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Lifeway Foods, Inc.

6431 W. Oakton         Morton Grove, IL 60053

    Phone: (847) 967-1010      Fax: (847) 967-6558     E-mail: info@lifeway.net

Web site:  www.lifeway.net  - www.kefir.com – www.starfruitcafe.com

December 9, 2014

Via EDGAR

H. Roger Schwall

Assistant Director

United States Securities and Exchange Commission

100 F St., N.E.

Washington, D.C.  20549

Re:

Lifeway Foods, Inc.

Amendment No. 1 to Form 10-K for Fiscal Year Ended

December 31, 2013 Filed October 3, 2014

Amendment No. 1 to Form 10-Q for Fiscal Quarter Ended

June 30, 2014 Filed October 3, 2014

Response Letter Dated October 3, 2014

File No. 000-17363

Dear Mr. Schwall:

On behalf of Lifeway Foods, Inc. (“Lifeway” or the “Company”), set forth below are the Company’s responses to your letter of comment dated November 7, 2014.  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.

Amendment No. 1 to Form 10-K for Fiscal Year Ended December 31, 2013

Distribution, page 6

1.   We note your response to comment 2 in our letter dated September 5, 2014 and your disclosure on page 6 that you “do not generally enter into written agreements with (your) distributors.”  Please tell us whether you have entered into a written customer agreement with United Natural Foods, Inc.  If so, please file the written agreement as an exhibit to your amended filing.  See Item 601(b)(10) of Regulation S-K.

RESPONSE:

The Company has not entered into an agreement with United Natural Foods, Inc. pursuant to which United is required to buy or the Company is required to sell. There is an agreement between the two parties governing timing of payment of invoices, if any, and the availability of a discount to United to the price of goods purchased, if any, at the time that goods are purchased. The Company does not believe that this agreement is material.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,  page 15

Results of Operations

2.   We have reviewed the disclosure you revised in your amended Form 10-K and Form 10-Q to address comments 4, 5 and 6 in our letter dated September 5, 2014 regarding the period over period changes in your results of operations.  We continue to believe you should separately quantify the dollar impact of each material causal factor of the change, including any offsetting factors.  In a supplemental response, please provide us with an explanation that quantifies the following:

•           Gross sales – the dollar impact of changes in prices, volumes, introduction of new products, or other, as applicable.

•           Cost of goods sold – the dollar impact of the changes attributable to higher milk prices and increased volume purchased, as applicable

•           Selling expenses – the dollar impact of each material causal factor of the change with greater specificity, as applicable.

•           General and administrative. – the dollar impact of each material causal factor of the change with greater specificity, as applicable.

RESPONSE:

The Company has included below an explanation separately quantifying the above items requested except that there was no material change to general and administrative expenses in the three months ended June 30, 2014 when compared to the three months ended June 30, 2013. Accordingly, there were no material causal factors of change to discuss.

Comparison of Three-Months Ended June 30, 2014 to Three-Months Ended June 30, 2013

Total consolidated net sales increased by $6,487,527 (approximately 28%) to $29,545,411 during the three-month period ended June 30, 2014 from $23,077,884 during the same three-month period in 2013, primarily as a result of a $6,755,990 (approximately 26%) increase in total consolidated gross sales to $32,594,048 during the three-month period ended June 30, 2014 from $25,838,058 during the same three-month period in 2013, offset by an increase in discounts and allowances during the three-month period ended June 30, 2014 as compared to the same three-month period in 2013. The increase in total consolidated gross sales included approximately $5,798,169 from an increase in volume of products sold and approximately $977,821 from an increase in prices of products sold.

2

The following table summarizes our cost of goods sold, excluding depreciation expense:

Three Months Ended

June 30,

2014

2013

Purchases

$

14,714,737

$

10,274,556

Testing

13,145

15,118

Supplies

371,637

166,624

Salaries production

2,221,464

1,652,448

Contract work

77,567

25,536

Freight

2,954,847

2,243,857

Delivery expense

78,229

78,128

Outside services

19,976

--

Uniform

12,783

5,145

Sales and use tax

3,561

18

Labor and overhead

964,678

597,031

Cost of goods sold

$

21,432,624

$

15,058,461

Cost of goods sold, excluding depreciation expense, increased by $6,374,163 (approximately 42%) to $21,423,624 during the three-month period ended June 30, 2014 from $15,058,461 during the same three-month period in 2013. This increase is  primarily a result of increases in purchases, salaries production, freight and labor and overhead.

Purchases increased $4,440,181 (approximately 43%) to $14,714,737 during the three-month period ended June 30, 2014 from $10,274,556 during the same three-month period in 2013. The increase in purchases included approximately $2,363147 from an increase in volume of purchases and $2,077,034 from increases in prices of products purchased.

Salaries production increased $569,016 (approximately 34%) to $2,221,464 during the three months ended June 30, 2014 from $1,652,448 during the same three-month period in 2013 primarily as a result of additional salaries of employees hired at the Wisconsin facility purchased in July 2013.

Freight increased $710,990 (approximately 32%) to $2,954,847 during the three-month period ended June 30, 2013 from $2,243,857 during the same three-month period in 2013 primarily as a result of an increase in the volume of our products sold and shipped.

Labor and overhead increased $367,647 (approximately 62%) to $964,678 during the three-month period ended June 30, 2014 from $597,031 during the same three-month period during 2013 primarily as a result of additional costs incurred in connection with the Wisconsin facility purchased July 2013.

The following table summarizes our selling expenses:

Three Months Ended

June 30,

2014

2013

Salesperson commissions

$

799,104

$

483,219

Advertising

1,006,015

701,977

Salaries

1,334,037

1,185,880

Promotions payable

131,552

81,542

Travel

423,113

407,217

Contract work

--

16,800

     Selling expense

$

3,693,821

2,876,635

Selling expenses increased by $817,186 (approximately 28%) to $3,693,821 during the three-month period ended June 30, 2014 from $2,876,635 during the same period in 2013.  This increase resulted primarily from increases in salesperson commissions, advertising and salaries.

3

Salesperson commissions increased $315,885 (approximately 65%) to $799,104 during the three-month period ended June 30, 2014 from $483,219 during the same three-month period in 2013 primarily as a result of an increase in volume of products sold.

Advertising increased $304,038 (approximately 43%) to $1,006,015 during the three months ended June 30, 2014 from $701,977 during the same three-month period in 2013 primarily as a result of the purchase of a greater volume of advertisements purchased.

Salaries increased $148,157 (approximately 12%) to $1,334,037 during the three-month  period ended June 30, 2014 from $1,185,880 during the same three-month period in 2014 primarily as a result of additional employees hired in connection with the purchase of the Wisconsin facility in July 2013.

Comparison of Six-Month Period Ended June 30, 2014 to Six-Month Period Ended June 30, 2013

Total consolidated net sales increased by $11,232,207 (approximately 24%) to $58,697,122 during the six-month period ended June 30, 2014 from $47,464,915 during the same six-month period in 2013, primarily as a result of a $11,226,515 (approximately 21%) increase in total consolidated gross sales to $64,655,195 during the six-month period ended June 30, 2014 from $53,428,680 during the same six-month period in 2013, and to a lesser extent, fewer discounts and allowances. The increase in total consolidated gross sales included approximately $9,654,803 from an increase in volume of products sold and approximately $1,571,712 from an increase in prices of products sold.

The following table summarizes our cost of goods sold, excluding depreciation expense:

Six Months Ended

June 30,

2014

2013

Purchases

$

30,188,856

$

21,252,221

Testing

21,458

20,993

Supplies

659,845

329,910

Salaries

4,368,422

3,234,118

Contract work

90,556

81,893

Freight

5,781,180

4,322,368

Delivery expense

161,453

148,275

Outside services

35,313

--

Uniform

24,718

15,698

Sales and use tax

5,143

606

Vendor payment discounts

--

(113)

Labor and overhead

1,777,591

1,201,407

     Cost of goods sold

43,114,535

30,607,446

Cost of goods sold, excluding depreciation expense, increased by $12,507,089 (approximately 41%) to $43,114,535 during the six-month period ended June 30, 2014 from $30,607,446 during the same six-month period in 2013. This increase is  primarily a result of increases in purchases, salaries, freight and labor and overhead.

Purchases increased by $8,936,635 (approximately 42%) to $30,118,856 during the six-month period ended June 30, 2014 from $21,252,221 during the same six-month period in 2013 primarily as a result of the increase in volume of goods produced.  The increase in purchases included approximately $4,144,183 from an increase in volume of purchases and $4,792,451 from increases in prices of products purchased.

Salaries increased $1,134,304 (approximately 35%) to $4,368,422 during the six-month period ended June 30, 2014 from $3,234,118 during the same six-month period in 2013 primarily as a result of additional salaries of employees hired at the Wisconsin facility purchased in July 2013.

Freight increased $1,458,812 (approximately 34%) to $5,781,180 during the six-month period ended June 30, 2014 from $4,322,368 during the same six-month period in 2013 primarily as a result of an increase in the volume of our products sold and shipped.

Labor and overhead increased $576,184 (approximately 48%) to $1,777,591 during the six-month period ended June 30, 2014 from $1,201,407 during the same six-month period in 2013 additional costs incurred in connection with the Wisconsin facility purchased July 2013.

4

The following table summarizes our selling expenses:

Six Months Ended

September 30,

2014

2013

Salesperson commissions

$

1,333,796

$

893,852

Advertising

1,818,939

1,308,306

Salaries

2,938,190

2,500,409

Promotions payable

204,433

110,282

Travel

872,058

701,376

Freight out

508

--

Demos

5,585

--

Sponsorship

--

69

     Selling expense

$

7,173,509

$

5,514,354

Selling expenses increased by $1,659,155 (approximately 30%) to $7,173,509 during the six-month period ended June 30, 2014 from $5,514,354 during the same six-month period in 2013.  This increase resulted primarily from increases in salesperson commissions, advertising and salaries.

Salesperson commissions increased $439,944 (approximately 49%) to $1,333,796 during the six-month period ended June 30, 2014 from $839,852 during the same six-month period in 2013 primarily as a result of an increase in volume of products sold.

Advertising increased $510,633 (approximately 39%) to $1,818,939 during the six-month period ended June 30, 2014 from $1,308,306 during the same six-month period in 2013 primarily as a result of the purchase of a greater volume of advertisements purchased.

Salaries increased $437,781 (approximately 18%) to $2,938,190 during the six-month period ended June 30, 2014 from $2,500,409 during the same six-month period in 2013 primarily as a result of additional employees hired in connection with the purchase of the Wisconsin facility in July 2013.

The following table summarizes our general and administrative expenses.

Six Months Ended

June 30,

2014

2013

Employee expenses

$

1,813,087

$

1,572,325

Rent

150,566

175,209

Equipment lease

3,194

2,337

Auto expense

49,277

20,876

Office supplies

141,472

68,358

Professional fees

1,380,029

1,447,630

Permits and licenses

131,662

148,527

Telephone expense

56,892

39,335

Facilities

448,227

275,443

Tax

71,449

57,941

Miscellaneous

241,972

147,444

     General and administrative expense

4,487,827

3,955,425

General and administrative expenses increased $532,402 (approximately 13%) to $4,487,827 during the six-month period ended June 30, 2014 from $3,955,425 during the same six-month period in 2013.  The increase is primarily a result of increases in employee salaries, facilities expenses and miscellaneous.

Employee expenses increased $240,762 (approximately 15%) to $1,813,087 during the six-month period ended June 30, 2014 from $1,572,325 during the same six-month period in 2013 primarily as a result of additional employees hired in connection with the Wisconsin facility purchased in July 2013.

Facilities expenses increased $172,784 (approximately 63%) to $448,227 during the six-months ended June 30, 2014 from $275,443 during the same six-month period in 2013 primarily as a result of additional costs of maintenance of facilities at the Wisconsin facility purchased in July 2013.

5

Miscellaneous increased $94,528 (approximately 64%) to $241,972 during the six-month period ended June 30, 2014 from $147,444 during the same period ended June 30, 2013 primarily as a result of an increase to the bad debt reserve associated with the increase in accounts receivables.

Comparison of Twelve-Months Ended December 31, 2013 to Twelve-Months Ended December 31, 2012

Total consolidated net sales increased by $16,172,877 (approximately 20%) to $97,524,142 during the twelve-month period ended December 31, 2013 from $81,351,265 during the same twelve-month period in 2012, primarily as a result of a $19,212,087 (approximately 21%) increase in total consolidated gross sales to $89,754,007 during the twelve-month period ended December 31, 2013 from $108,966,094 during the same twelve-month period in 2012, offset by an increase in discounts and allowances in fiscal year 2013 as compared to fiscal year 2012. The increase in total consolidated gross sales resulted solely from an increase in volume of products sold.

The following table summarizes our cost of goods sold, excluding depreciation expense:

Fiscal Year Ended

December 31,

2013

2012

Purchases

$

47,144,509

$

37,858,216

Testing

37,363

71,424

Supplies

780,016

626,920

Salaries

7,936,107

5,923,561

Contract work

67,837

4,200

Freight

9,267,530

5,330,508

Delivery expense

292,736

1,104,421

Outside services

20,760

126,505

Uniform

24,515

479

Sales and use tax

29,384

287

Vendor payment discounts

(111)

(554)

Labor and overhead

2,674,028

2,052,224

     Cost of goods sold

68,274,674

53,098,191

Cost of goods sold, excluding depreciation expense, increased by $15,176,483 (approximately 29%) to $68,274,674 during the twelve-month period ended December 31, 2013 from $53,098,191 during the same twelve-month period in 2012. This increase is  primarily a result of increases in purchases, salaries, freight and labor and overhead partially offset by decreases in delivery expense and outside services.

Purchases increased by $9,286,293 (approximately 25%) to $47,144,509 during the twelve-month period ended December 31, 2013 from $37,858,216 during the same twelve-month period in 2012 primarily as a result of the increase in volume of goods produced.  The increase in purchases included approximately $7,950,225 from an increase