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

                                  FORM 10-QSB/A
                                 AMENDMENT NO.1
(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, 2002

[ ]      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 ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [ ] 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 14, 2002, the issuer
had 4,268,444 shares of common stock, no par value, outstanding.

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

                     EXPLANATION FOR FILING OF FORM 10-QSB/A

The purpose of this Form 10-QSB/A Amendment No. 1 is to amend the previously
filed Form 10-QSB of Lifeway Foods, Inc. for the quarter ended September 30,
2002 to include in this quarterly filing the disclosure regarding controls and
procedures and certification by the Chief Executive Officer of financial
statements as required by Section 302 of the Sarbanes-Oxley Act of 2002.

























                                        2
<PAGE>

                                      INDEX

                                                                            PAGE


PART I - FINANCIAL INFORMATION................................................4

     ITEM 1. FINANCIAL STATEMENTS.............................................4

     LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
     FINANCIAL CONDITION SEPTEMBER 30, 2002 AND 2001 AND DECEMBER 31, 2001....4

     LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
     INCOME AND COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS
     ENDED SEPTEMBER 30, 2002 AND 2001 AND THE YEAR ENDED DECEMBER 31, 2001...5

     LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
     CHANGES IN STOCKHOLDERS' EQUITY SEPTEMBER 30, 2002 AND DECEMBER 31,
     2001.....................................................................6

     LIFEWAY FOODS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH
     FLOWS SEPTEMBER 30, 2002 AND 2001 AND DECEMBER 31, 2001..................7

     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS...............................................16

PART II - OTHER INFORMATION..................................................18

     ITEM 1. LEGAL PROCEEDINGS...............................................18

     ITEM 2. CHANGES IN SECURITIES...........................................18

     ITEM 3. CONTROLS AND PROCEDURES.........................................18

     ITEM 4. DEFAULTS UPON SENIOR SECURITIES.................................18

     ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............18

     ITEM 6. OTHER INFORMATION - NONE........................................19

     ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K................................19

SIGNATURES AND CERTIFICATIONS................................................20


                                        3
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           SEPTEMBER 30, 2002 AND 2001
                              AND DECEMBER 31, 2001

<TABLE><CAPTION>
ASSETS                                               September 30,   September 30,
                                                         2002            2001        December 31,
                                                     (Unaudited)     (Unaudited)         2001
                                                     ------------    ------------    ------------
Current assets
<S>                                                  <C>             <C>             <C>
Cash and cash equivalents                            $  1,385,520    $    415,731    $    936,949
Marketable securities                                   4,902,476       5,403,173       5,754,986
Accounts receivable, net of allowance for doubtful
accounts of $15,000 at September 30, 2002 and
December 31, 2001 and $0 at September 30, 2001          1,558,312       1,498,505       1,316,626
Other receivables                                          70,083          27,278          52,602
Inventories                                               794,802         819,678         800,773
Prepaid expenses and other current assets                  26,828            --            33,686
Deferred income taxes                                     697,305         450,165         560,543
                                                     ------------    ------------    ------------
Total current assets                                    9,435,326       8,614,530       9,456,165
                                                     ------------    ------------    ------------
Property, plant, and equipment, net                     4,587,013       4,981,216       5,020,865
                                                     ------------    ------------    ------------
Total assets                                         $ 14,022,339    $ 13,595,746    $ 14,477,030
                                                     ============    ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of notes payable                  $     63,432    $    655,878    $     90,249
Margin account                                               --              --           431,795
Accounts payable                                          629,563         506,116         543,401
Accrued expenses                                          206,065         224,716         163,715
Income taxes payable                                      278,884         203,021         144,916
                                                     ------------    ------------    ------------
Total current liabilities                               1,177,944       1,589,731       1,374,076
                                                     ------------    ------------    ------------
Long-term liabilities                                     467,724         508,463       1,116,410
Deferred income taxes                                     421,344         397,178         436,265
Stockholders' equity
Common stock                                            6,509,267       6,509,267       6,509,267
Stock subscription receivable                             (15,000)        (15,000)        (15,000)
Treasury stock, at cost                                  (322,378)           --          (287,033)
Retained earnings                                       7,402,366       5,651,673       6,071,793
Accumulated other comprehensive loss, net of tax       (1,618,928)     (1,045,566)       (728,748)
                                                     ------------    ------------    ------------
Total stockholders' equity                             11,955,327      11,100,374      11,550,279
                                                     ------------    ------------    ------------
Total liabilities and stockholders' equity           $ 14,022,339    $ 13,595,746    $ 14,477,030
                                                     ============    ============    ============
</TABLE>
                 See accompanying notes to financial statements.

                                        4
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
                      AND THE YEAR ENDED DECEMBER 31, 2001
<TABLE><CAPTION>

                                            (Unaudited)                     (Unaudited)
                                        Three Months Ended               Nine Months Ended          Year Ended
                                    Sept. 30,       Sept. 30,        Sept. 30,      Sept. 30,      December 31,
                                       2002            2001             2002           2001            2001
                                   ------------    ------------    ------------    ------------    ------------
<S>                                <C>             <C>             <C>             <C>             <C>
Sales                              $  3,074,987    $  2,662,178    $  8,965,423    $  8,044,596    $ 10,683,983
Cost of goods sold                    1,586,497       1,617,573       4,870,278       4,809,586       6,448,992
                                   ------------    ------------    ------------    ------------    ------------
Gross profit                          1,488,490       1,044,605       4,095,145       3,235,010       4,234,991
Operating expenses                      749,984         692,755       2,132,695       2,119,699       2,797,747
                                   ------------    ------------    ------------    ------------    ------------
Income from operations                  738,506         351,850       1,962,450       1,115,311       1,437,244
                                   ------------    ------------    ------------    ------------    ------------
Other income (expense):
   Interest and dividend income          67,188          57,418         157,825         180,109         232,173
   Interest expense                     (19,314)        (20,675)        (58,645)        (75,092)       (107,425)
   Gain (loss) on sale of
   marketable                            (2,947)         58,282          36,391         171,917         249,522
     securities, net
                                   ------------    ------------    ------------    ------------    ------------
Total other income                       44,927          95,025         135,571         276,934         374,270
                                   ------------    ------------    ------------    ------------    ------------
Income before provision for
income taxes                            783,433         446,875       2,098,021       1,392,245       1,811,514
Provision for income taxes              252,074         207,025         767,448         591,437         590,587
                                   ------------    ------------    ------------    ------------    ------------
Net income                              531,359         239,850       1,330,573         800,808       1,220,927
                                   ============    ============    ============    ============    ============
Earnings per common share                  0.12            0.06            0.31            0.19            0.28
                                   ============    ============    ============    ============    ============
Weighted average shares
outstanding                           4,268,904       4,318,444       4,268,904       4,318,444       4,318,158
                                   ============    ============    ============    ============    ============
COMPREHENSIVE INCOME
Net income                         $    531,359    $    239,850    $  1,330,573    $    800,808    $  1,220,927
Other comprehensive income
(loss), net of tax:
Unrealized losses on marketable
securities (net of tax benefits)        (96,142)       (427,363)       (793,332)       (825,184)       (537,505)
Less reclassification adjustment
for gains (losses)
included in net income                  (98,833)        (27,109)        (96,848)        (15,269)         13,870
                                   ------------    ------------    ------------    ------------    ------------
Comprehensive income (loss)        $    366,384    $   (214,622)   $    440,393    $    (39,645)   $    697,292
                                   ============    ============    ============    ============    ============
</TABLE>
                 See accompanying notes to financial statements.

                                        5
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
<TABLE><CAPTION>

                            Common Stock, No Par
                           Value 10,000,000 Shares                                                                   Accumulated
                                  Authorized            # of                                                            Other
                          ------------------------   Shares of                   Stock      Treasury                Comprehensive
                          # of Shares  # of Shares   Treasury      Common     Subscription   Stock,      Retained      Income,
                            Issued     Outstanding     Stock        Stock      Receivable   at Cost      Earnings    Net of Tax
                          -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
<S>                       <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Balances at December
31, 2000                    4,318,444    4,318,444         --    $ 6,509,267  $   (15,000) $      --    $ 4,850,866  $  (205,113)
Other comprehensive
income (loss):

Unrealized losses on
securities,
net of taxes and
reclassification
adjustment                       --           --           --           --           --           --           --       (523,635)

Purchase of Treasury
Stock                            --        (45,000)      45,000         --           --       (287,033)        --           --

Net income for the year
ended December 31, 2001          --           --           --           --           --           --      1,220,927         --
                          -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balances at December
31, 2001                    4,318,444    4,273,444       45,000    6,509,267      (15,000)    (287,033)   6,071,793     (728,748)

Purchase of treasury
stock                            --         (5,000)       5,000         --           --        (35,345)        --           --

Other comprehensive
income (loss):

Unrealized losses on
securities,
net of taxes and
reclassification
adjustment                       --           --           --           --           --           --           --       (890,180)

Net income for the nine
months ended
September 30, 2002               --           --           --           --           --           --      1,330,573         --
                          -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balances at September
30, 2002 (Unaudited)        4,318,444    4,268,444       50,000    6,509,267  $   (15,000) $  (322,378) $ 7,402,366  $(1,618,928)
                          ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>
                 See accompanying notes to financial statements.

                                        6
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           SEPTEMBER 30, 2002 AND 2001
                              AND DECEMBER 31, 2001

<TABLE><CAPTION>
                                                            (Unaudited)
                                                           September 30,          December 31,
                                                           -------------          -----------
                                                        2002           2001           2001
                                                    -----------    -----------    -----------
Cash flows from operating activities:
<S>                                                 <C>            <C>            <C>
Net income                                          $ 1,330,573    $   800,808    $ 1,220,927
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization                           606,735        571,168        777,350
Gain (loss) on sale of marketable securities, net
                                                        (36,391)      (171,917)      (249,522)
Deferred income taxes                                       735         57,468         47,952
Provision for doubtful accounts                            --             --           15,000
(Increase) decrease in operating assets:
Accounts receivable                                    (241,686)      (316,845)      (149,966)
Other receivables                                       (17,481)       (27,278)       (52,602)
Inventories                                               5,971        100,333        119,238
Prepaid expenses and other current assets                 6,858           --          (33,686)
Increase (decrease) in operating liabilities:
Accounts payable                                         86,162        (11,509)        25,776
Accrued expenses                                         42,350        (17,754)        (4,105)
Income taxes payable                                    133,968        138,467         80,362
                                                    -----------    -----------    -----------
Net cash provided by operating activities             1,917,794      1,122,941      1,796,724
Cash flows from investing activities:
Purchase of marketable securities                    (5,493,045)    (7,437,318)    (9,246,972)
Sales of marketable securities                        5,339,349      5,896,672      7,687,102
Purchases of property, plant and equipment             (172,884)      (532,769)      (712,798)
Change in margin account                               (431,795)          --          357,145
                                                    -----------    -----------    -----------
Net cash used in investing activities                  (758,375)    (2,073,415)    (1,915,523)
Cash flows from financing activities:
Repayment of notes payable                             (675,503)       (70,836)       (94,320)
Purchase of treasury stock                              (35,345)          --         (287,033)
Net cash used in financing activities                  (710,848)       (70,836)      (381,353)
Net increase (decrease) in
cash and cash equivalents                               448,571     (1,021,370)      (500,152)
Cash and cash equivalents at the beginning
of the period                                           936,949      1,437,101      1,437,101
                                                    -----------    -----------    -----------
Cash and cash equivalents at end of period          $ 1,385,520    $   415,731    $   936,949
                                                    ===========    ===========    ===========
</TABLE>
                 See accompanying notes to financial statements.

                                        7
<PAGE>

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 2001 and for the
nine months ended September 30, 2002 and 2001, export sales of the Company were
approximately $154,000, $40,294, and $36,330, 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.

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:

                                        8
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. 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.

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 Protection Corporation.

     Bank balances of amounts reported by financial institutions are categorized
as follows at September 30, 2002.


Amounts insured                                     $   354,235
Uninsured and uncollateralized amounts                1,451,104
                                                    -----------
Total bank balances                                 $ 1,805,339
                                                    ===========

MARKETABLE SECURITIES

     Marketable securities are classified as available-for-sale 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 period.

                                        9
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

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.

ADVERTISING COSTS

     The Company expenses advertising costs as incurred. During the year 2001
and for the nine months ended September 30, 2002 and 2001, approximately
$473,800, $297,185, and $344,578, 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 2002 and 2001, diluted and basic earnings per share were
the same, as the effect of dilutive securities options outstanding was not
significant.

                                       10
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

Note 3 - MARKETABLE SECURITIES

     The cost and fair value of marketable securities available for sale are as
follows:
<TABLE><CAPTION>
                                                    Unrealized     Unrealized        Fair
September 30, 2002                      Cost           Gains         Losses          Value
------------------                   -----------    -----------    -----------    -----------
<S>                                  <C>            <C>            <C>            <C>
Equities - common                    $ 3,196,120    $     7,941    $(2,292,884)   $   911,177
Equities - preferred                     125,000           --          (17,050)       107,950
Municipal bonds, maturing
  within five years                    3,863,322         20,027           --        3,883,349
                                     -----------    -----------    -----------    -----------
Total                                $ 7,184,442    $    27,968    $(2,309,934)   $ 4,902,476
                                     ===========    ===========    ===========    ===========


                                                    Unrealized     Unrealized        Fair
September 30, 2001                      Cost           Gains         Losses          Value
------------------                   -----------    -----------    -----------    -----------
Equities                             $ 6,994,605    $    28,998    $(1,550,230)   $ 5,473,373
Options, maturing within
  one year                               (52,488)          --          (17,712)       (70,200)
                                     -----------    -----------    -----------    -----------
Total                                $ 6,942,117    $    28,998    $(1,567,942)   $ 5,403,173
                                     ===========    ===========    ===========    ===========


                                                    Unrealized     Unrealized        Fair
December 31, 2001                       Cost           Gains         Losses          Value
-----------------                    -----------    -----------    -----------    -----------
Equities                             $ 3,447,853    $    46,888    $(1,238,666)   $ 2,256,075
Preferred securities                     777,723          6,827         (6,240)       778,310
Municipal bonds,
maturing within five years             2,554,622           --          (63,184)     2,491,438

Government agency
  obligations, maturing
  after five years                       248,755           --           (7,392)       241,363

Options, maturing within
  one year                               (34,600)        22,400           --          (12,200)
                                     -----------    -----------    -----------    -----------
Total                                $ 6,994,353    $    76,115    $(1,315,482)   $ 5,754,986
                                     ===========    ===========    ===========    ===========
</TABLE>

     Proceeds from the sale of marketable securities were $7,687,102,
$5,339,349, and $5,896,672 during the year 2001 and during the nine month
periods ended September 30, 2002 and 2001, respectively.

                                       11
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001


     Gross gains of $249,522, $36,391, and $171,917, were realized on these
sales during the year 2001 and for the nine months ended September 30, 2002 and
2001, respectively.

Note 4 - INVENTORIES

Inventories consist of the following:

                                             (Unaudited)
                                            September 30,
                                     --------------------------    December 31,
                                         2002           2001           2001
                                     -----------    -----------    -----------
Finished goods                       $   433,186    $   427,021    $   273,932
Production supplies                      222,228        230,489        280,897
Raw materials                            139,388        162,168        245,944
                                     -----------    -----------    -----------
Total inventories                    $   794,802    $   819,678    $   800,773
                                     ===========    ===========    ===========


Note 5 - PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consists of the following:

<TABLE><CAPTION>
                                            (Unaudited)
                                           September 30,
                                     --------------------------    December 31,
                                         2002           2001           2001
                                     -----------    -----------    -----------
<S>                                  <C>            <C>            <C>
Land                                 $   658,400    $   658,400    $   658,400
Buildings and improvements             2,743,593      2,679,885      2,727,986
Machinery and equipment                4,802,886      3,818,070      4,668,863
Vehicles                                 359,383        250,328        359,383
Office equipment                         108,198         72,379         84,945
                                     -----------    -----------    -----------
                                       8,672,460      8,253,746      8,499,577
Less accumulated depreciation          4,085,447      3,272,530      3,478,712
                                     -----------    -----------    -----------
                                     $ 4,587,013    $ 4,981,216    $ 5,020,865
                                     ===========    ===========    ===========
</TABLE>
     Depreciation expense during the year ended December 31, 2001 and for the
nine months ended September 30, 2002 and 2001 was $777,350, $606,735, and
$571,168, respectively.

Note 6 - NOTES PAYABLE

Notes payable consist of the following:

                                       12
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

                                             (Unaudited)
                                            September 30,
                                     --------------------------    December 31,
                                         2002           2001           2001
                                     -----------    -----------    -----------
Mortgage note payable to a bank,
paid in full in 2002.                $      --      $   158,769    $   155,506

Mortgage note payable to a bank,
payable in monthly installments of
$3,161 including interest at 7.25%.
Collateralized by real estate.              --          368,988        366,253

Note payable to a bank, paid
in full in 2002.                            --            7,628          6,169

Mortgage note payable to a bank,
payable in monthly installments
of principal of $3,435 plus interest
at 6.51%, with a balloon payment
of $412,142 due November 2006.
Collateralized by real estate.           483,868        628,432        614,779


Note payable to finance company.            --              524           --

Notes payable to finance companies,
payable in monthly installments of
$1,851, including interest at 0%, due
November 2004.  Collateralized by
vehicles.                                 47,288           --           63,952
                                     -----------    -----------    -----------

Total notes payable                      531,156      1,164,341      1,206,659

Less current maturities                   63,432        655,878         90,249
                                     -----------    -----------    -----------
Total long-term portion              $   467,724    $   508,463    $ 1,116,410
                                     ===========    ===========    ===========

Maturities of notes payables are as follows:

As of September 30,

                2003                 $    63,432
                2004                      63,432
                2005                      44,922
                2006                      41,220
                2007                     318,150
                                     -----------
               Total                 $   531,156
                                     ===========

                                       13
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

Note 7 - PROVISION FOR INCOME TAXES

The provision for income taxes consists of the following:

                                             (Unaudited)
                                      For the Nine Months Ended      For the
                                            September 30,           Year Ended
                                     --------------------------    December 31,
                                         2002           2001           2001
                                     -----------    -----------    -----------
Current:
Federal                              $   618,335    $   433,509    $   435,620
State                                    148,378        100,460        107,015
                                     -----------    -----------    -----------
Total current                            776,713        533,969        542,635
Deferred                                     735         57,468         47,952
                                     -----------    -----------    -----------
Provision for income taxes           $   767,448    $   591,437    $   590,587
                                     ===========    ===========    ===========

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

                                             (Unaudited)
                                      For the Nine Months Ended      For the
                                            September 30,           Year Ended
                                     --------------------------    December 31,
                                         2002           2001           2001
                                     -----------    -----------    -----------
Federal income tax expense
  computed at the statutory rate     $   671,367    $   465,653    $   570,953
State taxes, expense                     152,946         99,963        132,240
Temporary book/tax differences
  Depreciation                            39,152           --          (38,950)
  Other                                  (38,001)          --          (18,071)
Permanent book/tax differences           (58,016)        25,821        (55,585)
                                     -----------    -----------    -----------
Provision for income taxes           $   767,448    $   591,437    $   590,587
                                     ===========    ===========    ===========

Amounts for deferred tax assets and liabilities are as follows:

                                             (Unaudited)
                                            September 30,
Non-current deferred tax             --------------------------    December 31,
liabilities arising from:                2002           2001           2001
                                     -----------    -----------    -----------
Temporary differences - principally
Book/tax, accumulated depreciation   $  (421,344)   $  (397,178)   $  (436,265)

Current deferred tax assets
arising from:

Book/tax, allowance for unrealized
  losses                                 953,038        448,845        510,620
Book/tax, inventory                       34,267           --           49,923
Book/tax, options                           --           (1,320)          --
Valuation allowance                     (290,000)          --             --
                                     -----------    -----------    -----------
Total deferred tax assets                697,305        450,165        560,543
                                     -----------    -----------    -----------
Net deferred tax asset (liability)   $   275,961    $    52,987    $   124,278
                                     ===========    ===========    ===========

                                       14
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

The valuation allowance of $290,000, $0, and $0 as of September 30, 2002,
September 30, 2001 and December 31, 2001, respectively, represents a provision
for uncertainty as to the realization of deferred tax assets resulting from the
increase in unrealized losses from marketable securities in the current period.

Note 8 - SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes are as follows:


                                            (Unaudited)
                                         For the Nine Months         For the
                                         Ended September 30,        Ended Year
                                     --------------------------    December 31,
                                         2002           2001           2001
                                     -----------    -----------    -----------
Interest                             $    58,645    $    75,092    $   107,424
Income taxes                         $   601,758    $   395,502    $   505,518


     Non-cash investing and financing transactions during 2001 include the
purchase of vehicles via notes payable for $65,802 and the refinancing of debt
for $618,214.

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 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 September 30, 2002 and
2001.

     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 September 30, 2002 and 2001, there were no stock options outstanding
or exercisable.

                                       15
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001


Note 10 - 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 September 30, 2002:


                                       Carrying        Fair
                                        Amount         Value
                                     -----------    -----------
Cash and cash equivalents            $ 1,385,520    $ 1,385,520
Marketable securities                  4,902,476      4,902,476
Notes payable                            531,156        553,976

     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.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     The third quarter was the first full quarter Lifeway Foods has operated
under the new management of CEO Julie Smolyansky. The Company has achieved
another record quarter for sales and showed exceptional gross and operating
margin growth. Management implemented several cost cutting measures that helped
push this operating margin growth. The company also lowered its advertising
expenses while at the same time sales increased for both the three months and
nine months ended September 30, 2002. These factors, along with several other
positive initiatives helped fuel the Company to record success. The following is
a summary of the operations for the three months and nine months ended September
30, 2002.

(1) Material Changes in Results of Operations

NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 2001

     Sales increased by $920,827, up to $8,965,423 during the nine-month period
ended September 30, 2002, from $8,044,596 during the same nine-month period in
2001 (an 11% increase). This increase is attributable to a vigorous yet cost
effective marketing initiative undertaken by management. Even though sales
increased by 11% from the nine-month period in 2001 to the nine-month period in
2002, the Company's advertising expenses decreased 14% for the same nine-month
period.

     Cost of goods sold, as a percentage of sales were 54% for the nine-month
period ended September

                                       16
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

30, 2002, compared to 60% for the same nine-month period in 2001. This decrease
is attributable to decreased costs in raw materials and production supplies.

     Operating expenses increased by $12,996, up to $2,132,695 for the
nine-month period ended September 30, 2002, from $2,119,699 during the same
period in 2001.

     Net income increased by $529,765, up to $1,330,573 for the nine-month
period ended September 30, 2002, from $800,808 during the same nine-month period
in 2001 (a 66% increase).

     Earnings per share for the nine months ended September 30, 2002 were $.31,
compared to $.19 for the same nine-month period of 2001.

QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
2001.

     Sales increased by $412,809, up to $3,074,987 during the three-month period
ending September 30, 2002, from $2,662,178 during the same three-month period in
2001 (a 16% increase). This increase is attributable to a vigorous yet cost
effective marketing initiative undertaken by management.

     Cost of goods sold, as a percentage of sales were 51% for the three-month
period ending September 30, 2002, compared to 61% for the same three-month
period in 2001. The decrease was a result of the Company's successful
renegotiation of its vendor contracts for raw materials and production supplies.

     Operating expenses increased by $57,229, or 8%, up to $749,984 for the
three-month period ending September 30, 2002, from $692,755 during the same
three-month period in 2001. Despite a 16% increase in production, operating
expenses only increased by 8%. This is primarily attributable to several cost
saving measures associated with production that were implemented by management.

     Net income increased by $291,509, up to $531,359 for the three-month period
ending September 30, 2002, from $239,850 during the same three-month period in
2001 (a 121% increase).

     Earnings per share for the quarter ended September 30, 2002 were $.12,
compared to $.06 for the same quarter of 2001.

(2) Liquidity and Capital resources

     As of September 30, 2002, the Company had working capital in the amount of
$8,257,382, compared to $7,024,799 as of September 30, 2001, an increase of
$1,232,583. This increase is attributable to an increase in current assets and
decrease in current liabilities as described below.

     Total current liabilities as of September 30, 2002 were $1,177,944, a
$411,787 decrease from $1,589,731 as of September 30, 2001. This decrease is
primarily due to the repayment of mortgage notes payable due in 2002, and August
2003.

                                       17
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

     Total current assets as of September 30, 2002 were $9,435,326, an $820,796
increase from $8,614,530 as of September 30, 2001. This increase is primarily
due to an increase in cash and cash equivalents.

     The Company held marketable securities with a fair market value of
$4,902,476 as of September 30, 2002. These marketable securities have a cost
basis of $7,184,442 which represents $2,281,966 in unrealized losses (net of
unrealized gains) as of September 30, 2002.

     Net cash provided by operating activities increased by $794,853 (or 70%) to
$1,917,794 for the nine months ended September 30, 2002, from $1,122,941 for the
same nine-month period in 2001.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On August 8, 2002, the court entered an order dismissing 19 of 20 counts
against the Company in the lawsuit filed by Fresh Made, Inc. The Company
continues to vigorously defend the remaining count.

ITEM 2. CHANGES IN SECURITIES - None.

ITEM 3. CONTROLS AND PROCEDURES

     Disclosure Controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Based upon and as of the date of that
evaluation, the Chief Executive Officer concluded that the Company's disclosure
control and procedures are effective to ensure that the information required to
be disclosed in the reports the Company files and submits under the Exchange Act
is recorded, processed, summarized and reported as and when required.

ITEM 4. DEFAULTS UPON SENIOR SECURITIES - None.

ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.

                                       18
<PAGE>

                       LIFEWAY FOODS, INC. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements
                           September 30, 2002 and 2001

ITEM 6. OTHER INFORMATION

     Explanation for Filing of Form 10-QSB/A

     The purpose of this Form 10-QSB/A Amendment No. 1 is to amend the
previously filed Form 10- QSB of Lifeway Foods, Inc. for the quarter ended
September 30, 2002 to include in this quarterly filing the disclosure regarding
controls and procedures and certification by the Chief Executive Officer of
financial statements as required by Section 302 of the Sarbanes-Oxley Act of
2002.

ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K

     (a)   EXHIBITS: Exhibit Number and Brief Description

           3.4      Bylaws, as amended. (Incorporated by reference to Exhibit
                    3.4 of the Company's Annual Report on Form 10-KSB for the
                    year ended December 31, 1999 and filed March 29, 2000.)

           3.5      Articles of Incorporation, as amended and currently in
                    effect. (Incorporated by reference to Exhibit 3.5 of the
                    Company's Quarterly Report on Form 10-QSB for the quarterly
                    period ended September 30, 2000 and filed August 8, 2000.)

           10.1     Lifeway Foods, Inc. Consulting and Services Compensation
                    Plan, dated September 5, 1995. (Incorporated by reference to
                    Exhibit 10.1 of the Company'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 the Company'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 Company'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 Company'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 Company's Current Report on Form 8-K dated
                    December 24, 1999 and filed January 11, 2000.)

     (b) REPORTS ON FORM 8-K.

     None.

                                       19
<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.


                             LIFEWAY FOODS, INC.


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


Date: November 18, 2002


                                  CERTIFICATION

         Solely for the purposes of complying with, and to the extent required
by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, the undersigned certifies, in her capacity as an officer of Lifeway
Foods, Inc. (the "Company"), that, to her knowledge, the Quarterly Report of the
Company on Form 10-QSB for the period ended September 30, 2002, fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of 1934
and that the information contained in the report fairly presents, in all
material respects, the Company's financial condition and results of operations.

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

DATE: November 18, 2002








                                       20
<PAGE>

                                  CERTIFICATION

I, Julie Smolyansky, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB/A of Lifeway Foods,
     Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   I am responsible for establishing and maintaining disclosure controls and
     procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
     registrant and have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

                             LIFEWAY FOODS, INC.


Date: November 18, 2002      By:  /S/ JULIE SMOLYANSKY
                                 ------------------------
                                 Julie Smolyansky
                                 Chief Executive Officer, Chief Financial
                                 and Accounting Officer, President,
                                 Treasurer and Director


                                       21