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    www.eXFILE.com 888.775-4789 --- LIFEWAY FOODS, INC.  CORRESPONDENCE

    July 1,
2009

    Via EDGAR and
FACSIMILE

    Mr. Mark
Wojciechowski

    Staff
Accountant

    United
States Securities and Exchange Commission

    Division
of Corporation Finance

    100 F
St., N.E.

    Washington,
D.C.  20549-7010

              Re:

              Lifeway Foods,
      Inc.

                Form
      10-K for the Fiscal Year Ended December 31, 2008

                  Filed
      March 31, 2009

                    Form
      10-Q for the Quarterly Period Ended March 31, 2009 Filed  May
      15, 2009

                    File
      No. 0-17363

    Dear Mr.
Wojciechowski:

    On behalf of Lifeway Foods, Inc.
(“Lifeway” or the “Company”), set forth below are the Company’s responses to
your letter of comment dated May 28, 2009 to Ms. Julie Smolyansky, Chief
Executive Officer and President of the Company.  The numbered
responses of the Company and related captions contained in this letter
correspond to the numbered paragraphs and related captions in the letter of
comment.

        Mr. Mark
Wojciechowski

        July 1,
2009

        Page
2

    Form 10-K for the Fiscal
Year Ended December 31, 2008

    General

              1.

              We
      note your disclosure that your Proxy Statement for your 2009 Annual
      Meeting of Shareholders scheduled to be held June 19, 2009 was to be filed
      no later than April 30, 2009.  Please tell us when you expect to
      file this proxy statement.

    ANSWER:

    The Proxy
Statement for our 2009 Annual Meeting of Shareholders was filed on June 5, 2009.
Please note that the Form 10-K filed on March 31, 2009 contained all required
Part III disclosure.

      Management’s Discussion and
Analysis of Financial Condition and results of
Operations

      Critical Accounting
Policies, page 18

              2.

              Please
      expand your discussion and analysis to disclosure and significant
      assumptions and estimates underlying your critical accounting
      policies.  Please also expand your disclosure to discuss the
      variability that is reasonably likely to result over time from the
      uncertainties inherent in these assumptions and
      estimates.  Consider disclosing a sensitivity analysis or
      discussing how your assumptions and estimates in prior periods have
      compared to actual results.  Refer to Section V of Securities
      and Exchange Commission release No. 33-8350, which can be found on the
      Commission’s website at:

              http://www.sec.gov/rules/interp/33-8350.htm

              In
      your response to this comment, please provide us with a sample of your
      proposed expanded disclosure.

    ANSWER:

    The
Company has not previously released its annual financial statements separately
from its 10-K.  In accordance with past practices, management has
referred to its accounting policies in its financial statements and referenced
the same in the discussion and analysis.  However, in future
discussion and analysis, the Company will include a discussion of its critical
accounting policies.  The following is a proposed expanded
disclosure:

        Mr. Mark
Wojciechowski

        July 1,
2009

        Page
3

    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.  We believe that certain
accounting policies are of more significance in our consolidated financial
statement preparation than others, which policies are discussed
below.  See also Note 2 to the consolidated financial statements for a
summary of our principal accounting policies.

    ALLOWANCE FOR DOUBTFUL
ACCOUNTS

    We
maintain an allowance for doubtful accounts primarily based on the age of
receivables, historical loss experience, factors surrounding the credit risk of
specific customers and unusual circumstances, if any.  We regularly
review the recoverability and age of our trade receivables.  If there
is a deterioration of customers’ creditworthiness or actual defaults are higher
than our historical experience, we will provide additional
allowances.

    We have
had a good experience in collecting our trade receivables and also in estimating
our allowance for doubtful accounts.

    GOODWILL

    Goodwill
represents the excess purchase price over the fair value of the net tangible and
other intangible assets acquired.  Goodwill is not amortized and is
reviewed for impairment at least annually.  We conduct our annual
impairment testing on December 31 to determine if we will be able to recover all
or a portion of the carrying value of goodwill.  We test goodwill more
frequently if events or changes in circumstances indicate that it might be
impaired.

    The
application of the impairment test requires judgment, including the
identification of reporting units, assignments of assets and liabilities to
reporting units and the determination

        Mr. Mark
Wojciechowski

        July 1,
2009

        Page
4

    of the
fair value of each reporting unit.  Further, the impairment test
involves the use of accounting estimates and assumptions related to future
operating results.

    We will
continue to closely monitor the 2009 results and projections for our reporting
units and the economic conditions of the products end-markets.  Any
significant change in market conditions, estimates or judgments could give rise
to impairment in the period that the change becomes known.

    These
impairment tests also involve the use of accounting estimates and assumptions
believed to be reasonable, the results of which form the basis for our
conclusions.  Significant changes to these estimates and assumptions
could adversely impact our conclusion to these impairment tests.

    INTANGIBLE
ASSETS

    The
Company’s intangible assets were acquired as a result of various business
acquisitions. Prior to 2009, the Company accounted for intangible assets based
on the business combination purchase price allocated to the indentified
intangible.  Beginning in 2009, the Company is accounting for business
combinations in accordance with SFAS No.  141(R) which requires assets
acquired be recorded at their fair value.  The Company amortizes
intangible assets over their estimated useful lives.  Intangible
assets recorded and their useful lives are: recipes (4 years), customer lists
and other customer related intangibles (7-12 years), lease agreement (7 years),
trade names (15 years) and formulas (10 years).

    The
Company reviews intangible assets and their related useful lives at least once a
year to determine if any adverse conditions exist that would indicate the
carrying value of these assets may not be recoverable.  The Company
conducts more frequent impairment assessments if certain conditions exist,
including: a change in the competitive landscape, any internal decisions to
pursue new or different strategies, a loss of a significant customer, or a
significant change in the market place including changes in the prices paid for
the Company’s products or changes in the size of the market for the Company’s
products.

    MARKETABLE
SECURITIES

    All
investment securities are classified as available-for-sale, and are carried at
fair value or quoted market prices.  Unrealized gains and losses on
available-for-sale securities are reported as a separate component of
stockholders’ equity, net of tax.  Amortization, accretion, interest
and dividends, realized gains and losses, and declines in value judged to be
other-than-temporary on available-for-sale securities are recorded in other
income.  All of the

        Mr. Mark
Wojciechowski

        July 1,
2009

        Page
5

    Company’s
securities are subject to a periodic impairment evaluation.  This
evaluation depends on the specific facts and circumstances.  Factors
that we consider in determining whether an other-than-temporary decline in value
has occurred include: (a) the size and duration of the decline; (b) the
financial condition of the investee; and (c) the intent and ability to retain
the investment for a sufficient period of time to allow for possible recovery in
the market value of the investment.  In determining fair value for
financial assets the use of assumptions about future cash flows and
appropriately risk-adjusted discount rates are acceptable when relevant
observable inputs are not available.  In some cases we may determine
that observable inputs require significant adjustment based on unobservable
data.  More information on the specific methods used to determine fair
values of the Company’s securities available-for-sale at December 31, 2008 can
be found in Note 4, Marketable Securities, in the accompanying notes to the
consolidated financial statements.

    DEFERRED 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.

    Our tax
rate is based on expected income and tax planning opportunities available in the
various jurisdictions in which we operate.  For interim financial
reporting, we estimate the annual tax rate based on projected taxable income for
the full year and record a quarterly income tax provision in accordance with the
anticipated annual rate.  As the year progresses, we refine the
estimates of the year’s taxable income as new information becomes available,
including year-to-date financial results.  This continual estimation
process may result in a change to our expected effective tax rate for the
year.  When this occurs, we adjust the income tax provision during the
quarter in which the change in estimate occurs so that the year-to-date
provision reflects the expected annual tax rate.  Significant judgment
is required in determining our effective tax rate and in evaluating our tax
positions.

    In
accordance with SFAS No. 109, “Accounting for Income Taxes,” we recognize
deferred tax assets and liabilities based on the differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities.  Deferred tax assets represent items to be used as a tax
deduction or credit in future tax returns for which we have already properly
recorded the tax benefit in the income statement.  At least quarterly,
we assess the likelihood that the deferred tax asset balance will be recovered
from future taxable income.  We take

        Mr. Mark
Wojciechowski

        July 1,
2009

        Page
6

    into
account such factors as prior earnings history, expected future earnings,
carry-back and carry-forward periods and tax strategies that could potentially
enhance the likelihood of a realization of a deferred tax asset.  To
the extent recovery in unlikely, a valuation allowance is established against
the deferred tax asset and increasing our income tax expense in the year such
determination is made.

    Evaluation of Disclosure
Controls and Procedures, page 37

              3.

              We
      note your disclosure that your disclosure controls and procedures were not
      effective as of December 31, 2008.  We also note your related
      disclosure in your Form 10-Q for the quarterly period ended March 31,
      2009.  Please disclose when each significant deficiency was
      identified, by whom it was identified, and when each significant
      deficiency first began.

    ANSWER:

              We
      have identified the following material weaknesses in our internal control
      for financial reporting:

              Item
      1.  An incomplete and undocumented financial reporting process,
      including an overview of the financial disclosure
    principals;

              Item
      2.  No documented accounting procedures manual available for
      employee use; and

              Item
      3.  No documented accounting procedures in valuing of marketable
      securities other than temporary
impairment.

              Edward
      Smolyansky, the Company’s Chief Financial Officer, Chief Accounting
      Officer and Controller, identified the deficiency described in Item 1
      above in early 2008.  Until such time as the deficiency was
      identified, the Company believed its financial reporting process to be
      adequate.

              Edward
      Smolyansky identified the deficiency described in Item 2 above in early
      2008.  The Company has not previously had such an accounting
      procedures manual.

        Mr. Mark
Wojciechowski

        July 1,
2009

        Page
7

              Edward
      Smolyansky identified the deficiency described in Item 3 above around
      November 2008, and such deficiency first began in the third quarter of
      2008.

      Management’s Report in
Internal Control Over Financial Reporting, page 37

              4.

              We
      also note that your management plans to “take corrective action” and to
      implement “additional controls” to address the material weaknesses
      disclosed.  With respect to this remediation effort, please
      expand your disclosure to include each of the specific steps that you have
      undertaken, or intend to undertake, to address such deficiencies, along
      with the timeframe for remediation and any associated materials
      costs.

    ANSWER:

              With
      respect to the Company’s plan to “take corrective action” and to implement
      “additional controls” in order to address material weaknesses discussed in
      Items 1, 2 and 3 of Comment No. 3 above, the Company has taken the
      following steps:

              With
      respect to the deficiency discussed in Item 1, the Company has
      implemented use of a software program called  Microsoft Business
      Solutions-Navision ("NAV") as of June 1, 2009. Basically, the NAV software
      increases the financial reporting ability of the Company over the previous
      accounting software, and it implements more controls and strengthens the
      existing controls over the financial reporting process as well as allowing
      for more documentation of the financial reporting process. The cost
      to the Company to implement the NAV software program is
      approximately $100,000.  The Company believes this action will
      remediate the deficiency discussed in such
item.

              With
      respect to the deficiency discussed in Item 2, the Company has
      postponed further development of such manual until it can
      further analyze the new NAV software's effect on its financial
      controls.

              With
      respect to the deficiency discussed in Item