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Basis of Presentation

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Note 1 - Basis of Presentation

Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information, and do not include all of the information and disclosures required for complete, audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. For further information, refer to the consolidated financial statements and disclosures included in the consolidated financial statements included in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2015. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation. The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year.

New presentation format. In prior periods, the Company presented gross sales, discounts and promotional allowances and net sales as distinct financial statement captions in our statements of income (loss) and comprehensive income (loss). During the second quarter of 2016, the Company concluded that it was appropriate to simply present net sales. All prior periods have been conformed to the new presentation.

Corrections of errors and revisions of prior period financial statements

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 expenses.

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

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				519				23,870				44,290				976				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			176				—				176				353				—				353
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				458				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			179				—				179				358				—				358
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 10Q filings.

		(Unaudited) Nine Months Ended September 30, 2015												Twelve Months Ended December 31, 2015
		As Previously Reported				Adjustment (b)				As Revised				As Previously Reported				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			537				—				537				716				—				716
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 General and administrative expenses.

Further, these adjustments had no impact on the measurement of Income before provision for incomes taxes, Net income (loss), Basic and diluted earnings (loss) per common share or any element of the Consolidated Balance Sheets or Statements of Cash Flows for any of the respective periods. The Company determined these adjustments to be immaterial, individually and in the aggregate, to our previously filed consolidated financial statements.

Principles of consolidation

Our Consolidated Financial Statements include the accounts of Lifeway Foods, Inc. and all its wholly owned subsidiaries (collectively "Lifeway" or the "Company"). All significant intercompany accounts and transactions have been eliminated.