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Table
      of
      Contents


**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, 2006q
            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 q  No  ý




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 q  No  ý




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes  ý  No  q




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 q  No  ý




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant was approximately $59,606,042 as of November
      30, 2005, the last day of the registrant's second quarter, based upon the
      closing price of $5.48 for shares of the registrant’s Class A common stock on
      that date.




As
      of August 23, 2006 the registrant had outstanding 11,595,250 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 2006 Annual Meeting of
      Shareholders, which will subsequently be filed with the SEC, are incorporated
      by
      reference into Part III hereof.





Table
      of
      Contents


**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,” 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. We expressly disclaim any obligation to update
      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 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 materially adversely affect our financial condition, results of
      operations or cash flows.*




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




**General**




Schiff
      Nutrition International, Inc. (formerly Weider 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 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.




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 stockholders 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 internet web site address is www.schiffnutrition.com .
      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, are available
      free of charge through our corporate internet web site, which provides a link
      to www.sec.gov ,
      the web site maintained by the Securities and Exchange Commission (“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.





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**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.




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, the lack
      of
      industry-wide “blockbuster” products, and negative publicity regarding certain
      nutritional supplement ingredients and companies.




Although
      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 65 years. The Schiff
      brand emphasizes high quality and natural ingredients, primarily consisting
      of
      tablet, capsule and softgel product forms.




In
      response to consumers who seek a more natural and preventive approach to their
      health care, the industry has developed emerging specialty supplement categories
      as alternatives or complements to over-the-counter and pharmaceutical products.
      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 $86.2 million, $68.9 million and $66.2 million, respectively,
      for
      fiscal 2006, 2005 and 2004.




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;




·
            minerals,
                such as Calcium;




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




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




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:




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




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




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




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




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We
      service the health food market primarily through sales to leading health food
      retailers and distributors. For certain retail customers where we sell our
      branded products, we also manufacture private label 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
      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.




Our
      export business is subject to additional risks relating to the conduct of
      business internationally, such as the inability to obtain and maintain required
      approvals, comply with local regulations and obtain and protect intellectual
      property rights. Political instability, natural disasters and trade or foreign
      exchange restrictions may disrupt our export business as well. The importance
      of
      these and other risks relating to exporting goods to foreign countries increases
      as our export business grows and expands.




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 fat-free
      granola bars and fruit and nut bars coated with white or milk chocolate that
      are
      free of hydrogenated fat. 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 2004 first quarter sale of our Venice Beach brand
      (included in our Haleko Unit), we marketed, primarily in Germany, a line of
      sports apparel to department stores, health clubs and gyms, and specialty
      sportswear retail stores.




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 market 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
      $18.3 million, $16.9 million and $15.7 million, respectively, for fiscal 2006,
      2005 and 2004. Classification of promotional costs as a sales reduction is
      required when the promotion effectively represents a price
      reduction.




During
      fiscal 2006, 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 newspaper media in
      fiscal 2006, along with several targeted direct mail and public relations
      campaigns. During fiscal 2006, our advertisements appeared in various magazines,
      national newspapers 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. New product development is
      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 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
      strategic third parties. Product research and development expenses were
      approximately $2.9 million, $3.2 million and $3.0 million, respectively, for
      fiscal 2006, 2005 and 2004.




**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 houses 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 are participating in the USP Dietary Supplement Verification
      Program, pursuant to which our manufacturing facility has been certified as
      being compliant with USP good manufacturing practices (“GMPs”). We were also
      awarded an “A” rating by the National Nutritional Foods Association (“NNFA”) in
      fiscal 2002, which was renewed in October 2004, for compliance with NNFA GMPs.
      In addition, our facility has been inspected by the Therapeutic Goods
      Administration, the Australian therapeutic goods regulatory agency.




Our
      packaging, counting and filling operations are computerized 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.




Our
      quality management systems are detailed and comprehensive, and include a
      supplier selection and certification process, analytical processes, 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 agreement with a third-party supplier for a key
      ingredient used in our Move Free Advanced product that is proprietary and may
      only be acquired from that supplier. 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.




**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 and marketing
      support.




Our
      competition includes numerous nutritional supplement companies that are highly
      fragmented in terms of both geographic market coverage 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 may have broader product lines and/or
      larger sales volumes than us and may 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.





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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




**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
      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. The FDA is developing guidance for
      the industry to clarify the FDA’s interpretation of the new dietary ingredient
      notification requirements, which may raise new and significant regulatory
      barriers for new 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.




The
      FDA has proposed final GMP regulations for the dietary supplement industry.
      If
      finalized, the proposed GMPs would require quality control provisions similar
      to, and in certain instances beyond, GMPs for drugs and over-the-counter
      products. These GMPs, if adopted, may result in increased expenses, changes
      to
      or discontinuance of products, or implementation of additional record keeping
      and administrative procedures. We cannot assure you that if the FDA adopts
      the
      GMPs in the proposed form we will be able to comply with the new regulations
      without incurring substantial costs.




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.





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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 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, 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. The various laws and regulations differ
      materially in some respects from U.S. laws and regulations, 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.




**Intellectual
      Property**




We
      own, or have filed for, over 100 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 proprietary, patent-pending ingredient,
      the rights for which we license from a third-party supplier pursuant to a
      long-term supply agreement. The term of the supply agreement extends through
      May
      2009, with automatic one-year extensions unless terminated by us or the supplier
      upon our breach of the agreement and failure to cure the breach within a
      prescribed time period.




**Employees**




At
      May 31, 2006, we employed approximately 382 persons, of whom approximately
      220
      were in management, sales, purchasing, logistics and administration and
      approximately 162 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 Significant Customers*** **.** Our largest customers are Costco and Wal-Mart. Combined, these two customers
      accounted for approximately 70%, 72% and 75%, respectively, of our total net
      sales for fiscal 2006, 2005 and 2004. 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.




***Dependence
      on Individual Products and Product Lines*** **.** Certain products and product lines account for a significant amount of our
      total
      net sales. Net sales of our Schiff Move Free brand were approximately 48%,
      40%
      and 39%, respectively, of total net sales for fiscal 2006, 2005 and 2004. Due
      to the divestitures of our Weider branded business and Haleko Unit, our
      concentration in this 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 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.




***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. For example, the inability
      to successfully implement the marketing and spending programs or strategic
      initiatives in support of Move Free Advanced and other 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.





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***Risks
      of Competition and Pricing Pressures*** **.** The market for the sale of nutritional supplements is highly competitive.
      Certain 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, which have
      been
      significantly increasing in certain nutrition categories (including joint care),
      also create significant 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.




***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 do have
      a
      long-term supply agreement with a third-party supplier for a key ingredient
      used
      in our Move Free Advanced product that is proprietary and may only be acquired
      from that supplier. 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 the ingredient in the quantities we require, or at
      all.
      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
      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.




***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 the fiscal 2006 second and third quarters,
      raw
      material pricing in the joint care category decreased and appeared to have
      stabilized. Accordingly, the price of key raw materials may not remain
      relatively constant. 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. 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.




***Dependence
      on Raw Materials Acquired From Suppliers Outside the United
      States.*** We acquire a
      significant amount of 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. 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.




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***Effect
      of Unfavorable Publicity*** **.** We believe our sales depend on consumer perceptions of the safety, quality
      and
      efficacy of our products as well as products distributed and sold by other
      companies. Consumer perceptions are influenced by scientific research or
      findings and national media attention regarding our products and other
      nutritional supplements. From time to time, there is some unfavorable publicity
      or scientific research regarding our industry. If future scientific research
      or
      media attention is perceived by consumers as less favorable or questions earlier
      research or publicity, our sales could be materially adversely affected. Adverse
      publicity in the form of published scientific research or otherwise, whether
      or
      not accurate, that associates consumption of our products or similar products
      with illness or other adverse effects, that questions the benefit of our
      products or similar products or that claims that any such products are
      ineffective could have a material adverse effect on our results of operations
      and financial condition.




***Impact
      of Government Regulation on Our Operations*** **.** Our operations, properties and 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.” Among other matters, government regulation covers statements and
      claims made in connection with the packaging, labeling, marketing and
      advertising of our products. Governmental agencies have a variety of processes
      and remedies available to them, including initiating investigations, issuing
      warning letters and cease and desist orders, requiring corrective labeling
      or
      advertising, requiring consumer redress, seeking injunctive relief or product
      seizure, imposing civil penalties or commencing criminal prosecution. 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 proposed extensive good manufacturing practice regulations for dietary
      supplements. See “Item 1 - Business - Government Regulation.” In addition, we
      may 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. 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.




***Product
      Liability and Availability of Related Insurance*** **.** As a manufacturer and distributor of products designed to be ingested, we face
      an inherent risk of exposure to product liability claims and litigation. 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. We carry insurance coverage in the types and amounts that we
      believe are reasonably appropriate for our business. However, our current
      product liability coverage excludes claims relating to certain categories of
      products and products that contain certain ingredients. In addition, certain
      damages in litigation, such as punitive damages, are generally not covered
      by
      insurance. In the event that we do not have adequate insurance or other
      indemnification coverage, product liability claims and litigation could have
      a
      material adverse effect on our results of operations and financial
      condition.




We
      are currently named as a defendant in a product liability lawsuit allegedly
      regarding certain of our former ephedra products. See “Item 3 - Legal
      Proceedings.” Subsequent to September 1, 2003, we have not maintained any
      insurance coverage regarding ephedra products. Our ongoing lawsuit regarding
      ephedra products is not covered by insurance. In connection with the sale of
      the
      American Body Building and Science Foods brands in July 2002, we discontinued
      the sale of products that contain ephedra. However, we cannot assure you that
      we
      will not be subject to further litigation with respect to ephedra products
      we
      have already sold.




***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 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, or at
      all.




***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
      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




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with
      the recall. 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, which could have a material adverse effect
      on
      our results of operations and financial condition.




***Risks
      Associated with International Markets.*** Until the sale of
      our Haleko Unit and Weider branded business, 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 product, 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, changes in or interpretations of foreign
      regulations that may limit our ability to sell certain products, the potential
      imposition of trade or foreign exchange restrictions or increased tariffs and
      political instability. We are often required to reformulate our products before
      commencing sales 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 necessary for our international efforts. 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.




***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 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. See “Item 1 - Business -
      Intellectual Property.”




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 intellectual property from a third party, we typically
      have
      contractual rights to require the licensor to adequately protect our
      intellectual property interests. Nevertheless, we can not guarantee that such
      measures will be sufficient to protect our interests.




***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.




***Acquisitions
      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.




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




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





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




At
      May 31, 2006, 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




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




In
      July 2003, we were named as a defendant in *Cain
      v. Metabolife, Inc., Weider Nutrition International, Inc., et.
      al.* filed in Texas state court. In connection with the bankruptcy filing of another
      defendant company, the case was removed to a U.S. District Court in New Jersey.
      The lawsuit alleges that the consumption of various products containing ephedra
      (distributed by several different companies) caused injuries and damages to
      the
      plaintiff. We dispute the allegations and are opposing the lawsuit. In
      connection with the recent bankruptcy filing of a second defendant, the matter
      has been stayed.




As
      this matter is not covered by insurance, a large adverse damage award could
      have
      a material adverse effect on our results of operations and financial condition.
      In connection with the sale of the American Body Building and Science Foods
      brands in July 2002, we discontinued the sale of products that contain ephedra.
      However, we cannot assure you that we will not be subject to further litigation
      with respect to ephedra products we have already sold.




From
      time to time, we are involved in other claims, legal actions and governmental
      proceedings that arise from our business operations. Although ultimate liability
      cannot be determined at the present time, we believe that any liability
      resulting from these matters, if any, after taking into consideration our
      insurance coverage, will not 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
      2006 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 2006 and 2005 are set forth below:




**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





**Fiscal
                Year Ended May 31, 2005:**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            5.04
            
            $
            3.00Second
                Quarter
            
            
            4.74
            
            
            3.11Third
                Quarter
            
            
            4.75
            
            
            4.14Fourth
                Quarter
            
            
            6.28
            
            
            3.88




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 10 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, 2006 was $6.99. The
      approximate number of stockholders of record of our Class A common stock on
      August 23, 2006 was 342. WHF owns all of the outstanding shares of our Class
      B
      common stock.




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, 2006:




**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
            
            3,337,785
                **(1)**
            
            $2.78
                **(1)**
            
            719,238Equity
                compensation plans not approved by security holders
            
            —
            
            —
            
            —Total
            
            3,337,785
            
            $2.78
            
            719,238





***(1)**The number of securities to be issued upon exercise of
      outstanding options, warrants and rights includes 1,437,200 shares of
      performance based 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 2006 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, 2002 through May 31, 2006, have been derived from our consolidated
      financial statements. The balance sheet data as of May 31, 2005 and 2006, and
      the related operating statement data for the fiscal years ended May 31, 2004
      through 2006 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,****2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006****Operating
                Statement Data (1), (2) and (3):**
            
            **(in
                thousands, except per share data)**Net
                sales
            
            $
            184,848
            
            $
            158,014
            
            $
            168,127
            
            $
            173,095
            
            $
            178,372Cost
                of goods sold
            
            
            120,607
            
            
            101,011
            
            
            107,472
            
            
            113,351
            
            
            119,303Gross
                profit
            
            
            64,241
            
            
            57,003
            
            
            60,655
            
            
            59,744
            
            
            59,069Operating
                expenses
            
            
            50,783
            
            
            41,948
            
            
            46,733
            
            
            44,981
            
            
            46,693Asset
                impairment loss (4)
            
            
            9,027
            
            
            —
            
            
            —
            
            
            —
            
            
            —Reimbursement
                of import costs
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,665
            )Total
                operating expenses
            
            
            59,810
            
            
            41,948
            
            
            46,733
            
            
            44,981
            
            
            44,028Income
                from operations
            
            
            4,431
            
            
            15,055
            
            
            13,922
            
            
            14,763
            
            
            15,041Other
                income (expense):Interest,
                net
            
            
            (4,890
            )
            
            (2,872
            )
            
            (168
            )
            
            179
            
            
            1,840Foreign
                currency translation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,613Other,
                net
            
            
            (611
            )
            
            (367
            )
            
            72
            
            
            (135
            )
            
            (135
            )Total
                other income (expense), net
            
            
            (5,501
            )
            
            (3,239
            )
            
            (96
            )
            
            44
            
            
            3,318Income
                (loss) from continuing operations before income taxes
            
            
            (1,070
            )
            
            11,816
            
            
            13,826
            
            
            14,807
            
            
            18,359Income
                tax expense
            
            
            209
            
            
            4,669
            
            
            5,230
            
            
            2,751
            
            
            2,393Income
                (loss) from continuing operations
            
            
            (1,279
            )
            
            7,147
            
            
            8,596
            
            
            12,056
            
            
            15,966Income
                (loss) from discontinued operations, net of income taxes (1), (2)
                and
                (3)
            
            
            (6,265
            )
            
            711
            
            
            291
            
            
            (5,487
            )
            
            (127
            )Income
                (loss) before cumulative effect of change in accounting
                principle
            
            
            (7,544
            )
            
            7,858
            
            
            8,887
            
            
            6,569
            
            
            15,839Cumulative
                effect of change in accounting principle, net of income tax benefit
                (5)
            
            
            —
            
            
            (15,392
            )
            
            —
            
            
            —
            
            
            —Net
                income (loss)
            
            $
            (7,544
            )
            $
            (7,534
            )
            $
            8,887
            
            $
            6,569
            
            $
            15,839Weighted
                average shares outstanding:Basic
            
            
            26,249
            
            
            26,249
            
            
            25,874
            
            
            25,817
            
            
            26,274Diluted
            
            
            26,249
            
            
            26,249
            
            
            26,771
            
            
            26,418
            
            
            26,999Net
                income (loss) per share:Basic
            
            $
            (0.29
            )
            $
            (0.29
            )
            $
            0.34
            
            $
            0.25
            
            $
            0.60Diluted
            
            $
            (0.29
            )
            $
            (0.29
            )
            $
            0.33
            
            $
            0.25
            
            $
            0.59





**At
                May 31,****2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006****Balance
                Sheet Data (1), (2), (3), (4) and (5):**
            
            **(in
                thousands)**Cash
                and cash equivalents
            
            $
            2,412
            
            $
            3,463
            
            $
            7,449
            
            $
            11,358
            
            $
            24,899Working
                capital
            
            
            31,683
            
            
            25,959
            
            
            46,456
            
            
            66,012
            
            
            90,516Total
                assets
            
            
            158,243
            
            
            114,938
            
            
            114,924
            
            
            128,266
            
            
            131,615Total
                debt
            
            
            39,967
            
            
            8,716
            
            
            1,224
            
            
            3,020
            
            
            —Total
                stockholders’ equity
            
            
            76,741
            
            
            68,846
            
            
            75,813
            
            
            89,835
            
            
            107,507




(1)
            Effective
                May 1, 2003, we sold substantially all of the assets relating to
                our
                Venice Beach brand. In accordance with SFAS No. 144, the fiscal years
                presented have been restated to reflect the Venice Beach operating
                results
                as discontinued operations. See Note 2 of the Notes to Consolidated
                Financial Statements.




(2)
            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,
                the fiscal years presented have been restated to reflect the Weider
                branded business operating results as discontinued operations. See
                Note 2
                of the Notes to Consolidated Financial
                Statements.




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(3)
            Effective
                May 1, 2005, we sold our Haleko Unit. In accordance with SFAS No.
                144, the
                fiscal years presented have been restated to reflect the Haleko Unit
                operating results as discontinued operations. See Note 2 of the Notes
                to
                Consolidated Financial Statements.




(4)
            In
                July 2002, we sold substantially all assets and certain associated
                liabilities relating to our American Body Building and Science Foods
                brands. In accordance with SFAS No. 144, the fiscal years presented
                have
                been restated to reflect the American Body Building and Science Food
                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 a goodwill impairment loss
                of
                approximately $15.4 million, which is net of income tax benefit of
                approximately $7.9 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. (formerly Weider 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.




On
      May 1, 2003 (the first day of Haleko’s fiscal year 2004), we sold substantially
      all of the assets relating to Haleko’s Germany-based Venice Beach sports apparel
      brand. The transaction included the sale of Venice Beach receivables,
      inventories, intellectual property and certain fixed assets and the assumption
      by the purchaser of approximately 47 Venice Beach employees. The net cash
      proceeds from the sale were approximately $7.1 million.




Historical
      operating results for the Haleko Unit, including the Venice Beach sports apparel
      business, 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.





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During
      fiscal 2006, 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.
      Our primary initiative was the introduction of our Move Free Advanced product,
      which we believe is an improved, more effective version of our existing Move
      Free product. We began implementing the Move Free Advanced initiative during
      the
      latter part of the fiscal 2006 second quarter, and provided incremental selling
      and marketing support during the second half of fiscal 2006. The introduction
      of
      Move Free Advanced into substantially all of our significant retail accounts
      continued during the second half of fiscal 2006 and will continue into fiscal
      2007. We believe the Move Free Advanced initiative positively impacted fiscal
      2006 Move Free net sales. Subject to the impact of Move Free Advanced marketing
      initiatives and competitive joint care category pricing pressures, including
      private label, we believe our fiscal 2007 net sales will reflect a single digit
      increase, as compared to fiscal 2006 net sales. We also believe selling and
      marketing costs, as a percentage of net sales, will increase in fiscal 2007,
      depending on actual net sales results.




Our
      operating results for fiscal 2006 and 2005 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 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. We believe gross profit, as a percentage
      of
      net sales, will increase in fiscal 2007, as compared to fiscal
      2006.




Our
      operating results for fiscal 2006 were favorably impacted by approximately
      $2.7
      million in reimbursements 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.




Our
      operating results for fiscal 2005 and 2004 were impacted by an industry slow
      down (including the lack of successful new product introductions), increased
      competitive pressures (particularly from increasing private label growth),
      and
      the implementation of our Schiff Grow Move Free initiative to defend the brand
      against competition. During the fiscal 2003 fourth quarter, we began
      implementing our Schiff Grow Move Free initiative. The initiative included
      incremental selling and marketing support intended to both 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
      2004
      and 2005, we continued our incremental selling and marketing investment in
      support of our Move Free brand. During the fiscal 2005 second quarter, we
      launched our Lubriflex 3 product and supported the introduction with significant selling and marketing
      support. We believe that our overall fiscal 2005 and 2004 Move Free and other
      branded joint care category net sales benefited from these
      initiatives.




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
      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. An increase in aggregate branded net sales
      volume, primarily in our joint care category, 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 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 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 an approximate $8.4 million increase in sales price
      reductions related to incremental promotional incentives and free goods costs.
      The decrease was substantially offset by an overall increase in sales volume
      coupled with a significant change in sales mix towards 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
      resulted primarily from the fiscal 2006 inclusion of approximately $2.7 million
      in reimbursement from certain suppliers of previously incurred costs associated
      with imported raw materials, partially offset by an increase in selling and
      marketing and general and administration expenses.




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 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 allocation of certain personnel related costs from selling and
      marketing expense to general and administrative expense subsequent to the sale
      of our Haleko Unit.





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General
      and administrative expenses increased to $14.9 million for fiscal 2006, from
      $14.0 million for fiscal 2005. The increase was 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, 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 expense 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. We recognized approximately $1.6 million of incremental interest
      income for fiscal 2006, resulting primarily from an increase in cash and
      investment (available-for-sale) securities. As a result of the divestiture
      of
      our Haleko Unit, certain international operating entities were substantially
      liquidated. Accordingly, we recognized a non-taxable net foreign currency
      translation gain, previously reported as other accumulated comprehensive income
      in stockholders’ equity, of approximately $1.6 million during fiscal
      2006.




**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 Internal Revenue 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. 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 tax-exempt interest income, our effective tax rate was 13.0% for
      fiscal 2006, compared to 18.6% for fiscal 2005.




**Results
      of
      Operations**


*Fiscal
      2005
      Compared to Fiscal 2004*




The
      following
      tables show comparative results for selected items as reported and as a
      percentage of net sales for fiscal 2005 and 2004, (dollars
      in thousands)*:*




**2005**
            
            **2004**Net
                sales
            
            $
            173,095
            
            
            100.0
            %
            $
            168,127
            
            
            100.0
            %Cost
                of
                goods sold
            
            
            113,351
            
            
            65.5
            
            
            107,472
            
            
            63.9Gross
                profit
            
            
            59,744
            
            
            34.5
            
            
            60,655
            
            
            36.1Operating
                expenses:Selling
                and
                marketing
            
            
            27,750
            
            
            16.0
            
            
            26,389
            
            
            15.7General
                and
                administrative
            
            
            13,956
            
            
            8.1
            
            
            17,249
            
            
            10.2Research
                and
                development
            
            
            3,245
            
            
            1.9
            
            
            2,975
            
            
            1.8Amortization
                of intangible assets
            
            
            30
            
            
            —
            
            
            120
            
            
            0.1Total
                operating expenses
            
            
            44,981
            
            
            26.0
            
            
            46,733
            
            
            27.8Income
                from
                operations
            
            
            14,763
            
            
            8.5
            
            
            13,922
            
            
            8.3Other
                income
                (expense), net
            
            
            44
            
            
            —
            
            
            (96
            )
            
            (0.1
            )Income
                tax
                expense
            
            
            (2,751
            )
            
            (1.6
            )
            
            (5,230
            )
            
            (3.1
            )Income
                from
                continuing operations
            
            $
            12,056
            
            
            6.9
            %
            $
            8,596
            
            
            5.1
            %




**Net
      Sales.** Net
      sales
      increased approximately 3.0% to $173.1 million for fiscal 2005, from $168.1
      million for fiscal 2004. An increase in aggregate branded net sales, primarily
      in our joint care category, was substantially offset by an expected decrease
      in
      private label sales.




Aggregate
      branded
      net sales increased approximately 9.3% to $124.9 million for fiscal 2005, from
      $114.2 million for fiscal 2004. Branded joint care product sales volume
      increased approximately $20.3 million, or 18.8%, offset by a $3.2 million
      decrease in other Schiff branded sales volume, a $7.6 million increase in sales
      price reductions related to incremental promotional incentives and a $1.2
      million decrease in allowances for potential product returns associated with
      branded sales. Move Free net sales were $68.9 million and $66.2 million,
      respectively, for fiscal 2005 and 2004.




Private
      label
      sales were $48.2 million and $53.9 million, respectively, for fiscal 2005 and
      2004. During fiscal 2005, as a result of significant volatility in raw material
      costs and the inability to secure an acceptable price increase from the
      customers, we discontinued certain private label (contract manufacturing)
      business. Net sales for the discontinued private label business amounted to
      approximately $22.6 million and $29.8 million, respectively, for fiscal 2005
      and
      2004.





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**Gross
      Profit.** Gross
      profit
      decreased approximately 1.5% to $59.7 million for fiscal 2005, from $60.7
      million for fiscal 2004. Gross profit, as a percentage of net sales, was 34.5%
      and 36.1%, respectively, for fiscal 2005 and 2004. The decrease in gross profit
      was primarily due to an $8.1 million increase in joint care category raw
      material costs and a $7.8 million increase in sales price reductions related
      to
      incremental promotional incentives and free goods costs, substantially offset
      by
      an approximate $12.3 million increase due to a change in sales mix towards
      higher-margin branded sales and a $2.3 million decrease in allowances for
      potential product returns and inventory related costs.




**Operating
      Expenses.** Operating
      expenses
      decreased approximately 3.7% to $45.0 million for fiscal 2005, from $46.7
      million for fiscal 2004. Operating expenses, as a percentage of net sales,
      were
      26.0% and 27.8%, respectively, for fiscal 2005 and 2004. A significant decrease
      in general and administrative expenses was partially offset by an increase
      in
      selling and marketing expenses.




Selling
      and
      marketing expenses, including sales, marketing, advertising, freight and other
      costs, increased to approximately $27.8 million for fiscal 2005, from $26.4
      million for fiscal 2004. Selling and marketing expenses, as a percentage of
      net
      sales, were 16.0% and 15.7%, respectively, for fiscal 2005 and 2004. The
      increase resulted primarily from an increase in marketing expenses in support
      of
      our fiscal 2005 launch of our Lubriflex 3 product.




General
      and
      administrative expenses decreased to $14.0 million for fiscal 2005, from $17.2
      million for fiscal 2004. The decrease in general and administrative expenses
      resulted primarily from a $4.4 million reduction in legal related costs,
      partially offset by the fiscal 2004 recovery of approximately $1.1 million
      of
      previously recognized notes receivable valuation allowances.




Research
      and
      development costs increased to approximately $3.2 million for fiscal 2005,
      from
      $3.0 million for fiscal 2004, resulting primarily from an increase in contracted
      research relating to new product initiatives.




**Other
      Income/Expense.** Other
      income/expense, net, remained relatively constant for fiscal 2005 and 2004.
      We
      recognized approximately $0.4 million of incremental interest income for fiscal
      2005, resulting from the increase in cash and investment (available-for-sale)
      securities. We settled certain outstanding notes receivable in fiscal 2004
      primarily through reacquiring 994,017 shares of our outstanding Class A common
      stock. As a result of these settlement transactions, we recognized approximately
      $0.7 million in previously unrecognized interest income on the notes receivable.
      We also recognized less interest expense in fiscal 2005 due to an overall
      reduction in total indebtedness.




**Provision
      for Income Taxes.** Provision
      for
      income taxes was $2.8 million for fiscal 2005, compared to $5.2 million for
      fiscal 2004. The change resulted primarily from a significant decrease in our
      effective tax rate, partially offset by an increase in pre-tax income. During
      fiscal year 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 Internal Revenue Service (“IRS”) challenge, and the potential
      implications to the NOL carryforwards. During fiscal year 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. Upon
      the
      conclusion of the IRS audit, during fiscal 2005, we recognized an income tax
      benefit of approximately $2.9 million, which includes partial reversal of the
      valuation allowance and an adjustment for research and development
      credits.




**Liquidity
      and Capital Resources**




Working
      capital increased $24.5 million to approximately $90.5 million at May 31, 2006,
      from $66.0 million at May 31, 2005, primarily due to a $13.5 million increase
      in
      cash and a $15.9 million increase in investment (available-for-sale) securities
      resulting primarily from operating cash flows for fiscal 2006 and the sale
      of
      our Haleko Unit. Net receivables decreased by approximately $8.9 million. The
      decrease includes a reduction of $13.9 million due to the sale of our Haleko
      Unit, partially offset by an increase of $4.0 million primarily due to an
      increase in net sales for the fiscal 2006 fourth quarter as compared to the
      fiscal 2005 fourth quarter. Inventories decreased by approximately $8.9 million
      primarily due to the sale of our Haleko Unit. Total current liabilities
      decreased by approximately $15.1 million, which includes a $13.7 million
      reduction due to the sale of our Haleko Unit.




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. 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, 2006, there were no amounts
      outstanding and $25.0 million was available for borrowing under the Credit
      Facility. On August 23, 2006 we extended the maturity of the Credit
      Facility from June 30, 2007 to June 30, 2009.





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Our
      European working capital needs (primarily our former Haleko Unit) were supported
      by a Germany-based secured credit facility (the “Haleko Facility”) that was
      subject to annual renewal. Our obligations under the Haleko Facility were
      secured by a first priority lien on substantially all Haleko tangible and
      intangible assets. In connection with the sale of our Haleko Unit (see Note
      2 of
      the Notes to Consolidated Financial Statements), the purchaser assumed the
      liabilities and obligations under the Haleko Facility.




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, 2006 is as follows
      (in thousands):




**Contractual**
              **Cash
                Obligations**
            
            **Total
                Amounts Committed**
            
            **Less
                than 1 Year**
            
            **1-3**
              **Years**
            
            **3-5**
              **Years**
            
            **After**
              **5
                Years**Operating
                leases
            
            $
            16,190
            
            $
            2,367
            
            $
            4,939
            
            $
            4,647
            
            $
            4,237Purchase
                obligations
            
            
            21,702
            
            
            21,702
            
            
            —
            
            
            —
            
            
            —Total
                obligations
            
            $
            37,892
            
            $
            24,069
            
            $
            4,939
            
            $
            4,647
            
            $
            4,237




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
                2006, 2005 and 2004, inventory valuation adjustments resulted in
                a
                decrease in our gross profit and operating income of approximately
                $0.4
                million, $0.4 million and $0.2 million, respectively. At May 31,
                2006 and
                2005, our inventory valuation allowance amounted to approximately
                $0.8
                million and $2.2 million, respectively. Our inventory valuation allowance
                decreased by approximately $1.0 million as a result of the sale of
                our
                Haleko Unit. If actual demand and/or market conditions are less favorable
                than those projected by management, additional inventory write-downs
                would
                be required.




·
            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 our allowances for doubtful
                accounts, sales returns and discounts resulted in an increase in
                our gross
                profit and operating income of approximately $0.7 million for fiscal
                2006.
                Fiscal 2005 and 2004 gross profit and operating income were not
                significantly impacted by changes in these allowances. At May 31,
                2006 and
                2005, our allowance for doubtful accounts, sales returns and discounts
                amounted to approximately $3.3 million and $4.8 million, respectively.
                Our
                allowance for doubtful accounts, sales returns and discounts decreased
                by
                approximately $0.8 million as a result of the sale of our Haleko
                Unit.
                Actual results
                may differ from our current estimates, resulting in adjustment of
                the
                respective allowance(s).




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·
            We
                currently have deferred tax assets resulting from certain tax credit
                carryforwards and other 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. Changes in these valuation allowances
                resulted
                in an increase in net income of approximately $3.1 million, $1.8
                million
                and $0.3 million, respectively, for fiscal 2006, 2005 and 2004. At
                May 31,
                2006 and 2005, our deferred tax asset valuation allowances, primarily
                relating to foreign net operating loss and tax credit carryforwards,
                amounted to approximately $0.7 million and $3.8 million, respectively.




·
            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. For fiscal 2006, we recognized compensation expense
                related to these awards of approximately $0.5 million. At May 31,
                2006,
                total unrecognized compensation expense, based on our assessment
                of the
                probability that the performance criteria will be achieved, was
                approximately $5.3 million.




·
            We
                have certain intangible assets, primarily consisting of goodwill.
                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
      November 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs,”
which amends the guidance in Accounting Research Bulletin (“ARB”) No. 43,
      Chapter 4, “Inventory Pricing,” to clarify that abnormal amounts of idle
      facility expense, freight, handling costs, and wasted material (spoilage) should
      be recognized as a current-period expense. In addition, SFAS No. 151 requires
      that allocation of fixed production overheads to the costs of conversion be
      based on the normal capacity of the production facilities. The inventory costing
      provisions of SFAS No. 151 are effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. We do not believe adoption of SFAS
      No. 151 will have a material impact on our results of operations and financial
      condition.




In
      December 2004, the FASB issued SFAS No. 123R, which replaces SFAS No. 123,
      supersedes Accounting Principals 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 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 $0.1 million for fiscal 2006, resulting in a corresponding
      decrease in income from continuing operations and net income. There was no
      impact on basic and diluted earnings per share. Cash provided by operating
      activities decreased and cash provided by financing activities increased by
      approximately $0.4 million related to excess tax benefits from stock-based
      payment arrangements. Also, remaining deferred compensation costs totaling
      approximately $0.2 million were reclassified to additional paid-in
      capital.





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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 are still in the process of calculating the APIC Pool and
      have
      not yet determined if we will elect to adopt the simplified method.




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. The tax benefit recognizing, measuring and disclosing
      provisions of FIN No. 48 are effective at the beginning of the first fiscal
      year
      that begins after December 15, 2006. We have not yet determined the impact
      of
      implementing FIN No. 48 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. 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 recent
      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 at the reasonable assurance
      level.




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
                AND EXECUTIVE OFFICERS OF THE
                REGISTRANT**




See
      our 2006 Definitive Proxy Statement, incorporated by reference in Part III
      of
      this Annual Report on Form 10-K, under the headings “Board of Directors and
      Board Committees 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 2006 Definitive Proxy Statement
      under the heading “Board of Directors and Board Committees
      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 21, 2005, 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 2006 Definitive Proxy Statement, incorporated by reference in Part III
      of
      this Annual Report on Form 10-K, under the headings “Board of Directors and
      Board Committees Information,” “Compensation of Named Executive Officers” 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 2006 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 PARTY
                TRANSACTIONS**




See
      our 2006 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
                ACCOUNTANT FEES AND
                SERVICES**




See
      our 2006 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.
            Credit
                Agreement dated as of June 30, 2004 between Weider Nutrition Group,
                Inc.
                and KeyBank National Association. (3)4.2.
            Form
                of specimen Class A common stock certificate. (13)10.1.
            Build-To-Suit
                Lease Agreement, dated March 20, 1996, between SCI Development Services
                Incorporated and Weider Nutrition Group, Inc. (2)10.2.
            Agreement
                by and between Joseph Weider and Weider Health and Fitness.
                (2)10.3.
            1997
                Equity Participation Plan of Weider Nutrition International, Inc.
                (2)10.4.
            Form
                of Tax Sharing Agreement by and among Weider Nutrition International,
                Inc.
                and its subsidiaries and Weider Health and Fitness and its subsidiaries.
                (2)10.5.
            License
                Agreement between Mariz Gestao E Investimentos Limitada and Weider
                Nutrition Group, Limited. (2)10.6.
            Agreement
                between Schiff Nutrition Group, Inc. and Bruce J. Wood.
                (4)*10.7.
            Form
                Agreement between Schiff Nutrition Group, Inc. and certain of its
                executives. (4)*10.8.
            Amendments
                to 1997 Equity Participation Plan of Weider Nutrition International,
                Inc.
                (5)10.9.
            Employment
                Agreement between Weider Nutrition Group, Inc. and Bruce J. Wood.
                (6)*10.10.
            Consulting
                Agreement between Weider Nutrition Group, Inc. and Gustin Foods,
                LLC dated
                as of February 1, 2004. (7)10.11.
            Weider
                Nutrition International, Inc. 2004 Incentive Award Plan.
                (8)10.12.
            Amendment
                effective as of March 1, 2005 to License Agreement between Mariz
                Gestao E
                Investimentos Limitada and Weider Nutrition Group, Inc.
                (9)10.13.
            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. (9)10.14.
            Promissory
                Note of Weider Global Nutrition, LLC payable to Weider Nutrition
                Group,
                Inc. (9)10.15.
            Guarantee
                by Weider Health and Fitness in favor of Weider Nutrition International,
                Inc. and Weider Nutrition Group, Inc. (9)10.16.
            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. (10)10.17.
            Form
                of Indemnification Agreement between Weider Nutrition International,
                Inc.
                and certain of its executives and directors. (11)*10.18.
            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. (12)*21.1.
            Subsidiaries
                of Schiff Nutrition International, Inc. (13)23.1.
            Consent
                of Independent Registered Public Accounting Firm. (13)31.1.
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act. (13)31.2.
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act. (13)32.1.
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act. (13)





(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 (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 Current Report on Form 8-K filed on February 3,
                2006 and incorporated herein by reference.(5)
            Previously
                filed in the Company’s Quarterly Report on Form 10-Q filed on January 14,
                2002 and incorporated herein by reference.(6)
            Previously
                filed in the Company’s Annual Report on Form 10-K filed on August 29, 2002
                and incorporated herein by reference.(7)
            Previously
                filed in the Company’s Quarterly Report on Form 10-Q filed on April 14,
                2004 and incorporated herein by reference.(8)
            Previously
                filed in the Company’s Definitive Proxy Statement on Form 14A filed on
                September 28, 2004 and incorporated herein by
                reference.(9)
            Previously
                filed in the Company’s Current Report on Form 8-K filed on April 4, 2005
                and incorporated herein by reference.(10)
            Previously
                filed in the Company’s Current Report on Form 8-K filed on June 23, 2005
                and incorporated herein by reference.(11)
            Previously
                filed in the Company’s Current Report on Form 8-K filed on August 10, 2005
                and incorporated herein by reference.(12)
            Previously
                filed in the Company’s Current Report on Form 8-K filed on March 23, 2006
                and incorporated herein by reference.(13)
            Filed
                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:
                August28,
                2006
            **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
            
            August28,
                2006Eric
                Weider
            
            and
                Director/s/
                Bruce J. Wood
            
            Chief
                Executive Officer,
            
            August28,
                2006Bruce
                J. Wood
            
            President
                and Director(Principal
                Executive Officer)/s/
                Joseph W. Baty
            
            Executive
                Vice President and
            
            August28,
                2006Joseph
                W. Baty
            
            Chief
                Financial Officer(Principal
                Financial Officer and Principal
                Accounting Officer)/s/
                Ronald L. Corey
            
            Director
            
            August28,
                2006Ronald
                L. Corey/s/
                Roger H. Kimmel
            
            Director
            
            August28,
                2006Roger
                H. Kimmel/s/
                George F. Lengvari
            
            Vice
                Chairman of the Board
            
            August28,
                2006George
                F. Lengvari
            
            and
                Director/s/
                Brian P. McDermott
            
            Director
            
            August28,
                2006Brian
                P. McDermott/s/
                H. F. Powell
            
            Director
            
            August28,
                2006H.
                F. Powell




-
            24
            -
 Table
            of
            Contents
 **SCHIFF
            NUTRITION INTERNATIONAL, INC. INDEX
            TO CONSOLIDATED FINANCIAL
            STATEMENTS**

















Report
                of Independent Registered Public Accounting Firm
            F
                - 2Consolidated
                Balance Sheets at May 31, 2006 and 2005
            F
                - 3Consolidated
                Statements of Income,Years
                Ended May 31, 2006, 2005 and 2004
            F
                - 4Consolidated
                Statements of Stockholders’ Equity,Years
                Ended May 31, 2006, 2005 and 2004
            F
                - 5Consolidated
                Statements of Cash Flows,Years
                Ended May 31, 2006, 2005 and 2004
            F
                - 6Notes
                to Consolidated Financial Statements
            F
                - 7







F
            - 1
 Table
            of
            Contents
 **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,
      2006 and 2005, and the related consolidated statements of income, stockholders’
equity and cash flows for each of the three years in the period ended May 31,
      2006. 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, 2006 and 2005, and the results of their
      operations and their cash flows for each of the three years in the period ended
      May 31, 2006 in conformity with accounting principles generally accepted in
      the
      United States of America.




DELOITTE
      & TOUCHE LLP













Salt
      Lake City, Utah


August
      23, 2006







F
            - 2
 Table
            of
            Contents
 **SCHIFF
            NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETSMAY 31,
            2006 AND 2005 (dollars
            in thousands, except share data)**




**ASSETS****2006**
            
            **2005**Current
                assets:Cash
                and cash equivalents
            
            $
            24,899
            
            $
            11,358Available-for-sale
                securities (Note 3)
            
            
            40,120
            
            
            24,212Receivables,
                net (Note 4)
            
            
            20,431
            
            
            29,300Inventories
                (Note 5)
            
            
            23,515
            
            
            32,419Prepaid
                expenses and other
            
            
            2,444
            
            
            4,297Deferred
                taxes, net (Note 11)
            
            
            2,419
            
            
            2,857Total
                current assets
            
            
            113,828
            
            
            104,443Property
                and equipment, net (Note 6)
            
            
            13,287
            
            
            16,714Other
                assets:Goodwill
                (Note 7)
            
            
            4,346
            
            
            4,346Intangible
                assets, net (Note 7)
            
            
            —
            
            
            23Deposits
                and other assets
            
            
            154
            
            
            1,310Deferred
                taxes, net (Note 11)
            
            
            —
            
            
            1,430Total
                other assets
            
            
            4,500
            
            
            7,109Total
                assets
            
            $
            131,615
            
            $
            128,266**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            10,547
            
            $
            16,566Accrued
                expenses (Note 9)
            
            
            11,472
            
            
            13,577Short-term
                debt (Note 10)
            
            
            —
            
            
            3,020Income
                taxes payable
            
            
            1,293
            
            
            5,268Total
                current liabilities
            
            
            23,312
            
            
            38,431Deferred
                taxes, net (Note 11)
            
            
            796
            
            
            —Commitments
                and contingencies (Notes 13 and 14)Stockholders’
                equity:Preferred
                stock, par value $.01 per share; sharesauthorized-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 -11,606,193 (2006) and 11,309,910
                (2005)
            
            
            116
            
            
            113Class
                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
            
            
            88,488
            
            
            86,857Deferred
                compensation costs
            
            
            —
            
            
            (366
            )Other
                accumulated comprehensive income (Note 12)
            
            
            —
            
            
            167Retained
                earnings
            
            
            18,753
            
            
            2,914Total
                stockholders’ equity
            
            
            107,507
            
            
            89,835Total
                liabilities and stockholders’ equity
            
            $
            131,615
            
            $
            128,266







See
      notes to consolidated financial statements.


F
            - 3
 Table
            of
            Contents
 **SCHIFF
            NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS
            OF INCOMEYEARS ENDED MAY 31, 2006,
            2005 AND 2004 (dollars
            in thousands, except share data)**




**2006**
            
            **2005**
            
            **2004**Net
                sales
            
            $
            178,372
            
            $
            173,095
            
            $
            168,127Cost
                of goods sold
            
            
            119,303
            
            
            113,351
            
            
            107,472Gross
                profit
            
            
            59,069
            
            
            59,744
            
            
            60,655Operating
                expenses:Selling
                and marketing
            
            
            28,957
            
            
            27,750
            
            
            26,389General
                and administrative
            
            
            14,863
            
            
            13,956
            
            
            17,249Research
                and development
            
            
            2,851
            
            
            3,245
            
            
            2,975Amortization
                of intangible assets
            
            
            22
            
            
            30
            
            
            120Reimbursement
                of import costs
            
            
            (2,665
            )
            
            —
            
            
            —Total
                operating expenses
            
            
            44,028
            
            
            44,981
            
            
            46,733Income
                from operations
            
            
            15,041
            
            
            14,763
            
            
            13,922Other
                income (expense):Interest
                income
            
            
            2,005
            
            
            441
            
            
            845Interest
                expense
            
            
            (165
            )
            
            (262
            )
            
            (1,013
            )Foreign
                currency translation
            
            
            1,613
            
            
            —
            
            
            —Other
            
            
            (135
            )
            
            (135
            )
            
            72Total
                other income (expense), net
            
            
            3,318
            
            
            44
            
            
            (96
            )Income
                from continuing operations before income taxes
            
            
            18,359
            
            
            14,807
            
            
            13,826Income
                tax expense
            
            
            2,393
            
            
            2,751
            
            
            5,230Income
                from continuing operations
            
            
            15,966
            
            
            12,056
            
            
            8,596Income
                (loss) from discontinued operations, net of income taxes (Note
                2)
            
            
            (127
            )
            
            (5,487
            )
            
            291Net
                income
            
            $
            15,839
            
            $
            6,569
            
            $
            8,887Weighted
                average shares outstanding:Basic
            
            
            26,274,066
            
            
            25,816,553
            
            
            25,873,721Diluted
            
            
            26,999,240
            
            
            26,417,535
            
            
            26,771,182Income
                per share - basic:Income
                from continuing operations
            
            $
            0.61
            
            $
            0.47
            
            $
            0.33Income
                (loss) from discontinued operations
            
            
            (0.01
            )
            
            (0.22
            )
            
            0.01Net
                income
            
            $
            0.60
            
            $
            0.25
            
            $
            0.34Income
                per share - diluted:Income
                from continuing operations
            
            $
            0.59
            
            $
            0.46
            
            $
            0.32Income
                (loss) from discontinued operations
            
            
            —
            
            
            (0.21
            )
            
            0.01Net
                income
            
            $
            0.59
            
            $
            0.25
            
            $
            0.33







See
      notes to consolidated financial statements.


F
            - 4
 Table
            of
            Contents
 **SCHIFF
            NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
            EQUITYYEARS ENDED MAY 31, 2006,
            2005 AND 2004 (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, 2003**
            
            11,916
            
            $
            119
            
            $
            150
            
            $
            86,943
            
            $
            (873
            )
            $
            (4,951
            )
            $
            (12,542
            )
            $
            68,846Comprehensive
                income:Net
                income
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,887
            
            
            8,887Foreign
                currency translation adjustments (Note 12)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            891
            
            
            —
            
            
            891Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,778Cancellation
                of restricted stock (Note 13)
            
            (23
            )
            
            —
            
            
            —
            
            
            (37
            )
            
            37
            
            
            —
            
            
            —
            
            
            —Stock
                options exercised
            
            228
            
            
            2
            
            
            —
            
            
            604
            
            
            —
            
            
            —
            
            
            —
            
            
            606Tax
                benefit from stock options exercised
            
            —
            
            
            —
            
            
            —
            
            
            203
            
            
            —
            
            
            —
            
            
            —
            
            
            203Stock
                received as payment of notes receivable (Note 8)
            
            (994
            )
            
            (10
            )
            
            —
            
            
            (3,811
            )
            
            —
            
            
            —
            
            
            —
            
            
            (3,821
            )Amortization
                of deferred compensation costs
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            201
            
            
            —
            
            
            —
            
            
            201**Balance
                at May 31, 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 12)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4,227
            
            
            —
            
            
            4,227Total
                comprehensive income
            
            (60
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,796Cancellation
                of restricted stock (Note 13)
            
            —
            
            
            —
            
            
            —
            
            
            (96
            )
            
            96
            
            
            —
            
            
            —
            
            
            —Stock
                options exercised
            
            270
            
            
            2
            
            
            —
            
            
            714
            
            
            —
            
            
            —
            
            
            —
            
            
            716Tax
                benefit from stock options exercised
            
            —
            
            
            —
            
            
            —
            
            
            261
            
            
            —
            
            
            —
            
            
            —
            
            
            261Stock
                received for payment of income taxes on restricted stock
                compensation
            
            (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 12)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (167
            )
            
            —
            
            
            (167
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15,672Cancellation
                of restricted stock (Note 13)
            
            (28
            )
            
            —
            
            
            —
            
            
            (45
            )
            
            45
            
            
            —
            
            
            —
            
            
            —Stock
                options exercised
            
            354
            
            
            3
            
            
            —
            
            
            965
            
            
            —
            
            
            —
            
            
            —
            
            
            968Tax
                benefit from stock options exercised
            
            —
            
            
            —
            
            
            —
            
            
            406
            
            
            —
            
            
            —
            
            
            —
            
            
            406Stock
                received for payment of income taxes on restricted stock
                compensation
            
            (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
            
            $
            107,507







See
      notes to consolidated financial statements.


F
            - 5
 Table
            of
            Contents
 **SCHIFF
            NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED MAY
            31, 2006, 2005 AND 2004
(dollars
            in thousands)**




**2006**
            
            **2005**
            
            **2004**Cash
                flows from operating activities:Net
                income
            
            $
            15,839
            
            $
            6,569
            
            $
            8,887Adjustments
                to reconcile net income to net cash provided byoperating
                activities:Recovery
                of bad debts/valuation allowances
            
            
            (109
            )
            
            —
            
            
            (1,059
            )Deferred
                taxes
            
            
            2,664
            
            
            (8,362
            )
            
            6,182Depreciation
                and amortization
            
            
            3,049
            
            
            5,534
            
            
            5,309Asset
                impairment
            
            
            —
            
            
            9,346
            
            
            —Interest
                income on settlement of notes receivables
            
            
            —
            
            
            —
            
            
            (630
            )Amortization
                and write-off of financing fees
            
            
            55
            
            
            141
            
            
            524Loss
                (gain) on disposition of net assets held for sale andproperty
                and equipment
            
            
            137
            
            
            (41
            )
            
            (1,517
            )Stock-based
                compensation
            
            
            769
            
            
            173
            
            
            201Tax
                benefit from stock options exercised
            
            
            406
            
            
            261
            
            
            203Excess
                tax benefit from stock options exercised
            
            
            (48
            )
            
            —
            
            
            —Foreign
                currency translation
            
            
            (1,613
            )
            
            —
            
            
            —Other
            
            
            —
            
            
            3
            
            
            97Changes
                in operating assets and liabilities:Receivables
            
            
            (4,841
            )
            
            1,939
            
            
            (8,342
            )Inventories
            
            
            862
            
            
            (8,898
            )
            
            (888
            )Prepaid
                expenses and other
            
            
            609
            
            
            374
            
            
            (709
            )Deposits
                and other assets
            
            
            281
            
            
            514
            
            
            2,543Accounts
                payable
            
            
            2,184
            
            
            5,588
            
            
            (4,117
            )Accrued
                expenses
            
            
            1,361
            
            
            (871
            )
            
            (1,409
            )Income
                taxes payable
            
            
            (3,922
            )
            
            5,268
            
            
            —Net
                cash provided by operating activities
            
            
            17,683
            
            
            17,538
            
            
            5,275Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (2,894
            )
            
            (2,429
            )
            
            (1,680
            )Proceeds
                from disposition of net assets held for sale andproperty
                and equipment
            
            
            10
            
            
            959
            
            
            7,255Purchase
                of intangible assets
            
            
            —
            
            
            (7
            )
            
            —Proceeds
                from sales of Haleko Unit and Weider brandedbusiness
                (Note 2)
            
            
            13,683
            
            
            9,647
            
            
            —Purchase
                of available-for-sale securities
            
            
            (52,011
            )
            
            (25,012
            )
            
            —Proceeds
                from sale of available-for-sale securities
            
            
            36,103
            
            
            800
            
            
            —Collection
                of notes receivable
            
            
            600
            
            
            100
            
            
            4Net
                cash provided by (used in) investing activities
            
            
            (4,509
            )
            
            (15,942
            )
            
            5,579Cash
                flows from financing activities:Proceeds
                from debt
            
            
            1,693
            
            
            4,470
            
            
            2,705Payments
                on debt
            
            
            (2,194
            )
            
            (2,818
            )
            
            (10,451
            )Proceeds
                from stock options exercised
            
            
            968
            
            
            716
            
            
            606Acquisition
                and retirement of common stock
            
            
            (143
            )
            
            (108
            )
            
            —Excess
                tax benefit from stock options exercised
            
            
            48
            
            
            —
            
            
            —Net
                cash provided by (used in) financing activities
            
            
            372
            
            
            2,260
            
            
            (7,140
            )Effect
                of exchange rate changes on cash
            
            
            (5
            )
            
            53
            
            
            272Increase
                in cash and cash equivalents
            
            
            13,541
            
            
            3,909
            
            
            3,986Cash
                and cash equivalents, beginning of year
            
            
            11,358
            
            
            7,449
            
            
            3,463Cash
                and cash equivalents, end of year
            
            $
            24,899
            
            $
            11,358
            
            $
            7,449







See
      notes to consolidated financial statements.


F
            - 6
 Table
            of
            Contents
 **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 quoted market
      prices, if available; 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 $3,026 (2006), $4,494 (2005) and $4,431 (2004), 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.
      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.




**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.





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            NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
            FINANCIAL STATEMENTS  - *(continued)*(dollars
            in thousands, except share data)**


**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 $173,165 and $5,207,
      respectively, for fiscal 2006; $168,648 and $4,447, respectively, for fiscal
      2005; and $165,319 and $2,808, respectively, for fiscal 2004. 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 $12,026, $13,463 and $14,346, respectively, for fiscal
      2006, 2005 and 2004, of which $12,026, $11,462 and $11,573, respectively, is
      included in selling and marketing expenses and $0, $2,001 and $2,773,
      respectively, is included in discontinued operations.




**Shipping
      and Handling Costs -** Shipping
      costs were $3,803, $6,610 and $7,384, respectively, for fiscal 2006, 2005 and
      2004, of which $3,803, $3,352 and $3,234, respectively, is included in selling
      and marketing expenses and $0, $3,258 and $4,150, respectively, is included
      in
      discontinued operations. Handling costs were $2,364, $4,411 and $3,924,
      respectively, for fiscal 2006, 2005 and 2004, of which $2,364, $2,230 and
      $2,104, respectively, is included in general and administrative expenses and
      $0,
      $2,181 and $1,820, 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, 2006 and 2005, respectively, amounts due from Customer A represented
      approximately 30% and 21% and amounts due from Customer B represented
      approximately 27% and 15% of total trade accounts receivable. For fiscal 2006,
      2005 and 2004, respectively, Customer A accounted for approximately 33%, 38%
      and
      42% and Customer B accounted for approximately 37%, 34% and 33% of total net
      sales. Net sales of our Schiff Move Free brand accounted for approximately
      48%,
      40% and 39%, respectively, of total net sales for fiscal 2006, 2005 and 2004.




**Stock-Based
      Compensation -** Effective March 1, 2006, we adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 123R 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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              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, 2005 and 2004 are as follows:




**2006**
            
            **2005**
            
            **2004**Net
                income, as reported
            
            $
            15,839
            
            $
            6,569
            
            $
            8,887Deduct
                stock-based employee compensation expense determined under fair-value
                based method, net of related tax effects
            
            
            (232
            )
            
            (371
            )
            
            (340
            )Net
                income, proforma
            
            $
            15,607
            
            $
            6,198
            
            $
            8,547Basic
                net income per share, as reported
            
            $
            0.60
            
            $
            0.25
            
            $
            0.34Diluted
                net income per share, as reported
            
            
            0.59
            
            
            0.25
            
            
            0.33Basic
                net income per share, proforma
            
            
            0.59
            
            
            0.24
            
            
            0.33Diluted
                net income per share, proforma
            
            
            0.58
            
            
            0.23
            
            
            0.32




**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 2006, 2005 and 2004, respectively, excludes
      the effect of options to purchase 1,480,585, 2,111,692 and 1,838,551 shares
      because the exercise price exceeds the average market price and therefore would
      have been anti-dilutive.




**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, we recognized a non-taxable foreign currency translation gain,
      previously reported as other accumulated comprehensive income in stockholders’
equity, of approximately $1.6 million during fiscal 2006.




**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, 2006, we were not party to any derivatives. At May 31, 2005, we were
      party to one interest rate derivative with a fair value of approximately
      $49.




**Reimbursement
      of Import Costs** -
      Our operating results for fiscal 2006 were favorably impacted by approximately
      $2.7 million in reimbursement 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
      November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      151, “Inventory Costs,” which amends the guidance in Accounting Research
      Bulletin (“ARB”) No. 43, Chapter 4, “Inventory Pricing,” to clarify that
      abnormal amounts of idle facility expense, freight, handling costs, and wasted
      material (spoilage) should be recognized as a current-period expense. In
      addition, SFAS No. 151 requires that allocation of fixed production overheads
      to
      the costs of conversion be based on the normal capacity of the production
      facilities. The inventory costing provisions of SFAS No. 151 are effective
      for
      inventory costs incurred during fiscal years beginning after June 15, 2005.
      We
      do not believe adoption of SFAS No. 151 will have a material impact on our
      results of operations and financial condition.




In
      December 2004, the 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





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              FINANCIAL STATEMENTS  - *(continued)*(dollars
              in thousands, except share
              data)**




Opinion
      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 $104 for fiscal 2006. The
      incremental stock-based compensation expense caused income from continuing
      operations to decrease by $104 and, net income to decrease by $62. The impact
      on
      basic and diluted earnings per share was nil. Cash provided by operating
      activities decreased and cash provided by financing activities increased by
      $406
      related to excess tax benefits from stock-based payment arrangements. Also,
      remaining deferred compensation costs totaling $204 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 are still in the process of calculating the APIC Pool and
      have
      not yet determined if we will elect to adopt the simplified method.




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. The tax benefit recognizing, measuring and disclosing
      provisions of FIN No. 48 are effective at the beginning of the first fiscal
      year
      that begins after December 15, 2006. We have not yet determined the impact
      of
      implementing FIN No. 48 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
      approximately $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 approximately $687 and relinquished cash of approximately $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.




The
      carrying amounts of the Haleko Unit assets and liabilities, included in the
      accompanying consolidated balance sheet at May 31, 2005, consist of the
      following:




Cash
                and cash equivalents
            
            $
            711Receivables,
                net
            
            
            13,619Inventories
            
            
            8,042Prepaid
                expenses and other
            
            
            1,244Property
                and equipment, net
            
            
            3,378Intangible
                assets, net
            
            
            —Deposits
                and other assets
            
            
            420Accounts
                payable
            
            
            7,705Accrued
                expenses
            
            
            3,466Short-term
                debt
            
            
            2,519




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.





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              FINANCIAL STATEMENTS  - *(continued)*(dollars
              in thousands, except share
              data)**




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.




Effective
      in our fiscal 2004 first quarter, we sold substantially all of the assets of
      our
      Venice Beach sports apparel business to Hucke AG, a German apparel company,
      for
      net cash proceeds of approximately $7,134. In connection with the transaction,
      we recognized a gain of $977, net of income taxes of $612.




Historical
      operating results for our Haleko Unit, including the Venice Beach sports apparel
      business, 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.




Summarized
      financial information included in discontinued operations for fiscal 2006,
      2005
      and 2004, is as follows:




**2006**
            
            **2005**
            
            **2004**Net
                sales
            
            $
            —
            
            $
            86,156
            
            $
            89,402Pre-tax
                income (loss)
            
            
            (199
            )
            
            (8,238
            )
            
            499Income
                tax expense (benefit)
            
            
            (72
            )
            
            (2,751
            )
            
            208Net
                income (loss)
            
            
            (127
            )
            
            (5,487
            )
            
            291Gain
                on sale, net of income taxes
            
            
            —
            
            
            —
            
            
            977




**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:




**2006**
            
            **2005**Federal,
                state and municipal debt securities
            
            $
            29,114
            
            $
            12,112Corporate
                debt securities
            
            
            7,306
            
            
            5,600Corporate
                equity securities
            
            
            3,700
            
            
            6,500$
            40,120
            
            $
            24,212




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,
      2006:




Less
                than one year
            
            $
            1,015One
                to five years
            
            
            1,950Over
                five years
            
            
            33,455$
            36,420




The
      amount of unrealized gains or losses for fiscal 2006 and 2005 was not
      significant.




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            in thousands, except share data)**




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




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




**2006**
            
            **2005**Trade
                accounts
            
            $
            23,103
            
            $
            32,886Income
                tax refund due from WHF
            
            
            —
            
            
            361Current
                portion of note receivable due from WGN (see Note 2)
            
            
            400
            
            
            600Other
            
            
            248
            
            
            21523,751
            
            
            34,062Less
                allowances for doubtful accounts, sales returns and
                discounts
            
            
            (3,320
            )
            
            (4,762
            )Total
            
            $
            20,431
            
            $
            29,300




**5.**
            **INVENTORIES**




Inventories
      consist of the following at May 31:




**2006**
            
            **2005**Raw
                materials
            
            $
            9,694
            
            $
            11,419Work
                in process
            
            
            1,275
            
            
            1,887Finished
                goods
            
            
            12,546
            
            
            19,113Total
            
            $
            23,515
            
            $
            32,419




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




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




**2006**
            
            **2005**Buildings
            
            $
            —
            
            $
            3,473Furniture
                and equipment
            
            
            29,065
            
            
            37,721Leasehold
                improvements
            
            
            11,247
            
            
            11,229Construction
                in progress
            
            
            1,164
            
            
            8341,476
            
            
            52,506Less
                accumulated depreciation and amortization
            
            
            (28,189
            )
            
            (35,792
            )Total
            
            $
            13,287
            
            $
            16,714




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




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





**2006**
            
            **2005****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
            )
            $
            —
            
            $
            5,479
            
            $
            (5,456
            )
            $
            23




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 approximately
      $3,506.




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




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            FINANCIAL STATEMENTS  - *(continued)*(dollars
            in thousands, except share data)**




**8.**
            **NOTES
                RECEIVABLE, NET**




Prior
      to our initial public offering (“IPO”), certain individuals (the “Recipients”)
      had management incentive agreements (the “Agreements”) pursuant to which the
      individuals were granted performance units (“Performance Units”) as incentive
      compensation. Simultaneously with the IPO, which triggered a conversion under
      the Agreements, we paid in cash and shares of Class A common stock the vested
      portion of the Performance Units. The unvested portion of the Performance Units
      vested (contingent upon continued employment and/or other factors) over a
      five-year period at 20% per year.




In
      order to facilitate the payment of individual income taxes, we made available
      to
      each Recipient a loan in principal amount up to 30% of the conversion value
      of
      the vested Performance Units held by each Recipient. These notes receivable
      were
      recourse, generally collateralized by the Recipients’ shares of our Class A
      common stock and originally repayable beginning in June 2002 and ending December
      of 2006.




In
      connection with subsequent collection efforts, settlement agreements were
      reached during fiscal 2004 with five of the six Recipients. Accordingly, we
      received $99 in cash and acquired and retired 994,017 shares of our Class A
      common stock valued at approximately $3,821 as full payment of the aggregate
      amount of principal and interest accrued on the notes. The settlement of these
      outstanding notes receivable resulted in the reduction of previously recognized
      allowances for unrealizable amounts of $1,069, reflected as a reduction of
      general and administrative expenses, and recognition of contractually due
      interest income of approximately $696. The remaining outstanding note, with
      a
      net balance of $40 at May 31, 2004, was settled in fiscal 2005.






**9.**
            **ACCRUED
                EXPENSES**




Accrued
      expenses consist of the following at May 31:




**2006**
            
            **2005**Accrued
                personnel related costs
            
            $
            3,477
            
            $
            4,564Accrued
                promotional costs
            
            
            5,260
            
            
            3,927Other
            
            
            2,735
            
            
            5,086Total
            
            $
            11,472
            
            $
            13,577




**10.**
            **SHORT-TERM
                DEBT**




Short-term
      debt consists of the following at May 31:




**2006**
            
            **2005**Advances
                under a Germany, euro-based $10,335 (at May 31, 2005 exchange rate)
                secured revolving line of credit bearing interest at variable rates
                ranging from 4.00% to 7.25% at May 31, 2005; see below
            
            $
            —
            
            $
            2,483Other
            
            
            —
            
            
            537Total
            
            $
            —
            
            $
            3,020




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. 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, 2006, there were no amounts outstanding and $25,000
      was
      available for borrowing under the Credit Facility. On August 23, 2006 we
      extended the maturity of the Credit Facility from June 30, 2007 to June 30,
      2009.




Our
      European working capital needs (primarily our former Haleko Unit) were supported
      by a Germany-based secured credit facility (the “Haleko Facility”) that was
      subject to annual renewal. Our obligations under the Haleko Facility were
      secured by a first priority lien on substantially all Haleko tangible and
      intangible assets. In connection with the sale of
      our Haleko Unit (see Note 2 of the Notes to Consolidated Financial Statements),
      the purchaser assumed the liabilities and obligations under the Haleko
      Facility.  Cash
        interest payments amounted to $110, $320 and $884, respectively, for fiscal
        2006, 2005 and 2004.





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              NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
              FINANCIAL STATEMENTS  - *(continued)*(dollars
              in thousands, except share
              data)**




**11.**
            **INCOME
                TAXES**




The
      components of income tax expense for fiscal 2006, 2005 and 2004, are as
      follows:




**2006**
            
            **2005**
            
            **2004**Federal:Current
            
            $
            2,647
            
            $
            8,319
            
            $
            (138
            )Deferred
            
            
            682
            
            
            (4,306
            )
            
            5,072Change
                in valuation allowance
            
            
            (1,185
            )
            
            (1,618
            )
            
            (280
            )Foreign:Current
            
            
            —
            
            
            —
            
            
            —Deferred
            
            
            1,847
            
            
            —
            
            
            —Change
                in valuation allowance
            
            
            (1,847
            )
            
            —
            
            
            —State
                and local:Current
            
            
            192
            
            
            1,054
            
            
            157Deferred
            
            
            135
            
            
            (500
            )
            
            468Change
                in valuation allowance
            
            
            (78
            )
            
            (198
            )
            
            (49
            )Total
            
            $
            2,393
            
            $
            2,751
            
            $
            5,230




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




**2006**
            
            **2005**
            
            **2004**Computed
                Federal income tax expense at the statutory rate of 34%
            
            $
            6,242
            
            $
            5,034
            
            $
            4,701Foreign
                tax rate differential
            
            
            —
            
            
            —
            
            
            481Miscellaneous
                credits
            
            
            —
            
            
            (1,029
            )
            
            (315
            )Change
                in valuation allowance
            
            
            (3,110
            )
            
            (1,816
            )
            
            (329
            )State
                income tax expense
            
            
            327
            
            
            554
            
            
            625Tax
                exempt interest
            
            
            (275
            )
            
            —
            
            
            —Foreign
                currency translation
            
            
            (548
            )
            
            —
            
            
            —Other
            
            
            (243
            )
            
            8
            
            
            67Total
            
            $
            2,393
            
            $
            2,751
            
            $
            5,230




Net
      cash income tax payments amounted to $2,318, $1,895 and $1,353, respectively,
      for fiscal 2006, 2005 and 2004.





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              FINANCIAL STATEMENTS  - *(continued)*(dollars
              in thousands, except share
              data)**




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




**2006**
            
            **2005****Current**
            
            **Long-Term**
            
            **Current**
            
            **Long-Term**Assets:Accounts
                receivable allowances
            
            $
            1,185
            
            $
            —
            
            $
            1,480
            
            $
            —Inventories
                adjustment
            
            
            573
            
            
            —
            
            
            898
            
            
            —Deferred
                compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            646Accrued
                vacation, bonuses and other
            
            
            922
            
            
            335
            
            
            782
            
            
            508Basis
                differences in fixed and intangible assets
            
            
            —
            
            
            —
            
            
            —
            
            
            3,508Capital
                loss and charitable contribution carryforwards
            
            
            —
            
            
            —
            
            
            —
            
            
            524Net
                operating loss carryforwards
            
            
            —
            
            
            —
            
            
            —
            
            
            2,559Research
                and development, and other credits
            
            
            —
            
            
            985
            
            
            —
            
            
            792Total
            
            
            2,680
            
            
            1,320
            
            
            3,160
            
            
            8,537Liabilities:Basis
                differences in fixed and intangible assets
            
            
            —
            
            
            (1,462
            )
            
            —
            
            
            —Foreign
                currency adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            3,343Other
            
            
            261
            
            
            —
            
            
            303
            
            
            —Total
            
            
            261
            
            
            (1,462
            )
            
            303
            
            
            3,343Deferred
                income taxes before valuation allowance
            
            
            2,419
            
            
            (142
            )
            
            2,857
            
            
            5,194Valuation
                allowance
            
            
            —
            
            
            (654
            )
            
            —
            
            
            (3,764
            )Deferred
                income taxes, net
            
            $
            2,419
            
            $
            (796
            )
            $
            2,857
            
            $
            1,430




At
      May 31, 2006, we have no net operating loss or capital loss carryforwards and
      approximately $654 in foreign tax credit carryforwards of which $460 expires
      in
      2009 and $194 expires in 2010. We have established a valuation allowance for
      the
      full amount of the foreign tax credit carryforwards since no benefit is expected
      to be realized. The amount of the deferred tax assets considered realizable
      and
      the corresponding valuation allowance, however, 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 net operating loss and capital loss
      carryovers, and the resulting net operating loss release from the sale of the
      Haleko Unit, net of an increase due to expected unrealizability of the 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. Upon the conclusion of the IRS audit, during fiscal 2005, we recognized
      an
      income tax benefit of approximately $2,902, 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.




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            NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
            FINANCIAL STATEMENTS  - *(continued)*(dollars
            in thousands, except share data)**




**12.**
            **OTHER
                ACCUMULATED COMPREHENSIVE
                INCOME**




Other
      accumulated comprehensive income of $167, net of income taxes of $855, consists
      only of foreign currency translation adjustments at May 31, 2005.




The
      components of other comprehensive income (loss) for fiscal 2006, 2005 and 2004,
      are as follows:




**Pre-tax
                Income (Loss)**
            
            **Tax
                Expense (Benefit)**
            
            **Net
                Income (Loss)****2006:**Foreign
                currency translation adjustments:Unrealized
                gains
            
            $
            —
            
            $
            —
            
            $
            —Less
                reclassification adjustment for realized gain (loss)
            
            
            (688
            )
            
            (855
            )
            
            167Net
                unrealized gain (loss)
            
            $
            688
            
            $
            855
            
            $
            (167
            )**2005:**Foreign
                currency translation adjustments:Unrealized
                gains
            
            $
            2,390
            
            $
            (1,763
            )
            $
            4,153Less
                reclassification adjustment for realized loss
            
            
            (127
            )
            
            (53
            )
            
            (74
            )Net
                unrealized gain (loss)
            
            $
            2,517
            
            $
            (1,710
            )
            $
            4,227**2004:**Net
                unrealized gain on foreign currency translation
            
            $
            1,449
            
            $
            558
            
            $
            891




**13.**
            **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 (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 per
      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.




Prior
      to March 1, 2006, we applied APB Opinion No. 25 in accounting for our stock
      options. All stock options were granted at fair value 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 2006, 2005 and 2004, respectively.





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              NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
              FINANCIAL STATEMENTS  - *(continued)*(dollars
              in thousands, except share
              data)**




**2006**
            
            
            
            **2005**
            
            
            
            **2004**Expected
                volatility
            
            
            54.10
            %
            
            
            
            
            59.63
            %
            
            
            
            
            61.14
            %Expected
                term
            
            
            3.00
            years
            
            
            
            
            5.00
            years
            
            
            
            
            4.00
            yearsRisk-free
                interest rate
            
            
            4.36
            %
            
            
            
            
            3.43
            %
            
            
            
            
            2.58
            %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, May 31, 2003
            
            
            2,272,750
            
            $
            2.43Granted
            
            
            535,500
            
            
            4.15Exercised
            
            
            (227,995
            )
            
            2.66Forfeited
                and/or expired
            
            
            (70,836
            )
            
            3.00Options
                outstanding, May 31, 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
            
            $
            2.78
            
            
            4.59
            
            $
            7,621Exercisable
                options, May 31, 2006
            
            
            1,661,252
            
            $
            2.53
            
            
            4.23
            
            $
            7,077




The
      weighted average grant-date fair value of options granted was $2.04, $2.39
      and
      $2.00, respectively, for fiscal 2006, 2005 and 2004. The total intrinsic value
      of options exercised was approximately $881, $412 and $434, respectively, for
      fiscal 2006, 2005 and 2004. We received approximately $968, $716 and $606,
      respectively, for stock options exercised during fiscal 2006, 2005 and
      2004.




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 approximately $1,038, which we are expensing on a straight-line
      basis over the accompanying five-year vesting period. During fiscal 2006, 2005
      and 2004, respectively, 106,200, 124,600 and 128,000 restricted shares vested.
      Concurrent with the annual vesting during fiscal 2006 and 2005, respectively,
      we
      reacquired (and ultimately retired) 29,813 and 27,406 shares from certain
      employees in connection with the payment of individual income taxes. As a result
      of the voluntary termination of certain employees, 28,000, 60,000 and 20,800,
      respectively, of these restricted shares were cancelled, during fiscal 2006,
      2005 and 2004. As of May 31, 2006, of the 640,000 restricted shares originally
      issued, 358,800 shares have vested, of which 57,219 shares were reacquired
      (and
      retired), 108,800 shares have been cancelled and 172,400 shares are subject
      to future vesting.




Stock-based
      compensation expense for stock options and restricted shares amounted to $242,
      $173 and $201, respectively, and the related tax benefit was approximately
      $55,
      $69 and $80, respectively, for fiscal 2006, 2005 and 2004. At May 31, 2006,
      total unrecognized compensation cost related to these non-vested share-based
      compensation awards was approximately $456, which is expected to be recognized
      over a weighted average period of 1.2 years.





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              NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
              FINANCIAL STATEMENTS  - *(continued)*(dollars
              in thousands, except share
              data)**




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 2006, we recognized
      compensation expense of $514, and the related tax benefit was approximately
      $205. At May 31, 2006, total unrecognized compensation expense, based on our
      assessment of the probability that the performance criteria will be achieved,
      was approximately $5,288, which is expected to be recognized over a weighted
      average period of 2.0 years.




**14.**
            **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, 2006, future minimum payments of $16,190
      under
      these non-cancelable operating leases are due as follows: $2,367 (2007), $2,517
      (2008), $2,422 (2009), $2,336 (2010), $2,311 (2011), and $4,237 thereafter.
      Rental expense was $2,344, $3,849 and $3,542, respectively, for fiscal 2006,
      2005 and 2004.




**Litigation
      -** In
      July 2003, we were named as a defendant in *Cain
      v. Metabolife, Inc., Weider Nutrition International, Inc., et.
      al.* filed in Texas state court. In connection with the bankruptcy filing of another
      defendant company, the case was removed to a U.S. District Court in New Jersey.
      The lawsuit alleges that the consumption of various products containing ephedra
      (distributed by several different companies) caused injuries and damages to
      the
      plaintiff. We dispute the allegations and are opposing the lawsuit. In
      connection with the recent bankruptcy filing of a second defendant, the matter
      has been stayed.




As
      this matter is not covered by insurance, a large adverse damage award could
      have
      a material adverse effect on our results of operations and financial condition.
      In connection with the sale of the American Body Building and Science Foods
      brands in July 2002, we discontinued the sale of products that contain ephedra.
      However, we cannot assure you that we will not be subject to further litigation
      with respect to ephedra products we have already sold.




From
      time to time, we are involved in other claims, legal actions and governmental
      proceedings that arise from our business operations. Although ultimate liability
      cannot be determined at the present time, we believe that any liability
      resulting from these matters, if any, after taking into consideration our
      insurance coverage, will not 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 $155, $646 and $629, respectively, for fiscal 2006,
      2005
      and 2004.




**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 $395, $373 and $355, respectively, for fiscal 2006, 2005 and
      2004.




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              FINANCIAL STATEMENTS  - *(continued)*(dollars
              in thousands, except share
              data)**




**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 $830 at May 31, 2006.




**15.**
            **RELATED
                PARTY TRANSACTIONS**




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




Payments
      to reimburse WHF for expenses (including primarily advertising, endorsements
      and
      royalties) for fiscal 2006, 2005 and 2004, are as follows:




**2006**
            
            **2005**
            
            **2004**Operating
                expenses
            
            $
            155
            
            $
            146
            
            $
            99Discontinued
                operations
            
            
            —
            
            
            838
            
            
            980Total
            
            $
            155
            
            $
            984
            
            $
            1,079




Subsequent
      to the sale of our Weider branded business (see Note 2), we continue to provide
      contract manufacturing services to WGN. For fiscal 2006 and 2005, respectively,
      net sales to WGN were approximately $2,658 and $994, with a gross profit of
      approximately $317 and $149. In addition, we received approximately $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 2006 and 2005.




**16.**
            **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), segment information is not
      provided. Historical operating results for our Haleko Unit and Weider branded
      business are reflected as discontinued operations and all remaining assets
      and
      operations, including our Tiger’s Milk and Fi-Bar brands, are 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.




**17.**
            **QUARTERLY
                RESULTS (UNAUDITED)**




Quarterly
      results (unaudited) for fiscal 2006 and 2005 are as follows:




**Quarter
                Ended****2006:**
            
            **Aug.
                31**
            
            **Nov.
                30**
            
            **Feb.
                28**
            
            **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





**Quarter
                Ended****2005:**
            
            **Aug.
                31**
            
            **Nov.
                30**
            
            **Feb.
                29**
            
            **May
                31**Net
                sales
            
            $
            43,695
            
            $
            44,268
            
            $
            45,185
            
            $
            39,947Gross
                profit
            
            
            16,803
            
            
            16,043
            
            
            14,197
            
            
            12,701Income
                from operations
            
            
            4,957
            
            
            5,615
            
            
            2,881
            
            
            1,310Income
                tax expense (benefit)
            
            
            1,844
            
            
            2,155
            
            
            1,122
            
            
            (2,370
            )Net
                income (loss)
            
            
            3,688
            
            
            3,464
            
            
            1,219
            
            
            (1,802
            )Basic
                net income (loss) per share
            
            
            .14
            
            
            .13
            
            
            .05
            
            
            (.07
            )Diluted
                net income (loss) per share
            
            
            .14
            
            
            .13
            
            
            .05
            
            
            (.07
            )




Quarterly
      information presented above includes certain reclassifications from amounts
      previously reported to reflect the June 17, 2005 sale of our Haleko Unit (see
      Note 2).





F
            - 19
 Table
            of
            Contents
 **SCHIFF
            NUTRITION INTERNATIONAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING
            ACCOUNTSYEARS ENDED MAY 31, 2006,
            2005 AND 2004 (in
            thousands)**




**Description**
            
            **Balance
                at Beginning of Year**
            
            **Additions
                (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:**2004
            
            $
            3,305
            
            $
            10
            
            $
            —
            
            $
            —
            
            $
            (1,134
            )
            $
            2,1812005
            
            $
            2,181
            
            $
            —
            
            $
            —
            
            $
            (557
            )
            $
            (354
            )
            $
            1,2702006
            
            $
            1,270
            
            $
            (109
            )
            $
            —
            
            $
            (669
            )
            $
            (61
            )
            $
            431**ALLOWANCE
                FOR SALES RETURNS AND DISCOUNTS:**2004
            
            $
            5,319
            
            $
            (1,962
            )
            $
            21,218
            
            $
            —
            
            $
            (20,252
            )
            $
            4,3232005
            
            $
            4,323
            
            $
            (1,665
            )
            $
            17,113
            
            $
            (351
            )
            $
            (15,928
            )
            $
            3,4922006
            
            $
            3,492
            
            $
            —
            
            $
            7,369
            
            $
            (88
            )
            $
            (7,884
            )
            $
            2,889**ALLOWANCE
                FOR UNREALIZABLE NOTES RECEIVABLE:**2004
            
            $
            1,286
            
            $
            (1,069
            )
            $
            —
            
            $
            —
            
            $
            (118
            )
            $
            992005
            
            $
            99
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            (99
            )
            $
            —2006
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —**DEFERRED
                TAXES VALUATION ALLOWANCE:**2004
            
            $
            5,909
            
            $
            (329
            )
            $
            —
            
            $
            —
            
            $
            —
            
            $
            5,5802005
            
            $
            5,580
            
            $
            (1,816
            )
            $
            —
            
            $
            —
            
            $
            —
            
            $
            3,7642006
            
            $
            3,764
            
            $
            (3,110
            )
            $
            —
            
            $
            —
            
            $
            —
            
            $
            654







F
          - 20
 Table
            of
            Contents
 
 SCHIFF
        NUTRITIOIN INTERNATIONAL
 FORM
        10-K
 FOR
        THE FISCAL YEAR ENDED MAY 31, 2006
  **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
        AND
        EXECUTIVE OFFICERS OF THE REGISTRANT
 ITEM
        11.EXECUTIVE
        COMPENSATION
 ITEM
        12.SECURITY
        OWNERSHIP
        OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
        MATTERS
 ITEM
        13.CERTAIN
        RELATIONSHIPS
        AND RELATED PARTY TRANSACTIONS
 ITEM
        14.PRINCIPAL
        ACCOUNTANT FEES AND SERVICES
  **PART
        IV**
 ITEM
        15.EXHIBITS,
        FINANCIAL STATEMENT SCHEDULES
  SIGNATURES
  **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.NOTES
        RECEIVABLE,
        NET
 9.ACCRUED
        EXPENSES
 10.SHORT-TERM
        DEBT
 11.INCOME
        TAXES
 12.OTHER
        ACCUMULATED
        COMPREHENSIVE INCOME
 13.STOCK-BASED
        COMPENSATION PLANS
 14.COMMITMENTS
        AND
        CONTINGENCIES
 15.RELATED
        PARTY
        TRANSACTIONS
 16.OPERATING
        SEGMENTS
 17.QUARTERLY
        RESULTS
        (UNAUDITED)
  **SCHIFF
        NUTRITION INTERNATIONAL, INC.****AND SUBSIDIARIES****VALUATION AND QUALIFYING
        ACCOUNTS**
  EXHIBIT  
4.2
              FORM
                  OF SPECIMEN CLASS A COMMON STOCK
                  CERTIFICATE
  EXHIBIT
                21.1
              SUBSIDIARIES
                  OF SCHIFF NUTRITION INTERNATIONAL,
                  INC.
  EXHIBIT
                23.1
              CONSENT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                  FIRM
  EXHIBIT
                31.1
              CERTIFICATE
                  OF CEO PURSUANT TO SECTION 302 OF THE
                  SARBANES-OXLEY ACT OF 2002
  EXHIBIT
                31.2
              CERTIFICATE
                  OF CFO PURSUANT TO SECTION 302 OF THE
                  SARBANES-OXLEY ACT OF 2002
  EXHIBIT
                32.1
              CERTIFICATION
                  OF CEO AND CFO PURSUANT TO SECTION
                  906 OF THE SARBANES-OXLEY ACT