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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2007

Commission file number000-23731

NUTRACEUTICAL INTERNATIONAL CORPORATION(Exact name of registrant as specified in its charter)

|Delaware(State of incorporation)                                                         |  | 87-0515089(IRS Employer Identification No.)
|---------------------------------------------------------------------------------------- |  | -------------------------------------------
|1400 Kearns Boulevard, 2nd Floor, Park City, Utah(Address of principal executive office) |  | 84060(Zip code)                            
|(435) 655-6106(Registrant's telephone number, including area code)                      

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

YES ý NO o

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

Large
accelerated filer o                Accelerated filer ý                Non-accelerated
filer o

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

YES o NO ý

At January 31, 2008, the registrant had 11,078,247 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 (unaudited)                                                                                       |  | 3       
|            |  |                       |  | Condensed Consolidated Balance SheetsSeptember 30, 2007 and December 31, 2007                                         |  | 3       
|            |  |                       |  | Condensed Consolidated Statements of Operations and Comprehensive IncomeThree Months Ended December 31, 2006 and 2007 |  | 4       
|            |  |                       |  | Condensed Consolidated Statements of Cash FlowsThree Months Ended December 31, 2006 and 2007                          |  | 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                                                             |  | 17      
|            |  | Item 4.               |  | Controls and Procedures                                                                                                |  | 18      
|Part II.    |  | Other Information     |  | 19                                                                                                                    
|            |  | Item 1.               |  | Legal Proceedings                                                                                                      |  | 19      
|            |  | Item 1A.              |  | Risk Factors                                                                                                           |  | 19      
|            |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                            |  | 19      
|            |  | Item 6.               |  | Exhibits                                                                                                               |  | 19      

2

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PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

NUTRACEUTICAL INTERNATIONAL CORPORATION        CONDENSED CONSOLIDATED BALANCE SHEETS        (unaudited)        (dollars in thousands)

September 30,
2007(1)

December 31,
2007ASSETSCurrent assetsCash

$
4,605

$
3,482Accounts receivable, net


11,549


12,016Inventories, net


30,261


31,016Prepaid expenses and other current assets


3,523


1,787Deferred income taxes


1,596


1,603Total current assets


51,534


49,904Property, plant and equipment, net


39,506


42,367Goodwill


38,978


39,066Intangible assets, net


12,753


12,596Other non-current assets, net


718


653Deferred income taxes, net


2,913


2,649Total assets

$
146,402

$
147,235LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable

$
12,322

$
11,637Accrued expenses


7,953


6,088Total current liabilities


20,275


17,725Long-term debt


20,000


21,000Other non-current liabilities


208


227Total liabilities


40,483


38,952Stockholders' equityCommon stock


111


111Additional paid-in capital


34,135


33,285Retained earnings (Note 10)


70,812


74,056Accumulated other comprehensive income


861


831Total stockholders' equity


105,919


108,283Total liabilities and stockholders' equity

$
146,402

$
147,235




3

---







NUTRACEUTICAL INTERNATIONAL CORPORATION        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        AND COMPREHENSIVE INCOME        (unaudited)        (dollars in thousands,
except per share data)

Three months ended December 31,2006

2007Net sales

$
35,848

$
41,086Cost of sales


16,324


18,773Gross profit


19,524


22,313Operating expensesSelling, general and administrative


13,922


16,628Amortization of intangible assets


46


167Income from operations


5,556


5,518Interest and other (income)/expense, net


144


380Income before provision for income taxes


5,412


5,138Provision for income taxes


2,057


1,927Net income

$
3,355

$
3,211Other comprehensive income/(loss)Foreign currency translation adjustment, net of tax


(6
)

(30
)Comprehensive income

$
3,349

$
3,181Net income per common shareBasic

$
0.30

$
0.29Diluted


0.30


0.28Weighted average common shares outstandingBasic


11,015,967


11,123,792Dilutive effect of stock options


196,318


146,297Diluted


11,212,285


11,270,089


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

4

---





NUTRACEUTICAL INTERNATIONAL CORPORATION        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (unaudited)        (dollars in thousands)

Three months ended December 31,2006

2007Cash flows from operating activitiesNet income

$
3,355

$
3,211Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization


1,101


1,312Amortization of deferred financing fees


14


14Losses on disposals of property and equipment


2


1Deferred income taxes


295


299Changes in assets and liabilities, net of effects of acquisitionsAccounts receivable, net


824


(460
)Inventories, net


1,474


(738
)Prepaid expenses and other current assets


849


1,736Other non-current assets, net


2


26Accounts payable


(262
)

(685
)Accrued expenses


(247
)

(1,887
)Other non-current liabilities


(52
)

10Net cash provided by operating activities


7,355


2,839Cash flows from investing activitiesAcquisitions of businesses, net of cash acquired


(11,390
)

(97
)Purchases of property and equipment


(2,233
)

(4,007
)Net cash used in investing activities


(13,623
)

(4,104
)Cash flows from financing activitiesProceeds from long-term debt


9,000


1,500Payments on long-term debt


(2,000
)

(500
)Proceeds from issuances of common stock


78


8Purchases of common stock for treasury





(858
)Tax benefit from stock option exercises


5


Net cash provided by financing activities


7,083


150Effect of exchange rate changes on cash


(8
)

(8
)Net increase (decrease) in cash


807


(1,123
)Cash at beginning of period


2,834


4,605Cash at end of period

$
3,641

$
3,482


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

5

---





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

1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all necessary adjustments (consisting of normal
recurring accruals) to present fairly the consolidated financial position of Nutraceutical International Corporation and its subsidiaries (the "Company") as of December 31, 2007, the results of
their operations and cash flows for the three months ended December 31, 2006 and 2007, in conformity with accounting principles generally accepted in the United States of America for interim
financial information applied on a consistent basis. Results for the three months ended December 31, 2007 are not necessarily indicative of the results to be expected for the full fiscal year.

Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of
America have been omitted. Accordingly, these financial statements should be read in conjunction with the Company's Form 10-K for the Fiscal Year Ended September 30, 2007,
which was filed with the Securities and Exchange Commission on November 29, 2007.

2. ACCOUNTS RECEIVABLE, NET

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

September 30,
2007

December 31,
2007Accounts receivable

$
13,738

$
14,298Less allowances


(2,189
)

(2,282
)$
11,549

$
12,016


3. INVENTORIES, NET

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

September 30,
2007

December 31,
2007Raw materials

$
11,501

$
12,106Work-in-process


6,063


6,169Finished goods


14,497


14,55832,061


32,833Less reserves


(1,800
)

(1,817
)$
30,261

$
31,016


4. ACQUISITIONS

On December 12, 2007, the Company acquired certain assets of Dowd and Rogers, Inc. for $97 in cash. Dowd and Rogers, Inc. manufactures and
markets a line of gluten-free cake mixes. This

6

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

4. ACQUISITIONS (Continued)

acquisition,
which is in keeping with the Company's business strategy of consolidating the fragmented industry in which it competes, was accounted for using the purchase method of accounting with $24
allocated to current assets and $73 allocated to goodwill.

The
goodwill of $73, which is not subject to amortization for financial statement purposes, is expected to be deductible for tax purposes over fifteen years.

5. GOODWILL

The change in the carrying amount of goodwill from September 30, 2007 to December 31, 2007 was as follows:

GoodwillBalance as of September 30, 2007

$
38,978Goodwill attributable to fiscal 2008 first quarter acquisition


73Purchase accounting adjustments related to prior acquisitions


23Foreign currency translation adjustment


(8
)Balance as of December 31, 2007

$
39,066


6. INTANGIBLE ASSETS

The carrying amounts of intangible assets at September 30, 2007 and December 31, 2007 were as follows:

|                                               |                                   | September 30, 2007 |        | December 31, 2007 |   |     
|---------------------------------------------- | --------------------------------- | ------------------ | ------ | ----------------- | - | ----
|
|
|Intangible assets subject to amortization:     |                                   |                    |        |                   |   |     
|                                               | Trademarks/trade names/patents    |                    | $      | 444               |   | $   
|                                               | Customer relationships            |                    |        | 2,943             |   |     
|                                               | Developed software and technology |                    |        | 772               |   |     
|                                               |                                   |                    |        |                   |   |     
|                                               |                                   |                    | 4,159  |                   |   | (675
|Intangible assets not subject to amortization: |                                   |                    |        |                   |   |     
|                                               | Trademarks/trade names/licenses   |                    |        | 9,269             |   |     
|                                               |                                   |                    |        |                   |   |     
|                                               |                                   | $                  | 13,428 |                   | $ | (675
|                                               |                                   |                    |        |                   |   |     

---

7

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

6. INTANGIBLE ASSETS (Continued)

Estimated future amortization expense related to the December 31, 2007 net carrying amount of $3,330 for intangible assets subject to
amortization is as follows:

Year Ending September 30,

Estimated
Amortization
Expense2008(1)

$
6252009


6292010


6222011


5882012


445Thereafter


421$
3,330




7. SHARE REPURCHASES

During the three months ended December 31, 2007, the Company purchased 67,731 shares of common stock for an aggregate price of $858, which shares were held
in treasury until being retired on December 31, 2007. There were no shares repurchased or retired during the three months ended December 31, 2006. As of December 31, 2007, the
Company was permitted to purchase up to 845,334 additional shares under its approved purchase plan.

8. STOCK OPTIONS

The following table summarizes stock option activity during the three months ended December 31, 2007:

Number of
Options

Weighted-Average
Exercise
PriceOptions outstanding and exercisable at September 30, 2007

750,963

$
10.06Forfeited or expired

(26,800
)

17.50Options outstanding and exercisable at December 31, 2007

724,163

$
9.78


Options
to purchase common stock of 138,815 and 163,365 at December 31, 2006 and 2007, respectively, were excluded from the computation of diluted earnings per share because the
exercise prices of these stock options were greater than the average share price of the Company's common stock and, therefore, the effect would have been antidilutive.

8

---



NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

9. OPERATING SEGMENTS

Segment identification and selection is consistent with the management structure used by the Company to evaluate performance and make decisions regarding resource
allocation, as well as the materiality of financial results consistent with that structure. Based on the Company's management structure and method of internal reporting, the Company has one operating
segment. The Company does not review operating results on a disaggregated basis; rather, management reviews operating results on an aggregate basis.

Net
sales attributed to customers in the United States and foreign countries for the three months ended December 31, 2006 and 2007 were as follows:

Three months ended December 31,2006

2007United States

$
32,415

$
35,866Foreign countries


3,433


5,220$
35,848

$
41,086


Certain
net sales attributed to customers in the United States are sold to customers who in turn may sell such products to customers in foreign countries while certain net sales
attributed to customers in foreign countries are sold to customers who in turn may sell such products to customers in the United States.

10. INCOME TAXES

The Financial Accounting Standards Board ("FASB") issued Interpretation No. 48,Accounting for Uncertainty in Income
Taxes("FIN 48") in June 2006. FIN 48 provides specific guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax
positions taken or expected to be taken in a tax return. The Company adopted FIN 48 as of October 1, 2007. As a result of the adoption of FIN 48, the Company recognized a $33
decrease in the liability for unrecognized tax benefits, which was recorded as an increase to the October 1, 2007 balance of retained earnings in accordance with the provisions of
FIN 48.

As
of October 1, 2007, the Company's liability related to unrecognized tax benefits was $169. Of this amount, approximately $155 would impact the Company's effective tax rate, if
recognized. The
Company also had $29 in accrued interest at October 1, 2007 related to unrecognized tax benefits. There were no significant changes in the Company's unrecognized tax benefits during the quarter
ended December 31, 2007 and the Company does not anticipate any significant changes in unrecognized tax benefits during the next twelve months. The liability related to unrecognized tax
benefits was recorded as a component of other non-current liabilities in the Company's Condensed Consolidated Balance Sheets. Interest and penalties related to unrecognized tax benefits
are recorded as a component of interest and other (income)/expense in the Company's Condensed Consolidated Statements of Operations and Comprehensive Income.

The
Company files income tax returns in the United States ("U.S.") federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. The Company is no longer
subject to U.S. federal tax examinations for fiscal years before 2004. The Company is no longer subject to examination in any U.S. state jurisdiction or foreign jurisdiction for fiscal years prior to
2002.

9

---





Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis should be read in 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 natural products sold primarily to and through domestic health and
natural food stores. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers. Our core
business strategy is to acquire, integrate and operate, from beginning to end, the manufacturing, marketing and distribution of branded nutritional supplement businesses in the natural products
industry. We believe that the consolidation and integration of these acquired businesses provides ongoing financial synergies through increased scale and market penetration, as well as strengthened
customer relationships.

We
sell branded nutritional supplements and other natural products under the trademarksSolaray®, VegLife®,KAL®,Nature's
Life®,Sunny Green®,Action Labs®, Natural Balance®, NaturalMax®, bioAllers®,Herbs for Kids, Natra-Bio®,NaturalCare®, Zand®,Life-flo®,Larenim®,Living Flower Essences®, Pioneer®,Thompson®,Natural
Sport®,Supplement Training Systems®,Premier
One®,Montana Big Sky,ActiPet®, FunFresh Foods,Dowd & Rogers, CompliMed®,AllVia, Healthway®,Body Gold®,Sayge
BioSciences, Monarch Nutritional Laboratories andGreat Basin
Botanicals. Under the nameWoodland Publishing, we publish, print and market a line of books and
booklets to, among others,
book distributors, national retail bookstores and health and natural food stores. We also distribute branded products of certain third parties.

We
own neighborhood natural food markets, which operate under the trade namesThe Real Food Company, Thom's Natural Foods andCornucopia Community Market. We also own health food
stores, which operate under the trade namesFresh Vitamins,Granola's and Pilgrim's Natureway.

We
were formed in 1993 by senior management and Bain Capital, Inc. to effect a consolidation strategy in the fragmented vitamin, mineral, herbal and other nutritional supplements
industry (the "VMS Industry"). Since our formation, we have completed twenty-four acquisitions of assets or stock. As a result of acquisitions, internal growth and cost management, we believe that we
are well positioned to continue to capitalize on acquisition opportunities that arise in the VMS Industry.

Critical Accounting Policies

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

Our
estimates and judgments related to our critical accounting policies, including factors and assumptions considered in making these estimates and judgments, did not vary significantly
for the periods presented and had no material impact on the consolidated financial statements as reported. Our critical accounting policies include the following:

Accounts ReceivableProvision is made for estimated bad debts based on periodic analysis of individual customer balances,
including an evaluation of days sales outstanding, payment history, recent payment trends and perceived credit worthiness. If general economic conditions and/or customer

10

---



financial
condition were to change, additional provisions for bad debts may be required, which could have a material impact on the consolidated financial statements.

InventoriesProvision is made for slow moving, obsolete and/or damaged inventory based on periodic analysis of individual
inventory items, including an evaluation of historical usage and/or movement, age, expiration date and general condition. If market demand and/or consumer preferences are less favorable than
historical trends or future expectations, additional provisions for slow moving, obsolete and/or damaged inventory may be required, which could have a material impact on the consolidated financial
statements.

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

We
evaluate the recoverability of our property, plant and equipment in accordance with Statement of Financial Accounting Standards No. 144,Accounting for
the Impairment or Disposal of Long-Lived Assets. We review property, plant and equipment for possible impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. We measure recoverability of the asset by comparison of its carrying amount to the future undiscounted cash flows we expect the asset to generate. If we
consider the asset to be impaired, we measure the amount of any impairment as the difference between the carrying amount and the fair value of the impaired asset.

Goodwill and Intangible AssetsStatement of Financial Accounting Standards No. 141,Business
Combinations, and Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets("SFAS 142"), require estimates and judgments in determining the initial recognition and measurement of goodwill and intangible assets, including factors and assumptions used in determining
fair values and useful lives. Intangible assets with finite useful lives are amortized, while intangible assets with indefinite useful lives are not amortized. In addition, SFAS 142 requires
ongoing, periodic impairment testing, which relies on such factors and assumptions as identified reporting units, as well as expected future net cash flows relative to recorded book values. If an
asset impairment were identified, a loss would be recorded, which could have a material impact on the consolidated financial statements.

Revenue RecognitionRevenue is recognized in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition, which states that revenue should be
recognized when the following criteria are met: (1) persuasive evidence of an
arrangement exists; (2) the product has been shipped and the customer takes ownership and assumes the risk of loss; (3) the selling price is fixed or determinable; and
(4) collection of the resulting receivable is reasonably assured. We believe that these criteria are satisfied upon shipment from our facilities or, in the case of our neighborhood natural food
markets and health food stores, at the point of sale within these stores. Revenue is reduced by provisions for estimated returns and allowances, which are based on historical averages that have not
varied significantly for the periods presented, as well as specific known claims, if any. No other significant deductions from revenue must be estimated at the point in time that revenue is
recognized.

11

---



Results of Operations

The following table sets forth certain consolidated statements of operations data as a percentage of net sales for the periods indicated:

Three Months Ended December 31,2006

2007Net sales

100.0
%
100.0
%Cost of sales

45.5
%
45.7
%Gross profit

54.5
%
54.3
%Selling, general and administrative

38.8
%
40.5
%Amortization of intangible assets

0.2
%
0.4
%Income from operations

15.5
%
13.4
%Interest and other (income)/expense, net

0.4
%
0.9
%Income before provision for income taxes

15.1
%
12.5
%Provision for income taxes

5.7
%
4.7
%Net income

9.4
%
7.8
%EBITDA(1)

18.6
%
16.6
%




Comparison of the Three Months Ended December 31, 2007 to the Three Months Ended December 31, 2006

Net Sales.Net sales increased by $5.3 million, or 14.6%, to $41.1 million for the three months ended
December 31, 2007 ("first quarter of fiscal 2008") from $35.8 million for the three months ended December 31, 2006 ("first quarter of fiscal 2007"). Net sales of branded
nutritional supplements and other natural products increased by $5.2 million, or 16.6%, to $36.8 million for the first quarter of fiscal 2008 compared to $31.6 million for the
first quarter of fiscal 2007. The increase in net sales of branded nutritional supplements and other natural products was primarily related to the net sales contributions of the six businesses
acquired during fiscal 2007, three of which were acquired subsequent to December 31, 2006, partially offset by a slight decrease in sales of branded products to certain customers. Other net
sales remained relatively flat at $4.3 million for the first quarter of fiscal 2008 compared to $4.2 million for the first quarter of fiscal 2007. Management believes that the VMS
Industry continues to have low growth rates and remains very competitive.

Gross Profit.Gross profit increased by $2.8 million, or 14.3%, to $22.3 million for the first quarter of
fiscal 2008 from $19.5 million for the first quarter of fiscal 2007. This increase in gross profit was primarily attributable to the increase in net sales. As a percentage of net sales, gross
profit remained relatively flat at 54.3% for the first quarter of fiscal 2008 compared to 54.5% for the first quarter of fiscal 2007.

Selling, General and Administrative.Selling, general and administrative expenses increased by $2.7 million, or 19.4%,
to $16.6 million for the first quarter of fiscal 2008 from $13.9 million for the first quarter of fiscal 2007. As a percentage of net sales, selling, general and administrative expenses
increased to 40.5% for the first quarter of fiscal 2008 compared to 38.8% for the first quarter of fiscal 2007. This increase in selling, general and administrative expenses was primarily attributable
to operational and transition costs related to the six businesses acquired in fiscal 2007. Additionally,

12

---



increased
costs associated with labor and labor-related costs, building rents and insurance impacted us during the first quarter of fiscal 2008.

Amortization of Intangibles.Amortization of intangibles was $0.2 million for the first quarter of fiscal 2008
compared to approximately $0.1 million for the first quarter of fiscal 2007. For each period, amortization expense was primarily related to intangible assets recorded in connection with
acquisitions.

Interest and Other (Income)/Expense, Net.Net interest and other (income)/expense was $0.4 million for the first
quarter of fiscal 2008 and $0.1 million for the first quarter of fiscal 2007 and primarily consisted of interest expense on indebtedness under our revolving credit facility, with the increase
being primarily related to borrowings for the fiscal 2007 acquired businesses.

Provision for Income Taxes.Our effective tax rate was 37.5% for the first quarter of fiscal 2008 and 38.0% for the first
quarter of fiscal 2007. In each period, our effective tax rate was higher than 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 has
some inherent limitations in measuring operating performance due to the exclusion of certain financial elements such as depreciation and amortization and is not necessarily comparable to other
similarly titled captions of other companies due to potential inconsistencies in the method of calculation. Furthermore, EBITDA is not intended to be a substitute for cash flows from operating
activities, as a measure of liquidity, or an alternative to net income in determining our operating performance in accordance with generally accepted accounting principles. Our use of EBITDA should be
considered within the following context:



13

---





The
following table sets forth a reconciliation of net income to EBITDA for each period included herein:

Three Months Ended December 31,2006

2007Net income

$
3,355

$
3,211Provision for income taxes


2,057


1,927Interest and other (income)/expense, net(1)


144


380Depreciation and amortization


1,101


1,312EBITDA

$
6,657

$
6,830




Our
EBITDA increased to $6.8 million for the first quarter of fiscal 2008 from $6.7 million for the first quarter of fiscal 2007. EBITDA as a percentage of net sales
decreased to 16.6% for the first quarter of fiscal 2008 from 18.6% for the first quarter of fiscal 2007.

Seasonality

We believe that our business is characterized by minor seasonality. However, sales to any particular customer or sales of any particular product can vary
substantially from one quarter to the next based on such factors as industry trends, timing of promotional discounts, international economic conditions and acquisition-related activities. Excluding
the effect of acquisitions, we have historically recorded
higher branded products sales volume during the second fiscal quarter (January thru March) due to increased interest in health-related products among consumers following the holiday season.

Liquidity and Capital Resources

We had working capital of $32.2 million as of December 31, 2007 compared to $31.3 million as of September 30, 2007. This increase in
working capital was primarily the result of increases in accounts receivable and inventories and decreases in accounts payable and accrued expenses, partially offset by decreases in cash and prepaid
expenses and other current assets.

Net
cash provided by operating activities for the three months ended December 31, 2007 was $2.8 million compared to $7.4 million for the comparable period in fiscal
2007. This decrease in net cash provided by operating activities for the three months ended December 31, 2007 was primarily attributable to a decrease in cash due to changes in assets and
liabilities, net of effects of acquisitions.

Net
cash used in investing activities was $4.1 million for the three months ended December 31, 2007 compared to $13.6 million for the comparable period in fiscal
2007. Our investing activities during theses periods consisted of acquisitions of businesses and capital expenditures.

On
December 12, 2007, we acquired certain assets of Dowd and Rogers, Inc. for $0.1 million in cash. Dowd and Rogers, Inc. manufactures and markets a line of
gluten-free cake mixes. In comparison, we acquired three businesses during the first quarter of fiscal 2007 for a total of $11.4 million in cash. The expected long-term
sales and expense synergies of acquired businesses are generally not realized immediately following acquisition as certain transition and integration matters must be completed.

Capital
expenditures during these periods related primarily to building improvements related to facility consolidation efforts, distribution and manufacturing equipment and information
systems.

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Net
cash provided by financing activities was $0.2 million for the three months ended December 31, 2007 compared to $7.1 million for the comparable period in fiscal
2007. During these periods, financing activities primarily related to borrowings and repayments under our revolving credit facility, purchases
of common stock for treasury and proceeds from the issuance of common stock related to stock option exercises and the direct stock purchase plan.

In
October 2007, we registered a direct stock purchase plan with the Securities and Exchange Commission. The purpose of this direct stock purchase plan is to provide a convenient way for
existing stockholders, as well as new investors, to purchase shares of our common stock. A total of 1,500,000 shares of our common stock were registered under the plan with 595 shares purchased during
the three months ended December 31, 2007.

Our
current revolving credit facility has available credit borrowings of $60.0 million with no automatic reductions and provides an accordion feature which can increase the
available credit borrowings to $90.0 million, subject to approval by the lenders and compliance with certain covenants and conditions.

At
December 31, 2007, we had outstanding revolving credit borrowings of $21.0 million. Borrowings under the revolving credit facility are collateralized by certain of our
assets. At our election, borrowings under the revolving credit facility bear interest at the applicable Eurodollar Rate plus a variable margin or at a base rate, which is the higher of the Federal
Funds Rate plus 0.5% or the Prime Lending Rate, plus a variable margin. At December 31, 2007, the applicable weighted-average interest rate for outstanding borrowings was 5.77%, exclusive of
any interest rate swap agreements. We are also required to pay a variable quarterly fee on the unused balance under the revolving credit facility. At December 31, 2007, the applicable rate was
0.18%. Accrued interest on Eurodollar Rate borrowings is payable based on elected intervals of one, two or three months. Accrued interest on base rate borrowings is payable quarterly. The revolving
credit facility matures on September 7, 2011, and we are required to repay all principal outstanding under the revolving credit facility on such date.

The
revolving credit facility contains restrictive covenants, including limitations on incurring certain other indebtedness and requirements that we maintain certain financial ratios. As
of December 31, 2007, we were in compliance with the restrictive covenants. Upon the occurrence of a default, the lender has various remedies or rights, which may include proceeding against the
collateral or requiring us to repay all amounts outstanding under the revolving credit facility.

On
August 10, 2007, we entered into a one-year interest rate swap agreement covering $15.0 million of our outstanding revolving credit borrowings. The interest
rate swap has an all-in fixed interest rate of 6.01% and was not designated as a hedge in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities("SFAS 133"). For the three months ended December 31, 2007, the interest rate
swap had an unfavorable change in fair value of $35 thousand, which was included as a component of interest and other (income)/expense in the Condensed Consolidated Statements of Operations and
Comprehensive Income.

A
key component of our business strategy is to seek to make additional acquisitions, which may require that we obtain additional financing, which could include the incurrence of
substantial additional
indebtedness or the issuance of additional stock. We believe that borrowings under our current revolving credit facility or a replacement credit facility, together with cash flows from operations,
will be sufficient to make required payments under the current credit facility or any such replacement facility, and to make anticipated capital expenditures and fund working capital needs for fiscal
2008.

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Our
significant non-cancelable contractual obligations as of December 31, 2007 were as follows:

|                                         |  | Payments Due By Period
|---------------------------------------- |  | ----------------------
|
|
|Revolving credit facility                |  | $                     
|Interest on revolving credit facility(a) |  |                       
|Operating leases                         |  |                       
|                                         |  |                       
|Total                                    |  | $                     
|                                         |  |                       

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New Accounting Standards

The Financial Accounting Standards Board ("FASB") issued Interpretation No. 48,Accounting for Uncertainty in Income
Taxes("FIN 48") in June 2006. FIN 48 provides specific guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax
positions taken or expected to be taken in a tax return. We adopted FIN 48 as of October 1, 2007. As a result of the adoption of FIN 48, we recognized a $33 decrease in the
liability for unrecognized tax benefits, which was recorded as an increase to the October 1, 2007 balance of retained earnings in accordance with the provisions of FIN 48.

As
of October 1, 2007, our liability related to unrecognized tax benefits was $169 thousand. Of this amount, approximately $155 thousand would impact our effective
tax rate, if recognized. We also had $29 thousand in accrued interest at October 1, 2007 related to unrecognized tax benefits. There were no significant changes in our unrecognized tax
benefits during the quarter ended December 31, 2007 and we do not anticipate any significant changes in unrecognized tax benefits during the next twelve months. The liability related to
unrecognized tax benefits was recorded as a component of other non-current liabilities in our Condensed Consolidated Balance Sheets. Interest and penalties related to unrecognized tax
benefits are recorded as a component of interest and other (income)/expense in our Condensed Consolidated Statements of Operations and Comprehensive Income.

We
file income tax returns in the United States ("U.S.") federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. We are no longer subject to U.S.
federal tax examinations for fiscal years before 2004. We are no longer subject to examination in any U.S. state jurisdiction or foreign jurisdiction for fiscal years prior to 2002.

In
September 2006, the FASB issued Statement of Financial Accounting Standard No. 157,Fair Value Measurements("SFAS 157").
SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. In November
2007, the FASB decided to postpone for one year the effective date of SFAS 157 for other non-financial assets and liabilities. SFAS 157 is effective for us as of
October 1, 2008 for financial items and October 1, 2009 for other non-financial assets and liabilities. We do not expect the adoption of SFAS 157 to have a material
impact on our consolidated financial statements.

In
February 2007, the FASB issued Statement of Financial Accounting Standard No. 159,The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115("SFAS 159"). SFAS 159 permits entities to choose to measure many financial
instruments and

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certain
other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on
our consolidated financial statements.

In
December 2007, the FASB issued Statement of Financial Accounting Standard No. 141 (Revised 2007),Business Combinations("SFAS 141(R)"). SFAS 141(R) addresses fair value accounting and the related disclosure for assets and liabilities acquired in a business combination. SFAS 141(R) is effective for
our 2010 fiscal year. We are currently evaluating the impact this standard may have on business acquisitions we may complete after September 30, 2009.

We
periodically review new accounting standards that are issued from time to time. Although some of these accounting standards may be applicable to us, we have not identified any other
new standards that we believe merit further discussion, and we expect that none would have a significant impact on our consolidated financial statements.

Inflation

Inflation affects the cost of raw materials, goods and services used by us. In recent years, inflation has been modest. The competitive environment somewhat
limits our ability to recover higher costs resulting from inflation by raising prices. We seek to mitigate the adverse effects of inflation primarily through improved productivity and cost containment
programs. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to increased costs in manufacturing, packaging and
distribution resulting from increased fuel and other petrochemical costs, as well as payroll-related costs, insurance premiums and other costs arising from or related to government imposed
regulations.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie
these statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or achievements expressed or implied by these statements. We undertake no obligation to update forward-looking statements to reflect
events or circumstances occurring after the date this Form 10-Q was first filed with the SEC. Important factors that may cause results to differ from these forward-looking
statements include, but are not limited to, government regulations, product liability claims and litigation, insurance coverage issues, a decrease in or slowing of the growth rate of the vitamin,
mineral and supplement market, the success of the healthy foods channel, consumer perception of the safety and quality of our products and similar products, competition, intellectual property rights
of other parties, the loss of key personnel, disruptions from acquisitions, issues with obtaining raw materials of adequate quality or quantity, problems with information management systems,
manufacturing efficiencies and operations, litigation generally, the volatility of the stock market generally and of our stock specifically, a general lack of adequate industry analyst coverage, and
other factors indicated from time to time in our SEC reports, copies of which are available upon request from our investor relations group or which may be obtained at the SEC's website (www.sec.gov).

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

At our election, borrowings under our revolving credit facility bear interest at the applicable Eurodollar Rate plus a variable margin or at a base rate, which is
the higher of the Federal Funds Rate plus 0.5% or the Prime Lending Rate, plus a variable margin. At December 31, 2007, the applicable

17

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weighted-average
interest rate for borrowings was 5.77% and we had total borrowings outstanding of $21.0 million.

On
August 10, 2007, we entered into a one-year interest rate swap agreement covering $15.0 million of our outstanding revolving credit borrowings. The interest
rate swap has an all-in fixed interest rate of 6.01% and was not designated as a hedge in accordance with SFAS 133. For the three months ended December 31, 2007, the interest
rate swap had an unfavorable change in fair value of $35 thousand, which was included as a component of interest and other (income)/expense in the Condensed Consolidated Statements of
Operations and Comprehensive Income.

With
respect to our international operations, we are subject to currency fluctuations; however, we do not believe that these fluctuations would have a material adverse impact on our
financial position because the majority of our net sales to foreign countries are transacted in U.S. dollars. Net sales to foreign countries not transacted in U.S. dollars include sales to customers
in Norway, Canada, the U.K. and Japan. To date, we have not hedged any of our potential foreign currency exposures.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures.We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's
rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow for timely
decisions regarding required disclosure.

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

As
required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision of and with the participation of our management, including our principal
executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.

Based
on the foregoing, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting.There were no changes in our internal control over financial reporting
that occurred during the last fiscal quarter that have materially affected, or are reasonably likely 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 to regulation by a number of federal, state and foreign agencies and are involved in various legal matters
arising in the normal course of business.

We
carry insurance coverage in the types and amounts that we consider reasonably adequate to cover the risks we face in the industry in which we compete. However, our current liability
policy excludes claims related to certain ingredients, including products containing kava.

In
our opinion, the outcomes of individual regulatory and legal matters in which we are presently involved are not probable and no estimate can be made of the range of potential gains or
losses. While incapable of estimation, in the opinion of management, the individual regulatory and legal matters in which we are involved are not expected to have a material adverse effect on our
consolidated financial position, results of operations or cash flows.

Item 1A.    Risk Factors

There have been no material changes in our risk factors from those disclosed in our 2007 Annual Report on Form 10-K.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell any unregistered equity securities during the period covered by this Form 10-Q for the Quarterly Period Ended
December 31, 2007.

Under
our approved share purchase program, we are authorized to buy up to 2,500,000 shares of our common stock, of which 845,334 shares may yet be purchased as of December 31,
2007. The shares available for purchase at December 31, 2007 have no expiration date. Purchases under this program during the three months ended December 31, 2007 occurred in December as
follows:

|Period              |  | Total Number
of Shares
Purchased |  | Average Price
Paid Per
Share |       | Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plan |        | Maximum
Number of
Shares that
May Yet Be
Purchased Under
the Plan
|------------------- |  | -------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------------------------- | ------ | -----------------------------------------------------------------
|12/1/07 to 12/31/07 |  | 67,731                           |  | $                            | 12.67 |                                                                     | 67,731 |                                                                  

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

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                       |  | NUTRACEUTICAL INTERNATIONAL CORPORATION
(Registrant)
|---------------------- |  | ----------------------------------------------------
|Date: January 31, 2008 |  | By:                                                 

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