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**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-K**




ý
            ANNUAL
                REPORT
                PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934For
                the
                fiscal year ended May 31, 2007q
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the
                transition period from _______ to _______.Commission
                file number:
              001-14608




**SCHIFF
      NUTRITION INTERNATIONAL, INC.**


(Exact
      name of
      Registrant as specified in its charter)




**Delaware**
            
            **87-0563574**(State
                or
                other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)**2002
                South 5070 West**
              **Salt
                Lake City, Utah**
            
            **84104-4726**(Address
                of
                principal
              executive
                offices)
            
            (Zip
                Code)





Registrant’s
                telephone number, including area code:**(801)
                975-5000****Securities
                registered pursuant to Section 12(b) of the
                Act:****Class
                A Common Stock, par value $.01 per share**(Title
                of
                Class)**New
                York Stock Exchange**(Name
                of
                Exchange)Securities
                registered pursuant to Section 12(g) of the Act:**None**




Indicate
      by check
      mark if the registrant is a well-known seasoned issuer, as defined in Rule
      405
      of the Securities Act. Yes
qNoý




Indicate
      by check
      mark if the registrant is not required to file reports pursuant to Section
      13 or
      Section 15(d) of the Act.  Yes qNoý




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 ýNoq




Indicate
      by check
      mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
      S-K
      (§229.405 of this chapter) is not contained herein, and will not be contained,
      to the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-K or any
      amendment to this Form 10-K. ý




Indicate
      by check
      mark whether the registrant is a large accelerated filer, an accelerated filer,
      or a non-accelerated filer.  See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check
      one):




Large
      accelerated
      filer q                                                             Accelerated
      filer q                                                    Non-accelerated
      filer ý




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




The
      aggregate
      market value of the voting and non-voting common equity held by non-affiliates
      of the registrant was approximately $70,530,744 as of November 30, 2006, the
      last day of the registrant's second fiscal quarter, based upon the closing
      price
      on the New York Stock Exchange of $6.34 for shares of the registrant’s Class A
      common stock on that date.




As
      of August 23, 2007 the registrant had outstanding 11,657,970 shares of Class
      A
      common stock and 14,973,148 shares of Class B common stock.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Portions
      of the
      registrant’s Definitive Proxy Statement for its 2007 Annual Meeting of
      Shareholders, to be filed with the Securities and Exchange Commission no later
      than 120 days after the end of the registrant’s fiscal year ended May 31, 2007,
      are incorporated by reference into Part III hereof.








**Schiff
          Nutrition International, Inc.**
 **Table
          of
          Contents**
  **PART
        I**
  ITEM
                  1.
              BUSINESS
 ITEM
                  1A.
              RISK
                  FACTORS
 ITEM
                  1B.
              UNRESOLVED
                  STAFF
                  COMMENTS
 ITEM
                  2.
              PROPERTIES
 ITEM
                  3.
              LEGAL
                  PROCEEDINGS
 ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS
  **PART
        II**
  ITEM
                  5.
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
                  MATTERS AND ISSUER PURCHASES OF EQUITY
                  SECURITIES
 ITEM
                  6.
              SELECTED
                  CONSOLIDATED FINANCIAL AND OPERATING
                  DATA
 ITEM
                  7.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS
 ITEM
                  7A.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK
 ITEM
                  8.
              FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY
                  DATA
 ITEM
                  9.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE
 ITEM
                  9A.
              CONTROLS
                  AND
                  PROCEDURES
  **PART
        III**
  ITEM
                  9B.
              OTHER
                  INFORMATION
 ITEM
                  10.
              DIRECTORS,
                  EXECUTIVE OFFICERS AND CORPORATE
                  GOVERNANCE
 ITEM
                  11.
              EXECUTIVE
                  COMPENSATION
 ITEM
                  12.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT AND RELATED STOCKHOLDER
                  MATTERS
 ITEM
                  13.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND
                  DIRECTOR INDEPENDENCE
 ITEM
                  14.
              PRINCIPAL
                  ACCOUNTING FEES AND
                  SERVICES
  **PART
        IV**
  ITEM
                  15.
              EXHIBITS,
                  FINANCIAL STATEMENT
                  SCHEDULES
  **SIGNATURES**
   i
   SCHIFF
        NUTRITION INTERNATIONAL, INC.
 INDEX
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
  REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                  FIRM
  SCHIFF
                  NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
                  CONSOLIDATED BALANCE SHEETS
  SCHIFF
                  NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF
                  INCOME
  SCHIFF
                  NUTRITION INTERNATIONAL, INC. AND
                  SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
                  EQUITY
  SCHIFF
                  NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH
                  FLOWS
  SCHIFF
                  NUTRITION INTERNATIONAL, INC. AND
                  SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
                  STATEMENTS
  1.
              SIGNIFICANT
                  ACCOUNTING
                  POLICIES
 2.
              DIVESTITURES
 3.
              AVAILABLE-FOR-SALE
                  SECURITIES
 4.
              RECEIVABLES,
                  NET
 5.
              INVENTORIES
 6.
              PROPERTY
                  AND EQUIPMENT,
                  NET
 7.
              GOODWILL
                  AND INTANGIBLE ASSETS,
                  NET
 8.
              ACCRUED
                  EXPENSES
 9.
              INCOME
                  TAXES
 10.
              OTHER
                  ACCUMULATED COMPREHENSIVE
                  INCOME
 11.
              STOCK-BASED
                  COMPENSATION
                  PLANS
 12.
              COMMITMENTS
                  AND
                  CONTINGENCIES
 13.
              RELATED
                  PARTY
                  TRANSACTIONS
 14.
              OPERATING
                  SEGMENTS
 15.
              QUARTERLY
                  RESULTS
                  (UNAUDITED)
 16.
              SUBSEQUENT
                  EVENT
  **SCHIFF
        NUTRITION INTERNATIONAL, INC. AND
        SUBSIDIARIES**
 **VALUATION
        AND QUALIFYING ACCOUNTS**
  **EXHIBIT
–
23.1**
                CONSENT
                    OF
                    INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                    FIRM
 **EXHIBIT
–
31.1**
              CERTIFICATION
                  OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
                  ACT
  **EXHIBIT
–
31.2**
              CERTIFICATION
                  OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
                  ACT
  **EXHIBIT
–
32.1**
              CERTIFICATION
                  OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT
                  TO SECTION
                  906 OF THE SARBANES-OXLEY ACT




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**PART
      I**





**Note
      on
      Forward-Looking Statements**





*Certain
      statements made in this Annual Report on Form 10-K, including statements under
      the captions “Business,” “Risk Factors,” “Legal Proceedings,” and “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations,” and
      elsewhere herein are “forward-looking statements” within the meaning of Section
      27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
      Exchange Act of 1934, as amended, that are based on management’s beliefs and
      assumptions, current expectations, estimates and projections. Statements that
      are not historical facts, including without limitation statements which are
      preceded by, followed by or include the words “believes,” “anticipates,”
“plans,” “expects,” “estimates,” “may,” “should,” “intends,” or similar
      expressions, are forward-looking statements.  These statements are
      subject to risks and uncertainties, certain of which are beyond our control,
      and
      therefore, actual results may differ materially.  The fact that some
      of the risks may be the same or similar to past reports we have filed with
      the
      Securities and Exchange Commission (“SEC”) means only that the risks are present
      in multiple periods.  We believe that many of the risks detailed here
      are part of doing business in the industry in which we operate and compete
      and
      will likely be present in all periods reported.  The fact that certain
      risks are endemic to the industry does not lessen their
      significance.  Forward-looking statements only speak as of the date
      hereof and we do not undertake and expressly disclaim any obligation to update
      or release any revisions to any forward-looking statement whether as a result
      of
      new information, future events or otherwise, except as required by
      law.  Important factors that may cause these forward-looking
      statements to be false or materially different from our current expectations
      include, but are not limited to, the factors discussed in Items 1, 1A, 3, 7
      and
      7A of this Annual Report.*





*You
      should
      carefully consider the risks described in this Annual Report on Form 10-K,
      including those set forth in “Item 1A - Risk Factors” below.  Any of
      these risks could have a material adverse effect on our results of operations
      and financial condition.*





**ITEM
                1.**
            **BUSINESS**





**General**





Schiff
      Nutrition
      International, Inc. (“we,” “us,” or “our”) develops, manufactures, markets and
      distributes branded and private label vitamins, nutritional supplements and
      nutrition bars in the United States and throughout the world.  We
      offer a broad range of capsules, tablets and nutrition bars.  Our
      portfolio of recognized brands, including Schiff® and Tiger’s Milk®, is marketed
      primarily through the mass market (including club) and, to a lesser extent,
      health food store distribution channels.





Prior
      to fiscal
      2006, we were organized into three business units: the Schiff Specialty Unit,
      the Active Nutrition Unit and the Haleko Unit.  The business units
      generally were managed independently, each with its own sales and marketing
      resources, and supported by common product research and development, operations
      and technical services and administrative functions.  The Schiff
      Specialty Unit included the Schiff brand, as well as private label (contract
      manufacturing) business limited to customers that otherwise carry our
      products.  The Active Nutrition Unit included the Weider® branded
      global business and the Tiger’s Milk brand.  The Haleko Unit, our
      primary European operations, included the Multipower® and Multaben nutritional
      supplement brands and private label businesses.





On
      June 17, 2005, we announced the sale of our Haleko Unit to Atlantic Grupa of
      Zagreb, Croatia and certain of its subsidiaries for approximately $15.1 million
      in cash.  The transaction included the sale of the capital stock and
      partnership interests of the international subsidiaries that operate the Haleko
      Unit.  The transaction closed on June 17, 2005, with an effective date
      of May 1, 2005 (the first day of Haleko’s fiscal year 2006).





On
      April 1, 2005, we announced the sale of certain assets of our Active Nutrition
      Unit relating to our Weider branded business domestically and internationally
      to
      Weider Global Nutrition, LLC (“WGN”), a wholly-owned subsidiary of Weider Health
      and Fitness (“WHF”), a privately held company headquartered in California and
      our majority stockholder.  The terms of the transaction provided for a
      cash payment of approximately $12.9 million and a note receivable of $1.1
      million in exchange for assets relating to our domestic Weider branded business,
      including inventory, receivables, and intangible and intellectual property,
      the
      capital stock of certain of our international subsidiaries related to our
      international Weider branded business (including the working capital of those
      subsidiaries), and the assumption of certain associated liabilities by WGN.
      The
      transaction closed on April 1, 2005, with an effective date of March 1,
      2005.





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In
      connection with the sale of the Weider branded business, we also entered into
      two separate agreements (domestic and European) whereby we agreed to provide
      certain general and administrative, research and development, and
      logistics
      services to WGN for an annual fee.  The domestic service agreement
      provided for a one year term, with an option to either party to extend the
      term
      for one additional year.  The parties exercised this option for the
      second year and have further extended the term of the agreement through March
      1,
      2008.  In connection with the sale of our Haleko Unit, the European
      service agreement was transferred to the purchaser of the Haleko
      Unit.





Historical
      operating results for the Haleko Unit and Weider branded business are reflected
      as discontinued operations in our consolidated financial statements, including
      the notes thereto, for all periods presented.  The remaining assets
      and related operations for the Active Nutrition Unit, including our Tiger's
      Milk
      and Fi-Bar® brands, were consolidated into our Schiff Specialty
      Unit.  We believe our remaining business, which consists of the
      aggregation of several product-based operating segments, represents our only
      reportable segment.





At
      our 2005 Annual Meeting of Shareholders in October 2005, our stockholders
      approved a corporate name change from Weider Nutrition International, Inc.
      to
      Schiff Nutrition International, Inc.





Our
      principal
      executive offices are located at 2002 South 5070 West, Salt Lake City, Utah
      84104 and our telephone number is (801) 975-5000.  We were
      incorporated in Delaware in 1996.  Our corporate internet web site
      address is www.schiffnutrition.com.  *We have included our
      internet web sites here and elsewhere only as an inactive textual
      reference.  The information contained on the internet web sites is not
      incorporated by reference into this Annual Report on
      Form 10-K.*We file our proxy statements, annual reports on
      Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K,
      and
      all amendments thereto with the SEC.  Electronic copies of our
      periodic reports and current reports, and any amendments to those reports,
      are
      available free of charge by accessing our corporate internet web site at
www.schiffnutrition.com, which provides a link to www.sec.gov, the
      web site maintained by the SEC.  The public may read and copy any
      materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth
      Street, NW, Washington, DC 20549.  The public may obtain information
      on the operation of the Public Reference Room by calling the SEC at
      1-800-SEC-0330.





**Recent
      Developments**





In
      July 2007, our Board of Directors approved a $1.50 per share special cash
      dividend, which was paid on August 13, 2007 to shareholders of record at the
      close of business on July 31, 2007.  In connection with the
      declaration of the special dividend, the Board of Directors approved certain
      dividend equivalent rights, allowing holders of other equity awards, including
      stock options and restricted stock units, to receive dividend equivalents in
      the
      form of cash on each share underlying the stock options and restricted stock
      units.  In aggregate, at July 31, 2007, the record date, the company
      had approximately 29.9 million common shares (or common share equivalents)
      outstanding, including approximately 26.6 million shares of outstanding Class
      A
      and Class B common stock, approximately 1.8 million shares of Class A common
      stock underlying outstanding stock options and approximately 1.5 million shares
      of Class A common stock underlying outstanding restricted stock
      units.  The aggregate amount of the special dividend is approximately
      $44.9 million, presuming 100 percent vesting of shares underlying stock awards
      (54 percent vested as of July 31, 2007).  To the extent outstanding
      stock options and restricted stock units were unvested at July 31, 2007, the
      $1.50 per share dividend was not, and will not be, distributed until after
      such
      equity awards become vested.





In
      connection with the dividend equivalents paid or payable on stock options and
      certain restricted stock units, we expect to recognize a compensation charge
      during fiscal 2008.  The pre-tax charge will amount to approximately
      $5.0 million, with approximately $3.0 million recognized during the first fiscal
      quarter.





**Industry
      Overview**





According
      to the
      Nutrition Business Journal, the market for vitamins, minerals and supplements
      in
      the United States was estimated to be approximately $21.2 billion in
      2005.  We believe that the market has reached its present size due to
      a number of factors, including:





·
            increased
                awareness of the health benefits of dietary supplements, especially
                as
                reports and medical research indicating a correlation between consumption
                of specific nutrients and better health and reduced incidence of
                certain
                diseases continue to heighten public knowledge of the benefits of
                dietary
                supplements for health;





·
            a
                growing
                population of older Americans, with increased levels of education
                and
                discretionary income, who are more likely to consume dietary supplements
                and nutritional products, with an increasing interest in more proactively
                managing one’s own health needs;





·
            successful
                new product introductions in part due to new scientific findings;
                and




·
            rising
                health
                care costs and the worldwide trend toward preventive health
                care.





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In
      recent years,
      nutritional supplement companies, analysts, publications and other industry
      sources have indicated a slower growth rate in the nutritional supplement
      industry.  We believe that the slowdown is due in part to, among other
      factors, increased competition, including intense private label expansion and
      increasing competition from pharmaceutical and food companies, the lack of
      industry-wide “blockbuster” products, negative publicity regarding certain
      nutritional supplement ingredients and companies, and the general maturing
      of
      the industry.





Although
      specific
      data from the fragmented international markets is not readily available, we
      believe similar demographics, events, and other trends affect the nutritional
      supplement market internationally.





**Brands,
      Products and Distribution**





We
      market a broad line of specialty supplements, vitamins and minerals under the
      Schiff brand, which has been familiar to consumers for over 70
      years.  The Schiff brand emphasizes high quality and natural
      ingredients, primarily consisting of tablet, capsule and softgel product
      forms.





Our
      Schiff brand
      specialty supplements are designed to provide consumers with targeted support
      for their wellness efforts.  Our specialty supplements include joint
      care products marketed under the Schiff brand, including our Move Free® and
      Glucosamine products.  Our Move Free product is one of the leading
      joint care products in the mass market channel.  Move Free net sales
      were $83.8 million, $86.2 million and $68.9 million, respectively, for fiscal
      2007, 2006 and 2005 and represented approximately 48%, 48% and 40%,
      respectively, of total net sales for fiscal 2007, 2006 and 2005.  Due
      to the divestitures of our Weider branded business and Haleko business, our
      concentration in this brand and the joint care category have
      increased.  We cannot assure you that Move Free or other of our
      products currently experiencing strong popularity and growth will maintain
      sales
      levels over time.  A significant decrease in Move Free or joint care
      category sales could have a material adverse effect on our results of operations
      and financial condition.  Other specialty supplement products
      include:





·
            specialty
                formulas for men and women, such as Prostate Health and Folic Acid;
                and





·
            other
                specialty formulas, such as Melatonin Plus, Niacin and
                Lutein.





Our
      Schiff brand
      vitamin products are designed to provide consumers with essential vitamins
      and
      minerals as supplements to healthy diet and exercise.  Schiff brand
      vitamin products include:





·
            multivitamins,
                such as Single Day;





·
            individual
                vitamins, such as Vitamin B and Vitamin C;
                and





·
            minerals,
                such as Calcium.





The
      Schiff brand is
      marketed primarily in the mass market retail channel, with additional limited
      distribution in health food stores.  Our products are sold
      domestically in leading retail outlets in all 50 states.  Our mass
      market customers include:





·
            warehouse
                clubs, such as Costco, Sam’s Club and
                BJ’s;





·
            mass
                merchandisers, such as Wal-Mart and
                Target;





·
            supermarkets,
                such as Fred Meyer, Giant, Kroger, Publix, Safeway, Stop & Shop, H-E-B
                and Raley’s; and





·
            drug
                stores,
                such as Walgreens, CVS, Rite Aid and
                Longs.





We
      also manufacture private label products for certain retail customers where
      we sell our branded products.  Manufactured private label products are
      sold to key retailers for distribution under their store brand
      names.  Private label products include specialty supplements, vitamins
      and minerals, such as joint care products, Vitamin B and Calcium.  We
      service the health food market primarily through sales to leading health food
      retailers and distributors.








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Our
        largest
        customers are Costco and Wal-Mart. Combined, these two customers accounted
        for
        approximately 69%, 70% and 72%, respectively, of our total net sales for
        fiscal
        2007, 2006 and 2005.  Due to the divestitures of our Weider branded
        business and Haleko business, our concentration in these customers has
        increased.  Retail customers in our industry generally do not enter
        into long-term supply contracts with their suppliers, particularly for branded
        products.  Consequently, we do not have supply contracts with either
        Costco or Wal-Mart and therefore cannot assure you that either Costco or
        Wal-Mart will continue to be significant customers in the future.  The
        loss of either Costco or Wal-Mart as a customer, or a significant reduction
        in
        purchase volume by Costco or Wal-Mart, would have a material adverse effect
        on
        our results of operations and financial condition.





We
      also export certain Schiff products, particularly in the joint care category,
      to
      various international markets.  In certain countries where we have an
      existing relationship with a retailer, such as Costco, we sell our products
      directly to the retailer.  We sell to independent distributors in
      countries where we do not have direct relationships with
      retailers.  See Note 1 of the Notes to Consolidated Financial
      Statements for domestic and international net sales amounts.  See
“Item****1****– Business – Government
      Regulation” and “Item 1A – Risk Factors – Risks Associated with International
      Markets” for additional information relating to our export
      business.





We
      also market a line of nutrition bar products under the Tiger’s Milk and Fi-Bar
      brands.  The Tiger’s Milk product line includes several nutrition bars
      that supply protein, vitamins and other essential nutrients with fewer calories
      than a traditional candy bar.  The Fi-Bar product line is comprised of
      snack bars that are free of hydrogenated oils and trans fat, made with wholesome
      ingredients such as grains, oats, nuts and fruit, and coated with white,
      semi-sweet or milk chocolate.  The Tiger’s Milk and Fi-Bar brands are
      intended to provide consumers with a healthy alternative to traditional snack
      foods and candy bars and are sold primarily through mass market retailers and
      convenience stores, with additional limited distribution in health food
      stores.





Prior
      to the fiscal
      2006 first quarter sale of our Haleko Unit, we developed, manufactured and
      marketed nutrition products primarily under the Multipower and Multaben
      brands.  Our Haleko Unit had well-recognized nutritional supplement
      brands in Europe and nutritional supplement manufacturing capabilities in
      Germany.





Prior
      to the fiscal
      2005 fourth quarter sale of our Weider branded business, we developed and
      marketed sports nutrition, nutrition bar and weight management products under
      the Weider brand.  The Weider branded products were distributed
      primarily through mass market retailers, health food stores, and health clubs
      and gyms in the United States, Canada and Western Europe as well as on an export
      basis to South America, Eastern Europe, the Middle East and the Pacific
      Rim.





**Sales
      and
      Marketing**





Our
      sales force
      consists of dedicated sales professionals who are assigned to specific accounts,
      classes of trade and/or geographic territories.  These sales
      professionals work directly with retailers and distributors to increase
      knowledge of our products and general nutritional supplement benefits, solicit
      orders for our products, maximize our shelf presence and provide related product
      sales assistance.  We also utilize brokers to sell our products in
      certain accounts and classes of trade.





We
      market our products using a mix of trade and consumer promotions; television,
      newspaper and print media advertising; and consumer education
      efforts.  Our advertising and marketing expenditures, excluding sales
      incentives reflected as reductions in net sales or increases in cost of goods
      sold, were approximately $19.4 million, $18.3 million and $16.9 million,
      respectively, for fiscal 2007, 2006 and 2005.  Classification of
      promotional costs as a sales reduction or increase in cost of goods sold is
      required when the promotion effectively represents a price
      reduction.





During
      fiscal 2007,
      we maintained our focus on brand building support for our core brands,
      particularly relating to our Schiff Move Free brand of joint care
      products.  We continued to employ television, magazine and other media
      in fiscal 2007, along with several targeted direct mail, public relations and
      sampling campaigns.  During fiscal 2007, our advertisements appeared
      in various magazines and other publications.





Another
      key
      component of our marketing strategy is to educate consumers about innovative,
      safe and beneficial nutritional supplement products.  We participate
      in consumer education at conferences and trade and consumer
      shows.  Our web sites, including www.schiffvitamins.com, also
      provide additional educational information to consumers and
      customers.





**Product
      Research and Development**





We
      are committed to research and development to create safe and efficacious new
      products and existing product line extensions, and develop more effective and
      efficient means of processing ingredients for use in products.  New
      product development and process improvements are important to the nutritional
      supplement industry to create new market opportunities, meet consumer demand
      and
      strengthen relationships with customers.





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We
      maintain an extensive research library and employ a variety of industry
      relationships to identify new research and development projects offering health
      and wellness benefits.  To support our research and development
      efforts, we maintain a staff of scientific and technical personnel, invest
      in
      formulation, processing and packaging development, perform product quality
      and
      stability studies, invest in product efficacy and safety studies, and conduct
      consumer market research to sample consumer opinions on product concepts,
      product design, packaging, advertising and marketing campaigns.  For
      research and development initiatives, we conduct research and development in
      our
      own facility and with third parties.  Product research and development
      expenses were approximately $3.7 million, $2.9 million and $3.2 million,
      respectively, for fiscal 2007, 2006 and 2005.





**Manufacturing
      and Product Quality**





We
      manufacture the majority of our products in a capsule and tablet manufacturing
      facility in Salt Lake City, Utah, which includes our main distribution center
      and primary administrative offices and also contains our nutrition bar
      manufacturing operations.  Our Salt Lake City capsule and tablet
      facility is designed and operated to meet United States Pharmacopeia (“USP”)
      compliance standards.  We participate in the USP Dietary Supplement
      Verification Program, pursuant to which our manufacturing facility has been
      certified as being compliant with good manufacturing practices (“GMP’s”)
      promulgated by USP.  We are also registered with NSF International
      (“NSF”) as being certified compliant with NSF GMP’s as set forth in NSF/ANSI
      Standard 173-2003, Dietary Supplements, Section 8.





Our
      manufacturing
      process generally consists of the following operations: (i) sourcing
      ingredients for products, (ii) warehousing raw ingredients,
      (iii) measuring ingredients for inclusion in such products,
      (iv) granulating, blending and grinding ingredients into a mixture with a
      homogeneous consistency, and (v) encapsulating, tableting, pouring,
      pouching, bagging or boxing the blended mixture into the appropriate dosage
      form
      using either automatic or semiautomatic equipment.





Our
      bottling and
      packaging, counting, check weighing and filling operations are automated to
      promote accuracy and compliance with weights and measures
      regulations.  We have invested in production line flexibility to
      accommodate various filling sizes, weights or counts of product and final
      shipped unit configurations to fulfill customer and ultimate consumer
      needs.  The distribution center features a high-rise racked warehouse
      and a fully automated “order-pick” system using optical readers that interpret
      bar coded labels on each shipping container.





We
      maintain and operate a Manufacturing Resource Planning (“MRP”) system that is
      integrated with distribution, warehousing and quality control, which provides
      real-time lot and quality tracking of raw materials, work in progress and
      finished goods.  We manufactured over 95% of our branded products in
      fiscal 2007, based on net sales. By manufacturing the majority of our own
      products, we believe that we maintain better control over product quality and
      availability, while also reducing production costs.  We also have a
      working relationship with numerous outside manufacturers, including softgel
      manufacturers and packagers, and utilize these outside sources from time to
      time. Manufacturing backlogs, to the extent they may occasionally exist, do
      not
      have a material impact on delivery time to the customer.





Our
      quality
      management systems are detailed and comprehensive, and include a supplier
      selection and certification process, raw material verification, analytical
      testing, weight deviation measurement, facility and process audits, and other
      procedures.  The quality management systems also include a
      professionally equipped and staffed laboratory, enabling analysis of raw
      materials and finished goods for compliance to specifications.  Our
      products are also subject to extensive shelf life stability testing through
      which we determine the effects of aging on our products.  Outside
      laboratories are used routinely to evaluate our internal test laboratory
      performance and to supplement our internal testing procedures and
      capabilities.





We
      employ a purchasing staff that works with marketing, product development and
      quality control personnel to source raw materials for our
      products.  Raw materials are sourced principally from China and the
      United States.  We seek to mitigate the risk of a shortage of raw
      materials through our relationships with our principal suppliers, including
      identification and qualification of alternative suppliers for the same, or
      similar, raw materials where available.





We
      have a long-term supply and license agreement with a third-party supplier for
      a
      key ingredient used in our Move Free Advanced product.  While we have
      a contract in place providing for the continuing supply of this ingredient,
      we
      cannot assure you that the supplier will continue to supply this ingredient
      in
      the quantities we require, or at all.  We do not have an alternate
      supplier for this ingredient.  See “Item 1 – Business – Intellectual
      Property.”





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**Competition**





The
      market for the
      sale of nutritional supplements is highly fragmented and
      competitive.  We believe that competition is based principally upon
      price, quality and efficacy of products, customer service, marketing support,
      and new products.





Our
      competition
      includes numerous nutritional supplement companies that are highly fragmented
      in
      terms of geographic market coverage, distribution channels and product
      categories.  In addition, large pharmaceutical companies and packaged
      food and beverage companies compete with us in the nutritional supplement
      market.  These companies and many nutritional supplement companies
      have broader product lines and/or larger sales volumes than us and have greater
      financial and other resources available to them and possess extensive
      manufacturing, distribution and marketing capabilities.  Private label
      products of our customers, which have been significantly increasing in certain
      nutrition categories (including the joint care category), compete directly
      with
      our products.  In several product categories, private label items have
      become the market share leaders.  Increased competition from such
      companies and from private label pressures, particularly relating to the joint
      care category, could have a material adverse effect on our results of operations
      and financial condition.





Many
      companies
      within the industry are privately-held.  Therefore, we are unable to
      assess the size of all of our competitors or where we rank in comparison to
      such
      privately-held competitors with respect to sales to retailers.  As the
      nutritional supplement industry continues to evolve, we believe retailers will
      align themselves with suppliers who are financially stable, market a broad
      portfolio of products and offer superior customer service.  We believe
      that we compete favorably with other nutritional supplement companies because
      of
      our financial stability, brand names, customer service, competitive pricing,
      sales and marketing support and quality of our product lines.





**Government
      Regulation**





The
      formulation,
      manufacturing, packaging, labeling, advertising, distribution and sale of our
      products are subject to the laws and regulations of federal governmental
      agencies, including the Food and Drug Administration (“FDA”), the Federal Trade
      Commission (“FTC”), the U.S. Department of Agriculture, the U.S. Consumer
      Products Safety Commission, the Environmental Protection Agency and the Postal
      Service, and also various agencies of the states, localities and countries
      in
      which we operate and sell our products.





The
      FDA regulates
      foods and dietary supplements through the Food, Drug and Cosmetic Act (“FDCA”)
      and amendments thereto, including the Dietary Supplement Health and Education
      Act of 1994, as amended (“DSHEA”), which is intended to promote access to safe,
      quality dietary supplements and information about dietary
      supplements.  DSHEA establishes a statutory class of dietary
      supplements, including vitamins, minerals, herbs, amino acids and other dietary
      substances for human use to supplement the diet, as well as concentrates,
      metabolites, extracts or combinations of such dietary
      ingredients.  Generally, under DSHEA, dietary ingredients on the
      market before October 15, 1994 may be used without further notification to
      the
      FDA.  However, dietary ingredients not marketed prior to October 15,
      1994 may be “new dietary ingredients” under DSHEA and may require a submission
      to the FDA at least 75 days prior to marketing such ingredient evidencing a
      history of use or other evidence of safety to establish that the ingredient
      will
      reasonably be expected to be safe.  We cannot assure you that the FDA
      will accept the evidence of safety for any new dietary ingredients that we
      may
      want to market, and the FDA’s refusal to accept such evidence could prevent the
      marketing of such dietary ingredients.  In addition, increased FDA
      enforcement could lead the FDA to challenge dietary ingredients already on
      the
      market as “illegal” under the FDCA because of the failure to file a new dietary
      ingredient notification.





DSHEA
      permits
      statements of “nutritional support” for dietary supplements that may describe
      how particular dietary ingredients affect the structure, function or general
      well-being of the body or describe the mechanism of action by which dietary
      ingredients affect the foregoing.  These statements of nutritional
      support, or “structure/function claims,” may not make a health claim or disease
      claim, meaning that a statement may not claim to diagnose, treat, prevent,
      cure
      or mitigate an illness or disease unless the claim was authorized by the
      FDA.  A structure/function claim in advertising or on a product label
      must have substantiation that the claim is truthful and not misleading, and
      have
      a disclaimer that the statement has not been evaluated by the FDA and that
      the
      product is not intended to diagnose, treat, cure or prevent any
      disease.  We cannot assure you that a regulatory agency will not deem
      one or more of our product claims or labels to be impermissible and take adverse
      action against us.





In
      addition, DSHEA provides that certain "third-party literature," such as a
      reprint of a peer-reviewed scientific publication linking a particular dietary
      ingredient with health benefits, may be used "in connection with the sale
      of a dietary supplement to consumers" without the literature being subject
      to
      the same regulation as labeling.  Such literature must not be false or
      misleading; the literature may not "promote" a particular manufacturer or brand
      of dietary supplement; and a balanced view of the available scientific
      information on the subject matter must be presented.  We cannot
      assure you
      that all third-party literature that we would like to disseminate in connection
      with our products will satisfy each of these requirements, and failure to
      satisfy all requirements could prevent use of the literature or subject us
      to
      adverse actions by regulatory agencies or other third
      parties.





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The
      FDA recently
      published final GMP’s specifically for the dietary supplement
      industry.  These new GMP’s are more detailed than the GMP’s
      currently applicable to dietary supplements and may result in increased
      expenses, changes to our processes or products and/or implementation of
      additional recordkeeping and administrative procedures.  We do not
      currently expect the incremental cost of compliance efforts to be
      material.





In
      late 2006, Congress passed legislation requiring companies that manufacture
      or
      distribute over-the-counter products (“OTC”) or dietary supplements to report
      serious adverse events allegedly associated with their products to the FDA
      and
      institute recordkeeping procedures for all alleged adverse events (serious
      and
      non-serious).  The legislation requires manufacturers and distributors
      of OTC’s or dietary supplements to report to the FDA any serious adverse event
      reports received, even if the party making the report provides no medical or
      other information to the manufacturer or distributor.  The legislation
      also requires the FDA to provide guidance to manufacturers and distributors
      regarding this legislation (which has not yet been published).  We
      cannot assure you that costs to comply with this legislation, or potential
      misinterpretation of reported serious adverse events, will not have a material
      adverse effect on our results of operations and financial
      condition.





Some
      of our
      products are conventional foods, which are also subject to the Nutrition
      Labeling and Education Act of 1990 (“NLEA”).  The NLEA also prohibits
      health claims being made for a food without prior FDA approval and establishes
      requirements for ingredient and nutrition labeling.  Most of our
      products are classified as dietary supplements.





The
      FTC exercises
      jurisdiction over the advertising of nutritional and dietary supplements under
      the Federal Trade Commission Act.  In November 1998, the FTC published
      an advertising guideline for the dietary supplement industry entitled “Dietary
      Supplements: An Advertising Guide for Industry.”  These guidelines
      reiterate many of the policies regarding dietary supplements the FTC has
      periodically announced over the years, particularly with respect to the
      substantiation of claims made in advertising of dietary supplement
      products.  In the past several years, the FTC has instituted several
      enforcement actions against dietary supplement companies alleging false and
      misleading advertising of certain products.  These enforcement actions
      have resulted in consent decrees and/or the payment of fines by certain of
      the
      companies involved.  We entered into a consent decree with the FTC
      effective November 2000 governing diet and weight loss claims and certain
      disease, safety and comparative health benefit claims.





The
      National
      Advertising Division ("NAD") of the Council of Better Business Bureaus oversees
      an industry-sponsored self-regulatory system that permits competitors to resolve
      disputes over advertising claims.  The NAD also has its own advertising
      monitoring program, and initiates its own challenges to advertising that it
      has
      reviewed.  The NAD has no enforcement authority of its own, but may refer
      matters that the NAD views as violating FTC rules, regulations or guidance
      to
      the FTC for further action.





Federal
      agencies,
      primarily the FDA and FTC, have a variety of procedures and enforcement remedies
      available to them, including initiating investigations, issuing warning letters
      and cease and desist orders, requiring reformulation of products, requiring
      corrective labeling or advertising, requiring consumer redress (for example,
      requiring that a company offer to repurchase products previously sold to
      consumers), seeking injunctive relief or product seizures, and imposing civil
      penalties or commencing criminal prosecution.  In addition, certain
      state agencies have similar authority.  These federal and state
      agencies have in the past used these remedies in regulating participants in
      the
      dietary supplement industry.





Our
      international
      activities are subject to regulation in each country in which we sell or
      distribute our products.  In markets outside the United States, before
      commencing operations or marketing our products, we may be required to obtain
      approvals, licenses or certifications from a country’s ministry of health or
      comparable agency.  Approvals or licensing may be conditioned on
      reformulation of products or may be unavailable with respect to certain products
      or product ingredients.  We must also comply with product labeling and
      packaging regulations that vary from country to country.  Furthermore, the
      regulations of these countries may conflict with those in the United States
      and
      with each other, sometimes causing higher costs and expenses, product
      reformulations, and delay.  In countries in which we do not have
      direct relationships with retailers, independent distributors generally have
      responsibility for compliance with applicable foreign laws and
      regulations.  These distributors are independent contractors over whom
      we have limited control.





As
      a result of our efforts to comply with applicable statutes and regulations,
      from
      time to time we have reformulated, eliminated or relabeled certain of our
      products and revised certain aspects of our sales, marketing and advertising
      programs.  We cannot assure you that we will not have to make such
      changes or revisions in the future, which could have a material adverse effect
      on our results of operations and financial condition.





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We
      may be subject to additional laws or regulations by the FDA or other federal,
      state, county, local or foreign regulatory authorities, the repeal of laws
      or
      regulations which we consider favorable, such as DSHEA, or more stringent
      interpretations of current laws or regulations, from time to time in the
      future.  We are unable to predict the nature of such future laws,
      regulations, interpretations or applications, nor can we predict what effect
      additional governmental regulations, legal proceedings or administrative orders,
      when and if promulgated or initiated, would have on our business in the
      future.  Such changes could, however, require the reformulation of
      certain products to meet new standards, the recall or discontinuance of certain
      products not able to be reformulated, additional recordkeeping requirements,
      expanded documentation of the properties of certain products, new or different
      labeling, additional scientific substantiation, additional personnel, or new
      or
      additional processes, procedures, or requirements.  Any or all of such
      changes or requirements and the related costs to comply with such changes or
      requirements could have a material adverse affect on our business, financial
      condition and results of operations.





**Intellectual
      Property**





We
      own, or have filed for, over 50 trademarks registered with the United States
      Patent and Trademark Office for our Schiff and Tiger’s Milk brands and certain
      of our products (including Move Free) and slogans.  We also license
      rights for names material to our business, including Move Free, and for the
      use
      of our brand names, including Schiff and Tiger’s Milk, in certain countries
      outside of North America.  However, the protection available in
      foreign jurisdictions may not be as extensive as the protection available to
      us
      in the United States.





We
      rely on common law trademark rights to protect our unregistered
      trademarks.  Common law trademark rights do not provide us with the
      same level of protection as afforded by a United States federal registration
      of
      a trademark.  In addition, common law trademark rights are limited to
      the geographic area in which the trademark is actually used.





Our
      Move Free
      Advanced product contains a key ingredient, the rights for which we license
      from
      a third-party supplier pursuant to a long-term supply and license
      agreement.  The term of the agreement extends through May 2009, with
      automatic one-year extensions unless terminated by us or by the supplier upon
      our breach of the agreement and failure to cure the breach within a prescribed
      time period.  Our supplier has patents and patents pending relating to
      the key ingredient, and has granted us exclusive rights to market and sell
      the
      ingredient for joint care purposes in certain territories and classes of
      trade.  However, our supplier is currently in litigation with third
      parties alleging patent infringement in connection with the sale of the key
      ingredient by third parties in products similar to our Move Free Advanced
      product.  We cannot assure you that our supplier will prevail in such
      litigation or be successful in preventing third parties from selling the key
      ingredient in their competing products.  This could have a material
      adverse effect on our Move Free Advanced sales, results of operations and
      financial condition.





**Employees**





At
      May 31, 2007, we employed approximately 404 persons, of whom approximately
      234
      were in management, sales, purchasing, logistics and administration and
      approximately 170 were in manufacturing operations.  In addition, we
      utilize temporary employees in some of our manufacturing
      operations.  We are not party to any collective bargaining
      arrangements and believe that our relationship with our employees is
      good.





**ITEM
                1A.**
            **RISK
                FACTORS**





***Dependence
      on Individual Products******,******Product Lines******and the Joint Care
      Category*****.**  Certain products and product
      lines (particularly in the joint care category) account for a significant amount
      of our total net sales.  Net sales of our Schiff Move Free brand were
      approximately 48%, 48% and 40%, respectively, of total net sales for fiscal
      2007, 2006 and 2005.  Due to the divestitures of our Weider branded
      business and Haleko Unit, our concentration in the Move Free brand and the
      joint
      care category has increased.  We cannot assure you that Move Free or
      other of our products currently experiencing strong popularity and growth will
      maintain sales or margin levels over time.  A significant decrease in
      Move Free or joint care category sales could have a material adverse effect
      on
      our results of operations and financial condition.





***Dependence
      on Significant Customers*****.** Our largest customers
      are Costco and Wal-Mart. Combined, these two customers accounted for
      approximately 69%, 70% and 72%, respectively, of our total net sales for fiscal
      2007, 2006 and 2005.  Due to the divestitures of our Weider branded
      business and Haleko Unit, our concentration in these customers has
      increased.  We do not have supply contracts with either Costco or
      Wal-Mart and therefore cannot assure you that either Costco or Wal-Mart will
      continue to be significant customers in the future.  The loss of
      either Costco or Wal-Mart as a customer,
      or a
      significant reduction in purchase volume by Costco or Wal-Mart, would have
      a
      material adverse effect on our results of operations and financial
      condition.





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***Effect
      of Unfavorable Publicity*****.** We believe sales of our
      products are highly dependent on consumer perception of the safety, quality
      and
      efficacy of our products as well as similar or other nutritional supplement
      products distributed and sold by other companies.  Consumer perception
      of our products can be significantly influenced by scientific research or
      findings, regulatory investigations, litigation, national media attention,
      and
      other publicity regarding our products and other nutritional supplements,
      including publicity regarding the legality or quality of particular ingredients
      or products or the nutritional supplement market in general.  From
      time to time, there is unfavorable publicity, scientific research, litigation,
      regulatory proceedings and other media attention regarding our
      industry.  There has recently been unfavorable publicity regarding
      items imported from China, where we source a large amount of our raw
      materials.  There can be no assurance that future publicity,
      scientific research or findings, litigation, regulatory proceedings, or media
      attention will be favorable to the nutritional supplement market or any
      particular product or ingredient, or consistent with earlier favorable
      publicity, research, findings, litigation, proceedings or media
      attention.  Adverse publicity, media attention, research, findings,
      litigation, proceedings or other reports, whether or not accurate, could have
      a
      material adverse effect on our results of operations and financial
      condition.  In addition, adverse publicity, reports or other media
      attention regarding the safety, quality, or efficacy of our products or
      ingredients or nutritional supplement products or ingredients in general, or
      associating the consumption of our products or ingredients or nutritional
      supplement products or ingredients in general with illness or other adverse
      effects, whether or not scientifically supported or accurate, could have a
      material adverse effect on our results of operations and financial
      condition.





***Risks
      of Competition and Pricing Pressures*****.** The market
      for the sale of nutritional supplements is highly competitive.  Many
      of our principal competitors have greater financial and other resources
      available to them and possess extensive manufacturing, distribution and
      marketing capabilities.  Private label products of our customers, the
      number of which has been significantly increasing in certain nutrition
      categories (including joint care), also create significant pricing pressure
      and
      competition with our products.  Because nutritional supplements can be
      purchased in various channels of distribution, we also compete with products
      sold outside of the mass market retail channel, including health food stores,
      direct sales, direct mail and internet distribution
      channels.  Increased competition from competitors, including expansion
      of private label products, or increased pricing pressure, could have a material
      adverse effect on our results of operations and financial
      condition.





Among
      other
      factors, competition among manufacturers, distributors and retailers of
      nutritional supplements is based upon price.  Because of the high
      degree of price competition, we have not always been able to pass on increases
      in raw material prices to our customers.  If one or more of our
      competitors significantly reduce their prices in order to gain market share
      (particularly relating to the joint care category), or if raw material prices
      increase and we are unable to pass along the increased cost to our customers
      (particularly relating to the joint care category), our results of operations
      and financial condition could be materially adversely affected.





***Raw
      Material Price Increases.*** Raw materials account for a significant
      portion of our manufacturing costs.  We have encountered material
      fluctuations in the pricing of key raw materials in the past, particularly
      relating to joint care category products.  During fiscal 2005 and
      continuing into fiscal 2006, we experienced margin volatility due to several
      factors, including significant raw material pricing increases in the joint
      care
      category.  During fiscal 2005 and early fiscal 2006, as a result of
      the raw material pricing volatility and the inability to secure acceptable
      price
      increases from customers, we discontinued certain private label (contract
      manufacturing) business.  During fiscal 2006 and continuing into
      fiscal 2007, raw material pricing in the joint care category decreased and
      appears to be relatively stable.  However, the price of key raw
      materials may not remain relatively constant.  Historically, we have
      not always been able to pass along raw material price increases, and may not
      be
      able to do so in the future.  Significant increases in raw material
      prices, particularly relating to the joint care category, could have a material
      adverse effect on our results of operations and financial
      condition.





***Dependence
      on Third-Party Suppliers.*** We acquire all of our raw materials for
      the manufacture of our products from third parties.  A considerable
      portion of our raw materials relates to our joint care category, which accounts
      for a significant amount of our total net sales.  We cannot assure you
      that suppliers will provide the raw materials we need in the quantities
      requested, at a price we are willing to pay or that meet our quality standards
      and labeling requirements.





We
      typically do not enter into long-term contracts with our
      suppliers.  However, we have a long-term supply and license agreement
      with a third-party supplier for a key ingredient used in our Move Free Advanced
      product.  While the contract provides for the continuing supply of
      this ingredient, we cannot assure you that the supplier will continue to supply
      this ingredient in the quantities we require, or at all.  We do not
      have an alternate supplier for this ingredient.  See “Item 1 –
Business – Intellectual Property” and “Item 1A – Risk Factors – Risks Associated
      with Intellectual Property Rights and Proprietary





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Techniques.”  In
      addition, from time to time, we enter into forward purchase commitments
      regarding certain raw materials, primarily relating to the joint care
      category.  We cannot assure you that the suppliers will supply the raw
      materials in accordance with the terms of the forward purchase commitments,
      or
      at all.  Any significant failure to supply or changes in the material
      terms of supply by the Move Free Advanced key ingredient supplier or our other
      raw materials suppliers could have a material adverse effect on our results
      of
      operations and financial condition.





We
      are subject to potential delays in the delivery of raw materials caused by
      events beyond our control, including, among other factors, strikes or labor
      disputes, transportation interruptions, weather-related events, natural
      disasters or other catastrophic events, and changes in government
      regulations.  Any significant delay in or disruption of the supply of
      raw materials could, among other things, substantially increase the cost of
      such
      materials, require reformulation or repackaging of products, require the
      qualification of new suppliers, or result in our inability to meet customer
      demands for certain products.  The occurrence of any of the foregoing,
      particularly with respect to raw materials needed for our joint care products,
      could have a material adverse effect on our results of operations and financial
      condition.





***Dependence
      on Raw Materials Acquired From Suppliers Outside the United
      States.*** We acquire a significant amount of key ingredients for a
      number of our products (particularly joint care products) from suppliers outside
      of the United States, particularly China.  Accordingly, the
      acquisition of these ingredients is subject to the risks generally associated
      with importing raw materials, including, among other factors, delays in
      shipments, changes in economic and political conditions, quality assurance,
      nonconformity to specifications or laws and regulations, tariffs, trade disputes
      and foreign currency fluctuations.  While we have a supplier
      certification program and periodically audit and inspect our suppliers’
facilities both in the United States and internationally, we cannot assure
      you
      that raw materials received from suppliers outside of the United States will
      conform to all specifications, laws and regulations.  There has
      recently been quality and safety issues with certain items imported from China,
      where we source a large amount of our raw materials.  We may incur
      additional expenses and experience shipment delays due to preventative measures
      adopted by the Chinese and U.S. governments, our suppliers and our
      company.





In
      addition, the discovery of Bovine Spongiform Encephalopathy, commonly referred
      to as “mad cow disease,” in a country from which we obtain a significant amount
      of our raw materials (particularly related to the joint care category) derived
      from bovine sources could prevent us from purchasing such raw materials in
      the
      required quantities, at an acceptable price or at all.  The occurrence
      of any of the foregoing, particularly with respect to raw materials needed for
      our joint care products, could have a material adverse effect on our results
      of
      operations and financial condition.





***Risks
      Associated with******Intellectual Property Rights and
      Proprietary Techniques.***Although the nutritional supplement
      industry has historically been characterized by products with naturally
      occurring ingredients in capsule or tablet form, recently it is becoming more
      common for suppliers and competitors to apply for patents or develop proprietary
      technologies and processes.  Although we make efforts not to infringe
      the intellectual property rights of others, there can be no assurance that
      third
      parties will not assert intellectual property infringement claims against us
      or
      our intellectual property licensors.  To the extent that these
      developments prevent us from, or increase the cost of, offering or supplying
      competitive products or our licensed proprietary ingredient in the marketplace,
      or result in litigation or threatened litigation against us related to alleged
      or actual infringement of third-party rights, these developments could have
      a
      material adverse effect on our results of operations and financial
      condition.





We
      protect our intellectual property related to investments in research and
      development by relying on trade secret laws and confidentiality agreements
      with
      third parties who have access to information about our research and development
      activities.  When we license our trademarks, proprietary
      ingredients or other intellectual property from a third party, we typically
      have
      contractual rights to require the licensor to adequately protect our
      intellectual property interests.  Nevertheless, we cannot guarantee
      that such measures will be sufficient to protect our interests.  Our
      Move Free Advanced product contains a key ingredient, the rights for which
      we
      license from a third-party supplier pursuant to a long-term supply and license
      agreement.  Our supplier has patents and patents pending relating to the
      key ingredient, and has granted us exclusive rights to market and sell the
      ingredient for joint care purposes in certain territories and classes of
      trade.  However, our supplier is currently in litigation with third parties
      alleging patent infringement in connection with the sale of the key ingredient
      by third parties in products similar to our Move Free Advanced product.  We
      cannot assure you that our supplier will prevail in such litigation or be
      successful in preventing third parties from selling the key ingredient in their
      competing products.  This could have a material adverse effect on our Move
      Free Advanced sales, results of operations and financial
      condition.  See “Item 1 – Business – Manufacturing and Product
      Quality” and “—
      Intellectual Property.”








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***Risks
        Associated with International Markets.*** Until the sale of our
        Weider branded business and Haleko Unit, we had significant international
        operations, with approximately 30% of our net sales for fiscal 2005 generated
        outside the United States.  Our international sales efforts are now
        comprised of selling products, particularly our joint care products, from
        the
        United States on an export basis to retail customers or distributors
        abroad.  Operating in international markets exposes us to certain
        risks, including, among others, difficulty in understanding and complying
        with
        foreign regulations, changes in or interpretations of foreign regulations
        that
        may further limit our ability to sell certain products or ingredients in
        certain
        countries, the potential imposition of trade or foreign exchange restrictions
        or
        increased tariffs, difficulties in enforcement of contractual obligations,
        difficulty in collecting international accounts receivable, potentially longer
        payment cycles, and political instability.  We are often required to
        reformulate our products before commencing distribution in a given
        country.  We must comply with various and changing local labeling,
        customs and other regulations.  Trademark rights are often difficult
        to obtain and enforce in countries outside the United States.  There
        is also no assurance that we will be able to obtain and retain the necessary
        permits and approvals required for our international efforts.  The
        importance of these and other risks relating to exporting goods to foreign
        countries increases as our export business grows and expands.  During
        fiscal 2007 and continuing into fiscal 2008, we are attempting to increase
        our
        distribution of joint care products in international markets.  Our
        inability to successfully launch and maintain sales (especially in the joint
        care category) outside of the United States while maintaining the integrity
        of
        the products sold and complying with local regulations could have a material
        adverse effect on our results of operations and financial
        condition.





***Inability
      to Launch******New Products and Product
      Enhancements*****.** We believe our ability to grow in
      existing markets is partially dependent upon our ability to introduce new and
      innovative products and product enhancements.  The development and
      commercialization process, particularly relating to innovative products, is
      both
      time-consuming and costly and involves a high degree of business
      risk.  Although we seek to introduce additional products each year,
      the success of new products or product enhancements is subject to a number
      of
      variables, including developing products that will appeal to customers,
      accurately anticipate consumer needs, be successfully commercialized in a timely
      manner, be priced competitively, be differentiated from those of our
      competitors, and comply with applicable regulations.  The inability to
      successfully implement marketing and spending programs or strategic initiatives
      in support of our branded products or product enhancements could have a material
      adverse effect on our results of operations and financial
      condition.  We cannot assure you that our efforts to develop and
      introduce new products or existing product innovations will be successful,
      or
      that customers will accept new products.  The failure to successfully
      launch or gain distribution for new product offerings or product enhancements
      could have a material adverse effect on our results of operations and financial
      condition.





***Product
      Liability******and
      Litigation*****.** As a manufacturer and distributor of
      products designed to be ingested, we face an inherent risk of exposure to
      product liability claims and litigation if our products are alleged to have
      caused significant loss or injury.  In addition, the manufacture and
      sale of our products involve the risk of injury to consumers due to tampering
      by
      unauthorized third parties or product contamination.  Our products
      consist of vitamins, minerals, herbs, and other ingredients that are classified
      as dietary supplements or foods, and generally are not subject to pre-market
      regulatory approval in the United States.  Some of our products
      contain ingredients that do not have long histories of human consumption, and
      may not have the effects intended.  Previously unknown adverse
      reactions resulting from human consumption of these, other of our ingredients,
      or combinations of ingredients could occur.  We have been, and in the
      future may be, subject to various product liability claims, including, among
      others, that our products caused injury or illness, that our products include
      inadequate instructions for use, or that our products include inadequate
      warnings concerning possible side effects or interactions with other
      substances.  A product liability claim against us could result in
      increased costs, could adversely affect our reputation with our customers and
      consumers, and could have a material adverse effect on our results of operations
      and financial condition.





We
      are party to various lawsuits that arise in the ordinary course of business
      and
      may become party to others.  While none of the lawsuits in which we
      are involved as of the date of this filing are reasonably believed to be
      material, it is possible that future litigation could arise, or that
      developments could occur in existing litigation, that could have a material
      adverse effect on our results of operations and financial
      condition.





***Insurance
      Coverage Limitations and
      Exclusions.*********We maintain insurance
      relating to the operation of our business, including, among other coverages,
      property, general and product liability, workers’ compensation, and directors’
and officers’ liability policies.  However, our insurance coverage is
      subject to large individual claim deductibles for certain policies, individual
      claim and aggregate policy limits, and other terms and conditions.  In
      addition, our current product liability coverage excludes claims relating to
      certain categories of products and products that contain certain
      ingredients.  Certain damages in litigation, such as punitive damages,
      also are generally not covered by insurance.  We cannot assure you
      that our insurance will be sufficient to cover our losses, that future insurance
      coverage will not contain additional exclusions or limitations, that we will
      be
      able to continue to obtain insurance coverage, or that insurance coverage will
      be available at an economically reasonable cost.  In the event that we
      do not have adequate or any insurance, product liability claims, litigation
      or
      other losses could have a material adverse effect on our results of operations
      and financial condition.





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***Impact
      of Government Regulation on Our
      Operations*****.** Our business operations,
      including the formulation, manufacturing, packaging, labeling, advertising,
      distribution and sale of our products, are subject to regulation by various
      foreign, federal, state and local government entities and agencies, particularly
      the FDA and FTC in the United States.  See “Item 1 - Business -
      Government Regulation.”  Failure to comply with applicable regulations
      could result in changes in product labeling, packaging, or advertising, product
      reformulations, additional recordkeeping requirements, injunctions, product
      withdrawals, recalls, product seizures, fines or criminal
      prosecution.  Any of these actions could have a material adverse
      effect on our results of operations and financial condition.  As a
      result of our efforts to comply with applicable statutes and regulations, from
      time to time we have reformulated, eliminated or relabeled certain of our
      products and revised certain aspects of our sales, marketing and advertising
      programs.  We cannot assure you that we will not have to make such
      changes or revisions in the future, which could have a material adverse effect
      on our results of operations and financial condition.





The
      FDA has
      recently published extensive GMP’s for dietary supplements.  See “Item
      1 - Business - Government Regulation.”  Based on our current number of
      employees, we are required to comply with the new GMP’s by May
      2009.  While we do not currently expect the incremental cost of
      compliance efforts to be material, we cannot assure you that, in complying
      with
      the new GMP requirements, we will not incur substantial costs that may have
      a
      material adverse effect on our results of operations and financial
      condition.





In
      markets outside the United States, before commencing operations or marketing
      our
      products, we may be required to obtain approvals, licenses or certifications
      from a country’s ministry of health or comparable agency.  Approvals
      or licensing may be conditioned on reformulation of products or may be
      unavailable with respect to certain products or product
      ingredients.  We must also comply with product labeling and packaging
      regulations that vary from country to country.  Furthermore, the
      regulations of these countries may conflict with those in the United States
      and
      with each other.  The cost of complying with these various and
      potentially conflicting regulations can be substantial and could have a material
      adverse affect on our results of operations and financial
      condition.





We
      may also be subject to additional laws or regulations administered by federal,
      state or foreign regulatory authorities, the repeal or amendment of laws or
      regulations which we consider favorable, such as DSHEA, or more stringent
      interpretations of current laws or regulations.  Additional or more
      stringent legislation and regulations regarding the nutritional supplement
      industry have been considered from time to time.  We are unable to
      predict the nature of such future laws, regulations, interpretations or
      applications, nor can we predict what effect additional governmental regulations
      or administrative orders, when and if promulgated, would have on our business
      in
      the future.  Any or all of these requirements and the related costs to
      comply with such requirements could have a material adverse effect on our
      results of operations and financial condition.





***Possibility
      of Product Recalls.*** Manufacturers and distributors of products in
      our industry are sometimes subject to the recall of their products for a variety
      of reasons, including product defects, such as ingredient contamination,
      packaging safety and inadequate or inaccurate labeling disclosure.  If
      any of our products are recalled due to a product defect or for any other
      reason, we could be required to incur the unexpected expense of the recall
      and
      any legal proceedings that might arise in connection with the
      recall.  In addition, a product recall may require significant
      management attention.  We acquire all of our raw materials for the
      manufacture of our products from third parties.  Although we have
      procedures in place for testing raw materials used in our products, we cannot
      assure you that any quality, potency or contamination problems will be detected
      in time to avoid unforeseen product recalls or lawsuits.  There can be
      no assurance that we would be able to recover these expenses from our
      suppliers.  Additionally, if one of our significant brands were
      subject to recall, the image of that brand and our company could be
      harmed.  A recall for any of the foregoing reasons could lead to
      decreased demand for our products and could have a material adverse effect
      on
      our results of operations and financial condition.





***Dependence
      on Single Manufacturing Facility.***We manufacture most of our
      products at our manufacturing facility in Salt Lake City,
      Utah.  Accordingly, we are highly dependent on the uninterrupted and
      efficient operation of our manufacturing facility.  Power failures,
      the breakdown, failure or substandard performance of equipment, the improper
      installation or operation of equipment, workforce disruptions, natural or other
      disasters, or the failure to comply with laws or regulations or the requirements
      or directives of government agencies, including the FDA, could disrupt our
      operations and have a material adverse effect on our results of operations
      and
      financial condition.  While we do carry business


interruption
      insurance, we cannot assure you that our coverage will be sufficient to cover
      losses from these types of business disruptions or that this insurance will
      continue to be available to us at an acceptable price, if at all.





***Inability
      to Consummate Successful
      A******c******quisitions and
      Investments.***An element of our strategy includes expanding our
      product offerings, enhancing business development and gaining access to new
      skills and other resources through strategic acquisitions and investments when
      attractive opportunities arise.  We cannot assure you that attractive
acquisition
      opportunities will be available to us, that we will be able to obtain financing
      for or otherwise consummate any acquisitions or that any acquisitions which
      are
      consummated will prove to be successful.





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***Dependence
      Upon Information Technology Systems.***Our success is dependent on
      the accuracy, reliability and proper use of sophisticated and dependable
      information processing systems and management information
      technology.  Our information technology systems are designed and
      selected in order to facilitate order entry and customer billing, maintain
      customer records, accurately track purchases, manage accounting, finance and
      manufacturing operations, generate reports, and provide customer service and
      technical support.  Although off-site data back-up is maintained, an
      interruption in these systems could have a material adverse effect on our
      results of operations and financial condition.





***Control
      by Principal Stockholder*****.** WHF owns all of our
      outstanding shares of Class B common stock, representing over 90% of the
      aggregate voting power of all outstanding shares of our common
      stock.  Three of our directors also serve on the board of directors of
      WHF. WHF is in a position to exercise control over us and to determine the
      outcome of all matters required to be submitted to stockholders for approval
      (except as otherwise provided by law or by our amended and restated certificate
      of incorporation or amended and restated bylaws) and otherwise to direct and
      control our operations.  Accordingly, we cannot engage in any
      strategic transactions without the approval of WHF.








**ITEM
                1B.**
            **UNRESOLVED
                STAFF COMMENTS**





We
      do not have any unresolved comments from the SEC staff.





**ITEM
                2.**
            **PROPERTIES**





At
      May 31, 2007, we leased the following facility:


**Location**
            
            **Function**
            
            **Approximate**
              **Square
                Feet**
            
            **Expiration**
              **Date
                of Lease**Salt
                Lake
                City, UT
            
            Company
                Headquarters, Manufacturing & Production, Warehouse &
                Distribution
            
            418,000
            
            March
                2013





We
      believe that this facility is adequate to meet our current needs.





**ITEM
                3.**
            **LEGAL
                PROCEEDINGS**





From
      time to time,
      we are involved in claims, legal actions and governmental proceedings that
      arise
      from our business operations.  Although ultimate liability cannot be
      determined at the present time, based on available information, we do not
      believe the resolution of these matters will have a material adverse effect
      on
      our results of operations and financial condition.  However, it is possible
      that future litigation could arise, or that developments could occur in existing
      litigation, that could have a material adverse effect on our results of
      operations and financial condition.





**ITEM
                4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





We
      did not submit any matters to the vote of security holders during the fiscal
      2007 fourth quarter.








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**PART
      II**





**ITEM
                5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY
                SECURITIES**





Our
      Class A common
      stock is traded on the New York Stock Exchange under the symbol
“WNI.”  The high and low closing prices of our Class A common stock
      for each quarter of fiscal 2007 and 2006 are set forth below:





**Fiscal
                Year Ended May 31, 2007:**
            
            **High**
            
            
            **Low**First
                Quarter
            
            $
            7.75
            
            
            $
            6.42Second
                Quarter
            
            
            7.11
            
            
            
            6.01Third
                Quarter
            
            
            6.90
            
            
            
            6.12Fourth
                Quarter
            
            
            7.09
            
            
            
            6.41





**Fiscal
                Year Ended May 31, 2006:**
            
            **High**
            
            
            **Low**First
                Quarter
            
            $
            5.16
            
            
            $
            3.98Second
                Quarter
            
            
            6.00
            
            
            
            4.45Third
                Quarter
            
            
            5.35
            
            
            
            4.40Fourth
                Quarter
            
            
            7.80
            
            
            
            5.03




There
      is no active
      trading market for our Class B common stock, which is owned entirely by
      WHF.




In
      July 2007, our Board of Directors approved a $1.50 per share special cash
      dividend, which was paid on August 13, 2007 to shareholders of record at the
      close of business on July 31, 2007.  In connection with the
      declaration of the special dividend, the Board of Directors approved certain
      dividend equivalent rights, allowing holders of other equity awards, including
      stock options and restricted stock units, to receive dividend equivalents in
      the
      form of cash on each share underlying the stock options and restricted stock
      units.  In aggregate, at July 31, 2007, the record date, the company
      had approximately 29.9 million common shares (or common share equivalents)
      outstanding, including approximately 26.6 million shares of outstanding Class
      A
      and Class B common stock, approximately 1.8 million shares of Class A common
      stock underlying outstanding stock options and approximately 1.5 million shares
      of Class A common stock underlying outstanding restricted stock
      units.  The aggregate amount of the special dividend is approximately
      $44.9 million, presuming 100 percent vesting of shares underlying stock awards
      (54 percent vested as of July 31, 2007).  To the extent outstanding
      stock options and restricted stock units were unvested at July 31, 2007, the
      $1.50 per share dividend was not, and will not be, distributed until after
      such
      equity awards become vested.





Our
      Board of
      Directors will determine dividend policy in the future based upon, among other
      factors, our results of operations, financial condition, contractual
      restrictions and other factors deemed relevant at the time.  In
      addition, our credit facility contains certain customary financial covenants
      that may limit our ability to pay dividends on our common stock.  See
      Note 12 of the Notes to Consolidated Financial Statements.  We can
      give no assurance that we will pay dividends in the future.





The
      closing price
      of our Class A common stock on August 23, 2007 was $5.46.  The
      approximate number of stockholders of record of our Class A common stock on
      August 23, 2007 was 335.  WHF owns all of the 14,973,148 outstanding
      shares of our Class B common stock.





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The
      following table
      presents information about our Class A common stock that may be issued upon
      the
      exercise of options, warrants and rights under existing equity compensation
      plans at May 31, 2007:





**Plan
                category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))****(a)**
            
            **(b)**
            
            **(c)**Equity
                compensation plans approved by security holders
            
            3,280,611**(1)**
            
            $2.77**(1)**
            
            694,878Equity
                compensation plans not approved by security holders
            
            —
            
            —
            
            —Total
            
            3,280,611
            
            $2.77
            
            694,878





***(1)**The number of securities to be issued upon exercise of
      outstanding options, warrants and rights includes 1,453,960 shares of restricted
      stock units, which are excluded in determining the weighted-average exercise
      price of outstanding options, warrants and rights.*





We
      did not repurchase any of our Class A common stock during the fiscal 2007 fourth
      quarter.








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**ITEM
                6.**
            **SELECTED
                CONSOLIDATED FINANCIAL AND OPERATING
                DATA**





The
      following
      selected consolidated financial data as of and for the fiscal years ended May
      31, 2003 through May 31, 2007, have been derived from our consolidated financial
      statements.  The balance sheet data as of May 31, 2006 and 2007, and
      the related operating statement data for the fiscal years ended May 31, 2005
      through 2007 have been audited by Deloitte & Touche LLP, our independent
      auditors.  The financial data should be read in conjunction with the
      consolidated financial statements and notes thereto, included elsewhere in
      this
      Annual Report on Form
      10-K.  See****“Item****7****-
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.”





**Fiscal
                Year Ended May 31,****2003**
            
            
            **2004**
            
            
            **2005**
            
            
            **2006**
            
            
            **2007****Operating
                Statement Data (1), (2), (3) and (4):**
            
            *(in
                thousands, except per share data)*Net
                sales
            
            $
            158,014
            
            
            $
            168,127
            
            
            $
            173,095
            
            
            $
            178,372
            
            
            $
            172,656Cost
                of goods
                sold
            
            
            101,011
            
            
            
            107,472
            
            
            
            113,351
            
            
            
            119,303
            
            
            
            103,959Gross
                profit
            
            
            57,003
            
            
            
            60,655
            
            
            
            59,744
            
            
            
            59,069
            
            
            
            68,697Operating
                expenses
            
            
            41,948
            
            
            
            46,733
            
            
            
            44,981
            
            
            
            46,693
            
            
            
            51,415Reimbursement
                of import costs
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,665
            )
            
            
            (394
            )Total
                operating expenses
            
            
            41,948
            
            
            
            46,733
            
            
            
            44,981
            
            
            
            44,028
            
            
            
            51,021Income
                from
                operations
            
            
            15,055
            
            
            
            13,922
            
            
            
            14,763
            
            
            
            15,041
            
            
            
            17,676Other
                income
                (expense):Interest,
                net
            
            
            (2,872
            )
            
            
            (168
            )
            
            
            179
            
            
            
            1,840
            
            
            
            2,943Foreign
                currency translation gain
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,613
            
            
            
            —Other,
                net
            
            
            (367
            )
            
            
            72
            
            
            
            (135
            )
            
            
            (135
            )
            
            
            (8
            )Total
                other
                income (expense), net
            
            
            (3,239
            )
            
            
            (96
            )
            
            
            44
            
            
            
            3,318
            
            
            
            2,935Income
                from
                continuing operations before income taxes
            
            
            11,816
            
            
            
            13,826
            
            
            
            14,807
            
            
            
            18,359
            
            
            
            20,611Income
                tax
                expense
            
            
            4,669
            
            
            
            5,230
            
            
            
            2,751
            
            
            
            2,393
            
            
            
            8,175Income
                from
                continuing operations
            
            
            7,147
            
            
            
            8,596
            
            
            
            12,056
            
            
            
            15,966
            
            
            
            12,436Income
                (loss)
                from discontinued operations, net of income taxes (2), (3) and
                (4)
            
            
            711
            
            
            
            291
            
            
            
            (5,487
            )
            
            
            (127
            )
            
            
            —Income
                before
                cumulative effect of change in accounting principle
            
            
            7,858
            
            
            
            8,887
            
            
            
            6,569
            
            
            
            15,839
            
            
            
            12,436Cumulative
                effect of change in accounting principle, net of income tax benefit
                (5)
            
            
            (15,392
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
                income
                (loss)
            
            $
            (7,534
            )
            
            $
            8,887
            
            
            $
            6,569
            
            
            $
            15,839
            
            
            $
            12,436Weighted
                average shares outstanding:Basic
            
            
            26,249
            
            
            
            25,874
            
            
            
            25,817
            
            
            
            26,274
            
            
            
            26,532Diluted
            
            
            26,249
            
            
            
            26,771
            
            
            
            26,418
            
            
            
            26,999
            
            
            
            27,343Net
                income
                (loss) per share:Basic
            
            $
            (0.29
            )
            
            $
            0.34
            
            
            $
            0.25
            
            
            $
            0.60
            
            
            $
            0.47Diluted
            
            $
            (0.29
            )
            
            $
            0.33
            
            
            $
            0.25
            
            
            $
            0.59
            
            
            $
            0.45





**At
                May 31,****2003**
            
            
            **2004**
            
            
            **2005**
            
            
            **2006**
            
            
            **2007****Balance
                Sheet Data (1), (2), (3), (4) and (5):**
            
            *(in
                thousands)*Cash
                and cash
                equivalents
            
            $
            3,463
            
            
            $
            7,449
            
            
            $
            11,358
            
            
            $
            24,899
            
            
            $
            34,463Working
                capital
            
            
            25,959
            
            
            
            46,456
            
            
            
            66,012
            
            
            
            90,516
            
            
            
            104,869Total
                assets
            
            
            114,938
            
            
            
            114,924
            
            
            
            128,266
            
            
            
            131,615
            
            
            
            145,079Total
                debt
            
            
            8,716
            
            
            
            1,224
            
            
            
            3,020
            
            
            
            —
            
            
            
            —Total
                stockholders’ equity
            
            
            68,846
            
            
            
            75,813
            
            
            
            89,835
            
            
            
            107,507
            
            
            
            124,095










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(1)
            Effective
                July 26, 2002, we sold substantially all assets and certain associated
                liabilities relating to our American Body Building and Science Foods
                brands.


(2)
            Effective
                May
                1, 2003, we sold substantially all of the assets relating to our
                Venice
                Beach brand.  In accordance with SFAS No. 144, the Venice Beach
                operating results for fiscal 2003 are reflected as discontinued
                operations.





(3)
            Effective
                March 1, 2005, we sold certain assets of our Active Nutrition Unit
                relating to our Weider branded business.  In accordance with
                SFAS No. 144, fiscal years 2003, 2004 and 2005 have been restated
                to
                reflect the Weider branded business operating results as discontinued
                operations.  See Note 2 of the Notes to Consolidated Financial
                Statements.





(4)
            Effective
                May
                1, 2005, we sold our Haleko Unit.  In accordance with SFAS No.
                144, fiscal years 2003, 2004 and 2005 have been restated to reflect
                the
                Haleko Unit operating results as discontinued operations.  See
                Note 2 of the Notes to Consolidated Financial
                Statements.





(5)
            Effective
                June 1, 2002, we adopted SFAS No. 142, which establishes accounting
                and
                reporting standards for goodwill and other intangible
                assets.  As a result of adopting SFAS No. 142, we recognized an
                after-tax goodwill impairment loss of approximately $15.4
                million.





**ITEM
                7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**





*The
      following
      discussion and analysis should be read in conjunction with the consolidated
      financial statements, including the notes thereto, appearing elsewhere in this
      Annual Report on Form 10-K.*





**Overview**





Schiff
      Nutrition
      International, Inc. develops, manufactures, markets and distributes branded
      and
      private label vitamins, nutritional supplements and nutrition bars in the United
      States and throughout the world.  We offer a broad range of capsules,
      tablets and nutrition bars.  Our portfolio of recognized brands,
      including Schiff and Tiger’s Milk, is marketed primarily through the mass market
      (including club) and, to a lesser extent, health food store distribution
      channels.





Prior
      to fiscal
      2006, we were organized into three business units: the Schiff Specialty Unit,
      the Active Nutrition Unit and the Haleko Unit.  The business units
      generally were managed independently, each with its own sales and marketing
      resources, and supported by common product research and development, operations
      and technical services and administrative functions.  The Schiff
      Specialty Unit included the Schiff brand, as well as private label (contract
      manufacturing) business limited to customers that otherwise carry our
      products.  The Active Nutrition Unit included our Weider branded
      global business and the Tiger's Milk brand.  The Haleko Unit, our
      primary European operations, included the Multipower and Multaben nutritional
      supplement brands and private label businesses.





On
      June 17, 2005, we announced the sale of our Haleko Unit to Atlantic Grupa of
      Zagreb, Croatia and certain of its subsidiaries for approximately $15.1 million
      in cash.  The transaction included the sale of the capital stock and
      partnership interests of the international subsidiaries that operate the Haleko
      Unit.  The transaction closed on June 17, 2005, with an effective date
      of May 1, 2005 (the first day of Haleko’s fiscal year 2006).





On
      April 1, 2005, we announced the sale of certain assets of our Active Nutrition
      Unit relating to our Weider branded business domestically and internationally
      to
      Weider Global Nutrition, LLC (“WGN”), a wholly-owned subsidiary of Weider Health
      and Fitness (“WHF”), a privately held company headquartered in California and
      our majority stockholder.  The terms of the transaction provided for a
      cash payment of approximately $12.9 million and a note receivable of $1.1
      million in exchange for assets relating to our domestic Weider branded business,
      including inventory, receivables, and intangible and intellectual property,
      the
      capital stock of certain of our international subsidiaries related to our
      international Weider branded business (including the working capital of those
      subsidiaries), and the assumption of certain associated liabilities by WGN.
      The
      transaction closed on April 1, 2005, with an effective date of March 1,
      2005.





In
      connection with the sale of the Weider branded business, we also entered into
      two separate agreements (domestic and European) whereby we agreed to provide
      certain general and administrative, research and development, and logistics
      services to WGN for an annual fee.  The domestic service agreement
      provided for a one year term, with an option to either party to extend the
      term
      for one additional year.  The parties exercised this option for the
      second year and have further extended the term of the agreement through March
      1,
      2008.  In connection with the sale of our Haleko Unit, the European
      service agreement was transferred to the purchaser of the Haleko
      Unit.  We also received a license to use the Weider name for corporate
      purposes prior to transitioning to the new name for our company.





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Historical
      operating results for the Haleko Unit and Weider branded business are reflected
      as discontinued operations in our consolidated financial statements, including
      the notes thereto, for all periods presented.  The remaining assets
      and related operations for the Active Nutrition Unit, including our Tiger's
      Milk
      and Fi-Bar brands, were consolidated into our Schiff Specialty
      Unit.  We believe our remaining business, which consists of the
      aggregation of several product-based operating segments, represents our only
      reportable segment.





During
      fiscal 2005,
      2006 and 2007, we continued to provide selling and marketing support intended
      both to defend our Move Free business against competition, including private
      label, and ultimately to increase our market share in the joint care product
      category.  During fiscal 2005, we launched our Lubriflex3TMproduct
      and
      supported the introduction with significant selling and marketing
      support.  During fiscal 2006 and 2007, our primary initiative was the
      introduction of our Move Free Advanced product.  We began implementing
      the Move Free Advanced initiative during the latter part of the fiscal 2006
      second quarter.  The introduction of Move Free Advanced into
      substantially all of our significant retail accounts continued during the second
      half of fiscal 2006 and was completed during the first half of fiscal
      2007.  In conjunction with the introduction of Move Free Advanced, we
      provided incremental selling and marketing support during the second half of
      fiscal 2006 and through fiscal 2007.  We believe the Move Free
      Advanced initiative positively impacted fiscal 2006 and 2007 Move Free net
      sales.  During fiscal 2007 and continuing into fiscal 2008, we are
      attempting to increase our distribution of joint care products in international
      markets.  Subject to the impact of Move Free Advanced marketing
      initiatives and competitive joint care category pricing pressures, including
      private label, and the success of increasing our distribution in international
      markets, we believe our overall fiscal 2008 net sales will remain relatively
      constant, as compared to fiscal 2007 net sales.  We believe any
      incremental sales volume in fiscal 2008 may be offset by incremental promotional
      activity.





Our
      operating
      results for fiscal 2005, 2006 and 2007 were impacted by margin volatility due
      to
      several factors, including significant raw material pricing fluctuations,
      particularly in the joint care category, a strong competitive environment and
      the implementation of our Schiff Move Free Advanced
      initiative.  During fiscal 2006, joint care category raw material
      prices, which increased significantly during fiscal 2005, returned to pre-fiscal
      2005 levels.  However, our gross profit throughout fiscal 2006 and
      2007 was impacted by previous raw material purchase
      commitments.  During fiscal 2005 and early fiscal 2006, as a result of
      significant volatility in raw material costs and the inability to secure an
      acceptable price increase from customers, we discontinued certain private label
      (contract manufacturing) business.





Our
      operating
      results for fiscal 2006 and 2007, respectively, were favorably impacted by
      approximately $2.7 million and $0.4 million in reimbursement of import costs
      from certain suppliers.  These reimbursements, resulting primarily
      from the favorable outcome of litigation between one of our suppliers and the
      U.S. Government, represent refunds of previously paid tariffs on imported raw
      materials.





Factors
      affecting
      our historical results, including the previous implementation of strategic
      initiatives as well as continuing refinement of our growth and business
      strategies, are ongoing considerations and processes.  While the focus
      of these considerations is to improve future profitability, we cannot assure
      you
      that our decisions relating to these initiatives will not adversely impact
      our
      results of operations and financial condition.





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**Results
      of
      Operations**


*Fiscal
      2007
      Compared to Fiscal 2006*





The
      following
      tables show comparative results for selected items as reported and as a
      percentage of net sales for fiscal 2007 and 2006, *(dollars in
      thousands):*





**2007**
            
            
            **2006**Net
                sales
            
            $
            172,656
            
            
            
            100.0
            %
            
            $
            178,372
            
            
            
            100.0
            %Cost
                of goods
                sold
            
            
            103,959
            
            
            
            60.2
            
            
            
            119,303
            
            
            
            66.9Gross
                profit
            
            
            68,697
            
            
            
            39.8
            
            
            
            59,069
            
            
            
            33.1Operating
                expenses:Selling
                and
                marketing
            
            
            32,031
            
            
            
            18.6
            
            
            
            28,957
            
            
            
            16.3General
                and
                administrative
            
            
            15,698
            
            
            
            9.1
            
            
            
            14,863
            
            
            
            8.3Research
                and
                development
            
            
            3,686
            
            
            
            2.1
            
            
            
            2,851
            
            
            
            1.6Amortization
                of intangible assets
            
            
            —
            
            
            
            —
            
            
            
            22
            
            
            
            —Reimbursement
                of import costs
            
            
            (394
            )
            
            
            (0.2
            )
            
            
            (2,665
            )
            
            
            (1.5
            )Total
                operating expenses
            
            
            51,021
            
            
            
            29.6
            
            
            
            44,028
            
            
            
            24.7Income
                from
                operations
            
            
            17,676
            
            
            
            10.2
            
            
            
            15,041
            
            
            
            8.4Other
                income,
                net
            
            
            2,935
            
            
            
            1.7
            
            
            
            3,318
            
            
            
            1.9Income
                tax
                expense
            
            
            (8,175
            )
            
            
            (4.7
            )
            
            
            (2,393
            )
            
            
            (1.3
            )Income
                from
                continuing operations
            
            $
            12,436
            
            
            
            7.2
            %
            
            $
            15,966
            
            
            
            9.0
            %





**Net
      Sales.**Net sales decreased approximately 3.2% to $172.7 million for fiscal
      2007, from $178.4 million for fiscal 2006, primarily due to a decrease in
      aggregate branded net sales, principally in our joint care category, which
      was
      partially offset by an increase in private label sales volume.





Aggregate
      branded
      net sales decreased approximately 6.3% to $136.0 million for fiscal 2007, from
      $145.2 million for fiscal 2006.  The decrease primarily resulted from
      an approximate $5.9 million increase in sales price reductions related to
      incremental promotional incentives for our branded joint care products, coupled
      with a modest 1.8% decrease in sales volume, or approximately $3.3
      million.  Classification of certain promotional costs as a sales
      reduction is required when the promotion effectively represents a price
      reduction.  We are utilizing more price-discount like promotions due
      to increased competition, including from private label, and to support and
      ultimately increase our market share.  We expect this increased
      competition to continue in fiscal 2008.  Move Free net sales decreased
      to $83.8 million for fiscal 2007, from $86.2 million for fiscal
      2006.  An approximate $2.5 million increase in sales volume and a $1.3
      million decrease in allowances for product returns, was more than offset by
      approximately $6.2 million in incremental promotional incentives, or
      price-discount like sales reductions.





Private
      label sales
      increased approximately 10.4% to $36.6 million for fiscal 2007, from $33.2
      million for fiscal 2006, primarily due to an increase in sales volume resulting
      from securing incremental private label business in the latter part of fiscal
      2006 and the early part of fiscal 2007.





**Gross
      Profit.**Gross profit increased approximately 16.3% to $68.7 million for
      fiscal 2007, from $59.1 million for fiscal 2006.  Gross profit, as a
      percentage of net sales, was 39.8% and 33.1%, respectively, for fiscal 2007
      and
      2006.  The increase in gross profit was primarily due to an
      approximate $19.0 million decrease in joint care raw material costs, partially
      offset by the $5.9 million increase in sales price reductions related to
      incremental promotional incentives.  Gross profit was also negatively
      impacted by an overall decrease in sales volume and a higher mix of lower-margin
      private label sales.





**Operating
      Expenses.**Operating expenses increased approximately 15.9% to $51.0
      million for fiscal 2007, from $44.0 million for fiscal
      2006.  Operating expenses, as a percentage of net sales, were 29.6%
      and 24.7%, respectively, for fiscal 2007 and 2006.  The increase
      in operating expenses resulted primarily from a significant increase in selling
      and marketing expenses, modest increases in general and administrative and
      research and development expenses, and an approximate $2.3 million reduction
      in
      reimbursement of import costs.








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Selling
        and
        marketing expenses, including sales, marketing, advertising, freight and
        other
        costs, increased to $32.0 million for fiscal 2007, from $29.0 million for
        fiscal
        2006.  Selling and marketing expenses, as a percentage of net sales,
        were 18.6% and 16.3%, respectively, for fiscal 2007 and 2006.  The
        increase in selling and marketing expenses resulted primarily from an
        approximate $1.5 million increase in advertising support for Move Free Advanced,
        an approximate $0.6 million increase in freight expense and an approximate
        $0.7
        million increase in personnel related costs primarily due to the adoption
        of a
        long-term management incentive plan involving the grant of performanced based
        restricted stock units (see Note 11 of Notes to Consolidated Financial
        Statements).





General
      and
      administrative expenses increased to $15.7 million for fiscal 2007, from $14.9
      million for fiscal 2006, primarily due to an increase in personnel related
      costs
      of approximately $2.1 million, substantially offset by litigation settlements
      resulting in the reversal of approximately $0.6 million in contingent
      liabilities and the recognition of approximately $1.0 million in reimbursements
      of certain insurance premiums and other expenses incurred in prior fiscal
      years.  The increase in personnel related costs includes approximately
      $2.4 million resulting from the adoption of a long-term management incentive
      plan involving the grant of performanced based restricted stock units (see
      Note
      11 of Notes to Consolidated Financial Statements) and the recognition of
      incremental stock-based compensation expense of approximately $0.2 million
      due
      to the impact of adopting SFAS No. 123R effective March 1, 2006, partially
      offset by an approximate $0.4 million decrease in severance
      expense.





Research
      and
      development costs increased to approximately $3.7 million for fiscal 2007,
      from
      $2.9 million for fiscal 2006, resulting primarily from an increase in personnel
      related expenses and expenses associated with product research.





**Other
      Income/Expense.**Other income, net, was $2.9 million for fiscal 2007,
      compared to a $3.3 million for fiscal 2006.  Interest income increased
      by approximately $1.1 million in fiscal 2007, resulting primarily from an
      increase in cash and available-for-sale securities.  As a result of
      the divestiture of our Haleko Unit, certain international operating entities
      were substantially liquidated.  Accordingly, an approximate $1.6
      million non-taxable net foreign currency translation gain, previously reported
      as other accumulated comprehensive income in stockholders’ equity, was
      recognized during fiscal 2006.





**Provision
      for Income Taxes.**Provision for income taxes was $8.2 million for
      fiscal 2007, compared to $2.4 million for fiscal 2006.  The fiscal
      2006 first quarter sale of our Haleko Unit resulted in the recognition of a
      gain
      under Internal Revenue Service Code Section 987 (“Section 987”).  We
      reduced our estimated deferred tax liability for Section 987 obligations by
      approximately $1.5 million, which is reflected as a decrease in income tax
      expense for fiscal 2006.  In addition, we reduced certain valuation
      allowances and contingent tax liabilities by approximately $3.7 million during
      fiscal 2006.  During the fiscal 2007 fourth quarter, we recognized
      approximately $0.8 million in incremental net tax liabilities resulting from
      the
      impact of recapturing certain previously recognized tax losses, partially offset
      by further adjustment of the Section 987 gain and valuation allowances, and
      the
      reduction of certain contingent tax liabilities.  As a result of the
      more favorable impact of unusual items during fiscal 2006, and the favorable
      impact of the non-taxable net foreign currency translation gain (see “Other
      Income/Expense” above), our effective tax rate for fiscal 2007 was substantially
      greater than the effective tax rate for fiscal 2006.  Our effective
      tax rate was 39.7% for fiscal 2007, compared to 13.0% for fiscal
      2006.





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**Results
      of
      Operations**


*Fiscal
      2006
      Compared to Fiscal 2005*





The
      following
      tables show comparative results for selected items as reported and as a
      percentage of net sales for fiscal 2006 and 2005, *(dollars in
      thousands):*




**2006**
            
            
            **2005**Net
                sales
            
            $
            178,372
            
            
            
            100.0
            %
            
            $
            173,095
            
            
            
            100.0
            %Cost
                of goods
                sold
            
            
            119,303
            
            
            
            66.9
            
            
            
            113,351
            
            
            
            65.5Gross
                profit
            
            
            59,069
            
            
            
            33.1
            
            
            
            59,744
            
            
            
            34.5Operating
                expenses:Selling
                and
                marketing
            
            
            28,957
            
            
            
            16.3
            
            
            
            27,750
            
            
            
            16.0General
                and
                administrative
            
            
            14,863
            
            
            
            8.3
            
            
            
            13,956
            
            
            
            8.1Research
                and
                development
            
            
            2,851
            
            
            
            1.6
            
            
            
            3,245
            
            
            
            1.9Amortization
                of intangible assets
            
            
            22
            
            
            
            —
            
            
            
            30
            
            
            
            —Reimbursement
                of import costs
            
            
            (2,665
            )
            
            
            (1.5
            )
            
            
            —
            
            
            
            —Total
                operating expenses
            
            
            44,028
            
            
            
            24.7
            
            
            
            44,981
            
            
            
            26.0Income
                from
                operations
            
            
            15,041
            
            
            
            8.4
            
            
            
            14,763
            
            
            
            8.5Other
                income,
                net
            
            
            3,318
            
            
            
            1.9
            
            
            
            44
            
            
            
            —Income
                tax
                expense
            
            
            (2,393
            )
            
            
            (1.3
            )
            
            
            (2,751
            )
            
            
            (1.6
            )Income
                from
                continuing operations
            
            $
            15,966
            
            
            
            9.0
            %
            
            $
            12,056
            
            
            
            6.9
            %





**Net
      Sales.**Net sales increased approximately 3.0% to $178.4 million for fiscal
      2006, from $173.1 million for fiscal 2005, primarily due to an increase in
      aggregate branded net sales volume, principally in our joint care category,
      which was substantially offset by an expected decrease in private label sales
      volume.





Aggregate
      branded
      net sales increased approximately 16.3% to $145.2 million for fiscal 2006,
      from
      $124.9 million for fiscal 2005.  Branded joint care product sales
      volume increased approximately $27.0 million, or 21.1%, which more than offset
      a
      $7.2 million increase in sales price reductions related to incremental
      promotional incentives and a $0.6 million increase in allowances for potential
      product returns associated with branded sales.  Classification of
      certain promotional costs as a sales reduction is required when the promotion
      effectively represents a price reduction.  We are utilizing more
      price-discount like promotions due to increased competition, including from
      private label, and to support and ultimately increase our market
      share.  Move Free net sales increased to $86.2 million for fiscal
      2006, from $68.9 million for fiscal 2005, primarily due to increased sales
      volume, as prices remained relatively stable.





Private
      label sales
      were $33.2 million and $48.2 million, respectively, for fiscal 2006 and
      2005.  During fiscal 2005 and early fiscal 2006, as a result of
      significant volatility in raw material costing and the inability to secure
      an
      acceptable price increase from customers, we discontinued certain private label
      (contract manufacturing) business.  Net sales for the discontinued
      private label business amounted to approximately $1.7 million and $22.6 million,
      respectively, for fiscal 2006 and 2005.  This decrease was partially
      offset by a sales volume increase in our remaining private label business and
      the securing of incremental private label business during the latter part of
      fiscal 2006.





**Gross
      Profit.**Gross profit decreased approximately 1.1% to $59.1 million for
      fiscal 2006, from $59.7 million for fiscal 2005.  Gross profit, as a
      percentage of net sales, was 33.1% and 34.5%, respectively, for fiscal 2006
      and
      2005.  The decrease in gross profit was primarily due to an
      approximate $10.0 million increase in joint care raw material costs and the
      approximate $7.2 million increase in sales price reductions related to
      incremental promotional incentives.  The decrease in gross profit was
      substantially offset by an overall increase in sales volume, including a
      significant increase in higher-margin branded sales.





**Operating
      Expenses.**Operating expenses decreased approximately 2.1% to $44.0
      million for fiscal 2006, from $45.0 million for fiscal
      2005.  Operating expenses, as a percentage of net sales, were 24.7%
      and 26.0%, respectively, for fiscal 2006 and 2005.  This decrease in
      operating expenses resulted primarily from the fiscal 2006 inclusion of
      approximately $2.7 million in reimbursement of import costs from certain
      suppliers, partially offset by modest increases in selling and marketing
      expenses and general and administrative expenses.








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Selling
        and
        marketing expenses, including sales, marketing, advertising, freight and
        other
        costs, increased to $29.0 million for fiscal 2006, from $27.8 million for
        fiscal
        2005.  Selling and marketing expenses, as a percentage of net sales,
        were 16.3% and 16.0%, respectively, for fiscal 2006 and 2005.  The
        increase in selling and marketing expenses resulted primarily from an increase
        in advertising and other marketing expenses in support of our fiscal 2006
        introduction of Move Free Advanced, partially offset by a change in the
        allocation of certain personnel related costs from selling and marketing
        expenses to general and administrative expenses, subsequent to the sale of
        our
        Haleko Unit.





General
      and
      administrative expenses increased to $14.9 million for fiscal 2006, from $14.0
      million for fiscal 2005, primarily due to an increase in personnel related
      costs
      of approximately $1.7 million, including severance expense of approximately
      $0.4
      million, recognition of incremental stock-based compensation expense of
      approximately $0.6 million, including the impact of adopting SFAS No. 123R
      effective March 1, 2006, and the change in allocation of certain personnel
      related costs from selling and marketing expenses to general and administrative
      expenses, subsequent to the sale of our Haleko Unit.  These increases
      were partially offset by a reduction in legal related costs during fiscal
      2006.





Research
      and
      development costs decreased to approximately $2.9 million for fiscal 2006,
      from
      $3.2 million for fiscal 2005, resulting primarily from a decrease in contracted
      research relating to new product initiatives.





**Other
      Income/Expense.**Other income, net, was $3.3 million for fiscal 2006,
      compared to a nominal amount for fiscal 2005.  Interest income
      increased by approximately $1.6 million in fiscal 2006, resulting primarily
      from
      an increase in cash and available-for-sale securities.  As a result of
      the divestiture of our Haleko Unit, certain international operating entities
      were substantially liquidated.  Accordingly, during fiscal 2006, we
      recognized an approximate $1.6 million non-taxable net foreign currency
      translation gain, previously reported as other accumulated comprehensive income
      in stockholders’ equity.





**Provision
      for Income Taxes.**Provision for income taxes was $2.4 million for
      fiscal 2006, compared to $2.8 million for fiscal 2005.  The fiscal
      2006 first quarter sale of our Haleko Unit resulted in the recognition of a
      gain
      under Section 987.  We reduced our estimated deferred tax liability
      for Section 987 obligations by approximately $1.5 million, which is reflected
      as
      a decrease in income tax expense for fiscal 2006.  In addition, we
      reduced certain valuation allowances and contingent tax liabilities by
      approximately $3.7 million during fiscal 2006.  As a result of these
      unusual items, the favorable impact of the non-taxable net foreign currency
      translation gain (see “Other Income/Expense” above) and incremental tax-exempt
      interest income, our effective tax rate was 13.0% for fiscal 2006, compared
      to
      18.6% for fiscal 2005.





**Liquidity
      and Capital Resources**





Working
      capital
      increased $14.4 million to approximately $104.9 million at May 31, 2007, from
      $90.5 million at May 31, 2006, primarily due to an increase in liquid
      assets.  Cash and cash equivalents increased $9.6 million and
      available-for-sale securities increased $5.7 million, primarily resulting from
      positive operating cash flows for fiscal 2007.  Net receivables
      decreased by approximately $2.7 million, primarily due to a decrease in net
      sales for May of fiscal 2007, compared to May of fiscal
      2006.  Accounts payable decreased by approximately $2.6 million,
      primarily resulting from lower joint care category raw material quantities
      and
      costs.  Overall, cash provided by operating activities was $18.9
      million for fiscal 2007.





On
      June 30, 2004, we entered into, through our wholly-owned direct operating
      subsidiary Schiff Nutrition Group, Inc. (“SNG”) (formerly Weider Nutrition
      Group, Inc.), a $25.0 million revolving credit facility (the “Credit Facility”)
      with KeyBank National Association, as Agent.  In August 2006 we
      extended the maturity of the Credit Facility from June 30, 2007 to June 30,
      2009. The Credit Facility contains customary terms and conditions,
      including, among others, financial covenants that may limit our ability to
      pay
      dividends on our common stock and certain other restrictions.  Our
      obligations under the Credit Facility are secured by a first priority security
      interest on all of the capital stock of SNG.  If our total coverage
      ratio exceeds a certain limit, our obligations will also be secured by a first
      priority security interest in all of our domestic assets.  In the
      event we exceed certain other ratio limits, we will be subject to a borrowing
      base and will be able to borrow up to a lesser of $25.0 million or the sum
      of
      (i) 85% of eligible accounts receivable and (ii) 65% of eligible
      inventory.  Borrowings under the Credit Facility bear interest at
      floating rates based on the KeyBank National Association prime rate or the
      Federal Funds effective rate.  The Credit Facility can be used to fund
      our normal working capital and capital expenditure requirements, with
      availability to fund certain permitted strategic transactions.  At May
      31, 2007, there were no amounts outstanding and $25.0 million was available
      for
      borrowing under the Credit Facility.





In
      July 2007, our Board of Directors approved a $1.50 per share special cash
      dividend, which was paid on August 13, 2007 to shareholders of record at the
      close of business on July 31, 2007.  In connection with the
      declaration of the special dividend, the Board of Directors approved certain
      dividend equivalent rights, allowing holders of other equity awards, including
      stock options and restricted stock units, to receive dividend equivalents in
      the
      form of cash on each share underlying the stock options and restricted stock
      units.  In aggregate, at July 31, 2007, the record date, the company
      had




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approximately
      29.9
      million common shares (or common share equivalents) outstanding, including
      approximately 26.6 million shares of outstanding Class A and Class B common
      stock, approximately 1.8 million shares of Class A common stock underlying
      outstanding stock options and approximately 1.5 million shares of Class A common
      stock underlying outstanding restricted stock units.  The aggregate
      amount of the special dividend is approximately $44.9 million, presuming 100
      percent vesting of shares underlying stock awards (54 percent vested as of
      July
      31, 2007).  To the extent outstanding stock options and restricted
      stock units were unvested at July 31, 2007, the $1.50 per share dividend was
      not, and will not be, distributed until after such equity awards become
      vested.





The
      special
      dividend was funded from cash and liquidation of available-for-sale
      securities.  Approximately $42.6 million of the distribution occurred
      in August 2007, and the remaining amount will be distributed, if at all, upon
      the vesting of the stock options and upon the issuance of the shares underlying
      the restricted stock units.





We
      believe that our cash, cash flows from operations and the financing sources
      discussed above will be sufficient to meet our normal cash operating
      requirements during the next twelve months.  However, we continue to
      review opportunities to acquire or invest in companies, product rights and
      other
      investments that are compatible with or complimentary to our existing
      business.  We could use cash and financing sources discussed herein,
      or financing sources that subsequently become available, to fund additional
      acquisitions or investments.  In addition, we may consider issuing
      additional debt or equity securities in the future to fund potential
      acquisitions or growth, or to refinance existing debt.  If a material
      acquisition, divestiture or investment is completed, our operating results
      and
      financial condition could change materially in future
      periods.  However, no assurance can be given that additional funds
      will be available on satisfactory terms, or at all, to fund such
      activities.





Our
      Board of
      Directors will determine dividend policy in the future based upon, among other
      factors, results of operations, financial condition, contractual restrictions
      and other factors deemed relevant at the time.  In addition, our
      credit facility contains certain customary financial covenants that may limit
      our ability to pay dividends on our common stock.  We can give no
      assurance that we will pay dividends in the future.





A
      summary of our outstanding contractual obligations at May 31, 2007 is as follows
      *(in thousands)*:





**Contractual****Obligations**
            
            **Total
                Amounts Committed**
            
            
            **Less
                than 1 Year**
            
            
            **1-3**
              **Years**
            
            
            **3-5**
              **Years**
            
            
            **More
                than**
              **5
                Years**Operating
                lease obligations
            
            $
            13,888
            
            
            $
            2,544
            
            
            $
            4,791
            
            
            $
            4,627
            
            
            $
            1,926Purchase
                obligations (1)
            
            
            13,370
            
            
            
            13,370
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
                obligations
            
            $
            27,258
            
            
            $
            15,914
            
            
            $
            4,791
            
            
            $
            4,627
            
            
            $
            1,926





(1)Purchase
      obligations consist primarily of open purchase orders for goods and services,
      including primarily raw materials, packaging and outsourced contract
      manufacturing commitments.





**Critical
      Accounting Policies and Estimates**





In
      preparing our consolidated financial statements, we make assumptions, estimates
      and judgments that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the dates of the consolidated
      financial statements and the reported amounts of net sales and expenses during
      the reported periods.  We periodically evaluate our estimates and
      judgments related to the valuation of inventories and intangible assets,
      allowances for doubtful accounts, notes receivable, sales returns and discounts,
      valuation of deferred tax assets, valuation of share-based payments and
      recoverability of long-lived assets.  Note 1 of the Notes to
      Consolidated Financial Statements describes the accounting policies governing
      each of these matters.  Our estimates are based on historical
      experience and on our future expectations that are believed to be
      reasonable.  The combination of these factors forms the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources.  Actual results may differ
      from our current estimates and those differences may be material.





We
      believe the following accounting policies affect some of our more significant
      estimates and judgments used in preparation of our consolidated financial
      statements:





·
            We
                provide
                for inventory valuation adjustments for estimated obsolescence or
                unmarketable inventory equal to the difference between the cost of
                inventory and the estimated market value based upon assumptions about
                future demand, market conditions and/or liquidation value.  For
                fiscal 2007, 2006 and 2005, respectively, inventory valuation adjustments
                resulted in a decrease in gross profit and operating income of
                approximately $0.9 million, $0.1 million and $0.4 million.  If
                actual demand and/or
                market
                conditions are less favorable than those projected by management,
                additional inventory write-downs would be
                required.





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·
            We
                maintain
                allowances for doubtful accounts, sales returns and discounts for
                estimated losses resulting from known customer exposures, including
                among
                others, product returns, inability to make payments and expected
                utilization of offered discounts.  Changes in allowances for
                doubtful accounts, sales returns and discounts resulted in an increase
                in
                gross profit and operating income of approximately $0.7 million for
                fiscal
                2006.  Fiscal 2007 and 2005 gross profit and operating income
                were not significantly impacted by changes in these
                allowances.  At May 31, 2007 and 2006, respectively, our
                allowance for doubtful accounts, sales returns and discounts amounted
                to
                approximately $2.2 million and $3.3 million.  Actual results may
                differ from our current estimates, resulting in adjustment of the
                respective allowance(s).





·
            We
                currently
                have deferred tax assets primarily resulting from temporary differences
                between financial and income tax reporting.  These deferred tax
                assets are subject to periodic recoverability assessments.  The
                realization of these deferred tax assets is primarily dependent on
                future
                operating results.  To the extent that it is more likely than
                not that future operations will not generate sufficient profit to
                utilize
                the tax credit carryforwards, valuation allowances are
                established.  For fiscal 2007, 2006 and 2005, respectively,
                changes in these valuation allowances resulted in an increase in
                net
                income of approximately $0.7 million, $3.1 million and $1.8
                million.  At May 31, 2007, our deferred tax asset valuation
                allowances were nil.  At May 31, 2006, our deferred tax asset
                valuation allowances, relating to foreign tax credit carryforwards,
                amounted to approximately $0.7
                million.





·
            We
                recognize
                compensation expense for certain performance based equity instrument
                awards (share-based payments) over the performance period based on
                a
                periodic assessment of the probability that the performance criteria
                will
                be achieved.  Our probability assessment considers such factors
                as historical financial results and future financial expectations,
                including an analysis of sales trends and operating margins; as well
                as
                changes in the nutritional supplements industry and competitive
                environment.  For fiscal 2007 and 2006, respectively, we
                recognized compensation expense related to these awards of approximately
                $3.4 million and $0.5 million.  At May 31, 2007, total
                unrecognized compensation expense, based on our assessment of the
                probability that the performance criteria will be achieved, was
                approximately $3.4 million.





·
            We
                have
                certain intangible assets, primarily consisting of goodwill, which
                are
                tested for impairment at least annually.  The determination of
                whether or not goodwill is impaired involves significant
                judgment.  Changes in strategy or market conditions could
                significantly impact our judgment and require adjustment to the recorded
                goodwill balance.





**Impact
      of
      Inflation**





Inflation
      affects
      the cost of raw materials, goods and services we use.  In recent
      years, inflation has been modest.  We seek to mitigate the adverse
      effects of inflation primarily through improved productivity, strategic buying
      initiatives, and cost containment programs.  However, the nutritional
      supplement industry competitive environment limits our ability to recover higher
      costs resulting from inflation by raising prices.  During fiscal 2005
      and fiscal 2006, we were unable to pass on increases in raw material costs
      relating to our joint care products to our customers.  See further
      discussion of raw material pricing matters in the “General” and “Results of
      Operations” sections above.





**Seasonality**





Our
      business can be
      seasonal, with fluctuations in sales resulting from timing of marketing and
      promotional activities, customer buying patterns and consumer spending
      patterns.  In addition, as a result of changes in product sales mix,
      competitive conditions, raw material pricing pressures and other factors, as
      discussed above, we experience fluctuations in gross profit and operating
      margins on a quarter-to-quarter basis.





**Recently
      Issued Accounting Standards**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123R, which replaces
      SFAS No. 123, supersedes Accounting Principles Board (“APB”) Opinion No. 25
      and amends SFAS No. 95, “Statement of Cash Flows.”  SFAS No. 123R
      eliminates the ability for public companies to measure share-based compensation
      transactions at the intrinsic value as allowed by APB Opinion No. 25, and
      requires that such transactions be accounted for based on the grant date fair
      value of the award.  SFAS No. 123R also amends SFAS No. 95, to require
      that excess tax benefits be reported as a financing cash inflow rather than
      as a
      reduction of taxes paid.  Under the intrinsic value method allowed
      under APB Opinion


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No.
      25,
      the difference between the quoted market price as of the date of the grant
      and the contractual purchase price of the share is charged to operations over
      the vesting period, and no compensation expense is recognized for fixed stock
      options with exercise prices equal to the market price of the stock on the
      dates
      of grant.  Under the fair value based method as prescribed by SFAS No.
      123R, we are required to charge the value of all newly granted stock-based
      compensation to expense over the vesting period based on the computed fair
      value
      on the grant date of the award.  Effective March 1, 2006, we adopted
      SFAS No. 123R using the modified prospective method, recording compensation
      expense for all awards granted after the date of adoption and for the unvested
      portion of previously granted awards that remain outstanding at the date of
      adoption.  The adoption of SFAS No. 123R resulted in incremental
      stock-based compensation expense of approximately $0.3 million and $0.1 million,
      respectively, for fiscal 2007 and 2006.  The incremental stock-based
      compensation expense caused income from continuing operations to decrease by
      $0.3 million and $0.1 million, respectively, and net income to decrease by
      $0.2
      million and $0.1 million, respectively, for fiscal 2007 and 2006.  The
      impact on basic and diluted earnings per share was nil.  For fiscal
      2007 and 2006, respectively, cash provided by operating activities decreased
      and
      cash provided by financing activities increased by approximately $0.1 million
      and $0.1 million related to excess tax benefits from stock-based payment
      arrangements.  Also, remaining deferred compensation costs totaling
      approximately $0.2 million at March 1, 2006, were reclassified to additional
      paid-in capital.





In
      November 2005, the FASB issued FASB Staff Position No. 123R-3 “Transition
      Election Related to Accounting for Tax Effects of Share-Based Payment Awards”
that allows for a simplified method to establish the beginning balance of the
      additional paid-in capital pool (“APIC Pool”) related to the tax effects of
      employee stock-based compensation, and to determine the subsequent impact on
      the
      APIC Pool and Consolidated Statements of Cash Flows of the tax effects of
      employee stock-based compensation awards that are outstanding upon adoption
      of
      SFAS No. 123R.  We did not elect to adopt the simplified
      method of calculating the beginning balance of the APIC Pool.





In
      May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
      Corrections," which replaces APB Opinion No. 20, "Accounting Changes," and
      SFAS
      No. 3, "Reporting Accounting Changes in Interim Financial
      Statements."  SFAS No. 154 requires changing the accounting and
      reporting requirements of voluntary and mandatory (unless the pronouncement
      provides other transition requirements) changes in accounting principle by
      requiring retroactive application of the change in accounting principle to
      prior
      periods' financial statements, unless it is not practical to do so, rather
      than
      recording a cumulative catch-up adjustment in net income in the year of the
      change.  Reporting error corrections will be handled similarly to a
      change in accounting principle.  The accounting and reporting
      requirements of SFAS No. 154 are effective for accounting changes and error
      corrections made in fiscal years beginning after December 15, 2005.





In
      September 2006, the Securities and Exchange Commission (the “SEC”) issued Staff
      Accounting Bulletin (SAB) No. 108, “Financial Statements — Considering the
      Effects of Prior Year Misstatements when Quantifying Misstatements in Current
      Year Financial Statements.”  SAB No. 108 provides interpretive
      guidance on how the effects of prior-year uncorrected misstatements should
      be
      considered when quantifying misstatements in the current year financial
      statements.  SAB No. 108 requires registrants to quantify
      misstatements using both the income statement and balance sheet approach and
      evaluate whether either approach results in a misstatement that, when all
      relevant quantitative and qualitative factors are considered, is
      material.  SAB No. 108 is effective for annual financial statements
      covering the first fiscal year ending after November 15, 2006.  The
      adoption of SAB No. 108 did not have a material impact on our results of
      operations and financial condition.





In
      July 2006, the FASB issued Interpretation No. 48, “Uncertainty in Income Taxes,”
(“FIN No. 48”), which establishes guidelines for recognizing, measuring and
      disclosing uncertainties relating to tax benefits reflected in an enterprise’s
      financial statements.  FIN No. 48 establishes a “more-likely-than-not”
recognition threshold that must be met before a tax benefit, relative to a
      tax
      position in which the enterprise may be uncertain as to whether it will
      ultimately be sustained as filed in its tax return, can be recognized in the
      financial statements.  We were required to apply the provisions of FIN
      No. 48 on June 1, 2007.  The cumulative effect of adopting FIN No. 48
      will result in a decrease in retained earnings of less than $1.0
      million.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," that
      defines fair value, establishes a framework for measuring fair value, and
      expands disclosures about fair value measurements.  SFAS No. 157
      retains the exchange price notion in defining fair value and clarifies that
      the
      exchange price is the price in an orderly transaction between market
      participants to sell the asset or transfer the liability in the market in which
      the reporting entity would transact for the asset or liability.  The
      definition focuses on the price that would be received to sell the asset or
      paid
      to transfer the liability (an exit price), not the price that would be paid
      to
      acquire the asset or received to assume the liability (an entry
      price).  SFAS No. 157 expands disclosure about the use of fair value
      to measure assets and liabilities in interim and annual periods subsequent
      to
      initial recognition.  The additional disclosure focuses on the inputs
      used to measure fair value and the effect of the measurements on net income
      for
      the reporting period.  The fair value measurement and disclosure
      provisions of SFAS No. 157 are effective for financial statements issued for
      fiscal years beginning
      after
      November 15, 2007.  We have not yet determined the impact of adopting
      SFAS No. 157 on our results of operations and financial
      condition.





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In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities,” which permits entities to choose to
      measure many financial instruments and certain other items at fair value that
      are not currently required to be measured at fair value.  SFAS No. 159
      also establishes presentation and disclosure requirements designed to facilitate
      comparisons between entities that choose different measurement attributes for
      similar types of assets and liabilities.  The measurement and
      disclosure provisions of SFAS No. 159 are effective as of the beginning of
      an
      entity’s first fiscal year that begins after November 15, 2007.  We
      have not yet determined the impact of adopting SFAS No. 159 on our results
      of
      operations and financial condition.





**ITEM
                7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





The
      following
      discussion involves forward-looking statements of market risk which assume
      that
      certain adverse market conditions may occur.  Actual future market
      conditions may differ materially from such assumptions.  Accordingly,
      the forward-looking statements should not be considered our projections of
      future events or losses.





Our
      cash flows and
      net earnings may be subject to fluctuations resulting from changes in interest
      rates.  Our current policy does not allow speculation in derivative
      instruments for profit or execution of derivative instrument contracts for
      which
      there is no underlying exposure.  We do not use financial instruments
      for trading purposes.  We measure market risk, related to our holdings
      of financial instruments, based on changes in interest rates utilizing a
      sensitivity analysis.  Our Credit Facility, under which borrowings
      bear interest at floating rates, had no amounts outstanding at May 31,
      2007.  We do not believe that a hypothetical 10% change in interest
      rates would have a material effect on our pretax earnings or cash
      flows.





Previously,
      our
      cash flows and net earnings were also subject to fluctuations resulting from
      changes in foreign currency exchange rates.  However, as a result of
      the divestitures of our Weider branded business and Haleko Unit, we no longer
      have operating subsidiaries whose net sales and expenses are denominated in
      foreign currencies.  Therefore, changes in foreign currency exchange
      rates are not expected to have a material impact on future cash flows and net
      earnings.





**ITEM
                8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





The
      consolidated
      financial statements and supplementary data and the report of Deloitte &
Touche LLP, our independent registered public accountants, are on the following
      pages F-1 through F-20 and are incorporated herein by reference.





**ITEM
                9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
**DISCLOSURE****




None.





**ITEM
                9A.**
            **CONTROLS
                AND PROCEDURES**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Securities Exchange Act reports
      is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC’s rules and forms and that such information is accumulated and
      communicated to our management, including our Chief Executive Officer and Chief
      Financial Officer, 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 and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of the
      design and operation of our disclosure controls and procedures as of the
      end of the year covered by this report.  Based on the foregoing, our
      Chief Executive Officer and Chief Financial Officer have concluded that our
      disclosure controls and procedures were effective.





There
      has been no
      change in our internal controls over financial reporting during our most recent
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, our internal controls over financial reporting.





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**PART
      III**





**ITEM
                9B.**
            **OTHER
                INFORMATION**





None.





**ITEM
                10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE
                GOVERNANCE**





See
      our 2007
      Definitive Proxy Statement, incorporated by reference in Part III of this Annual
      Report on Form 10-K,
      under the
      headings “Board of Directors and Corporate Governance Information,” “Nominees
      for Election to our Board of Directors,” “Executive Officers” and “Section 16(a)
      Beneficial Ownership Reporting Compliance.”  Information regarding our Code
      of Business Conduct and Ethics is also incorporated by reference to our 2007
      Definitive Proxy Statement under the heading “Board of Directors and Corporate
      Governance Information.”





We
      have filed the certifications of our Chief Executive Officer and Chief Financial
      Officer required pursuant to Section 302 of the Sarbanes - Oxley Act of 2004
      as
      exhibits to this Annual Report on Form 10-K.





On
      November 8, 2006, we submitted to the New York Stock Exchange the Annual CEO
      Certification required pursuant to Section 303A.12(a) of the New York Stock
      Exchange Listed Company Manual.





**ITEM
                11.**
            **EXECUTIVE
                COMPENSATION**





See
      our 2007
      Definitive Proxy Statement, incorporated by reference in Part III of this Annual
      Report on Form 10-K,
      under the
      headings “Board of Directors and Corporate Governance Information,” “Executive
      Compensation,” “Compensation Committee Report” and “Certain Relationships and
      Related Transactions.”





**ITEM
                12.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS**





See
      the information
      set forth under Item 5 herein and in our 2007 Definitive Proxy Statement,
      incorporated by reference in Part III of this Annual Report on Form 10-K, under
      the heading “Stock Ownership of Beneficial Owners, Directors and
      Management.”





**ITEM
                13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE**





See
      our 2007
      Definitive Proxy Statement, incorporated by reference in Part III of this Annual
      Report on Form 10-K,
      under the
      heading “Certain Relationships and Related Transactions.”





**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTING FEES AND
                SERVICES**





See
      our 2007
      Definitive Proxy Statement, incorporated by reference in Part III of this Annual
      Report on Form 10-K,
      under the
      heading “Fees Paid to Independent Public Accountants.”





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**PART
      IV**





**ITEM
                15.**
            **EXHIBITS,
                FINANCIAL STATEMENT
                SCHEDULES**





(a)  Documents
      filed as
      part of this report





1)
            Financial
                Statements





See
“Item
      8.  Financial Statements and Supplementary Data” for Financial
      Statements included with this Annual Report on Form 10-K.





2)
            Financial
                Statement Schedules





Schedule
      II -
      Valuation and Qualifying Accounts.  All other schedules have been
      omitted because they are not required, not applicable, or the information is
      otherwise set forth in the financial statements or notes thereto.





3)
            Exhibits







3.1.
            Amended
                and
                Restated Certificate of Incorporation of Schiff Nutrition International,
                Inc. (1)3.2.
            Amended
                and
                Restated Bylaws of Weider Nutrition International, Inc.
                (2)4.1.
            Revolving
                Credit Agreement dated as of June 30, 2004 between Schiff Nutrition
                Group,
                Inc. and KeyBank National Association. (3)4.2.
            Form
                of
                specimen Class A common stock certificate. (4)10.1.
            Build-To-Suit
                Lease Agreement dated March 20, 1996, between SCI Development Services
                Incorporated and Weider Nutrition Group, Inc. (2)10.2.
            1997
                Equity
                Participation Plan of Weider Nutrition International, Inc.
                (5)*10.3.
            Form
                of Tax
                Sharing Agreement by and among Weider Nutrition International, Inc.
                and
                its subsidiaries and Weider Health and Fitness and its subsidiaries.
                (5)10.4.
            License
                Agreement dated as of December 1, 1996 between Mariz Gestao E Investmentos
                Limitada and Weider Nutrition Group, Inc. (5)10.5.
            Amendments
                to
                1997 Equity Participation Plan of Weider Nutrition International,
                Inc.
                (6)*10.6.
            Employment
                Agreement dated as of June 1, 2002 between Weider Nutrition Group,
                Inc.
                and Bruce J. Wood. (7)*10.7.
            Consulting
                Agreement dated as of February 1, 2004 between Weider Nutrition Group,
                Inc. and Gustin Foods, LLC. (8)10.8.
            Schiff
                Nutrition International, Inc. 2004 Incentive Award Plan.
                (9)*10.9.
            Amendment
                effective as of March 1, 2005 to License Agreement between Mariz
                Gestao E
                Investmentos Limitada and Weider Nutrition Group, Inc.
                (10)10.10.
            Stock
                and
                Asset Purchase Agreement effective as of March 1, 2005 among Weider
                Nutrition International, Inc., Weider Nutrition Group, Inc. and Weider
                Global Nutrition, LLC. (10)10.11.
            Promissory
                Note of Weider Global Nutrition, LLC payable to Weider Nutrition
                Group,
                Inc. (10)10.12.
            Guarantee
                by
                Weider Health and Fitness in favor of Weider Nutrition International,
                Inc.
                and Weider Nutrition Group, Inc. (10)10.13.
            Share
                Sale
                and Transfer Agreement dated June 17, 2005 among Weider Nutrition
                GmbH,
                Haleko Management GmbH, Atlantic Grupa d.o.o., Hopen Investments
                BV and
                Svalbard Investments GmbH. (11)10.14.
            Form
                of
                Indemnification Agreement between Weider Nutrition Group, Inc. and
                certain
                of its executives and directors. (12)*10.15.
            Agreement
                dated as of October 1, 2005 between Schiff Nutrition Group, Inc.
                and Bruce
                J. Wood. (13)*10.16.
            Form
                Agreement between Schiff Nutrition Group, Inc. and certain of its
                executives. (13)*10.17.
            Form
                of
                Restricted Stock Unit Award Grant Notice, Restricted Stock Unit Award
                Agreement and Deferral Election between Schiff Nutrition International,
                Inc. and certain of its executives. (14)*10.18.
            Amendment
                No.
                1 to the Schiff Nutrition International, Inc. 2004 Incentive Award
                Plan.
                (15)*10.19.
            Amended
                and
                Restated License and Product Supply Agreement dated as of October
                13, 2006
                between Unigen Pharmaceuticals, Inc. and Schiff Nutrition Group,
                Inc.
                (16)10.20.
            Form
                of
                Director Restricted Stock Unit Agreement and Deferral Election.
                (17)*10.21.
            Form
                of
                Director Restricted Stock Agreement. (17)*21.1.
            Subsidiaries
                of Schiff Nutrition International, Inc. (4)23.1
            Consent
              of Independent Registered
              Public Accounting Firm. (18)31.1.
            Certification
                of Chief Executive Officer pursuant
                to Section 302 of the Sarbanes-Oxley Act. (18)31.2.
            Certification
                of Chief Financial Officer pursuant
                to Section 302 of the Sarbanes-Oxley Act. (18)32.1.
            Certification
                of Chief Executive Officer and Chief
                Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
                (19)





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(1)
            Previously
                filed in the Company’s Quarterly Report on Form 10-Q filed on January 17,
                2006 and incorporated herein by reference.(2)
            Previously
                filed in the Company's Registration Statement on Form S-1/A (File
                No.
                333-12929) filed on October 16, 1996 and incorporated herein by
                reference.(3)
            Previously
                filed in the Company's Current Report on Form 8-K filed on July 8,
                2004
                and incorporated herein by reference.(4)
            Previously
                filed in the Company’s Annual Report on Form 10-K filed on August 29, 2006
                and incorporated herein by reference.(5)
            Previously
                filed in the Company’s Registration Statement on Form S-1/A (File No.
                333-12929) filed on March 20, 1997 and incorporated herein by
                reference.(6)
            Previously
                filed in the Company's Quarterly Report on Form 10-Q filed on January
                14,
                2002 and incorporated herein by reference.(7)
            Previously
                filed in the Company's Annual Report on Form 10-K filed on August
                29, 2002
                and incorporated herein by reference.(8)
            Previously
                filed in the Company's Quarterly Report on Form 10-Q filed on April
                14,
                2004 and incorporated herein by reference.(9)
            Previously
                filed in the Company's Definitive Proxy Statement on Form 14A filed
                on
                September 28, 2004 and incorporated herein by
                reference.(10)
            Previously
                filed in the Company's Current Report on Form 8-K filed on April
                4, 2005
                and incorporated herein by reference.(11)
            Previously
                filed in the Company's Current Report on Form 8-K filed on June 23,
                2005
                and incorporated herein by reference.(12)
            Previously
                filed in the Company's Current Report on Form 8-K filed on August
                10, 2005
                and incorporated herein by reference.(13)
            Previously
                filed in the Company's Current Report on Form 8-K filed on February
                3,
                2006 and incorporated herein by reference.(14)
            Previously
                filed in the Company’s Current Report on Form 8-K filed on March 23, 2006
                and incorporated herein by reference.(15)
            Previously
                filed in the Company’s Definitive Proxy Statement on Form 14A filed on
                September 27, 2006 and incorporated herein by
                reference.(16)
            Previously
                filed in the Company’s Quarterly Report on Form 10-Q filed on October 16,
                2006 and incorporated herein by reference.(17)
            Previously
                filed in the Company’s Current Report on Form 8-K filed on October 30,
                2006 and incorporated herein by reference.(18)
            Filed
                herewith.(19)
            Furnished
                herewith.*
            Management
                contract.





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**SIGNATURES**





Pursuant
      to the
      requirements of section 13 or 15(d) 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.





**Schiff
                Nutrition International, Inc.**By:
            */s/
                Bruce
                J. Wood***Bruce
                J. Wood**Dated:
                August
                27, 2007
            **Chief
                Executive Officer and
                President**





Pursuant
      to the
      requirements of the Securities Exchange Act of 1934, this report has been signed
      below by the following persons on behalf of the registrant and in the capacities
      and on the dates indicated.





**Name**
            
            **Title**
            
            **Date***/s/
                Eric
                Weider*
            
            Chairman
                of
                the Board
            
            August
                27,
                2007Eric
                Weider
            
            and
                Director*/s/
                Bruce
                J. Wood*
            
            Chief
                Executive Officer,
            
            August
                27,
                2007Bruce
                J.
                Wood
            
            President
                and
                Director(Principal
                Executive Officer)*/s/
                Joseph W. Baty*
            
            Executive
                Vice President and
            
            August
                27,
                2007Joseph
                W.
                Baty
            
            Chief
                Financial Officer(Principal
                Financial Officer and Principal Accounting Officer)*/s/
                Ronald L. Corey*
            
            Director
            
            August
                27,
                2007Ronald
                L.
                Corey*/s/
                Roger
                H. Kimmel*
            
            Director
            
            August
                27,
                2007Roger
                H.
                Kimmel*/s/
                George F. Lengvari*
            
            Vice
                Chairman
                of the Board
            
            August
                27,
                2007George
                F.
                Lengvari
            
            and
                Director*/s/
                Brian
                P. McDermott*
            
            Director
            
            August
                27,
                2007Brian
                P.
                McDermott*/s/
                H. F.
                Powell*
            
            Director
            
            August
                27,
                2007H.
                F.
                Powell








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**SCHIFF
      NUTRITION INTERNATIONAL,
      INC.**


**INDEX
      TO
      CONSOLIDATED FINANCIAL STATEMENTS**




















Report
                of
                Independent Registered Public Accounting Firm
            F
                -
                2Consolidated
                Balance Sheets at May 31, 2007 and 2006
            F
                -
                3Consolidated
                Statements of Income, Years Ended May 31, 2007, 2006 and
                2005
            F
                -
                4Consolidated
                Statements of Stockholders’ Equity, Years Ended May 31, 2007, 2006 and
                2005
            F
                -
                5Consolidated
                Statements of Cash Flows, Years Ended May 31, 2007, 2006 and
                2005
            F
                -
                6Notes
                to
                Consolidated Financial Statements
            F
                -
                7











F
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**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**




















The
      Board of
      Directors


Schiff
      Nutrition
      International, Inc. and Subsidiaries:





We
      have audited the accompanying consolidated balance sheets of Schiff Nutrition
      International, Inc. and subsidiaries (collectively, the “Company”) as of May 31,
      2007 and 2006, and the related consolidated statements of income, stockholders’
equity and cash flows for each of the three years in the period ended May 31,
      2007.  These financial statements are the responsibility of the
      Company’s management.  Our responsibility is to express an opinion on
      these financial statements based on our audits.





We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatement.  The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting.  Our audits included
      consideration of internal control over financial reporting as a basis for
      designing audit procedures that are appropriate in the circumstances, but not
      for the purpose of expressing an opinion on the effectiveness of the Company’s
      internal control over financial reporting.  Accordingly, we express no
      such opinion.  An audit also includes examining, on a test basis,
      evidence supporting the amounts and disclosures in the financial statements,
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement
      presentation.  We believe that our audits provide a reasonable basis
      for our opinion.





In
      our opinion, such consolidated financial statements present fairly, in all
      material respects, the financial position of Schiff Nutrition International,
      Inc. and subsidiaries at May 31, 2007 and 2006, and the results of their
      operations and their cash flows for each of the three years in the period ended
      May 31, 2007 in conformity with accounting principles generally accepted in
      the
      United States of America.





DELOITTE
&
      TOUCHE LLP














Salt
      Lake City,
      Utah


August
      23,
      2007














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**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND
      SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**MAY
      31,
      2007 AND 2006**


*(dollars
      in
      thousands, except share data)*


**ASSETS****2007**
            
            
            **2006**Current
                assets:Cash
                and cash
                equivalents
            
            $
            34,463
            
            
            $
            24,899Available-for-sale
                securities (Note 3)
            
            
            45,817
            
            
            
            40,120Receivables,
                net (Note 4)
            
            
            17,732
            
            
            
            20,431Inventories
                (Note 5)
            
            
            23,698
            
            
            
            23,515Prepaid
                expenses and other
            
            
            2,151
            
            
            
            2,444Deferred
                taxes, net (Note 9)
            
            
            1,992
            
            
            
            2,419Total
                current
                assets
            
            
            125,853
            
            
            
            113,828Property
                and
                equipment, net (Note 6)
            
            
            14,438
            
            
            
            13,287Other
                assets:Goodwill
                (Note 7)
            
            
            4,346
            
            
            
            4,346Deposits
                and
                other assets
            
            
            105
            
            
            
            154Deferred
                taxes, net (Note 9)
            
            
            337
            
            
            
            —Total
                other
                assets
            
            
            4,788
            
            
            
            4,500Total
                assets
            
            $
            145,079
            
            
            $
            131,615**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            7,962
            
            
            $
            10,547Accrued
                expenses (Note 8)
            
            
            10,542
            
            
            
            11,472Income
                taxes
                payable
            
            
            2,480
            
            
            
            1,293Total
                current
                liabilities
            
            
            20,984
            
            
            
            23,312Deferred
                taxes, net (Note 9)
            
            
            —
            
            
            
            796Commitments
                and contingencies (Notes 11 and 12)Stockholders’
                equity:Preferred
                stock, par value $.01 per share; shares authorized-10,000,000; no
                shares
                issued and outstanding
            
            
            —
            
            
            
            —Class
                A
                common stock, par value $.01 per share; shares authorized - 50,000,000;
                shares issued and outstanding -11,664,284 (2007) and 11,606,193
                (2006)
            
            
            116
            
            
            
            116Class
                B
                common stock, par value $.01 per share; shares authorized - 25,000,000;
                shares issued and outstanding -14,973,148
            
            
            150
            
            
            
            150Additional
                paid-in capital
            
            
            92,640
            
            
            
            88,488Retained
                earnings
            
            
            31,189
            
            
            
            18,753Total
                stockholders’ equity
            
            
            124,095
            
            
            
            107,507Total
                liabilities and stockholders’ equity
            
            $
            145,079
            
            
            $
            131,615











See
      notes to
      consolidated financial statements.





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**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**YEARS
      ENDED
      MAY 31, 2007, 2006 AND 2005**


*(dollars
      in
      thousands, except share data)*





**2007**
            
            
            **2006**
            
            
            **2005**Net
                sales
            
            $
            172,656
            
            
            $
            178,372
            
            
            $
            173,095Cost
                of goods
                sold
            
            
            103,959
            
            
            
            119,303
            
            
            
            113,351Gross
                profit
            
            
            68,697
            
            
            
            59,069
            
            
            
            59,744Operating
                expenses:Selling
                and
                marketing
            
            
            32,031
            
            
            
            28,957
            
            
            
            27,750General
                and
                administrative
            
            
            15,698
            
            
            
            14,863
            
            
            
            13,956Research
                and
                development
            
            
            3,686
            
            
            
            2,851
            
            
            
            3,245Amortization
                of intangible assets
            
            
            —
            
            
            
            22
            
            
            
            30Reimbursement
                of import costs
            
            
            (394
            )
            
            
            (2,665
            )
            
            
            —Total
                operating expenses
            
            
            51,021
            
            
            
            44,028
            
            
            
            44,981Income
                from
                operations
            
            
            17,676
            
            
            
            15,041
            
            
            
            14,763Other
                income
                (expense):Interest
                income
            
            
            3,118
            
            
            
            2,005
            
            
            
            441Interest
                expense
            
            
            (175
            )
            
            
            (165
            )
            
            
            (262
            )Foreign
                currency translation gain
            
            
            —
            
            
            
            1,613
            
            
            
            —Other,
                net
            
            
            (8
            )
            
            
            (135
            )
            
            
            (135
            )Total
                other
                income, net
            
            
            2,935
            
            
            
            3,318
            
            
            
            44Income
                from
                continuing operations before income taxes
            
            
            20,611
            
            
            
            18,359
            
            
            
            14,807Income
                tax
                expense
            
            
            8,175
            
            
            
            2,393
            
            
            
            2,751Income
                from
                continuing operations
            
            
            12,436
            
            
            
            15,966
            
            
            
            12,056Loss
                from
                discontinued operations, net ofincome
                taxes
                (Note 2)
            
            
            —
            
            
            
            (127
            )
            
            
            (5,487
            )Net
                income
            
            $
            12,436
            
            
            $
            15,839
            
            
            $
            6,569Weighted
                average shares outstanding:Basic
            
            
            26,531,682
            
            
            
            26,274,066
            
            
            
            25,816,553Diluted
            
            
            27,343,264
            
            
            
            26,999,240
            
            
            
            26,417,535Income
                per
                share - basic:Income
                from
                continuing operations
            
            $
            0.47
            
            
            $
            0.61
            
            
            $
            0.47Loss
                from
                discontinued operations
            
            
            —
            
            
            
            (0.01
            )
            
            
            (0.22
            )Net
                income
            
            $
            0.47
            
            
            $
            0.60
            
            
            $
            0.25Income
                per
                share - diluted:Income
                from
                continuing operations
            
            $
            0.45
            
            
            $
            0.59
            
            
            $
            0.46Loss
                from
                discontinued operations
            
            
            —
            
            
            
            —
            
            
            
            (0.21
            )Net
                income
            
            $
            0.45
            
            
            $
            0.59
            
            
            $
            0.25











See
      notes to
      consolidated financial statements.





F
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**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**YEARS
      ENDED
      MAY 31, 2007, 2006 AND 2005**


*(in
      thousands)*




**Other****Deferred**
            
            
            **Accum.**
            
            
            **Retained****Common
                Stock**
            
            
            **Add’l**
            
            
            **Compen-**
            
            
            **Comp.**
            
            
            **Earnings****Class
                A**
            
            
            **Class
                B**
            
            
            **Paid-In**
            
            
            **sation**
            
            
            **Income**
            
            
            **(Accum.****Shares**
            
            
            **Amount**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Costs**
            
            
            **(Loss)**
            
            
            **Deficit)**
            
            
            **Total****Balance
                at June 1, 2004**
            
            
            11,127
            
            
            $
            111
            
            
            $
            150
            
            
            $
            83,902
            
            
            $
            (635
            )
            
            $
            (4,060
            )
            
            $
            (3,655
            )
            
            $
            75,813Comprehensive
                income:Net
                income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            6,569
            
            
            
            6,569Foreign
                currency translation adjustments (Note 10)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,227
            
            
            
            —
            
            
            
            4,227Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,796Cancellation
                of restricted stock (Note 11)
            
            
            (60
            )
            
            
            —
            
            
            
            —
            
            
            
            (96
            )
            
            
            96
            
            
            
            —
            
            
            
            —
            
            
            
            —Stock
                options
                exercised
            
            
            270
            
            
            
            2
            
            
            
            —
            
            
            
            714
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            716Excess
                tax
                benefit from equity instruments
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            261
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            261Stock
                received for payment of income taxes on restricted stock compensation
                (Note 11)
            
            
            (27
            )
            
            
            —
            
            
            
            —
            
            
            
            (108
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (108
            )Amortization
                of deferred compensation costs
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            173
            
            
            
            —
            
            
            
            —
            
            
            
            173Gain
                on sale
                of Weider branded business, net of income taxes (Note 2)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,184
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,184**Balance
                at May 31, 2005**
            
            
            11,310
            
            
            
            113
            
            
            
            150
            
            
            
            86,857
            
            
            
            (366
            )
            
            
            167
            
            
            
            2,914
            
            
            
            89,835Comprehensive
                income:Net
                income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            15,839
            
            
            
            15,839Foreign
                currency translation adjustments (Note 10)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (167
            )
            
            
            —
            
            
            
            (167
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15,672Cancellation
                of restricted stock (Note 11)
            
            
            (28
            )
            
            
            —
            
            
            
            —
            
            
            
            (45
            )
            
            
            45
            
            
            
            —
            
            
            
            —
            
            
            
            —Stock
                options
                exercised
            
            
            354
            
            
            
            3
            
            
            
            —
            
            
            
            965
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            968Excess
                tax
                benefit from equity instruments
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            406
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            406Stock
                received for payment of income taxes on restricted stock compensation
                (Note 11)
            
            
            (30
            )
            
            
            —
            
            
            
            —
            
            
            
            (143
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (143
            )Amortization
                of deferred compensation costs
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            117
            
            
            
            —
            
            
            
            —
            
            
            
            117Stock-based
                compensation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            652
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            652Adoption
                of
                SFAS No. 123R (Note 1)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (204
            )
            
            
            204
            
            
            
            —
            
            
            
            —
            
            
            
            —**Balance
                at May 31, 2006**
            
            
            11,606
            
            
            
            116
            
            
            
            150
            
            
            
            88,488
            
            
            
            —
            
            
            
            —
            
            
            
            18,753
            
            
            
            107,507Comprehensive
                income:Net
                income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            12,436
            
            
            
            12,436Other
                comprehensive income (Note 10)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,436Cancellation
                of restricted stock (Note 11)
            
            
            (2
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Stock
                options
                exercised
            
            
            84
            
            
            
            —
            
            
            
            —
            
            
            
            292
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            292Excess
                tax
                benefit from equity instruments
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            136
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            136Stock
                received for payment of income taxes on restricted stock compensation
                (Note 11)
            
            
            (24
            )
            
            
            —
            
            
            
            —
            
            
            
            (170
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (170
            )Stock-based
                compensation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,894
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,894**Balance
                at May 31, 2007**
            
            
            11,664
            
            
            $
            116
            
            
            $
            150
            
            
            $
            92,640
            
            
            $
            —
            
            
            $
            —
            
            
            $
            31,189
            
            
            $
            124,095













See
      notes to
      consolidated financial statements.





F
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**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**YEARS
      ENDED
      MAY 31, 2007, 2006 AND 2005**


*(dollars
      in
      thousands)*




**2007**
            
            
            **2006**
            
            
            **2005**Cash
                flows
                from operating activities:Net
                income
            
            $
            12,436
            
            
            $
            15,839
            
            
            $
            6,569Adjustments
                to reconcile net income to net cash provided by operating
                activities:Changes
                in
                provision for bad debts
            
            
            (54
            )
            
            
            (109
            )
            
            
            —Deferred
                taxes
            
            
            (706
            )
            
            
            2,664
            
            
            
            (8,362
            )Depreciation
                and amortization
            
            
            3,331
            
            
            
            3,049
            
            
            
            5,534Asset
                impairment
            
            
            —
            
            
            
            —
            
            
            
            9,346Amortization
                of financing fees
            
            
            39
            
            
            
            55
            
            
            
            141Loss
                (gain)
                on disposition of net assets held for sale and property and
                equipment
            
            
            8
            
            
            
            137
            
            
            
            (41
            )Stock-based
                compensation
            
            
            3,894
            
            
            
            769
            
            
            
            173Excess
                tax
                benefit from equity instruments
            
            
            (136
            )
            
            
            358
            
            
            
            261Foreign
                currency translation gain
            
            
            —
            
            
            
            (1,613
            )
            
            
            —Other
            
            
            1
            
            
            
            —
            
            
            
            3Changes
                in
                operating assets and liabilities:Receivables
            
            
            2,353
            
            
            
            (4,841
            )
            
            
            1,939Inventories
            
            
            (183
            )
            
            
            862
            
            
            
            (8,898
            )Prepaid
                expenses and other
            
            
            293
            
            
            
            609
            
            
            
            374Deposits
                and
                other assets
            
            
            10
            
            
            
            281
            
            
            
            514Accounts
                payable
            
            
            (2,746
            )
            
            
            2,184
            
            
            
            5,588Accrued
                expenses
            
            
            (930
            )
            
            
            1,361
            
            
            
            (871
            )Income
                taxes
                payable
            
            
            1,323
            
            
            
            (3,922
            )
            
            
            5,268Net
                cash
                provided by operating activities
            
            
            18,933
            
            
            
            17,683
            
            
            
            17,538Cash
                flows
                from investing activities:Purchase
                of
                property and equipment
            
            
            (4,351
            )
            
            
            (2,894
            )
            
            
            (2,429
            )Proceeds
                from
                disposition of net assets held for sale and property and
                equipment
            
            
            19
            
            
            
            10
            
            
            
            959Purchase
                of
                intangible assets
            
            
            —
            
            
            
            —
            
            
            
            (7
            )Proceeds
                from
                sales of Haleko Unit and Weider branded business(Note
                2)
            
            
            —
            
            
            
            13,683
            
            
            
            9,647Purchase
                of
                available-for-sale securities
            
            
            (42,189
            )
            
            
            (52,011
            )
            
            
            (25,012
            )Proceeds
                from
                sale of available-for-sale securities
            
            
            36,492
            
            
            
            36,103
            
            
            
            800Collection
                of
                notes receivable
            
            
            400
            
            
            
            600
            
            
            
            100Net
                cash used
                in investing activities
            
            
            (9,629
            )
            
            
            (4,509
            )
            
            
            (15,942
            )Cash
                flows
                from financing activities:Proceeds
                from
                debt
            
            
            1,996
            
            
            
            1,693
            
            
            
            4,470Payments
                on
                debt
            
            
            (1,996
            )
            
            
            (2,194
            )
            
            
            (2,818
            )Proceeds
                from
                stock options exercised
            
            
            292
            
            
            
            968
            
            
            
            716Purchase
                and
                retirement of common stock
            
            
            (170
            )
            
            
            (143
            )
            
            
            (108
            )Excess
                tax
                benefit from equity instruments
            
            
            136
            
            
            
            48
            
            
            
            —Net
                cash
                provided by financing activities
            
            
            258
            
            
            
            372
            
            
            
            2,260Effect
                of
                exchange rate changes on cash
            
            
            2
            
            
            
            (5
            )
            
            
            53Increase
                in
                cash and cash equivalents
            
            
            9,564
            
            
            
            13,541
            
            
            
            3,909Cash
                and cash
                equivalents, beginning of year
            
            
            24,899
            
            
            
            11,358
            
            
            
            7,449Cash
                and cash
                equivalents, end of year
            
            $
            34,463
            
            
            $
            24,899
            
            
            $
            11,358









See
      notes to
      consolidated financial statements.





F
            - 6






**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND
      SUBSIDIARIES**


**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS**


*(dollars
      in
      thousands, except share data)*




**1.**
            **SIGNIFICANT
                ACCOUNTING POLICIES**





**Description
      of Business -**We develop, manufacture, market and distribute branded
      and private label vitamins, nutritional supplements and nutrition bars in the
      United States and throughout the world.  We offer a broad range of
      capsules, tablets and nutrition bars.  Our portfolio of recognized
      brands, including Schiff and Tiger’s Milk, is marketed primarily through the
      mass market (including club) and, to a lesser extent, health food store
      distribution channels.





At
      our 2005 annual meeting of stockholders in October 2005, our stockholders
      approved a corporate name change from Weider Nutrition International, Inc.
      to
      Schiff Nutrition International, Inc.





**Principles
      of Consolidation -**Our consolidated financial statements include the
      accounts of Schiff Nutrition International, Inc. and its wholly-owned
      subsidiaries.  All significant inter-company accounts and transactions
      have been eliminated.  We are a majority-owned subsidiary of Weider
      Health and Fitness (“WHF”).





**Use
      of
      Estimates and Assumptions in Preparing Financial Statements -**In
      preparing our consolidated financial statements, we make assumptions, estimates
      and judgments that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the dates of the consolidated
      financial statements and the reported amounts of net sales and expenses during
      the reported periods.  We periodically evaluate our estimates and
      judgments related to valuation of inventories and intangible assets, allowances
      for doubtful accounts, notes receivable, sales returns and discounts, valuation
      of deferred tax assets, valuation of share-based payments and recoverability
      of
      long-lived assets.  Our estimates are based on historical experience
      and on our future expectations that are believed to be
      reasonable.  The combination of these factors forms the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources.  Actual results may differ
      from our current estimates and those differences may be material.





**Cash
      Equivalents**- Cash equivalents include highly liquid investments with
      an original maturity of three months or less.





**Available-for-Sale
      Securities -** Available-for-sale securities, consisting of equity and
      debt securities, are carried at their fair value based upon the quoted market
      prices at period end.  Accordingly, unrealized gains and losses, net
      of income taxes, are computed on the basis of specific identification and
      included in other accumulated comprehensive income (loss) in stockholders’
equity until realized.  We periodically evaluate whether any declines
      in the fair values of our available-for-sale securities are other-than
      temporary.  This evaluation consists of a review of qualitative and
      quantitative factors, including available quoted market prices; recent financial
      results and operating trends of the company that issued the securities; other
      publicly available information; implied values from any recent financing by
      the
      company that issued the security; or other conditions that indicate the value
      of
      our investments.





**Inventories
      -**Inventories, primarily consisting of direct materials, direct labor
      and manufacturing overhead, are stated at the lower of cost (on a first-in,
      first-out basis) or market value.





**Property
      and Equipment -**Property and equipment are stated at cost less
      accumulated depreciation.  Depreciation expense was $3,331 (2007),
      $3,027 (2006) and $4,494 (2005), computed using the straight-line method over
      the estimated useful lives of 31 to 50 years for buildings, 2 to 10 years for
      furniture and equipment and 3 to 8 years for leasehold
      improvements.  Leasehold improvements are depreciated over the shorter
      of their useful life or of the lease term.





**Intangible
      Assets -**Goodwill and other intangible assets with indefinite lives are
      tested for impairment, at least annually, rather than
      amortized.  Other intangibles with definite lives are amortized using
      the straight-line method over estimated useful lives of 2 to 5
      years.





**Long-Lived
      Assets -**We evaluate the carrying value of long-lived assets based upon
      current and anticipated undiscounted cash flows, and recognize an impairment
      when such estimated cash flows will be less than the carrying value of the
      asset.  This evaluation is performed whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable.  Measurement of the amount of impairment, if any, is
      based upon the difference between carrying value and fair value.  As
      disclosed in Note 2, during fiscal 2005, we recognized an impairment loss of
      $9,346 in conjunction with the sale of our Haleko Unit.





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            - 7


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**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES**


**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




**Income
      Taxes -**We record deferred income tax liabilities and assets for
      temporary differences in the basis of assets and liabilities as reported for
      financial statement purposes and income tax purposes.  Deferred tax
      assets are reduced by a valuation allowance when, in our opinion, it is more
      likely than not that some portion or all of the deferred tax assets will not
      be
      realized.





**Revenue
      Recognition -**Sales are recognized when all of the following criteria
      are met: (1) persuasive evidence of an arrangement exists; (2) delivery has
      occurred or services have been rendered; (3) the seller’s price to the buyer is
      fixed or determinable; and, (4) collectibility is reasonably
      assured.  Although we utilize a variety of shipping terms, our primary
      shipping terms are “FOB Destination.”





Net
      sales represent
      products at gross sales price, less estimated returns and allowances for which
      provisions are made at the time of sale and less certain other discounts,
      allowances and sales incentives.  We utilize various types of sales
      incentives and promotions in marketing our products; including, price
      reductions, coupons, rebate offers, slotting fees and free
      product.  Generally, the cost of these sales incentives and
      promotions, with the exception of free product, are accounted for as a direct
      reduction of sales.  The cost of free product is classified as cost of
      goods sold.





**Sales
      by
      Geographic Area -**Total domestic and international net sales amounted
      to $167,422 and $5,234, respectively, for fiscal 2007; $173,165 and $5,207,
      respectively, for fiscal 2006; and $168,648 and $4,447, respectively, for fiscal
      2005.  Net sales are attributed to the country in which our customer
      is located.





**Advertising
      Costs -**Advertising costs, including cooperative advertising payments
      to retailers, are charged to expense in the period that the advertising first
      takes place.  Cooperative advertising payments to retailers are
      generally accounted for as an operating expense; however, the portion of the
      cost in excess of the estimated fair value of the benefit received is classified
      as a direct reduction of sales.  Total advertising costs were $13,828,
      $12,026 and $13,463, respectively, for fiscal 2007, 2006 and 2005, of which
      $13,828, $12,026 and $11,462, respectively, is included in selling and marketing
      expenses and $0, $0 and $2,001, respectively, is included in discontinued
      operations.





**Shipping
      and Handling Costs -**Shipping costs were $4,432, $3,803 and $6,610,
      respectively, for fiscal 2007, 2006 and 2005, of which $4,432, $3,803 and
      $3,352, respectively, is included in selling and marketing expenses and $0,
      $0
      and $3,258, respectively, is included in discontinued
      operations.  Handling costs were $2,663, $2,364 and $4,411,
      respectively, for fiscal 2007, 2006 and 2005, of which $2,663, $2,364 and
      $2,230, respectively, is included in general and administrative expenses and
      $0,
      $0 and $2,181, respectively, is included in discontinued
      operations.





**Concentration
      Risk -**The combined net sales to our two largest customers are
      significant and, as a result of recent divestitures (see Note 2), concentration
      risk has increased.  At May 31, 2007 and 2006, respectively, amounts
      due from Customer A represented approximately 40% and 30% and amounts due from
      Customer B represented approximately 24% and 27% of total trade accounts
      receivable.  For fiscal 2007, 2006 and 2005, respectively, Customer A
      accounted for approximately 35%, 33% and 38% and Customer B accounted for
      approximately 34%, 37% and 34% of total net sales.  Net sales of our
      Schiff Move Free brand accounted for approximately 48%, 48% and 40%,
      respectively, of total net sales for fiscal 2007, 2006 and 2005.





**Stock-Based
      Compensation -** Effective March 1, 2006, we adopted Statement of
      Financial Accounting Standards (“SFAS”) No.****123R,
“Share-Based Payment,” using the modified prospective method and began
      recognizing compensation expense for all awards granted after March 1, 2006,
      and
      for the unvested portion of previously granted awards that were outstanding
      at
      March 1, 2006.  Compensation expense is recognized over the vesting
      period based on the computed fair value on the grant date of the
      award.





Prior
      to March 1,
      2006, we disclosed the effect of SFAS No. 123, “Accounting for Stock-Based
      Compensation,” on a proforma basis and continued to follow Accounting
      Principles Board (“APB”)
      Opinion****No.****25 (as permitted by
      SFAS****No.****123) as it relates to
      stock-based compensation.





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**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES**


**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




Proforma
      information regarding net income and net income per share is required by
      SFAS****No.****123R and has been
      determined as if we had accounted for our employee stock options under the
      fair
      value method of
      SFAS****No.****123R.  For the
      purposes of proforma disclosure, the estimated fair value of the stock options
      is amortized to expense over the options vesting period.  Proforma net
      income and net income per share for fiscal 2006 and 2005 are as
      follows:


**2006**
            
            
            **2005**Net
                income,
                as reported
            
            $
            15,839
            
            
            $
            6,569Deduct
                stock-based employee compensation expense determined under fair-value
                based method, net of related tax effects
            
            
            (232
            )
            
            
            (371
            )Net
                income,
                proforma
            
            $
            15,607
            
            
            $
            6,198Basic
                net
                income per share, as reported
            
            $
            0.60
            
            
            $
            0.25Diluted
                net
                income per share, as reported
            
            
            0.59
            
            
            
            0.25Basic
                net
                income per share, proforma
            
            
            0.59
            
            
            
            0.24Diluted
                net
                income per share, proforma
            
            
            0.58
            
            
            
            0.23





**Net
      Income
      Per Share -**Basic net income per share is computed using the weighted
      average number of common shares outstanding during the
      period.  Diluted net income per share is computed using the weighted
      average number of common shares and potentially diluted common shares
      outstanding during the period.  Potentially dilutive common shares
      consist of common stock options, restricted stock and restricted stock units
      (“Common Stock Equivalents”).





Net
      income per
      diluted share for fiscal 2007, 2006 and 2005, respectively, excludes the effect
      of options to purchase 1,120,819, 1,480,585 and 2,111,692 shares because the
      exercise price exceeds the average market price and therefore would have been
      anti-dilutive, or assumed proceeds, including unrecognized compensation and
      potential excess tax benefits, available to repurchase shares issued upon
      assumed exercise of stock options were sufficient to offset any resulting
      dilution.





**Financial
      Instruments -**Our financial instruments, when valued using market
      interest rates, would not be materially different from the amounts presented
      in
      the consolidated financial statements.





**Foreign
      Currency Translation -**We consider the local currency as the functional
      currency for our foreign operations.  Assets and liabilities are
      translated at period-end exchange rates and all statements of income amounts
      are
      translated using average monthly rates.  As a result of the
      divestitures of our Haleko Unit and Weider branded business, certain
      international operating entities became substantially
      liquidated.  Accordingly, during fiscal 2006, we recognized an
      approximate $1,600 non-taxable net foreign currency translation gain,
      previously reported as other accumulated comprehensive income in stockholders’
equity.





**Hedging
      Activities -**We account for hedging activities in accordance with SFAS
      No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
 Derivatives are recognized as either assets or liabilities in the balance
      sheet and measured at fair value.  At May 31, 2007 and 2006, we were
      not party to any derivatives.





**Reimbursement
      of Import Costs** - Our operating results for fiscal 2007 and 2006 were
      favorably impacted by $394 and $2,665, respectively, in reimbursement of
      import costs from certain suppliers.  These reimbursements, resulting
      primarily from the favorable outcome of litigation between one of our suppliers
      and the U.S. Government, represent refunds of previously paid tariffs on
      imported raw materials.





**Recently
      Issued Accounting Standards -**In December 2004, the Financial
      Accounting Standards Board (“FASB”) issued
      SFAS****No.****123R, which replaces SFAS
      No. 123, supersedes APB
      Opinion****No.****25 and amends
      SFAS****No.****95, “Statement of Cash
      Flows.”  SFAS****No.****123R
      eliminates the ability for public companies to measure share-based compensation
      transactions at the intrinsic value as allowed by APB
      Opinion****No.****25, and requires that
      such transactions be accounted for based on the grant date fair value of the
      award.  SFAS****No.****123R also
      amends SFAS****No.****95, to require that
      excess tax benefits be reported as a financing cash inflow rather than as a
      reduction of taxes paid.  Under the intrinsic value method allowed
      under APB Opinion****No.****25,
      the difference between the quoted





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**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




market
      price as of
      the date of the grant and the contractual purchase price of the share is charged
      to operations over the vesting period, and no compensation expense is recognized
      for fixed stock options with exercise prices equal to the market price of the
      stock on the dates of grant.  Under the fair value based method as
      prescribed by SFAS****No.****123R, we are
      required to charge the value of all newly granted stock-based compensation
      to
      expense over the vesting period based on the computed fair value on the grant
      date of the award.  Effective March 1, 2006, we adopted
      SFAS****No.****123R using the modified
      prospective method, recording compensation expense for all awards granted after
      the date of adoption and for the unvested portion of previously granted awards
      that remain outstanding at the date of adoption.  The adoption of
      SFAS****No.****123R resulted in
      incremental stock-based compensation expense of approximately $297 and $104,
      respectively, for fiscal 2007 and 2006.  The incremental stock-based
      compensation expense caused income from continuing operations to decrease by
      $297 and $104, respectively, and net income to decrease by $181 and $62,
      respectively, for fiscal 2007 and 2006.  The impact on basic and
      diluted earnings per share was nil.  For fiscal 2007 and 2006,
      respectively, cash provided by operating activities decreased and cash provided
      by financing activities increased by $136 and $48 related to excess tax benefits
      from stock-based payment arrangements.  Also, remaining deferred
      compensation costs totaling $204 at March 1, 2006, were reclassified to
      additional paid-in capital.





In
      November 2005, the FASB issued FASB Staff Position No. 123R-3 “Transition
      Election Related to Accounting for Tax Effects of Share-Based Payment Awards”
that allows for a simplified method to establish the beginning balance of the
      additional paid-in capital pool (“APIC Pool”) related to the tax effects of
      employee stock-based compensation, and to determine the subsequent impact on
      the
      APIC Pool and Consolidated Statements of Cash Flows of the tax effects of
      employee stock-based compensation awards that are outstanding upon adoption
      of
      SFAS No. 123R.  We did not elect to adopt the simplified method of
      calculating the beginning balance of the APIC Pool.





In
      May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
      Corrections," which replaces APB Opinion No. 20, "Accounting Changes," and
      SFAS
      No. 3, "Reporting Accounting Changes in Interim Financial
      Statements."  SFAS No. 154 requires changing the accounting and
      reporting requirements of voluntary and mandatory (unless the pronouncement
      provides other transition requirements) changes in accounting principle by
      requiring retroactive application of the change in accounting principle to
      prior
      periods' financial statements, unless it is not practical to do so, rather
      than
      recording a cumulative catch-up adjustment in net income in the year of the
      change.  Reporting error corrections will be handled similarly to a
      change in accounting principle.  The accounting and reporting
      requirements of SFAS No. 154 are effective for accounting changes and error
      corrections made in fiscal years beginning after
      December****15, 2005.





In
      September 2006, the Securities and Exchange Commission (the “SEC”) issued Staff
      Accounting Bulletin (SAB) No.****108, “Financial Statements —
Considering the Effects of Prior Year Misstatements when
      Quantifying
      Misstatements in Current Year Financial Statements.”  SAB No. 108
      provides interpretive guidance on how the effects of prior-year uncorrected
      misstatements should be considered when quantifying misstatements in the current
      year financial statements.  SAB No. 108 requires registrants to
      quantify misstatements using both the income statement and balance sheet
      approach and evaluate whether either approach results in a misstatement that,
      when all relevant quantitative and qualitative factors are considered, is
      material.  SAB No. 108 is effective for annual financial statements
      covering the first fiscal year ending after November 15, 2006.  The
      adoption of SAB No. 108 did not have a material impact on our results of
      operations and financial condition.





In
      July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes,” (“FIN No. 48”), which establishes guidelines for recognizing,
      measuring and disclosing uncertainties relating to tax benefits reflected in
      an
      enterprise’s financial statements.  FIN No. 48 establishes a
“more-likely-than-not” recognition threshold that must be met before a tax
      benefit, relative to a tax position in which the enterprise may be uncertain
      as
      to whether it will ultimately be sustained as filed in its tax return, can
      be
      recognized in the financial statements.  We were required to apply the
      provisions of FIN No. 48 on June 1, 2007.  The cumulative effect of
      adopting FIN No. 48 will result in a decrease in retained earnings of less
      than $1,000.





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," that
      defines fair value, establishes a framework for measuring fair value, and
      expands disclosures about fair value measurements.  SFAS No. 157
      retains the exchange price notion in defining fair value and clarifies that
      the
      exchange price is the price in an orderly transaction between market
      participants to sell the asset or transfer the liability in the market in which
      the reporting entity would transact for the asset or liability.  The
      definition focuses on the price that would be received to sell the asset or
      paid
      to transfer





F
            - 10







**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES**


**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




the
      liability (an
      exit price), not the price that would be paid to acquire the asset or received
      to assume the liability (an entry price).  SFAS No. 157 expands
      disclosure about the use of fair value to measure assets and liabilities in
      interim and annual periods subsequent to initial recognition.  The
      additional disclosure focuses on the inputs used to measure fair value and
      the
      effect of the measurements on net income for the reporting
      period.  The fair value measurement and disclosure provisions of SFAS
      No. 157 are effective for financial statements issued for fiscal years beginning
      after November 15, 2007.  We have not yet determined the impact of
      adopting SFAS No. 157 on our results of operations and financial
      condition.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities,” which permits entities to choose to
      measure many financial instruments and certain other items at fair value that
      are not currently required to be measured at fair value.  SFAS No. 159
      also establishes presentation and disclosure requirements designed to facilitate
      comparisons between entities that choose different measurement attributes for
      similar types of assets and liabilities.  The measurement and
      disclosure provisions of SFAS No. 159 are effective as of the beginning of
      an
      entity’s first fiscal year that begins after November 15, 2007.  We
      have not yet determined the impact of adopting SFAS No. 159 on our results
      of
      operations and financial condition.





**2.**
            **DIVESTITURES**





Effective
      May 1,
      2005 (the first day of Haleko’s fiscal 2006), we sold our Haleko Unit to
      Atlantic Grupa of Zagreb, Croatia and certain of its subsidiaries for $15,089
      in
      cash.  The transaction included the sale of the capital stock and
      partnership interests of the international subsidiaries that operate the Haleko
      Unit.  In connection with the sale, we incurred transaction related
      costs of $687 and relinquished cash of $719.  In accordance with SFAS
      No. 144, we recognized an impairment loss of $9,346 in fiscal 2005 as the cash
      proceeds, net of the transaction related costs and including a realized foreign
      currency translation loss of $723, were less than the carrying value of our
      Haleko Unit’s long-lived assets.





Effective
      March 1,
      2005, we sold certain assets of our Active Nutrition Unit relating to our Weider
      branded business domestically and internationally to Weider Global Nutrition,
      LLC (“WGN”), a wholly-owned subsidiary of WHF.  We received cash
      proceeds of $12,877, and a note receivable for $1,100 in exchange for assets
      relating to our domestic Weider branded business, including inventory,
      receivables, and intangible and intellectual property, the capital stock of
      certain of our international subsidiaries related to our international Weider
      branded business (including the working capital of those subsidiaries), and
      the
      assumption of certain associated liabilities by WGN.  We recognized a
      gain on the sale of $2,184, net of income taxes of $1,581, in fiscal 2005,
      which
      includes transaction related costs of $587 and a realized foreign currency
      translation loss of $127.  Since the sale was to a related party, the
      gain is reflected as an increase to additional paid-in capital.





In
      connection with the sale of the Weider branded business, we also entered into
      two separate agreements (domestic and European) whereby we agreed to provide
      certain general and administrative, research and development, and logistics
      services to WGN for an annual fee.  The domestic service agreement
      provided for a one year term, with an option by either party to extend the
      term
      for one additional year.  The parties exercised this option for the
      second year and have further extended the term of the agreement through March
      1,
      2008.  In connection with the sale of our Haleko Unit, the European
      service agreement was transferred to the purchaser of the Haleko
      Unit.  We also received a license to use the Weider name for corporate
      purposes prior to transitioning to our new name.





Historical
      operating results for our Haleko Unit and Weider branded business are reflected
      as discontinued operations in our consolidated financial statements, including
      the notes thereto for all periods presented.  The remaining assets and
      related operations for the Active Nutrition Unit, including our Tiger’s Milk and
      Fi-Bar brands, have been consolidated into our Schiff Specialty
      Unit.  We believe our remaining business, which consists of the
      aggregation of several product-based operating segments, represents our only
      reportable segment.








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      NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES**


**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




Summarized
      financial information included in discontinued operations for fiscal 2006 and
      2005, is as follows:





**2006**
            
            
            **2005**Net
                sales
            
            $
            —
            
            
            $
            86,156Pre-tax
                loss
            
            
            (199
            )
            
            
            (8,238
            )Income
                tax
                benefit
            
            
            (72
            )
            
            
            (2,751
            )Net
                loss
            
            
            (127
            )
            
            
            (5,487
            )





**3.**
            **AVAILABLE-FOR-SALE
                SECURITIES**





Available-for-sale
      securities consist primarily of auction rate securities, long-term variable
      rate
      bonds tied to short-term interest rates that are reset through a “dutch auction”
process which occurs every 7 to 35 days, and other variable rate debt and equity
      securities.





Available-for-sale
      securities at fair value, which approximates unamortized cost, consist of the
      following at May
      31:


**2007**
            
            
            **2006**Federal,
                state and municipal debt securities
            
            $
            32,529
            
            
            $
            29,114Corporate
                debt securities
            
            
            9,038
            
            
            
            7,306Corporate
                equity securities
            
            
            4,250
            
            
            
            3,700$
            45,817
            
            
            $
            40,120





Despite
      the
      long-term nature of these auction rate securities’ stated contractual
      maturities, there is a ready liquid market for these securities based on the
      interest reset mechanism.  These securities are classified as current
      assets in the accompanying consolidated balance sheets because we have the
      ability and intent to sell these securities as necessary to meet our current
      liquidity needs.  Contractual maturities of debt securities are as
      follows at May 31, 2007:





Less
                than one
                year
            
            $
            3,423One
                to five
                years
            
            
            600Over
                five
                years
            
            
            37,544$
            41,567





The
      amount of
      unrealized gains or losses for fiscal 2007 and 2006 was not
      significant.





**4.**
            **RECEIVABLES,
                NET**





Receivables,
      net,
      consist of the following at May 31:





**2007**
            
            
            **2006**Trade
                accounts
            
            $
            19,467
            
            
            $
            23,103Current
                portion of note receivable due from WGN (see Note 2)
            
            
            —
            
            
            
            400Other
            
            
            426
            
            
            
            24819,893
            
            
            
            23,751Less
                allowances for doubtful accounts, sales returns and
                discounts
            
            
            (2,161
            )
            
            
            (3,320
            )Total
            
            $
            17,732
            
            
            $
            20,431








F
            - 12






**SCHIFF
      NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES**


**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




**5.**
            **INVENTORIES**





Inventories
      consist
      of the following at May 31:


**2007**
            
            
            **2006**Raw
                materials
            
            $
            8,960
            
            
            $
            9,694Work
                in
                process
            
            
            2,340
            
            
            
            1,275Finished
                goods
            
            
            12,398
            
            
            
            12,546Total
            
            $
            23,698
            
            
            $
            23,515





**6.**
            **PROPERTY
                AND EQUIPMENT, NET**





Property
      and
      equipment, net, consists of the following at May 31:


**2007**
            
            
            **2006**Furniture
                and
                equipment
            
            $
            33,018
            
            
            $
            29,065Leasehold
                improvements
            
            
            11,727
            
            
            
            11,247Construction
                in progress
            
            
            452
            
            
            
            1,16445,197
            
            
            
            41,476Less
                accumulated depreciation and amortization
            
            
            (30,759
            )
            
            
            (28,189
            )Total
            
            $
            14,438
            
            
            $
            13,287





Property
      and
      equipment additions included in accounts payable amounted to $158, $230 and
      $0,
      respectively, for fiscal 2007, 2006 and 2005.








**7.**
            **GOODWILL
                AND INTANGIBLE ASSETS, NET**





Goodwill
      and
      intangible assets, net, consist of the following at May 31:





**2007**
            
            
            **2006****Gross
                Carrying Amount**
            
            
            **Accumul.
                Amortiz.**
            
            
            **Net
                Book Value**
            
            
            **Gross
                Carrying Amount**
            
            
            **Accumul.
                Amortiz.**
            
            
            **Net
                Book Value**Goodwill
            
            $
            4,346
            
            
            $
            —
            
            
            $
            4,346
            
            
            $
            4,346
            
            
            $
            —
            
            
            $
            4,346Intangible
                assets - patents and trademarks
            
            $
            2,090
            
            
            $
            (2,090
            )
            
            $
            —
            
            
            $
            2,090
            
            
            $
            (2,090
            )
            
            $
            —





In
      connection with the sale of our Haleko Unit (see Note 2), during fiscal 2005,
      we
      recognized an impairment loss pertaining to intangible assets of
      $3,506.





Estimated
      amortization expense, assuming no changes in our intangible assets, is zero
      for
      all future fiscal years.





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**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




**8.**
            **ACCRUED
                EXPENSES**





Accrued
      expenses
      consist of the following at May 31:


**2007**
            
            
            **2006**Accrued
                personnel related costs
            
            $
            3,495
            
            
            $
            3,477Accrued
                promotional costs
            
            
            4,642
            
            
            
            5,260Other
            
            
            2,405
            
            
            
            2,735Total
            
            $
            10,542
            
            
            $
            11,472





**9.**
            **INCOME
                TAXES**





The
      components of
      income tax expense for fiscal 2007, 2006 and 2005, are as follows:





**2007**
            
            
            **2006**
            
            
            **2005**Federal:Current
            
            $
            8,097
            
            
            $
            2,647
            
            
            $
            8,319Deferred
            
            
            (178
            )
            
            
            682
            
            
            
            (4,306
            )Change
                in
                valuation allowance
            
            
            (654
            )
            
            
            (1,185
            )
            
            
            (1,618
            )Foreign:Current
            
            
            —
            
            
            
            —
            
            
            
            —Deferred
            
            
            —
            
            
            
            1,847
            
            
            
            —Change
                in
                valuation allowance
            
            
            —
            
            
            
            (1,847
            )
            
            
            —State
                and
                local:Current
            
            
            784
            
            
            
            192
            
            
            
            1,054Deferred
            
            
            126
            
            
            
            135
            
            
            
            (500
            )Change
                in
                valuation allowance
            
            
            —
            
            
            
            (78
            )
            
            
            (198
            )Total
            
            $
            8,175
            
            
            $
            2,393
            
            
            $
            2,751





Income
      tax expense
      (benefit) differs from a calculated income tax at the Federal statutory rate
      as
      follows:





**2007**
            
            
            **2006**
            
            
            **2005**Computed
                Federal income tax expense at the statutoryrate
                of 35%
                (2007) and 34% (2006 and 2005)
            
            $
            7,214
            
            
            $
            6,242
            
            
            $
            5,034Change
                in
                valuation allowance
            
            
            (654
            )
            
            
            (3,110
            )
            
            
            (1,816
            )State
                income
                tax expense
            
            
            910
            
            
            
            327
            
            
            
            554Tax
                exempt
                interest
            
            
            (504
            )
            
            
            (275
            )
            
            
            —Miscellaneous
                credits
            
            
            —
            
            
            
            —
            
            
            
            (1,029
            )Foreign
                currency translation
            
            
            —
            
            
            
            (548
            )
            
            
            —Recapture
                of
                previously recognized tax losses, and other
            
            
            1,209
            
            
            
            (243
            )
            
            
            8Total
            
            $
            8,175
            
            
            $
            2,393
            
            
            $
            2,751





Net
      cash income tax
      payments amounted to $7,553, $2,318 and $1,895, respectively, for fiscal 2007,
      2006 and 2005.





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**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




Net
      deferred income
      taxes consist of the following at May 31:





**2007**
            
            
            **2006****Current**
            
            
            **Long-Term**
            
            
            **Current**
            
            
            **Long-Term**Assets:Accounts
                receivable allowances
            
            $
            703
            
            
            $
            —
            
            
            $
            1,185
            
            
            $
            —Inventories
                adjustment
            
            
            735
            
            
            
            —
            
            
            
            573
            
            
            
            —Accrued
                vacation, bonuses and other
            
            
            759
            
            
            
            1,758
            
            
            
            922
            
            
            
            335Foreign
                tax
                and other credits
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            985Total
            
            
            2,197
            
            
            
            1,758
            
            
            
            2,680
            
            
            
            1,320Liabilities:Basis
                differences in fixed and intangible assets
            
            
            —
            
            
            
            (1,421
            )
            
            
            —
            
            
            
            (1,462
            )Other
            
            
            (205
            )
            
            
            —
            
            
            
            (261
            )
            
            
            —Total
            
            
            (205
            )
            
            
            (1,421
            )
            
            
            (261
            )
            
            
            (1,462
            )Deferred
                income taxes before valuation allowance
            
            
            1,992
            
            
            
            337
            
            
            
            2,419
            
            
            
            (142
            )Valuation
                allowance
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (654
            )Deferred
                income taxes, net
            
            $
            1,992
            
            
            $
            337
            
            
            $
            2,419
            
            
            $
            (796
            )





At
      May 31, 2007, we have no net operating loss, capital loss or tax credit
      carryforwards.  The amount of the deferred tax assets considered
      realizable, could be reduced or increased in the near-term if facts, including
      the amount of taxable income, differs from our estimates.  The
      decrease, or release, of the valuation allowance during the current year relates
      to the utilization of foreign tax credit carryforwards.





During
      fiscal 2002,
      we implemented a tax initiative which created a significant tax net operating
      loss (“NOL”).  The NOL was carried back to obtain tax refunds and the
      remaining balance was carried forward.  At the time of the
      transaction, we established a valuation allowance as a contingency against
      potential claims from a subsequent IRS challenge, and the potential implications
      to the NOL carryforwards.





During
      fiscal 2004,
      the IRS commenced an examination of our fiscal 2002 U.S. income tax return
      and
      subsequently expanded the audit to include fiscal years 2003 and
      2004.  During fiscal 2005, we recognized an income tax benefit of
      approximately $2,902 upon the conclusion of the IRS audit, which includes
      partial reversal of the valuation allowance and an adjustment for research
      and
      development credits.





During
      fiscal 2006,
      we recognized additional income tax benefit of approximately $1,672, which
      includes reversal of the remaining valuation allowance and other contingent
      liabilities previously established in conjunction with the IRS audit and a
      German tax audit.  In addition, we recognized income tax benefit of
      approximately $1,503, due to the adjustment of the IRS Code Section 987 gain
      recognized as a result of the sale of our Haleko Unit.





During
      fiscal 2007,
      we recognized approximately $757 in incremental net tax liabilities resulting
      from the impact of recapturing certain previously recognized tax losses,
      partially offset by further adjustment of the IRS Code Section 987 gain and
      valuation allowances, and the reduction of certain contingent tax
      liabilities.





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**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




**10.**
            **OTHER
                ACCUMULATED COMPREHENSIVE
                INCOME**





We
      had no other comprehensive income for fiscal 2007.  For fiscal 2006
      and 2005, the components of other comprehensive income (loss) are as
      follows:





**Pre-tax
                Income (Loss)**
            
            
            **Tax
                Expense (Benefit)**
            
            
            **Net
                Income (Loss)****2006:**Foreign
                currency translation adjustments:Unrealized
                gains
            
            $
            —
            
            
            $
            —
            
            
            $
            —Reclassification
                adjustment for realized loss (gain )
            
            
            688
            
            
            
            855
            
            
            
            (167
            )Net
                unrealized gain (loss)
            
            $
            688
            
            
            $
            855
            
            
            $
            (167
            )**2005:**Foreign
                currency translation adjustments:Unrealized
                gains (loss)
            
            $
            2,390
            
            
            $
            (1,763
            )
            
            $
            4,153Reclassification
                adjustment for realized loss
            
            
            127
            
            
            
            53
            
            
            
            74Net
                unrealized gain (loss)
            
            $
            2,517
            
            
            $
            (1,710
            )
            
            $
            4,227





**11.**
            **STOCK-BASED
                COMPENSATION PLANS**





Our
      1997 Equity
      Participation Plan, as amended (the “1997 Plan”), provided for the granting of
      stock options, stock appreciation rights, restricted or deferred stock and
      other
      awards (“Awards”) to officers, directors and key employees responsible for the
      direction and management of our company and to non-employee
      consultants.  Such Awards were granted at fair value as of the date of
      grant.  Under the 1997 Plan, a total of 3,500,000 shares of Class A
      common stock (or the equivalent in other equity securities) were reserved for
      issuance.





On
      October 26, 2004, our stockholders adopted the Schiff Nutrition International,
      Inc. 2004 Incentive Award Plan, as amended, (the “2004
      Plan”).  Our 2004 Plan provides for the grant of incentive stock
      options, nonqualified stock options, restricted stock, stock appreciation
      rights, performance shares, performance stock units, dividend equivalents,
      stock
      payments, deferred stock, restricted stock units, other stock-based awards,
      and
      performance-based awards to officers, directors, employees and consultants
      of
      our company and its subsidiaries.





Shares
      available
      for grant include 2,000,000 shares of Class A common stock reserved for issuance
      under the 2004 Plan, plus the number of shares of Class A common stock that
      as
      of the date of adoption of the 2004 Plan were, or thereafter would otherwise
      become, available for issuance under the 1997 Plan.





Stock
      options
      granted under the 1997 Plan and 2004 Plan primarily become exercisable after
      one
      to five years from the date of grant in equal, ratable amounts on each
      successive anniversary date.  Stock options expire no later than eight
      years after the date of grant under the 1997 Plan and no later than ten years
      after the date of grant under the 2004 Plan.








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**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




Prior
      to March 1,
      2006, we applied APB Opinion No. 25 in accounting for our stock
      options.  All stock options issued prior to March 1, 2006 were
      granted with an exercise price equal to the fair value on the date of grant
      and,
      accordingly, no compensation expense was recognized in the accompanying
      consolidated financial statements.  Effective March 1, 2006, we
      adopted the measurement and recognition provisions of SFAS No. 123R in
      accounting for stock options granted after the adoption date.  For
      purposes of applying SFAS No. 123 for stock options granted prior to the
      adoption of SFAS No. 123R, and for stock options granted after the adoption
      of
      SFAS No. 123R, the fair value for these options was estimated at the date of
      grant using a Binomial Option pricing model with the following weighted average
      assumptions for fiscal 2007, 2006 and 2005, respectively.





**2007**
              
              
              **2006**
              
              
              **2005**Expected
                  volatility
              
              
              49.57
              %
              
              
              54.10
              %
              
              
              59.63
              %Expected
                  term
              
              
              4.00
              years
              
              
              3.00
              years
              
              
              5.00
              yearsRisk-free
                  interest rate
              
              
              4.57
              %
              
              
              4.36
              %
              
              
              3.43
              %Dividend
                  yield
              
              
              0.00
              %
              
              
              0.00
              %
              
              
              0.00
              %
  Expected
      volatility
      is based on historical volatility of our stock.  The expected term,
      which represents the period of time that options granted are expected to be
      outstanding, is based on historical data and other factors; including, exercise
      behavior patterns of differing groups of employees.  The risk-free
      interest rate is based on the U.S. treasury yield curve in effect at the time
      of
      the grant.





Information
      relating to stock options issued under the 1997 Plan and 2004 Plan is as
      follows:





**Number
                of Shares**
            
            **Weighted
                Average Exercise Price**
            
            **Weighted
                Average Remaining Contractual Term (in years)**
            
            **Aggregate
                Intrinsic Value**Options
                outstanding, June 1, 2004
            
            
            2,509,419
            
            $
            2.76Granted
            
            
            110,000
            
            
            4.44Exercised
            
            
            (267,750
            )
            
            2.66Canceled,
                forfeited and/or expired
            
            
            (105,500
            )
            
            2.92Options
                outstanding, May 31, 2005
            
            
            2,246,169
            
            
            2.85Granted
            
            
            94,000
            
            
            5.13Exercised
            
            
            (354,096
            )
            
            2.74Canceled,
                forfeited and/or expired
            
            
            (85,488
            )
            
            2.04Options
                outstanding, May 31, 2006
            
            
            1,900,585
            
            
            2.78Granted
            
            
            10,000
            
            
            7.01Exercised
            
            
            (83,934
            )
            
            3.49Forfeited
                and/or expired
            
            
            —
            
            
            —Options
                outstanding, May 31, 2007
            
            
            1,826,651
            
            $
            2.77
            
            
            3.68
            
            $
            7,355Exercisable
                options, May 31, 2007
            
            
            1,745,651
            
            $
            2.66
            
            
            3.46
            
            $
            7,226





The
      weighted
      average grant-date fair value of options granted was $3.06, $2.04 and $2.39,
      respectively, for fiscal 2007, 2006 and 2005.  The total intrinsic
      value of options exercised was $242, $881 and $412, respectively, for fiscal
      2007, 2006 and 2005.  We received $293, $968 and $716, respectively,
      for stock options exercised during fiscal 2007, 2006 and 2005.








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**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*




Effective
        August
        16, 2002, we issued 640,000 restricted shares of Class A common stock to
        certain
        officers and employees.  The aggregate value of the restricted shares
        at issuance was $1,038, which we are expensing on a straight-line basis over
        the
        accompanying five-year vesting period.  During fiscal 2007, 2006 and
        2005, respectively, 86,200, 106,200 and 124,600 restricted shares
        vested.  Concurrent with the annual vesting during fiscal 2007, 2006
        and 2005, respectively, we reacquired (and ultimately retired) 23,443, 29,813
        and 27,406 shares from certain employees in connection with the payment of
        individual income taxes.  As a result of the termination of certain
        employees, 2,400, 28,000 and 60,000, respectively, of these restricted shares
        were cancelled during fiscal 2007, 2006 and 2005.  As of May 31, 2007,
        of the 640,000 restricted shares originally issued, 445,000 shares have vested,
        of which 80,662 shares were reacquired (and retired), 111,200 shares have
        been
        cancelled and 83,800 shares are subject to future
        vesting.





During
      fiscal 2007,
      we issued 32,360 restricted stock units ("RSUs") to non-employee
      directors.  The RSUs vest over three years and the grant date fair value of
      each RSU was $6.18.





Stock-based
      compensation expense for stock options, restricted stock units and restricted
      shares amounted to $473, $242 and $173, respectively, and the related tax
      benefit was approximately $189, $96 and $69, respectively, for fiscal 2007,
      2006
      and 2005.  At May 31, 2007, total unrecognized compensation cost
      related to these non-vested share-based compensation awards was approximately
      $350, which is expected to be recognized over a weighted average period of
      1.2
      years.





On
      March 17, 2006, the Compensation Committee of our Board of Directors, pursuant
      to our 2004 Plan, approved the adoption of a long term incentive plan involving
      the grant of performance based restricted stock units (the
“Units”).  On March 20, 2006, a total of 1,437,200 Units were issued
      to certain officers and employees.  Each Unit represents the right to
      receive one share of the Company’s Class A common stock, subject to certain
      performance based vesting requirements.  The Units will vest, if at
      all, based on the Company’s performance in relation to certain specified
      pre-established performance criteria targets over a performance period beginning
      on January 1, 2006 and expiring on May 31, 2008.  The performance
      criteria upon which the Units may vest is based upon a “Business Value Created”
formula, which is comprised of two performance criteria components: operating
      earnings and return on net capital.  The grant date fair value of each
      Unit was $5.11.  We recognize compensation expense over the
      performance period based on a periodic assessment of the probability that the
      performance criteria will be achieved.  For fiscal 2007 and 2006,
      respectively, we recognized compensation expense of $3,421 and $514, and the
      related tax benefit was approximately $1,364 and $205.  At May 31,
      2007, total unrecognized compensation expense, based on our assessment of the
      probability that the performance criteria will be achieved, was approximately
      $3,364, which is expected to be recognized over a weighted average period of
      one
      year.





**12.**
            **COMMITMENTS
                AND CONTINGENCIES**





**Leases****—******We
      lease warehouse and office facilities, manufacturing and production facilities,
      transportation equipment and other equipment under operating lease agreements
      expiring through 2013.  At May 31, 2007, future minimum payments of
      $13,888 under these non-cancelable operating leases are due as follows: $2,544
      (2008), $2,440 (2009), $2,351 (2010), $2,316 (2011), $2,311 (2012), and $1,926
      thereafter.  Rental expense was $2,413, $2,344 and $3,849,
      respectively, for fiscal 2007, 2006 and 2005.





**Purchase
      Commitments —** We are committed to future purchases
      primarily for inventory related items, including raw materials, packaging and
      outsourced contract manufacturing, under open purchase orders for specified
      quantities with fixed price provisions aggregating $13,370 at May 31,
      2007.





**Credit
      Facility****—******On
      June 30, 2004, we entered into, through our wholly-owned direct operating
      subsidiary Schiff Nutrition Group, Inc. (“SNG”) (formerly Weider Nutrition
      Group, Inc.), a $25,000 revolving credit facility (the “Credit Facility”) with
      KeyBank National Association, as Agent.  On August 23, 2006 we
      extended the maturity of the Credit Facility from June 30, 2007 to June 30,
      2009. The Credit Facility contains customary terms and conditions,
      including, among others, financial covenants that may limit our ability to
      pay
      dividends on our common stock and certain other restrictions.  Our
      obligations under the Credit Facility are secured by a first priority security
      interest on all of the capital stock of SNG.  If our total coverage
      ratio exceeds a certain limit, our obligations will also be secured by a first
      priority security interest in all of our domestic assets.  In the
      event we exceed certain other ratio limits, we will be subject to a borrowing
      base and will be able to borrow up to a lesser of $25,000 or the sum of (i)
      85%
      of eligible accounts receivable and (ii) 65% of eligible
      inventory.  Borrowings under the Credit Facility bear interest at
      floating rates based on the KeyBank National Association prime rate or the
      Federal Funds effective rate.  The Credit Facility can be used to fund
      our normal working capital and capital expenditure requirements, with
      availability to fund certain permitted strategic transactions.  At May
      31, 2007, there were no amounts outstanding and $25,000 was available for
      borrowing under the Credit Facility.





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**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*





Cash
      interest
      payments amounted to $136, $110 and $320, respectively, for fiscal 2007, 2006
      and 2005.





**Litigation
      –**From time to time, we are involved in claims, legal actions and
      governmental proceedings that arise from our business
      operations.  Although ultimate liability cannot be determined at the
      present time, based on available information, we do not believe the resolution
      of these matters will have a material adverse effect on our results of
      operations and financial condition.  However, it is possible that future
      litigation could arise, or that developments could occur in existing litigation,
      that could have a material adverse effect on our results of operations and
      financial condition.





**Royalties
      -** Pursuant to an agreement with WHF and certain other parties, Mariz
      Gestao E Investimentos Limitada (“Mariz”) obtained the exclusive international
      rights to use the trademarks and brand names used by WHF and its affiliates
      on
      or prior to December 1996.  Mariz is a company incorporated under the
      laws of Portugal and owned by a trust of which the family members of a director
      are included among the beneficiaries.  Pursuant to a sublicense
      agreement with Mariz dated as of December 1, 1996, we obtained the exclusive
      international worldwide rights to use these trademarks and brand names outside
      the United States, Canada, Mexico, Spain and Portugal (for which countries
      we
      have the rights outside of the Mariz sublicense), except in
      Japan.  Certain terms of the sublicense were amended and the rights
      under the sublicense to the Weider name and certain related trademarks were
      transferred as of March 1, 2005 in connection with the sale of our Weider
      branded business to WGN.





Under
      the terms of
      the amended sublicense agreement, we are required to make annual royalty
      payments to Mariz on sales of products covered by the agreement in countries
      other than those listed above.  The royalty payments, as amended, are
      equal to (i) 4% of sales up to $7,000 (ii) 3.5% of sales greater than $7,000
      and
      less than $14,000; (iii) 3.0% of sales greater than $14,000 and less than
      $21,000; and (iv) 2.5% of sales over $21,000.  The sublicense
      agreement includes an irrevocable buy-out option, exercisable by us after
      February 28, 2009, for a purchase price equal to the greater of $2,000 or 6.5
      times the aggregate royalties paid by us in the royalty year immediately
      preceding the date of the exercise of the option.  In addition, if the
      Schiff trademark is sold to a third party prior to February 28, 2009, the
      sublicense agreement provides that the buyer must also purchase all of Mariz’s
      rights to the trademarks for a purchase price equal to
      $2,000.  Royalty expense, related to the Mariz licensing agreement,
      amounted to $135, $155 and $646, respectively, for fiscal 2007, 2006 and 2005,
      of which $500 of the fiscal 2005 amount is included in discontinued
      operations.  In addition, during fiscal 2007, we also reimbursed Mariz
      approximately $108 for certain costs and expenses incurred by Mariz at our
      request in connection with certain litigation and the acceleration of obtaining
      certain intellectual property rights in the United Kingdom relating to the
      Move
      Free trademark.





**Retirement
      Plan -**We sponsor a contributory 401(k) savings plan covering all
      employees who have met minimum age and service requirements.  We make
      discretionary contributions of 50% of the employee’s contributions up to the
      first six percent of the employee’s compensation.  Contribution
      expense amounted to $423, $395 and $373, respectively, for fiscal 2007, 2006
      and
      2005.





**Income
      and
      Other Taxes -**We have recorded certain contingent liabilities for
      uncertainties relating to tax benefits reflected in our financial
      statements.  These contingent tax liabilities total approximately $480
      and $830, respectively, at May 31, 2007 and 2006.





**13.**
            **RELATED
                PARTY TRANSACTIONS**





Significant
      related
      party transactions, not otherwise disclosed, are summarized below.





Fiscal
      2005
      discontinued operations includes payments totaling $338 to reimburse WHF for
      expenses relating to endorsements and royalties.





Subsequent
      to the
      sale of our Weider branded business (see Note 2), we continue to provide
      contract manufacturing services to WGN.  For fiscal 2007, 2006 and
      2005, respectively, net sales to WGN were $2,175, $2,658 and $994, with a gross
      profit of $204, $317 and $149.  In addition, we received $559, $613
      and $125
      (reflected as a reduction in operating expenses), respectively, for certain
      general and administrative, research and development, and logistics services
      provided to WGN during fiscal 2007, 2006 and 2005.





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      NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES**


**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS –*(continued)***


*(dollars
      in
      thousands, except share data)*





**14.**
            **OPERATING
                SEGMENTS**





Historically,
      we
      were organized into three business units: the Schiff Specialty Unit, the Active
      Nutrition Unit and the Haleko Unit.  As a result of the sale of our
      Haleko Unit and Weider branded business (see Note 2), historical operating
      results for the Haleko Unit and Weider branded business are reflected as
      discontinued operations and all remaining assets and related operations,
      including our Tiger’s Milk and Fi-Bar brands, were consolidated into our Schiff
      Specialty Unit.  We believe our remaining business, which consists of
      the aggregation of several product-based operating segments, represents our
      only
      reportable segment.





**15.**
            **QUARTERLY
                RESULTS (UNAUDITED)**





Quarterly
      results
      (unaudited) for fiscal 2007 and 2006 are as follows:





**Quarter
                Ended****2007:**
            
            **Aug.
                31**
            
            
            **Nov.
                30**
            
            
            **Feb.
                28**
            
            
            **May
                31**Net
                sales
            
            $
            45,652
            
            
            $
            38,817
            
            
            $
            44,999
            
            
            $
            43,188Gross
                profit
            
            
            17,116
            
            
            
            16,177
            
            
            
            16,429
            
            
            
            18,975Income
                from
                operations
            
            
            4,332
            
            
            
            2,646
            
            
            
            4,485
            
            
            
            6,213Income
                tax
                expense
            
            
            1,754
            
            
            
            1,125
            
            
            
            1,960
            
            
            
            3,336Net
                income
            
            
            3,263
            
            
            
            2,249
            
            
            
            3,241
            
            
            
            3,683Basic
                net
                income per share
            
            
            0.12
            
            
            
            0.08
            
            
            
            0.12
            
            
            
            0.15Diluted
                net
                income per share
            
            
            0.12
            
            
            
            0.08
            
            
            
            0.12
            
            
            
            0.13





**Quarter
                Ended****2006:**
            
            **Aug.
                31**
            
            
            **Nov.
                30**
            
            
            **Feb.
                29**
            
            
            **May
                31**Net
                sales
            
            $
            48,017
            
            
            $
            35,456
            
            
            $
            49,641
            
            
            $
            45,258Gross
                profit
            
            
            12,709
            
            
            
            11,210
            
            
            
            16,932
            
            
            
            18,218Income
                from
                operations
            
            
            3,777
            
            
            
            1,389
            
            
            
            4,248
            
            
            
            5,627Income
                tax
                expense
            
            
            734
            
            
            
            89
            
            
            
            1,561
            
            
            
            9Net
                income
            
            
            4,935
            
            
            
            1,535
            
            
            
            3,189
            
            
            
            6,180Basic
                net
                income per share
            
            
            0.19
            
            
            
            0.06
            
            
            
            0.12
            
            
            
            0.23Diluted
                net
                income per share
            
            
            0.18
            
            
            
            0.06
            
            
            
            0.12
            
            
            
            0.23





**16.**
            **SUBSEQUENT
                EVENT**





In
      July 2007, our Board of Directors approved a $1.50 per share special cash
      dividend, which was paid on August 13, 2007 to shareholders of record at the
      close of business on July 31, 2007.  In connection with the
      declaration of the special dividend, the Board of Directors approved certain
      dividend equivalent rights, allowing holders of other equity awards, including
      stock options and restricted stock units, to receive dividend equivalents in
      the
      form of cash on each share underlying the stock options and restricted stock
      units.  In aggregate, at July 31, 2007, the record date, the company
      had approximately 29.9 million common shares (or common share equivalents)
      outstanding, including approximately 26.6 million shares of outstanding Class
      A
      and Class B common stock, approximately 1.8 million shares of Class A common
      stock underlying outstanding stock options and approximately 1.5 million shares
      of Class A common stock underlying outstanding restricted stock
      units.  The aggregate amount of the special dividend is approximately
      $44,900, presuming 100 percent vesting of shares underlying stock awards (54
      percent vested as of July 31, 2007).  To the extent outstanding stock
      options and restricted stock units were unvested at July 31, 2007, the $1.50
      per
      share dividend was not, and will not be, distributed until after such equity
      awards become vested.





In
      connection with the dividend equivalents paid or payable on stock options and
      certain restricted stock units, we expect to recognize a compensation charge
      during fiscal 2008.  The pre-tax charge will amount to approximately
      $5,000, with approximately $3,000 recognized during the first fiscal
      quarter.





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**VALUATION
      AND QUALIFYING ACCOUNTS**


**YEARS
      ENDED
      MAY 31, 2007, 2006 and 2005**


*(in
      thousands)*




**Description**
            
            **Balance
                at Beginning of Year**
            
            
            **Reductions
                Charged to Costs / Expenses**
            
            
            **Additions
                Charged to Net Sales**
            
            
            **Reductions
                due to Divestiture**
            
            
            **Deductions /
                Write-offs**
            
            
            **Balance
                at End of Year****ALLOWANCE
                FOR DOUBTFUL ACCOUNTS:**2005
            
            $
            2,181
            
            
            $
            —
            
            
            $
            —
            
            
            $
            (557
            )
            
            $
            (354
            )
            
            $
            1,2702006
            
            $
            1,270
            
            
            $
            (109
            )
            
            $
            —
            
            
            $
            (669
            )
            
            $
            (61
            )
            
            $
            4312007
            
            $
            431
            
            
            $
            (54
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            3
            
            
            $
            380**ALLOWANCE
                FOR SALES RETURNS AND DISCOUNTS:**2005
            
            $
            4,323
            
            
            $
            (1,665
            )
            
            $
            17,113
            
            
            $
            (351
            )
            
            $
            (15,928
            )
            
            $
            3,4922006
            
            $
            3,492
            
            
            $
            —
            
            
            $
            7,369
            
            
            $
            (88
            )
            
            $
            (7,884
            )
            
            $
            2,8892007
            
            $
            2,889
            
            
            $
            —
            
            
            $
            6,993
            
            
            $
            —
            
            
            $
            (8,101
            )
            
            $
            1,781**ALLOWANCE
                FOR UNREALIZABLE NOTES RECEIVABLE:**2005
            
            $
            99
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            (99
            )
            
            $
            —2006
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —2007
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —**DEFERRED
                TAXES VALUATION ALLOWANCE:**2005
            
            $
            5,580
            
            
            $
            (1,816
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            3,7642006
            
            $
            3,764
            
            
            $
            (3,110
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            6542007
            
            $
            654
            
            
            $
            (654
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —