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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 September 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**                                         | **25**  |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
| **PART                II — OTHER INFORMATION**                                                                                   | **25**  |   |
|                                                                                                                                   |    |   |
| **ITEM                6.     EXHIBITS AND                REPORTS ON FORM 8-K**                                | **25**  |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
|                                                                                                                                   |    |   |
| **SIGNATURE**                                                                                                                          | **26**  |   |

|  Section                  302 Certification                   |
|--------------------------------------------------------------------|
|  Section                  302 Certification                   |
|  Section                  1350 Certification                  |
|  Section                  1350                  Certification |

----

**PART        I — FINANCIAL INFORMATION**

**LIFEWAY            FOODS, INC. AND SUBSIDIARIES**

**CONSOLIDATED            FINANCIAL STATEMENTS**

**SEPTEMBER            30, 2007 AND 2006**

**AND            DECEMBER 31, 2006**

----

**LIFEWAY              FOODS, INC. AND SUBSIDIARIES**

**Consolidated Statements              of Financial Condition**

**September              30, 2007 and 2006 (Unaudited) an**
**d December              31, 2006**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | (Unaudited)September                    30, |           |   | December                    31, |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|----------------|--------|---------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | **2007**                                    |           |   | **2006**                        |       |   | **2006** |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                        |           |   |                            |       |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |
| **Current                    assets**                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                        |           |   |                            |       |   |   |   |
| Cash                    and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                                           | 1,624,566      |   |                            | $          | 1,242,306 |   |   | $ | 1,547,812 |   |
| Marketable                    securities                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                        | 6,557,841      |   |                            |       | 8,042,189 |   |   |   | 8,491,363 |   |
| Investment,                    at cost                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                        | 500,000        |   |                            |       |  — |   |   |   |  — |   |
| Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                        | 4,061,189      |   |                            |       | 2,628,508 |   |   |   | 2,522,196 |   |
| Accounts                      receivable, net of allowance for doubtful accounts of $39,460                      and $45,000                      at September 30, 2007 and 2006 and $80,000 at December 31,                      2006                                                                                                                                                                                                                                              |   |                                        | 4,845,956      |   |                            |       | 3,984,991 |   |   |   | 3,942,717 |   |
| Prepaid                    expenses and other current assets                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                        | 13,051         |   |                            |       | 46,547 |   |   |   | 11,983 |   |
| Other                    receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        | 45,810         |   |                            |       | 59,810 |   |   |   | 71,050 |   |
| Deferred                    income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                        | 225,803        |   |                            |       | 108,154 |   |   |   | 32,234 |   |
| Refundable                    income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                        | 125,763        |   |                            |       | 68,346 |   |   |   | 267,771 |   |
| **Total                    current assets**                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | ** **                                  | **17,999,979** |   |                            | ** ** | **16,180,851** |   |   | ** ** | **16,887,126** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **Property                    and equipment, net**                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | ** **                                  | **9,176,479**  |   |                            | ** ** | **8,574,181** |   |   | ** ** | **8,580,716** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **Intangible                    assets**                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                        | 3,952,425      |   |                            |       | 3,906,114 |   |   |   | 3,952,425 |   |
| Other                        intangible assets, net of accumulated amortization of $520,979                        and                        $142,010 at September 30, 2007 and 2006 and $278,710 December                        31,                        2006                                                                                                                                                                                                                  |   |                                        | 3,342,517      |   |                            |       | 3,715,628 |   |   |   | 3,578,928 |   |
| **Total                    intangible assets**                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | ** **                                  | **7,294,942**  |   |                            | ** ** | **7,621,742** |   |   | ** ** | **7,531,353** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **Total                    assets**                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | **$**                                       | **34,471,400** |   |                            | **$**      | **32,376,774** |   |   | **$** | **32,999,195** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **LIABILITIES                    AND STOCKHOLDERS’                    EQUITY**                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **Current                    liabilities**                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| Current                    maturities of notes payable                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                                           | 1,434,903      |   |                            | $          | 1,124,284 |   |   | $ | 1,131,336 |   |
| Accounts                    payable                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                        | 1,865,041      |   |                            |       | 1,251,720 |   |   |   | 1,463,014 |   |
| Accrued                    expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                        | 441,068        |   |                            |       | 270,990 |   |   |   | 480,101 |   |
| **Total                    current liabilities**                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | ** **                                  | **3,741,012**  |   |                            | ** ** | **2,646,994** |   |   | ** ** | **3,074,451** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **Notes                    payable**                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | ** **                                  | **4,424,266**  |   |                            | ** ** | **6,191,521** |   |   | ** ** | **5,746,718** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **Deferred                    income taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | ** **                                  | **510,000**    |   |                            | ** ** | **346,217** |   |   | ** ** | **449,619** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **Stockholders’                    equity**                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| Common                    stock, no par value; 20,000,000 shares authorized; 17,273,776                    shares                    issued; 16,825,626 shares outstanding at September 30, 2007;                    17,273,776                    shares issued; 16,908,144 shares outstanding at September 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                        | 1,103,630      |   |                            |       | 1,080,911 |   |   |   | 1,080,911 |   |
| Treasury                    stock, at cost                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                        | (2,081,915     | )      |                            |       | (1,235,542 | ) |   |   | (1,334,313 | ) |
| Retained                    earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        | 20,318,323     |   |                            |       | 16,807,609 |   |   |   | 17,318,772 |   |
| Accumulated                    other comprehensive income (loss), net of taxes                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                        | (53,183        | )      |                            |       | 29,797 |   |   |   | 153,770 |   |
| **Total                    stockholders’ equity**                                                                                                                                                                                                                                                                                                                                                                                                                             |   | ** **                                  | **25,796,122** |   |                            | ** ** | **23,192,042** |   |   | ** ** | **23,728,407** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                        |           |   |                            |       |   |   |   |   |   |   |
| **Total                    liabilities and stockholders’ equity**                                                                                                                                                                                                                                                                                                                                                                                                             |   | **$**                                       | **34,471,400** |   |                            | **$**      | **32,376,774** |   |   | **$** | **32,999,195** |   |

----

**LIFEWAY              FOODS, INC. AND SUBSIDIARIES**

**Consolidated Statements              of Income and Comprehensive Income**

**For              the Three and Nine Months Ended September 30, 2007 and 2006              (Unaudited)**

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

|                                                                                                                                                           |   | (Unaudited)                              |           |    | (Unaudited)                             |       |           |                            |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|----------------|---------|--------------------------------------------------------|------------|----------------|---------------------------------|--------|
|                                                                                                                                                           |   | Three                    Months Ended    |           |    | Nine                    Months Ended    |       |           | Year                    Ended   |   |
|                                                                                                                                                           |   | September                    30,         |           |    | September                    30,        |       |           | December                    31, |   |
|                                                                                                                                                           |   | **2007**                                                |           |    | **2006**                                               |       |           | **2007**                        |   |   | **2006** |   |   | **2006** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |
| **Sales**                                                                                                                                                      |   | $                                                       | 9,817,478      |    |                                                   | $          | 7,456,649      |                            |   | $ | 28,554,984 |   |   | $ | 19,827,069 |   |   | $ | 27,720,713 |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost                    of goods sold                                                                                                                          |   |                                                    | 7,096,819      |    |                                                   |       | 4,616,366      |                            |   |   | 18,432,830 |   |   |   | 11,709,587 |   |   |   | 17,081,992 |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Gross                    profit**                                                                                                                            |   | ** **                                              | **2,720,659**  |    |                                                   | ** ** | **2,840,283**  |                            |   | ** ** | **10,122,154** |   |   | ** ** | **8,117,482** |   |   | ** ** | **10,638,721** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling                    Expenses                                                                                                                            |   |                                                    | 1,174,140      |    |                                                   |       | 890,563        |                            |   |   | 2,856,483 |   |   |   |  2,323,155 |   |   |   | 3,065,254 |   |
| General                    and Administrative                                                                                                                  |   |                                                    | 965,476        |    |                                                   |       | 830,400        |                            |   |   | 3,121,851 |   |   |   | 2,338,483 |   |   |   | 3,343,341 |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total                    Operating Expenses**                                                                                                                |   |                                                    | 2,139,616      |    |                                                   |       | 1,720,963      |                            |   |   | 5,978,334 |   |   |   | 4,661,638 |   |   | ** ** | **6,408,595** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                    from operations**                                                                                                                  |   | ** **                                              | **581,043**    |    |                                                   | ** ** | **1,119,320**  |                            |   | ** ** | **4,143,820** |   |   | ** ** | **3,455,844** |   |   | ** ** | **4,230,126** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                    income (expense):                                                                                                                     |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                    and dividend income                                                                                                                |   |                                                    | 84,918         |    |                                                   |       | 86,318         |                            |   |   | 249,082 |   |   |   | 294,583 |   |   |   | 388,339 |   |
| Rental                    Income                                                                                                                               |   |                                                    | 9,731          |    |                                                   |       |  —  |                            |   |   | 27,912 |   |   |   |  — |   |   |   | 11,401 |   |
| Interest                    expense                                                                                                                            |   |                                                    | (102,197       | )       |                                                   |       | (96,557        | )                               |   |   | (321,009 | ) |   |   | (209,983 | ) |   |   | (345,525 | ) |
| Gain                      (loss) on sale of marketable securities, net                                                                                         |   |                                                    | 208,629        |    |                                                   |       | 89,260         |                            |   |   | 662,009 |   |   |   | 277,674 |   |   |   | 355,767 |   |
| Gain                      on marketable securities classified as trading                                                                                       |   |                                                    | 578            |    |                                                   |       | (2,370         | )                               |   |   | 1,529 |   |   |   | 691 |   |   |   | 791 |   |
| Total                    other income (Expense)                                                                                                                |   |                                                    | 201,659        |    |                                                   |       | 76,651         |                            |   |   | 619,523 |   |   |   | 362,965 |   |   |   | 410,773 |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                      before provision for income taxes**                                                                                              |   | ** **                                              | **782,702**    |    |                                                   | ** ** | **1,195,971**  |                            |   | ** ** | **4,763,343** |   |   | ** ** | **3,818,809** |   |   | ** ** | **4,640,899** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision                    for income taxes                                                                                                                  |   |                                                    | 314,508        |    |                                                   |       | 456,012        |                            |   |   | 1,763,792 |   |   |   | 1,434,148 |   |   |   | 1,745,075 |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                    income**                                                                                                                              |   | **$**                                                   | **468,194**    |    |                                                   | **$**      | **739,959**    |                            |   | **$** | **2,999,551** |   |   | **$** | **2,384,661** |   |   | **$** | **2,895,824** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Basic                      and diluted earnings per common share**                                                                                           |   |                                                    | 0.03           |    |                                                   |       | 0.04           |                            |   |   | 0.18 |   |   |   | 0.14 |   |   |   | 0.17 |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Weighted                      average number of shares outstanding**                                                                                         |   | ** **                                              | **16,824,911** |    |                                                   | ** ** | **16,860,139** |                            |   | ** ** | **16,865,390** |   |   | ** ** | **16,855,889** |   |   | ** ** | **16,829,601** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                                                                                                    |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                    income**                                                                                                                              |   | **$**                                                   | **468,194**    |    |                                                   | **$**      | **739,959**    |                            |   | **$** | **2,999,551** |   |   | **$** | **2,384,661** |   |   | **$** | **2,895,824** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                      comprehensive income (loss), net                      of tax:                                                                       |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized                        gains (losses) on marketable securities (net of tax                        benefits)                                         |   |                                                    | (57,187        | )       |                                                   |       | 102,436        |                            |   |   | 181,647 |   |   |   | 312,717 |   |   |   | (251,021 | ) |
| Less                        reclassification adjustment for gains (losses) included in                        net income (net                        of taxes) |   |                                                    |  (123,372 | )  |                                                   |       |  (73,184  | )                          |   |   |  (388,600 | )  |   |   |  (183,406 | )  |   |   | 504,305 |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |
| **Comprehensive                    income**                                                                                                                    |   | **$**                                                   | **287,635**    |    |                                                   | **$**      | **769,211**    |                            |   | **$** | **2,792,598** |   |   | **$** | **2,513,972** |   |   | **$** | **3,149,108** |   |
|                                                                                                                                                           |   |                                                    |           |    |                                                   |       |           |                            |   |   |   |   |   |   |   |   |   |   |   |   |

----

**LIFEWAY              FOODS, INC. AND SUBSIDIARIES**

**Consolidated Statements              of Changes in Stockholder’s**Equity****

**For              the Nine Months Ended September 30,              2007 (Unaudited)**

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

|                                                                                                                                                                                     |   | **Common                        Stock, No Par Value****20,000,000                      Shares****Authorized** |           |   | **#                      of Shares****of** |       |           |         |   |       |        |   |   |                           |          |   |         |       |          | **Accumulated****Other****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 for compensation                                                                                                                           |   |                                                                                                          | —        |   |                                            |       | 2,800          |         |   |       | (2,800      | )      |   |                           | —       |   |         |       | 22,719        |                                      |   |       | 5,001                                 |   |   |   | — |   |   |   | — |   |   |   | 27,720 |   |
|                                                                                                                                                                                     |   |                                                                                                          |           |   |                                            |       |           |         |   |       |        |   |   |                           |          |   |         |       |          |                                      |   |       |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                        comprehensive income (loss):Unrealized                          gains on securities, net of taxes and reclassification                          adjustment  |   |                                                                                                          | —        |   |                                            |       | —        |         |   |       | —     |   |   |                           | —       |   |         |       | —       |                                      |   |       | —                               |   |   |   | — |   |   |   | (206,953 | ) |   |   | (206,953 | ) |
|                                                                                                                                                                                     |   |                                                                                                          |           |   |                                            |       |           |         |   |       |        |   |   |                           |          |   |         |       |          |                                      |   |       |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                                                                                                          |           |   |                                            |       |           |         |   |       |        |   |   |                           |          |   |         |       |          |                                      |   |       |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                        income for the nine months ended September 30,                        2007                                                                                    |   |                                                                                                          | —        |   |                                            |       | —        |         |   |       | —     |   |   |                           | —       |   |         |       | —       |                                      |   |       | —                               |   |   |   | 2,999,551 |   |   |   | — |   |   |   | 2,999,551 |   |
|                                                                                                                                                                                     |   |                                                                                                          |           |   |                                            |       |           |         |   |       |        |   |   |                           |          |   |         |       |          |                                      |   |       |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                                                                                                          |           |   |                                            |       |           |         |   |       |        |   |   |                           |          |   |         |       |          |                                      |   |       |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balances                    at September 30, 2007**                                                                                                                                    |   | ** **                                                                                                    | **17,273,776** |   |                                            | ** ** | **16,825,626** |         |   | ** ** | **448,150** |   |   | **$**                          | **6,509,267** |   |         | **$**      | **1,103,630** |                                      |   | **$**      | **(2,081,915**                        | **)**  |   | **$** | **20,318,323** |   |   | **$** | **(53,183** | **)** |   | **$** | **25,796,122** |   |

----

**LIFEWAY              FOODS, INC. AND SUBSIDIARIES**

**Consolidated Statements              of Cash Flows**

**For              the Nine Months Ended September 30, 2007 and 2006              (Unaudited)**

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

|                                                                                                                                                                      |   | (Unaudited)                             |           |    |                            |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|----------------|---------|---------------------------------|------------|
|                                                                                                                                                                      |   | Nine                    Months Ended    |           |    | Year                    Ended   |       |
|                                                                                                                                                                      |   | September                    30,        |           |    | December                    31, |       |
|                                                                                                                                                                      |   | **2007**                                               |           |    | **2006**                        |       |   | **2006** |   |
| **Cash                    flows from operating activities:**                                                                                                              |   |                                                   |           |    |                            |       |   |   |   |
| **Net                    income**                                                                                                                                         |   | **$**                                                  | **2,999,551**  |    |                            | **$**      | **2,384,661** |   |   | **$** | **2,895,824** |   |
| Adjustments                        to reconcile net income to net cash flows from operating                        activities, net                        of acquisition: |   |                                                   |           |    |                            |       |   |   |   |   |   |   |
| Depreciation                    and amortization                                                                                                                          |   |                                                   | 789,215        |    |                            |       | 457,844 |   |   |   | 758,754 |   |
| (Gain)Loss                    on sale of marketable securities, net                                                                                                       |   |                                                   | (662,009       | )       |                            |       | (277,674 | ) |   |   | (355,767 | ) |
| Gain                        on marketable securities classified as trading                                                                                                |   |                                                   | (1,529         | )       |                            |       | (691 | ) |   |   | (791 | ) |
| Deferred                    income taxes                                                                                                                                  |   |                                                   | 12,419         |    |                            |       | (58,932 | ) |   |   | 33,031 |   |
| Treasury                    stock issued for services                                                                                                                     |   |                                                   | 27,720         |    |                            |       | 29,166 |   |   |   | 29,166 |   |
| Increase                    (decrease) in allowance for doubtful accounts                                                                                                 |   |                                                   | (40,540        | )       |                            |       | 10,000 |   |   |   | 45,000 |   |
| (Increase)                    decrease in operating assets:                                                                                                               |   |                                                   |           |    |                            |       |   |   |   |   |   |   |
| Accounts                    receivable                                                                                                                                    |   |                                                   | (862,699       | )       |                            |       | (1,197,722 | ) |   |   | (1,190,448 | ) |
| Other                    receivables                                                                                                                                      |   |                                                   | 25,240         |    |                            |       | (3,375 | ) |   |   | (14,615 | ) |
| Inventories                                                                                                                                                               |   |                                                   | (1,538,993     | )       |                            |       | (691,875 | ) |   |   | (585,563 | ) |
| Refundable                    income taxes                                                                                                                                |   |                                                   | 142,008        |    |                            |       | (56,784 | ) |   |   | (256,209 | ) |
| Prepaid                    expenses and other current assets                                                                                                              |   |                                                   | (1,068         | )  |                            |       | 468 |   |   |   | 35,032 |   |
| Increase                    (decrease) in operating liabilities:                                                                                                          |   |                                                   |           |    |                            |       |   |   |   |   |   |   |
| Accounts                    payable                                                                                                                                       |   |                                                   | 402,027        |    |                            |       | 427,705 |   |   |   | 638,999 |   |
| Accrued                    expenses                                                                                                                                       |   |                                                   | (39,033        | )       |                            |       | (84,021 | ) |   |   | 125,090 |   |
| **Net                    cash provided by operating activities**                                                                                                          |   | ** **                                             | **1,252,309**  |    |                            | ** ** | **938,770** |   |   | ** ** | **2,157,503** |   |
|                                                                                                                                                                      |   |                                                   |           |    |                            |       |   |   |   |   |   |   |
| **Cash                    flows from investing activities:**                                                                                                              |   |                                                   |           |    |                            |       |   |   |   |   |   |   |
| Investment                    in cost method securities                                                                                                              |   |                                                   |  (500,000 | )  |                            |       |  **—** |   |   |   |  **—** |   |
| Purchases                    of marketable securities                                                                                                                     |   |                                                   | (4,408,170     | )       |                            |       | (5,258,207 | ) |   |   | (7,509,692 | ) |
| Sale                    of marketable securities                                                                                                                          |   |                                                   | 6,652,670      |    |                            |       | 5,193,235 |   |   |   | 7,285,071 |   |
| Purchases                    of property and equipment                                                                                                                    |   |                                                   | (1,142,709     | )       |                            |       | (500,118 | ) |   |   | (680,174 | ) |
| Acquisition                    of Helios, net of cash acquired                                                                                                            |   |                                                   | —        |    |                            |       | (2,514,679 | ) |   |   | (2,551,679 | ) |
| Purchases                    of organizational costs                                                                                                                      |   |                                                   | (5,858         | )       |                            |       | — |   |   |   | — |   |
| **Net                    cash provided by (used in) investing activities**                                                                                                |   | ** **                                             | **595,933**    |    |                            | ** ** | **(3,079,769** | **)** |   | ** ** | **(3,456,474** | **)** |
|                                                                                                                                                                      |   |                                                   |           |    |                            |       |   |   |   |   |   |   |
| **Cash                    flows from financing activities:**                                                                                                              |   |                                                   |           |    |                            |       |   |   |   |   |   |   |
| Proceeds                    of note payable                                                                                                                          |   |                                                   |  300,000  |    |                            |       |  **—** |   |   |   |  **—** |   |
| Purchases                    of treasury stock                                                                                                                            |   |                                                   | (752,603       | )       |                            |       | (549,863 | ) |   |   | (648,634 | ) |
| Repayment                    of notes payable                                                                                                                             |   |                                                   | (1,318,885     | )       |                            |       | (420,913 | ) |   |   | (858,664 | ) |
| **Net                    cash used in financing activities**                                                                                                         |   | ** **                                             | **(1,771,488** | **)**   |                            | ** ** | **(970,776** | **)** |   | ** ** | **(1,507,298** | **)** |
|                                                                                                                                                                      |   |                                                   |           |    |                            |       |   |   |   |   |   |   |
| **Net                    increase (decrease) in cash and cash equivalents**                                                                                               |   | ** **                                             | **76,754**     |    |                            | ** ** | **(3,111,775** | **)** |   | ** ** | **(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**                                                                                                 |   | **$**                                                  | **1,624,566**  |    |                            | **$**      | **1,242,306** |   |   | **$** | **1,547,812** |   |

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          30, 2007 and 2006**

**and          December 31, 2006**

**Note          1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION**

| 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**

**September          30, 2007 and 2006**

**and          December 31, 2006**

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

|                            |   | 9                      months ended     |       |   | Year                      ended        |   |
|---------------------------------|--------|-----------------------------------------|------------|--------|----------------------------------------|--------|
|                            |   | September                      30, 2006 |       |   | December                      31, 2006 |   |
| Net                      Sales  |   | $                                       | 22,831,688 |   |                                   | $      | 30,804,309 |   |
| Net                      Income |   | $                                       | 2,076,051  |   |                                   | $      | 2,621,228 |   |
| EPS                             |   | $                                       | 0.12       |   |                                   | $      | 0.16 |   |

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

|                                                      |   | September                    30, |      |   | December                    31, |   |
|-----------------------------------------------------------|--------|----------------------------------|-----------|--------|---------------------------------|--------|
|                                                      |   | 2007                             |      |   | 2006                            |   |   | 2006 |   |
| Amounts                    insured                        |   | $                                | 251,315   |   |                            | $      | 392,445 |   |   | $ | 432,678 |   |
| Uninsured                    and uncollateralized amounts |   |                             | 1,992,169 |   |                            |   | 1,101,926 |   |   |   | 1,412,560 |   |
| Total                    bank balances                    |   | $                                | 2,243,484 |   |                            | $      | 1,494,371 |   |   |   | 1,845,238 |   |

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          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**

**September          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**

**September          30, 2007 and 2006**

**and          December 31, 2006**

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

**Note          3 – INTANGIBLE ASSETS**

|                                                                     |   | September                    30, 2007 |      |   | September                    30, 2006       |   |    | December                    31, 2006 |   |
|--------------------------------------------------------------------------|--------|---------------------------------------|-----------|--------|---------------------------------------------|--------|---------|--------------------------------------|--------|
|                                                                     |   | Cost                                  |      |   | Accumulated                    Amortization |   |    | Cost                                 |   |   | Accumulated                    Amortization |   |   | Cost |   |   | Accumulated                    Amortization |   |
| Recipes                                                                  |   | $                                     | 43,600    |   |                                        | $      | 34,517  |                                 |   | $ | 43,600 |   |   | $ | 23,617 |   |   | $ | 43,600 |   |   | $ | 26,342 |   |
| Customer                    lists and other customer related intangibles |   |                                  | 305,200   |   |                                        |   | 131,163 |                                 |   |   | 305,200 |   |   |   | 89,743 |   |   |   | 305,200 |   |   |   | 100,098 |   |
| Lease                    acquisition                                     |   |                                  | 87,200    |   |                                        |   | 39,448  |                                 |   |   | 87,200 |   |   |   | 26,990 |   |   |   | 87,200 |   |   |   | 30,105 |   |
| Goodwill                                                                 |   |                                  | 3,952,425 |   |                                        |   | — |                                 |   |   | 3,906,114 |   |   |   | — |   |   |   | 3,952,425 |   |   |   | — |   |
| Loan                    acquisition costs                                |   |                                  | 12,496    |   |                                        |   | 2,987   |                                 |   |   | 6,638 |   |   |   | 1,660 |   |   |   | 6,638 |   |   |   | 1,991 |   |
| Customer                    relationship                                 |   |                                  | 985,000   |   |                                        |   | 95,764  |                                 |   |   | 985,000 |   |   |   | — |   |   |   | 985,000 |   |   |   | 34,924 |   |
| Contractual                    backlog                                   |   |                                  | 12,000    |   |                                        |   | 12,000  |                                 |   |   | 12,000 |   |   |   | — |   |   |   | 12,000 |   |   |   | 12,000 |   |
| Trade                    names                                           |   |                                  | 1,980,000 |   |                                        |   | 154,000 |                                 |   |   | 1,980,000 |   |   |   | — |   |   |   | 1,980,000 |   |   |   | 55,000 |   |
| Formula                                                                  |   |                                  | 438,000   |   |                                        |   | 51,100  |                                 |   |   | 438,000 |   |   |   | — |   |   |   | 438,000 |   |   |   | 18,250 |   |
|                                                                     |   | $                                     | 7,815,921 |   |                                        | $      | 520,979 |                                 |   | $ | 7,763,752 |   |   | $ | 142,010 |   |   | $ | 7,810,063 |   |   | $ | 278,710 |   |

| 2007                                                                                                                                                       |   | $      | 322,835   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|
| 2008                                                                                                                                                       |   |   | 313,585   |   |   |
| 2009                                                                                                                                                       |   |   | 310,306   |   |   |
| 2010                                                                                                                                                       |   |   | 303,040   |   |   |
|                          2011 |   |   | 300,965   |   |   |
| Thereafter                                                                                                                                                 |   |   | 1,791,786 |   |   |
|                                                                                                                                                       |   | $      | 3,342,517 |   |   |

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          30, 2007 and 2006**

**and          December 31, 2006**

**Note          4 – MARKETABLE SECURITIES AND OTHER INVESTMENTS**

| September                    30, 2007                 |   | Cost   |      |   | UnrealizedGains |   |    | UnrealizedLosses |   |   | Loss                    on Marketable                    Securities                    Classified                    as Trading |   |   | FairValue |    |
|-------------------------------------------------------|--------|--------|-----------|--------|-----------------|--------|---------|------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|---------|
|                                                  |   |   |      |   |            |   |    |             |   |   |                                                                                                                            |   |   |      |    |
| Equities                                              |   | $      | 2,323,985 |   |            | $      | 318,165 |             |   | $      | (168,993                                                                                                                        | )      |   |      | — |   |   | $ | 2,473,157 |   |
| Mutual                    Funds                       |   |   | 1,146,517 |   |            |   | 10,889  |             |   |   | (67,705                                                                                                                         | )      |   |      | — |   |   |   | 1,089,701 |   |
| Preferred                    Securities               |   |   | 1,417,978 |   |            |   | 6,570   |             |   |   | (84,438                                                                                                                         | )      |   |      | — |   |   |   | 1,340,110 |   |
| Certificates                    of Deposit            |   |   | 75,000    |   |            |   | — |             |   |   | (395                                                                                                                            | )      |   |      | — |   |   |   | 74,605 |   |
| Corporate                    Bonds                    |   |   | 1,580,768 |   |            |   | 971     |             |   |   | (105,851                                                                                                                        | )      |   |      | — |   |   |   | 1,475,888 |   |
| Municipal                    Bonds                    |   |   | 4,586     |   |            |   | 187     |             |   |   | —                                                                                                                         |   |   |      | — |   |   |   | 4,773 |   |
| Government                    agency Obligations |   |   | 100,000   |   |            |   | — |             |   |   | —                                                                                                                         |   |   |      | (393    | ) |   |   | 99,607 |   |
| Total                                                 |   | $      | 6,648,834 |   |            | $      | 336,782 |             |   | $      | (427,382                                                                                                                        | )      |   | $         | (393    | ) |   | $ | 6,557,841 |   |

| September                    30, 2006                                                                                  |   | Cost   |      |   | UnrealizedGains |   |    | UnrealizedLosses |   |   | Loss                    on Marketable                    Securities                    Classified                    as Trading |   |   | FairValue |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|-----------------|--------|---------|------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                                                                   |   |   |      |   |            |   |    |             |   |   |                                                                                                                            |   |   |      |   |
| Equities                                                                                                               |   | $      | 2,918,943 |   |            | $      | 249,781 |             |   | $      | (150,197                                                                                                                        | )      |   |      |   |   |   | $ | 3,018,527 |   |
| Mutual                    Funds                                                                                        |   |   | 288,630   |   |            |   | 2,447   |             |   |   | (3,666                                                                                                                          | )      |   |      |   |   |   |   | 287,411 |   |
| Preferred                    Securities                                                                                |   |   | 1,491,741 |   |            |   | 5,214   |             |   |   | (28,560                                                                                                                         | )      |   |      |   |   |   |   | 1,468,395 |   |
| Private                    Investment LP                                                                               |   |   | 600,000   |   |            |   | 42,660  |             |   |   | —                                                                                                                         |   |   |      |   |   |   |   | 642,660 |   |
| Certificates                    of Deposit                                                                             |   |   | 225,000   |   |            |   | 1,305   |             |   |   | (2,393                                                                                                                          | )      |   |      |   |   |   |   | 223,912 |   |
| Corporate                    Bonds                                                                                     |   |   | 2,153,896 |   |            |   | 3,238   |             |   |   | (70,694                                                                                                                         | )      |   |      |   |   |   |   | 2,086,440 |   |
| Municipal                    Bonds, maturing                    within five years                                      |   |   | 160,757   |   |            |   | 1,828   |             |   |   | (203                                                                                                                            | )      |   |      |   |   |   |   | 162,382 |   |
| Government                    agency obligations,                    maturing after                    five years |   |   | 154,483   |   |            |   | — |             |   |   | —                                                                                                                         |   |   |      | (2,021 | ) |   |   | 152,462 |   |
| Total                                                                                                                  |   | $      | 7,993,450 |   |            | $      | 306,473 |             |   | $      | (255,713                                                                                                                        | )      |   |      | (2,021 | ) |   | $ | 8,042,189 |   |

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          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                                     |   | $                                      | 744,341   |   |                                    | $      | (138,770       | )                             |   | $ | 222,571 |   |   | $ | (30,223 | ) |   | $ | 966,912 |   |   | $ | (168,993 | ) |
| Mutual                    Funds              |   |                                   | 820,127   |   |                                    |   | (67,638        | )                             |   |   | 7,404 |   |   |   | (67 | ) |   |   | 827,531 |   |   |   | (67,705 | ) |
| Preferred                    Securities      |   |                                   | 725,815   |   |                                    |   | (55,111        | )                             |   |   | 457,725 |   |   |   | (29,327 | ) |   |   | 1,183,540 |   |   |   | (84,438 | ) |
| Certificates                    of Deposit   |   |                                   | —   |   |                                    |   | —        |                          |   |   | 74,605 |   |   |   | (395 | ) |   |   | 74,605 |   |   |   | (395 | ) |
| Corporate                    Bonds           |   |                                   | 178,530   |   |                                    |   | (21,470        | )                             |   |   | 1,240,828 |   |   |   | (84,381 | ) |   |   | 1,419,358 |   |   |   | (105,851 | ) |
| Municipal                    Bonds           |   |                                   | —   |   |                                    |   | —        |                          |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
|                                         |   | $                                      | 2,468,813 |   |                                    | $      | ( 282,989 | )                        |   | $ | 2,003,133 |   |   | $ | (144,393 | ) |   | $ | 4,471,946 |   |   | $ | (427,382 | ) |

** **

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          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 September 30, 2007.

**Note          5 – INVENTORIES**

|                                   |   | September                    30, |      |   | December                    31, |   |
|----------------------------------------|--------|----------------------------------|-----------|--------|---------------------------------|--------|
|                                   |   | 2007                             |      |   | 2006                            |   |   | 2006 |   |
| Finished                    goods      |   | $                                | 1,835,452 |   |                            | $      | 988,212 |   |   | $ | 952,484 |   |
| Production                    supplies |   |                             | 1,318,991 |   |                            |   | 905,615 |   |   |   | 988,174 |   |
| Raw                    materials       |   |                             | 906,746   |   |                            |   | 734,681 |   |   |   | 581,538 |   |
| Total                    inventories   |   | $                                | 4,061,189 |   |                            | $      | 2,628,508 |   |   | $ | 2,522,196 |   |

**Note          6 – PROPERTY AND EQUIPMENT**

|                                             |   | September                    30, |       |   | December                    31, |   |
|--------------------------------------------------|--------|----------------------------------|------------|--------|---------------------------------|--------|
|                                             |   | 2007                             |       |   | 2006                            |   |   | 2006 |   |
| Land                                             |   | $                                | 969,232    |   |                            | $      | 969,232 |   |   | $ | 969,232 |   |
| Buildings                    and improvements    |   |                             | 6,813,045  |   |                            |   | 6,715,371 |   |   |   | 6,713,743 |   |
| Machinery                    and equipment       |   |                             | 8,127,460  |   |                            |   | 6,961,853 |   |   |   | 7,143,537 |   |
| Vehicles                                         |   |                             | 581,458    |   |                            |   | 534,365 |   |   |   | 534,365 |   |
| Office                    equipment              |   |                             | 101,582    |   |                            |   | 89,192 |   |   |   | 89,192 |   |
|                                             |   |                             | 16,592,777 |   |                            |   | 15,270,013 |   |   |   | 15,450,069 |   |
| Less                    accumulated depreciation |   |                             | 7,416,298  |   |                            |   | 6,695,832 |   |   |   | 6,869,353 |   |
| Total                    property and equipment  |   | $                                | 9,176,479  |   |                            | $      | 8,574,181 |   |   | $ | 8                    ,580,716 |   |

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          30, 2007 and 2006**

**and          December 31, 2006**

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

|                                                 |   |                             |    |   |                            |   |
|------------------------------------------------------|--------|----------------------------------|---------|--------|---------------------------------|--------|
|                                                 |   | September                    30, |    |   | December                    31, |   |
|                                                 |   | 2007                             |    |   | 2006                            |   |   | 2006 |   |
| Accrued                    payroll and payroll taxes |   | $                                | 82,981  |   |                            | $      | 34,979 |   |   | $ | 139,367 |   |
| Accrued                    property tax              |   |                             | 340,717 |   |                            |   | 202,080 |   |   |   | 269,435 |   |
| Other                                                |   |                             | 17,370  |   |                            |   | 33,931 |   |   |   | 71,299 |   |
|                                                 |   | $                                | 441,068 |   |                            | $      | 270,990 |   |   | $ | 480,101 |   |

**Note          8 – NOTES PAYABLE**

|                                                                                                                                                                                                                                                                                                                                 |   | September                    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.                                                |   | $                                | 448,269   |   |                            | $      | 455,079 |   |   | $ | 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.                                                           |   |                             | 2,853,203 |   |                            |   | 2,923,226 |   |   |   | 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 |   |                             | 2,257,697 |   |                            |   | 3,937,500 |   |   |   | 3,518,711 |   |
| Note                    payable to officer, payable on demand                                                                                                                                                                                                                                                                        |   |                             | 300,000   |   |                            |   | — |   |   |   | — |   |
| Total                    notes payable                                                                                                                                                                                                                                                                                               |   |                             | 5,859,169 |   |                            |   | 7,315,805 |   |   |   | 6,878,054 |   |
| Less                    current maturities                                                                                                                                                                                                                                                                                           |   |                             | 1,434,903 |   |                            |   | 1,124,284 |   |   |   | 1,131,336 |   |
| Total                    long-term portion                                                                                                                                                                                                                                                                                           |   | $                                | 4,424,266 |   |                            | $      | 6,191,521 |   |   | $ | 5,746,718 |   |

|                    For                    the year ended September 30, |   |   |      |
|-----------------------------------------------------------------------------|--------|--------|-----------|
| 2008                                                                        |   | $      | 1,434,903 |   |
| 2009                                                                        |   |   | 1,139,904 |   |
| 2010                                                                        |   |   | 2,862,795 |   |
| 2011                                                                        |   |   | 421,567   |   |
| Total                                                                       |   | $      | 5,859,169 |   |

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          30, 2007 and 2006**

**and          December 31, 2006**

**Note          9 – PROVISION FOR INCOME TAXES**

|                                          |   | For                        the Nine Months EndedSeptember                    30, |      |   | For                    the Year                      Ended December                        31, |   |
|-----------------------------------------------|--------|----------------------------------------------------------------------------------|-----------|--------|------------------------------------------------------------------------------------------------|--------|
|                                          |   | 2007                                                                             |      |   | 2006                                                                                           |   |   | 2006 |   |
| Current:                                      |   |                                                                             |      |   |                                                                                           |   |   |   |   |
| Federal                                       |   | $                                                                                | 1,465,229 |   |                                                                                           | $      | 1,203,942 |   |   | $ | 1,390,590 |   |
| State                    and local            |   |                                                                             | 286,145   |   |                                                                                           |   | 289,274 |   |   |   | 321,454 |   |
| Total                    current              |   |                                                                             | 1,751,374 |   |                                                                                           |   | 1,493,216 |   |   |   | 1,712,044 |   |
| Deferred                                      |   |                                                                             | 12,418    |   |                                                                                           |   | (59,068 | ) |   |   | 33,031 |   |
| Provision                    for income taxes |   | $                                                                                | 1,763,792 |   |                                                                                           | $      | 1,434,148 |   |   | $ | 1,745,075 |   |

|                                                                                                       |   | For                    the Nine Months EndedSeptember                    30,  |      |   | For                    the Year                      Ended December                        31, |   |
|------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|-----------|--------|------------------------------------------------------------------------------------------------|--------|
|                                                                                                       |   | 2007                                                                               |      |   | 2006                                                                                           |   |   | 2006 |   |
| Federal                    income tax expense  computed                    at the statutory rate |   | $                                                                                  | 1,619,535 |   |                                                                                           | $      | 1,298,395 |   |   | $ | 1,577,226 |   |
| State                    and local tax expense, net                                                        |   |                                                                               | 228,640   |   |                                                                                           |   | 183,268 |   |   |   | 222,667 |   |
| Permanent                    differences                                                                   |   |                                                                               | (84,383   | )      |                                                                                           |   | (47,515 | ) |   |   | (54,818 | ) |
| Provision                    for income taxes                                                              |   | $                                                                                  | 1,763,792 |   |                                                                                           | $      | 1,434,148 |   |   | $ | 1,745,075 |   |

|                                                                                                                               |   | September                    30, |     |   | December                    31, |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|----------|--------|---------------------------------|--------|
|                                                                                                                               |   | 2007                             |     |   | 2006                            |   |   | 2006 |   |
| Non-current                    deferred tax liabilities arising                    from:Temporary                    differences - |   |                             |     |   |                            |   |   |   |   |
| accumulated                    depreciation and amortization                                                                       |   | $                                | (510,000 | )      |                            | $      | (346,217 | ) |   | $ | (449,619 | ) |
| Current                    deferred tax assets (liabilities) arising from:                                                         |   |                             |     |   |                            |   |   |   |   |   |   |   |
| Unrealized                    losses (gains) on marketable securities                                                              |   |                             | 37,418   |   |                            |   | (20,965 | ) |   |   | (108,188 | ) |
| Inventory                                                                                                                          |   |                             | 172,088  |   |                            |   | 110,533 |   |   |   | 107,382 |   |
| Allowance                    for doubtful accounts                                                                                 |   |                             | 16,297   |   |                            |   | 18,585 |   |   |   | 33,040 |   |
| Total                    current deferred tax assets (liabilities)                                                                 |   |                             | 225,803  |   |                            |   | 108,153 |   |   |   | 32,234 |   |
| Net                    deferred tax liability                                                                                      |   | $                                | (284,197 | )      |                            | $      | (238,064 | ) |   | $ | (417,385 | ) |

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          30, 2007 and 2006**

**and          December 31, 2006**

**Note          10 – SUPPLEMENTAL CASH FLOW INFORMATION**

|                            |   | For                    The Nine Months EndedSeptember                    30,  |      |   | For                    The Year                      Ended December                        31, |   |
|---------------------------------|--------|------------------------------------------------------------------------------------|-----------|--------|------------------------------------------------------------------------------------------------|--------|
|                            |   | 2007                                                                               |      |   | 2006                                                                                           |   |   | 2006 |   |
| Interest                        |   | $                                                                                  | 313,215   |   |                                                                                           | $      | 209,983 |   |   | $ | 337,768 |   |
| Income                    taxes |   | $                                                                                  | 1,626,031 |   |                                                                                           | $      | 1,555,444 |   |   | $ | 1,556,586 |   |

**Note          11 – STOCK OPTION PLANS**

** **

----

**LIFEWAY          FOODS, INC. AND SUBSIDIARIES**

**Notes          to Consolidated Financial Statements**

**September          30, 2007 and 2006**

**and          December 31, 2006**

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

|                                         |   | September                    30,2007 |      |   | September                    30,2006 |   |      | December                    31,2006 |   |
|----------------------------------------------|--------|--------------------------------------|-----------|--------|--------------------------------------|--------|-----------|-------------------------------------|--------|
|                                         |   | Carrying                    Amount   |      |   | FairValue                            |   |      | Carrying                    Amount  |   |   | FairValue |   |   | Carrying                    Amount |   |   | FairValue |   |
| Cash                    and cash equivalents |   | $                                    | 1,624,566 |   |                                 | $      | 1,624,566 |                                |   | $ | 1,242,306 |   |   | $ | 1,242,306 |   |   | $ | 1,547,812 |   |   | $ | 1,547,812 |   |
| Marketable                    securities     |   | $                                    | 6,557,841 |   |                                 | $      | 6,557,841 |                                |   | $ | 8,042,189 |   |   | $ | 8,042,189 |   |   | $ | 8,491,363 |   |   | $ | 8,491,363 |   |
| Notes                    payable             |   | $                                    | 5,859,169 |   |                                 | $      | 5,859,169 |                                |   | $ | 7,315,805 |   |   | $ | 7,275,702 |   |   | $ | 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**

**September          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 September 30, 2007 to Quarter Ended September 30,              2006***

*Results              of Operations*

----

***Comparison              of Nine-Month Period Ended September 30, 2007 to Nine Month Period              Ended              September 30, 2006***

*Results              of Operations*

----

*Sources              and Uses of Cash*

*Other              Developments*

*Critical              Accounting Policies*

*Forward              Looking Statements*

----

| ·   | Changes                        in economic conditions, commodity                        prices; |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | Shortages                        of and price increase for fuel, labor strikes or work stoppages,                        market                        acceptance of the Company’s new                        products; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Significant                        changes in the competitive                        environment; |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | Changes                        in laws, regulations, and tax rates;                        and |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | Management’s                        ability to achieve reductions in cost and employment levels,                        to realize                        production efficiencies and to implement capital expenditures,                        all at of                        the levels and times planned by                        management. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**ITEM          3. CONTROLS AND PROCEDURES**

**PART          II — OTHER INFORMATION**

**ITEM          6. EXHIBITS AND REPORTS ON FORM 8-K**

|    |   |                                                                                                                                                                                                                                                                                                                                                                      |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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-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) |
|    |   |                                                                                                                                                                                                                                                                                                                                                                      |
| 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.                                                                                                                                                                                                                                                                            |

----

**SIGNATURE**

|                                                   | **LIFEWAY                FOODS, INC.** |                                                            |
|--------------------------------------------------------|----------------------------------------|-----------------------------------------------------------------|
|                                                   |                                   |                                                            |
|                                                   |                                   |                                                            |
|                                                   |                                   |                                                            |   |
| Date:  November 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 |   |
|   |   |                                                                                          |   |

----

**EXHIBITS      INDEX**

| ExhibitNumber  |   | Description                                                                    |
|---------------------|--------|-------------------------------------------------------------------------------------|
|                |   |                                                                                |
| 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.             |
|                |   |                                                                                |

----