**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**forthe Quarterly Period Ended December 31, 2006**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF1934

**Commission file number** 000-23731

**NUTRACEUTICAL INTERNATIONAL CORPORATION**

(Exact name of registrantas specified in its charter)

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

 

**(435) 655-6106**

(Registrant’s telephonenumber, including area code)

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  YES x NO o

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

| Large accelerated  filer o |   | Accelerated  filer x |   | Non-accelerated  filer o |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO x

At January 26, 2007, the registrant had 11,018,304shares of common stock outstanding.

 

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**NUTRACEUTICALINTERNATIONAL CORPORATION**

**INDEX**

| Description   | ** ** | ** **            | ** ** | ** **                                                                                                                      | ** ** | ** ** | ** ** | **Page No** | ** ** |
|---------------|------------|-----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|
| Part I.  |       | Financial Information |       |                                                                                                                            | 3          |       |
|          |       | Item 1.               |       | Financial  Statements                                                                                                           |       |       | 3          |             |
|          |       |                  |       | Condensed Consolidated Balance Sheets -  September 30, 2006 and December 31, 2006                                     |       |       | 3          |             |
|          |       |                  |       | Condensed  Consolidated Statements of Operations and Comprehensive Income - Three Months  Ended December 31, 2005 and 2006 |       |       | 4          |             |
|          |       |                  |       | Condensed  Consolidated Statements of Cash Flows - Three Months Ended December 31,  2005 and 2006                          |       |       | 5          |             |
|          |       |                  |       | Notes to Condensed Consolidated Financial Statements                                                                            |       |       | 6          |             |
|          |       | Item 2.               |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                     |       |       | 10         |             |
|          |       | Item 3.               |       | Quantitative and Qualitative Disclosures about Market  Risk                                                                     |       |       | 17         |             |
|          |       | Item 4.               |       | Controls  and Procedures                                                                                                        |       |       | 17         |             |
| Part II. |       | Other Information     |       |                                                                                                                            | 18         |       |
|          |       | Item 1.               |       | Legal  Proceedings                                                                                                              |       |       | 18         |             |
|          |       | Item 1A.              |       | Risk  Factors                                                                                                                   |       |       | 18         |             |
|          |       | Item 2.               |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                    |       |       | 18         |             |
|          |       | Item 6.               |       | Exhibits                                                                                                                        |       |       | 18         |             |
|               |            |                       |            |                                                                                                                                 |            |            |            |                  |            |  |  |  |

 

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**PART I—FINANCIALINFORMATION**

**Item 1.**                        FinancialStatements

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

| ** **                                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2006(1)**            | ** ** | **2006**              | ** ** |
| **ASSETS**                                     |       |                   |       |                  |       |   |   |   |   |
| Current assets                                 |       |                   |       |                  |       |   |   |   |   |
| Cash                                           |       |                   | $          | 2,834                 |       |   |   | $ | 3,641 |   |   |
| Accounts receivable, net                       |       |                   | 10,621     |                  |       |   | 10,214 |   |   |
| Inventories, net                               |       |                   | 27,329     |                  |       |   | 26,958 |   |   |
| Prepaid expenses and other current assets      |       |                   | 1,882      |                  |       |   | 1,068 |   |   |
| Deferred income taxes                          |       |                   | 1,771      |                  |       |   | 1,798 |   |   |
| Total current assets                           |       |                   | 44,437     |                  |       |   | 43,679 |   |   |
| Property, plant and equipment, net             |       |                   | 32,669     |                  |       |   | 34,597 |   |   |
| Goodwill                                       |       |                   | 18,366     |                  |       |   | 26,040 |   |   |
| Intangible  assets, net                        |       |                   | 6,755      |                  |       |   | 8,896 |   |   |
| Other non-current  assets, net                 |       |                   | 630        |                  |       |   | 612 |   |   |
| Deferred income  taxes, net                    |       |                   | 5,103      |                  |       |   | 4,313 |   |   |
|                                           |       |                   | $          | 107,960               |       |   |   | $ | 118,137 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** |       |                   |       |                  |       |   |   |   |   |
| Current liabilities                            |       |                   |       |                  |       |   |   |   |   |
| Accounts payable                               |       |                   | $          | 9,124                 |       |   |   | $ | 9,007 |   |   |
| Accrued expenses                               |       |                   | 5,370      |                  |       |   | 5,228 |   |   |
| Total current liabilities                      |       |                   | 14,494     |                  |       |   | 14,235 |   |   |
| Long-term debt                                 |       |                   | 2,500      |                  |       |   | 9,500 |   |   |
| Other non-current  liabilities                 |       |                   | 184        |                  |       |   | 188 |   |   |
| Total liabilities                              |       |                   | 17,178     |                  |       |   | 23,923 |   |   |
| Stockholders’  equity                     |       |                   |       |                  |       |   |   |   |   |
| Common stock                                   |       |                   | 110        |                  |       |   | 110 |   |   |
| Additional paid-in capital                     |       |                   | 32,665     |                  |       |   | 32,748 |   |   |
| Retained earnings                              |       |                   | 57,840     |                  |       |   | 61,195 |   |   |
| Accumulated other comprehensive income         |       |                   | 167        |                  |       |   | 161 |   |   |
| Total stockholders’ equity                |       |                   | 90,782     |                  |       |   | 94,214 |   |   |
|                                           |       |                   | $          | 107,960               |       |   |   | $ | 118,137 |   |   |

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(1)          The condensedconsolidated balance sheet as of September 30, 2006 has been preparedusing information from the auditedfinancial statements at that date.

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

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

| ** **                                          | ** ** | **Three months ended December 31,** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                                | ** ** | **2006** | ** ** |
| Net sales                                           |       | $                                                       | 36,704     |   | $ | 35,848 |   |
| Cost of sales                                       |       | 17,560                                                  |       | 16,324 |   |
| Gross profit                                        |       | 19,144                                                  |       | 19,524 |   |
| Operating expenses                                  |       |                                                    |       |   |   |
| Selling, general and administrative                 |       | 13,446                                                  |       | 13,922 |   |
| Amortization of intangible assets                   |       | 94                                                      |       | 46 |   |
| Income from  operations                             |       | 5,604                                                   |       | 5,556 |   |
| Interest and  other (income)/expense, net           |       | (11                                                     | )          | 144 |   |
| Income before  provision for income taxes           |       | 5,615                                                   |       | 5,412 |   |
| Provision for  income taxes                         |       | 2,162                                                   |       | 2,057 |   |
| Net income                                          |       | $                                                       | 3,453      |   | $ | 3,355 |   |
| Other  comprehensive income/(loss)                  |       |                                                    |       |   |   |
| Foreign currency translation adjustment, net of tax |       | (10                                                     | )          | (6 | ) |
| Comprehensive  income                               |       | $                                                       | 3,443      |   | $ | 3,349 |   |
| Net income per  common share                        |       |                                                    |       |   |   |
| Basic                                               |       | $                                                       | 0.30       |   | $ | 0.30 |   |
| Diluted                                             |       | 0.30                                                    |       | 0.30 |   |
| Weighted average  common shares outstanding         |       |                                                    |       |   |   |
| Basic                                               |       | 11,471,136                                              |       | 11,015,967 |   |
| Dilutive effect of stock options                    |       | 164,643                                                 |       | 196,318 |   |
| Diluted                                             |       | 11,635,779                                              |       | 11,212,285 |   |

 

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

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

| ** **                                                                        | ** ** | **Three months ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                                | ** ** | **2006** | ** ** |
| **Cash flows from operating  activities**                                         | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| Net income                                                                        |       | $                                                       | 3,453      |   | $ | 3,355 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities |       |                                                    |       |   |   |
| Depreciation and amortization                                                     |       | 1,141                                                   |       | 1,101 |   |
| Amortization of deferred financing fees                                           |       | 46                                                      |       | 14 |   |
| Losses on disposals of property and equipment                                     |       | —                                                  |       | 2 |   |
| Deferred income taxes                                                             |       | 294                                                     |       | 295 |   |
| Changes in assets  and liabilities, net of effects of acquisitions                |       |                                                    |       |   |   |
| Accounts receivable, net                                                          |       | (1,318                                                  | )          | 824 |   |
| Inventories, net                                                                  |       | (3,245                                                  | )          | 1,474 |   |
| Prepaid expenses and other current assets                                         |       | (8                                                      | )          | 849 |   |
| Other non-current assets, net                                                     |       | (21                                                     | )          | 2 |   |
| Accounts payable                                                                  |       | 2,399                                                   |       | (262 | ) |
| Accrued expenses                                                                  |       | (180                                                    | )          | (247 | ) |
| Other non-current liabilities                                                     |       | —                                                  |       | (52 | ) |
| Net cash provided by operating activities                                         |       | 2,561                                                   |       | 7,355 |   |
| **Cash  flows from investing activities**                                         | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| Acquisitions of  businesses, net of cash acquired                                 |       | —                                                  |       | (11,390 | ) |
| Purchases of  property and equipment                                              |       | (3,194                                                  | )          | (2,233 | ) |
| Net cash used in investing activities                                             |       | (3,194                                                  | )          | (13,623 | ) |
| **Cash  flows from financing activities**                                         | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| Proceeds from  long-term debt                                                     |       | 1,500                                                   |       | 9,000 |   |
| Payments on  long-term debt                                                       |       | (2,000                                                  | )          | (2,000 | ) |
| Proceeds from  issuances of common stock                                          |       | 85                                                      |       | 78 |   |
| Purchases of  common stock for treasury                                           |       | (559                                                    | )          | — |   |
| Tax benefit from  stock option exercises                                          |       | 3                                                       |       | 5 |   |
| Net cash provided by (used in) financing activities                               |       | (971                                                    | )          | 7,083 |   |
| Effect of exchange rate changes on cash                                           |       | (3                                                      | )          | (8 | ) |
| Net increase (decrease) in cash                                                   |       | (1,607                                                  | )          | 807 |   |
| Cash at beginning  of period                                                      |       | 3,371                                                   |       | 2,834 |   |
| Cash at end of period                                                             |       | $                                                       | 1,764      |   | $ | 3,641 |   |

 

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.**                 INTERIMCONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the accompanyingunaudited condensed consolidated financial statements include all necessaryadjustments (consisting of normal recurring accruals) to present fairly the consolidatedfinancial position of Nutraceutical International Corporation and itssubsidiaries (the “Company”) as of December 31, 2006, the results of theiroperations and their cash flows for the three months ended December 31,2005 and 2006, in conformity with accounting principles generally accepted inthe United States of America for interim financial information applied on aconsistent basis. Results for the three months ended December 31, 2006 arenot necessarily indicative of the results to be expected for the full fiscalyear.

Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been omitted. Accordingly, these financial statements should beread in conjunction with the Company’s Form 10-K for the Fiscal YearEnded September 30, 2006, which was filed with the Securities and ExchangeCommission on November 30, 2006.

**2.**                 ACCOUNTSRECEIVABLE, NET

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

| ** **           | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------|------------|------------------------|------------|-----------------------|------------|
| ** **           | ** ** | **2006**               | ** ** | **2006**              | ** ** |
| Accounts  receivable |       |                   | $          | 12,610                |       |   |   | $ | 12,287 |   |   |
| Less allowances      |       |                   | (1,989     | )                     |       |   | (2,073 | ) |   |
|                 |       |                   | $          | 10,621                |       |   |   | $ | 10,214 |   |   |

 

**3.**                 INVENTORIES,NET

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

| ** **      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|------------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2006**               | ** ** | **2006**              | ** ** |
| Raw materials   |       |                   | $          | 11,712                |       |   |   | $ | 11,776 |   |   |
| Work-in-process |       |                   | 6,415      |                  |       |   | 6,158 |   |   |
| Finished goods  |       |                   | 11,104     |                  |       |   | 11,139 |   |   |
|            |       |                   | 29,231     |                  |       |   | 29,073 |   |   |
| Less reserves   |       |                   | (1,902     | )                     |       |   | (2,115 | ) |   |
|            |       |                   | $          | 27,329                |       |   |   | $ | 26,958 |   |   |

 

**4.**                 ACQUISITIONS

During the three monthsended December 31, 2006, the Company made three acquisitions. On October 31,2006, the Company acquired a majority interest in a complementary naturalproducts business. 

6

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

**4.**                 ACQUISITIONS(Continued)

On November 15, 2006,the Company acquired the *Life-flo*® brandof health care products, which includes therapeutic creams sold in health andnatural food stores, by purchasing substantially all of the operating assets ofLife-flo Health Care Products, Inc. and Nutraceutical Labs, Inc. On December 15,2006, the Company acquired the *Larenim*® brandof mineral makeup by purchasing certain assets of Vitamin Outlet, Inc.

The aggregate purchase price of these acquisitions wasapproximately $11,390 in cash. The Consolidated Statements of Operations andConsolidated Statements of Cash Flows presented herein include the activitiesof these acquired businesses from their respective dates of acquisition. Theexpected long-term sales and expense synergies of acquired businesses aregenerally not realized immediately following acquisition as certain transitionand integration matters must be completed.

Theseacquisitions are in keeping with the Company’s business strategy ofconsolidating the fragmented industry where it competes. These acquisitionswere accounted for using the purchase method of accounting. Accordingly, theaggregate purchase price was assigned to the assets acquired and liabilitiesassumed based on their fair market values at the respective dates ofacquisition. The excess of aggregate purchase price over the fair market valuesof the assets acquired and liabilities assumed was classified as goodwill.   The following reflects the allocation of theaggregate purchase price for these acquisitions to the aggregate assetsacquired and liabilities assumed:

| Current assets                     |   | $     | 1,578  |   |
|------------------------------------|--------|-------|--------|--------|
| Property, plant  and equipment     |   | 752   |   |
| Goodwill                           |   | 7,674 |   |
| Intangible assets                  |   | 2,185 |   |
| Current  liabilities               |   | (252  | )      |
| Non-current  liabilities           |   | (56   | )      |
| Non-current  deferred income taxes |   | (491  | )      |
|                               |   | $     | 11,390 |   |

 

The acquired intangibleassets include trademarks and tradenames totaling $903, which have indefinitelives and are not subject to amortization, as well as intangible assetstotaling $1,282 related to customer relationships, developed software and technology,trademarks and tradenames, which are being amortized over a period of 5 to 8years. Goodwill, which is not subject to amortization for financial statementpurposes, of $5,526 related to these acquisitions is expected to be deductiblefor tax purposes over fifteen years.

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

**5.**                 GOODWILL

The change in the carryingamount of goodwill from September 30, 2006 to December 31, 2006 wasas follows:

| ** **                                                       | ** ** | **Goodwill** | ** ** |
|------------------------------------------------------------------|------------|--------------|------------|
| Balance as of  September 30, 2006                           |       | $            | 18,366     |   |
| Goodwill attributable to fiscal 2007 first quarter  acquisitions |       | 7,674        |       |
| Balance as of  December 31, 2006                            |       | $            | 26,040     |   |

 

**6.**                 INTANGIBLEASSETS

Thecarrying amounts of intangible assets at September 30, 2006 and December 31,2006 were as follows:

| ** **                                      | ** ** | **September 30, 2006** | ** ** | **December 31, 2006** | ** ** | **Weighted-** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|---------------|------------|
| ** **                                      | ** ** | **Gross**                        | ** ** | ** **                      | ** ** | **Net**       | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** | **Average** | ** ** |
| ** **                                      | ** ** | **Carrying**                     | ** ** | **Accumulated**                 | ** ** | **Carrying**  | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** | **Amortization** | ** ** |
| ** **                                      | ** ** | **Amount**                       | ** ** | **Amortization**                | ** ** | **Amount**    | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Period (Years)** | ** ** |
| Intangible assets subject  to amortization:     |       |                             |       |                            |       |          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trademarks/trade names/patents                  |       |                             | $          | 361                             |       |          |       | $ | (284 | ) |   |   | $ | 77 |   |   |   | $ | 416 |   |   |   | $ | (294 | ) |   |   | $ | 122 |   |   |   | 5 |   |   |
| Customer  relationships                         |       |                             | —     |                            |       |          | —     |   |   |   | — |   |   |   | 457 |   |   |   | (10 | ) |   |   | 447 |   |   |   | 8 |   |   |
| Developed software and technology               |       |                             | —     |                            |       |          | —     |   |   |   | — |   |   |   | 772 |   |   |   | (26 | ) |   |   | 746 |   |   |   | 5 |   |   |
|                                            |       |                             | 361        |                            |       |          | (284       | ) |   |   | 77 |   |   |   | 1,645 |   |   |   | (330 | ) |   |   | 1,315 |   |   |   |   |   |   |
| Intangible assets not  subject to amortization: |       |                             |       |                            |       |          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trademarks/trade names/licenses                 |       |                             | 6,678      |                            |       |          | —     |   |   |   | 6,678 |   |   |   | 7,581 |   |   |   | — |   |   |   | 7,581 |   |   |   |   |   |   |
|                                            |       |                             | $          | 7,039                           |       |          |       | $ | (284 | ) |   |   | $ | 6,755 |   |   |   | $ | 9,226 |   |   |   | $ | (330 | ) |   |   | $ | 8,896 |   |   |   |   |   |   |

 

8

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

**6.**                 INTANGIBLEASSETS (Continued)

Estimatedfuture amortization expense related to the December 31, 2006 net carryingamount of $1,315 for intangible assets subject to amortization is as follows:

| ** **                                   | ** ** | **Estimated**    | ** ** |
|----------------------------------------------|------------|------------------|------------|
| ** **                                   | ** ** | **Amortization** | ** ** |
| **Year Ending September 30,** | ** ** | ** **       | ** ** | **Expense(1)** | ** ** |
| 2007                                         |       |             | $          | 187 |   |   |
| 2008                                         |       |             | 242        |   |   |
| 2009                                         |       |             | 239        |   |   |
| 2010                                         |       |             | 232        |   |   |
| 2011                                         |       |             | 225        |   |   |
| Thereafter                                   |       |             | 190        |   |   |
|                                         |       |             | $          | 1,315 |   |   |
|                                              |            |                  |            |  |  |  |  |  |

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(1)          Estimatedamortization expense for the year ending September 30, 2007 includes onlyamortization to be recorded after December 31, 2006.

**7.**                 OPERATINGSEGMENTS

Segment identification andselection is consistent with the management structure used by the Company toevaluate performance and make decisions regarding resource allocation, as wellas the materiality of financial results consistent with that structure. Basedon the Company’s management structure and method of internal reporting, theCompany has one operating segment. The Company does not review operatingresults on a disaggregated basis; rather, management reviews operating resultson an aggregate basis.

Net sales to foreigncountries were less than 10% of consolidated net sales for the three monthsended December 31, 2005 and 2006. Additionally, certain products are solddomestically to customers who in turn may sell such products into foreigncountries.

**8.**                 SUBSEQUENTEVENT

Subsequent to December 31, 2006, the Companyacquired, for approximately $8.7 million in cash (net of inventory credits) certainoperating assets of a complementary natural products business. This acquisitionwas financed primarily using borrowings under the Company’s revolving creditfacility. The expected long-term sales and expense synergies of thisacquisition are not expected to be realized immediately following acquisitionas certain transition and integration matters must be completed.

9

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

**General**

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

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

We sell branded nutritional supplements and othernatural products under the trademarks *Solaray*®, *KAL*®, *Nature’s Life*®,*Natural Balance*®, *NaturalMax*®,*VegLife*®, *Premier One*®,*Pioneer*®, *Sunny Green*®,*Natural Sport*®, *SupplementTraining Systems*TM, *FunFresh Foods*TM,*ActiPet*®, *Action Labs*®,T*hompson*®, *Montana BigSky*TM, *Body Gold*®, *Healthway*®,  *Living Flower Essences*®,*Life-flo*®, *AllVia*TM,*Sayge BioSciences*TM, *Larenim*®and *Monarch Nutritional Laboratories*TM. Underthe name *Woodland Publishing*TM, we publish, printand market a line of books and booklets to, among others, book distributors,national retail bookstores and health and natural food stores. We alsodistribute branded products of certain third parties.

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

We were formed in 1993 by senior management and BainCapital, Inc. to effect a consolidation strategy in the fragmentedvitamin, mineral, herbal and other nutritional supplements industry (the “VMSIndustry”). Since our formation, we have completed the following acquisitions:Solaray, Inc., Premier One Products, Inc., Makers of KAL, Inc.and Makers of KAL, B.V., Monarch Nutritional Laboratories, Inc., ActionLabs, Inc., NutraForce (Canada) International, Inc., WoodlandPublishing, Inc. and Summit Graphics, Inc., Thompson Nutritionals, Inc.,The Real Food Company, Inc., Thom’s Natural Foods, M.K. Health FoodDistributors, Inc. (dba Nature’s Life), Arizona Health Foods, Inc.,Natural Balance, Inc., Montana Naturals, Inc., Cornucopia CommunityMarket, Inc., Pilgrim’s Natureway LLC, Pioneer Nutritional Formulas, Inc.,Living Flower Essences, LLC, Life-flo Health Care Products, Inc. andNutraceutical Labs, Inc. and Vitamin Outlet, Inc. As a result ofthese acquisitions, internal growth and cost management, we believe that we arewell positioned to continue to capitalize on acquisition opportunities thatarise in the VMS Industry.

**Critical AccountingPolicies**

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

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

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

*Inventories—**Provision*is made forslow moving, obsolete and/or damaged inventory based on periodic analysis ofindividual inventory items, including an evaluation of historical usage and/ormovement, age, expiration date and general condition. If market demand and/orconsumer preferences are less favorable than historical trends or futureexpectations, additional provisions for slow moving, obsolete and/or damagedinventory may be required, which could have a material impact on theconsolidated financial statements.

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

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

*RevenueRecognition—**Revenue* is recognized in accordancewith Staff Accounting Bulletin No. 104, *RevenueRecognition*, which states that revenue should be recognized when thefollowing criteria are met:  (1) persuasiveevidence of an arrangement exists; (2) the product has been shipped andthe customer takes ownership and assumes the risk of loss; (3) the sellingprice is fixed or determinable; and (4) collection of the resultingreceivable is reasonably assured. We believe that these criteria are satisfiedupon shipment from our facilities or, in the case of our neighborhood naturalfood markets and health food stores, at the point of sale within these stores. Revenueis reduced by provisions for estimated returns and allowances, which are basedon historical averages that have not varied significantly for the periodspresented, as well as specific known claims, if any. No other significantdeductions from revenue must be estimated at the point in time that revenue isrecognized.

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**Results ofOperations**

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

| ** **                                | ** ** | **Three months ended December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                | ** ** | **2005**                                                | ** ** | **2006** | ** ** |
| Net sales                                 |       | 100.0                                                   | %          | 100.0 | % |
| Cost of sales                             |       | 47.8                                                    | %          | 45.5 | % |
| Gross profit                              |       | 52.2                                                    | %          | 54.5 | % |
| Selling, general and administrative       |       | 36.6                                                    | %          | 38.8 | % |
| Amortization of intangible assets         |       | 0.3                                                     | %          | 0.2 | % |
| Income from  operations                   |       | 15.3                                                    | %          | 15.5 | % |
| Interest and other (income)/expense, net  |       | 0.0                                                     | %          | 0.4 | % |
| Income before  provision for income taxes |       | 15.3                                                    | %          | 15.1 | % |
| Provision for income taxes                |       | 5.9                                                     | %          | 5.7 | % |
| Net income                                |       | 9.4                                                     | %          | 9.4 | % |
| EBITDA(1)                                 |       | 18.4                                                    | %          | 18.6 | % |

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(1)          See“—EBITDA.”

**Comparison of theThree Months Ended December 31, 2006 to the Three Months Ended December 31,2005**

*Net Sales.**  *Net sales decreased by $0.9 million, or 2.3%,to $35.8 million for the three months ended December 31, 2006 (“firstquarter of fiscal 2007”) from $36.7 million for the three months ended December 31,2005 (“first quarter of fiscal 2006”). Net sales of branded nutritionalsupplements and other natural products decreased by $0.8 million, or 2.5%, to$31.6 million for the first quarter of fiscal 2007 compared to $32.4 millionfor the first quarter of fiscal 2006. The decrease in net sales of brandednutritional supplements and other natural products was primarily related to adecrease in sales of certain products to certain customers, partially offset bythe net sales contributions of the first quarter acquired businesses. Other netsales remained relatively flat at $4.2 million for the first quarter of fiscal2007 compared to $4.3 million for the first quarter of fiscal 2006. Managementbelieves that the VMS Industry continues to have low growth rates and remainsvery competitive.

*GrossProfit.**  *Gross profitincreased by $0.4 million, or 2.0%, to $19.5 million for the first quarter offiscal 2007 from $19.1 million for the first quarter of fiscal 2006. As apercentage of net sales, gross profit increased to 54.5% for the first quarterof fiscal 2007 compared to 52.2% for the first quarter of fiscal 2006. Thisincrease in gross profit was primarily attributable to decreased material costsas a percentage of net sales.

*Selling,General and Administrative.**  *Selling,general and administrative expenses increased by $0.5 million, or 3.5%, to$13.9 million for the first quarter of fiscal 2007 from $13.4 million for thefirst quarter of fiscal 2006. As a percentage of net sales, selling general andadministrative expenses increased to 38.8% for the first quarter of fiscal 2007compared to 36.6% for the first quarter of fiscal 2006. This increase inselling, general and administrative expenses as a percentage of net sales wasprimarily due to the decrease in net sales compared to certain general andadministrative expenses, which tend to be fixed costs subject to normalinflationary increases, and certain integration costs related to acquisitions.

*Amortizationof Intangibles.**  *Amortization ofintangibles was approximately $0.1 million for the first quarter of fiscal 2007and 2006. For each period, amortization expense was primarily related tointangible assets recorded in connection with acquisitions.

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*Interestand Other (Income)/Expense, Net.**  *Netinterest and other (income)/expense for the first quarter of fiscal 2006included other income of $0.1 million for payments received as settlement oflitigation to which we were a plaintiff. Exclusive of this litigation settlement,net interest and other (income)/expense was $0.1 million for both the firstquarter of fiscal 2007 and 2006 and primarily consisted of interest expense onindebtedness under our revolving credit facility.

*Provisionfor Income Taxes.**  *Our effective tax ratewas 38.0% for the first quarter of fiscal 2007 and 38.5% for the first quarterof fiscal 2006. In each period, our effective tax rate was higher than thefederal statutory rate primarily due to state taxes.

**EBITDA**

EBITDA (a non-GAAP measure) is defined as earningsbefore net interest and other (income)/expense, taxes, depreciation andamortization. EBITDA has some inherentlimitations in measuring operating performance due to the exclusion of certainfinancial elements such as depreciation and amortization and is not necessarilycomparable to other similarly titled captions of other companies due topotential inconsistencies in the method of calculation. Furthermore, EBITDA isnot intended to be a substitute for cash flows from operating activities, as ameasure of liquidity, or an alternative to net income in determining ouroperating performance in accordance with generally accepted accountingprinciples. Our use of EBITDA should be considered within the followingcontext:

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

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

·       Ouruse of EBITDA is supported by the importance of EBITDA to the following keystakeholders:

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

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

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

·        **Board ofDirectors and Executive Management**—who use EBITDA as an essentialmetric for evaluating management performance relative to our operating budgetand bank covenant compliance, as well as our ability to service debt and raisecapital for growth opportunities, including acquisitions, which are a criticalcomponent of our stated strategy. Historically, we have recorded a monthlyaccrual for incentive compensation as a percentage of EBITDA, which has beenpaid out to executive management, as well as other employees, upon completionof our annual audit.

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The following tablesets forth a reconciliation of net income to EBITDA for each period includedherein:

| ** **                                   | ** ** | **Three months ended December 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                                | ** ** | **2006** | ** ** |
| Net income                                   |       | $                                                       | 3,453      |   | $ | 3,355 |   |
| Provision for  income taxes                  |       | 2,162                                                   |       | 2,057 |   |
| Interest and  other (income)/expense, net(1) |       | (11                                                     | )          | 144 |   |
| Depreciation and  amortization               |       | 1,141                                                   |       | 1,101 |   |
| EBITDA                                       |       | $                                                       | 6,745      |   | $ | 6,657 |   |

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(1)          Includes amortization ofdeferred financing fees and losses associated with fixed asset disposals. 

Our EBITDA remained flat at $6.7 million for both thefirst quarter of fiscal 2007 and 2006. EBITDA as a percentage of net salesincreased to 18.6% for the first quarter of fiscal 2007 from 18.4% for thefirst quarter of fiscal 2006.

**Seasonality**

We believe that our business is characterized by minorseasonality. However, sales to any particular customer can vary substantiallyfrom one quarter to the next based on such factors as industry trends, timingof promotional discounts, international economic conditions andacquisition-related activities. Excluding the effect of acquisitions, we havehistorically recorded higher branded products sales volume during the secondfiscal quarter (January thru March) due to increased interest inhealth-related products among consumers following the holiday season.

**Liquidity andCapital Resources**

We had working capital of $29.4 million as of December 31,2006 compared to $29.9 million as of September 30, 2006. This decrease inworking capital was primarily the result of decreases in accounts receivable,inventories and prepaid expenses and other current assets, partially offset byan increase in cash and decreases in accounts payable and accrued expenses.

Net cash provided by operating activities for thethree months ended December 31, 2006 was $7.4 million compared to $2.6million for the comparable period in fiscal 2006. This increase in net cashprovided by operating activities for the three months ended December 31,2006 was primarily attributable to an increase in cash provided by changes inassets and liabilities, net of effects of acquisitions.

Net cash used in investing activities was $13.6million for the three months ended December 31, 2006 compared to $3.2million for the comparable period in fiscal 2006. Our investing activitiesduring these periods consisted of acquisitions of businesses in the firstquarter of fiscal 2007 and capital expenditures.

During the three months ended December 31, 2006, wemade three acquisitions. On October 31, 2006, we acquired a majorityinterest in a complementary natural products business. On November 15,2006, we acquired the *Life-flo*® brandof health care products, which includes therapeutic creams sold in health andnatural food stores, by purchasing substantially all of the operating assets ofLife-flo Health Care Products, Inc. and Nutraceutical Labs, Inc. OnDecember 15, 2006, we acquired the *Larenim*® brandof mineral makeup by purchasing certain assets of Vitamin Outlet, Inc.These acquisitions are in keeping with our business strategy of consolidatingthe fragmented industry where we compete and give us nutritional brands withproducts we currently do not sell.

The aggregate purchase price of these acquisitions wasapproximately $11,390 in cash, which was financed primarily using borrowingsunder our revolving credit facility. The expected long-term sales and expensesynergies of acquired businesses are generally not realized immediatelyfollowing acquisition as certain transition and integration matters must becompleted.

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Capital expenditures during these periods relatedprimarily to real estate, distribution and manufacturing equipment, buildingimprovements related to facility consolidation efforts and information systems,including retail technology.

Net cash provided by (used in) financing activitieswas $7.1 million for the three months ended December 31, 2006 compared to($1.0) million for the comparable period in fiscal 2006. During these periods,financing activities primarily related to borrowings and repayments under ourrevolving credit facility, purchases of common stock for treasury and proceedsfrom the issuance of common stock.

Our current revolving credit facility has availablecredit borrowings of sixty million with no automatic reductions and provides anaccordion feature which can increase the available credit borrowings to ninetymillion, subject to approval by the lenders and compliance with certaincovenants and conditions.

At December 31, 2006, we had outstandingrevolving credit borrowings of $9.5 million.   Borrowings under the revolving creditfacility are collateralized by substantially all our assets. At our election,borrowings under the revolving credit facility bear interest at the applicableEurodollar Rate plus a variable margin or at a base rate, which is the higherof the Federal Funds Rate plus 0.5% or the Prime Lending Rate, plus a variablemargin. At December 31, 2006, the applicable weighted-average interestrate for borrowings was 6.11%. We are also required to pay a variable quarterlyfee on the unused balance under the revolving credit facility. At December 31,2006, the applicable rate was 0.18%. Accrued interest on Eurodollar Rateborrowings is payable based on elected intervals of one, two or three months.Accrued interest on base rate borrowings is payable quarterly. The revolvingcredit facility matures on September 7, 2011, and we are required to repayall principal outstanding under the revolving credit facility on such date.

The revolving credit facility contains restrictivecovenants, including restrictions on incurring other indebtedness and requirementsthat we maintain certain financial ratios. As of December 31, 2006, wewere in compliance with these restrictive covenants. Upon the occurrence of adefault, the lender has various remedies or rights, which may includeproceeding against the collateral or requiring us to repay all amountsoutstanding under the revolving credit facility.

A key component of our business strategy is to seek tomake additional acquisitions, which may require that we obtain additionalfinancing, which could include the incurrence of substantial additionalindebtedness or the issuance of additional stock. We believe that borrowingsunder our current revolving credit facility or a replacement credit facility,together with cash flows from operations, will be sufficient to make requiredpayments under the current credit facility or any such replacement facility,and to make anticipated capital expenditures and fund working capital needs forfiscal 2007.

Oursignificant non-cancelable contractual obligations as of December 31, 2006were as follows:

| ** **                                | ** ** | **Payments Due By Period** | ** ** |
|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                | ** ** | **(dollars in thousands)**      | ** ** |
| ** **                                | ** ** | ** **                                | ** ** | **Less Than** | ** ** | **1-3** | ** ** | **4-5** | ** ** | **After** | ** ** |
| **Contractual Obligations**          | ** ** | **Total**                                 | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Revolving credit  facility                |       | $                                         | 9,500      |   |   | $ | — |   |   | $ | — |   | $ | 9,500 |   |   | $ | — |   |   |
| Interest on revolving  credit facility(a) |       | 3,280                                     |       |   | 699 |   |   | 1,398 |   | 1,183 |   |   | — |   |   |
| Operating leases                          |       | 5,190                                     |       |   | 2,055 |   |   | 1,960 |   | 1,085 |   |   | 90 |   |   |
| Total                                     |       | $                                         | 17,970     |   |   | $ | 2,754 |   |   | $ | 3,358 |   | $ | 11,768 |   |   | $ | 90 |   |   |

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(a)           Representsestimated interest obligations associated with our outstanding revolving creditfacility balance of $9.5 million at December 31, 2006, assuming noprincipal payments are made before maturity, a weighted-average interest rateof 6.11% and an underutilization fee rate of 0.18%.

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**New AccountingStandards**

In September 2006, the SEC issued StaffAccounting Bulletin No. 108, *Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements* (“SAB 108”). SAB 108 provides guidance on howprior year misstatements should be taken into consideration when quantifyingmisstatements in current year financial statements for purposes of determiningwhether the current year’s financial statements are materially misstated. SAB108 is effective for fiscal years ending on or after November 15, 2006.The adoption of SAB 108 in fiscal 2007 did not have a material impact on our consolidatedfinancial statements.

The Financial Accounting Standards Board issuedInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes* (“FIN 48”) in June 2006. The interpretationclarifies the accounting for uncertainty in income taxes recognized infinancial statements in accordance with SFAS 109. FIN 48 is effective forfiscal years beginning after December 15, 2006. We have not determined theeffect, if any, the adoption of FIN 48 will have on our consolidated financialstatements.

We periodically review new accounting standards thatare issued from time to time. Although some of these accounting standards maybe applicable to us, we have not identified any other new standards that webelieve merit further discussion, and we expect that none would have asignificant impact on our consolidated financial statements.

**Inflation**

Inflation affects the cost of raw materials, goods andservices used by us. In recent years, inflation has been modest. Thecompetitive environment somewhat limits our ability to recover higher costsresulting from inflation by raising prices. We seek to mitigate the adverseeffects of inflation primarily through improved productivity and costcontainment programs. We do not believe that inflation has had a materialimpact on our results of operations for the periods presented, except withrespect to increased costs in manufacturing, packaging and distributionresulting from increased fuel and other petrochemical costs, as well aspayroll-related costs, insurance premiums and other costs arising from orrelated to government imposed regulations.

**Forward-LookingStatements**

This Form 10-Q contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934. These statementsrelate to our future plans, objectives, expectations, intentions and financialperformance and the assumptions that underlie these statements. Thesestatements involve known and unknown risks, uncertainties and other factorsthat may cause actual results, level of activity, performance or achievementsto be materially different from any future results, levels of activity,performance or achievements expressed or implied by these statements. Weundertake no obligation to update forward-looking statements to reflect eventsor circumstances occurring after the date this Form 10-Q was firstfiled with the SEC. Important factors that may cause results to differ fromthese forward-looking statements include, but are not limited to, governmentregulations,  product liability claimsand litigation, insurance coverage issues, a decrease in or slowing of thegrowth rate of the vitamin, mineral and supplement market, the success of thehealthy foods channel, consumer perception of the safety and quality of our productsand similar products, competition, intellectual property rights of otherparties, the loss of key personnel, disruptions from acquisitions, issues withobtaining raw materials of adequate quality or quantity, problems withinformation management systems, manufacturing efficiencies and operations,litigation generally, the volatility of the stock market generally and of ourstock specifically, a general lack of adequate industry analyst coverage, andother factors indicated from time to time in our SEC reports, copies of whichare available upon request from our investor relations group or which may beobtained at the SEC’s website (www.sec.gov).

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**Item 3.**                        Quantitativeand Qualitative Disclosures about Market Risk

At our election, borrowings under our revolving creditfacility bear interest at the applicable Eurodollar Rate plus a variable marginor at a base rate, which is the higher of the Federal Funds Rate plus 0.5% orthe Prime Lending Rate, plus a variable margin. At December 31, 2006, theapplicable weighted-average interest rate for borrowings was 6.11% and we hadtotal borrowings outstanding of $9.5 million. To date, we have not obtainedinterest rate protection with respect to these borrowings.

With respect to our international operations, we aresubject to currency fluctuations; however, we do not believe that thesefluctuations would have a material adverse impact on our financial positionbecause the majority of our net sales to foreign countries are transacted inU.S. dollars. To date, we have not hedged any of our potential foreign currencyexposures.

**Item 4.**                        Controlsand Procedures

*Evaluationof Disclosure Controls and Procedures.**  *We maintain disclosure controls and proceduresthat are designed to ensure that information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms and that such information is accumulated and communicated to ourmanagement, including our principal executive and principal financial officers,as appropriate, to allow for timely decisions regarding required disclosure.

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

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

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

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**PART II -OTHER INFORMATION**

**Item 1.**                        LegalProceedings

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

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

In our opinion, the outcomes of individual regulatoryand legal matters in which we are presently involved are not probable and noestimate can be made of the range of potential gains or losses. While incapableof estimation, in the opinion of management, the individual regulatory andlegal matters in which we are involved are not expected to have a materialadverse effect on our financial position, results of operations or cash flows.

**Item 1A.**                RiskFactors

There have been no material changes in our riskfactors from those disclosed in our 2006 Annual Report on Form 10-K.

**Item 2.**                        UnregisteredSales of Equity Securities and Use of Proceeds

We did not sell any unregistered equity securities nordid we repurchase any shares of our common stock during the period covered bythis Form 10-Q for the Quarterly Period Ended December 31,2006.

**Item6.**                        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 SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

|                              |   | NUTRACEUTICAL INTERNATIONAL CORPORATION |
|------------------------------|--------|-----------------------------------------|
|                         |   | (Registrant)                            |
| Date: January 26,  2007 |   | By:                                     |   | /s/ Leslie M.  Brown, Jr. |
|                         |   |                                    |   | Leslie M. Brown, Jr. |
|                         |   |                                    |   | Senior Vice President, Finance, Chief |
|                         |   |                                    |   | Financial Officer and Assistant Secretary |
|                         |   |                                    |   | (Principal Financial and Accounting Officer) |

 

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