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

                                  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 June 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 August 12, 2004, the issuer had
8,438,888 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
       JUNE 30, 2004 AND 2003 AND DECEMBER 31, 2003............................3
     CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
       INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004
       AND 2003 AND THE YEAR ENDED DECEMBER 31, 2003...........................4
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX
       MONTHS ENDED JUNE 30, 2004 AND THE YEAR ENDED DECEMBER 31, 2003.........5
     CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
       JUNE 30, 2004 AND 2003 AND THE YEAR ENDED DECEMBER 31, 2003.............6
     NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
       2004 AND 2003 AND THE YEAR ENDED DECEMBER 31, 2004......................7

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

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

PART II - OTHER INFORMATION...................................................16

    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............17

    ITEM 5. OTHER INFORMATION.................................................17

    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................17

SIGNATURE.....................................................................19



                                        2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

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

                                                                                  (Unaudited)
                                                                                    June 30,                     December 31,
                                                                       ---------------------------------         ------------
                                                                           2004                 2003                 2003
                                                                       ------------         ------------         ------------
ASSETS

CURRENT ASSETS
<S>                                                                    <C>                  <C>                  <C>
      Cash and cash equivalents                                        $  5,241,815         $  3,599,263         $  4,597,819
      Marketable securities                                               6,548,911            6,302,523            6,302,606
      Accounts receivable, net of allowance for doubtful
      accounts of $15,000                                                 1,921,537            1,730,772            1,800,141
      Other receivables                                                      63,535              165,767
                                                                                                                       87,473
      Inventories                                                           991,041              794,086              811,572
      Prepaid expenses and other current assets                                 791
                                                                                                     524                1,068
      Deferred income taxes                                                 286,334               27,038
                                                                                                                       51,480
      Prepaid income taxes                                                  376,808              306,171
                                                                       ------------         ------------         ------------
      TOTAL CURRENT ASSETS                                               15,219,589           12,777,581           14,011,905

PROPERTY, PLANT, AND EQUIPMENT, NET                                       3,531,856            3,906,075            3,732,731
                                                                       ------------         ------------         ------------

TOTAL ASSETS                                                           $ 18,751,445         $ 16,683,656         $ 17,744,636
                                                                       ============         ============         ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Current maturities of notes payable                              $     38,198         $     30,387         $     28,289
      Accounts payable                                                      802,035              648,998              795,321
      Accrued expenses                                                      151,667              182,947              183,600
      Income taxes payable                                                     --                693,157                 --
                                                                       ------------         ------------         ------------
      Total current liabilities                                             991,900            1,555,489            1,007,210

NOTES PAYABLE                                                               447,084              485,789              472,509

DEFERRED INCOME TAXES                                                       434,837              423,064              471,953

STOCKHOLDERS' EQUITY
      Common stock                                                        6,509,267            6,509,267            6,509,267
      Paid-in capital                                                          --                   --
                                                                                                                       28,270
      Stock subscription receivable                                          (5,000)             (15,000)             (15,000)
      Treasury stock, at cost                                              (666,366)            (679,956)            (679,956)
      Retained earnings                                                  11,019,724            9,284,833            9,822,416
      Accumulated other comprehensive income (loss), net of tax              (8,271)            (879,830)             156,237
                                                                       ------------         ------------         ------------
      TOTAL STOCKHOLDERS' EQUITY                                         16,877,624           14,219,314           15,792,964
                                                                       ------------         ------------         ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 18,751,445         $ 16,683,656         $ 17,744,636
                                                                       ============         ============         ============
</TABLE>
                 See accompanying Notes to Financial Statements.

                                        3
<PAGE>

       CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE
      THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 AND THE YEAR ENDED
                               DECEMBER 31, 2003
<TABLE><CAPTION>
                                                                    (Unaudited)                   (Unaudited)
                                                                Three Months Ended             Six Months Ended
                                                                     June 30,                      June 30,             December 31,
                                                            --------------------------    --------------------------    -----------
                                                                2004           2003           2004           2003           2003
                                                            -----------    -----------    -----------    -----------    -----------
<S>                                                         <C>            <C>            <C>            <C>            <C>
SALES                                                       $ 4,002,093    $ 3,775,853    $ 7,937,172    $ 7,084,410    $14,877,788

Cost of goods sold                                            2,265,802      1,733,935      4,365,000      3,559,891      7,840,782
                                                            -----------    -----------    -----------    -----------    -----------

GROSS PROFIT                                                  1,736,291      2,041,918      3,572,172      3,524,519      7,037,006


Operating expenses                                            1,049,402        938,160      1,931,431      1,782,776      3,558,362
                                                            -----------    -----------    -----------    -----------    -----------

INCOME FROM OPERATIONS                                          686,889      1,103,758      1,640,741      1,741,743      3,478,644



Other income (expense):
      Interest and dividend income                               34,085         36,730         75,209         70,174         96,850
      Interest expense                                           (7,907)        (7,777)       (15,518)       (15,421)       (41,205)
      Gain (loss) on sale of marketable securities, net          40,962         15,848        309,329       (330,709)    (1,293,579)
      Gain on sale of assets                                       --             --             --        1,246,287      1,246,287
      Loss on marketable securities classified as trading       (27,758)          --          (27,758)          --             --
      Other income                                                 --             --             --             --           89,490
                                                            -----------    -----------    -----------    -----------    -----------
      Total other income (expense)                               39,382         44,801        341,262        970,331         97,843
                                                            -----------    -----------    -----------    -----------    -----------

INCOME BEFORE PROVISION FOR INCOME TAXES                        726,271      1,148,559      1,982,003      2,712,074      3,576,487

Provision for income taxes                                      294,162        457,477        784,695      1,027,718      1,354,548
                                                            -----------    -----------    -----------    -----------    -----------

NET INCOME                                                  $   432,109    $   691,082    $ 1,197,308    $ 1,684,356    $ 2,221,939
                                                            ===========    ===========    ===========    ===========    ===========
EARNINGS PER COMMON SHARE                                          0.05           0.08           0.14           0.20           0.26
                                                            ===========    ===========    ===========    ===========    ===========
WEIGHTED AVERAGE NUMBER OF
    COMMON SHARES OUTSTANDING                                 8,437,544      8,436,888      8,437,544      8,436,888      8,436,888
                                                            ===========    ===========    ===========    ===========    ===========

COMPREHENSIVE INCOME

NET INCOME                                                  $   432,109    $   691,082    $ 1,197,308    $ 1,684,356    $ 2,221,939

Other comprehensive income (loss), net of tax:
    Unrealized (gains) losses on marketable
          securities (net of tax benefits)                      (47,050)       790,315        (25,628)       821,040        212,634

     Less reclassification adjustment for (gains)
          losses included in net income
          (net of tax benefits)                                  17,615       (569,743)      (138,880)      (366,000)     1,278,473
                                                            -----------    -----------    -----------    -----------    -----------
COMPREHENSIVE INCOME                                        $   402,674    $   911,654    $ 1,032,800    $ 2,139,396    $ 3,713,046
                                                            ===========    ===========    ===========    ===========    ===========
</TABLE>
                 See accompanying Notes to Financial Statements.

                                        4
<PAGE>

 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS
                        ENDED JUNE 30, 2004 AND THE YEAR
                             ENDED DECEMBER 31, 2003

<TABLE><CAPTION>
                                  COMMON STOCK, NO PAR VALUE
                                      10,000,000 SHARES            #
                                          AUTHORIZED           OF SHARES
                                   ------------------------       OF                                     STOCK
                                   # OF SHARES  # OF SHARES    TREASURY       COMMON       PAID-IN    SUBSCRIPTION     TREASURY
                                      ISSUED    OUTSTANDING      STOCK        STOCK        CAPITAL     RECEIVABLE       STOCK
                                   -----------  -----------    --------    ------------    -------    ------------    ----------

<S>                                 <C>          <C>           <C>          <C>            <C>          <C>          <C>
BALANCES AT DECEMBER 31, 2002        8,636,888    8,436,888     200,000      $6,509,267     $  --        $(15,000)    $(679,956)

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)    $(679,956)

Issuance of treasury stock                 --         2,000      (2,000)            --      28,270            --         13,590

Other comprehensive income:

Unrealized gains (losses)
on securities, net of
taxes and reclassification
adjustment                                 --           --          --              --         --             --            --

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

Net income for the six
months Ended June 30, 2004                 --           --          --              --         --             --            --
                                   -----------  -----------    --------    ------------    -------    -----------     ---------
BALANCES AT JUNE 30, 2004
(UNAUDITED)                          8,636,888    8,438,888     198,000      $6,509,267    $28,270        $(5,000)    $(666,366)
                                   ===========  ===========    ========    ============    =======    ===========     =========


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

BALANCES AT DECEMBER 31, 2002       $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       $9,822,416        $156,237     $15,792,964

Issuance of treasury stock                 --              --           41,860

Other comprehensive income:

Unrealized gains (losses)
on securities, net of
taxes and reclassification
adjustment                                 --         (164,508)       (164,508)

Payment on subscription
receivable                                 --              --           10,000

Net income for the six
months Ended June 30, 2004           1,197,308             --        1,197,308
                                   -----------    ------------     -----------
BALANCES AT JUNE 30, 2004
(UNAUDITED)                        $11,019,724         $(8,271)    $16,877,624
                                   ===========    ============     ===========
</TABLE>

                 See accompanying Notes to Financial Statements.

                                        5
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND
                    2003 AND THE YEAR ENDED DECEMBER 31, 2003

<TABLE><CAPTION>
                                                                                (Unaudited)
                                                                                  June 30,                December 31,
                                                                        ----------------------------      -----------
                                                                            2004             2003             2003
                                                                        ----------------------------      -----------
<S>                                                                     <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      NET INCOME                                                        $ 1,197,308      $ 1,684,356      $ 2,221,939
      Adjustments to reconcile net income to net
         cash flows from operating activities:
            Depreciation and amortization                                   315,315          340,803          688,309
            Gain (loss) on sale of marketable securities, net             (309,329)          330,709        1,293,579
            Loss on marketable securities classified as trading              27,758              --               --
            Gain on sales of assets                                             --        (1,246,287)      (1,246,287)
            Deferred income taxes                                            58,335           57,421            9,084
            (Increase) decrease in operating assets:
               Accounts receivable                                         (121,396)        (295,551)        (364,920)
               Other receivables                                             78,294           (3,284)        (105,516)
               Inventories                                                 (179,469)         (73,583)         (91,069)
               Prepaid income taxes                                         (70,637)             --          (306,171)
               Prepaid expenses and other current assets                        267              208              485
            Increase (decrease) in operating liabilities:
               Accounts payable                                               6,714            9,600          155,923
               Accrued expenses                                             (31,933)            (581)              72
               Income taxes payable                                             --           295,250         (397,907)
                                                                        -----------      -----------      -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                   971,227        1,099,061        1,857,521

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of marketable securities                                  (5,111,087)      (4,555,562)      (4,283,532)
      Sales of marketable securities                                      4,861,951        2,867,678        3,025,285
      Sales of assets                                                           ---        1,712,659        1,712,660
      Purchases of property and equipment                                  (114,439)        (240,900)        (415,064)
                                                                        -----------      -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                        (363,575)        (216,125)          39,349

CASH FLOWS FROM FINANCING ACTIVITIES:
      Reissuance of treasury stock                                           41,860              --               --
      Payment on stock subscription receivable                               10,000              --               --
      Repayment of notes payable                                            (15,516)         (15,329)         (30,707)
                                                                        -----------      -----------      -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                          36,344          (15,329)         (30,707)
                                                                        -----------      -----------      -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                   643,996          867,607        1,866,163

Cash and cash equivalents at the beginning of the year                    4,597,819        2,731,656        2,731,656
                                                                        -----------      -----------      -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                $ 5,241,815      $ 3,599,263      $ 4,597,819
                                                                        ===========      ===========      ===========
</TABLE>

                 See accompanying Notes to Financial Statements.

                                        6
<PAGE>

    NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND
                    2003 AND THE YEAR ENDED DECEMBER 31, 2004


These financial statements include all adjustments which, in the opinion of
management, are necessary in order to make the financial statements not
misleading.

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 and Ontario,
      Canada. The Company also distributes some of its products internationally
      by exporting to Eastern Europe. During the year 2003 and for the six
      months ended June 30, 2004 and 2003, export sales of the Company were
      approximately $221,000, $37,050, and $108,857, respectively.

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 of America 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.

      Revenue recognition
      -------------------
      Sales represent sales of Company-produced dairy products that are recorded
      at the time of shipment. In addition, shipping costs invoiced to the
      customers are included in net sales and the related costs in cost of
      sales.

      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 AT JUNE 30, 2004.

                                            June 30,     June 30,   December 31,
                                              2004         2003         2003
                                          -----------  -----------  -----------
      Amounts insured                     $   400,000  $   400,000  $   400,000
      Uninsured and uncollateralized
        amounts                             5,069,650    3,238,984    4,212,259
                                          -----------  -----------  -----------
      Total bank balances                 $ 5,469,650  $ 3,638,984  $ 4,612,259
                                          ===========  ===========  ===========

      Marketable securities
      ---------------------
      Marketable securities are classified as available-for-sale and trading and
      are stated at market value. Gains and losses related to marketable
      securities sold are determined by the specific identification method.

                                        7
<PAGE>

      Accounts receivable
      -------------------
      Credit terms are extended to customers in the normal course of business.
      The Company performs ongoing credit evaluations of its customers'
      financial condition and generally requires no collateral.

      Accounts receivable are recorded at their estimated net realizable value,
      net of an allowance for doubtful accounts. The Company's estimate of the
      allowance for doubtful accounts is based upon historical experience, its
      evaluation of the current status of receivables, and unusual
      circumstances, if any. Accounts are considered past due if payment is not
      made on a timely basis in accordance with the Company's credit terms.
      Accounts considered uncollectible are charged against the allowance.

      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 six months ended June 30, 2004 and 2003, approximately
      $629,500, $409,461, and $327,863, 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. Because the Company has no stock options
      outstanding, diluted and basic earnings per share were the same during the
      year 2003 and the six month period ended June 30, 2004, as no dilutive
      effect was caused by outstanding options.

                                        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
(Unaudited)                                  Unrealized     Unrealized     Classified       Fair
June 30, 2004                   Cost           Gains          Losses       as Trading       Value
                             -----------    -----------    -----------    -----------    -----------
<S>                          <C>            <C>            <C>            <C>            <C>
Equities/mutual funds        $ 3,605,678    $   113,749    $   (90,838)   $       --     $ 3,628,589
Preferred securities              75,505            820         (2,245)           --          74,080
Certificates of deposit          150,000            --          (8,460)           --         141,540

Corporate bonds                1,474,120            --         (26,309)           --       1,447,811
Municipal bonds,
 maturing within five
 years                           132,224            --            (808)           --         131,416
Government agency
 obligations, maturing
 after five years              1,153,234            --             --         (27,758)     1,125,476
                             -----------    -----------    -----------    -----------    -----------

Total                        $ 6,590,761    $   114,569    $  (128,660)   $   (27,758)   $ 6,548,912
                             ===========    ===========    ===========    ===========    ===========

                                                                            Loss on
                                                                           Marketable
                                                                           Securities
(Unaudited)                                  Unrealized     Unrealized     Classified       Fair
June 30, 2003                   Cost           Gains          Losses       as Trading       Value
-------------                -----------    -----------    -----------    -----------    -----------

Equities                     $ 4,213,620    $   157,134    $(1,285,615)   $       --     $ 3,085,139
Preferred securities             100,000          2,430            --             --         102,430
Certificates of deposit          180,000            --             (15)           --         179,985
Municipal bonds,
 Maturing within
 five years                    2,931,477          3,492            --             --       2,934,969
                             -----------    -----------    -----------    -----------    -----------
Total                        $ 7,425,097    $   163,056    $(1,285,630)   $       --     $ 6,302,523
                             ===========    ===========    ===========    ===========    ===========

                                                                            Loss on
                                                                           Marketable
                                                                           Securities
                                             Unrealized     Unrealized     Classified       Fair
December 31, 2003               Cost           Gains          Losses       as 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>

Proceeds from the sale of marketable securities were $3,025,285, $4,861,951, and
$2,867,678 during the year 2003 and for the six months ended June 30, 2004 and
2003, respectively.

                                        9
<PAGE>

Gross gains (losses) of $(1,293,579), $309,329, and $(330,709), were realized on
these sales during the year 2003 and for the six months ended June 30, 2004 and
2003, respectively.

NOTE 4 - INVENTORIES

      Inventories consist of the following:

                                       (Unaudited)
                                         June 30,
                                 ------------------------   December 31,
                                    2004          2003          2003
                                 ----------    ----------    ----------
      Finished goods             $  510,352    $  331,506    $  436,291
      Production supplies           244,197       266,606       231,376
      Raw materials                 236,492       195,974       143,905
                                 ----------    ----------    ----------
      Total inventories          $  991,041    $  794,086    $  811,572
                                 ==========    ==========    ==========

NOTE 5 - PROPERTY AND EQUIPMENT

      Property and equipment consist of the following:

                                              (Unaudited)
                                                June 30,
                                        ------------------------    December 31,
                                           2004          2003          2003
                                        ----------    ----------    ----------
      Land                              $  470,900    $  470,900    $  470,900
      Buildings and improvements         2,439,321     2,419,592     2,435,111
      Machinery and equipment            5,249,052     4,984,660     5,138,822
      Vehicles                             380,743       380,743       380,743
      Office equipment                      78,763        74,315        78,763
                                        ----------    ----------    ----------
                                         8,618,779     8,330,210     8,504,339
      Less accumulated depreciation      5,086,923     4,424,135     4,771,608
                                        ----------    ----------    ----------
                                        $3,531,856    $3,906,075    $3,732,731
                                        ==========    ==========    ==========

Depreciation expense during the year ended December 31, 2003 and for the six
months ended June 30, 2004 and 2003 was $688,309, $315,315, and $340,803,
respectively.

NOTE 6 - NOTES PAYABLE

Notes payable consist of the following:

                                                  (Unaudited)
                                                    June 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.        $  476,874   $  485,551   $  481,281

      Notes payable to finance companies,
      payable in monthly installments of
      $1,851, including interest at 0%,
      due November 2004. Collateralized
      by vehicles.                               8,408       30,625       19,517
                                            ----------   ----------   ----------

      Total notes payable                      485,282      516,176      500,978

      Less current maturities                   38,198       30,387       28,289
                                            ----------   ----------   ----------

      Total long-term portion               $  447,084   $  485,789   $  472,509
                                            ==========   ==========   ==========

                                       10
<PAGE>


      Maturities of notes payables are as follows:

           As of June 30,
                              2004         $    38,198
                              2005              29,180
                              2006             417,904
                                           -----------
                      Total                $   485,282
                                           ===========


NOTE 7 - PROVISION FOR INCOME TAXES

      The provision for income taxes consists of the following:

                                             (Unaudited)             For the
                                      For the Six Months Ended      Year Ended
                                              June 30,             December 31,
                                     ---------------------------   ------------
                                         2004           2003           2003
                                     ------------   ------------   ------------
      Current:
          Federal                    $    591,271   $    788,330   $  1,075,623
          State                           135,089        181,967        269,841
                                     ------------   ------------   ------------
      Total current                       726,360        970,297      1,345,464
      Deferred                             58,335         57,421          9,084
                                     ------------   ------------   ------------
      Provision for income taxes     $    784,695   $  1,027,718   $  1,354,548
                                     ============   ============   ============

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

                                              (Unaudited)            For the
                                       For the Six Months Ended     Year Ended
                                               June 30,            December 31,
                                     ---------------------------   ------------
                                         2004           2003           2003
                                     ------------   ------------   ------------
      Federal income tax expense
        computed at the statutory
        rate                         $    673,881   $    922,105   $  1,216,005
      State taxes, expense                 95,493        130,722        172,387
      Permanent book/tax differences       15,321        (25,109)       (33,844)
                                     ------------   ------------   ------------
      Provision for income taxes     $    784,695   $  1,027,718   $  1,354,548
                                     ============   ============   ============










                                       11
<PAGE>

      Amounts for deferred tax assets and liabilities are as follows:
<TABLE><CAPTION>

                                                             (Unaudited)             For the
                                                       For the Six Months Ended     Year Ended
                                                               June 30,            December 31,
                                                       ------------------------     ---------
                                                          2004           2003          2003
                                                       ---------      ---------     ---------
<S>                                                    <C>            <C>           <C>
      Non-current deferred tax liabilities
      arising from:
       Temporary differences - principally
        Book/tax, accumulated depreciation             $(434,837)     $(423,064)    $(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                            5,820        462,500          --
       Book/tax, capital loss carryforward                  --             --         104,683
       Book/tax, other                                    45,660         43,834        36,425
      Less valuation allowance                              --         (220,000)         --
                                                       ---------      ---------     ---------
       Total deferred tax assets                          51,480        286,334        27,038
                                                       ---------      ---------     ---------
      Net deferred tax asset (liability)               $(383,357)     $(136,730)    $(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 Six Months         Ended
                                   Ended June 30,         December 31,
                              ------------------------    ----------
                                 2004          2003          2003
                              ----------    ----------    ----------
      Interest                $   15,518    $   15,421    $   41,205
      Income taxes            $  797,687    $  675,000    $2,055,000

NOTE 9 - STOCK OPTION PLANS

      The Company has a registration statement on file with the Securities and
      Exchange Commission in connection with an Employee and Consulting Services
      and Compensation Plan covering up to 300,000 of the Company's common stock
      shares. Pursuant to the 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 234,300 shares
      available for issuance under the Plan at June 30 and December 31, 2003 and
      at June 30, 2004. The terms of this Plan do not require an adjustment in
      the number of shares as a result of the stock split; therefore, no
      adjustment has been made.

      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, June 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 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 shall vest in the third quarter of 2004.

                                       12
<PAGE>

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.

      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 value of the Company's financial instruments, none of
      which are held for trading purposes, are as follows at June 30, 2004:

                                            Carrying        Fair
                                             Amount         Value
                                          -----------    -----------
      Cash and cash equivalents           $ 5,241,815    $ 5,241,815
      Marketable securities               $ 6,548,911    $ 6,548,911
      Notes payable                       $   485,282    $   461,711

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 - SUBSEQUENT EVENTS

      On July 26, 2004 the wholly-owned subsidiary of the Company (LFI
      Enterprises, Inc.) purchased the assets of Ilya's Farms, Inc. for
      $575,600. The acquisition included approximately $64,000 of tangible
      assets (including certain manufacturing equipment, a delivery truck) and
      inventory and the recipes and manufacturing processes previously used by
      Ilya's Farms, Inc. As a post-closing matter, Ilya's Farms, Inc. also is
      expected to assign to the Company the rights to the brand name "Ilya's
      Farms." The Company provided a guaranty of payment for the transaction.



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

COMPARISON OF QUARTER ENDED JUNE 30, 2004 TO QUARTER ENDED JUNE 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 $226,240 (approximately 6%) to $4,002,093 during the three
month period ended June 30, 2004, from $3,775,853 during the same three month
period in 2003. In the six months ended June 30, 2004, sales increased $852,762
over the same six month period in 2003. This increase was primarily attributable
to continued growth in sales of Lifeway's products to existing customers. In
June 2003, Lifeway's new customer Sav-A-Lot placed its initial orders of
Lifeway's products in order to stock its shelves. Therefore, the initial
Sav-A-Lot orders were substantially larger than the re-stocking orders Lifeway
received and fulfilled during the three months ended June 30, 2004. Save-A-Lot,
the 13th largest grocery chain in the United States, operates more than 1,000
Sav-A-Lot and Supervalu food stores nationwide.

                                       13
<PAGE>

Cost of goods sold as a percentage of sales was 56% for the three months ended
June 30, 2004, compared to 46% for the same three month period in 2003. Cost of
goods sold increased by $531,867 to $2,265,802 during the three month period
ending June 30, 2004 (approximately 31%) from $1,733,935 during the same three
month period in 2003. In the six months ended June 30, 2004, cost of goods sold
increased $805,109 (approximately 23%) over the same six month period in 2003.
The price of milk, our largest cost of goods component, rose approximately 80%
during this same six month period. The largest component of the increase in the
cost of goods sold during the first six months of 2004 was a milk price increase
of approximately 110% during the three months ended June 30, 2004

Lifeway anticipates improved gross profit margins for the balance of 2004 as the
price of milk has sharply declined in July and thus far in August 2004, and
expects milk prices to continue to decline to levels seen in periods prior to
this one.

Operating expenses increased approximately 12% during the three month period
ended June 30, 2004 compared to the same three month period in 2003. For the six
month period ended June 30, 2004, operating expenses increased approximately
8.3% compared to the same six 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 second 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) a one-time expense of
approximately $42,185 to list additional Company shares on The Nasdaq Stock
Market following the stock split declared by Lifeway's Board of Directors on
February 12, 2004. The $41,860 stock grant expense is also accounted for as a
positive cash flow associated with the reissuance of treasury stock for the
purposes of employee equity awards, as discussed below. Lifeway will recognize
the same expense in the third quarter of 2004 due to the vesting of a further
2,000 shares of the total 5,100 shares awarded.

Net income decreased approximately 38% during the three month period ended June
30, 2004 compared to the same three month period in 2003. This decreased is
primarily attributable to the increase in the cost of goods sold due to the 110%
increase in the price of milk discussed above. In the six month period ended
June 30, 2004, net income decreased approximately 29% compared to the same six
month period in 2003. This decrease is primarily attributable to the fact that
in 2003 Lifeway had a one-time gain from the sale of property of $1,246,287.

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. Net cash used in investing activities
increased by $363,575 for the six months ended June 30, 2004 as compared to the
increase of $216,125 during the same period in 2003. The increase in the
negative net investing activity cash flow during the six month period ended June
30, 2004 relative to the same period in 2003 was attributable to the recognition
in 2003 of a one-time gain from the sale of real property and investment of
substantially all of the proceeds of that sale in cash equivalents, thus
providing positive cash flow from investing. During the six month period ended
June 30, 2004, Lifeway experienced negative cash flows from investing in the
amount of $363,575 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 two calendar quarters of
2004 also are reflected in a gain of $309,329 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 shall vest in the third quarter of
2004. In this paragraph, 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

                                       14
<PAGE>

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 of America ("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

      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 June 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. 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
internal controls 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
internal control procedures.

As of the date of this quarterly report, there have been no known significant
changes in internal controls or in other factors that could significantly affect
these controls subject to the date of such evaluation.


                                       15
<PAGE>

                           PART II - OTHER INFORMATION


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

On June 12, 2004, Lifeway held its annual meeting of shareholders of record as
of April 13, 2004. The shareholders voted to elect Lifeway's directors and to
ratify the appointment of Plante & Moran, PLLC as the Company's independent
auditors for 2004. The results of the shareholder vote were as follows:
<TABLE><CAPTION>

MATTER VOTED UPON                            VOTES IN FAVOR     VOTES WITHHELD     ABSTENTIONS
------------------------------------------   --------------     --------------     -----------
<S>                                           <C>                  <C>                <C>
(1)  ELECTION OF DIRECTORS
            Ludmila Smolyansky                 8,193,820            50,868             N/A
            Julie Smolyansky                   8,200,120            44,568             N/A
            Pol Sikar                          8,195,377            49,311             N/A
            Rick D. Salm                       8,201,377            43,311             N/A
            Renzo Bernardi                     8,195,377            49,311             N/A
            Thomas Kunz                        8,201,377            43,311             N/A

(2)  RATIFICATION OF PLANTE & MORAN, PLLC      6,480,163            36,707          1,727,818
</TABLE>


ITEM 5. OTHER INFORMATION

On July 1, 2004, Thomas Kunz resigned from the board of directors of Lifeway.
Mr. Kunz was also the President of Danone Foods, Inc. ("Danone") and has been a
director pursuant to the terms of that certain Stockholders Agreement dated as
of October 1, 1999 among Danone, Lifeway and certain individual Lifeway
stockholders (the "Stockholders Agreement"). Under the Stockholders Agreement,
Danone is entitled to designate one of the directors on the Lifeway board.
Effective July 1, 2004, Mr. Kunz ceased to be the President of Danone, Inc. and
was no longer designated to represent Danone on the Lifeway board of directors.
Danone has designated its new President, Juan Carlos, to occupy the board seat
formerly held by Mr. Kunz. Accordingly, the Lifeway board of directors has
approved Mr. Carlos to fill the vacancy on the board created as a result of Mr.
Kunz's resignation.

On August 16, 2004, the Company announced its financial results for the fiscal
quarter ended June 30, 2004 and certain other information. A copy of the
Company's press release announcing these financial results and certain other
information is attached as Exhibit 99.1 hereto. The information contained in
Exhibit 99.1 hereto is being furnished, and should not be deemed "filed" for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liabilities imposed by that Section. The information
contained in Exhibit 99.1 shall not be incorporated by reference into any
registration statement or other document or filing under the Securities Act of
1933, as amended, except as may be expressly set forth in a specific filing. The
press release filed as an exhibit to this report includes "safe harbor" language
pursuant to the Private Securities Litigation Reform Act of 1995, as amended,
indicating that certain statements about the Company's business and other
matters contained in the press release are "forward-looking." The press release
also cautions investors that "forward-looking" statements may be different from
actual operating results. Finally, the press release states that a more thorough
discussion of risks and uncertainties which may affect the Company's operating
results is included in the Company's reports on file with the Securities and
Exchange Commission.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit    Description
Number

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).

                                       16
<PAGE>

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

10.12      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 the Registrant's Current Report on
           Form 8-K dated December 24, 1999 and filed January 11, 2000).

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

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

10.15      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.

99.1       Press release dated August 16, 2004 regarding earnings for the
           quarter ended June 30, 2004.

(b) Reports on Form 8-K.

      On June 3, 2004, the Company filed a Current Report on Form 8-K with
disclosures in Items 4 and 7 regarding the merger of the Company's certifying
accountant, Gleeson, Sklar, Sawyers & Cumpata, LLP, into Plante & Moran, PLLC on
May 13, 2004.

      On June 10, 2004 and June 15, 2004, the Company filed amendments on Forms
8-K/A to its Current Report on Form 8-K filed on June 3, 2004 with amendments to
its disclosures in Item 4 regarding the merger of the Company's certifying
accountant, Gleeson, Sklar, Sawyers & Cumpata, LLP, into Plante & Moran, PLLC on
May 13, 2004.


                                       17
<PAGE>

                                    SIGNATURE


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



Date: August 16, 2004
                                       LIFEWAY FOODS, INC.

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



















                                       18