Each non-employee director of the Company is eligible to be a participant in the 2022 Director Plan until they no longer serve as a non-employee
director. As of the date of each annual shareholder meeting, the Company may grant each director a number of RSUs for such year and set
the vesting schedule for the RSUs granted. Whether and how many RSUs the Company will grant to directors in any year is subject to the
sole discretion of the Company and shall in any event be subject to the 2022 Director Plan's overall share limits. The maximum aggregate
number of shares of common stock that may be issued under the 2022 Directors Plan is 500 thousand shares. As of December 31, 2024, 393
thousand shares remain available to award under the 2022 Director Plan. The aggregate fair market value of shares underlying RSU compensation
that may be issued as RSU compensation to a director in any year shall not exceed $170. In addition to the grant of RSUs, the 2022 Director
Plan also provides for the deferral by electing participants of all or part of their cash compensation (in 10% increments) into a deferred
cash account, and they may defer all or part of their cash and/or RSU compensation (in 10% increments) into a deferred RSU account. Deferred
benefits are paid in a lump sum upon the applicable director's departure from the Board of Directors.

 Retirement Benefits

 Lifeway has a defined contribution plan which is available
to substantially all full-time employees. Under the terms of the plan we match employee contributions under a prescribed formula. For
the years ended December 31, 2024 and 2023 total contribution expense recognized in the consolidated statements of operations was $ 650
and $ 499, 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:

 Schedule of weighted average number of shares outstanding

 Year Ended

 2024

 2023

 Weighted average common shares outstanding

 14,769

 14,667

 Assumed exercise/vesting of equity awards

 Weighted average diluted common shares outstanding

 15,130

 15,103

 F- 20

 Note 13 – Segment, Customer and Geographic Information

 Segment Information

 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 discrete financial information at the consolidated level 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
Consolidated Statement of Operations. The measure of segment assets is reported on the Consolidated Balance Sheet as Total assets.

 The following table summarizes the reported segment
revenue, segment profit, and significant segment expenses for the years ended December 31, 2024 and 2023.

 Schedule of segment revenue

 2024

 2023

 Net sales

 $

 $

 Cost of goods sold

 135,400

 115,060

 Depreciation expense

 2,846

 2,622

 Total cost of goods sold

 138,246

 117,682

 Gross profit

 48,574

 42,441

 Selling expenses

 14,743

 11,776

 General and administrative

 19,439

 13,130

 Amortization expense

 Total operating expenses

 34,722

 25,446

 Income from operations

 13,852

 16,995

 Other income (expense):

 Interest expense

 ( 105

)

 ( 384

)

 Gain (loss) on sale of property and equipment

 ( 8

)

 Other income

 Total other income (expense)

 ( 346

)

 Income before provision for income taxes

 13,969

 16,649

 4,944

 5,282

 $

 9,025

 $

 F- 21

 The following table summarizes the reported segment
total assets as of December 31, 2024 and 2023.

 Schedule of segment
total assets

 2024

 2023

 Total assets for reportable segment

 $
 90,547

 $
 81,654

 Adjustments and reconciling items

 –

 –

 Consolidated total assets

 $
 90,547

 $
 81,654

 Products from which the reportable segment derives
its revenue

 Lifeway's primary product is drinkable kefir.
The Company manufactures (directly or through a co-manufacturer) and markets products under the Lifeway, Fresh Made, and GlenOaks Farms
brand names, as well as under private labels on behalf of certain customers.

 The Company's product categories are:

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

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

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

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

 ProBugs, a line of kefir products designed for children.

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

 Net sales of products by category were as follows
for the years ended December 31:

 Schedule of segment products by category

 2024

 2023

 In thousands

 $

 %

 $

 %

 Drinkable Kefir other than ProBugs

 153,493

 82 %

 127,726

 80 %

 Cheese

 14,554

 8 %

 13,781

 9 %

 Cream and other

 8,299

 4 %

 7,382

 4 %

 Drinkable Yogurt

 5,619

 3 %

 6,236

 4 %

 ProBugs Kefir

 3,421

 2 %

 3,429

 2 %

 Other dairy

 1,434

 1 %

 1,569

 1 %

 Net Sales

 100 %

 100 %

 F- 22

 Significant Customers

 Sales are predominately to companies in the retail
food industry located within the United States. Two major customers accounted for a total of 25 % and 24 % of net sales for the years ended
December 31, 2024 and 2023, respectively. Two major customers accounted for a total of 26 % and 25 % of accounts receivable as of December
31, 2024 and 2023, respectively.

 Geographic Information

 Net sales outside the of the United States represented
less than 1% of total consolidated net sales in 2024 and 2023, respectively. 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, 2024. 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.
The Right expires at the end of November 4, 2025, or earlier if exercised.

 Note 15 – Subsequent Events

 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 and (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. 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 February 21, 2025, the Company's $1,800
equity investment in Simple Mills was liquidated as a result of the sale of Simple Mills. The Company anticipates cash proceeds of approximately
$5,150, and to recognize a gain on the sale of investment of approximately $3,350 during the first fiscal quarter of 2025.

 F- 23

 ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 None.

 ITEM 9A. CONTROLS AND PROCEDURES

 Evaluation of Disclosure Controls and Procedures

 We maintain disclosure controls and procedures that
are designed to ensure material information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to our management, including our principal executive officer, principal financial officer and principal accounting
officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure
controls and procedures, we recognize that a control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been
detected.

 As of December 31, 2024 (the "Evaluation Date"),
we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange
Act of 1934 (the "Exchange Act")). Based on this evaluation, our principal executive officer and principal financial officer
have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance level
as of December 31, 2024 in ensuring that information required to be disclosed by us under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified under the Exchange Act rules.

 Management's Annual Report on Internal Control
Over Financial Reporting

 Management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is identified in Exchange Act Rules 13a-15(f). Internal control over financial
reporting is a process designed by, or under the supervision of, our principal executive officer, principal financial officer and principal
accounting officer, and effected by the Board of Directors, management, and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and
procedures that:

 pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

 provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures of the Company are being made only in accordance with authorizations of our management and our directors; and

 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements.

 Internal control over financial reporting has inherent
limitations which may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions or because the level of compliance with related
policies or procedures may deteriorate.

 Management, including our Chief Executive Officer
and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2024.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO") in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded that our internal
control over financial reporting was effective as of December 31, 2024.

 Changes in Internal Control over Financial Reporting

 There were no changes in our internal control over
financial reporting that occurred during 2024 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

 ITEM 9B. OTHER INFORMATION

 During the quarter ended December 31, 2024, no director
or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement,"
as each term is defined in Item 408(a) of Regulation S-K.

 ITEM 9C. DISCLOSURE REGARDING
FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 Not applicable.

 ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 Information required by this Item 10 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on

 Code of Conduct and Code of Ethics

 We have adopted a Code of Conduct applicable to
all members of the Board, executive officers, and employees and a Code of Ethics applicable to all members of the Board and executive
officers, including our principal executive officer and principal financial officer. The Code of Conduct and the Code of Ethics are available
on our available on our website at www.lifewaykefir.com. Information contained on the website is not incorporated by reference in, or
considered part of, this proxy statement. We intend to disclose on our website any amendments to, or any waivers under, the Code of Ethics
that are required to be disclosed by the rules of the SEC or Nasdaq.

 ITEM 11.
EXECUTIVE COMPENSATION

 Information required by this Item 11 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on

 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 Information required by this Item 12 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on

 ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 Information required by this Item 13 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on

 ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES

 Information required by this Item 14 will be included
in our definitive Proxy Statement to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report on

 ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES

 1.

 A list of the Financial Statements and Financial Statement Schedules filed as part of this Report is set forth in Part II, Item 8, which list is incorporated herein by reference.

 2.

 Financial Statement Schedules – Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements

 3.

 Exhibits.

 No.

 Description

 Form

 Period Ending

 Exhibit

 Filing

 Date

 3.1

 Articles of Incorporation, as amended and currently in effect

 12/31/2013

 3.2

 4/2/2014

 3.2

 Certificate of Designations of Series A Junior Participating Preferred Stock of Lifeway Foods, Inc., effective as of November 4, 2024

 9/30/2024

 3.1

 11/14/2024

 3.3

 Second Amended and Restated Bylaws

 12/31/2022

 3.1

 3/27/2023

 4.1

 Description of Securities

 Filed Herewith

 4.2

 Shareholder Rights Agreement, dated as of November 4, 2024, by and between Lifeway Foods, Inc. and Computershare Trust Company, N.A., as rights agent

 8-A

 4.1

 11/5/2024

 10.1**

 Stockholders' Agreement dated October 1, 1999 by and among Danone Foods, Inc., Lifeway Foods, Inc., Michael Smolyansky and certain other parties

 10.11

 10/12/1999

 10.2**

 Letter
 Agreement dated December 24, 1999 by and among Danone Foods, Inc., Lifeway Foods, Inc., Michael Smolyansky
and certain other parties

 10.12

 1/12/2000

 10.3+

 Employment Agreement, dated September 12, 2002, between Lifeway Foods, Inc. and Julie Smolyansky

 10-QSB/A

 No. 2

 9/30/2002

 10.14

 4/30/2003

 10.4

 Amended and Restated Loan and Security Agreement dated as of May 7, 2018 among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender.

 10.1

 5/11/2018

 10.5

 Employment Agreement by and between the Company and Amy Feldman, dated as of October 29, 2018

 10.1

 11/1/2018

 10.6

 Employment Agreement by and between the Company and Eric Hanson, dated as of January 18, 2019

 10.1

 1/23/2019

 10.7

 First Modification to Amended and Restated Loan and Security Agreement dated as of April 10, 2019 among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender.

 12/31/2018

 10.10

 4/15/2019

 No.

 Description

 Form

 Period Ending

 Exhibit

 Filing

 Date

 10.08

 Second Modification to Amended and Restated Loan and Security Agreement, effective as of December 10, 2019 by and among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender.

 10.1

 12/10/2019

 10.09

 Third Modification to Amended and Restated Loan and Security Agreement dated as of September 30, 2020 among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender.

 9/30/2020

 10.1

 10/6/2020

 10.10

 Fourth Modification to Amended and Restated Loan and Security Agreement, dated as of August 18, 2021, by and among Lifeway Foods, Inc., Fresh Made, Inc., The Lifeway Kefir Shop, LLC, Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender

 10.1

 8/20/2021

 10.11

 Fifth Modification to Amended and Restated Loan and Security Agreement, dated as of February 5, 2025, by and among Lifeway Foods, Inc., Fresh Made, Inc., Lifeway Wisconsin, Inc., and CIBC Bank USA, as Lender

 10.1

 2/7/2025

 10.12+

 Lifeway Foods, Inc. Omnibus Incentive Plan

 10.2

 10.13+

 Notice of Restricted Stock Unit Award

 10.3

 10.14+

 Notice of Performance Unit Award

 10.4

 10.15+

 Notice of Restricted Stock Award

 10.5

 10.16+

 Notice of Non-Qualified Stock Option Award

 10.6

 10.17

 Settlement Agreement dated as of July 27, 2022, between the Company and Edward Smolyansky and Ludmila Smolyansky

 10.1

 7/29/2022

 10.18

 Amendment to Settlement Agreement dated as of July 27, 2022, between the Company and Edward Smolyansky and Ludmila Smolyansky

 10.20

 3/27/2023

 10.19+

 Lifeway Foods, Inc. 2022 Omnibus Incentive Plan

 10.1

 9/2/2022

 10.20+

 Form of Notice of Restricted Stock Award under the Lifeway Foods, Inc. 2022 Non-Employee Director Equity and Deferred Compensation Plan

 9/30/2022

 10.6

 11/14/2022

 10.21+

 Form of Notice of Restricted Stock Unit Award under the Lifeway Foods, Inc. 2022 Omnibus Incentive Plan

 9/30/2022

 10.7

 11/14/2022

 10.22+

 Form of Notice of Performance-Based Restricted Stock Unit Award under the 2022 Omnibus Incentive Plan

 9/30/2022

 10.8

 11/14/2022

 No.

 Description

 Form

 Period Ending

 Exhibit

 Filing

 Date

 10.23+

 Lifeway Foods, Inc. 2022 2022 Non-Employee Director Equity and Deferred Compensation Plan

 10.2

 9/2/2022

 10.24+

 Form of Notice of Restricted Stock Unit Award under the Lifeway Foods, Inc. 2022 Non-Employee Director Equity and Deferred Compensation Plan

 9/30/2022

 10.6

 11/14/2022

 10.25+

 First Amendment to the 2022 Non-Employee Director Equity and Deferred Compensation Plan

 6/30/2024

 10.1

 8/13/2024

 10.26+

 Restricted Stock Unit Award Agreement, dated as of April 27, 2022, by and between the Company and Jason Scher

 12/31/2022

 10.29

 3/27/2023

 10.27+

 Amended and Restated Employment Agreement, dated as of December 23, 2024, by and between the Company and Julie Smolyansky

 10.1

 12/23/2024

 10.28+

 Retention Bonus Agreement, dated as of December 23, 2024, by and between the Company and Julie Smolyansky

 10.2

 12/23/2024

 19.1

 Lifeway Foods, Inc. Policy on Insider Trading

 Filed Herewith

 List of Subsidiaries of the Registrant

 23.1

 Consent of Grant Thornton LLP

 Filed Herewith

 24.1

 Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K)

 31.1

 Rule 13a-14(a)/15d-14(a) Certification of Julie Smolyansky

 31.2

 Rule 13a-14(a)/15d-14(a) Certification of Eric Hanson

 32.1*

 Section 1350 Certification of Julie Smolyansky

 32.2*

 Section 1350 Certification of Eric Hanson

 Lifeway Foods, Inc. Incentive Compensation Clawback Policy

 Filed Herewith

 99.1*

 Press release dated March 14, 2025 reporting the Company's financial results for year ended December 31, 2024.

 101*

 __________________

 +

 Indicates a management contract or compensatory plan or arrangement.

 *

 This exhibit is furnished and not deemed filed with the Securities and Exchange Commission, and is not incorporated by reference into any filing of Lifeway Foods, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of filing this Form 10-K and irrespective of any general incorporation language contained in such filing.

 **

 The Company believes this agreement is null and void but has included it in this Exhibit List for completeness.

 ITEM 16. FORM 10-K SUMMARY

 Not applicable.

 SIGNATURES

 Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

 LIFEWAY FOODS, INC.

 By:

 /s/ Julie Smolyansky

 Julie Smolyansky

 Chief Executive Officer, President, and Director

 By:

 /s/ Eric Hanson

 Eric Hanson

 Chief Financial & Accounting Officer

 POWER OF ATTORNEY

 KNOW ALL MEN BY THESE PRESENTS, that each individual
whose signature appears below hereby constitutes and appoints Julie Smolyansky and Eric Hanson, and each of them individually, his or
her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and
all amendments to this Report together with all schedules and exhibits thereto, (ii) act on, sign and file with the Securities and Exchange
Commission any and all exhibits to this Report and any and all exhibits and schedules thereto, (iii) act on, sign and file any and all
such certificates, notices, communications, reports, instruments, agreements and other documents as may be necessary or appropriate in
connection therewith and (iv) take any and all such actions which may be necessary or appropriate in connection therewith, granting unto
such agents, proxies and attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act
and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, and hereby
approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact, any of them or any of his, her or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.

 Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.

 /s/ Julie Smolyansky

 Julie Smolyansky

 Chief Executive Officer, President, and Director

 (Principal Executive Officer)

 /s/ Eric Hanson

 Eric Hanson

 Chief Financial & Accounting Officer

 (Principal Financial & Accounting Officer)

 /s/ Jason Scher

 Jason Scher

 /s/ Pol Sikar

 Pol Sikar

 /s/ Jody Levy

 Jody Levy

 /s/ Dorri McWhorter

 Dorri McWhorter

 /s/ Juan Carlos Dalto

 Juan Carlos Dalto

 /s/ Perfecto Sanchez

 Perfecto Sanchez