UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE
Mail Stop 7010
October 13, 2006
Via U.S. Mail
Ms. Julie Smolyansky, Chief Executive Officer and President
Lifeway Foods, Inc.
6431 West Oakton
Morton Grove, IL 60053
Re: Lifeway Foods, Inc.
Registration Statement on Form S-3
Filed September 14, 2006
File No. 333-137317
Form 10-KSB for the fiscal year ended December 31, 2005
Filed March 31, 2006
File No. 0-17363
Dear Mr. Smolyansky:
We have limited our review of your filing to those issues we
have addressed in our comments. Where indicated, we think you
should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We
look forward to working with you in these respects. We welcome
any
questions you may have about our comments or on any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form S-3 filed September 14, 2006
Selling Stockholders, page 6
1. Expand the Selling Stockholders table to include the natural
person
with power to vote or to dispose of the securities offered for
resale
by the entity that is listed as a selling stockholder. If more
than
one holder is listed as beneficial owner for the same securities,
include explanatory text or footnotes. See Interpretation 4S of
the
Regulation S-K portion of the March 1999 supplement to the CF
telephone interpretation manual.
Form 10-KSB for the Fiscal Year Ended December 31, 2005
Patents, Trademarks, Licenses, Royalty Agreements, page 8
2. We note your disclosure regarding the "BasicsPlus" mark that
indicates GalaGen, Inc. assigned the entire interest, including
the
goodwill of this mark to the company. Please explain your meaning
of
the term goodwill in this disclosure.
3. We note your page 11 disclosure indicating you have undertaken
a
royalty obligation associated with the sale of Ilya`s Farm, Inc`s
products. Please tell us where these amounts are reflected in
your
financial statements. Please provide separate disclosure if
material.
Management`s Discussion and Analysis of Financial Condition
Comparison of Quarter Ended December 31, 2005 to Quarter Ended
December 31, 2004
Results of Operations, page 15
4. We note your disclosure that indicates sales for LFIE increased
due
to products sent from your Illinois facility to Philadelphia,
Pennsylvania for distribution in the tri-state area. Please
confirm
that these products were sold to a third party and that all
elements
required for revenue recognition of have been met. Please refer
to
SAB Topic 13:A.
5. We note your disclosure that indicates you have offset a
portion of
oil related cost increases by making prudent investments in energy
related securities. Please tell us and expand your disclosures,
to
clearly describe the nature of the securities you are referring
to.
Report of Independent Registered Public Accounting Firm, page 19
6. The opinion included in your document is not clear as to the
periods covered by the report. It appears that a single year`s
information contained in the statements of income, changes in
stockholder`s equity and cash flows have been audited. Please
provide
a revised audit opinion that indicates, if true, that all years
presented have been audited.
Consolidated Statements of Income and Comprehensive Income, page
22
7. Please tell us if your measure of gross profit includes
depreciation expense associated with the cost of goods sold.
8. Please provide us with an analysis of the components of the
line
item referred to as "Operating expenses." Please refer to Rule 5-
03(b) of Regulation S-X.
Note 2 - Summary of Significant Accounting Policies
Revenue Recognition, page 25
9. Please expand your revenue recognition policy to address the
elements described in SAB Topic 13:A.
Controls and Procedures, page 36
10. It is not clear whether your management concluded that your
disclosure controls and procedures, as defined by Rule 13a-15(e)
or
15d-15(e) of the Exchange Act, were effective as of the end of the
period covered by this report. Please revise to clearly state
your
management`s conclusion with respect to the effectiveness of your
disclosure controls and procedures. This comment extends to your
Forms 10-QSB. Please revise those forms accordingly.
11. You state that there were no "significant changes" in your
internal control over financial reporting. Please note that Item
308(c) of Regulation S-B requires that you disclose any change in
your
internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Exchange Act
Rules
13a-15 or 15d-15 that occurred during the fourth fiscal quarter
that
has "materially affected, or is reasonably likely to materially
affect, the small business issuer`s internal control over
financial
reporting." See also Regulation S-B, paragraph 4(d) of Exhibit
31.
Please review your disclosure and revise as appropriate. This
comment
also applies to your Forms 10-QSB.
* * * * *
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing
includes all information required under the Securities Act of 1933
and
that they have provided all information investors require for an
informed investment decision. Since the company and its
management
are in possession of all facts relating to a company`s disclosure,
they are responsible for the accuracy and adequacy of the
disclosures
they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division
of Corporation Finance in connection with our review of your
filing or
in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering of
the securities specified in the above registration statement. We
will
act on the request and, pursuant to delegated authority, grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Kevin Stertzel at (202) 551-3723 or Jill
Davis,
Branch Chief, at (202) 551-3683 if you have questions regarding
comments on the financial statements and related matters. Please
contact Carmen Moncada-Terry at (202) 551-3687 or, in her absence,
Tangela Richter, Branch Chief, at (202) 551-3685 with any other
questions.
Sincerely,
Tangela Richter
Branch Chief
cc: J. Davis
K. Stertzel
C. Moncada-Terry
VIA FACSIMILE
Timothy R. Lavender, Esq.
Kelley Drye & Warren LLP
(312) 857-7095
Ms. Julie Smolyansky
Lifeway Foods, Inc.
October 13, 2006
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