================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                   FORM 10-QSB


(Mark One)

   [X]        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE ACT OF 1934

                  For the quarterly period ended September 30, 2004

   [ ]        TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

             For the transition period from __________ to __________

                         Commission file number: 0-17363

                               LIFEWAY FOODS, INC.
        ----------------------------------------------------------------
        (Exact name of small business issuer as specified in it charter)

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



                 6431 WEST OAKTON, MORTON GROVE, ILLINOIS 60053
                 ----------------------------------------------
                    (Address of principal executive offices)

                                 (847) 967-1010
                            -------------------------
                           (Issuer's telephone number)

              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]



                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 12, 2004, the issuer
had 8,440,888 shares of common stock, no par value, outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
================================================================================
<PAGE>

                                      INDEX


PART I - FINANCIAL INFORMATION.................................................3

    ITEM 1. FINANCIAL STATEMENTS...............................................3

     CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF
       SEPTEMBER 30, 2004 AND 2003 AND DECEMBER 31, 2003.......................3
     CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
       INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
       AND 2003 AND THE YEAR ENDED DECEMBER 31, 2003...........................4
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE
       MONTHS ENDED SEPTEMBER 30, 2004 AND THE YEAR ENDED DECEMBER 31, 2003....5
     CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
       SEPTEMBER 30, 2004 AND 2003 AND THE YEAR ENDED DECEMBER 31, 2003........6
     NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
       2004 AND 2003 AND THE YEAR ENDED DECEMBER 31, 2003......................7

PART II - OTHER INFORMATION...................................................14

    ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........14

    ITEM 3. CONTROLS AND PROCEDURES...........................................16

    ITEM 6. EXHIBITS .........................................................16

SIGNATURE.....................................................................18



                                        2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

<TABLE><CAPTION>
           CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 2004 AND 2003 AND DECEMBER 31, 2003

                                                                                (Unaudited)
                                                                               September 30,                  December 31,
                                                                    ---------------------------------         ------------
                                                                        2004                 2003                 2003
                                                                    ------------         ------------         ------------
<S>                                                                 <C>                  <C>                  <C>
ASSETS
------
CURRENT ASSETS
   Cash and cash equivalents                                        $  5,348,135         $  4,246,835         $  4,597,819
   Marketable securities                                               6,727,867            6,272,488            6,302,606
   Accounts receivable, net of allowance for doubtful
      accounts of $15,000 at September 30, 2004 and
      2003 and December 31, 2003                                       1,943,032            1,878,129            1,800,141
   Other receivables                                                      80,582               57,537              165,767
   Inventories                                                           915,951              875,472              811,572
   Prepaid expenses and other current assets                               8,344                  932                  791
   Deferred income taxes                                                  90,937              240,208               27,038
   Prepaid income taxes                                                   68,042                 --                306,171
                                                                    ------------         ------------         ------------
   TOTAL CURRENT ASSETS                                               15,182,890           13,571,601           14,011,905

PROPERTY AND EQUIPMENT, NET                                            3,482,524            3,805,183            3,732,731

INTANGIBLE ASSETS                                                        511,800                 --                   --
                                                                    ------------         ------------         ------------

TOTAL ASSETS                                                        $ 19,177,214         $ 17,376,784         $ 17,744,636
                                                                    ============         ============         ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
   Current maturities of notes payable                              $     11,716         $     30,521         $     28,289
   Accounts payable                                                      701,145              771,306              795,321
   Accrued expenses                                                      186,591               94,237              183,600
   Income taxes payable                                                     --                647,265                 --
                                                                    ------------         ------------         ------------
   TOTAL CURRENT LIABILITIES                                             899,452            1,543,329            1,007,210

NOTES PAYABLE                                                            465,796              478,024              472,509

DEFERRED INCOME TAXES                                                    426,895              398,788              471,953

STOCKHOLDERS' EQUITY
   Common stock                                                        6,509,267            6,509,267            6,509,267
   Paid-In-Capital                                                        56,540                 --
   Stock subscription receivable                                          (5,000)             (15,000)             (15,000)
   Treasury stock, at cost                                              (652,776)            (679,956)            (679,956)
   Retained earnings                                                  11,534,832            9,991,674            9,822,416
   Accumulated other comprehensive income (loss), net of tax             (57,792)            (849,342)             156,237
                                                                    ------------         ------------         ------------
   TOTAL STOCKHOLDERS' EQUITY                                         17,385,071           14,956,643           15,792,964
                                                                    ------------         ------------         ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 19,177,214         $ 17,376,784         $ 17,744,636
                                                                    ============         ============         ============
</TABLE>
                                       3
<PAGE>

<TABLE><CAPTION>

   CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
                                     AND 2003 AND THE YEAR ENDED DECEMBER 31, 2003

                                                  (Unaudited)                     (Unaudited)
                                               Three Months Ended              Nine Months Ended           Year Ended
                                                  September 30,                   September 30,           December 31,
                                          ----------------------------    ----------------------------    ------------
                                              2004            2003            2004            2003            2003
                                          ------------    ------------    ------------    ------------    ------------
<S>                                       <C>             <C>             <C>             <C>             <C>
SALES                                     $  4,138,606    $  3,837,100    $ 12,075,778    $ 10,921,510    $ 14,877,788
Cost of goods sold                           2,239,553       1,907,802       6,604,554       5,467,692       7,840,782
                                          ------------    ------------    ------------    ------------    ------------
GROSS PROFIT                                 1,899,053       1,929,298       5,471,224       5,453,818       7,037,006
Operating expenses                           1,157,906         871,192       3,089,336       2,653,974       3,558,362
                                          ------------    ------------    ------------    ------------    ------------
INCOME FROM OPERATIONS                         741,147       1,058,106       2,381,888       2,799,844       3,478,644
Other income (expense):
   Interest and dividend income                 49,689          24,595         124,897          94,769          96,850
   Interest expense                             (7,584)         (7,743)        (23,103)        (23,164)        (41,205)
   Gain (loss) on sale of marketable
   securities, net                              12,386          39,711         321,716        (293,348)     (1,293,579)
   Gain on sale of assets                         --              --              --         1,246,287       1,246,287
   Gain (loss) on marketable securities
   classified as trading                        15,681            --           (12,077)           --              --
   Other income                                   --              --              --              --            89,490
                                          ------------    ------------    ------------    ------------    ------------
   Total other income                           70,172          56,563         411,433       1,024,544          97,843
                                          ------------    ------------    ------------    ------------    ------------
INCOME BEFORE PROVISION FOR
   INCOME TAXES                                811,319       1,114,669       2,793,321       3,824,388       3,576,487
Provision for income taxes                     296,210         405,473       1,080,905       1,433,191       1,354,548
                                          ------------    ------------    ------------    ------------    ------------

NET INCOME                                $    515,109    $    709,196    $  1,712,416    $  2,391,197    $  2,221,939
                                          ============    ============    ============    ============    ============

EARNINGS PER COMMON SHARE                         0.06            0.08            0.20            0.28            0.26
                                          ============    ============    ============    ============    ============
WEIGHTED AVERAGE SHARES
  OUTSTANDING                                8,440,207       8,436,888       8,438,433       8,436,888       8,436,888
                                          ============    ============    ============    ============    ============
COMPREHENSIVE
  INCOME
NET INCOME                                $    515,109    $    709,196    $  1,712,416    $  2,391,197    $  2,221,939
Other comprehensive income (loss),
   net of tax:
   Unrealized gains (losses) on
     marketable securities
     (net of tax benefits)                     (11,245)         33,092         (25,827)      1,076,482         212,634
   Less reclassification adjustment
       for (gains) losses
      included in net income
      (net of tax benefits)                     (5,140)         (4,954)       (188,202)       (370,954)      1,278,473
                                          ------------    ------------    ------------    ------------    ------------
COMPREHENSIVE INCOME                      $    498,724    $    737,334    $  1,498,387    $  3,096,725    $  3,713,046
                                          ============    ============    ============    ============    ============
</TABLE>
                                       4
<PAGE>

<TABLE><CAPTION>

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
                                            AND THE YEAR ENDED DECEMBER 31, 2003

                                         COMMON STOCK, NO PAR
                                                  VALUE
                                           10,000,000 SHARES            # OF
                                               AUTHORIZED              SHARES
                                       --------------------------        OF                          PAID         STOCK
                                       # OF SHARES    # OF SHARES      TREASURY       COMMON          IN       SUBSCRIPTION
                                         ISSUED       OUTSTANDING       STOCK          STOCK        CAPITAL     RECEIVABLE
                                       -----------    -----------    -----------    -----------   -----------   -----------
<S>                                      <C>            <C>              <C>        <C>           <C>           <C>
BALANCES AT DECEMBER 31, 2002            8,636,888      8,436,888        200,000    $ 6,509,267   $      --     $   (15,000)


Other comprehensive income:
     Unrealized gains (losses) on
     securities, net of taxes
     and reclassification adjustment          --             --             --             --            --            --

Net income for the year
  ended December 31, 2003                     --             --             --             --            --            --
                                       -----------    -----------    -----------    -----------   -----------   -----------

BALANCES AT DECEMBER 31, 2003            8,636,888      8,436,888        200,000    $ 6,509,267   $      --     $   (15,000)


Issuance of treasury stock                   4,000          4,000         (4,000)          --          56,540          --

Other comprehensive income:
     Unrealized gains (losses) on
     securities, net of
     taxes and reclassification           (214,029)      (214,029)
     adjustment                               --             --             --             --

Payment on subscription
  receivable                                  --             --             --             --            --          10,000

Net income for the nine months
  ended September 30, 2004                    --             --             --             --            --            --
                                       -----------    -----------    -----------    -----------   -----------   -----------

BALANCES AT SEPTEMBER 30,
2004 (UNAUDITED)                         8,640,888      8,440,888        196,000    $ 6,509,267   $    56,540   $    (5,000)
                                       ===========    ===========    ===========    ===========   ===========   ===========

                                                                    ACCUMULATED
                                                                       OTHER
                                                                   COMPREHENSIVE
                                         TREASURY      RETAINED    INCOME (LOSS),
                                          STOCK        EARNINGS     NET OF TAX        TOTAL
                                       -----------    -----------   -----------    -----------

BALANCES AT DECEMBER 31, 2002          $  (679,956)   $ 7,600,477   $(1,334,870)   $12,079,918


Other comprehensive income:
     Unrealized gains (losses) on
     securities, net of taxes
     and reclassification adjustment          --             --       1,491,107      1,491,107

Net income for the year
  ended December 31, 2003                     --        2,221,939          --        2,221,939
                                       -----------    -----------   -----------    -----------

BALANCES AT DECEMBER 31, 2003          $  (679,956)   $ 9,822,416   $   156,237    $15,792,964


Issuance of treasury stock                  27,180           --            --           83,720

Other comprehensive income:
     Unrealized gains (losses) on
     securities, net of
     taxes and reclassification
     adjustment                               --             --            --             --

Payment on subscription
  receivable                                  --             --            --           10,000

Net income for the nine months
  ended September 30, 2004                    --        1,712,416          --        1,712,416
                                       -----------    -----------   -----------    -----------

BALANCES AT SEPTEMBER 30,
2004 (UNAUDITED)                       $  (652,776)   $11,534,832   $   (57,792)   $17,385,071
                                       ===========    ===========   ===========    ===========
</TABLE>
                                       5
<PAGE>

<TABLE><CAPTION>
  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 AND THE YEAR ENDED
                                                DECEMBER 31, 2003

                                                                          (Unaudited)
                                                                        Nine Months Ended            Year Ended
                                                                          September 30,              December 31,
                                                                 ------------------------------      ------------
                                                                     2004              2003              2003
                                                                 ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   NET INCOME                                                    $  1,712,416      $  2,391,197      $  2,221,939
   Adjustments to reconcile net income to net
      cash flows from operating activities:
        Depreciation and amortization                                 474,876           514,523           688,309
        (Gain) loss on sale of marketable securities, net            (321,716)          293,348         1,293,579
        Loss on marketable securities classified as trading            12,077              --                --
        Gain on sale of assets                                           --          (1,246,287)       (1,246,287)
        Deferred income taxes                                          45,779            31,466             9,084
        (Increase) decrease in operating assets:
           Accounts receivable                                       (142,891)         (442,908)         (364,920)
           Other receivables                                           85,184             2,714          (105,516)
           Inventories                                               (104,379)         (154,969)          (91,069)
           Prepaid income taxes                                       238,129               344          (306,171)
           Prepaid expenses and other current assets                   (7,553)             --                 485
        Increase (decrease) in operating liabilities:
           Accounts payable                                           (94,176)          131,908           155,923
           Accrued expenses                                             2,991           (89,291)               72
           Income taxes payable                                          --             249,358          (397,907)
                                                                 ------------      ------------      ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                           1,900,737         1,681,403         1,857,521

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of marketable securities                              (5,790,781)       (6,913,611)       (4,283,532)
   Sales of marketable securities                                   5,306,395         5,371,415         3,025,285
   Sales of assets                                                       --           1,712,660         1,712,660
   Purchases of property and equipment                               (224,669)         (313,728)         (415,064)
   Acquisition of Ilya's Farms, Inc., net of assets acquired         (511,800)             --                --
                                                                 ------------      ------------      ------------
   NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES             (1,220,855)         (143,264)           39,349

CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of treasury stock                                          83,720              --                --
   Receipt of stock subscription receivable                            10,000              --                --
   Repayment of notes payable                                         (23,286)          (22,960)          (30,707)
                                                                 ------------      ------------      ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                    70,434           (22,960)          (30,707)
                                                                 ------------      ------------      ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                             750,316         1,515,179         1,866,163
Cash and cash equivalents at the beginning of the period            4,597,819         2,731,656         2,731,656
                                                                 ------------      ------------      ------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                   $  5,348,135      $  4,246,835      $  4,597,819
                                                                 ============      ============      ============
</TABLE>
                                       6
<PAGE>


NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND
2003 AND THE YEAR ENDED DECEMBER 31, 2003.

Note 1 - NATURE OF BUSINESS

     Lifeway Foods, Inc. (The "Company") commenced operations in February 1986
     and incorporated under the laws of the state of Illinois on May 19, 1986.
     The Company's principal business activity is the production of dairy
     products. Specifically, the Company produces Kefir, a drinkable product
     which is similar to but distinct from yogurt, in several flavors sold under
     the name "Lifeway's Kefir;" a plain farmer's cheese sold under the name
     "Lifeway's Farmer's Cheese;" a fruit sugar-flavored product similar in
     consistency to cream cheese sold under the name of "Sweet Kiss;" and a
     dairy beverage, similar to Kefir, with increased protein and calcium, sold
     under the name "Basics Plus." The Company also produces several soy-based
     products under the name "Soy Treat" and a vegetable-based seasoning under
     the name "Golden Zesta." The Company currently distributes its products
     throughout the Chicago Metropolitan area through local food stores. In
     addition, the products are sold throughout the United States by
     distributors. The Company also distributes some of its products
     internationally by exporting to Eastern Europe. During the year 2003 and
     for the nine months ended September 30, 2004 and 2003, export sales of the
     Company were approximately $221,000, $37,050, and $164,282, respectively.

     On September 30, 1992, the Company formed a wholly owned subsidiary
     corporation, LFI Enterprises, Inc., (LFIE) incorporated in the state of
     Illinois. LFIE was formed for the purpose of operating a "Russian" theme
     restaurant and supper club on property acquired by the Company on October
     9, 1992. The restaurant/supper club commenced operations in late November
     1992. As of July 2001, the restaurant/supper club terminated all
     operations. In January 2003, the Company sold the building and the land
     that housed LFIE for $1,712,659 and recognized a gain of $1,246,287 on this
     transaction. On July 23, 2004, LFIE acquired certain assets and inventory
     of Ilya's Farms, Inc., a Pennsylvania corporation, for a total purchase
     consideration of $575,600. The asset acquisition transaction between LFIE
     and Ilya's Farms, Inc. included approximately $64,000 of tangible assets
     (including certain manufacturing equipment, a delivery truck and inventory)
     as well as the brand name "Ilya's Farms" and the recipes and manufacturing
     processes previously used by Ilya's Farms, Inc. At present, LFIE
     manufactures and distributes certain cream cheese products under the brand
     name "Ilya's Farms" in the Philadelphia, Pennsylvania metropolitan area.

     The majority of the Company's revenues are derived from the sale of the
     Company's principal products.

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A summary of the significant accounting policies applied in the preparation
     of the accompanying financial statements follows:

          Principles of consolidation
          ---------------------------
          The consolidated financial statements include the accounts of the
          Company and its wholly-owned subsidiary, LFI Enterprises, Inc. All
          significant intercompany accounts and transactions have been
          eliminated.

          Use of estimates
          ----------------
          The preparation of financial statements in conformity with accounting
          principles generally accepted in the United States requires management
          to make estimates and assumptions that affect the reported amounts of
          assets and liabilities and disclosure of contingent assets and
          liabilities at the date of the financial statements and reported
          amounts of revenues and expenses during the reporting period. Actual
          results could differ from those estimates.

          Cash and cash equivalents
          -------------------------
          All highly liquid investments purchased with an original maturity of
          three months or less are considered to be cash equivalents.

          The Company maintains cash deposits at several institutions located in
          the greater Chicago, Illinois metropolitan area. Deposits at each
          institution are insured up to $100,000 by the Federal Deposit
          Insurance Corporation or the Securities Investor Protector
          Corporation.

          Bank balances of amounts reported by financial institutions are
          categorized as follows:

<TABLE><CAPTION>
                                                                 (Unaudited)
                                                                September 30,          December 31,
                                                          -------------------------     ----------
                                                             2004           2003           2003
                                                          ----------     ----------     ----------
<S>                                                       <C>            <C>            <C>
               Amounts insured                            $  500,000     $  400,000     $  400,000
               Uninsured and uncollateralized amounts      5,041,913      4,029,060      4,212,259
                                                          ----------     ----------     ----------
               Total bank balances                        $5,541,913     $4,429,060     $4,612,259
                                                          ==========     ==========     ==========
</TABLE>
                                       7
<PAGE>

          Marketable securities
          ---------------------
          Marketable securities are classified as both available-for-sale and as
          trading, depending on the type of security and management's intent,
          and are stated at market value. Gains and losses related to marketable
          securities sold are determined by the specific identification method.

          Accounts receivable
          -------------------
          The allowance for doubtful accounts is based on management's
          evaluation of outstanding accounts receivable at the end of the year.

          Inventories
          -----------
          Inventories are stated at lower of cost or market, cost being
          determined by the first-in, first-out method.

          Property and equipment
          ----------------------
          Property and equipment are stated at lower of depreciated cost or fair
          value. Depreciation is computed using the straight-line method. When
          assets are retired or otherwise disposed of, the cost and related
          accumulated depreciation are removed from the accounts, and any
          resulting gain or loss is recognized in income for the period. The
          cost of maintenance and repairs is charged to income as incurred;
          significant renewals and betterments are capitalized.

          Property and equipment are being depreciated over the following useful
          lives:

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

          Income taxes
          ------------
          Deferred income taxes arise from temporary differences resulting from
          income and expense items reported for financial accounting and tax
          purposes in different periods. Deferred taxes are classified as
          current or non-current, depending on the classification of the assets
          and liabilities to which they relate. Deferred taxes arising from
          temporary differences that are not related to an asset or liability
          are classified as current or non-current depending on the periods in
          which the temporary differences are expected to reverse.

          The principal sources of temporary differences are different
          depreciation methods for financial statement and tax purposes,
          unrealized gains or losses related to marketable securities,
          capitalization of indirect costs for tax purposes, and the use of an
          allowance for doubtful accounts for financial statement purposes.

          Treasury stock
          --------------
          Treasury stock is recorded using the cost method.

          Advertising costs
          -----------------
          The Company expenses advertising costs as incurred. During the year
          2003 and for the nine months ended September 30, 2004 and 2003,
          approximately $629,500, $619,852, and $488,656, respectively, were
          expensed.

          Earning per common share
          ------------------------
          Earnings per common share were computed by dividing net income
          available to common stockholders by the weighted average number of
          common shares outstanding during the year. For each of 2004 and 2003,
          diluted and basic earnings per share were the same, respectively, as
          the effect of dilutive securities options outstanding was not
          significant.

                                       8
<PAGE>

Note 3 - MARKETABLE SECURITIES

      The cost and fair value of marketable securities classified as available
for sale and trading are as follows:

<TABLE><CAPTION>
                                                                           Loss on
                                                                         Marketable
                                                                         Securities
                                           Unrealized     Unrealized    Classified as       Fair
September 30, 2004             Cost          Gains          Losses         Trading          Value
------------------          ----------     ----------     ----------      ----------      ----------
<S>                         <C>            <C>            <C>             <C>             <C>

Equities/Mutual Funds       $3,713,163     $  101,144     $ (188,299)     $     --        $3,626,008
Preferred Securities            75,505          1,825           --              --            77,330
Certificates of Deposit        150,000           --           (7,440)           --           142,560
Corporate Bonds              1,614,275           --           (8,177)           --         1,606,098
Municipal bonds,
  maturing within five
  years                        132,224          2,490           --              --           134,714
Government agency
  obligations, maturing
  after five years           1,153,234           --             --           (12,077)      1,141,157
                            ----------     ----------     ----------      ----------      ----------
Total                       $6,838,401     $  105,459     $ (203,916)     $  (12,077)     $6,727,867
                            ==========     ==========     ==========      ==========      ==========

                                                                           Loss on
                                                                         Marketable
                                                                         Securities
                                           Unrealized     Unrealized    Classified as       Fair
September 30, 2003             Cost          Gains          Losses         Trading          Value
------------------          ----------     ----------     ----------      ----------      ----------

Equities                    $4,253,095     $  192,142     $(1,199,398)    $     --        $3,245,839
Preferred securities           150,505            700            (25)           --           151,180
Corporate Bonds                475,005            444           --              --           475,449
Municipal bonds,
  maturing within
  five years                 2,406,478            401         (6,859)           --         2,400,020
                            ----------     ----------     ----------      ----------      ----------
Total                       $7,285,083     $  193,687     $(1,206,282)    $     --        $6,272,488
                            ==========     ==========     ==========      ==========      ==========

                                                                           Loss on
                                                                         Marketable
                                                                         Securities
                                           Unrealized     Unrealized    Classified as       Fair
December 30, 2003              Cost          Gains          Losses         Trading          Value
-----------------           ----------     ----------     ----------      ----------      ----------
Equities                    $2,326,722     $  315,348     $  (48,837)     $     --        $2,593,233
Preferred securities           200,505          2,985            (80)           --           203,410
Certificates of Deposit        150,000           --             --              --           150,000

Corporate Bonds                500,005           --           (1,333)           --           498,672
Municipal bonds,
  maturing within
  five years                 2,405,067          1,545            (10)           --         2,406,602
Government agency
  obligation                   450,000            689           --              --           450,689
                            ----------     ----------     ----------      ----------      ----------
Total                       $6,032,299     $  320,567     $  (50,260)     $     --        $6,302,606
                            ==========     ==========     ==========      ==========      ==========
</TABLE>

                                       9
<PAGE>

          Proceeds from the sale of marketable securities were $3,025,285,
          $5,306,395, and $5,371,416 during the year 2003 and for the nine
          months ended September 30, 2004 and 2003, respectively.

          Gross gains (losses) of $(1,293,579), $321,716, and $(293,348), were
          realized on these sales during the year 2003 and for the nine months
          ended September 30, 2004 and 2003, respectively.

Note 4 - INVENTORIES

      Inventories consist of the following:
<TABLE><CAPTION>
                                                   (Unaudited)
                                                  September 30,          December 31,
                                            -------------------------     ----------
                                               2004           2003           2003
                                            ----------     ----------     ----------
<S>                                         <C>            <C>            <C>
          Finished goods                    $  386,700     $  398,548     $  436,291
          Production supplies                  308,766        283,212        231,376
          Raw materials                        220,485        193,712        143,905
                                            ----------     ----------     ----------
          Total inventories                 $  915,951     $  875,472     $  811,572
                                            ==========     ==========     ==========
</TABLE>

Note 5 - PROPERTY AND EQUIPMENT

          Property and equipment consist of the following:
<TABLE><CAPTION>

                                                   (Unaudited)
                                                  September 30,          December 31,
                                            -------------------------     ----------
                                               2004           2003           2003
                                            ----------     ----------     ----------
<S>                                         <C>            <C>            <C>
          Land                              $  470,900     $  470,900     $  470,900
          Buildings and improvements         2,453,681      2,423,812      2,435,111
          Machinery and equipment            5,316,766      5,049,938      5,138,822

                                                   (Unaudited)
                                                  September 30,          December 31,
                                            -------------------------     ----------
                                               2004           2003           2003
                                            ----------     ----------     ----------
          Vehicles                             408,898        380,743        380,743
          Office equipment                      78,763         77,645         78,763
                                            ----------     ----------     ----------
                                             8,729,008      8,403,038      8,504,339
          Less accumulated depreciation      5,246,484      4,597,855      4,771,608
                                            ----------     ----------     ----------
                                            $3,482,524     $3,805,183     $3,732,731
                                            ==========     ==========     ==========
</TABLE>

          Depreciation expense during the year ended December 31, 2003 and for
          the nine months ended September 30, 2004 and 2003 was $688,309,
          $474,876, and $514,523, respectively.

Note 6 - NOTES PAYABLE

          Notes payable consist of the following:

                                                 (Unaudited)
                                                September 30,       December 31,
                                            ---------------------     --------
                                              2004         2003         2003
                                            --------     --------     --------
          Mortgage note payable to a
          bank, payable in monthly
          installments of $3,273
          including interest at 6.25%,
          with a balloon payment of
          $454,275 due September 25,
          2006. Collateralized by real
          estate                            $474,659     $483,474     $481,281


          Notes payable to finance
          companies, payable in monthly
          installments of $1,851,
          including interest at 0%, due
          November 2004. Collateralized
          by vehicles                          2,853       25,071       19,517
                                            --------     --------     --------

                                       10
<PAGE>

            Total notes payable              477,512      508,545      500,798

            Less current maturities           11,716       30,521       28,289
                                            --------     --------     --------
                                            $465,796     $478,024     $472,509
            Total long-term portion
                                            ========     ========     ========

          Maturities of notes payables are as follows:

           As of September 30,

                       2005               $    11,716
                       2006                   465,796
                                          -----------
                       Total              $   477,512
                                          ===========

Note 7 - PROVISION FOR INCOME TAXES

          The provision for income taxes consists of the following:

                                             (Unaudited)               For the
                                       For the Nine Months Ended     Year Ended
                                             September 30,          December 31,
                                       -------------------------     ----------
                                          2004           2003           2003
                                       ----------     ----------     ----------
          Current:
              Federal                  $  841,895     $1,139,107     $1,075,623
              State                       193,231        262,618        269,841
                                       ----------     ----------     ----------
          Total current                 1,035,126      1,401,725      1,345,464
          Deferred                         45,779         31,466          9,084
                                       ----------     ----------     ----------
          Provision for income taxes   $1,080,905     $1,433,191     $1,354,548
                                       ==========     ==========     ==========

          A reconciliation of the provision for income taxes and the income tax
          computed at the statutory rate are as follows:

<TABLE><CAPTION>
                                                        (Unaudited)                 For the
                                                 For the Nine Months Ended         Year Ended
                                                        September 30,              December 31,
                                               ------------------------------      ------------
                                                   2004              2003              2003
                                               ------------      ------------      ------------
<S>                                            <C>               <C>               <C>
          Federal income tax expense           $    880,399      $  1,300,292      $  1,216,006
            computed at the statutory rate
          State taxes, expense                      203,912           183,571           171,671





          Permanent book/tax differences             (3,406)          (50,672)          (33,129)
                                               ------------      ------------      ------------
          Provision for income taxes           $  1,080,905      $  1,433,191      $  1,354,548
                                               ============      ============      ============
</TABLE>
                                       11
<PAGE>

          Amounts for deferred tax assets and liabilities are as follows:

<TABLE><CAPTION>
                                                                         (Unaudited)              For the
                                                                 For the Nine Months Ended      Year Ended
                                                                        September 30,           December 31,
                                                                 --------------------------      ----------
                                                                    2004            2003            2003
                                                                 ----------      ----------      ----------
<S>                                                              <C>             <C>             <C>
          Non-current deferred tax liabilities arising from:
           Temporary differences - principally
            Book/tax, accumulated depreciation                   $ (426,895)     $ (398,788)     $ (471,953)
                                                                 ----------      ----------      ----------
          Current deferred tax liability arising from:
            Book/tax, unrealized gains on
              marketable securities                              $     --        $     --        $ (114,070)
          Current deferred tax assets arising from:
           Book/tax, unrealized
             losses on marketable securities                         40,665         415,014            --
           Book/tax, capital loss carryforward                         --              --           104,683
           Book/tax, inventory                                       50,272          45,194          36,425
           Less: valuation allowance                                   --          (220,000)           --
                                                                 ----------      ----------      ----------
           Total deferred tax assets                                 90,937         240,208          27,038
                                                                 ----------      ----------      ----------
          Net deferred tax liability                             $ (335,958)     $ (158,580)     $ (444,915)
                                                                 ==========      ==========      ==========
</TABLE>

Note 8 - SUPPLEMENTAL CASH FLOW INFORMATION

          Cash paid for interest and income taxes are as follows:


                                           (Unaudited)           For the Year
                                    For the Nine Months Ended       Ended
                                          September 30,          December 31,
                                    -------------------------     ----------
                                       2004           2003           2003
                                    ----------     ----------     ----------
          Interest                  $   23,103     $   23,164     $   41,205
          Income taxes              $  798,147     $1,152,000     $2,055,000

Note 9 - STOCK OPTION PLANS

          The Company has a registration statement filed with the Securities and
          Exchange Commission in connection with a Consulting Service
          Compensation Plan covering up to 300,000 of the Company's common stock
          shares. Pursuant to such Plan, the Company may issue common stock or
          options to purchase common stock to certain consultants, service
          providers, and employees of the Company. There were 468,600 shares
          available for issuance under the Plan at December 31, 2003 and at
          September 30, 2004 and 2003.The option price, number of shares, grant
          date, and vesting terms are determined at the discretion of the
          Company's Board of Directors.

          As of December 31, 2003, September 30, 2004 and 2003, there were no
          stock options outstanding or exercisable.

          On February 12, 2004, Lifeway's Board of Directors approved awards of
          an aggregate amount of 5,100 shares to be awarded under its Employee
          and Consulting Services and Compensation Plan to certain employees and
          consultants for services rendered to the Company. The stock awards
          were made on April 1, 2004 and have vesting periods that vary from six
          months to one year, depending upon the individual grantee. The expense
          for the awards is measured as of April 1, 2004 at $20.93 per share for
          5,100 shares, or a total stock award expense of $106,743. This expense
          has been and will continue to be recognized as the stock awards vest
          beginning with the recognition of $41,860 for 2,000 shares vested on
          April 1, 2004. An additional 2,000 shares of the total 5,100 has
          vested in the third quarter of 2004 and a stock award expense of
          $41,860 has been recognized in connection therewith .

Note 10 - STOCK SPLIT

On February 12, 2004, the Board of Directors of the Company declared a
two-for-one stock split of the common stock of the Company payable on March 8,
2004 to all of the Company's shareholders of record as of February 27, 2004.

                                       12
<PAGE>

As a result of the stock split, shareholders received two shares of common stock
for every one share held on the record date. Upon completion of the split, the
total number of shares of common stock outstanding increased from 4,218,444 to
8,436,888.

The earnings per share calculations as presented on the consolidated statements
of income and comprehensive income and the number of shares issued and
outstanding per statement of changes in stockholders' equity have been adjusted
to reflect split adjusted share amounts.

Note 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS

      The estimated fair values of the Company's financial instruments are as
follows at September 30, 2004:

                                                      Carrying        Fair
                                                       Amount         Value
                                                     ----------     ----------
          Cash and cash equivalents                  $5,348,135     $5,348,135
          Marketable securities                      $6,727,867     $6,727,867
          Notes payable                              $  477,512     $  454,773

          The carrying values of cash and cash equivalents, and marketable
          securities approximate fair values. The fair value of the notes
          payable is based on the discounted value of contractual cash flows.
          The discount rate is estimated using rates currently offered for debt
          with similar maturities.

Note 12 - ACQUISITION OF ILYA'S FARMS, INC.

On July 23, 2004, LFI Enterprises, Inc., an Illinois corporation and wholly
owned subsidiary of Lifeway ("LFIE"), acquired certain of the assets of Ilya's
Farms, Inc., a Pennsylvania corporation. The aggregate purchase price was
$575,600, paid by LFIE in cash from its current assets.

As a result of the acquisition LFIE manufactures and distributes certain cream
cheese products under the brand name "Ilya's Farms" in the Philadelphia,
Pennsylvania metropolitan area. The results of LFIE's operations have been
included in the consolidated financial statements since that date.

The following table summarizes the values of the assets and inventory acquired
at the date of acquisition, July 23, 2004.

   Assets and Inventory Acquired                         Value
   ----------------------------------------------    -------------
   Machinery and equipment                               $ 38,200
   Inventory                                               25,600
   Intangible assets                                      511,800
   ----------------------------------------------    -------------
   Total aggregate purchase price                         575,600
   ==============================================    =============

                                       13
<PAGE>

                           PART II - OTHER INFORMATION

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

            COMPARISON OF QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2004 TO
            QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2003

            The following analysis should be read in conjunction with the
unaudited financial statements of the Company and related notes included
elsewhere in this quarterly report and the audited financial statements and
Management's Discussion and Analysis contained in our Form 10-KSB, as amended by
Form 10-KSB/A, for the fiscal year ended December 31, 2003.

            RESULTS OF OPERATIONS

            Sales increased by $301,506 (approximately 8%) to $4,138,606 during
the three month period ended September 30, 2004, from $3,837,100 during the same
three month period in 2003. In the nine months ended September 30, 2004, sales
increased $1,154,268 over the same nine month period in 2003. This increase was
primarily attributable to continued growth in sales of Lifeway's products to
existing customers. Sav-A-Lot, the 13th largest grocery chain in the United
States which operates more than 1000 Sav-A-Lot and Supervalu food stores
nationwide, ceased all product orders from Lifeway during the second calendar
quarter of 2004. During the third quarter of 2003, sales by Lifeway to Sav-A-Lot
accounted for approximately $210,000 (about 5.5%) of the total sales revenue of
$3,837,100 for the three month period ended September 30, 2003. At present, it
is unknown to Lifeway's management whether Sav-A-Lot will make any further
product orders.

            Cost of goods sold as a percentage of sales was 54% for the three
months ended September 30, 2004, compared to 50% for the same three month period
in 2003. Cost of goods sold increased by $331,751 to $2,239,553 during the three
month period ending September 30, 2004 (approximately 17%) from $1,907,802
during the same three month period in 2003. In the nine months ended September
30, 2004, cost of goods sold increased $1,136,862 (approximately 21%) over the
same nine month period in 2003. The price of milk, our largest cost of goods
component, rose approximately 70% during this same nine month period. The
largest component of the increase in the cost of goods sold during the first
nine months of 2004 was a milk price increase of approximately 110% during the
three months ended June 30, 2004. While the price of milk decreased slightly
during the three months ended September 30, 2004, it remained substantially
higher than during the same three month period in 2003 and continued to be the
largest component of the cost of goods for the third quarter of 2004.

            Operating expenses increased approximately 33% during the three
month period ended September 30, 2004 compared to the same three month period in
2003. For the nine month period ended September 30, 2004, operating expenses
increased approximately 16% compared to the same nine month period in 2003. This
increase is primarily attributable to two expenses: (1) a $41,860 expense
recognized in connection with the vesting in the third quarter 2004 of 2,000
shares (valued at $20.93 per share at the time of grant) of a total of 5,100
shares of Company stock granted to Lifeway employees on February 12, 2004 and
(2) an overall increase in utility expenses and rising insurance and
professional fees associated with the Sarbanes-Oxley Act of 2002 and other
regulatory compliance requirements. Lifeway also experienced increased
professional expenses in connection with the acquisition by LFI Enterprises,
Inc. of substantially all of the assets of Ilya's Farms, Inc. on July 23, 2004.

            Net income decreased approximately 28% during the three month period
ended September 30, 2004 as compared to the same three month period in 2003. In
the opinion of Lifeway's management, several factors contributed to the 28%
decrease in third quarter net income for 2004 as compared to 2003: (1) the lack
of further orders from Sav-A-Lot, which accounted for about 5.5% of sales
revenues for the same three month period last year; (2) increased professional
expenses in connection with the acquisition by LFI Enterprises, Inc. of
substantially all of the assets of Ilya's Farms, Inc. on July 23, 2004.; and (3)
the increase in the cost of goods sold associated with higher milk prices. In
the nine month period ended September 30, 2004, net income decreased
approximately 28% compared to the same nine month period in 2003. This decrease
is primarily attributable to the fact that during the first nine months of 2003
Lifeway had a one-time gain from the sale of property of $1,246,287 while during
the first nine months of 2004, as discussed above, LFI Enterprises, Inc. entered
into the Ilya's Farms, Inc. acquisition discussed above and Lifeway ceased to
receive orders from a substantial customer.

            SOURCES AND USES OF CASH

            A significant portion of our assets are held in marketable
securities. The majority of our marketable securities are classified as
available-for-sale on our balance sheet, while the mortgage-backed securities
are classified as trading. All of these securities are stated thereon at market
value as of the end of the applicable period. Gains and losses on the portfolio
are determined by the specific identification method.

                                       14
<PAGE>

            Net cash used in investing activities increased by $1,220,885 for
the nine months ended September 30, 2004 as compared to the increase of $143,264
during the same period in 2003. The increase in the net investing activity cash
flow during the nine month period ended September 30, 2004 relative to the same
period in 2003 was attributable the purchase by LFI Enterprises, Inc. of
substantially all of the assets of Ilya's Farms, Inc. in exchange for $575,600
paid in cash. Of the total cash amount of $575,600 used by LFI Enterprises, Inc.
in connection with the Ilya's Farms, Inc. asset acquisition, $511,800 will be
recognized by Lifeway as intangible assets, while $63,800 is accounted for as
part of the "Purchases of Property and Equipment" line item on the Consolidated
Statement of Cash Flows for the Third Quarter of 2004. In the opinion of
Lifeway's management, the acquisition by LFI Enterprises, Inc. of substantially
all of the assets of Ilya's Farms, Inc. is a positive step to broaden Lifeway's
presence in the market for manufactured dairy products.

            During the nine month period ended September 30, 2004, Lifeway also
experienced net negative investing cash flows in the amount of $484,386
($5,790,781 used for purchases less $5,306,395 used for sales) used for the
purchase and sale of marketable securities due to our continued efforts to move
away from higher-risk securities towards large cap value, higher dividend
yielding and tax-advantaged equities. Our efforts in this regard during the
first three calendar quarters of 2004 also are reflected in a gain of $321,716
on the sale of marketable securities. We believe, given the current market
conditions, this asset allocation strategy offers a positive risk-reward ratio
for our Company.

            OTHER DEVELOPMENTS

            On February 12, 2004, Lifeway's Board of Directors approved awards
of an aggregate amount of 5,100 shares to be awarded under its Employee and
Consulting Services and Compensation Plan to certain employees and consultants
for services rendered to the Company. The stock awards were made on April 1,
2004 and have vesting periods that vary from six months to one year, depending
upon the individual grantee. The expense for the awards is measured as of April
1, 2004 at $20.93 per share for 5,100 shares, or a total stock award expense of
$106,743. This expense will be recognized as the stock awards vest beginning
with the recognition of $41,860 for 2,000 shares vested on April 1, 2004. An
additional 2,000 shares of the total 5,100 vested in the third quarter of 2004.
The share numbers and per share expense have been adjusted to reflect the stock
split as of March 8, 2004. The vesting of certain of the restricted stock awards
had the effect of positively impacting financing activities because the shares
were awarded out of treasury shares. The stock award was recognized as a $41,860
expense ($20.93 per share, reflecting fair market value on the date of grant)
but also is treated as a positive cash flow from financing activities because it
was a reissuance of treasury shares.

            CRITICAL ACCOUNTING POLICIES

            Lifeway's analysis and discussion of its financial condition and
results of operations are based upon its consolidated financial statements that
have been prepared in accordance with accounting principles generally accepted
in the United States ("US GAAP"). The preparation of financial statements in
accordance with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
US GAAP provides the framework from which to make these estimates, assumptions
and disclosures. Lifeway chooses accounting policies within US GAAP that
management believes are appropriate to accurately and fairly report Lifeway's
operating results and financial position in a consistent manner. Management
regularly assesses these policies in light of current and forecasted economic
conditions and has discussed the development and selection of critical
accounting policies with its audit committee of the Board of Directors. For
further information concerning accounting policies, refer to Note 2 -- Nature of
Business and Significant Accounting Policies in the notes to the consolidated
financial statements.

            FORWARD LOOKING STATEMENTS

            In this report, in reports subsequently filed by Lifeway with the
SEC on Form 10-QSB and filed or furnished on Form 8-K, and in related comments
by management, our use of the words "believe," "expect," "anticipate,"
"estimate," "forecast," "objective," "plan," "goal," "project," "explore,"
"priorities/targets," and similar expressions is intended to identify
forward-looking statements. While these statements represent our current
judgment on what the future may hold, and we believe these judgments are
reasonable, actual results may differ materially due to numerous important
factors that are described in this report and other factors that may be
described in subsequent reports which Lifeway may file with the SEC on Form
10-QSB and filed or furnished on Form 8-K, including but not limited to:

     o    Changes in economic conditions, commodity prices;

     o    Shortages of and price increase for fuel, labor strikes or work
          stoppages, market acceptance of the Company's new products;

     o    Significant changes in the competitive environment;

     o    Changes in laws, regulations, and tax rates; and

                                       15
<PAGE>

     o    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.

            The Chief Executive Officer (who serves as the principal executive
and financial officer) conducted an evaluation of the effectiveness of the
Company's disclosure controls and procedures pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934 as of September 30, 2004. The Company has
historically operated on strictly monitored cost constraints; with that
perspective, the Chief Executive Officer concluded that the disclosure controls
and procedures are effective in ensuring that all material information required
to be filed in this quarterly report has been made known to her.

            During the calendar quarter ended September 30, 2004, there was no
change in the Company's internal control over financial reporting that has
materially affected, or is reasonably likely to affect, the Company's internal
control over financial reporting. However, based upon the Company's recent
growth and improved cash position, as well as consultation with its auditors,
management intends to implement additional procedures to improve its internal
controls over financial reporting in 2004. Specifically, an enhanced accounting
software package has been identified which will permit enhanced data recording
and internal reporting as well as additional on-site accounting staff and some
changes to Lifeway's internal control procedures.

ITEM 6.  EXHIBITS.

         Exhibits

          Exhibit No.       Description

           3.4      Amended and Restated By-laws (incorporated by reference to
                    Exhibit No. 3.5 of Lifeway's Current Report on Form 8-K
                    dated and filed on December 10, 2002).

           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).

           10.1     Lifeway Foods, Inc. Consulting and Services Compensation
                    Plan, dated June 5, 1995 (incorporated by reference to
                    Lifeway's Registration Statement on Form S-8, File No.
                    33-93306).

           10.10    Stock Purchase Agreement with Danone Foods, Inc., dated
                    October 1, 1999 (incorporated by reference to Exhibit 10.10
                    of Lifeway's Current Report on Form 8-K dated October 1,
                    1999, and filed October 12, 1999).

           10.11    Stockholders' Agreement with Danone Foods, Inc. dated
                    October 1, 1999 (incorporated by reference to Exhibit 10.11
                    of Lifeway's Current Report on Form 8-K dated October 1,
                    1999, and filed October 12, 1999).

           10.12    Extension to Stockholders' Agreement with Danone Foods, Inc.
                    dated September 28, 2004 (incorporated by reference to
                    Exhibit 10.1 of Lifeway's Current Report on Form 8-K dated
                    October 1, 2004 and filed October 18, 2004).

           10.13    Second Extension to Stockholders' Agreement with Danone
                    Foods, Inc. dated October 29, 2004 (incorporated by
                    reference to Exhibit 10.1 of Lifeway's Current Report on
                    Form 8-K dated October 29, 2004 and filed November 4, 2004).

           10.14    Letter Agreement dated December 24, 1999 amending the
                    Stockholders' Agreement with Danone Foods, Inc. dated
                    October 1, 1999 (incorporated by reference to Exhibit 10.12
                    of Lifeway's Current Report on Form 8-K dated December 24,
                    1999 and filed January 11, 2000).

           10.15    Support Agreement with The Dannon Company, Inc. dated
                    December 24, 1999 (incorporated by reference to Exhibit
                    10.13 of Lifeway's Current Report on Form 8-K dated December
                    24, 1999 and filed January 11, 2000).

                                       16
<PAGE>

           10.16    First Amendment to Support Agreement with The Dannon
                    Company, Inc., dated February 11, 2003 (incorporated by
                    reference to Exhibit 10.14 of Lifeway's Quarterly Report for
                    the quarter ended March 31, 2003 on Form 10-QSB dated and
                    filed May 15, 2003).

           10.17    Employment Agreement, dated September 12, 2002, between
                    Lifeway Foods, Inc. and Julie Smolyansky (incorporated by
                    reference to Exhibit 10.14 of Amendment No. 2 filed April
                    30, 2003 to Lifeway's Quarterly Report on Form 10-QSB/A for
                    the quarter ended September 30, 2002).

           11       Statement re: computation of per share earnings
                    (incorporated by reference to Note 2 of the Consolidated
                    Financial Statements).

           31.1     Rule 13a-14(a)/15d-14(a) Certification.

           32.1     Section 1350 Certification.



















                                       17
<PAGE>

                                    SIGNATURE

            In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


Date: November 15, 2004                  LIFEWAY FOODS, INC.


                                         By: /s/ Julie Smolyansky
                                             -----------------------------------
                                             Julie Smolyansky
                                             Chief Executive Officer, Chief
                                             Financial and Accounting Officer,
                                             President, Treasurer and Director































                                       18