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LIFEWAY FOODS, INC. (NASDAQ:LWAY) Files An 8-K Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

LIFEWAY FOODS, INC. (NASDAQ:LWAY) Files An 8-K Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

Item 4.02 Non-Reliance on Previously Issued Financial Statements
or a Related Audit Report or Completed Interim Review.

On November 4, 2016, the Audit Committee of the Board of
Directors (the Board) of Lifeway Foods, Inc. (the Company), upon
the recommendation of management, determined that the
consolidated financial statements (the Previously Issued
Financial Statements) presented in the Company’s reports for:

the annual period ended December 31, 2015, and the reports of
the independent registered public accounting firm thereon,
and related quarterly periods for the annual period ended
December 31, 2015; and
the quarterly periods ended March 31 and June 30, 2016

as set forth in the Company’s previous filings with the
Securities and Exchange Commission (the SEC) (the Revised
Periods) should no longer be relied upon as a result of the
errors described below. Similarly, earnings releases,
management’s report on the effectiveness of disclosure controls
and procedures, in each case for the Revised Periods and earnings
releases, press releases and investor communications describing
the Previously Issued Financial Statements should no longer be
relied upon because of certain misclassifications described
below.

As a result of enhancing its financial reporting efforts, during
the third quarter of fiscal 2016, the Company recorded
adjustments to properly classify indirect manufacturing overhead
costs related to certain production facilities within our
manufacturing platform as an element of Cost of Goods Sold in our
Statements of Income (Loss) and Comprehensive Income (Loss). In
prior periods these costs were incorrectly classified in General
and Administrative (GA) expenses. The Audit Committee of the
Company’s Board of Directors, upon recommendation of management
and after discussion with the Company’s independent registered
public accounting firm, concluded that the Company will correct
and revise its expenses by reclassifying certain amounts
previously reported in GA expense into Cost of Goods Sold in the
Previously Issued Financial Statements for the Revised Periods.

Additionally, in the first and second quarter of 2015, certain
executive compensation was classified in Selling expenses that
more appropriately should be classified as GA expenses. We
previously corrected these classification errors in our first and
second quarter 2016 filings on Form 10-Q with the SEC.

The reclassifications have no impact on the Company’s
previously-reported net sales, income from operations, net
income, or basic and diluted earnings per common share presented
in its Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss), nor does it have any effect on the Company’s
previously-reported Consolidated Balance Sheets, Consolidated
Statements of Cash Flows, or Consolidated Statements of Changes
in Stockholders’ Equity.

Collectively, these adjustments had the following impact on our
Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss):


(Unaudited) Three Months Ended March 31, 2016

(Unaudited) Six Months Ended June 30, 2016

As Previously Reported

Adjustment

As Revised

As Previously Reported

Adjustment

As Revised
Net Sales $ 32,570 $ $ 32,570 $ 63,701 $ $ 63,701
Cost of Goods Sold 23,351 23,870 44,290 45,266
Gross Profit 9,219 (519 ) 8,700 19,411 (976 ) 18,435
Selling expenses 2,964 2,964 6,427 6,427
General administrative 4,465 (519 ) 3,946 7,968 (976 ) 6,992
Amortization
Operating expenses 7,605 (519 ) 7,086 14,748 (976 ) 13,772
Income from Operations $ 1,614 $ $ 1,614 $ 4,663 $ $ 4,663


(Unaudited) Three Months Ended March 31, 2015

(Unaudited) Six Months Ended June 30, 2015

As Previously Reported (a)

Adjustment

As Revised

As Previously Reported (a)

Adjustment

As Revised
Net Sales $ 29,622 $ $ 29,622 $ 59,443 $ $ 59,443
Cost of Goods Sold 21,239 21,697 44,044 1,017 45,061
Gross Profit 8,383 (458 ) 7,925 15,399 (1,017 ) 14,382
Selling expenses 3,302 3,302 5,920 5,920
General administrative 3,492 (458 ) 3,034 7,662 (1,017 ) 6,645
Amortization
Operating expenses 6,973 (458 ) 6,515 13,940 (1,017 ) 12,923
Income from Operations $ 1,410 $ $ 1,410 $ 1,459 $ $ 1,459

(a)As previously reported in our first and second quarter 2016
Form 10-Q filings.


(Unaudited) Nine Months Ended September 30, 2015

Twelve Months Ended December 31, 2015

As Previously Reported (c)

Adjustment (b)

As Revised

As Previously Reported (d)

Adjustment (b)

As Revised
Net Sales $ 89,042 $ $ 89,042 $ 118,587 $ $ 118,587
Cost of Goods Sold 64,588 1,137 65,725 86,986 1,556 88,542
Gross Profit 24,454 (1,137 ) 23,317 31,601 (1,556 ) 30,045
Selling expenses 9,486 (860 ) 8,626 12,752 (860 ) 11,892
General administrative 10,920 (277 ) 10,643 13,730 (696 ) 13,034
Amortization
Operating expenses 20,943 (1,137 ) 19,806 27,198 (1,556 ) 25,642
Income from Operations $ 3,511 $ $ 3,511 $ 4,403 $ $ 4,403

(b) Includes the reclassification of certain executive
compensation from Selling to GA expenses.

(c) As previously reported in our third quarter 2015 Form 10-Q
filed on November 9, 2015.

(d) As previously reported in our 2015 Form 10-K filed on March
16, 2016.

The Company has determined that it shall be amending and
restating its (i) Annual Report on Form 10-K filed with the SEC
on March 16, 2016; and (ii) its Quarterly Reports on Form 10-Q
filed with the SEC on May 10, 2016 and August 17, 2016. The
Company does not intend to amend any Quarterly Reports on Form
10-Q filed during the 2015 fiscal year. The impact of the
accounting errors referred to in this report for the three and
nine month periods ended September 30, 2015 have been corrected
in the Companys Quarterly Report on Form 10-Q filed with the SEC
on November 10, 2016, and the impact of the errors on the first
and second quarters of 2015 will be corrected in the proposed
amended and restated Quarterly Reports on Form 10-Q filed with
the SEC on May 10, 2016 and August 17, 2016. In addition, the
Company intends to include appropriate note disclosure in its
amended and restated 2015 Form 10-K of the errors and the
corrected amounts for the 2015 quarterly periods.

In connection with the revisions described above, the Company has
considered the impact of these classification errors on our
internal control assessment and have concluded that the errors
are indicative of our existing material weakness in our internal
control over financial reporting. As previously disclosed in the
Company’s 2015 Annual Report on Form 10-K, the Company and its
management continue to work to improve the overall effectiveness
of its internal control over financial reporting and disclosure
controls and procedures in order to rectify its identified
material weaknesses. The Company believes that the identification
of the classification errors was consequential of the remediation
of the material weakness in those controls.

The Company’s management and the Audit Committee have discussed
the matters disclosed under this Item 4.02 with the Company’s
independent registered public accounting firm, Mayer Hoffman
McCann.

Caution Regarding Forward-Looking
Statements

This Form 8-K includes information that constitutes
forward-looking statements. Forward-looking statements often
address our expected future business and financial performance,
and often contain words such as believe, expect, anticipate,
intend, plan, or will. By their nature, forward-looking
statements address matters that are subject to risks and
uncertainties. Any such forward-looking statements may involve
risk and uncertainties that could cause actual results to differ
materially from any future results encompassed within the
forward-looking statements. Examples of such forward-looking
statements include, but are not limited to, statements regarding
our expectations with regard to any revised amount in our
financial statements for the Revised Period or our anticipated
financial results for the three months ended September 30, 2016
furnished under Items 4.02 herein. Factors that could cause or
contribute to such differences include: the review of the
Company’s accounting, accounting policies and internal control
over financial reporting; the preparation of and review of the
Form 10-Q for the quarter ended September 30, 2016 and the Form
10-K for the year ended December 31, 2016; and the subsequent
discovery of additional adjustments to the Company’s previously
issued financial statements. Actual events or results may differ
materially from the Company’s expectations. In addition, our
financial results and stock price may suffer as a result of this
review and any subsequent determinations from this process or any
actions taken by governmental or other regulatory bodies as a
result of this process. These forward-looking statements are also
affected by the risk factors, forward-looking statements and
challenges and uncertainties described in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2015, and
Lifeway’s other filings with the SEC, which are available at
www.lifewaykefir.com. Except as required by law, the Company
expressly disclaims any intention or obligation to revise or
update any forward-looking statements, whether as a result of new
information, future events or otherwise.

About LIFEWAY FOODS, INC. (NASDAQ:LWAY)
Lifeway Foods, Inc. (Lifeway) is engaged in the manufacturing of probiotic, cultured, functional dairy health food products. The Company is engaged in the sale of fermented dairy products, which are produced and are sold to consumers through a network of distributors and retailers in the United States. Through its distributors, the Company also sells its products to retailers in Mexico, Costa Rica, Dubai, Hong Kong, China and the Caribbean. The Company’s primary product is kefir, a dairy beverage similar to but distinct from yogurt, in various flavors and in various package configurations. In addition to the drinkable products, Lifeway manufactures Lifeway Farmer Cheese, a line of various farmer cheeses. Kefir also serves as a base for lower-calorie dressings, dips, marinades, soups or sauces and as a basic ingredient in other home-prepared foods. Recipes are made available through the Company’s Website. The Company also markets and sells its ProBugs line of drinkable kefir. LIFEWAY FOODS, INC. (NASDAQ:LWAY) Recent Trading Information
LIFEWAY FOODS, INC. (NASDAQ:LWAY) closed its last trading session down -0.20 at 11.51 with 27,237 shares trading hands.

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