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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, 2009

Commission file number 000-23731

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes o    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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:

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 30, 2009, the registrant had 10,919,820 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, 2008 and June 30, 2009

3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)Three Months and
Nine Months Ended June 30, 2008 and 2009

4Condensed Consolidated Statements of Cash FlowsNine Months Ended June 30, 2008 and
2009

5Notes to Condensed Consolidated Financial Statements

6Item 2.

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

15Item 3.

Quantitative and Qualitative Disclosures about Market
Risk

25Item 4.

Controls and Procedures

26Part II.

Other Information

27Item 1.

Legal Proceedings

27Item 1A.

Risk Factors

27Item 2.

Unregistered Sales of Equity Securities and Use of
Proceeds

27Item 6.

Exhibits

27


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,
2008(1)

June 30,
2009ASSETSCurrent assetsCash and cash equivalents

$
5,189

$
5,957Accounts receivable, net


11,963


10,432Inventories, net


33,812


29,642Prepaid expenses and other current assets


2,982


2,008Deferred income taxes


1,631


1,680Total current assets


55,577


49,719Property, plant and equipment, net


52,356


55,232Goodwill


37,632


332Intangible assets, net


13,153


12,504Other non-current assets, net


514


1,103Deferred income taxes, net


2,432


11,896Total assets

$
161,664

$
130,786LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable

$
12,333

$
9,176Accrued expenses


6,906


5,249Total current liabilities


19,239


14,425Long-term debt


28,000


18,500Other non-current liabilities


965


1,429Total liabilities


48,204


34,354Stockholders' equityCommon stock


108


109Additional paid-in capital


30,213


30,698Retained earnings


82,788


65,560Accumulated other comprehensive income


351


65Total stockholders' equity


113,460


96,432Total liabilities and stockholders' equity

$
161,664

$
130,786


---

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

3

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

Three months ended June 30,

Nine months ended June 30,2008

2009

2008

2009Net sales

$
40,454

$
39,406

$
125,986

$
120,992Cost of sales


18,489


19,250


57,192


56,964Gross profit


21,965


20,156


68,794


64,028Operating expensesSelling, general and administrative


16,933


15,099


50,539


46,585Amortization of intangible assets


185


163


522


480Impairment of goodwill











37,519Income (loss) from operations


4,847


4,894


17,733


(20,556
)Interest and other (income) expense, net


223


177


1,008


951Income (loss) before provision (benefit) for income taxes


4,624


4,717


16,725


(21,507
)Provision (benefit) for income taxes


1,771


1,698


6,309


(4,279
)Net income (loss)

$
2,853

$
3,019

$
10,416

$
(17,228
)Other comprehensive income (loss)Foreign currency translation adjustment, net of tax


(47
)

147


363


(286
)Comprehensive income (loss)

$
2,806

$
3,166

$
10,779

$
(17,514
)Net income (loss) per common shareBasic

$
0.26

$
0.28

$
0.94

$
(1.58
)Diluted


0.26


0.27


0.93


(1.58
)Weighted average common shares outstandingBasic


10,964,696


10,903,394


11,043,026


10,874,382Dilutive effect of stock options


132,804


78,780


138,583


Diluted


11,097,500


10,982,174


11,181,609


10,874,382


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 30,2008

2009Cash flows from operating activitiesNet income (loss)

$
10,416

$
(17,228
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


4,256


4,959Amortization of deferred financing fees


42


42Impairment of goodwill





37,519Losses on disposals of property and equipment


2


3Deferred income taxes


1,167


(9,513
)Changes in assets and liabilities, net of effects of acquisitionsAccounts receivable, net


1,048


1,571Inventories, net


(1,468
)

3,870Prepaid expenses and other current assets


462


972Other non-current assets, net


(291
)

(419
)Accounts payable


(414
)

(3,157
)Accrued expenses


(763
)

(1,835
)Other non-current liabilities


(40
)

464Net cash provided by operating activities


14,417


17,248Cash flows from investing activitiesProceeds from sale of property and equipment


4


Acquisitions of businesses, net of cash acquired


(5,869
)

Purchases of property and equipment


(14,061
)

(7,358
)Net cash used in investing activities


(19,926
)

(7,358
)Cash flows from financing activitiesProceeds from long-term debt


14,500


3,000Payments on long-term debt


(4,500
)

(12,500
)Proceeds from issuances of common stock


344


405Purchases of common stock for treasury


(4,217
)

Tax benefit from stock option exercises


19


81Net cash provided by (used in) financing activities


6,146


(9,014
)Effect of exchange rate changes on cash


72


(108
)Net increase in cash


709


768Cash at beginning of period


4,605


5,189Cash at end of period

$
5,314

$
5,957


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 to present fairly the consolidated financial
position of Nutraceutical International Corporation and its subsidiaries (the "Company") as of June 30, 2009, the results of their operations for the three and nine months ended June 30,
2008 and 2009 and their cash flows for the nine months ended June 30, 2008 and 2009, 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, 2009 are not necessarily indicative of the results to be expected for the full fiscal
year.

Certain
information and footnote disclosures normally included in the annual 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, 2008, which was filed with the Securities and Exchange Commission on November 20, 2008.

2. ACCOUNTS RECEIVABLE, NET

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

September 30,
2008

June 30,
2009Accounts receivable

$
14,120

$
12,507Less allowances


(2,157
)

(2,075
)$
11,963

$
10,432


3. INVENTORIES, NET

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

September 30,
2008

June 30,
2009Raw materials

$
12,941

$
12,723Work-in-process


6,760


3,813Finished goods


15,947


15,12135,648


31,657Less reserves


(1,836
)

(2,015
)$
33,812

$
29,642


6

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

4. GOODWILL AND INTANGIBLE ASSETS

In accordance with Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets("SFAS 142"),
goodwill and non-amortizable intangible assets are tested annually for impairment and are tested for impairment between annual tests if an event occurs that would cause the Company to
believe that value is impaired. The Company performs its annual impairment testing as of September 30 each year, which is the last day of the Company's fiscal year. Amortizable intangible
assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Under
SFAS 142, a two step process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair
value of each reporting unit to its carrying value, including existing goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. Upon an
indication of impairment, a second step is performed to measure the amount of the impairment by comparing the implied fair value of the reporting unit's goodwill with its carrying value.

Primarily
as a result of the ongoing U.S. and global economic recession and the related turmoil in the equity markets, there was a significant and prolonged decrease in the Company's
stock price and related market capitalization during the six months ended March 31, 2009. The ongoing economic recession also negatively impacted the Company during the six months ended
March 31, 2009, both domestically and internationally. Based on these factors, the Company determined that an interim goodwill impairment analysis was necessary and performed this goodwill
impairment analysis on each of its reporting units during the second quarter of fiscal 2009. Reporting unit fair values were determined using an equal weighting of the income approach, which estimates
fair value based on expected future discounted cash flows, and the market approach, which estimates fair value based on comparable market prices. The income approach included assumptions for, among
others, forecasted revenues, gross profit margins, operating profit margins, working capital cash flow and long-term discount rates, all of which required significant judgments by
management. Long-term discount rates used in the estimation of reporting unit fair values were determined based on the expected weighted average cost of capital for each reporting unit.
Long-term discount rates had increased since the Company's last annual impairment test (in the fourth quarter of fiscal 2008) due to increased risk premiums and significant tightening of
the credit markets. Based on the valuation findings, the Company determined that it had an indication of goodwill impairment related to its branded reporting unit and its natural food markets
reporting unit in accordance with the first step of the goodwill impairment test described in SFAS 142.

The
Company then performed the second step of the impairment test under SFAS 142 to measure the amount of the non-cash impairment charge which was determined to be
$37,519 ($27,288 after tax, or $2.51 per diluted share for the nine months ended June 30, 2009). Of this total non-cash impairment charge, $35,412 related to the Company's branded
reporting unit and $2,107 related to the Company's natural food markets reporting unit. The charge related to the Company's branded reporting unit represented the entire carrying value of its
goodwill. The Company's natural food markets reporting unit had a remaining goodwill carrying value of $332 and represented the only reporting unit with a remaining goodwill carrying value at
June 30, 2009. The non-cash impairment charge had no impact on the Company's compliance with debt covenants, cash flows or available liquidity.

7

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

4. GOODWILL AND INTANGIBLE ASSETS (Continued)

The
change in the carrying amount of goodwill from September 30, 2008 to June 30, 2009 was as follows:

GoodwillBalance as of September 30, 2008

$
37,632Goodwill impairment recorded during the second quarter of fiscal 2009


(37,519
)Purchase accounting adjustments related to prior acquisitions


262Foreign currency translation adjustment


(43
)Balance as of June 30, 2009

$
332


Prior
to the interim assessment of goodwill impairment performed during the second quarter of fiscal 2009, the Company also assessed its non-amortizable intangible assets in
accordance with SFAS 142 and performed recoverability testing of its long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, and determined there was no additional impairment.

8

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

4. GOODWILL AND INTANGIBLE ASSETS (Continued)

The
carrying amounts of intangible assets at September 30, 2008 and June 30, 2009 were as follows:

September 30, 2008

June 30, 2009Weighted-
Average
Amortization
Period (Years)Gross
Carrying
Amount(1)

Accumulated
Amortization(1)

Net
Carrying
Amount

Gross
Carrying
Amount(1)

Accumulated
Amortization(1)

Net
Carrying
AmountIntangible assets subject to amortization:Trademarks/trade names/patents

$
481

$
(367
)
$
114

$
514

$
(400
)
$
114


5Customer relationships/distribution rights


3,100


(672
)

2,428


2,919


(970
)

1,949


7Developed software and technology


772


(296
)

476


772


(412
)

360


54,353


(1,335
)

3,018


4,205


(1,782
)

2,423Intangible assets not subject to amortization:Trademarks/trade names/licenses


10,135





10,135


10,081





10,081$
14,488

$
(1,335
)
$
13,153

$
14,286

$
(1,782
)
$
12,504


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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

4. GOODWILL AND INTANGIBLE ASSETS (Continued)

Estimated
future amortization expense related to the June 30, 2009 net carrying amount of $2,423 for intangible assets subject to amortization is as follows:

Year Ending September 30,

Estimated
Amortization
Expense2009(1)

$
1642010


6492011


6382012


4772013


311Thereafter


184$
2,423






The
ongoing uncertainty in general and economic conditions may continue to impact retail and consumer demand, as well as the market price of the Company's common stock, and could
negatively impact the Company's future operating performance, cash flow and/or stock price and could result in additional goodwill and/or intangible asset impairment charges being recorded in future
periods which could materially impact the Company's consolidated financial statements. The valuation of goodwill and intangible assets is subject to a high degree of judgment and complexity.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards 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. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in prior accounting pronouncements.
In November 2007, the FASB decided to postpone for one year the effective date of SFAS 157 for assets and liabilities measured at fair value on a non-recurring basis. The Company
adopted SFAS 157 as of October 1, 2008 for assets and liabilities measured at fair value on a recurring basis. The adoption of this standard did not have a material impact on the
Company's consolidated financial statements. The Company will adopt SFAS 157 for assets and liabilities measured at fair value on a non-recurring basis as of October 1, 2009.

On
a quarterly basis, the Company measures at fair value certain financial assets and liabilities, including cash equivalents and an interest rate swap. SFAS 157 specifies a
hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources,
while unobservable inputs

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

reflect
the Company's own assumptions. The following fair value hierarchy prioritizes the inputs into three broad levels:



This
hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. The fair value of the
Company's financial assets and liabilities at June 30, 2009 was determined using the following levels of inputs:

Fair Value Measurements as of June 30, 2009Total

Level 1

Level 2

Level 3Assets:Cash equivalentsmoney market fund

$
1,120


1,120





Liabilities:Accrued expensesinterest rate swap

$
85





85





The
fair value of the money market fund, classified as Level 1, was obtained from a quoted market price. The fair value of the interest rate swap, classified as Level 2,
was derived based on the notional amount of the interest rate swap and observable market inputs including time to maturity, interest rates and credit spreads.

The
Company adopted Statement of Financial Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activitiesan
amendment of SFAS No. 133("SFAS 161"), as of January 1, 2009. The Company has one derivative financial instrument, an interest rate swap, to manage its
exposure to interest rate risks. The Company does not use derivatives for trading or speculative purposes and is not a party to leveraged derivatives.

Long-term
debt was comprised of the following:

September 30,
2008

June 30,
2009Revolving Credit Facility

$
28,000

$
18,500


The
Company's current revolving credit facility has available credit borrowings of sixty million with no automatic reductions and provides an accordion feature that can increase the
available credit borrowings to ninety million, subject to approval by the lenders and compliance with certain covenants and conditions. The lenders under the revolving credit facility are Rabobank
International and

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Wells Fargo.
To date, the Company has not experienced any difficulties in accessing the available funds under the revolving credit facility.

At
June 30, 2009, the Company had outstanding revolving credit borrowings of $18,500. Borrowings under the revolving credit facility are collateralized by certain assets of the
Company. At the Company's election, borrowings 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, 2009, the applicable weighted-average interest rate for outstanding borrowings was 1.90%, exclusive of any interest rate swap agreements.
The Company is also required to pay a variable quarterly fee on the unused balance under the revolving credit facility. At June 30, 2009, 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 the Company is required to repay all principal and interest outstanding under the revolving credit facility on such date.

6. SHARE REPURCHASES

During the three and nine months ended June 30, 2009, the Company did not purchase or retire any shares of common stock. 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 326,353 shares of
common stock for an aggregate price of $4,217. As of June 30, 2009, the Company was permitted to purchase up to 563,915 additional shares under its approved purchase plan. The Company accounts
for treasury shares using the cost method (Note 10).

7. STOCK OPTIONS

The following table summarizes stock option activity during the nine months ended June 30, 2009:

Number of
Options

Weighted-Average
Exercise
PriceOptions outstanding and exercisable at September 30, 2008


563,517

$
8.30Exercised


(60,600
)

4.22Expired


(30,000
)

10.18Options outstanding and exercisable at June 30, 2009


472,917

$
8.70


Options
to purchase 52,500 and 275,300 shares of common stock for the three months ended June 30, 2008 and 2009, respectively, and options to purchase 89,455 shares of common
stock for the nine months ended June 30, 2008 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. All outstanding

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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)

options
to purchase shares of common stock were excluded from the computation of diluted earnings per share for the nine months ended June 30, 2009 because the Company recognized a net loss.

During
the nine months ended June 30, 2009, the Company received proceeds of $256 related to the exercise of stock options. During this same period the Company recorded a tax
benefit of $81 and optionees realized an aggregate pre-tax gain of $210 from these stock option exercises.
During the nine months ended June 30, 2008, the Company received proceeds of $237 related to the exercise of stock options, the Company recorded a tax benefit of $19 related to these option
exercises and optionees realized an aggregate pre-tax gain of $50 from these stock option exercises.

8. 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, 2008 and 2009 were as follows:

Three months ended
June 30,

Nine months ended
June 30,2008

2009

2008

2009United States

$
35,869

$
35,346

$
110,678

$
108,599Foreign countries


4,585


4,060


15,308


12,393$
40,454

$
39,406

$
125,986

$
120,992


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.

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NUTRACEUTICAL INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

(dollars in thousands, except per share data)

8. SEGMENTS (Continued)

The
Company's net sales by product group for the three and nine months ended June 30, 2008 and 2009 were as follows:

Three months ended
June 30,

Nine months ended
June 30,2008

2009

2008

2009Branded nutritional supplements and other natural products

$
36,127

$
35,420

$
112,939

$
108,831Other(1)


4,327


3,986


13,047


12,161$
40,454

$
39,406

$
125,986

$
120,992


---

9. INCOME TAXES

The Company's effective tax rate was 36.0% for the three months ended June 30, 2009. During the
second quarter of fiscal 2009, the Company recorded a non-cash goodwill impairment charge of $37,519 of which $10,997 related to non-tax-deductible goodwill and
reduced the Company's effective tax rate from 37.2% to (19.9%) for the nine months ended June 30, 2009. As a result of this goodwill impairment charge, the Company recognized a deferred tax
benefit of $10,231 due to the impairment of $26,522 of tax-deductible goodwill. As of June 30, 2009, the Company had a remaining goodwill balance of $332, all of which is tax
deductible. The Company's effective tax rate was 38.3% and 37.7% for the three and nine months ended June 30, 2008, respectively.

10. SUBSEQUENT EVENTS

On July 1, 2009, the Company acquired substantially all the operating assets of AJG Brands, Inc. ("Alan James Group"), a subsidiary of Interleukin Genetics, Inc.,
for approximately $4,700 in cash. Alan James Group products includeGinsana®, Ginkoba® andVenastat®. The expected long-term sales and expense
synergies of this acquisition are not expected to be realized immediately following acquisition as certain transition and integration matters must be completed.

On
July 24, 2009, the Company entered into a purchase and sale agreement with Nutritional Specialties, Inc. and its parent corporation, Baywood International Inc.,
to purchase substantially all of the assets of the LifeTime Products nutritional supplement business. The purchase price is $8,250 and is subject to adjustment based on the final net asset value of
the assets transferred at closing. If the conditions to closing as outlined in the purchase agreement are satisfied, the closing date is likely to be in September or October 2009.

On
July 28, 2009, the Company's Board of Directors approved the addition of 1,000,000 shares to the Company's previously approved share purchase program. As a result, the Company
is currently authorized to buy up to 1,563,915 total shares of its outstanding common stock.

The
Company has performed an evaluation of subsequent events through July 30, 2009, which is the date the financial statements were issued.

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Table of Contents

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 primarily sold 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,
Monarch Nutraceuticals 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 andGranola's.

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, slow moving and obsolete and/or damaged inventory and valuation and recoverability of long-lived assets. Actual results may differ from these estimates. 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 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

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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("SFAS 144"). 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. Under SFAS 142, goodwill and
non-amortizable intangible assets are tested annually for impairment and are tested for impairment between annual tests if an event occurs that would cause us to believe that value is
impaired. We perform our annual impairment testing as of September 30 each year, which is the last day of our fiscal year. Amortizable intangible assets are reviewed for impairment when events
or changes in circumstances indicate the carrying value may not be recoverable.

Under
SFAS 142, a two step process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair
value of each reporting unit to its carrying value, including existing goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. Upon an
indication of impairment, a second step is performed to measure the amount of the impairment by comparing the implied fair value of the reporting unit's goodwill with its carrying value.

Primarily
as a result of the ongoing U.S. and global economic recession and the related turmoil in the equity markets, there was a significant and prolonged decrease in our stock price
and related market capitalization during the six months ended March 31, 2009. The ongoing economic recession also negatively impacted us during the six months ended March 31, 2009, both
domestically and internationally. Based on these factors, we determined that an interim goodwill impairment analysis was necessary and performed this goodwill impairment analysis on each of our
reporting units during the second quarter of fiscal 2009. Reporting unit fair values were determined using an equal weighting of the income approach, which estimates fair value based on expected
future discounted cash flows, and the market approach, which estimates fair value based on comparable market prices. The income approach included assumptions for, among others, forecasted revenues,
gross profit margins, operating profit margins, working capital cash flow and long-term discount rates, all of which required significant judgments by management. Long-term
discount rates used in the estimation of reporting unit fair values were determined based on the expected weighted average cost of capital for each reporting unit. Long-term discount rates
had increased since our last annual impairment test (in the fourth quarter of fiscal 2008) due to increased risk premiums and significant tightening of the credit markets. Based on

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the
valuation findings, we determined that we had an indication of goodwill impairment related to our branded reporting unit and our natural food markets reporting unit in accordance with the first
step of the goodwill impairment test described in SFAS 142.

We
then performed the second step of the impairment test under SFAS 142 to measure the amount of the non-cash impairment charge which was determined to be
$37.5 million ($27.3 million after tax, or $2.51 per diluted share for the nine months ended June 30, 2009). Of this total non-cash impairment charge,
$35.4 million related to our branded reporting unit and
$2.1 million related to our natural food markets reporting unit. The charge related to our branded reporting unit represented the entire carrying value of its goodwill. Our natural food markets
reporting unit had a remaining goodwill carrying value of $0.3 million and represented the only reporting unit with a remaining goodwill carrying value at June 30, 2009. The
non-cash impairment charge had no impact on our compliance with debt covenants, cash flows or available liquidity.

Prior
to the interim assessment of goodwill impairment performed during the second quarter of fiscal 2009, the Company also assessed its non-amortizable intangible assets in
accordance with SFAS 142 and performed recoverability testing of its long-lived assets in accordance with SFAS 144 and determined there was no additional impairment.

The
ongoing uncertainty in general and economic conditions may continue to impact retail and consumer demand, as well as the market price of our common stock, and could negatively impact
our future operating performance, cash flow and/or stock price and could result in additional goodwill and/or intangible asset impairment charges being recorded in future periods which could
materially impact our consolidated financial statements. The valuation of goodwill and intangible assets is subject to a high degree of judgment and complexity.

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.

Other
than our previous discussion of goodwill impairment, 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.

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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 30,2008

2009

2008

2009Net sales


100.0
%

100.0
%

100.0
%

100.0
%Cost of sales


45.7
%

48.9
%

45.4
%

47.1
%Gross profit


54.3
%

51.1
%

54.6
%

52.9
%Selling, general and administrative


41.8
%

38.3
%

40.1
%

38.5
%Amortization of intangible assets


0.5
%

0.4
%

0.4
%

0.4
%Impairment of goodwill


0.0
%

0.0
%

0.0
%

31.0
%Income (loss) from operations


12.0
%

12.4
%

14.1
%

(17.0
)%Interest and other (income) expense, net


0.5
%

0.4
%

0.8
%

0.8
%Income (loss) before provision (benefit) for income taxes


11.5
%

12.0
%

13.3
%

(17.8
)%Provision (benefit) for income taxes


4.4
%

4.3
%

5.0
%

(3.6
)%Net income (loss)


7.1
%

7.7
%

8.3
%

(14.2
)%Adjusted EBITDA(1)


15.7
%

16.7
%

17.5
%

18.1
%


---

Comparison of the Three Months Ended June 30, 2009 to the Three Months Ended June 30, 2008

Net Sales.Net sales decreased by $1.1 million, or 2.6%, to $39.4 million for the three months ended June 30, 2009
("third
quarter of fiscal 2009") from $40.5 million for the three months ended June 30, 2008 ("third quarter of fiscal 2008"). Net sales of branded nutritional supplements and other natural
products decreased by $0.7 million, or 2.0%, to $35.4 million for the third quarter of fiscal 2009 compared to $36.1 million for the third quarter of fiscal 2008. The decrease in
net sales of branded nutritional supplements and other natural products was primarily related to a decrease in sales volume of branded products to many customers due in large part to the continuing
U.S. and global economic recession. Net sales of branded products attributable to price increases were $1.4 million for the third quarter of fiscal 2009. Other net sales remained relatively
flat at $4.0 million for the third quarter of fiscal 2009 compared to $4.4 million for the third quarter of fiscal 2008.

Gross Profit.Gross profit decreased by $1.8 million, or 8.2%, to $20.2 million for the third quarter of fiscal 2009 from
$22.0 million for the third quarter of fiscal 2008. This decrease in gross profit was primarily attributable to the decrease in net sales. As a percentage of net sales, gross profit decreased
to 51.1% for the third quarter of fiscal 2009 from 54.3% for the third quarter of fiscal 2008. This decrease in gross profit percentage was primarily attributable to increased material costs,
primarily related to vendor price increases, as well as an increase in overhead costs as a percentage of net sales.

Selling, General and Administrative.Selling, general and administrative expenses decreased by $1.8 million, or 10.8%, to
$15.1 million
for the third quarter of fiscal 2009 from $16.9 million for the third quarter of fiscal 2008. As a percentage of net sales, selling, general and administrative expenses decreased to 38.3% for
the third quarter of fiscal 2009 compared to 41.8% for the third quarter of fiscal 2008. This decrease in selling, general and administrative expenses was primarily attributable to a reduction in
operational and transitional costs related to businesses acquired in fiscal 2007 and fiscal

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2008
as well as year-over-year cost improvements in many selling, general and administrative expense areas.

Amortization of Intangible Assets.Amortization of intangible assets was $0.2 million for the third quarter of fiscal 2009 and
2008. 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
2009 and
2008 and primarily consisted of interest expense on indebtedness under our revolving credit facility.

Provision (Benefit) for Income Taxes.Our effective tax rate was 36.0% for the third quarter of fiscal 2009 and 38.3% for the third
quarter of fiscal
2008. 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, 2009 to the Nine Months Ended June 30, 2008

Net Sales.Net sales decreased by $5.0 million, or 4.0%, to $121.0 million for the nine months ended June 30, 2009 from
$126.0 million for the nine months ended June 30, 2008. Net sales of branded nutritional supplements and other natural products decreased by $4.2 million, or 3.6%, to
$108.8 million for the nine months ended June 30, 2009 compared to $113.0 million for the nine months ended June 30, 2008. The decrease in net sales of branded nutritional
supplements and other natural products was primarily related to a decrease in sales volume of branded products to many customers due in large part to the continuing U.S. and global economic recession
partially offset by the net sales contributions of the businesses acquired during fiscal 2008. Net sales of branded products attributable to price increases were $4.5 million for the nine
months ended June 30, 2009. Other net sales were $12.2 million for the nine months ended June 30, 2009 compared to $13.0 million for the nine months ended June 30,
2008.

Gross Profit.Gross profit decreased by $4.8 million, or 6.9%, to $64.0 million for the nine months ended
June 30, 2009 from $68.8 million for the nine months ended June 30, 2008. This decrease in gross profit was primarily attributable to the decrease in net sales. As a percentage of
net sales, gross profit decreased to 52.9% for the nine months ended June 30, 2009 from 54.6% for the nine months ended June 30, 2008. This decrease in gross profit percentage was
primarily attributable to increased material costs, primarily related to vendor price increases, as well as an increase in overhead costs as a percentage of net sales.

Selling, General and Administrative.Selling, general and administrative expenses decreased by $3.9 million, or 7.8%, to
$46.6 million
for the nine months ended June 30, 2009 from $50.5 million for the nine months ended June 30, 2008. As a percentage of net sales, selling, general and administrative expenses
decreased to 38.5% for the nine months ended June 30, 2009 compared to 40.1% for the nine months ended June 30, 2008. This decrease in selling, general and administrative expenses was
primarily attributable to a reduction in operational and transitional costs related to businesses acquired in fiscal 2007 and fiscal 2008 as well as year-over-year cost
improvements in many selling, general and administrative expense areas.

Amortization of Intangible Assets.Amortization of intangible assets was $0.5 million for the nine months ended June 30, 2009
and 2008.
For each period, amortization expense was primarily related to intangible assets recorded in connection with acquisitions.

Impairment of Goodwill.Primarily as a result of the ongoing U.S. and global economic recession and the related turmoil in the equity
markets, there
was a significant and prolonged decrease in our stock price and related market capitalization during the six months ended March 31, 2009. The ongoing economic recession also negatively impacted
us during this period, both domestically and

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internationally.
Based on these factors, we determined that an interim goodwill impairment analysis was necessary under SFAS 142 and performed this goodwill impairment analysis on each of our
reporting units during the second quarter of fiscal 2009. Based on the valuation findings, we determined that we had an indication of goodwill impairment related to our branded reporting unit and our
natural food markets reporting unit in accordance with the first step of the goodwill impairment test described in SFAS 142.

We
then performed the second step of the impairment test under SFAS 142 to measure the amount of the non-cash impairment charge which was determined to be
$37.5 million ($27.3 million after tax, or $2.51 per diluted share for the nine months ended June 30, 2009). Of this total non-cash impairment charge,
$35.4 million related to our branded reporting unit and
$2.1 million related to our natural food markets reporting unit. The charge related to our branded reporting unit represented the entire carrying value of its goodwill. Our natural food markets
reporting unit had a remaining goodwill carrying value of $0.3 million and represented the only reporting unit with a remaining carrying value at June 30, 2009. The non-cash
impairment charge had no impact on our compliance with debt covenants, cash flows or available liquidity.

Interest and Other (Income) Expense, Net.Net interest and other (income) expense was $1.0 million for the nine months ended
June 30,
2009 and 2008 and primarily consisted of interest expense on indebtedness under our revolving credit facility.

Provision (Benefit) for Income Taxes.During the second quarter of fiscal 2009, we recorded a non-cash goodwill impairment charge of
$37.5 million of which $11.0 million related to non-tax-deductible goodwill and reduced our effective tax rate from 37.2% to (19.9%) for the nine months ended
June 30, 2009. As a result of this goodwill impairment charge, we recognized a deferred tax benefit of $10.2 million due to the impairment of $26.5 million of
tax-deductible goodwill. Our effective tax rate was 37.7% for the nine months ended June 30, 2008.

Adjusted EBITDA

Adjusted EBITDA (a non-GAAP measure) is defined in our debt covenants and performance measures as earnings before net
interest and other (income) expense, taxes, depreciation, amortization and goodwill and intangible asset impairment. Adjusted 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, Adjusted 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 an EBITDA-based metric should be considered within the following
context:



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

Three Months
Ended June 30,

Nine Months
Ended June 30,2008

2009

2008

2009(dollars in thousands)Net income (loss)

$
2,853

$
3,019

$
10,416

$
(17,228
)Provision (benefit) for income taxes


1,771


1,698


6,309


(4,279
)Interest and other (income) expense, net(1)


223


177


1,008


951Depreciation and amortization


1,514


1,683


4,256


4,959Impairment of goodwill(2)











37,519Adjusted EBITDA

$
6,361

$
6,577

$
21,989

$
21,922


---

Our
Adjusted EBITDA increased to $6.6 million for the third quarter of fiscal 2009 from $6.4 million for the third quarter of fiscal 2008. Adjusted EBITDA as a percentage
of net sales increased to 16.7% for the third quarter of fiscal 2009 from 15.7% for the third quarter of fiscal 2008.

Our
Adjusted EBITDA decreased to $21.9 million for the nine months ended June 30, 2009 from $22.0 million for the nine months ended June 30, 2008. Adjusted
EBITDA as a percentage of net sales increased to 18.1% for the nine months ended June 30, 2009 from 17.5% for the nine months ended June 30, 2008.

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 $35.3 million as of June 30, 2009 compared to $36.3 million as of September 30,
2008. This decrease in working capital was primarily the result of decreases in accounts receivable, inventories and prepaid expenses and other current assets partially offset by an increase in cash
and decreases in accounts payable and accrued expenses.

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Net cash provided by operating activities for the nine months ended June 30, 2009 was $17.2 million compared to $14.4 million for the
comparable period in fiscal 2008. This increase in net cash provided by operating activities for the nine months ended June 30, 2009 was primarily attributable to changes in assets and
liabilities, net of effects of acquisitions.

Net
cash used in investing activities was $7.4 million for the nine months ended June 30, 2009 compared to $19.9 million for the comparable period in fiscal 2008.
Our investing activities during these periods primarily consisted of acquisitions of businesses and capital expenditures primarily related to building improvements related to facility consolidation
efforts, distribution and manufacturing equipment and information systems.

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. We did not acquire any
businesses during the nine months ended June 30, 2009.

Net
cash used in financing activities was $9.0 million for the nine months ended June 30, 2009 compared to net cash provided by financing activities of $6.1 million
for the comparable period in fiscal 2008. During these periods, financing activities 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 18,706 shares purchased
during the nine months ended June 30, 2009. As of June 30, 2009, there were 1,468,251 shares of common stock available for purchase.

Our
current revolving credit facility has available credit borrowings of $60.0 million with no automatic reductions and provides an accordion feature that 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, 2009, we had outstanding revolving credit borrowings of $18.5 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, 2009, the applicable weighted-average interest rate for outstanding borrowings was 1.90%,
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, 2009, 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 and interest 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, 2009, 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, 2008, 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 a fixed interest rate of 3.17% plus a variable margin of 0.75% at June 30, 2009 for an all-in rate of 3.92%. This

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interest
rate swap 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, 2009, the interest rate swap had an unfavorable change in fair value of
$157 thousand, which was included as a component of interest and other (income) expense in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

We
adopted Statement of Financial Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activitiesan amendment of
SFAS No. 133("SFAS 161"), as of January 1, 2009. We have one derivative financial instrument, an interest rate swap, to manage our exposure to interest
rate risks. We do not use derivatives for trading or speculative purposes and we are not a party to leveraged derivatives.

In
the current volatile credit market, there is risk that any lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal
commitments and obligations under existing credit commitments, including but not limited to: extending credit up to the maximum permitted by a credit facility, allowing access to additional credit
features and otherwise accessing capital and/or honoring loan commitments. The lenders under our credit facility are Rabobank International and Wells Fargo. If our lenders failed to honor their legal
commitments under our credit facility, it could be difficult in this environment to replace our credit facility on similar terms. To date, we have not experienced any difficulties in accessing the
available funds under our credit facility.

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 the next twelve months.

Our
significant non-cancelable contractual obligations as of June 30, 2009 were as follows:

Payments Due By PeriodContractual Obligations

Total

Less Than
1 Year

1-3
Years

4-5
Years

After
5 Years(dollars in thousands)Revolving credit facility

$
18,500

$


$
18,500

$


$
Interest on revolving credit facility(a)


1,036


487


549





Operating leases


6,445


3,310


2,877


211


47Total

$
25,981

$
3,797

$
21,926

$
211

$
47


---

New Accounting Standards

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards 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. SFAS 157 does not require any new fair value

23

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measurements
but rather eliminates inconsistencies in guidance found in prior accounting standards. In November 2007, the FASB decided to postpone for one year the effective date of SFAS 157
for assets and liabilities measured at fair value on a non-recurring basis. SFAS 157 was effective for us as of October 1, 2008 for assets and liabilities measured at fair
value on a recurring basis. Our adoption of SFAS 157 did not have a material impact on our consolidated financial statements. SFAS 157 is effective for us as of October 1, 2009
for assets and liabilities measured at fair value on a non-recurring basis and we are currently evaluating the impact this may have on our consolidated financial statements.

In
February 2007, the FASB issued Statement of Financial Accounting Standards 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 was effective for us as of October 1, 2008, however, we did not elect to apply the fair value option to any financial
instruments or other items upon adoption or during the nine months ended June 30, 2009. As a result, the adoption of SFAS 159 did not have a material impact on our consolidated financial
statements.

In
December 2007, the FASB issued Statement of Financial Accounting Standards 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 our consolidated financial statements.

In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial
Statements("SFAS 160"). SFAS 160 changes the accounting and reporting for the noncontrolling interests in a subsidiary in consolidated financial statements.
SFAS 160 recharacterizes minority interests as noncontrolling interests and requires noncontrolling interests to be classified as a component of shareholders' equity. SFAS 160 is
effective for us as of October 1, 2009 and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. We do not expect the adoption of
SFAS 160 to have a material impact on our consolidated financial statements.

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.

In
May 2009, the FASB issued Statement of Financial Accounting Standards No. 165,Subsequent Events("SFAS 165").
SFAS 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.
This standard was effective for us for the quarter ended June 30, 2009. Our adoption of SFAS 165 did not have a material impact on our consolidated financial statements.

In
June 2009, the FASB issued Statement of Financial Accounting Standards No. 168,The FASB Accounting Standards
Codificationand the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement
No. 162("SFAS 168"). SFAS 168 establishes theFASB Accounting Standards Codification as the
source of authoritative accounting and reporting standards recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) in the United States. Rules and interpretive releases of the Securities and Exchange Commission (SEC) are also sources of authoritative GAAP for SEC registrants.
SFAS 168 is not intended to create new accounting and reporting guidance but rather to organize and simplify existing authoritative literature. This standard is effective for financial
statements issued for interim and annual periods ending after September 15,

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2009,
which for us is our fiscal year ending September 30, 2009. We do not expect the adoption of SFAS 168 to have a material impact 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 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 the Private Securities Litigation Reform
Act of 1995 with respect to our financial condition, results of operations and business. These forward-looking statements can be identified by the use of terms such as "believe," "expects," "plan,"
"intend," "may," "will," "should," "can," or "anticipates," or the negative thereof, or variations thereon, or comparable terminology, or by discussions of strategy. Although these statements are
believed to be reasonable, they are inherently uncertain. These statements involve known and unknown risks, uncertainties and other factors that may cause our 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 our
results to differ from these forward-looking statements include, but are not limited to: (i) slow or negative growth in the nutritional supplement industry or the healthy foods channel,
(ii) interruption of business or negative impact on sales and earnings due to acts of God, acts of war, terrorism, bio-terrorism or civil unrest, (iii) adverse publicity or
negative consumer perception regarding nutritional supplements, (iv) changes in government regulations, (v) product liability claims and litigation, (vi) insurance coverage
issues, (vii) increased competition or costs, (viii) intellectual property rights of other parties, (ix) the loss of key personnel, (x) disruptions from acquisitions,
(xi) issues with obtaining raw materials of adequate quality or quantity, (xii) problems with information management systems, manufacturing efficiencies and operations,
(xiii) changes in general worldwide economic or political conditions, (xiv) the volatility of the stock market generally and of our stock specifically, (xv) litigation generally,
and (xvi) 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, 2009, the applicable weighted-average interest rate for
borrowings was 1.90%, exclusive of any interest rate swap agreements, and we had total borrowings outstanding of $18.5 million.

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On
August 10, 2008, 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 3.92% and was not designated as a hedge in accordance with SFAS 133. For the nine months ended June 30, 2009, the interest rate
swap had an unfavorable change in fair value of $157 thousand, which was included as a component of interest and other (income) expense in the Condensed Consolidated Statements of Operations
and Comprehensive Income (Loss).

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, Sweden, the U.K., the Netherlands 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 2008 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, 2009.

Under
our share purchase program, initially approved on June 22, 2000, we were authorized to buy up to 2,500,000 shares of our common stock. There were 563,915 shares available
for purchase under this program as of June 30, 2009. On July 28, 2009, our Board of Directors approved the addition of 1,000,000 shares to our share purchase program, which increased the
available shares under the share purchase program to 1,563,915 as of that date. The shares available for purchase under this program have no expiration date. There were no purchases under this program
during the three months ended June 30, 2009.

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: July 30, 2009

By:

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


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