The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q and other reports filed with the SEC. Sections of this Form 10-Q including, in particular, our Management's Discussion and Analysis of Financial Condition and Results of Operations, contain "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 (the "Exchange Act"). These statements are based on management's beliefs and assumptions, current expectations, estimates and projections. Statements that are not historical facts, including without limitation statements which are preceded by, followed by or include the words "believes," "anticipates," "plans," "expects," "estimates," "may," "should," "intends," or similar expressions, are forward-looking statements. These statements are subject to risks and uncertainties, certain of which are beyond our control, and therefore, actual results may differ materially. Important factors that may cause results to materially differ from these forward-looking statements include, but are not limited to, the factors indicated from time to time in our reports filed with the SEC, copies of which are available upon request from our investor relations group or which may be obtained at the SEC's website (www.sec.gov). Forward-looking statements only speak as of the date hereof and we do not undertake and expressly disclaim any obligation to update or release any revisions to any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law.

General

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

During fiscal 2008 and the fiscal 2009 first quarter, we continued to provide selling and marketing support intended both to defend our overall Move Free business against competition, including private label, and ultimately to increase our market share in the joint care product category. During our fiscal 2008 third quarter, we announced the introduction of smaller tablets for our existing Move Free items as well as the launch of a Move Free line extension. Operating results for fiscal 2009, as compared to fiscal 2008, are impacted by the shifting of advertising support from the first half to the second half of fiscal 2008 in support of these Move Free marketing initiatives. As a result, advertising expense for the first quarter of fiscal 2009 was greater than the amount recognized in the corresponding prior year period. Operating results for fiscal 2009 are also impacted by incremental private label business awarded in the latter part of fiscal 2008. The incremental business coupled with increased volume from existing business resulted in a significant change in quarter over quarter sales mix. The significant increase in lower-margin private label sales resulted in an overall lower gross profit margin for the fiscal 2009 first quarter, as compared to the fiscal 2008 first quarter. During the latter part of fiscal 2008, we introduced MegaRed®, an omega-3 krill oil product, into Costco. During the fiscal 2009 first quarter, we continued the introduction of MegaRed into certain other retail accounts. During fiscal 2008 and continuing in fiscal 2009, we are attempting to increase distribution of our joint care products in international markets. Subject to competitive joint care product category pricing pressures, including private label, the success of incremental private label and new product sales and the ability to increase our distribution in international markets, we expect a low double-digit increase in fiscal 2009 net sales, as compared to fiscal 2008 net sales, primarily driven by incremental private label business.

Our operating results for the fiscal 2008 first quarter were impacted by the declaration of a special cash dividend in July 2007. In connection with the declaration of the special dividend, our Board of Directors approved certain dividend equivalent rights allowing holders (employees and directors) of certain equity awards, including stock options and restricted stock units, to receive cash dividends on each share of common stock underlying the stock options and restricted stock units. As a result, we recognized a non-cash compensation expense, and a corresponding increase in additional paid-in capital, of approximately $3.0 million during the fiscal 2008 first quarter.

Recently, we have experienced increases in certain raw material prices. Although, the impact of these increases on fiscal 2009 first quarter gross profit was minimal, these increases could have a more negative impact on our gross profit and operating results for subsequent quarters.

Our historical results have been affected by a variety of factors, including the implementation of strategic initiatives and measures intended to refine our growth and business strategies. We continue to consider, evaluate and adjust these initiatives and our growth and business strategies to enhance our results of operations and profitability. However, we cannot assure you that our decisions and actions relating to the implementation, adjustment or continuation of such initiatives and strategies will not adversely affect our results of operations and financial condition.

Our principal executive offices are located at 2002 South 5070 West, Salt Lake City, Utah 84104, and our telephone number is (801) 975-5000.

Results of Operations (unaudited)
Three Months Ended August 31, 2008 Compared to Three Months
Ended August 31, 2007

The following tables show comparative results for selected items as reported and
as a percentage of net sales for the three months ended August 31, (dollars in
thousands):

                                     2008                     2007

Net sales                    $ 47,790       100.0 %   $ 40,727       100.0 %
Cost of goods sold             29,912        62.6       24,306        59.7

Gross profit                   17,878        37.4       16,421        40.3
Operating expenses:
Selling and marketing           8,133        17.0        6,756        16.6
General and administrative      3,737         7.8        6,787        16.6
Research and development          988         2.1        1,026         2.5

Total operating expenses       12,858        26.9       14,569        35.7

Income from operations          5,020        10.5        1,852         4.6
Other income, net                 279         0.6          798         2.0
Income tax expense             (2,050 )      (4.3 )     (1,002 )      (2.5 )

Net income                   $  3,249         6.8 %   $  1,648         4.1 %

Net Sales. Net sales increased approximately 17.3% to $47.8 million for the fiscal 2009 first quarter, from $40.7 million for the fiscal 2008 first quarter, primarily due to an increase in private label sales.

Aggregate branded net sales remained relatively constant at $32.5 million and $32.3 million, respectively, for the fiscal 2009 and 2008 first quarters. An increase in sales volume of approximately $2.2 million, or 5.1%, was offset by an increase in sales promotional incentives classified as sales price reductions and an increase in actual and potential product returns. Classification of promotional costs as a sales reduction is required when the promotion effectively represents a price reduction. The increase in branded sales volume was primarily attributable to the introduction of new products, partially offset by a decrease in overall joint care category sales volume. Move Free net sales were $19.4 million and $20.8 million, respectively, for the fiscal 2009 and 2008 first quarters. The decrease primarily resulted from an increase in promotional incentives and product returns.

Private label sales increased approximately 81.9% to $15.3 million for the fiscal 2009 first quarter, from $8.4 million for the fiscal 2008 first quarter, primarily due to incremental business awarded in the latter part of fiscal 2008 and an increase in customer promotional activity on existing business. Private label sales are expected to continue to increase in fiscal 2009, compared to fiscal 2008, due to incremental business and volume increases in existing business.

Gross Profit. Gross profit increased approximately 8.9% to $17.9 million for the fiscal 2009 first quarter, from $16.4 million for the fiscal 2008 first quarter. Gross profit, as a percentage of net sales, decreased to 37.4% for the fiscal 2009 first quarter, from 40.3% for the fiscal 2008 first quarter. These changes reflect the significant increase in private label sales volume resulting in a much higher mix of lower-margin private label sales. Increasing raw material costs did not significantly impact the fiscal 2009 first quarter, but could negatively impact subsequent fiscal 2009 quarters.

Operating Expenses. Operating expenses decreased approximately 11.7% to $12.9 million for the fiscal 2009 first quarter, from $14.6 million for the fiscal 2008 first quarter. Operating expenses, as a percentage of net sales, were 26.9% and 35.7%, respectively, for the fiscal 2009 and 2008 first quarters. The decrease in operating expenses resulted primarily from a significant decrease in general and administrative expenses, 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 $8.1 million for the fiscal 2009 first quarter, from $6.8 million for the fiscal 2008 first quarter, primarily due to an increase in advertising and other promotional expenses and an increase in freight costs. The increase in advertising is primarily due to the impact of shifting advertising spending from the first half to the second half of fiscal 2008 in support of certain Move Free marketing initiatives. Freight costs increased due to higher sales volumes and increases in fuel costs.

General and administrative expenses decreased to approximately $3.7 million for the fiscal 2009 first quarter, from approximately $6.8 million for the fiscal 2008 first quarter. The fiscal 2008 first quarter includes the recognition of approximately $2.8 million in incremental compensation expense for the special dividend. The special dividend compensation expense represents a non-cash charge for dividend equivalent rights received by holders (employees and directors) of certain equity awards, including stock options and restricted stock units. The fiscal 2008 first quarter also includes an approximate $0.7 million expense associated with the previous long-term management incentive plan. Development of a new long-term incentive plan is currently in process. These reductions were partially offset by moderate increases in other personnel related costs and professional fees.

Research and development costs remained relatively constant at approximately $1.0 million for the fiscal 2009 and 2008 first quarters.

Other Income/Expense. Other income, net, was $0.3 million for the fiscal 2009 first quarter, compared to $0.8 million for the fiscal 2008 first quarter. The decrease was primarily due to a reduction in interest income resulting from a decrease in cash and available-for-sale securities reflecting the impact of the fiscal 2008 first quarter special dividend, which was funded from cash and liquidation of available-for-sale securities.

Provision for Income Taxes. Provision for income taxes was $2.1 million for the fiscal 2009 first quarter, compared to $1.0 million for the fiscal 2008 first quarter. The increase resulted from an increase in pre-tax income and a moderate increase in our effective tax rate primarily due to a decrease in tax-exempt interest income. The fiscal 2009 first quarter tax rate was 38.7%, compared to the fiscal 2008 first quarter tax rate of 37.8%.

Liquidity and Capital Resources

Working capital increased approximately $2.9 million to $84.4 million at August 31, 2008, from $81.5 million at May 31, 2008. An approximate $3.9 million reduction in cash and cash equivalents and available-for-sale securities includes, among other factors, an increase in inventories, a decrease in accrued expenses, the payment of approximately $1.0 million in dividends resulting from the vesting of certain restricted stock units and the payment of approximately $1.1 million in individual income taxes resulting from withholding and effectively reacquiring 206,509 shares of the 673,400 shares of Class A common stock issued in exchange for the fully vested restricted stock units. The approximate $2.8 million increase in inventories primarily reflects an increase in both quantities and costs of certain raw materials. The approximate $1.4 million decrease in accrued expenses was primarily due to the payment of accrued management annual incentive costs, partially offset by an increase in accrued promotional expenses. In addition, net receivables increased approximately $1.9 million, reflecting an approximate $4.0 million increase in net trade accounts receivable primarily due to an increase in net sales for August of fiscal 2009, as compared to May of fiscal 2008, partially offset by a $2.0 million reduction in refundable income taxes. The overall $2.6 million change in income taxes receivable/payable was primarily due to fiscal 2009 first quarter operating results. Prepaid expenses also decreased approximately $0.7 million, primarily due to a reduction in prepaid insurance as certain annual insurance policies were renewed at September 1, 2008.

As a result of current negative liquidity and uncertainty in financial credit markets, we have continued to liquidate our investments in ARS and other variable rate debt securities. Proceeds from the sale of these available-for-sale securities were invested in money market accounts, certificates of deposit, United States Treasury Bills with maturities of three months or less, and high-quality commercial paper, substantially all of which are included in cash and cash equivalents. At August 31, 2008, we held approximately $2.3 million in available-for-sale securities; including approximately $1.3 million in ARS, which are generally fully insured, AAA rated municipal or state agency issued securities. Although we have experienced failed auctions with each of these ARS, and will therefore not be able to access our funds invested in these ARS until future auctions of these investments are successful, or the securities are called by the issuer; we believe we will be able to successfully liquidate these investments in a reasonable period of time. However, we believe the unsuccessful liquidation of some, or all, of these securities over the next twelve months will not significantly impact our current liquidity needs.

On June 30, 2004, we entered into, through our wholly-owned direct operating subsidiary Schiff Nutrition Group, Inc. ("SNG"), a $25.0 million revolving credit facility (the "Credit Facility") with KeyBank National Association, as Agent. In August 2006, we extended the maturity of the Credit Facility from June 30, 2007 to June 30, 2009. The Credit Facility contains customary terms and conditions, including, among others, financial covenants that may limit our ability to pay dividends on our common stock and certain other restrictions. Our obligations under the Credit Facility are secured by a first priority security interest on all of the capital stock of SNG. If our total coverage ratio exceeds a certain limit, our obligations will also be secured by a first priority security interest in all of our domestic assets. In the event we exceed certain other ratio limits, we will be subject to a borrowing base and will be able to borrow up to a lesser of $25.0 million or the sum of (i) 85% of eligible accounts receivable and (ii) 65% of eligible inventory. Borrowings under the Credit Facility bear interest at floating rates based on the KeyBank National Association prime rate or the Federal Funds effective rate. The Credit Facility can be used to fund our normal working capital and capital expenditure requirements, with availability to fund certain permitted strategic transactions. At August 31, 2008, there were no amounts outstanding and $25.0 million was available for borrowing under the Credit Facility.

We believe that our cash and cash equivalents, 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 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 August 31, 2008 is as follows (in thousands):

                                  Total Amounts      Less than         1-3           3-5          More than
 Contractual Cash Obligations       Committed         1 Year          Years         Years          5 Years

Operating leases                  $      10,720     $     2,403     $   4,658     $   3,659     $           -
Purchase obligations(1)                  21,828          21,828             -             -                 -

Total obligations                 $      32,548     $    24,231     $   4,658     $   3,659     $           -

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

Critical Accounting Policies and Estimates

In preparing our condensed 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 condensed 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 available-for-sale securities, inventories and intangible assets, allowances for doubtful accounts, sales returns and discounts, uncertainties related to certain tax benefits, valuation of deferred tax assets, valuation of share-based payments and recoverability of long-lived assets. Note 1 of Notes to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended May 31, 2008, filed with the SEC, 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 condensed 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 both the fiscal 2009 and 2008 first quarters, inventory valuation adjustments resulted in a decrease in our gross profit and operating income of approximately $0.1 million. 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 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 decrease in our gross profit and operating income of approximately $0.5 million for the fiscal 2009 first quarter. Changes in these allowances did not significantly impact gross profit and operating income for the fiscal 2008 first quarter. At August 31, 2008 and May 31, 2008, our allowances for doubtful accounts, sales returns and discounts amounted to approximately $2.1 million and $1.5 million, respectively. Actual results may differ from our current estimates, resulting in adjustment of the respective allowance(s).

· We recognize tax benefits relative to certain tax positions in which we may be uncertain as to whether that tax position will ultimately be sustained as filed in our tax return. The recognition or derecognition of these tax benefits is subject to periodic evaluation of the sustainability of the tax position based upon changes in facts, circumstances or available information. Changes in the recognition of these tax benefits did not significantly impact net income for the fiscal 2009 and 2008 first quarters. At both August 31, 2008 and May 31, 2008, unrecognized tax benefits totaled approximately $0.5 million.

· We currently have deferred tax assets resulting from temporary differences between financial and income tax reporting. These deferred tax assets are subject to periodic recoverability assessments. The realization of these deferred tax assets is primarily dependent on future operating results. At August 31, 2008 and May 31, 2008, deferred tax asset valuation allowances were nil.

· We recognized 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 would be achieved. Our periodic assessment of the probability that the performance criteria would be achieved considered such factors as historical financial results and future financial expectations, including an analysis of sales trends and operating margins; as well as changes in the nutritional supplements industry and competitive environment. For the fiscal 2009 first quarter, we did not recognize any compensation expense since the performance criteria for existing awards was achieved and the equity instruments were fully vested as of May 31, 2008. For the fiscal 2008 first quarter, we recognized compensation expense related to existing awards of approximately $0.8 million

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

Impact of Inflation

Inflation affects the cost of raw materials, goods and services we use. In recent years, inflation has been modest. We seek to mitigate the adverse effects of inflation primarily through improved productivity, strategic buying initiatives, and cost containment programs. However, the nutritional supplement industry competitive environment limits our ability to recover higher costs resulting from inflation by raising prices. See further discussion of raw material pricing matters in the "General" and "Results of Operations" sections above.

Seasonality

Our business is not inherently seasonal; however, we experience 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.