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**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-QSB**

| (Mark                One)  |   |
|---------------------------------|--------|
|                            |   |   |
| **þ**                      |   | **QUARTERLY                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                1934** |
|                            |   | **For              the quarterly period ended June 30,              2007** |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **o**  |   | **TRANSITION                REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE                ACT**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   | **For              the transition period from                                                                    to                                         ** |

**LIFEWAY      FOODS, INC.**

|                                                                          |   |                                             |
|-------------------------------------------------------------------------------|--------|--------------------------------------------------|
| Illinois                                                                      |   | 36-3442829                                       |
| (State                or other jurisdiction of incorporation or organization) |   | (IRS                Employer Identification No.) |

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**þ**

**o**

**o**

**þ**

**APPLICABLE      ONLY TO CORPORATE ISSUERS**

**o**

**þ**

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**INDEX**

|                                                                                                                                   |    |   |
|----------------------------------------------------------------------------------------------------------------------------------------|---------|--------|
| **PART                I — FINANCIAL INFORMATION**                                                                                | **3**   |   |
|                                                                                                                                   |    |   |
| **ITEM                1.     FINANCIAL                STATEMENTS**                                            | **4-7** |   |
| **ITEM                2.     MANAGEMENT’S                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION** | **21**  |   |
| **ITEM                3.     CONTROLS AND                PROCEDURES**                                         | **24**  |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
| **PART                II — OTHER INFORMATION**                                                                                   | **24**  |   |
|                                                                                                                                   |    |   |
| **ITEM                4.     SUBMISSION OF                MATTERS TO A VOTE OF SECURITY HOLDERS**        | **24**  |   |
| **ITEM                5.     OTHER                INFORMATION**                                               | **25**  |   |
| **ITEM                6.     EXHIBITS**                                                                       | **25**  |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
| **SIGNATURE**                                                                                                                          | **26**  |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
| **EXHIBITS                INDEX**                                                                                                      | **27**  |   |

----

**PART        I — FINANCIAL INFORMATION**

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**CONSOLIDATED        FINANCIAL STATEMENTS**

**JUNE        30, 2007 AND 2006**

**AND        DECEMBER 31, 2006**

----

**LIFEWAY            FOODS, INC. AND SUBSIDIARIES**

**Consolidated            Statements of Financial Condition**

**June            30, 2007 and 2006 (Unaudited) and December 31, 2006**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       | **(Unaudited)**                   | ** **     | ** ** | ** **                            | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|----------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **June                      30,** | ** **     | ** ** | **December                      31,** |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       | **2007**                          |           |       | **2006**                              |       |   | **2006** |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                              |           |       |                                  |       |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |
| **Current                      assets**                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                              |           |       |                                  |       |   |   |   |
| Cash                      and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                         |       | $                                 | 1,014,433      |       |                                  | $          | 3,621,803 |   |   | $ | 1,547,812 |   |
| Marketable                      securities                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                              | 8,424,516      |       |                                  |       | 8,581,674 |   |   |   | 8,491,363 |   |
| Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                              | 3,510,597      |       |                                  |       | 2,320,818 |   |   |   | 2,522,196 |   |
| Accounts                        receivable, net of allowance for doubtful accounts of $39,460                        and $45,000                        at June 30, 2007 and 2006 and $80,000 at December 31,                        2006                                                                                                                                                                                                                              |       |                              | 4,602,313      |       |                                  |       | 3,561,038 |   |   |   | 3,942,717 |   |
| Prepaid                      expenses and other current assets                                                                                                                                                                                                                                                                                                                                                                                                         |       |                              | 13,207         |       |                                  |       | 51,823 |   |   |   | 11,983 |   |
| Other                      receivables                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                              | 40,295         |       |                                  |       | 67,332 |   |   |   | 71,050 |   |
| Deferred                      income taxes                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                              | 73,168         |       |                                  |       | 116,544 |   |   |   | 32,234 |   |
| Refundable                      income taxes                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                              | —        |       |                                  |       | — |   |   |   | 267,771 |   |
| **Total                      current assets**                                                                                                                                                                                                                                                                                                                                                                                                                          |       | ** **                        | **17,678,529** |       |                                  | ** ** | **18,321,032** |   |   | ** ** | **16,887,126** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **Property                      and equipment, net**                                                                                                                                                                                                                                                                                                                                                                                                                   |       | ** **                        | **8,819,215**  |       |                                  | ** ** | **7,762,286** |   |   | ** ** | **8,580,716** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **Intangible                      assets**                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                              | 3,952,425      |       |                                  |       | 75,800 |   |   |   | 3,952,425 |   |
| Other                        intangible assets, net of accumulated amortization of $439,982                        and                        $125,484 at June 30, 2007 and 2006 and $278,710 December                        31,                        2006                                                                                                                                                                                                          |       |                              | 3,423,514      |       |                                  |       | 317,154 |   |   |   | 3,578,928 |   |
| **Total                      intangible assets**                                                                                                                                                                                                                                                                                                                                                                                                                       |       | ** **                        | **7,375,939**  |       |                                  | ** ** | **392,954** |   |   | ** ** | **7,531,353** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **Total                      assets**                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | **$**                             | **33,873,683** |       |                                  | **$**      | **26,476,272** |   |   | **$** | **32,999,195** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **LIABILITIES                      AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                                                                                                                                                                    |       |                              |           |       |                                  |       |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **Current                      liabilities**                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| Current                      maturities of notes payable                                                                                                                                                                                                                                                                                                                                                                                                               |       | $                                 | 1,130,316      |       |                                  | $          | 542,089 |   |   | $ | 1,131,336 |   |
| Accounts                      payable                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |                              | 1,527,164      |       |                                  |       | 704,061 |   |   |   | 1,463,014 |   |
| Accrued                      income tax                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                              | 31,802         |       |                                  |       | 441,049 |   |   |   |   |   |
| Accrued                      expenses                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |                              | 386,749        |       |                                  |       | 382,543 |   |   |   | 480,101 |   |
| **Total                      current liabilities**                                                                                                                                                                                                                                                                                                                                                                                                                     |       | ** **                        | **3,076,031**  |       |                                  | ** ** | **2,069,742** |   |   | ** ** | **3,074,451** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **Notes                      payable**                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | ** **                        | **4,843,282**  |       |                                  | ** ** | **2,849,504** |   |   | ** ** | **5,746,718** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **Deferred                      income taxes**                                                                                                                                                                                                                                                                                                                                                                                                                         |       | ** **                        | **466,673**    |       |                                  | ** ** | **343,619** |   |   | ** ** | **449,619** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **Stockholders’                      equity**                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| Common                      stock, no par value; 20,000,000 shares authorized; 17,273,766                      shares                      issued; 16,889,237 shares outstanding at June 30, 2007; 17,273,776                      shares                      issued; 16,793,310 shares outstanding at June 30, 2006; and                      17,273,776                      shares issued; 16,897,826 shares outstanding at December 31,                      2006 |       |                              | 6,509,267      |       |                                  |       | 6,509,267 |   |   |   | 6,509,267 |   |
| Paid-in-capital                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                              | 1,086,591      |       |                                  |       | 104,036 |   |   |   | 1,080,911 |   |
| Treasury                      stock, at cost                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                              | (2,085,666     | )          |                                  |       | (1,468,091 | ) |   |   | (1,334,313 | ) |
| Retained                      earnings                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                              | 19,850,129     |       |                                  |       | 16,067,650 |   |   |   | 17,318,772 |   |
| Accumulated                      other comprehensive income (loss), net of taxes                                                                                                                                                                                                                                                                                                                                                                                       |       |                              | 127,376        |       |                                  |       | 545 |   |   |   | 153,770 |   |
| **Total                      stockholders’ equity**                                                                                                                                                                                                                                                                                                                                                                                                              |       | ** **                        | **25,487,697** |       |                                  | ** ** | **21,213,407** |   |   | ** ** | **23,728,407** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                              |           |       |                                  |       |   |   |   |   |   |   |
| **Total                      liabilities and stockholders’ equity**                                                                                                                                                                                                                                                                                                                                                                                              |       | **$**                             | **33,873,683** |       |                                  | **$**      | **26,476,272** |   |   | **$** | **32,999,195** |   |

----

**LIFEWAY              FOODS, INC. AND SUBSIDIARIES**

**Consolidated              Statements of Income and Comprehensive Income**

**For              the Three and Six Months Ended June 30, 2007 and 2006              (Unaudited)**

**and              The Year Ended December 31, 2006**

|                                                                                                                                                                 |       | **(Unaudited)**                             | ** **     | ** ** | **(Unaudited)**                           | ** ** | ** **     | ** **                            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|----------------|------------|-------------------------------------------|------------|----------------|---------------------------------------|------------|
| ** **                                                                                                                                                           | ** ** | **Three                      Months Ended** | ** **     | ** ** | **Six                      Months Ended** | ** ** | ** **     | **Year                      Ended**   | ** ** |
| ** **                                                                                                                                                           | ** ** | **June                      30,**           |           |       | **June                      30,**         |       |           | **December                      31,** |       |
|                                                                                                                                                                 |       | **2007**                                    |           |       | **2006**                                  |       |           | **2007**                              |       |   | **2006** |   |   | **2006** |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |
| **Sales**                                                                                                                                                            |       | $                                           | 9,715,262      |       |                                      | $          | 6,367,397      |                                  |       | $ | 18,737,506 |   |   | $ | 12,370,420 |   |   | $ | 27,720,713 |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| Cost                      of goods sold                                                                                                                              |       |                                        | 5,886,186      |       |                                      |       | 3,787,577      |                                  |       |   | 11,336,011 |   |   |   | 7,093,221 |   |   |   | 17,081,992 |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Gross                      profit**                                                                                                                                |       | ** **                                  | **3,829,076**  |       |                                      | ** ** | **2,579,820**  |                                  |       | ** ** | **7,401,495** |   |   | ** ** | **5,277,199** |   |   | ** ** | **10,638,721** |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| Selling                      Expenses                                                                                                                                |       |                                        | 912,262        |       |                                      |       | 849,647        |                                  |       |   | 1,682,343 |   |   |   | 1,432,591 |   |   |   | 3,065,254 |   |
| General                      and Administrative                                                                                                                      |       |                                        | 1,155,527      |       |                                      |       | 800,019        |                                  |       |   | 2,156,375 |   |   |   | 1,508,083 |   |   |   | 3,343,341 |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Total                      Operating Expenses**                                                                                                                    |       |                                        | 2,067,789      |       |                                      |       | 1,649,666      |                                  |       |   | 3,838,718 |   |   |   | 2,940,674 |   |   | ** ** | **6,408,595** |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Income                      from operations**                                                                                                                      |       | ** **                                  | **1,761,287**  |       |                                      | ** ** | **930,154**    |                                  |       | ** ** | **3,562,777** |   |   | ** ** | **2,336,525** |   |   | ** ** | **4,230,126** |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| Other                      income (expense):                                                                                                                         |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| Interest                      and dividend income                                                                                                                    |       |                                        | 98,365         |       |                                      |       | 122,033        |                                  |       |   | 164,164 |   |   |   | 208,264 |   |   |   | 388,339 |   |
| Rental                      Income                                                                                                                                   |       |                                        | 9,581          |       |                                      |       | —        |                                  |       |   | 18,181 |   |   |   | — |   |   |   | 11,401 |   |
| Interest                      expense                                                                                                                                |       |                                        | (109,283       | )          |                                      |       | (63,200        | )                                     |       |   | (218,812 | ) |   |   | (113,426 | ) |   |   | (345,525 | ) |
| Gain                        (loss) on sale of marketable securities, net                                                                                        |       |                                        | 439,243        |       |                                      |       | 225,292        |                                  |       |   | 453,380 |   |   |   | 188,414 |   |   |   | 355,767 |   |
| Gain                        on marketable securities classified as trading                                                                                           |       |                                        | 343            |       |                                      |       | 2,549          |                                  |       |   | 951 |   |   |   | 3,061 |   |   |   | 791 |   |
| Total                      other income (Expense)                                                                                                                    |       |                                        | 438,249        |       |                                      |       | 286,674        |                                  |       |   | 417,864 |   |   |   | 286,313 |   |   |   | 410,773 |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Income                        before provision for income taxes**                                                                                             |       | ** **                                  | **2,199,536**  |       |                                      | ** ** | **1,216,828**  |                                  |       | ** ** | **3,980,641** |   |   | ** ** | **2,622,838** |   |   | ** ** | **4,640,899** |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| Provision                      for income taxes                                                                                                                      |       |                                        | 803,510        |       |                                      |       | 466,784        |                                  |       |   | 1,449,284 |   |   |   | 978,136 |   |   |   | 1,745,075 |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Net                      income**                                                                                                                                  |       | **$**                                       | **1,396,026**  |       |                                      | **$**      | **750,044**    |                                  |       | **$** | **2,531,357** |   |   | **$** | **1,644,702** |   |   | **$** | **2,895,824** |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Basic                        and diluted earnings per common share**                                                                                               |       |                                        | 0.08           |       |                                      |       | 0.04           |                                  |       |   | 0.15 |   |   |   | 0.10 |   |   |   | 0.17 |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Weighted                        average number of shares outstanding**                                                                                        |       | ** **                                  | **16,875,905** |       |                                      | ** ** | **16,799,536** |                                  |       | ** ** | **16,885,586** |   |   | ** ** | **16,795,473** |   |   | ** ** | **16,829,601** |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                                                                                                        |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Net                      income**                                                                                                                                  |       | **$**                                       | **1,396,026**  |       |                                      | **$**      | **750,044**    |                                  |       | **$** | **2,531,357** |   |   | **$** | **1,644,702** |   |   | **$** | **2,895,824** |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| Other                      comprehensive income (loss), net                      of tax:                                                                             |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized                          gains (losses) on marketable securities (net of tax                          benefits)                                           |       |                                        | (26,118        | )          |                                      |       | (65,256        | )                                     |       |   | 238,834 |   |   |   | 210,281 |   |   |   | (251,021 | ) |
| Less                          reclassification adjustment for gains (losses) included                          in net income (net                          of taxes) |       |                                        | (87,433        | )          |                                      |       | (88,574        | )                                     |       |   | (265,228 | ) |   |   | (110,222 | ) |   |   | 504,305 |   |
|                                                                                                                                                                 |       |                                        |           |       |                                      |       |           |                                  |       |   |   |   |   |   |   |   |   |   |   |   |
| **Comprehensive                      income**                                                                                                                        |       | **$**                                       | **1,282,475**  |       |                                      | **$**      | **596,214**    |                                  |       | **$** | **2,504,963** |   |   | **$** | **1,744,761** |   |   | **$** | **3,149,108** |   |

----

**LIFEWAY              FOODS, INC. AND SUBSIDIARIES**

**Consolidated              Statements of Changes in Stockholders’ Equity**

**For              the Six Months Ended June 30, 2007 (Unaudited)**

**and              the Year Ended December 31, 2006**

|                                                                                                                        |   | **Common                      Stock, No Par** |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          | **Accumulated**   |   |       |                                    |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|----------------|--------|-------------------------------------------|------------|----------------|--------------|--------|------------|-------------|--------|--------|----------------------------------|---------------|--------|--------------|------------|---------------|-------------------|--------|------------|-----------------------------------------|--------|
|                                                                                                                        |   | **Value                      20,000,000**     |           |   | **#                      of Shares** |       |           |         |   |       |        |   |   |                             |          |   |         |       |          | **Other**         |   |       |                                    |   |
|                                                                                                                        |   | **Shares                      Authorized**    |           |   | **of**                                    |       |           |         |   |       |        |   |   |                             |          |   |         |       |          | **Comprehensive** |   |       |                                    |   |
|                                                                                                                        |   | **#                      of Shares**          |           |   | **#                      of Shares**      |       |           | **Treasury** |   |       | **Common**  |   |   | **Paid                      In** |          |   | **Treasury** |       |          | **Retained**      |   |       | **Income                      (Loss),** |   |   |   |   |
|                                                                                                                        |   | **Issued**                                    |           |   | **Outstanding**                           |       |           | **Stock**    |   |       | **Stock**   |   |   | **Capital**                      |          |   | **Stock**    |       |          | **Earnings**      |   |       | **Net                      of Tax**     |   |   | **Total** |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |
| **Balances                      at December 31, 2005**                                                                      |   | ** **                                    | **17,273,776** |   |                                      | ** ** | **16,790,510** |         |   | ** ** | **483,266** |   |   | **$**                            | **6,509,267** |   |         | **$**      | **90,725**    |              |   | **$**      | **(1,024,659**                          | **)**  |   | **$** | **14,422,948** |   |   | **$** | **(99,514** | **)** |   | **$** | **19,898,767** |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                      of treasury stock for compensation                                                            |   |                                          | —        |   |                                      |       | 4,666          |         |   |       | (4,666      | )      |   |                             | —       |   |         |       | 13,311        |              |   |       | 15,855                                  |   |   |   | — |   |   |   | — |   |   |   | 29,166 |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                      of treasury stock for acquisition of Helios                                                   |   |                                          | —        |   |                                      |       | 202,650        |         |   |       | (202,650    | )      |   |                             | —       |   |         |       | 976,875       |              |   |       | 323,125                                 |   |   |   | — |   |   |   | — |   |   |   | 1,300,000 |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Redemption                      of stock                                                                                    |   |                                          | —        |   |                                      |       | (100,000       | )            |   |       | 100,000     |   |   |                             | —       |   |         |       | —       |              |   |       | (648,634                                | )      |   |   | — |   |   |   | — |   |   |   | (648,634 | ) |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                      comprehensive income (loss):                                                                     |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized                        losses on securities, net of taxes and reclassification                        adjustment |   |                                          | —        |   |                                      |       | —        |         |   |       | —     |   |   |                             | —       |   |         |       | —       |              |   |       | —                                 |   |   |   | — |   |   |   | 253,284 |   |   |   | 253,284 |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                      income for the year ended December 31, 2006                                                        |   |                                          | —        |   |                                      |       | —        |         |   |       | —     |   |   |                             | —       |   |         |       | —       |              |   |       | —                                 |   |   |   | 2,895,824 |   |   |   | — |   |   |   | 2,895,824 |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balances                      at December 31, 2006**                                                                      |   | ** **                                    | **17,273,776** |   |                                      | ** ** | **16,897,826** |         |   | ** ** | **375,950** |   |   | ** **                       | **6,509,267** |   |         | ** ** | **1,080,911** |              |   | ** ** | **(1,334,313**                          | **)**  |   | ** ** | **17,318,772** |   |   | ** ** | **153,770** |   |   | ** ** | **23,728,407** |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Redemption                      of stock                                                                                    |   |                                          | —        |   |                                      |       | (75,000        | )            |   |       | 75,000      |   |   |                             | —       |   |         |       | —       |              |   |       | (752,603                                | )      |   |   | — |   |   |   | — |   |   |   | (752,603 | ) |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                      of treasury stock                                                                             |   |                                          | —        |   |                                      |       | 700            |         |   |       | (700        | )      |   |                             | —       |   |         |       | 5,680         |              |   |       | 1,250                                   |   |   |   | — |   |   |   | — |   |   |   | 6,930 |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                      comprehensive income (loss):                                                                     |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized                        gains on securities, net of taxes and reclassification                        adjustment  |   |                                          | —        |   |                                      |       | —        |         |   |       | —     |   |   |                             | —       |   |         |       | —       |              |   |       | —                                 |   |   |   | — |   |   |   | (26,394 | ) |   |   | (26,394 | ) |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        income for the six months ended June 30, 2007                                                    |   |                                          | —        |   |                                      |       | —        |         |   |       | —     |   |   |                             | —       |   |         |       | —       |              |   |       | —                                 |   |   |   | 2,531,357 |   |   |   | — |   |   |   | 2,531,357 |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                        |   |                                          |           |   |                                      |       |           |         |   |       |        |   |   |                             |          |   |         |       |          |              |   |       |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balances                      at June 30, 2007**                                                                          |   | ** **                                    | **17,273,776** |   |                                      | ** ** | **16,823,526** |         |   | ** ** | **450,250** |   |   | **$**                            | **6,509,267** |   |         | **$**      | **1,086,591** |              |   | **$**      | **(2,085,666**                          | **)**  |   | **$** | **19,850,129** |   |   | **$** | **127,376** |   |   | **$** | **25,487,697** |   |

----

**LIFEWAY              FOODS, INC. AND SUBSIDIARIES**

**Consolidated              Statements of Cash Flows**

**For              the Six Months Ended June 30, 2007 and 2006 (Unaudited)**

**and              the Year Ended December 31, 2006**

|                                                                         |       | **(Unaudited)**** **** **** **                         | ** **     | ** ** | ** **                          | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|----------------|------------|-------------------------------------|------------|
| ** **                                                                   | ** ** | **Six                    Months Ended**** **** **** ** | ** **     | ** ** | **Year                    Ended**   | ** ** |
| ** **                                                                   | ** ** | **June                    30,**** **** **** **         | ** **     | ** ** | **December                    31,** |       |
|                                                                         |       | **2007**                                                              |           |       | **2006**                            |       |   | **2006** |   |
|                                                                         |       |                                                                  |           |       |                                |       |   |   |   |
| **Cash                    flows from operating activities:**                 |       |                                                                  |           |       |                                |       |   |   |   |
| **Net                    income**                                            |       | **$**                                                                 | **2,531,357**  |       |                                | **$**      | **1,644,702** |   |   | **$** | **2,895,824** |   |
| Adjustments                    to reconcile net income to net                |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| cash                    flows from operating activities, net of acquisition: |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| Depreciation                    and amortization                             |       |                                                                  | 512,869        |       |                                |       | 291,678 |   |   |   | 758,754 |   |
| (Gain)Loss                    on sale of marketable securities, net          |       |                                                                  | (453,380       | )          |                                |       | (188,414 | ) |   |   | (355,767 | ) |
| Gain                      on marketable securities classified as trading     |       |                                                                  | (951           | )          |                                |       | (3,061 | ) |   |   | (791 | ) |
| Deferred                    income taxes                                     |       |                                                                  | (5,303         | )          |                                |       | (52,541 | ) |   |   | 33,031 |   |
| Treasury                    stock issued for services                        |       |                                                                  | 6,930          |       |                                |       | 29,166 |   |   |   | 29,166 |   |
| Increase                    (decrease) in allowance for doubtful accounts    |       |                                                                  | (40,540        | )          |                                |       | 10,000 |   |   |   | 45,000 |   |
| (Increase)                    decrease in operating assets:                  |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| Accounts                    receivable                                       |       |                                                                  | (619,056       | )          |                                |       | (1,053,423 | ) |   |   | (1,190,448 | ) |
| Other                    receivables                                         |       |                                                                  | 30,755         |       |                                |       | (10,897 | ) |   |   | (14,615 | ) |
| Inventories                                                                  |       |                                                                  | (988,401       | )          |                                |       | (603,819 | ) |   |   | (585,563 | ) |
| Refundable                    income taxes                                   |       |                                                                  | 267,771        |       |                                |       | 11,562 |   |   |   | (256,209 | ) |
| Prepaid                    expenses and other current assets                 |       |                                                                  | (1,224         | )          |                                |       | (42,679 | ) |   |   | 35,032 |   |
| Increase                    (decrease) in operating liabilities:             |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| Accounts                    payable                                          |       |                                                                  | 64,150         |       |                                |       | 277,808 |   |   |   | 638,999 |   |
| Accrued                    expenses                                          |       |                                                                  | (93,352        | )          |                                |       | 27,532 |   |   |   | 125,090 |   |
| Accrued                    income taxes                                      |       |                                                                  | 31,802         |       |                                |       | 441,049 |   |   |   | — |   |
| **Net                    cash provided by operating activities**             |       | ** **                                                            | **1,243,427**  |       |                                | ** ** | **778,663** |   |   | ** ** | **2,157,503** |   |
|                                                                         |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| **Cash                    flows from investing activities:**                 |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| Purchases                    of marketable securities                        |       |                                                                  | (3,274,563     | )          |                                |       | (3,968,844 | ) |   |   | (7,509,692 | ) |
| Sale                    of marketable securities                             |       |                                                                  | 3,750,770      |       |                                |       | 3,230,866 |   |   |   | 7,285,071 |   |
| Purchases                    of property and equipment                       |       |                                                                  | (590,096       | )          |                                |       | (269,466 | ) |   |   | (680,174 | ) |
| Acquisition                    of Helios, net of cash acquired               |       |                                                                  | —        |       |                                |       | — |   |   |   | (2,551,679 | ) |
| Purchases                    of organizational costs                         |       |                                                                  | (5,858         | )          |                                |       | — |   |   |   | — |   |
| **Net                    cash used in investing activities**                 |       | ** **                                                            | **(119,747**   | **)**      |                                | ** ** | **(1,007,444** | **)** |   | ** ** | **(3,456,474** | **)** |
|                                                                         |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
|                                                                         |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| **Cash                    flows from financing activities:**                 |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| Purchases                    of treasury stock                               |       |                                                                  | (752,603       | )          |                                |       | (459,287 | ) |   |   | (648,634 | ) |
| Repayment                    of notes payable                                |       |                                                                  | (904,456       | )          |                                |       | (44,210 | ) |   |   | (858,664 | ) |
| **Net                    cash provided by (used in) financing activities**   |       | ** **                                                            | **(1,657,059** | **)**      |                                | ** ** | **(503,497** | **)** |   | ** ** | **(1,507,298** | **)** |
|                                                                         |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| **Net                    decrease in cash and cash equivalents**             |       | ** **                                                            | **(533,379**   | **)**      |                                | ** ** | **(732,278** | **)** |   | ** ** | **(2,806,269** | **)** |
|                                                                         |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| Cash                    and cash equivalents at the beginning of the period  |       |                                                                  | 1,547,812      |       |                                |       | 4,354,081 |   |   |   | 4,354,081 |   |
|                                                                         |       |                                                                  |           |       |                                |       |   |   |   |   |   |   |
| **Cash                    and cash equivalents at the end of the period**    |       | **$**                                                                 | **1,014,433**  |       |                                | **$**      | **3,621,803** |   |   | **$** | **1,547,812** |   |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        1 – NATURE OF BUSINESS**

| Cash                                                       |   | $      | 11,321    |   |
|------------------------------------------------------------|--------|--------|-----------|--------|
| Accounts                  Receivable Assumed               |   |   | 279,654   |   |
| Inventories                                                |   |   | 219,634   |   |
| Equipment,                  Building and Land              |   |   | 721,572   |   |
| Prepaid                  Items                             |   |   | 37,871    |   |
| Trade                  Name - Intangible Asset             |   |   | 1,980,000 |   |
| Formula                  - Intangible Asset                |   |   | 438,000   |   |
| Contractual                  Backlog - Intangible Asset    |   |   | 12,000    |   |
| Customer                  Relationships - Intangible Asset |   |   | 985,000   |   |
| Goodwill                                                   |   |   | 3,876,625 |   |
| Total                  Assets Acquired                     |   |   | 8,561,677 |   |
| Note                  Payable and Accounts Payable Assumed |   |   | (498,677  | )      |
| Net                  Assets Acquired                       |   | $      | 8,063,000 |   |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        1 – NATURE OF BUSINESS - Continued**

|                          |   | 6                    months endedJune                    30, 2006 |       |   | Year                    endedDecember                    31, 2006 |   |
|-------------------------------|--------|-------------------------------------------------------------------|------------|--------|-------------------------------------------------------------------|--------|
| Net                    Sales  |   | $                                                                 | 14,992,929 |   |                                                              | $      | 30,804,309 |   |
| Net                    Income |   | $                                                                 | 1,510,354  |   |                                                              | $      | 2,621,228 |   |
| EPS                           |   | $                                                                 | 0.09       |   |                                                              | $      | 0.16 |   |

**Note        2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

|                                                    |   | June                  30, |      |   | December                  31, |   |
|---------------------------------------------------------|--------|---------------------------|-----------|--------|-------------------------------|--------|
|                                                    |   | 2007                      |      |   | 2006                          |   |   | 2006 |   |
| Amounts                  insured                        |   | $                         | 240,374   |   |                          | $      | 340,460 |   |   | $ | 432,678 |   |
| Uninsured                  and uncollateralized amounts |   |                      | 1,185,137 |   |                          |   | 3,792,076 |   |   |   | 1,412,560 |   |
| Total                  bank balances                    |   | $                         | 1,425,511 |   |                          | $      | 4,132,536 |   |   |   | 1,845,238 |   |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued**

*Accounting for Certain        Investments in Debt and Equity Securities*
*Accounting for        Noncurrent Marketable Equity Securities*
* the meaning of other-than-temporary impairment and its        application to certain investments, *
is other-than-temporarily impaired. This evaluation        depends on the specific facts and circumstances. Factors that we consider        in        determining whether an other-than-temporary decline in value has occurred        include: the market value of the security in relation to its cost basis;        the        financial condition of the investee; and the intent and ability to retain        the        investment for a sufficient period of time to allow for possible recovery        in the        market value of the investment.

| Category                                    |   | Years                        |
|---------------------------------------------|--------|------------------------------|
| Buildings                  and improvements |   | 31                  and 39   |
| Machinery                  and equipment    |   | 5–                  12 |
| Office                  equipment           |   | 5–                  7  |
| Vehicles                                    |   | 5                            |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued**

| Category                                                                                |   | Years |
|-----------------------------------------------------------------------------------------|--------|-------|
| Recipes                                                                                 |   | 4     |
| Customer                  lists and other customer                  related intangibles |   | 15    |
| Lease                  agreement                                                        |   | 7     |
| Trade                  names                                                            |   | 15    |
| Formula                                                                                 |   | 10    |
| Customer                  relationships                                                 |   | 12    |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued**

**Note        3 – INTANGIBLE ASSETS**

|                                                                     |   | June                    30, 2007 |      |   | June                    30, 2006            |   |    | December                    31, 2006 |   |
|--------------------------------------------------------------------------|--------|----------------------------------|-----------|--------|---------------------------------------------|--------|---------|--------------------------------------|--------|
|                                                                     |   | Cost                             |      |   | Accumulated                    Amortization |   |    | Cost                                 |   |   | Accumulated                    Amortization |   |   | Cost |   |   | Accumulated                    Amortization |   |
| Recipes                                                                  |   | $                                | 43,600    |   |                                        | $      | 31,792  |                                 |   | $ | 43,600 |   |   | $ | 20,892 |   |   | $ | 43,600 |   |   | $ | 26,342 |   |
| Customer                    lists and other customer related intangibles |   |                             | 305,200   |   |                                        |   | 120,809 |                                 |   |   | 305,200 |   |   |   | 79,388 |   |   |   | 305,200 |   |   |   | 100,098 |   |
| Lease                    acquisition                                     |   |                             | 87,200    |   |                                        |   | 36,333  |                                 |   |   | 87,200 |   |   |   | 23,876 |   |   |   | 87,200 |   |   |   | 30,105 |   |
| Goodwill                                                                 |   |                             | 3,952,425 |   |                                        |   | — |                                 |   |   | 75,800 |   |   |   | — |   |   |   | 3,952,425 |   |   |   | — |   |
| Loan                    acquisition costs                                |   |                             | 6,638     |   |                                        |   | 2,655   |                                 |   |   | 6,638 |   |   |   | 1,328 |   |   |   | 6,638 |   |   |   | 1,991 |   |
| Customer                    relationship                                 |   |                             | 985,000   |   |                                        |   | 75,243  |                                 |   |   | — |   |   |   | — |   |   |   | 985,000 |   |   |   | 34,924 |   |
| Contractual                    backlog                                   |   |                             | 12,000    |   |                                        |   | 12,000  |                                 |   |   | — |   |   |   | — |   |   |   | 12,000 |   |   |   | 12,000 |   |
| Trade                    names                                           |   |                             | 1,980,000 |   |                                        |   | 121,000 |                                 |   |   | — |   |   |   | — |   |   |   | 1,980,000 |   |   |   | 55,000 |   |
| Formula                                                                  |   |                             | 438,000   |   |                                        |   | 40,150  |                                 |   |   | — |   |   |   | — |   |   |   | 438,000 |   |   |   | 18,250 |   |
| Organizational                    costs                                  |   |                             | 5,858     |   |                                        |   | — |                                 |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                                     |   | $                                | 7,815,921 |   |                                        | $      | 439,982 |                                 |   | $ | 518,438 |   |   | $ | 125,484 |   |   | $ | 7,810,063 |   |   | $ | 278,710 |   |

| 2007                                                                                                                                                       |   | $      | 323,988   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|
| 2008                                                                                                                                                       |   |   | 323,325   |   |   |
| 2009                                                                                                                                                       |   |   | 319,692   |   |   |
| 2010                                                                                                                                                       |   |   | 314,605   |   |   |
|                          2011 |   |   | 314,605   |   |   |
| Thereafter                                                                                                                                                 |   |   | 1,827,300 |   |   |
|                                                                                                                                                       |   | $      | 3,423,515 |   |   |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        4 – MARKETABLE SECURITIES**

| June                  30, 2007                      |   | Cost   |      |   | UnrealizedGains |   |    | UnrealizedLosses |   |   | Loss                  on Marketable Securities Classified as Trading |   |   | FairValue |    |
|-----------------------------------------------------|--------|--------|-----------|--------|-----------------|--------|---------|------------------|--------|--------|----------------------------------------------------------------------|--------|--------|-----------|---------|
|                                                |   |   |      |   |            |   |    |             |   |   |                                                                 |   |   |      |    |
| Equities                                            |   | $      | 3,256,941 |   |            | $      | 353,339 |             |   | $      | (64,034                                                              | )      |   |      | — |   |   | $ | 3,546,246 |   |
| Mutual                  Funds                       |   |   | 669,255   |   |            |   | 1,369   |             |   |   | (27,125                                                              | )      |   |      | — |   |   |   | 643,499 |   |
| Preferred                  Securities               |   |   | 1,571,498 |   |            |   | 55      |             |   |   | (51,152                                                              | )      |   |      | — |   |   |   | 1,520,401 |   |
| Private                  Investment LP              |   |   | 600,000   |   |            |   | 126,598 |             |   |   | —                                                              |   |   |      | — |   |   |   | 726,598 |   |
| Certificates                  of Deposit            |   |   | 75,000    |   |            |   | — |             |   |   | (1,242                                                               | )      |   |      | — |   |   |   | 73,758 |   |
| Corporate                  Bonds                    |   |   | 1,886,329 |   |            |   | 1,298   |             |   |   | (121,258                                                             | )      |   |      | — |   |   |   | 1,766,369 |   |
| Municipal                  Bonds                    |   |   | 24,591    |   |            |   | 127     |             |   |   | (980                                                                 | )      |   |      | — |   |   |   | 23,738 |   |
| Government                  agency Obligations |   |   | 124,879   |   |            |   | — |             |   |   | —                                                              |   |   |      | (971    | ) |   |   | 123,908 |   |
| Total                                               |   | $      | 8,208,493 |   |            | $      | 482,786 |             |   | $      | (265,791                                                             | )      |   | $         | (971    | ) |   | $ | 8,424,517 |   |

| June                  30, 2006                                                                                   |   | Cost   |      |   | UnrealizedGains |   |    | UnrealizedLosses |   |   | Loss                  on Marketable Securities Classified as Trading |   |   | FairValue |    |
|------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|-----------------|--------|---------|------------------|--------|--------|----------------------------------------------------------------------|--------|--------|-----------|---------|
|                                                                                                             |   |   |      |   |            |   |    |             |   |   |                                                                 |   |   |      |    |
| Equities                                                                                                         |   | $      | 2,846,117 |   |            | $      | 312,995 |             |   | $      | (154,061                                                             | )      |   |      | — |   |   | $ | 3,005,051 |   |
| Mutual                  Funds                                                                                    |   |   | 663,029   |   |            |   | 2,583   |             |   |   | (50,827                                                              | )      |   |      | — |   |   |   | 614,785 |   |
| Preferred                  Securities                                                                            |   |   | 1,629,157 |   |            |   | 1,081   |             |   |   | (56,874                                                              | )      |   |      | — |   |   |   | 1,573,364 |   |
| Private                  Investment LP                                                                           |   |   | 600,000   |   |            |   | 38,480  |             |   |   | —                                                              |   |   |      | — |   |   |   | 638,480 |   |
| Certificates                  of Deposit                                                                         |   |   | 225,000   |   |            |   | — |             |   |   | (6,278                                                               | )      |   |      | — |   |   |   | 218,722 |   |
| Corporate                  Bonds                                                                                 |   |   | 2,008,255 |   |            |   | 746     |             |   |   | (85,388                                                              | )      |   |      | — |   |   |   | 1,923,613 |   |
| Municipal                  Bonds, maturing                  within five years                                    |   |   | 61,275    |   |            |   | 403     |             |   |   | (1,929                                                               | )      |   |      | — |   |   |   | 59,749 |   |
| Government                  agency obligations,                  maturing after                  five years |   |   | 547,562   |   |            |   | — |             |   |   | —                                                              |   |   |      | 348     |   |   |   | 547,910 |   |
| Total                                                                                                            |   | $      | 8,580,395 |   |            | $      | 356,288 |             |   | $      | (355,357                                                             | )      |   | $         | 348     |   |   | $ | 8,581,674 |   |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        4 – MARKETABLE SECURITIES - Continued**

| December                  31, 2006       |   | Cost   |      |   | UnrealizedGains |   |    | UnrealizedLosses |   |   | Loss                  on Marketable Securities Classified as Trading |   |   | FairValue |    |
|------------------------------------------|--------|--------|-----------|--------|-----------------|--------|---------|------------------|--------|--------|----------------------------------------------------------------------|--------|--------|-----------|---------|
|                                     |   |   |      |   |            |   |    |             |   |   |                                                                 |   |   |      |    |
| Equities                                 |   | $      | 3,048,755 |   |            | $      | 359,729 |             |   | $      | (69,950                                                              | )      |   |      | — |   |   | $ | 3,338,534 |   |
| Mutual                  Funds            |   |   | 522,492   |   |            |   | 3,248   |             |   |   | (7,675                                                               | )      |   |      | — |   |   |   | 518,065 |   |
| Preferred                  Securities    |   |   | 1,353,568 |   |            |   | 6,554   |             |   |   | (11,347                                                              | )      |   |      | — |   |   |   | 1,348,775 |   |
| Private                  Investment LP   |   |   | 600,000   |   |            |   | 71,632  |             |   |   | —                                                              |   |   |      | — |   |   |   | 671,632 |   |
| Certificates                  of Deposit |   |   | 225,000   |   |            |   | 2,190   |             |   |   | (2,393                                                               | )      |   |      | — |   |   |   | 224,797 |   |
| Corporate                  Bonds         |   |   | 2,185,982 |   |            |   | 2,408   |             |   |   | (95,075                                                              | )      |   |      | — |   |   |   | 2,093,315 |   |
| Municipal                  Bonds         |   |   | 160,757   |   |            |   | 2,937   |             |   |   | (303                                                                 | )      |   |      | — |   |   |   | 163,391 |   |
| Government                  agency       |   |   | 134,776   |   |            |   | — |             |   |   | —                                                              |   |   |      | (1,922  | ) |   |   | 132,854 |   |
| Total                                    |   | $      | 8,231,330 |   |            | $      | 448,698 |             |   | $      | (186,743                                                             | )      |   | $         | (1,922  | ) |   | $ | 8,491,363 |   |

|                                           |   | Less                      Than 12 Months |      |   | 12                      Months or Greater |   |     | Total                           |   |
|------------------------------------------------|--------|------------------------------------------|-----------|--------|-------------------------------------------|--------|----------|---------------------------------|--------|
| Description                      of Securities |   | Fair                      Value          |      |   | Unrealized                      Losses    |   |     | Fair                      Value |   |   | Unrealized                      Losses |   |   | Fair                      Value |   |   | Unrealized                      Losses |   |
|                                           |   |                                     |      |   |                                      |   |     |                            |   |   |   |   |   |   |   |   |   |   |
| Equities                                       |   | $                                        | 1,110,156 |   |                                      | $      | (53,325  | )                               |   | $ | 107,630 |   |   | $ | (10,709 | ) |   | $ | 1,217,786 |   |   | $ | (64,034 | ) |
| Mutual                      Funds              |   |                                     | 382,008   |   |                                      |   | (19,500  | )                               |   |   | 109,451 |   |   |   | (7,625 | ) |   |   | 491,459 |   |   |   | (27,125 | ) |
| Preferred                      Securities      |   |                                     | 951,675   |   |                                      |   | (30,215  | )                               |   |   | 518,315 |   |   |   | (20,937 | ) |   |   | 1,469,990 |   |   |   | (51,152 | ) |
| Certificates                      of Deposit   |   |                                     | —   |   |                                      |   | —  |                            |   |   | 73,758 |   |   |   | (1,242 | ) |   |   | 73,758 |   |   |   | (1,242 | ) |
| Corporate                      Bonds           |   |                                     | 181,650   |   |                                      |   | (18,350  | )                               |   |   | 1,502,301 |   |   |   | (102,908 | ) |   |   | 1,683,951 |   |   |   | (121,258 | ) |
| Municipal                      Bonds           |   |                                     | —   |   |                                      |   | —  |                            |   |   | 19,025 |   |   |   | (980 | ) |   |   | 19,025 |   |   |   | (980 | ) |
|                                           |   | $                                        | 2,625,489 |   |                                      | $      | (121,390 | )                               |   | $ | 2,330,480 |   |   | $ | (144,401 | ) |   | $ | 4,955,969 |   |   | $ | (265,791 | ) |

** **

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        4 – MARKETABLE SECURITIES - Continued**

        certificates of
 deposit were caused by interest rate increases        since the date of purchase. The contractual terms of these investments do        not        permit the issuers to settle the securities at a price less than the face        value        of the investment. Because the Company has the ability and intent to hold        these        investments until maturity, the Company does not consider these investments        to        be other-than-temporarily impaired at June 30, 2007.

**Note        5 – INVENTORIES**

|                                 |   |                      |      |   |                          |   |
|--------------------------------------|--------|---------------------------|-----------|--------|-------------------------------|--------|
|                                 |   | June                  30, |      |   | December                  31, |   |
|                                 |   | 2007                      |      |   | 2006                          |   |   | 2006 |   |
| Finished                  goods      |   | $                         | 1,495,651 |   |                          | $      | 876,618 |   |   | $ | 952,484 |   |
| Production                  supplies |   |                      | 1,265,816 |   |                          |   | 853,074 |   |   |   | 988,174 |   |
| Raw                  materials       |   |                      | 749,130   |   |                          |   | 591,126 |   |   |   | 581,538 |   |
| Total                  inventories   |   | $                         | 3,510,597 |   |                          | $      | 2,320,818 |   |   | $ | 2,522,196 |   |

**Note        6 – PROPERTY AND EQUIPMENT**

|                                           |   |                      |       |   |                          |   |
|------------------------------------------------|--------|---------------------------|------------|--------|-------------------------------|--------|
|                                           |   | June                  30, |       |   | December                  31, |   |
|                                           |   | 2007                      |       |   | 2006                          |   |   | 2006 |   |
| Land                                           |   | $                         | 969,232    |   |                          | $      | 909,232 |   |   | $ | 969,232 |   |
| Buildings                  and improvements    |   |                      | 6,726,538  |   |                          |   | 6,516,018 |   |   |   | 6,713,743 |   |
| Machinery                  and equipment       |   |                      | 7,665,098  |   |                          |   | 5,982,646 |   |   |   | 7,143,537 |   |
| Vehicles                                       |   |                      | 581,458    |   |                          |   | 534,365 |   |   |   | 534,365 |   |
| Office                  equipment              |   |                      | 97,839     |   |                          |   | 78,763 |   |   |   | 89,192 |   |
|                                           |   |                      | 16,040,165 |   |                          |   | 14,021,024 |   |   |   | 15,450,069 |   |
| Less                  accumulated depreciation |   |                      | 7,220,950  |   |                          |   | 6,258,738 |   |   |   | 6,869,353 |   |
| Total                  property and equipment  |   | $                         | 8,819,215  |   |                          | $      | 7,762,286 |   |   | $ | 8                  ,580,716 |   |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        7 **
** ACCRUED EXPENSES**

|                                               |   |                      |    |   |                          |   |
|----------------------------------------------------|--------|---------------------------|---------|--------|-------------------------------|--------|
|                                               |   | June                  30, |    |   | December                  31, |   |
|                                               |   | 2007                      |    |   | 2006                          |   |   | 2006 |   |
| Accrued                  payroll and payroll taxes |   | $                         | 52,695  |   |                          | $      | 105,898 |   |   | $ | 139,367 |   |
| Accrued                  property tax              |   |                      | 273,359 |   |                          |   | 271,155 |   |   |   | 269,435 |   |
| Other                                              |   |                      | 59,089  |   |                          |   | 5,490 |   |   |   | 71,299 |   |
|                                               |   | $                         | 385,143 |   |                          | $      | 382,543 |   |   | $ | 480,101 |   |

**Note        8 – NOTES PAYABLE**

|                                                                                                                                                                                                                                                                                                                     |   | June                  30, |      |   | December                  31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-----------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                     |   | 2007                      |      |   | 2006                          |   |   | 2006 |   |
| Mortgage                  note payable to a bank, payable in monthly installments of $3,273                  including interest at 7%, with a balloon payment of $416,825 due                  September                  25, 2011.  Collateralized by real estate.                                            |   | $                         | 449,870   |   |                          | $      | 457,605 |   |   | $ | 453,355 |   |
| Mortgage                  note payable to a bank, payable in monthly installments of $19,513                  including interest at 5.6%, with a balloon payment of $2,652,143                  due July                  14, 2010. Collateralized by real estate.                                                       |   |                      | 2,870,749 |   |                          |   | 2,933,988 |   |   |   | 2,905,988 |   |
| Note                  payable to Amani Holding LLC, payable in quarterly installments                  of                  $262,500 plus interest at the floating prime rate per annum (8.25%                  at                  December 31, 2006) due September 1, 2010 secured by letter of                  credit |   |                      | 2,652,979 |   |                          |   | — |   |   |   | 3,518,711 |   |
| Total                  notes payable                                                                                                                                                                                                                                                                                     |   |                      | 5,973,598 |   |                          |   | 3,391,593 |   |   |   | 6,878,054 |   |
| Less                  current maturities                                                                                                                                                                                                                                                                                 |   |                      | 1,130,316 |   |                          |   | 542,089 |   |   |   | 1,131,336 |   |
| Total                  long-term portion                                                                                                                                                                                                                                                                                 |   | $                         | 4,843,282 |   |                          | $      | 2,849,504 |   |   | $ | 5,746,718 |   |

| As                  of June 30, |   |   |      |
|---------------------------------|--------|--------|-----------|
| 2007                            |   | $      | 1,130,316 |   |
| 2008                            |   |   | 1,144,769 |   |
| 2009                            |   |   | 1,146,698 |   |
| 2010                            |   |   | 2,475,581 |   |
| 2011                            |   |   | 76,234    |   |
| Total                           |   | $      | 5,973,598 |   |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        9 – PROVISION FOR INCOME TAXES**

|                                        |   |                                      |      |   | For                  the      |   |
|---------------------------------------------|--------|-------------------------------------------|-----------|--------|-------------------------------|--------|
|                                        |   | For                  the Six Months Ended |      |   | Year                  Ended   |   |
|                                        |   | June                  30,                 |      |   | December                  31, |   |
|                                        |   | 2007                                      |      |   | 2006                          |   |   | 2006 |   |
| Current:                                    |   |                                      |      |   |                          |   |   |   |   |
| Federal                                     |   | $                                         | 1,198,853 |   |                          | $      | 833,877 |   |   | $ | 1,390,590 |   |
| State                  and local            |   |                                      | 255,734   |   |                          |   | 196,800 |   |   |   | 321,454 |   |
| Total                  current              |   |                                      | 1,454,587 |   |                          |   | 1,030,677 |   |   |   | 1,712,044 |   |
| Deferred                                    |   |                                      | (5,303    | )      |                          |   | (52,541 | ) |   |   | 33,031 |   |
| Provision                  for income taxes |   | $                                         | 1,449,284 |   |                          | $      | 978,136 |   |   | $ | 1,745,075 |   |

|                                                                                        |   |                                      |      |   | For                  the      |   |
|---------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|-------------------------------|--------|
|                                                                                        |   | For                  the Six Months Ended |      |   | Year                  Ended   |   |
|                                                                                        |   | June                  30,                 |      |   | December                  31, |   |
|                                                                                        |   | 2007                                      |      |   | 2006                          |   |   | 2006 |   |
| Federal                  income tax expense computed                  at the statutory rate |   | $                                         | 1,353,416 |   |                          | $      | 891,480 |   |   | $ | 1,577,226 |   |
| State                  and local tax expense, net                                           |   |                                      | 191,071   |   |                          |   | 125,850 |   |   |   | 222,667 |   |
| Permanent                  differences                                                      |   |                                      | (95,203   | )      |                          |   | (39,194 | ) |   |   | (54,818 | ) |
| Provision                  for income taxes                                                 |   | $                                         | 1,449,284 |   |                          | $      | 978,136 |   |   | $ | 1,745,075 |   |

|                                                                                                                         |   |                      |     |   |                          |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|----------|--------|-------------------------------|--------|
|                                                                                                                         |   | June                  30, |     |   | December                  31, |   |
|                                                                                                                         |   | 2007                      |     |   | 2006                          |   |   | 2006 |   |
| Non-current                  deferred tax liabilities arising                  from:Temporary                  differences - |   |                      |     |   |                          |   |   |   |   |
| accumulated                  depreciation and amortization                                                                   |   | $                         | (466,673 | )      |                          | $      | (343,619 | ) |   | $ | (449,619 | ) |
| Current                  deferred tax assets (liabilities) arising from:                                                     |   |                      |     |   |                          |   |   |   |   |   |   |   |
| Unrealized                  losses (gains) on marketable securities                                                          |   |                      | (89,619  | )      |                          |   | (383 | ) |   |   | (108,188 | ) |
| Inventory                                                                                                                    |   |                      | 146,489  |   |                          |   | 98,342 |   |   |   | 107,382 |   |
| Allowance                  for doubtful accounts                                                                             |   |                      | 16,298   |   |                          |   | 18,585 |   |   |   | 33,040 |   |
| Total                  current deferred tax assets (liabilities)                                                             |   |                      | 73,168   |   |                          |   | 116,544 |   |   |   | 32,234 |   |
| Net                  deferred tax liability                                                                                  |   | $                         | (393,505 | )      |                          | $      | (227,075 | ) |   | $ | (417,385 | ) |

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        10 – SUPPLEMENTAL CASH FLOW INFORMATION**

|                          |   |                                      |      |   | For                  The      |   |
|-------------------------------|--------|-------------------------------------------|-----------|--------|-------------------------------|--------|
|                          |   | For                  The Six Months Ended |      |   | Year                  Ended   |   |
|                          |   | June                  30,                 |      |   | December                  31, |   |
|                          |   | 2007                                      |      |   | 2006                          |   |   | 2006 |   |
| Interest                      |   | $                                         | 110,903   |   |                          | $      | 113,426 |   |   | $ | 337,768 |   |
| Income                  taxes |   | $                                         | 1,176,031 |   |                          | $      | 578,467 |   |   | $ | 1,556,586 |   |

**Note        11 – STOCK OPTION PLANS**

** **

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        12 – FAIR VALUE OF FINANCIAL INSTRUMENTS**

|                                         |   | June                    30,2007    |      |   | June                    30,2006 |   |      | December                    31,2006 |   |
|----------------------------------------------|--------|------------------------------------|-----------|--------|---------------------------------|--------|-----------|-------------------------------------|--------|
|                                         |   | Carrying                    Amount |      |   | FairValue                       |   |      | Carrying                    Amount  |   |   | FairValue |   |   | Carrying                    Amount |   |   | FairValue |   |
| Cash                    and cash equivalents |   | $                                  | 1,014,433 |   |                            | $      | 1,014,433 |                                |   | $ | 3,621,803 |   |   | $ | 3,621,803 |   |   | $ | 1,547,812 |   |   | $ | 1,547,812 |   |
| Marketable                    securities     |   | $                                  | 8,424,516 |   |                            | $      | 8,424,516 |                                |   | $ | 8,581,674 |   |   | $ | 8,581,674 |   |   | $ | 8,491,363 |   |   | $ | 8,491,363 |   |
| Notes                    payable             |   | $                                  | 5,973,598 |   |                            | $      | 5,973,598 |                                |   | $ | 3,391,593 |   |   | $ | 3,385,569 |   |   | $ | 6,878,054 |   |   | $ | 6,878,054 |   |

**Note        13 – RECENT ACCOUNTING PRONOUNCEMENTS**

*Accounting for Servicing of Financial Assets,”*

----

**LIFEWAY        FOODS, INC. AND SUBSIDIARIES**

**Notes        to Consolidated Financial Statements**

**June        30, 2007 and 2006**

**and        December 31, 2006**

**Note        13 – RECENT ACCOUNTING PRONOUNCEMENTS - Continued**

*Fair Value        Measurements*

*Employers’ Accounting for        Defined Benefit Pension and Other Postretirement *

**Note        14 - STOCK SPLIT**

----

**ITEM          2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF          OPERATION**

*Comparison          of Quarter Ended June 30, 2007 to Quarter Ended June 30,          2006*

*Results          of Operations*

----

*Comparison          of Six-Month Period Ended June 30, 2007 to Six-Month Period Ended June          30,          2006*

*Results          of Operations*

*Sources          and Uses of Cash*

----

*Liquidity*

*Other          Developments*

*Critical          Accounting Policies*

*Forward          Looking Statements*

----

**ITEM      3.   CONTROLS AND PROCEDURES**

**ITEM        4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY        HOLDERS**

***Proposal        1:***

|                                | Votes      | Votes                                     |
|-------------------------------------|------------|-------------------------------------------|
|                                | For        | Withheld                                  |
|                                |       |                                      |
| Ludmila                  Smolyansky | 16,392,610 | 227,085                                   |
|                                |       |                                      |
| Julie                  Smolyansky   | 16,393,330 | 226,365                                   |
|                                |       |                                      |
| Pol                  Sikar          | 16,611,631 |                      8,064 |
|                                |       |                                      |
| Renzo                  Bernardi     | 16,611,181 |                      8,514 |
|                                |       |                                      |
| Juan                  Carlos Dalto  | 16,588,681 |                    31,014            |
|                                |       |                                      |
| Julie                  Oberweis     | 16,606,625 |                    13,070            |

***Proposal        2:***

|                                                                                                                                                                                     | VotesFor   | VotesAgainst | Abstentions |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|-------------|
|                                                                                                                                                                                     |       |         |        |
| To                  ratify the appointment of Plante & Moran, PLLC as our independent                  auditors for the fiscal year ending December 31,                  2007.  | 13,109,178 | 32,103       | 3,478,414   |

----

**PART      II — OTHER INFORMATION**

**ITEM      5.   OTHER INFORMATION**

**.**

**ITEM      6.   EXHIBITS**

|    |   |                                                                                                                                                                                                                                                                                                                                                  |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit |   |                                                                                                                                                                                                                                                                                                                                                  |
| Number  |   | Description                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                  |
| 3.4     |   | Amended                and Restated By-laws (incorporated by reference to                Exhibit No. 3.5 of Lifeway’s Current Report on Form 8-K                dated and filed on December 10, 2002). (File                No. 000-17363)                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                  |
| 3.5     |   | Articles                of Incorporation, as amended and currently in effect (incorporated                by                reference to Exhibit 3.5 of Lifeway’s Quarterly Report on                Form 10-QSB for the quarter ended June 30, 2000 and filed on                August 8, 2000). (File No. 000-17363) |
|    |   |                                                                                                                                                                                                                                                                                                                                                  |
| 11      |   | Statement                re: Computation of per share earnings (incorporated by reference                to Note 2                of the Consolidated Financial Statements).                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                  |
| 31.1    |   | Rule 13a-14(a)/15d-14(a)                Certification of Julie Smolyansky.                                                                                                                                                                                                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                  |
| 31.2    |   | Rule 13a-14(a)/15d-14(a)                Certification of Edward P. Smolyansky.                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                  |
| 32.1    |   | Section 1350                Certification of Julie Smolyansky.                                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                  |
| 32.2    |   | Section 1350                Certification of Edward P.                Smolyansky.                                                                                                                                                                                                                                                                |

|   |   |                                                                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 99.1   |   | Press                Release dated August 14, 2007- “Lifeway Foods Reports Record 2nd                Quarter and                First Half 2007 Results.” |

----

**SIGNATURE**

|                                                           | **LIFEWAY                FOODS, INC.** |                                                            |
|----------------------------------------------------------------|----------------------------------------|-----------------------------------------------------------------|
|                                                           |                                   |                                                            |
|                                                           |                                   |                                                            |
|                                                           |                                   |                                                            |   |
| Date:  August                14,                2007 | By:                                    | /s/ Julie              Smolyansky                          |   |
|                                                           |                                   | Julie              Smolyansky                                   |   |
|                                                           |                                   | Chief                Executive Officer, President, and Director |   |
|                                                           |                                   |                                                            |   |

|   |   |                                                                                       |
|--------|--------|--------------------------------------------------------------------------------------------|
|   |   |                                                                                       |
|   |   |                                                                                       |   |
|        |   | /s/ Edward                P. Smolyansky                                               |   |
|   |   | Edward                P. Smolyansky                                                        |   |
|   |   | Chief                    Financial and Accounting Officer and                    Treasurer |   |
|   |   |                                                                                       |   |

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**EXHIBITS      INDEX**

|   |   |                                                                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1   |   | Rule 13a-14(a)/15d-14(a)                Certification of Julie Smolyansky.                                                                                       |
|   |   |                                                                                                                                                                  |
| 31.2   |   | Rule 13a-14(a)/15d-14(a)                Certification of Edward P. Smolyansky.                                                                                   |
|   |   |                                                                                                                                                                  |
| 32.1   |   | Section 1350                Certification of Julie Smolyansky.                                                                                                   |
|   |   |                                                                                                                                                                  |
| 32.2   |   | Section 1350                Certification of Edward P. Smolyansky.                                                                                               |
|   |   |                                                                                                                                                                  |
| 99.1   |   | Press                Release dated August 14, 2007- “Lifeway Foods Reports Record 2nd                Quarter and                First Half 2007 Results.” |

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