**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

**FORM 10-Q**

**QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**for theQuarterly Period Ended December 31, 2005**

Commission file number 000-23731

**NUTRACEUTICAL INTERNATIONAL CORPORATION**

(Exact name of registrantas specified in its charter)

| **Delaware**                                   | **87-0515089**                     |
|------------------------------------------------|------------------------------------|
| (State of  incorporation)                      | (IRS Employer  Identification No.) |
| **1400 Kearns Boulevard, 2****nd Floor,** | ** **                         |
| **Park  City, Utah**                           | **84060**                          |
| (Address of  principal executive office)       | (Zip code)                         |

 

**(435) 655-6106**(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

YES x      NO o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer asdefined in Rule 12b-2 of the Exchange Act (check one):

Large acceleratedfiler o                              Acceleratedfiler x                                 Non-acceleratedfiler o

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

YES o      NO x

At January 26, 2005, the registrant had11,442,274 shares of common stock outstanding.

 

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**NUTRACEUTICAL INTERNATIONAL CORPORATION**

**INDEX**

| Description   | ** ** | ** **             | ** ** | ** **                                                                                                                               | **Page No.** |   |
|---------------|------------|------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|-------------------|--------|
| Part I.  |       | Financial  Information |       |                                                                                                                                     | 3                 |   |
|          |       | Item  1.               |       | Financial  Statements                                                                                                                    |              |   | 3 |   |
|          |       |                   |       | Condensed  Consolidated Balance Sheets—September 30, 2005 and December 31, 2005                                      |              |   | 3 |   |
|          |       |                   |       | Condensed Consolidated Statements of Operations and  Comprehensive  Income—Three Months Ended December 31, 2004 and 2005  |              |   | 4 |   |
|          |       |                   |       | Condensed  Consolidated Statements of Cash Flows—Three Months Ended December 31,  2004 and 2005                                |              |   | 5 |   |
|          |       |                   |       | Notes to Condensed Consolidated Financial Statements                                                                                     |              |   | 6 |   |
|          |       | Item 2.           |       | Management’s  Discussion and Analysis of Financial Condition and   Results of Operations                                       |              |   | 10 |   |
|          |       | Item 3.                |       | Quantitative  and Qualitative Disclosures about Market Risk                                                                              |              |   | 16 |   |
|          |       | Item  4.               |       | Controls  and Procedures                                                                                                                 |              |   | 16 |   |
| Part II. |       | Other  Information     |       |                                                                                                                                     | 18                |   |
|          |       | Item  1.               |       | Legal  Proceedings                                                                                                                       |              |   | 18 |   |
|          |       | Item 2.                |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                             |              |   | 18 |   |
|          |       | Item 6.                |       | Exhibits                                                                                                                                 |              |   | 18 |   |
|               |            |                        |            |                                                                                                                                          |                   |        |  |  |  |  |  |  |  |

 

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**PART I—FINANCIAL INFORMATION**

**Item 1.   Financial Statements**

**NUTRACEUTICALINTERNATIONAL CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS(unaudited)(dollars in thousands)**

| ** **                                    | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2005(1)**            | ** ** | **2005**              | ** ** |
| **ASSETS**                                    |       |                   |       |                  |       |   |   |   |   |
| Current assets                                |       |                   |       |                  |       |   |   |   |   |
| Cash                                          |       |                   | $          | 3,371                 |       |   |   | $ | 1,764 |   |   |
| Accounts receivable, net                      |       |                   | 10,586     |                  |       |   | 11,904 |   |   |
| Inventories, net                              |       |                   | 25,434     |                  |       |   | 28,679 |   |   |
| Prepaid expenses and other current assets     |       |                   | 2,060      |                  |       |   | 2,068 |   |   |
| Deferred income taxes                         |       |                   | 1,416      |                  |       |   | 1,422 |   |   |
| Total current assets                          |       |                   | 42,867     |                  |       |   | 45,837 |   |   |
| Property, plant  and equipment, net           |       |                   | 25,808     |                  |       |   | 27,955 |   |   |
| Goodwill                                      |       |                   | 18,387     |                  |       |   | 18,387 |   |   |
| Intangible  assets, net                       |       |                   | 7,016      |                  |       |   | 6,927 |   |   |
| Other non-current  assets, net                |       |                   | 616        |                  |       |   | 586 |   |   |
| Deferred income  taxes, net                   |       |                   | 6,211      |                  |       |   | 5,911 |   |   |
|                                          |       |                   | $          | 100,905               |       |   |   | $ | 105,603 |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY** |       |                   |       |                  |       |   |   |   |   |
| Current liabilities                           |       |                   |       |                  |       |   |   |   |   |
| Accounts payable                              |       |                   | $          | 10,733                |       |   |   | $ | 13,132 |   |   |
| Accrued expenses                              |       |                   | 5,341      |                  |       |   | 5,168 |   |   |
| Total current liabilities                     |       |                   | 16,074     |                  |       |   | 18,300 |   |   |
| Long-term debt                                |       |                   | 2,000      |                  |       |   | 1,500 |   |   |
| Other non-current  liabilities                |       |                   | 364        |                  |       |   | 364 |   |   |
| Total liabilities                             |       |                   | 18,438     |                  |       |   | 20,164 |   |   |
| Stockholders’ equity                     |       |                   |       |                  |       |   |   |   |   |
| Common stock                                  |       |                   | 115        |                  |       |   | 114 |   |   |
| Additional paid-in capital                    |       |                   | 39,317     |                  |       |   | 38,847 |   |   |
| Retained earnings                             |       |                   | 42,900     |                  |       |   | 46,353 |   |   |
| Accumulated other comprehensive income        |       |                   | 135        |                  |       |   | 125 |   |   |
| Total stockholders’ equity               |       |                   | 82,467     |                  |       |   | 85,439 |   |   |
|                                          |       |                   | $          | 100,905               |       |   |   | $ | 105,603 |   |   |

 

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(1)          The condensedconsolidated balance sheet as of September 30, 2005 has been prepared usinginformation from the audited financial statements at that date.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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**NUTRACEUTICAL INTERNATIONAL CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE INCOME**

**(unaudited)(dollars in thousands, except per share data)**

| ** **                                          | ** ** | **Three months ended  December 31,** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                          | ** ** | **2004**                                            | ** ** | **2005** | ** ** |
| Net sales                                           |       | $                                                   | 35,299     |   | $ | 36,704 |   |
| Cost of sales                                       |       | 16,900                                              |       | 17,560 |   |
| Gross profit                                        |       | 18,399                                              |       | 19,144 |   |
| Operating expenses                                  |       |                                                |       |   |   |
| Selling, general and administrative                 |       | 13,590                                              |       | 13,446 |   |
| Amortization of intangible assets                   |       | 94                                                  |       | 94 |   |
| Income from  operations                             |       | 4,715                                               |       | 5,604 |   |
| Interest and  other (income)/expense, net           |       | 152                                                 |       | (11 | ) |
| Income before  provision for income taxes           |       | 4,563                                               |       | 5,615 |   |
| Provision for  income taxes                         |       | 1,757                                               |       | 2,162 |   |
| Net income                                          |       | $                                                   | 2,806      |   | $ | 3,453 |   |
| Other comprehensive  income/(loss)                  |       |                                                |       |   |   |
| Foreign currency translation adjustment, net of tax |       | 29                                                  |       | (10 | ) |
| Comprehensive  income                               |       | $                                                   | 2,835      |   | $ | 3,443 |   |
| Net income per common  share                        |       |                                                |       |   |   |
| Basic                                               |       | $                                                   | 0.24       |   | $ | 0.30 |   |
| Diluted                                             |       | 0.24                                                |       | 0.30 |   |
| Weighted average common  shares outstanding         |       |                                                |       |   |   |
| Basic                                               |       | 11,496,692                                          |       | 11,471,136 |   |
| Dilutive effect of stock options and warrants       |       | 327,001                                             |       | 164,643 |   |
| Diluted                                             |       | 11,823,693                                          |       | 11,635,779 |   |

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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**NUTRACEUTICAL INTERNATIONAL CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

**(dollars inthousands)**

| ** **                                                                        | ** ** | **Three months ended  December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2004**                                            | ** ** | **2005** | ** ** |
| **Cash flows from operating  activities**                                         |       |                                                |       |   |   |
| Net income                                                                        |       | $                                                   | 2,806      |   | $ | 3,453 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities |       |                                                |       |   |   |
| Depreciation and amortization                                                     |       | 1,119                                               |       | 1,141 |   |
| Amortization of deferred financing fees                                           |       | 46                                                  |       | 46 |   |
| Deferred income taxes                                                             |       | 361                                                 |       | 294 |   |
| Tax benefit from stock option exercises                                           |       | 70                                                  |       | — |   |
| Changes in assets  and liabilities, net of effects of acquisitions                |       |                                                |       |   |   |
| Accounts receivable, net                                                          |       | (187                                                | )          | (1,318 | ) |
| Inventories, net                                                                  |       | (656                                                | )          | (3,245 | ) |
| Prepaid expenses and other current assets                                         |       | 1,784                                               |       | (8 | ) |
| Other non-current assets, net                                                     |       | (6                                                  | )          | (21 | ) |
| Accounts payable                                                                  |       | (38                                                 | )          | 2,399 |   |
| Accrued expenses                                                                  |       | (1,852                                              | )          | (180 | ) |
| Net cash provided by operating activities                                         |       | 3,447                                               |       | 2,561 |   |
| **Cash  flows from investing activities**                                         |       |                                                |       |   |   |
| Acquisition of  business, net of cash acquired                                    |       | (1,895                                              | )          | — |   |
| Purchases of property  and equipment                                              |       | (1,209                                              | )          | (3,194 | ) |
| Net cash used in investing activities                                             |       | (3,104                                              | )          | (3,194 | ) |
| **Cash  flows from financing activities**                                         |       |                                                |       |   |   |
| Proceeds from  long-term debt                                                     |       | —                                              |       | 1,500 |   |
| Payments on  long-term debt                                                       |       | (1,500                                              | )          | (2,000 | ) |
| Proceeds from  issuances of common stock                                          |       | 126                                                 |       | 85 |   |
| Purchases of  common stock for treasury                                           |       | —                                              |       | (559 | ) |
| Tax benefit from  stock option exercises                                          |       | —                                              |       | 3 |   |
| Net cash used in financing activities                                             |       | (1,374                                              | )          | (971 | ) |
| Effect of  exchange rate changes on cash                                          |       | 5                                                   |       | (3 | ) |
| Net decrease in  cash                                                             |       | (1,026                                              | )          | (1,607 | ) |
| Cash at beginning  of period                                                      |       | 2,134                                               |       | 3,371 |   |
| Cash at end of  period                                                            |       | $                                                   | 1,108      |   | $ | 1,764 |   |

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

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**NUTRACEUTICAL INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (dollars in thousands, except per share data)**

**1.   INTERIM CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

In the opinion of management, the accompanyingunaudited condensed consolidated financial statements include all necessaryadjustments (consisting of normal recurring accruals) to present fairly the consolidatedfinancial position of Nutraceutical International Corporation and itssubsidiaries (the “Company”) as of December 31, 2005, the results of theiroperations and their cash flows for the three months ended December 31,2004 and 2005, in conformity with accounting principles generally accepted inthe United States of America for interim financial information applied on aconsistent basis. The results for the three months ended December 31, 2005are not necessarily indicative of the results to be expected for the fullfiscal year.

Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been omitted. Accordingly, these financial statements should beread in conjunction with the Company’s Form 10-K for the Fiscal YearEnded September 30, 2005, which was filed with the Securities and ExchangeCommission on December 1, 2005.

**2.   ACCOUNTS RECEIVABLE, NET**

Accountsreceivable, net of allowances for sales returns and doubtful accounts,consisted of the following:

| ** **           | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------|------------|------------------------|------------|-----------------------|------------|
| ** **           | ** ** | **2005**               | ** ** | **2005**              | ** ** |
| Accounts  receivable |       |                   | $          | 12,476                |       |   |   | $ | 13,840 |   |   |
| Less allowances      |       |                   | (1,890     | )                     |       |   | (1,936 | ) |   |
|                 |       |                   | $          | 10,586                |       |   |   | $ | 11,904 |   |   |

 

**3.   INVENTORIES, NET**

Inventories,net of reserves for slow moving, obsolete and/or damaged inventory, werecomprised of the following:

| ** **      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|------------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2005**               | ** ** | **2005**              | ** ** |
| Raw materials   |       |                   | $          | 9,495                 |       |   |   | $ | 12,898 |   |   |
| Work-in-process |       |                   | 6,800      |                  |       |   | 6,348 |   |   |
| Finished goods  |       |                   | 11,123     |                  |       |   | 11,289 |   |   |
|            |       |                   | 27,418     |                  |       |   | 30,535 |   |   |
| Less reserves   |       |                   | (1,984     | )                     |       |   | (1,856 | ) |   |
|            |       |                   | $          | 25,434                |       |   |   | $ | 28,679 |   |   |

 

**4.   GOODWILL**

The carrying amount of goodwill,which related to acquired businesses, was $18,387 at both September 30,2005 and December 31, 2005.

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**NUTRACEUTICAL INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (unaudited) (dollars in thousands, except per share data)**

**5.   INTANGIBLE ASSETS**

Thecarrying amounts of intangible assets at September 30, 2005 and December 31,2005 were as follows:

| ** **                                      | ** ** | **September 30, 2005** | ** ** | **December 31, 2005** | ** ** | **Weighted-  Average**    | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|---------------------------|------------|
| ** **                                      | ** ** | **Gross  Carrying  Amount**      | ** ** | **Accumulated  Amortization**   | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** | **Amortization  Period  (Years)** | ** ** |
| Intangible assets  subject to amortization:     |       |                             |       |                            |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-compete agreements                          |       |                             | $          | 1,000                           |       |                      |       | $ | (750 | ) |   |   | $ | 250 |   |   |   | $ | 1,000 |   |   |   | $ | (833 | ) |   |   | $ | 167 |   |   |   | 3 |   |   |
| Trademarks/trade names/patents                  |       |                             | 338        |                            |       |                      | (250       | ) |   |   | 88 |   |   |   | 343 |   |   |   | (261 | ) |   |   | 82 |   |   |   | 5 |   |   |
|                                            |       |                             | 1,338      |                            |       |                      | (1,000     | ) |   |   | 338 |   |   |   | 1,343 |   |   |   | (1,094 | ) |   |   | 249 |   |   |   |   |   |   |
| Intangible assets  not subject to amortization: |       |                             |       |                            |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trademarks/trade names/  licenses               |       |                             | 6,678      |                            |       |                      | —     |   |   |   | 6,678 |   |   |   | 6,678 |   |   |   | — |   |   |   | 6,678 |   |   |   |   |   |   |
|                                            |       |                             | $          | 8,016                           |       |                      |       | $ | (1,000 | ) |   |   | $ | 7,016 |   |   |   | $ | 8,021 |   |   |   | $ | (1,094 | ) |   |   | $ | 6,927 |   |   |   |   |   |   |

 

Estimatedfuture amortization expense related to the December 31, 2005 net carryingamount of $249 for intangible assets subject to amortization is as follows:

| ** **                                   | ** ** | **Estimated**    | ** ** |
|----------------------------------------------|------------|------------------|------------|
| ** **                                   | ** ** | **Amortization** | ** ** |
| **Year Ending September 30,** | ** ** | ** **       | ** ** | **Expense(1)** | ** ** |
| 2006                                         |       |             | $          | 193 |   |   |
| 2007                                         |       |             | 24         |   |   |
| 2008                                         |       |             | 15         |   |   |
| 2009                                         |       |             | 12         |   |   |
| 2010                                         |       |             | 5          |   |   |
| Thereafter                                   |       |             | —     |   |   |
|                                         |       |             | $          | 249 |   |   |
|                                              |            |                  |            |  |  |  |  |  |

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(1)          Estimated amortizationexpense for the year ending September 30, 2006 includes only amortizationto be recorded after December 31, 2005.

**6.   SHAREPURCHASES**

During the three monthsended December 31, 2005, the Company purchased 41,543 shares of commonstock for an aggregate price of $559, which shares were held in treasury untilbeing retired on December 29, 2005. The Company is permitted to purchaseup to 343,235 additional shares under its approved purchase plan.

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**NUTRACEUTICAL INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (unaudited) (dollars in thousands, except per share data)**

**7.   OPERATING SEGMENTS**

Segment identification and selection is consistentwith the management structure used by the Company to evaluate performance andmake decisions regarding resource allocation, as well as the materiality offinancial results consistent with that structure. Based on the Company’smanagement structure and method of internal reporting, the Company has oneoperating segment. The Company does not review operating results on adisaggregated basis; rather, management reviews operating results on anaggregate basis.

Net sales to foreigncountries were less than 10% of consolidated net sales for the three monthsended December 31, 2004 and 2005. Additionally, certain products are solddomestically to customers who in turn may sell such products into foreigncountries.

**8.   STOCK-BASED COMPENSATION**

The Company adopted Statement of Financial AccountingStandards No. 123R, *Share-Based Payment*(“SFAS 123R”) effective October 1, 2005, using the modified prospectiveapplication method. SFAS 123R requires companies to record compensation expensefor the value of all outstanding and unvested share-based payments, includingemployee stock options and similar awards. As of October 1, 2005, theCompany had no outstanding and unvested share-based payments. On September 30,2005, the Company terminated the 1995 Stock Option Plan, the 1998 StockIncentive Plan and the 1998 Non-Employee Director Stock Option Plan. After September 30,2005, no new awards of any kind will be granted under any of these plans. As aresult, the Company did not recognize any share-based compensation expense inits consolidated financial statements for the three months ended December 31,2005.

Prior to the adoption ofSFAS 123R, the Company accounted for its stock-based employee compensationplans using the intrinsic value method prescribed by Accounting PrinciplesBoard Opinion No. 25, *Accounting for StockIssued to Employees*. No stock-based employee compensation cost wasreflected in net income as all options granted under those stock-based employeecompensation plans had exercise prices equal to the market values of theunderlying common shares on the dates of grant. The following table illustratesthe effect on net income and earnings per share as if the Company had appliedthe fair value recognition provisions of SFAS 123R to stock-based employeecompensation.

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**NUTRACEUTICAL INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (unaudited) (dollars in thousands, except per share data)**

 

| ** **                                                                                                                                        | ** ** | **Three months ended  December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                                                        | ** ** | **2004**                                       | ** ** | **2005** | ** ** |
| Net income, as  reported                                                                                                                          |       | $                                              | 2,806      |   | $ | 3,453 |   |
| Deduct: Total  stock-based employee compensation expense determined under the fair value  based method for all awards, net of related tax effects |       | (134                                           | )          | — |   |
| Pro forma net  income                                                                                                                             |       | $                                              | 2,672      |   | $ | 3,453 |   |
| Earnings per  share                                                                                                                               |       |                                           |       |   |   |
| Basic—as reported                                                                                                                            |       | $                                              | 0.24       |   | $ | 0.30 |   |
| Diluted—as reported                                                                                                                          |       | 0.24                                           |       | 0.30 |   |
| Basic—pro forma                                                                                                                              |       | $                                              | 0.23       |   | $ | 0.30 |   |
| Diluted—pro forma                                                                                                                            |       | 0.23                                           |       | 0.30 |   |

 

Stock options to purchase 934,146 and 881,553 sharesof common stock were outstanding at December 31, 2004 and 2005,respectively. Of these outstanding stock options, 141,665 and 226,990 optionsto purchase common stock at December 31, 2004 and 2005, respectively, wereexcluded from the computation of diluted earnings per share because theexercise prices of these stock options were greater than the average shareprice of the Company’s common stock and, therefore, the effect would have beenantidilutive. At December 31, 2004, 95,106 warrants were outstanding andincluded in the computation of diluted earnings per share. At December 31,2005, no warrants were outstanding or included in the computation of dilutedearnings per share. Based on the application of the treasury stock method, thedilutive effect of stock options and warrants was 327,001 and 164,643 for thethree months ended December 31, 2004 and 2005, respectively.

Thefollowing table summarizes stock option activity during the three months endedDecember 31, 2005:

| ** **                                                      | ** ** | ** **         | ** ** | **Weighted-Average** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                      | ** ** | **Number of** | ** ** | **Exercise**         | ** ** |
| ** **                                                      | ** ** | **Options**        | ** ** | **Price**            | ** ** |
| Options  outstanding and exercisable at September 30, 2005 |       |               | 883,253    |                 |       |   | $ | 9.95 |   |   |
| Exercised                                                       |       |               | (1,000     | )                    |       |   | 3.50 |   |   |
| Forfeited or  expired                                           |       |               | (700       | )                    |       |   | 17.50 |   |   |
| Options outstanding and  exercisable at December 31, 2005  |       |               | 881,553    |                 |       |   | $ | 9.95 |   |   |

 

The weighted-average contractual life of stock optionsoutstanding and exercisable at December 31, 2005 was 6.0 years. AtDecember 31, 2005, the aggregate intrinsic value of stock optionsoutstanding and exercisable was $3,130. The intrinsic value is the amount bywhich the market value of the underlying common stock exceeds the exerciseprice of the respective stock option. The intrinsic value of stock optionsexercised during the three months ended December 31, 2004 and 2005 was$182 and $10, respectively.

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Conditionand Results of Operations

**General**

The following discussion and analysis should be readin conjunction with this report on Form 10-Q, including Part I,Item 1.

We are an integrated manufacturer, marketer,distributor and retailer of branded nutritional supplements and other naturalproducts sold primarily to and through domestic health and natural food stores.Internationally, we market and distribute branded nutritional supplements andother natural products to and through health and natural product distributorsand retailers. Our core business strategy is to acquire, integrate and operate,from beginning to end, the manufacturing, marketing and distribution of brandednutritional supplement businesses in the natural products industry. We believethat the consolidation and integration of these acquired businesses providesongoing financial synergies through increased scale and market penetration, aswell as strengthened customer relationships.

We sell branded nutritional supplements and othernatural products under the trademarks *Solaray**®, KAL**®, Nature’s Life**®, Natural Balance**®, NaturalMax**®, VegLife**®, Premier One**®, Pioneer**®, Sunny Green**®, Natural Sport**®, FunFresh FoodsTM,ActiPet**®,Action Labs**®,Thompson**®,Montana Big SkyTM, Body Gold**®,Healthway**® *and*Monarch NutritionalLaboratoriesTM.*Under the name *Woodland Publishing*TM,we publish, print and market a line of books and booklets to, among others,book distributors, national retail bookstores and health and natural foodstores. We also distribute branded products of certain third parties.

We own neighborhood natural food markets, whichoperate under the trade names *The Real FoodCompany*TM, *Thom’s Natural Foods*TMand *Cornucopia Community MarketTM*.We also own health food stores, which operate under the trade names *Arizona Health Foods*TM, *Granola’s*TM and *Pilgrim’s Natureway*TM.

We were formed in 1993 bysenior management and Bain Capital, Inc. to effect a consolidationstrategy in the fragmented vitamin, mineral, herbal and other nutritionalsupplements industry (the “VMS Industry”). Since our formation, we havecompleted the following acquisitions: Solaray, Inc., Premier One Products, Inc.,Makers of KAL, Inc. and Makers of KAL, B.V., Monarch Nutritional Laboratories, Inc.,Action Labs, Inc., NutraForce (Canada) International, Inc., WoodlandPublishing, Inc. and Summit Graphics, Inc., Thompson Nutritionals, Inc.,The Real Food Company, Inc., Thom’s Natural Foods, M.K. Health FoodDistributors, Inc. (dba Nature’s Life), Arizona Health Foods, Inc.,Natural Balance, Inc., Montana Naturals, Inc., Cornucopia CommunityMarket, Inc., Pilgrim’s Natureway LLC and Pioneer Nutritional Formulas, Inc.As a result of these acquisitions, internal growth and cost management, webelieve that we are well positioned to continue to capitalize on theconsolidation that we believe is occurring in the VMS Industry.

**Critical Accounting Policies**

The preparation of our financial statements inconformity with accounting principles generally accepted in the United Statesof America required us to make estimates and assumptions that affected thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the dates of the financial statements and the reportedamounts of net sales and expenses during the reported periods. Significantestimates included values and lives assigned to acquired intangible assets,reserves for customer returns and allowances, uncollectible accountsreceivable, slow moving, obsolete and/or damaged inventory and stock optionvaluation. Actual results may differ from these estimates.

Our estimates and judgments related to our criticalaccounting policies, including factors and assumptions considered in makingthese estimates and judgments, did not vary significantly for the periods 

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presented and had nomaterial impact on the consolidated financial statements as reported. Ourcritical accounting policies include the following:

*AccountsReceivable—**Provision*is made for estimated baddebts based on periodic analysis of individual customer balances, including anevaluation of days sales outstanding, payment history, recent payment trendsand perceived credit worthiness. If general economic conditions and/or customerfinancial condition were to change, additional provisions for bad debts may berequired, which could have a material impact on the consolidated financialstatements.

*Inventories—**Provision* is made forslow moving, obsolete and/or damaged inventory based on periodic analysis of individualinventory items, including an evaluation of historical usage and/or movement,age, expiration date and general condition. If market demand and/or consumerpreferences are less favorable than historical trends or future expectations,additional provisions for slow moving, obsolete and/or damaged inventory may berequired, which could have a material impact on the consolidated financialstatements.

*Property,Plant and Equipment—**Depreciation* and amortizationexpense is impacted by our judgments regarding the estimated useful lives ofassets placed in service. If the estimated lives of assets are significantlyless than expected, depreciation and amortization expense would be accelerated,which could have a material impact on the consolidated financial statements.

*Goodwilland Intangible Assets—**Statement* of Financial AccountingStandards No. 141, *Business Combinations*,**and Statement of Financial Accounting Standards No. 142,*Goodwill and Other Intangible Assets* (“SFAS142”), require estimates and judgments in determining the initial recognitionand measurement of goodwill and intangible assets, including factors andassumptions used in determining fair value and useful life. Intangible assetswith finite useful lives are amortized while intangible assets with indefiniteuseful lives are not amortized. In addition, SFAS 142 requires ongoing,periodic impairment testing, which relies on such factors and assumptions asidentified reporting units, as well as expected future net cash flows relativeto recorded book values. If an asset impairment were identified, a loss wouldbe recorded, which could have a material impact on the consolidated financialstatements.

*Revenue Recognition—**Revenue***is recognized in accordance with Staff Accounting Bulletin No. 104,*Revenue Recognition*, which states thatrevenue should be recognized when the following criteria are met:  (1) persuasive evidence of anarrangement exists; (2) the product has been shipped and the customertakes ownership and assumes the risk of loss; (3) the selling price isfixed or determinable; and (4) collection of the resulting receivable isreasonably assured. We believe that these criteria are satisfied upon shipmentfrom our facilities or, in the case of our neighborhood natural food marketsand health food stores, at the point of sale within these stores. Revenue isreduced by provisions for estimated returns and allowances, which are based onhistorical averages that have not varied significantly for the periodspresented, as well as specific known claims, if any. No other significantdeductions from revenue must be estimated at the point in time that revenue isrecognized.

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**Results of Operations**

Thefollowing table sets forth certain consolidated statements of operations dataas a percentage of net sales for the periods indicated:

| ** **                                | ** ** | **Three months ended December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                | ** ** | **2004**                                                | ** ** | **2005** | ** ** |
| Net sales                                 |       | 100.0                                                   | %          | 100.0 | % |
| Cost of sales                             |       | 47.9                                                    | %          | 47.8 | % |
| Gross profit                              |       | 52.1                                                    | %          | 52.2 | % |
| Selling, general and administrative       |       | 38.5                                                    | %          | 36.6 | % |
| Amortization of intangible assets         |       | 0.3                                                     | %          | 0.3 | % |
| Income from  operations                   |       | 13.3                                                    | %          | 15.3 | % |
| Interest and other (income)/expense, net  |       | 0.4                                                     | %          | 0.0 | % |
| Income before  provision for income taxes |       | 12.9                                                    | %          | 15.3 | % |
| Provision for income taxes                |       | 5.0                                                     | %          | 5.9 | % |
| Net income                                |       | 7.9                                                     | %          | 9.4 | % |
| EBITDA(1)                                 |       | 16.5                                                    | %          | 18.4 | % |

 

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(1)          See “—EBITDA.”

**Comparison of theThree Months Ended December 31, 2005 to the Three Months Ended December 31, 2004**

*NetSales.*   Net sales increased by $1.4 million, or4.0%, to $36.7 million for the three months ended December 31, 2005 (“firstquarter of fiscal 2006”) from $35.3 million for the three months ended December 31,2004 (“first quarter of fiscal 2005”). Net sales of branded nutritionalsupplements and other natural products increased by $1.2 million, or 4.0%, to$32.2 million for the first quarter of fiscal 2006 from $31.0 million for thefirst quarter of fiscal 2005. This increase in net sales was related to theintegration of the March 2005 acquisition of the *Pioneer*® brand and,to a lesser extent, an increase in sales in certain brands and customers withinhealth and natural food stores. Other net sales increased by $0.2million, or 3.7%, to $4.5 million for the first quarter of fiscal 2006 from$4.3 million for the first quarter of fiscal 2005. This increase was related tothe integration of the fiscal 2005 acquisition of Pilgrim’s Natureway LLC.

*GrossProfit.*   Gross profit increased by $0.7 million,or 4.0%, to $19.1 million for the first quarter of fiscal 2006 from $18.4million for the first quarter of fiscal 2005. This increase in gross profit wasprimarily attributable to the increase in net sales. As a percentage of netsales, gross profit remained relatively consistent at 52.2% for the firstquarter of fiscal 2006 compared to 52.1% for the first quarter of fiscal 2005.

*Selling,General and Administrative.*   Selling, general andadministrative expenses decreased by $0.2 million, or 1.1%, to $13.4 millionfor the first quarter of fiscal 2006 from $13.6 million for the first quarterof fiscal 2005. As a percentage of net sales, selling, general andadministrative expenses decreased to 36.6% for the first quarter of fiscal 2006from 38.5% for the first quarter of fiscal 2005. This decrease in selling,general and administrative expenses was primarily attributable to year-over-yearcost improvements in various areas, including legal.

*Amortizationof Intangibles.*   Amortization of intangibles was$0.1 million for the first quarter of fiscal 2006 and 2005. For each period,amortization expense was primarily related to intangible assets recorded inconnection with acquisitions.

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*Interestand Other (Income)/Expense, Net.*   Net interestand other (income)/expense for the first quarter of fiscal 2006 included otherincome of $0.1 million for payments received as settlement of litigation towhich we were a plaintiff. Exclusive of this litigation settlement, netinterest and other (income)/expense was $0.1 million for the first quarter offiscal 2006 and $0.2 million for the first quarter of fiscal 2005 and primarilyconsisted of interest expense on indebtedness under our revolving creditfacility.

*Provision for Income Taxes.*   Oureffective tax rate was 38.5% for the first quarter of fiscal 2006 and for thefirst quarter of fiscal 2005. In each period, our effective tax rate was higherthan the federal statutory rate primarily due to state taxes.

**EBITDA**

EBITDA (a non-GAAP measure)is defined as earnings before net interest and other (income)/expense, taxes,depreciation and amortization. EBITDA hassome inherent limitations in measuring operating performance due to theexclusion of certain financial elements such as depreciation and is notnecessarily comparable to other similarly titled captions of other companiesdue to potential inconsistencies in the method of calculation. Furthermore,EBITDA is not intended to be a substitute for cash flows from operatingactivities, as a measure of liquidity, or an alternative to net income indetermining our operating performance in accordance with generally acceptedaccounting principles. Our use of EBITDA should be considered within thefollowing context:

·       Weacknowledge that plant and equipment (while less important in our line ofbusiness due to outsourcing alternatives) are necessary to earn revenue basedon our current business model.

·       Ouruse of EBITDA as a measure of operating performance is not based on any beliefabout the reasonableness of excluding depreciation when measuring financialperformance.

·       Our use of EBITDA issupported by the importance of EBITDA to the following key stakeholders:

o       **Analysts**—whoestimate our projected EBITDA and other EBITDA-based metrics in theirindependently developed financial models for investors;

o       **Creditors**—whoevaluate our operating performance based on compliance with certainEBITDA-based debt covenants;

o       **InvestmentBankers**—who use EBITDA and other EBITDA-based metrics in theirwritten evaluations and comparisons of companies within our industry; and

o       **Board ofDirectors and Executive Management**—who use EBITDA as an essentialmetric for evaluating management performance relative to our operating budgetand bank covenant compliance, as well as our ability to service debt and raisecapital for growth opportunities, including acquisitions, which are a criticalcomponent to our stated strategy. Historically, we have recorded a monthlyaccrual for incentive compensation, which has been paid out to executivemanagement, as well as other employees. This monthly accrual is computed as apercentage of EBITDA.

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Thefollowing table sets forth a reconciliation of net income to EBITDA for eachperiod included herein:

| ** **                                    | ** ** | **Three months ended  December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **2004 **                                      | ** ** | **2005** | ** ** |
| Net income                                    |       | $                                                   | 2,806      |   | $ | 3,453 |   |
| Provision for  income taxes                   |       | 1,757                                               |       | 2,162 |   |
| Interest and  other (income)/expense, net (1) |       | 152                                                 |       | (11 | ) |
| Depreciation and  amortization                |       | 1,119                                               |       | 1,141 |   |
| EBITDA                                        |       | $                                                   | 5,834      |   | $ | 6,745 |   |

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(1)          Includes amortization ofdeferred financing fees and losses associated with fixed asset disposals, aswell as payments received as settlement of litigation to which we were aplaintiff for the three months ended December 31, 2005.

Our EBITDA increased to$6.7 million for the first quarter of fiscal 2006 from $5.8 million for thefirst quarter of fiscal 2005. EBITDA as a percentage of net sales increased to18.4% for the first quarter of fiscal 2006 from 16.5% for the first quarter offiscal 2005.

**Seasonality**

We believe that ourbusiness is characterized by minor seasonality. However, sales to anyparticular customer can vary substantially from one quarter to the next basedon such factors as industry trends, timing of promotional discounts,international economic conditions and acquisition-related activities. Excludingthe effect of acquisitions, we have historically recorded higher brandedproducts sales volume during the second fiscal quarter due to increasedinterest in health-related products among consumers following the holidayseason.

**Liquidity and Capital Resources**

We had working capital of $27.5 million as of December 31,2005 compared to $26.8 million as of September 30, 2005. This increase inworking capital was primarily the result of increases in accounts receivableand inventories, partially offset by a decrease in cash and an increase inaccounts payable.

Net cash provided by operating activities for thethree months ended December 31, 2005 was $2.6 million compared to $3.4million for the comparable period in fiscal 2005. The decrease in net cashprovided by operating activities for the three months ended December 31,2005 was primarily attributable to a decrease in cash provided by changes inassets and liabilities, net of effects of acquisitions, partially offset by anincrease in net income.

Net cash used in investing activities was $3.2 millionfor the three months ended December 31, 2005 and $3.1 million for thecomparable period in fiscal 2005. Our investing activities during these periodsconsisted of acquisitions of businesses and capital expenditures. Capitalexpenditures during these periods related primarily to distribution andmanufacturing equipment, building improvements related to facilityconsolidation efforts and information systems, including retail technology. Weintend to finance anticipated capital expenditures through internally generatedcash flow and, if necessary, through funds provided under our revolving creditfacility.

Net cash used in financing activities was $1.0 millionfor the three months ended December 31, 2005 compared to $1.4 million forthe comparable period in fiscal 2005. During these periods, financingactivities primarily related to borrowings and repayments under our revolvingcredit facility, purchases of common stock for treasury and proceeds from theissuance of common stock.

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Our current revolving credit facility had availablecredit borrowings of $50.0 million at December 31, 2005. The availablecredit borrowings are reduced quarterly by $1.25 million with the nextreduction occurring in March 2006. Borrowings under the revolving creditfacility are collateralized by substantially all our assets. At our election,borrowings bear interest at the applicable Eurodollar Rate plus a variablemargin or at a base rate, which is the higher of the Federal Funds Rate plus0.5% or the Prime Lending Rate, plus a variable margin. At December 31,2005, the applicable weighted-average interest rate for borrowings was 5.75%. Weare also required to pay a variable quarterly fee on the unused balance underthe revolving credit facility. At December 31, 2005, the applicable ratewas 0.25%. Accrued interest on Eurodollar Rate borrowings is payable based onelected intervals of one, two or three months. Accrued interest on base rateborrowings is payable quarterly. The revolving credit facility matures on January 28,2007, and we are required to repay all principal outstanding under therevolving credit facility on such date.

The revolving credit facility contains restrictivecovenants, including restrictions on incurring other indebtedness, limitationson capital expenditures and requirements that we maintain certain financialratios. As of December 31, 2005, we were in compliance with theserestrictive covenants. Upon the occurrence of a default or an event of default,the lender has various remedies or rights, which may include proceeding againstthe collateral or requiring us to repay all amounts outstanding under therevolving credit facility.

A key component of our business strategy is to seek tomake additional acquisitions, which may require that we obtain additionalfinancing, which could include the incurrence of substantial additionalindebtedness. We believe that borrowings under our current revolving creditfacility or a replacement credit facility, together with cash flows fromoperations, will be sufficient to make required payments under the currentcredit facility or a replacement credit facility, and to make anticipatedcapital expenditures and fund working capital needs for fiscal 2006.

Oursignificant non-cancelable contractual obligations as of December 31, 2005were as follows:

| ** **                       | ** ** | **Payments Due By Period** | ** ** |               |
|----------------------------------|------------|-------------------------------------------|------------|--------------------|
| ** **                       | ** ** | ** **                                | ** ** | **Less Than** | ** ** | **1-3** | ** ** | **4-5** | ** ** | **After** | ** ** |   |
| **Contractual Obligations** | ** ** | ** **                                | ** ** | **Total**          | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |   |
| ** **                       | ** ** | **(dollars in thousands)**      | ** ** |               |
| Long-term debt                   |       | $                                         | 1,500      |               |   | $ | — |   |   | $ | 1,500 |   | $ | — |   |   | $ | — |   |   |   |
| Interest on  long-term debt(a)   |       | 250                                       |       |               | 233 |   |   | 17 |   | — |   |   | — |   |   |   |
| Operating leases                 |       | 6,041                                     |       |               | 2,318 |   |   | 2,707 |   | 876 |   |   | 140 |   |   |   |
| Total                            |       | $                                         | 7,791      |               |   | $ | 2,551 |   |   | $ | 4,224 |   | $ | 876 |   |   | $ | 140 |   |   |
|                                  |            |                                           |            |                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(a)           Representsestimated interest obligations associated with our outstanding revolving creditfacility balance of $1.5 million at December 31, 2005, assuming noprincipal payments are made before maturity, a weighted-average interest rateof 5.75% and an underutilization fee rate of 0.25%.

**New Accounting Standards**

We adopted Statement of Financial Accounting StandardsNo. 123R, *Share-Based Payment* (“SFAS 123R”)effective October 1, 2005, using the modified prospective applicationmethod. SFAS 123R requires companies to record compensation expense for thevalue of all outstanding and unvested share-based payments, including employeestock options and similar awards. As of October 1, 2005, we had nooutstanding and unvested share-based payments. Also, on September 30,2005, we terminated the 1995 Stock Option Plan, the 1998 Stock Incentive Planand the 1998 Non-Employee Director Stock Option Plan. After September 30,2005, no new awards of any kind will be granted under any of these plans. As aresult, we did not recognize any compensation expense related to share-basedpayments in our consolidated financial statements for the three months ended December 31,2005.

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Based on our review ofother new accounting standards released during the quarter ended December 31,2005, we did not identify any standard requiring adoption that would have asignificant impact on our consolidated financial statements for the periodsreported.

**Inflation**

Inflation affects the costof raw materials, goods and services used by us. In recent years, inflation hasbeen modest. The competitive environment somewhat limits our ability to recoverhigher costs resulting from inflation by raising prices. We seek to mitigatethe adverse effects of inflation primarily through improved productivity andcost containment programs. We do not believe that inflation has had a materialimpact on our results of operations for the periods presented, except withrespect to payroll-related costs, insurance premiums and other costs arisingfrom or related to government imposed regulations.

**Forward-Looking Statements**

This Form 10-Qcontains forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933 and Section 21E of the Securities Exchange Actof 1934. These statements relate to our future plans, objectives, expectations,intentions and financial performance and the assumptions that underlie thesestatements. These statements involve known and unknown risks, uncertainties andother factors that may cause actual results, level of activity, performance orachievements to be materially different from any future results, levels ofactivity, performance or achievements expressed or implied by these statements.We undertake no obligation to update forward-looking statements to reflectevents or circumstances occurring after the date this Form 10-Q wasfirst filed with the SEC. Important factors that may cause results to differfrom these forward-looking statements include, but are not limited to,government regulations,  productliability claims and litigation, insurance coverage issues, a decrease in orslowing of the growth rate of the vitamin, mineral and supplement market, thesuccess of the healthy foods channel, consumer perception of the safety andquality of our products and similar products, competition, intellectualproperty rights of other parties, the loss of key personnel, disruptions fromacquisitions, issues with obtaining raw materials of adequate quality orquantity, problems with information management systems, manufacturingefficiencies and operations, litigation generally, the volatility of the stockmarket generally and of our stock specifically, a general lack of adequateindustry analyst coverage, and other factors indicated from time to time in ourSEC reports, copies of which are available upon request from our investorrelations group or which may be obtained at the SEC’s website (www.sec.gov).

**Item 3.   Quantitative and Qualitative Disclosuresabout Market Risk**

At our election, borrowings under our revolving creditfacility bear interest at the applicable Eurodollar Rate plus a variable marginor at a base rate, which is the higher of the Federal Funds Rate plus 0.5% orthe Prime Lending Rate, plus a variable margin. At December 31, 2005, theapplicable weighted-average interest rate for borrowings was 5.75% and we hadtotal borrowings outstanding of $1.5 million. To date, we have not obtainedinterest rate protection with respect to these borrowings.

With respect to ourinternational operations, We are subject to currency fluctuations; however, wedo not believe that these fluctuations would have a material adverse impact onour financial position. To date, we have not hedged any of our potentialforeign currency exposures.

**Item 4.   Controls and Procedures**

*Evaluationof Disclosure Controls and Procedures.**  *We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms and that such information is accumulated and communicated to 

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our management, includingour principal executive and principal financial officers, as appropriate, toallow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controlsand procedures, we recognize that any controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance of achievingthe desired control objectives, and we are required to apply our judgment inevaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), wecarried out an evaluation, under the supervision and with the participation ofour management, including our principal executive and principal financialofficers, of the effectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the period covered by this report.Based on the foregoing, our principal executive and principal financialofficers have concluded that our disclosure controls and procedures wereeffective.

*Changesin Internal Control Over Financial Reporting.*   Therewere no changes in our internal control over financial reporting that occurredduring the last fiscal quarter that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

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**PART II—OTHER INFORMATION**

**Item 1.   Legal Proceedings**

As discussed in our other filings, we are subject toregulation by a number of federal, state and foreign agencies and are involvedin various legal matters arising in the normal course of business.

We carry insurance coverage in the types and amountsthat we consider reasonably adequate to cover the risks we face in the industryin which we compete. However, our current liability policy excludes claimsrelated to certain ingredients, including products containing ephedra.

In our opinion, theoutcomes of individual regulatory and legal matters in which we are presentlyinvolved are not probable and no estimate can be made of the range of potentialgains or losses. While incapable of estimation, in the opinion of management,the individual regulatory and legal matters in which we are involved are notexpected to have a material adverse effect on our financial position, resultsof operations or cash flows. However, our aggregate liability arising fromregulatory and legal proceedings related to these matters could have a materialeffect on our financial position, results of operations or cash flows.

**Item 2.   Unregistered Sales of Equity Securitiesand Use of Proceeds**

We did not sell any unregistered equity securitiesduring the period covered by this Form 10-Q for the Quarterly Period EndedDecember 31, 2005.

During fiscal 2000,our Board of Directors approved a share purchase program authorizing us to buyup to 1,500,000 shares of our common stock. Purchases under this program duringthe three months ended December 31, 2005 occurred in December 2005 asfollows:

| ** **           | ** ** | ** **            | ** ** | ** **             | ** ** | **Total Number** | ** ** | ** **               | ** ** |
|----------------------|------------|-----------------------|------------|------------------------|------------|-----------------------|------------|--------------------------|------------|
| ** **           | ** ** | ** **            | ** ** | ** **             | ** ** | **of Shares**    | ** ** | **Maximum**              | ** ** |
| ** **           | ** ** | ** **            | ** ** | ** **             | ** ** | **Purchased as** | ** ** | **Number of**       | ** ** |
| ** **           | ** ** | ** **            | ** ** | ** **             | ** ** | **Part of**      | ** ** | **Shares that**     | ** ** |
| ** **           | ** ** | **Total Number** | ** ** | **Average Price** | ** ** | **Publicly**          | ** ** | **May Yet Be** | ** ** |
| ** **           | ** ** | **of Shares**    | ** ** | **Paid Per**      | ** ** | **Announced**         | ** ** | **Purchased Under** | ** ** |
| **Period**           | ** ** | ** **            | ** ** | **Purchased**          | ** ** | **Share**             | ** ** | **Plan**                 | ** ** | **the Plan** | ** ** |
| 12/1/05 to  12/31/05 |       |                  | 41,543     |                   |       |                  | $          | 13.46                    |       |   |   | 41,543 |   |   |   | 343,235 |   |   |
|                      |            |                       |            |                        |            |                       |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |

 

**Item 6.**   Exhibits

| 31.1 |   | Certifications Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                     |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
| 32.1 |   | Certifications Pursuant to 18 U.S.C. Section 1350,  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

 

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
| NUTRACEUTICAL  INTERNATIONAL  CORPORATION |
|------------------------------------------------|
| (Registrant)                                   |
| Date: January 26,  2006                   | By: | /s/ Leslie M.  Brown, Jr. |
|                                           |   | Leslie M. Brown, Jr. |
|                                           |   | Senior Vice President, Finance, Chief Financial  Officer and Assistant Secretary |
|                                           |   |
|                                           |   | (Principal Financial and Accounting Officer) |

 

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