Summary of NUTRITION 21 INC

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes thereto of the Company included elsewhere herein.

Forward-Looking Statements and Risk Factors

This quarterly report and the documents incorporated by reference contain forward-looking statements which are intended to fall within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Act of 1934. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and similar expressions identify forward-looking statements. Statements that are "forward-looking statements" are based on current expectations and assumptions that are subject to risks and uncertainties. Actual performance and results could differ materially because of factors such as those set forth under "Risk Factors" in Form 10-K/A filed with the Securities and Exchange Commission on October 3, 2008 and this Form 10-Q.

We undertake no obligation to update or review any guidance or other forward-looking information, whether as a result of new information, future developments or otherwise.

General

Revenues from the Ingredient Products Group are primarily derived from the sale of proprietary ingredients together with the grant of patent licenses to use the ingredients, to manufacturers of vitamin and mineral supplements. The fees for the licenses are bundled on an undifferentiated basis with the price that the Company charges for its ingredients, since licenses are not sold separately.

Revenues from the Branded Products Group are principally derived from the sale of branded products to food, drug and mass retailers. Revenue, net of an estimate for returns, is recognized when the products are received by the retailers or, if the retailer has the right to return all unsold product, revenue is recognized when the end user takes possession of the product. Upon shipment by the Company, amounts billed to customers with the right to return all unsold product are included as accounts receivable, inventory is relieved, the sale is deferred and the gross profit is reflected as a current liability until the product is sold to the end user.

Cost of revenues includes both direct and indirect manufacturing costs. Research and development expenses include internal expenditures as well as expenses associated with third party providers. Advertising and promotion expenses include fees and expenses directly related to the selling of the Company's products including the cost of advertising, promotional expenses and third party fees. General and administrative expenses include salaries and overhead, third party fees and expenses, and costs associated with the operations of the Company. The Company capitalizes patent costs and intangible assets with finite lives, and amortizes them over periods not to exceed seventeen years.

Results of Operations

Revenues

Net sales of the Ingredient Products Group were $1.9 million and $2.0 million for the three month periods ended March 31, 2009 and 2008, respectively. Sales of chromium picolinate in the quarter were slightly below the comparable quarter a year ago.

Net sales of the Ingredient Products Group were $5.2 million and $5.7 million for the nine months ended March 31, 2009 and 2008, respectively. Sales of chromium picolinate were lower than the comparable period a year ago.

Net product sales of the Branded Products Group for the three months ended March 31, 2009 were $6.6 million compared to $8.9 million in the comparable period a year ago. Net product sales through the direct response channel were negatively impacted by economic conditions.

Net product sales of the Branded Products Group were $28.7 million for the nine months ended March 31, 2009 compared to $29.7 million in the comparable period a year ago.

A decline in net product sales made through the direct response channel, which were negatively impacted by economic conditions, were mostly offset by an improvement in net product sales made through the retail channel. Increased distribution, customer awareness and acceptance of our products were the primary reasons for the improvement in retail sales.

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Cost of revenues

Cost of revenues for the Ingredients Products Group were $0.5 million for each of the three month periods ended March 31, 2009 and 2008, respectively.

Cost of revenues for the Ingredients Products Group for the nine month periods ended March 31, 2009 and 2008, were $1.3 million and $1.4 million, respectively.

Cost of revenues for the Branded Products Group were $2.4 million for the three month period ended March 31, 2009 compared to $5.6 million in the same period a year ago. Cost of revenues for the Branded Products Group for the three months ended March 31, 2009 excludes the cost of inventory sold of approximately $0.9 million, for inventory previously included in the Company's inventory obsolescence provision. Excluding this event, cost of revenues for the Branded Products Group would have been $3.3 million compared to $3.7 million. Lower product sales in the three months ended March 31, 2009 was the primary reason for the decline.

Cost of revenues for the Branded Products Group were $11.9 million for the nine month period ended March 31, 2009 compared to $12.8 million for the nine month period ended March 31, 2008. Declines in cost of products sold through the direct response channel were partially offset by increased cost of products sold primarily due to expanded product sales made through the retail channel.

Advertising and Promotion Expenses ("Advertising")

Advertising expenses for the Branded Products Group for the three months ended March 31, 2009 were $3.5 million compared to $8.3 million in the comparable period a year ago. Advertising expenditures to support our retail products decreased $3.1 million to $0.7 million when compared to the same period a year ago. Advertising to support sales made through the direct response channel were $2.7 million compared to $4.4 million in the comparable period a year ago. The decline in spend was due to our efforts to refocus our direct response advertising spend.

Advertising expenses for the Branded Products Group for the nine months ended March 31, 2009 was $13.4 million compared to $27.4 million in the same period a year ago. Advertising expenditures to support our consumer health brands declined $10.1 million to $2.5 million when compared to the same period a year ago. Advertising through the direct response channel declined $4.0 million to $10.9 million when compared to the same period a year ago. Continued refocusing and target-specific advertising were the primary reasons for the improvement.

Fluctuations in the Ingredients Product Group for advertising in the three and nine month periods were not material.

Unallocated Corporate Expenses

Unallocated corporate expenses for the three month period ended March 31, 2009 were $2.4 million compared to $4.4 million in the comparable period a year ago. The decrease is primarily due to a reduction in legal fees ($1.0 million) as well as a reduction in overall operating expenses ($1.0 million).

Unallocated corporate expenses for the nine months ended March 31, 2009 were $7.0 million compared to $9.2 million in the same period a year ago. The decrease is primarily due to lower operating expenses ($1.0 million) and lower amortization of intangibles ($0.8 million) partially offset by increased costs associated with our financings ($0.8 million).

Net (Loss)

Net loss for the three month period ended March 31, 2009 was $0.4 million compared to a net loss of $8.2 million in the comparable period a year ago. Lower advertising expenditures and lower cost of revenues account for the majority of the improvement.

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Net loss for the nine months ended March 31, 2009 was $88 thousand compared to a net loss of $16.0 million in the comparable period a year ago. Reduced advertising expenditures and cost of revenues were the primary reasons.

Liquidity and Capital Resources

Cash and cash equivalents at March 31, 2009 were $2.7 million compared to $4.8 million at June 30, 2008.

During the nine month period ended March 31, 2009, net cash of $0.1 million was used in operating activities, compared to $14.4 million in the comparable period a year ago. Improvement in operating results from a net loss of $16.0 million to a net loss of $88 thousand, combined with an improvement in operating assets and liabilities account for the increase.

During the nine month period ended March 31, 2009, net cash provided by investing activities was $4.6 million compared to $4.8 million of cash used in investing activities in the comparable period a year ago. During the quarter, the Company redeemed $1.0 million of its investment in long-term securities and sold its auction rate securities at face value of $4.0 million.

During the nine month period ended March 31, 2009, net cash used in financing activities was $6.6 million. During the quarter, the Company used $3.0 million of the proceeds from the sale of the auction rate securities to repay its debt with Chase Bank and redeemed its 6% Series I convertible preferred stock for $3.6 million.

Our liquidity is affected by many factors, some based on the normal ongoing operations of the business and others related to the uncertainties of the industries in which we compete. Our liquidity may also be adversely affected by the current economic conditions; including consumer spending rates, the ability to collect on our accounts receivable and our ability to obtain working capital due to the tightening of the global credit markets. Although our cash requirements will fluctuate based on the timing and extent of these factors, we believe that, going forward, cash generated from operations, together with our current cash balance and borrowing capability should be sufficient to satisfy our cash requirements for the next twelve months. Long-term liquidity is dependent upon achieving consistent profitability or raising additional financing.

If necessary, the Company will seek any necessary additional funding through arrangements with corporate collaborators, through public or private sales of its securities, including equity securities, or through bank financing. There is no assurance that additional funds will be available on terms favorable to the Company and its stockholders, or at all.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. The Company has no financial instruments that give it exposure to foreign exchange rates or equity prices.

Item 4 (T) - Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended ("Exchange Act"), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of the Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of March 31, 2009. Based on that evaluation, our CEO and CFO concluded that, as of that date, our disclosure controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 were effective.

There were no changes in our internal controls over financial reporting or in other factors during the period ended March 31, 2009 which have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

P ART II - OTHER INFORMATION

Items 2, 3, 4 and 5 and are not applicable and have been omitted.

Item 1 - Legal Proceedings

On March 24, 2004, the FTC sued QVC in the U.S. District Court for the Eastern District of Pennsylvania for claims made on QVC for the company's Lite Bites products and other products. QVC has in the same lawsuit filed on April 14, 2004, Third-Party Complaints for damages against six parties including the Company (Third-Party Defendants). The Company discontinued the Lite Bites product line in fiscal year 2003. QVC has reached a settlement with the FTC staff that requires FTC Commissioners' approval. The Third-Party Defendants have reached a settlement with QVC that will become effective upon FTC Commissioners' approval of the QVC settlement. During the quarter ended March 31, 2009, the FTC Commissioners approved the QVC settlement.

Item 1A - Risk Factors

The risk factors listed below supplement the risk factors set forth in Item 1A to Part 1 of the Company's Form 10-K for its fiscal year ended June 30, 2008 that the Company filed on September 29, 2008.

We are subject to a Federal Trade Commission consent agreement that may adversely affect our business.
The Federal Trade Commission ("FTC") regulates product-advertising claims, and requires that claims be supported by competent and reliable scientific evidence. Prior to our acquisition of a California limited partnership called Nutrition 21 ("Nutrition 21 LP"), the FTC opened an inquiry into certain of the claims that Nutrition 21 LP was making for chromium picolinate. The inquiry was terminated by the FTC with Nutrition 21 LP entering into a consent agreement that requires Nutrition 21 LP to support its claims by competent and reliable scientific evidence. After we acquired Nutrition 21 LP in 1997, we undertook new clinical studies to support the claims we intended to make for our products. The FTC has subsequently audited our chromium picolinate advertising and has not found either a lack of competent and reliable scientific evidence or failure to comply with the consent agreement. The FTC continues to monitor our advertising and could limit our advertising in ways that could make marketing our products more difficult or result in lost sales.

The limited liquidity for our common stock could affect an investor's ability to sell our shares at a satisfactory price. Our common stock is relatively illiquid. As of April 30, 2009, the Company had approximately 71.2 million shares of common stock outstanding. The average daily trading volume in the common stock during the prior 50 trading days ending on that date was 108,178 shares. A more active public market for our common stock, however, may not develop, which would continue to adversely affect the trading price and liquidity of the common stock. Moreover, a thin trading market for the common stock causes the market price for the common stock to fluctuate significantly more than the stock market as a whole. Without a large float, our common stock is less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile.

If we are unable to maintain a Nasdaq listing for our securities the liquidity of our stock will be reduced and investors may be unable to sell them, or may be able to sell them only at reduced prices. On December 26, 2007, we received written notification from Nasdaq stating that, for the last 30 consecutive business days, the bid price of the Company's common stock closed below the minimum $1.00 per share requirement for continued inclusion under Nasdaq Marketplace Rule 431(c)(4) (the "Rule"). On June 24, 2008, we received written notification that if compliance with the Rule cannot be demonstrated by December 22, 2008, Nasdaq will provide written notification that the Company's securities will be delisted. On October 22, 2008, we received written notification that the Company has until March 26, 2009 to regain compliance with the Rule. On March 23, 2009, the Company received a letter from Nasdaq that the Rule is suspended until July 20, 2009 which, according to the Company calculation, extends the Company's period for regaining compliance until September 24, 2009. At that time, if the Company receives a notification of delisting, the Company can appeal and provide a plan to regain compliance. Throughout this period we can regain compliance by maintaining a $1.00 per share bid price for a minimum of 10 consecutive business days. Under certain circumstances, to ensure that we can sustain long-term compliance, Nasdaq may require the closing bid price to equal or to exceed the $1.00 minimum bid price requirement for more than 10 consecutive business days before determining that a company complies with Nasdaq's minimum $1.00 bid price requirement.

The liquidity of our common stock will be reduced if our securities fail to maintain a Nasdaq listing. Purchasers of our common stock would likely find it more difficult to sell our common stock, and the market value of our common stock would likely decline.

In addition, if we fail to maintain a Nasdaq listing for our securities, and no other exclusion from the definition of a "penny stock" under the Exchange Act is available, then any broker engaging in a transaction in our securities would be required to provide any customer with a risk disclosure document, disclosure of market quotations, if any, disclosure of the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market values of our securities held in the customer's accounts. The bid and offer quotation and compensation information must be provided prior to effecting the transaction and must be contained on the customer's confirmation. If brokers become subject to the "penny stock" rules when engaging in transactions in our securities, they would become less willing to engage in these transactions, which will make it more difficult for purchasers of our common stock to dispose of their shares.

Should we fail to maintain our Nasdaq listing and should we then or thereafter not be listed on the Bulletin Board we may be required to redeem our Series J 8% Convertible Preferred Stock in accordance with its terms.

Item 6 - Exhibits

(a) Exhibits

31.1 Certifications of the President and Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certifications of the President and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

NUTRITION 21, INC.