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UNITED STATES
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 June 30, 2008

Commission file number 000-23731

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

Delaware

87-0515089(State of incorporation)

(IRS Employer Identification No.)1400 Kearns Boulevard, 2nd 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) 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, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company 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 July 31, 2008, the registrant had 10,842,606 shares of common stock outstanding.



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NUTRACEUTICAL INTERNATIONAL CORPORATION        INDEX



Description

Page No.Part I.

Financial Information

3Item 1.

Financial Statements (unaudited)

3Condensed Consolidated Balance SheetsSeptember 30, 2007 and June 30, 2008

3Condensed Consolidated Statements of Operations and Comprehensive IncomeThree Months and Nine Months Ended June 30, 2007 and 2008

4Condensed Consolidated Statements of Cash FlowsNine Months Ended June 30, 2007 and 2008

5Notes to Condensed Consolidated Financial Statements

6Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

11Item 3.

Quantitative and Qualitative Disclosures about Market Risk

19Item 4.

Controls and Procedures

20Part II.

Other Information

21Item 1.

Legal Proceedings

21Item 1A.

Risk Factors

21Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

21Item 6.

Exhibits

21


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)

June 30,
2008ASSETSCurrent assetsCash

$
4,605

$
5,314Accounts receivable, net


11,549


11,014Inventories, net


30,261


33,905Prepaid expenses and other current assets


3,523


3,108Deferred income taxes


1,596


1,546Total current assets


51,534


54,887Property, plant and equipment, net


39,506


49,975Goodwill


38,978


40,980Intangible assets, net


12,753


13,691Other non-current assets, net


718


531Deferred income taxes, net


2,913


1,859Total assets

$
146,402

$
161,923LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable

$
12,322

$
11,908Accrued expenses


7,953


6,215Total current liabilities


20,275


18,123Long-term debt


20,000


30,000Other non-current liabilities


208


923Total liabilities


40,483


49,046Stockholders' equityCommon stock


111


108Additional paid-in capital


34,135


30,284Retained earnings (Note 9)


70,812


81,261Accumulated other comprehensive income


861


1,224Total stockholders' equity


105,919


112,877Total liabilities and stockholders' equity

$
146,402

$
161,923


---

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

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

Three months ended June 30,

Nine months ended June 30,2007

2008

2007

2008Net sales

$
38,694

$
40,454

$
116,646

$
125,986Cost of sales


17,889


18,489


53,193


57,192Gross profit


20,805


21,965


63,453


68,794Operating expensesSelling, general and administrative


15,730


16,933


45,688


50,539Amortization of intangible assets


121


185


230


522Income from operations


4,954


4,847


17,535


17,733Interest and other (income)/expense, net


352


223


814


1,008Income before provision for income taxes


4,602


4,624


16,721


16,725Provision for income taxes


1,749


1,771


6,354


6,309Net income

$
2,853

$
2,853

$
10,367

$
10,416Other comprehensive income/(loss)Foreign currency translation adjustment, net of tax


156


(47
)

175


363Comprehensive income

$
3,009

$
2,806

$
10,542

$
10,779Net income per common shareBasic

$
0.26

$
0.26

$
0.94

$
0.94Diluted


0.25


0.26


0.92


0.93Weighted average common shares outstandingBasic


11,047,027


10,964,696


11,027,237


11,043,026Dilutive effect of stock options


204,378


132,804


207,538


138,583Diluted


11,251,405


11,097,500


11,234,775


11,181,609


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

4

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

Nine months ended
June 30,2007

2008Cash flows from operating activitiesNet income

$
10,367

$
10,416Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization


3,501


4,256Amortization of deferred financing fees


42


42Losses on disposals of property and equipment


4


2Deferred income taxes


999


1,167Changes in assets and liabilities, net of effects of acquisitionsAccounts receivable, net


399


1,048Inventories, net


1,315


(1,468
)Prepaid expenses and other current assets


(1,619
)

462Other non-current assets, net


(74
)

(291
)Accounts payable


65


(414
)Accrued expenses


678


(763
)Other non-current liabilities


(47
)

(40
)Net cash provided by operating activities


15,630


14,417Cash flows from investing activitiesProceeds from sale of property and equipment





4Acquisitions of businesses, net of cash acquired


(30,715
)

(5,869
)Purchases of property and equipment


(6,743
)

(14,061
)Net cash used in investing activities


(37,458
)

(19,926
)Cash flows from financing activitiesProceeds from long-term debt


31,500


14,500Payments on long-term debt


(8,500
)

(4,500
)Proceeds from issuances of common stock


1,151


344Purchases of common stock for treasury





(4,217
)Tax benefit from stock option exercises


320


19Net cash provided by financing activities


24,471


6,146Effect of exchange rate changes on cash


47


72Net increase in cash


2,690


709Cash at beginning of period


2,834


4,605Cash at end of period

$
5,524

$
5,314


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 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 June 30, 2008, the results of their operations for the
three months and nine months ended June 30, 2007 and 2008 and their cash flows for the nine months ended June 30, 2007 and 2008, 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 and nine months ended June 30, 2008 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

June 30,
2008Accounts receivable

$
13,738

$
13,170Less allowances


(2,189
)

(2,156
)$
11,549

$
11,014


3. INVENTORIES, NET

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

September 30,
2007

June 30,
2008Raw materials

$
11,501

$
12,387Work-in-process


6,063


7,441Finished goods


14,497


15,69032,061


35,518Less reserves


(1,800
)

(1,613
)$
30,261

$
33,905


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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

4. GOODWILL

The change in the carrying amount of goodwill from September 30, 2007 to June 30, 2008 was as follows:

GoodwillBalance as of September 30, 2007

$
38,978Goodwill attributable to fiscal 2008 acquisitions


1,862Purchase accounting adjustments related to prior acquisitions


(70
)Foreign currency translation adjustment


210Balance as of June 30, 2008

$
40,980


5. INTANGIBLE ASSETS

The carrying amounts of intangible assets at September 30, 2007 and June 30, 2008 were as follows:

September 30, 2007

June 30, 2008Gross
Carrying
Amount
(1)

Accumulated
Amortization
(1)

Net
Carrying
Amount

Gross
Carrying
Amount
(1)

Accumulated
Amortization
(1)

Net
Carrying
Amount

Weighted-Average
Amortization
Period (Years)Intangible assets subject to amortization:Trademarks/trade names/patents

$
444

$
(324
)
$
120

$
479

$
(356
)
$
123


5Customer relationships/distribution rights


2,943


(209
)

2,734


3,434


(616
)

2,818


7Developed software and technology


772


(142
)

630


772


(257
)

515


54,159


(675
)

3,484


4,685


(1,229
)

3,456Intangible assets not subject to amortization:Trademarks/trade names/licenses


9,269





9,269


10,235





10,235$
13,428

$
(675
)
$
12,753

$
14,920

$
(1,229
)
$
13,691


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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 (Continued)

Estimated future amortization expense related to the June 30, 2008 net carrying amount of $3,456 for intangible assets subject to
amortization is as follows:

Year Ending September 30,

Estimated
Amortization
Expense2008(1)

$
1842009


7352010


7282011


7172012


556Thereafter


536$
3,456






6. SHARE REPURCHASES

During the three months ended June 30, 2008, the Company purchased and retired 161,127 shares of
common stock for an aggregate price of $2,097. During the nine months ended June 30, 2008, the Company purchased and retired a total of 326,353 shares of common stock for an aggregate price of
$4,217. There were no shares repurchased or retired during the nine months ended June 30, 2007. As of June 30, 2008, the Company was permitted to purchase up to 586,712 additional shares
under its approved purchase plan.

7. STOCK OPTIONS

The following table summarizes stock option activity during the nine months ended June 30, 2008:

Number of
Options

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


750,963

$
10.06Exercised


(22,081
)

10.74Forfeited or expired


(149,065
)

17.17Options outstanding and exercisable at June 30, 2008


579,817

$
8.20


During
the nine months ended June 30, 2008, options to purchase 103,415 shares of common stock expired. These options were originally issued on February 20, 1998.

Options
to purchase 138,515 and 52,500 shares of common stock for the three months ended June 30, 2007 and 2008, respectively, and options to purchase 138,665 and 89,455 shares of
common stock for the nine months ended June 30, 2007 and 2008, respectively, were excluded from the

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

7. STOCK OPTIONS (Continued)

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.

During
the nine months ended June 30, 2008, the Company received proceeds of $237 related to the exercise of stock options and optionees realized an aggregate pre-tax
gain of $50 from these stock option exercises.

8. 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 and nine months ended June 30, 2007 and 2008 were as follows:

Three months ended
June 30,

Nine months ended
June 30,2007

2008

2007

2008United States

$
34,142

$
35,869

$
104,246

$
110,678Foreign countries


4,552


4,585


12,400


15,308$
38,694

$
40,454

$
116,646

$
125,986


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.

The
Company's net sales by product group for the three and nine months ended June 30, 2007 and 2008 were as follows:

Three months ended
June 30,

Nine months ended
June 30,2007

2008

2007

2008Branded nutritional supplements and other natural products

$
34,390

$
36,127

$
103,729

$
112,939Other(1)


4,304


4,327


12,917


13,047$
38,694

$
40,454

$
116,646

$
125,986


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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

9. 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 three and nine months ended June 30, 2008 and the Company does not anticipate any significant changes in unrecognized tax benefits during the remainder of fiscal 2008. 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 2005. The Company is no longer subject to examination in any U.S. state jurisdiction or foreign jurisdiction for fiscal years prior to
2002.

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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®,Health from the Sun®, 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,Oakmont
Labs®,Healthway®,Body Gold®, Sayge BioSciences, Monarch Nutritional Laboratories and Great 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-five 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

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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.

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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
June 30,

Nine Months
Ended
June 30,2007

2008

2007

2008Net sales


100.0
%

100.0
%

100.0
%

100.0
%Cost of sales


46.2
%

45.7
%

45.6
%

45.4
%Gross profit


53.8
%

54.3
%

54.4
%

54.6
%Selling, general and administrative


40.7
%

41.8
%

39.2
%

40.1
%Amortization of intangible assets


0.3
%

0.5
%

0.2
%

0.4
%Income from operations


12.8
%

12.0
%

15.0
%

14.1
%Interest and other (income)/expense, net


0.9
%

0.5
%

0.7
%

0.8
%Income before provision for income taxes


11.9
%

11.5
%

14.3
%

13.3
%Provision for income taxes


4.5
%

4.4
%

5.4
%

5.0
%Net income


7.4
%

7.1
%

8.9
%

8.3
%EBITDA(1)


16.0
%

15.7
%

18.0
%

17.5
%


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Comparison of the Three Months Ended June 30, 2008 to the Three Months Ended June 30, 2007

Net Sales.Net sales increased by $1.8 million, or 4.5%, to $40.5 million for the three months ended June 30, 2008 ("third quarter of fiscal
2008") from $38.7 million for the three months ended June 30, 2007 ("third quarter of fiscal 2007"). Net sales of branded nutritional supplements and other natural products increased by
$1.7 million, or 5.1%, to $36.1 million for the third quarter of fiscal 2008 compared to $34.4 million for the third 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 two businesses acquired during fiscal 2008 and the two businesses acquired during the
third quarter of fiscal 2007, partially offset by a decrease in sales volume of branded products to certain customers. The impact on net sales related to price changes was not material. Other net
sales remained relatively flat at $4.4 million for the third quarter of fiscal 2008 compared to $4.3 million for the third 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 $1.2 million, or 5.6%, to $22.0 million for the third quarter of fiscal 2008 from $20.8 million for
the third 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 increased to 54.3% for the third
quarter of fiscal 2008 compared to 53.8% for the third quarter of fiscal 2007. The increase in gross profit as a percentage of net sales was primarily attributable to changes in sales mix related to
the fiscal 2007 acquisitions.

Selling, General and Administrative.Selling, general and administrative expenses increased by $1.2 million, or 7.6%, to $16.9 million for the third
quarter of fiscal 2008 from $15.7 million for the third quarter of fiscal 2007. As a percentage of net sales, selling, general and administrative expenses increased to 41.8% for the third
quarter of fiscal 2008 compared to 40.7% for the third quarter of fiscal 2007. This increase in selling, general and administrative expenses was primarily attributable to

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operational
and transition costs related to acquired businesses, primarily the two businesses acquired in fiscal 2008 and the two businesses acquired during the third quarter of fiscal 2007.

Amortization of Intangibles.Amortization of intangibles was $0.2 million for the third quarter of fiscal 2008 compared to approximately $0.1 million
for the third 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 $0.2 million for the third quarter of fiscal 2008 and
$0.4 million for the third quarter of fiscal 2007 and primarily consisted of interest expense on indebtedness under our revolving credit facility, with the decrease being primarily related to a
reduction in interest rates.

Provision for Income Taxes.Our effective tax rate was 38.3% for the third quarter of fiscal 2008 and 38.0% for the third quarter of fiscal 2007. In each period,
our effective tax rate was higher than the federal statutory rate primarily due to state taxes.

Comparison of the Nine Months Ended June 30, 2008 to the Nine Months Ended June 30, 2007

Net Sales.Net sales increased by $9.4 million, or 8.0%, to $126.0 million for the nine months ended June 30, 2008 from $116.6 million
for the nine months ended June 30, 2007. Net sales of branded nutritional supplements and other natural products increased by $9.3 million, or 8.9%, to $113.0 million for the nine
months ended June 30, 2008 compared to $103.7 million for the nine months ended June 30, 2007. The increase in net sales of branded nutritional supplements and other natural
products was primarily related to the net sales contributions of the two businesses acquired during fiscal 2008 and the six businesses acquired during fiscal 2007, partially offset by a decrease in
sales volume of branded products to certain customers. The impact on net sales related to price changes was not material. Other net sales remained relatively flat at $13.0 million for nine
months ended June 30, 2008 compared to $12.9 million for the nine months ended June 30, 2007. Management believes that the VMS Industry continues to have low growth rates and
remains very competitive.

Gross Profit.Gross profit increased by $5.3 million, or 8.4%, to $68.8 million for the nine months ended June 30, 2008 from
$63.5 million for the nine months ended June 30, 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 54.6% for the nine months ended June 30, 2008 compared to 54.4% for the nine months ended June 30, 2007.

Selling, General and Administrative.Selling, general and administrative expenses increased by $4.8 million, or 10.6%, to $50.5 million for the nine
months ended June 30, 2008 from $45.7 million for the nine months ended June 30, 2007. As a percentage of net sales, selling, general and administrative expenses increased to
40.1% for the nine months ended June 30, 2008 compared to 39.2% for the nine months ended June 30, 2007. This increase in selling, general and administrative expenses was primarily
attributable to operational and transition costs related to the two businesses acquired in fiscal 2008 and the six businesses acquired in fiscal 2007.

Amortization of Intangibles.Amortization of intangibles was $0.5 million for the nine months ended June 30, 2008 compared to approximately
$0.2 million for the nine months ended June 30, 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 $1.0 million for the nine months ended June 30, 2008 and
$0.8 million for the nine months ended June 30, 2007 and primarily consisted of interest expense on indebtedness under our revolving credit facility, with the increase being primarily
related to additional borrowings for the fiscal 2007 and fiscal 2008 acquired businesses, partially offset by a reduction in interest rates.

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Provision for Income Taxes.Our effective tax rate was 37.7% for the nine months ended June 30, 2008 and 38.0% for the nine months ended June 30,
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:



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

Three Months Ended
June 30,

Nine Months Ended
June 30,2007

2008

2007

2008Net income

$
2,853

$
2,853

$
10,367

$
10,416Provision for income taxes


1,749


1,771


6,354


6,309Interest and other (income)/expense, net(1)


352


223


814


1,008Depreciation and amortization


1,236


1,514


3,501


4,256EBITDA

$
6,190

$
6,361

$
21,036

$
21,989


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Our
EBITDA increased to $6.4 million for the third quarter of fiscal 2008 from $6.2 million for the third quarter of fiscal 2007. EBITDA as a percentage of net sales
decreased to 15.7% for the third quarter of fiscal 2008 from 16.0% for the third quarter of fiscal 2007.

Our
EBITDA increased to $22.0 million for the nine months ended June 30, 2008 from $21.0 million for the nine months ended June 30, 2007. EBITDA as a
percentage of net sales decreased to 17.5% for the nine months ended June 30, 2008 from 18.0% for the nine months ended June 30, 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, domestic and 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 $36.8 million as of June 30, 2008 compared to $31.3 million as of September 30,
2007. This increase in working capital was primarily the result of
increases in cash and inventories and decreases in accounts payable and accrued expenses, partially offset by decreases in accounts receivable and prepaid expenses and other current assets.

Net
cash provided by operating activities for the nine months ended June 30, 2008 was $14.4 million compared to $15.6 million for the comparable period in fiscal
2007. This decrease in net cash provided by operating activities for the nine months ended June 30, 2008 was primarily attributable to changes in assets and liabilities, net of effects of
acquisitions.

Net
cash used in investing activities was $19.9 million for the nine months ended June 30, 2008 compared to $37.5 million for the comparable period in fiscal 2007.
Our investing activities during these periods primarily consisted of acquisitions of businesses and capital expenditures.

During
the nine months ended June 30, 2008, we acquired two businesses for $5.9 million in cash. On December 12, 2007, we acquired certain assets of Dowd and
Rogers, Inc. for $0.1 million in cash and on March 20, 2008, we acquired selected assets of Arkopharma, LLC for $5.8 million in cash. In comparison, during the nine
months ended June 30, 2007, we acquired six businesses for $30.7 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.

Net
cash provided by financing activities was $6.1 million for the nine months ended June 30, 2008 compared to $24.5 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 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

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shares
of our common stock were registered under the plan with 8,722 shares purchased during the nine months ended June 30, 2008.

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
June 30, 2008, we had outstanding revolving credit borrowings of $30.0 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 June 30, 2008, the applicable weighted-average interest rate for outstanding borrowings was 3.59%, 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 June 30, 2008, 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 June 30, 2008, 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 nine months ended June 30, 2008, the interest rate swap
had an unfavorable change in fair value of $136 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.

Our
significant non-cancelable contractual obligations as of June 30, 2008 were as follows:

(dollars in thousands)Contractual Obligations

Total

Less Than 1 Year

1-3 Years

4-5 Years

After 5 YearsRevolving credit facility

$
30,000

$


$


$
30,000

$
Interest on revolving credit facility(a)


4,006


1,200


2,316


490


Operating leases


7,531


3,136


3,589


743


63Total

$
41,537

$
4,336

$
5,905

$
31,233

$
63


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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 thousand 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 three and nine months ended June 30, 2008 and we do not anticipate any significant changes in unrecognized tax benefits during the remainder of fiscal 2008. 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 2005. 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 certain other items at fair value. SFAS 159 is effective for us as of October 1, 2008. 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.

In
April 2008, the FASB issued Staff Position No. 142-3,Determination of the Useful Life of Intangible Assets("FSP 142-3"). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under SFAS 142. FSP 142-3 is effective for us as of October 1, 2009. Early adoption is prohibited. We are currently evaluating the impact FSP 142-3 may have on our
consolidated financial statements.

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

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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 although there
are indications that inflation may be or become a factor in the U.S. economy and our business, particularly as transportation, fuel and commodity prices increase. 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 June 30, 2008, the applicable weighted-average interest rate for
borrowings was 3.59% and we had total borrowings outstanding of $30.0 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 nine months ended June 30, 2008, the interest rate
swap had an unfavorable change in fair value of $136 thousand, which was included as a component of interest and other (income)/expense in the Condensed Consolidated Statements of Operations
and Comprehensive Income.

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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 June 30, 2008.

Under
our share purchase program which was initially approved on June 22, 2000, we are authorized to buy up to 2,500,000 shares of our common stock, of which 586,712 shares may
yet be purchased as of June 30, 2008. The shares available for purchase at June 30, 2008 have no expiration date. Purchases under this program during the three months ended
June 30, 2008 occurred in May and June 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 Plan5/1/08 to 5/31/08


33,705

$
12.93


33,7056/1/08 to 6/30/08


127,422


13.03


127,422161,127

$
13.01


161,127


586,712


All
shares repurchased during the three months ended June 30, 2008 were retired on June 27, 2008.

Item 6.    Exhibits



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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: July 31, 2008

By:

/s/CORY J. MCQUEENCory J. McQueen Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)


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