The following Management's Discussion and Analysis discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Form 10-Q, as well as the consolidated financial statements, the notes thereto, and management's discussion and analysis included in our Annual Report on Form 10K/A for the year ended December 31, 2007, and our other filings, including Current Reports on Form 8-K, that have been filed with the Securities and Exchange Commission ("SEC") through the date of this report.

COMPANY OVERVIEW

Nature's Sunshine Products, Inc. and its subsidiaries are primarily engaged in the manufacturing and marketing of herbal products, vitamin and mineral supplements, personal care, and miscellaneous products. Nature's Sunshine Products, Inc. is a Utah corporation with its principal place of business in Provo, Utah. We sell our products to a sales force of independent Distributors and Managers who use the products themselves or resell them to other Distributors or consumers. The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of each of our major product groups are subject to regulation by one or more governmental agencies.

We market our products in the United States, Mexico, Central America, Canada, Venezuela, the Dominican Republic, Japan, Ecuador, the United Kingdom, Colombia, Peru, Israel, Russia, Ukraine, Latvia, Lithuania, Kazakhstan, Mongolia, Belarus, China, Poland, and Brazil. We also export our products to several other countries, including Argentina, Australia, Chile, New Zealand, and Norway.

We also sell our products through a separate division and operating business segment, Synergy Worldwide, which was acquired in 2000. Synergy Worldwide offers products with formulations different from those of the Nature's Sunshine Products offerings. In addition, Synergy Worldwide's marketing and Distributor compensation plans are sufficiently different from those of Nature's Sunshine Products. Synergy Worldwide sells products in Japan, the United States, South Korea, Singapore, Thailand, Taiwan, Malaysia, Hong Kong, the Philippines, Indonesia, the United Kingdom, Germany, Austria, the Netherlands, and Australia.

During the first three quarters of 2008, we experienced healthy net sales revenue growth overseas in our Nature's Sunshine Products International business segment of approximately 23 percent compared to the same period in the prior year, while our domestic business segment sales decreased slightly and our Synergy Worldwide business segment experienced a decline in net sales revenue of approximately 18 percent due primarily to the loss of several key distributor networks. Over the same period, our cost of goods sold decreased as a percentage of net sales revenue primarily as a result of decreased importation costs in some of our foreign markets, while volume incentives remained constant. Our selling, general and administrative expenses increased somewhat primarily as a result of costs associated with increased spending in our Russian and other foreign markets as we continue to see growth, as well as costs related to entry into new markets. On our consolidated balance sheet, we maintained a fairly consistent profile from December 31, 2007 to September 30, 2008.

RESULTS OF OPERATIONS



The following table summarizes our unaudited consolidated operating results in
dollars and as a percentage of net sales for the three months ended September
30, 2008 and 2007.



                                                                               Change from
                                  2008                    2007                 2008 to 2007
                           Total      % of net     Total      % of net
                          dollars      sales      dollars      sales       Dollar     Percentage
Net sales revenue         $ 94,669       100.0 %  $ 88,213       100.0 %  $  6,456           7.3 %

Cost of goods sold          17,146        18.1      18,325        20.8      (1,179 )        (6.4 )
Volume incentives           36,588        38.6      35,140        39.8       1,448           4.1
SG&A expenses               38,864        41.1      39,558        44.8        (694 )        (1.8 )
Total operating
expenses                    92,598        97.8      93,023       105.4        (425 )        (0.5 )
Operating income
(loss)                       2,071         2.2      (4,810 )      (5.4 )     6,881         143.1
Other (expense)
income, net                   (448 )      (0.5 )       426         0.5        (874 )      (205.2 )
Income (loss) before
provision for income
taxes                        1,623         1.7      (4,384 )      (4.9 )     6,007         137.0
Provision (benefit)
for income taxes             1,789         1.9      (2,761 )      (3.1 )     4,550         164.8
Net loss                  $   (166 )      (0.2 )% $ (1,623 )      (1.8 )% $  1,457          89.8 %

The following table summarizes our unaudited consolidated operating results in dollars and as a percentage of net sales for the nine months ended September 30, 2008 and 2007.

                                                                                Change from
                                 2008                     2007                  2008 to 2007
                           Total      % of net      Total      % of net
                          dollars      sales       dollars      sales       Dollar     Percentage
Net sales revenue        $ 291,105       100.0 %  $ 272,427       100.0 %  $ 18,678           6.9 %

Cost of goods sold          53,159        18.2       52,784        19.4         375           0.7
Volume incentives          113,716        39.1      107,540        39.5       6,176           5.7
SG&A expenses              117,882        40.5      110,684        40.6       7,198           6.5
Total operating
expenses                   284,757        97.8      271,008        99.5      13,749           5.1
Operating income             6,348         2.2        1,419         0.5       4,929         347.4
Other (expense)
income, net                   (495 )      (0.2 )      1,535         0.6      (2,030 )      (132.2 )
Income before
provision for income
taxes                        5,853         2.0        2,954         1.1       2,899          98.1
Provision for income
taxes                        7,163         2.5        8,952         3.3      (1,789 )       (20.0 )
Net loss                 $  (1,310 )      (0.5 )  $  (5,998 )      (2.2 )  $  4,688          78.2 %

Net Sales Revenue

Net sales revenue for the three months ended September 30, 2008 was $94.7 million compared to $88.2 million for the same period in the prior year, an increase of approximately 7.3 percent. Net sales revenue for the nine months ended September 30, 2008 was $291.1 million compared to $272.4 million for the same period in the prior year, an increase of approximately 6.9 percent. The increase in net sales revenue for the three and nine months ended September 30, 2008 reflects higher net sales revenue in the Company's international business segment.

Net sales revenue in our United States operation for the three and nine months ended September 30, 2008, was $37.3 million, compared to $35.4 million, an increase of 5.2 percent, compared to the same period in the prior year. For the nine months ended September 30, 2008, United States net sales revenue totaled $115.4 million, a 2.8 percent increase over the same period in the prior year. This growth was partially due to a decrease in rebates provided to distributors after the purchase of some of our products which are reflected as a reduction in net sales revenue, and modest growth in our overall sales volumes for the quarter.

Our international operations reported net sales revenue of $43.4 million for the three months ended September 30, 2008, compared to $36.2 million, an increase of approximately 19.9 percent compared to the same period in the prior year. For the first nine months in 2008, international net sales revenue totaled $132.8 million, a 22.9 percent increase over the same period of the prior year. Third quarter performances were particularly strong in the Russia, Ukraine, Canada and Europe. The increase in net sales revenue reflects the continued increase in Distributors and Managers in the Company's international operations as well as the foreign currency exchange rate fluctuations which positively impacted revenues for the three month period ended by $0.8 million or 2.2 percent and the nine month period $3.7 million or 3.4 percent compared to the prior year period.

Net sales revenue in Synergy Worldwide was $14.0 million for the three months ended September 30, 2008, compared to $16.5 million for the same period of the prior year, a decrease of 15.2 percent, due to the loss of key distributor networks as a result of increased competition in the United States and Japanese markets. For the first nine months, Synergy Worldwide net sales revenue totaled $43.0 million, compared to $52.2 million, a 17.6 percent decrease over the prior year due to the loss of key distributor networks as a result of increased competition in the United States and Japanese markets. This decrease is partially offset by foreign currency exchange rate fluctuations that contributed $0.7 million and $2.5 million for the three and nine months ended September 30, 2008 compared to the prior year period.

We distribute our products to customers through an independent sales force comprised of Distributors and Managers. Active Managers totaled approximately 26,200 and 27,300 at September 30, 2008 and 2007, respectively. Active Distributors totaled approximately 713,200 and 701,500, at September 30, 2008 and 2007, respectively.

Further information related to the Nature's Sunshine Products United States and International segments and the Synergy Worldwide business segment is set forth in Note 6 to the Unaudited Consolidated Financial Statements in Item 1 of this Report.

Cost of Goods Sold

For the three and nine months ended September 30, 2008, cost of goods sold, as a percent of net sales revenue, decreased to 18.1 and 18.2 percent, respectively, compared to 20.8 and 19.4 percent, respectively, for the same periods in the prior year as a result decreased importation costs in some of our foreign markets.

Volume Incentives

Volume incentives are a significant part of our direct sales marketing program and represent commission payments made to our independent Distributors and Managers. These payments are designed to provide incentives for reaching higher sales levels and for recruiting additional Distributors. Volume incentives vary slightly, on a percentage basis, by product due to our pricing policies and commission plans in place in our international operations. Volume incentives as a percent of net sales revenue decreased from 39.8 percent to 38.6 percent during the three months ended September 30, 2008 as compared to the same period in 2007, and from 39.5 percent to 39.1 percent for the nine months ended September 30, 2008 and 2007. The decrease is partially due to changes in the volume incentive programs for some products sold within the United States and determining the qualifying incentive.

Selling, General and Administrative

Selling, general and administrative expenses as a percent of net sales revenue for the three and nine months ended September 30, 2008 decreased to 41.1 percent and 40.5 percent, respectively, compared to 44.8 percent and 40.6 percent, respectively, for the same period in the prior year. Selling, general and administrative expenses decreased $0.7 million, or 1.7 percent for the three months ended September 30, 2008, and increased $7.2 million, or 6.5 percent for the nine months ended September 30, 2008, compared to the same periods of the prior year. The increase in expenses for the nine months ended September 30, 2008, is primarily as a result of increased spending in our Russian and Eastern European markets for infrastructure to support our continued growth of approximately $6.2 million and cost for entering new markets in China and Europe of approximately $1.7 million. Foreign currency fluctuations negatively impacted general and administrative expenses by approximately $0.6 million and $2.3 million compared to the three and nine month periods in the prior year. These costs were offset by decreases of approximately $2.8 million in our Synergy Worldwide operations as a result of cost

cutting initiatives to help bring operating costs more in line with the division's reduced net sales revenue.

Other (Expense) Income, Net

Other (expense) income, net for the three and nine months ended September 30, 2008, decreased $0.9 million or 205.2 percent, and $2.0 million or 132.2 percent compared to the same periods of the prior year primarily due to foreign exchange losses in certain markets.

Provision for Income Tax

Interim income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the period in which they occur. For the three months ended September 30, 2008 and 2007, the Company's provision (benefit) for income taxes, as a percentage of income before income taxes, is 110 percent and (63) percent, respectively, compared with a US federal statutory rate of 35 percent. For the nine months ended September 30, 2008, the Company's provision for income taxes, as a percentage of income before income taxes, is 122 percent and 303 percent, respectively, compared with a US federal statutory rate of 35 percent. For the three and nine months ended September 30, 2008 and the nine months ended September 30, 2007, the differences between the effective rate and the federal statutory rate are primarily attributed to increases in tax liabilities associated with uncertain tax positions and increases in foreign valuation allowances primarily related to foreign subsidiary net losses for which no tax benefit is currently being recognized. For the three months ended September 30, 2007, the difference between the effective rate and the federal statutory rate are primarily attributed to changes in uncertain tax positions and valuation allowances and adjustments to the Company's effective tax rate expected for the full fiscal year.

The increase in the Company's effective tax rate for the three months ended September 30, 2008 compared to the corresponding period in 2007 is primarily the result of the pre-tax loss of the 2007 period compared to the pre-tax income for the 2008 period. The decrease in the Company's effective tax rate for the nine months ended September 30, 2008 compared to the corresponding period in 2007 is primarily related to a increase in the pretax income balance in 2008 where similar tax expense items, including uncertain tax positions and valuation allowances, have a smaller impact on the effective rate.

As of September 30, 2008, the Company had accrued $16.0 million (net of $10.1 million of other assets related to competent authority and royalty benefits) related to unrecognized tax positions compared with $15.8 million (net of $10.1 million of other assets related to competent authority and royalty benefits) as of December 31, 2007. This net increase is primarily attributed to additional liabilities recorded related to commission payment withholdings in foreign jurisdictions and transfer pricing.

Although the Company believes its estimates are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals. Such difference could have a material impact on the Company's income tax provision and operating results in the period in which the Company makes such determination.

LIQUIDITY AND CAPITAL RESOURCES

Our principal use of cash is to pay for operating expenses, including volume incentives, capital assets, inventory purchases, the funding of international expansion, and the payment of quarterly dividends. As of September 30, 2008, working capital was $26.0 million compared to $32.0 million as of December 31, 2007. At September 30, 2008 we had $39.9 million in cash and cash equivalents, and $3.9 million of in short-term investments, which are available to be used along with our normal cash flows from operations to fund any unanticipated shortfalls in future cash flows.

For the nine months ended September 30, 2008, we generated $3.8 million of operating cash flow compared to $7.2 million for the same period in 2007. The decrease in cash generated from operating cash flows is primarily impacted by the timing of cash payments related to fluctuations in operating assets and liabilities. We used a significant amount of cash during the nine month period ended September 30, 2008 as compared to the prior period, for the purchase of inventory, as well as the pre-payment of significant convention costs for our Top Achiever Convention ("TAC") and Rising Star programs, that have previously been accrued for in prior years, which were offset by increases in our accruals for income taxes payable due to the timing of tax related payments and a decrease in our net loss of $4.2 million for the period in comparison to the same period in 2007.

Capital expenditures for the nine months were $6.8 million, of which $4.0 million is related to the purchase of a warehouse in Venezuela, with cash balances from Venezuela, compared to $3.5 million for capital expenditures for equipment, computer systems and software, for the same period in the prior year.

For the nine months ended September 30, 2008 and 2007, our cash proceeds from investing activities have been limited to proceeds from the sale of investments of $0.7 million and $1.4 million, respectively, as well as the proceeds from the sale of property, plant and equipment of $0.1 million and $0.4 million, respectively. In addition, we used cash of approximately $2.1 million in the prior year to purchase auction rate securities, which has been classified as restricted investments on our financial statements. We also used cash of $1.0 million to purchase certain product formulations, which are classified as intangible assets in the prior year. We used cash to pay quarterly dividends totaling $2.3 million for the nine months ended September 30, 2008 as well as the same period in 2007.

Cash flows from financing activities for the nine months ended September 30, 2007 also included $1.2 million of cash proceeds from the exercise of stock options, as well as $0.2 million from the related tax benefit. There were no stock options exercised during the same period in 2008.

We believe that working capital requirements can be met for the foreseeable future through our available cash and cash equivalents, cash generated from operating activities for the foreseeable future; however, a prolonged economic downturn or a decrease in the demand for our products could adversely affect our long-term liquidity. In the event of a significant decrease in cash provided by operating activities, it might be necessary for us to obtain additional external sources of funding.

We do not currently maintain a long-term credit facility or any other external sources of long-term funding; however, we believe that such funding could be obtained on competitive terms in the event additional sources of funding become necessary.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and form the basis for the following discussion and analysis on critical accounting policies and estimates. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates and those differences could have a material effect on our financial position and results of operations. Management has discussed the development, selection and disclosure of these estimates with the Board of Directors and its Audit Committee.

A summary of our significant accounting policies is provided in Note 1 of the Notes to Consolidated Financial Statements in Item 8 of our Annual Report of Form 10K/A for the year ended December 31, 2007. We believe the critical accounting policies and estimates described below reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements. The impact and any associated risks on our business that are related to these policies are also discussed throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations" where such policies affect reported and expected financial results.

Revenue Recognition

Net sales revenue and related volume incentive expenses are recorded when persuasive evidence of an arrangement exists, collectability is reasonably assured, the amount is fixed and determinable, and title and risk of loss have passed, generally when the merchandise has been delivered. Amounts received for undelivered merchandise are recorded as deferred revenue. Sales revenue is recorded net of the rebate portion of volume incentives, and a reserve for product returns, which reduces revenue, is accrued based on historical experience. From time to time, the Company's United States operation extends short-term credit associated with product promotions. In addition for certain of the Company's international operations, the Company offers credit terms consistent with industry standards within the country of operation. Payments to Distributors and Managers for sales incentives or rebates are recorded as a reduction of revenue. Membership fees are recorded as revenue over the life of the membership, primarily one year. Prepaid event registration fees are deferred and recognized as revenues when the related event is held.

Inventories

Inventories are stated at the lower-of-cost-or-market, using the first-in, first-out method. The components of inventory cost include raw materials, labor, and overhead. To estimate any necessary lower-of-cost-or-market adjustments, various assumptions are made in regard to excess or slow-moving inventories, non-conforming inventories, expiration dates, current and future product demand, production planning, and market conditions.

Self-insurance Liabilities

As a manufacturer and distributor of products that are ingested, we face an inherent risk of exposure to product liability claims in the event that, among other things, the use of our products results in injury to consumers due to tampering by unauthorized third parties or product contamination. We have historically had a very limited number of product claims or reports from individuals who have asserted that they have suffered adverse consequences as a result of using our products. These matters have historically been settled to our satisfaction and have not resulted in material payments. We have established a wholly owned captive insurance company to provide us with product liability insurance coverage and have accrued an amount that we believe is sufficient to cover probable and reasonable estimable liabilities related to product liability claims based upon our history. However, there can be no assurance that these estimates will prove to be sufficient nor can there be any assurance that the ultimate outcome of any litigation for product liability will not have a material negative impact on our business prospects, financial position, results of operations, or liquidity.

We self-insure for certain employee medical benefits. The recorded liabilities for self-insured risks are calculated using actuarial methods and are not discounted. The liabilities include amounts for actual claims and claims incurred but not reported. Actual experience, including claim frequency and severity as well as health care inflation, could result in actual liabilities being more or less than the amounts currently recorded.

Incentive Trip Accrual

We accrue for expenses for incentive trips associated with our direct sales marketing program, which rewards independent Distributors and Managers with paid attendance at our conventions and meetings. Expenses associated with incentive trips are accrued over qualification periods as they are earned. We specifically analyze incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual. Actual results could result in liabilities being more or less than the amounts recorded.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, such as property, plant and equipment and intangible assets, for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company uses an estimate of future undiscounted net cash flows of the related assets or groups of assets over their remaining lives in measuring whether the assets are recoverable. An impairment loss is calculated by determining the difference between the carrying values and the fair values of these assets. As of September 30, 2008 and December 31, 2007, the Company did not consider any of its long-lived assets to be impaired.

Contingencies

We are involved in certain legal proceedings. When a loss is considered probable in connection with litigation, income tax or non-income tax contingencies and when the loss can be reasonably estimated with a range, we record our best estimate within the range related to the contingency. If there is no best estimate, we record the minimum of the range. As additional information becomes available, we assess the potential liability related to the contingency and revise the estimates. Revision in estimates of the potential liabilities could materially impact our results of operations in the period of adjustment.

Income Taxes

Our income tax expense, deferred tax assets and liabilities and contingent reserves reflect management's best assessment of estimated future taxes to be paid. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop . . .