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, MegaRed® 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 2009 and the first six months of fiscal 2010, 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 fiscal 2009, we introduced MegaRed, an omega-3 krill oil product originally launched into Costco during the latter part of fiscal 2008, into many of our retail accounts and, during the second half of the fiscal year, we launched a national marketing campaign to support MegaRed growth. During the fiscal 2010 first quarter, we encountered temporary disruption in our ability to fulfill customer orders due to raw material supply issues. As a result, we elected to delay certain fiscal 2010 first quarter planned advertising support to subsequent fiscal 2010 quarters. We resolved the temporary raw material supply issues, and, during the fiscal 2010 second quarter, we continued to expand distribution of MegaRed into new accounts and resumed our comprehensive national marketing initiative to support both the new and existing distribution of this product. Furthermore, we are continuing efforts to increase distribution of our joint care products and krill oil products in international markets. Subject to competitive joint care product category pricing pressures, including private label, the success of new product sales, including MegaRed, the effectiveness of our branded marketing initiatives and the ability to increase our distribution in international markets, among other factors, we believe fiscal 2010 net sales, as compared to fiscal 2009 net sales, will reflect a mid single-digit percentage increase.

Operating results for the first six months of fiscal 2010, as compared to the first six months of fiscal 2009, were positively impacted by a higher mix of branded sales, price increases implemented in the fourth quarter of fiscal 2009 for certain branded and private label products, and stability in raw material costs. During the second half of fiscal 2009, we discontinued certain private label products resulting in a decrease in private label sales for the first six months of fiscal 2010, as compared to the similar prior year period. This decrease in lower-margin private label sales, together with branded sales volume growth, the sales price increases and lower raw material costs, resulted in an overall higher gross margin for the first six months of fiscal 2010, as compared to the first six months of fiscal 2009.

Our operating results for the first six months of fiscal 2010 were also impacted by the adoption of a long-term management incentive plan on December 12, 2008. See Note 1 of Notes to Condensed Consolidated Financial Statements for further description of the long-term management incentive plan and its impact on operating results for the first six months of fiscal 2010. Subject to the periodic assessment of the probability of achieving pre-established financial performance targets, our fiscal 2010 operating results, as compared to fiscal 2009, may continue to be negatively impacted by the recognition of compensation expense related to the management incentive plan.

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Results of Operations (unaudited)
Three Months Ended November 30, 2009 Compared to Three Months
Ended November 30, 2008

The following tables show comparative results for selected items as reported and
as a percentage of net sales for the three months ended November 30, (dollars in
thousands):

                                               2009                     2008

         Net sales                     $ 53,754       100.0 %   $ 47,293       100.0 %
         Cost of goods sold              29,519        54.9       29,690        62.8

         Gross profit                    24,235        45.1       17,603        37.2
         Operating expenses:
         Selling and marketing            8,825        16.5        8,412        17.8
         General and administrative       4,852         9.0        3,610         7.6
         Research and development         1,088         2.0        1,119         2.4

         Total operating expenses        14,765        27.5       13,141        27.8

         Income from operations           9,470        17.6        4,462         9.4
         Other income (expense), net        (81 )      (0.2 )        260         0.6
         Income tax expense              (3,506 )      (6.5 )     (1,810 )      (3.8 )

         Net income                    $  5,883        10.9 %   $  2,912         6.2 %

Net Sales. Net sales increased 13.7% to $53.8 million for the fiscal 2010 second quarter, from $47.3 million for the fiscal 2009 second quarter, primarily due to increases in both branded and private label net sales.

Aggregate branded net sales increased 15.4% to $39.4 million for the fiscal 2010 second quarter, from $34.1 million for the fiscal 2009 second quarter, primarily due to an increase in sales volume of approximately $3.9 million, or 8.3%, together with approximately $0.7 million in aggregate sales price increases and a $0.7 million decrease in sales return allowances and sales promotional incentives classified as sales price reductions. 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 an increase in MegaRed sales due to incremental sales resulting from new distribution into various accounts in the latter part of fiscal 2009 and the first half of fiscal 2010, as well as replenishing certain customer inventories impacted by the first quarter raw material supply issues that have since been resolved. While our overall joint care category net sales reflected a second quarter over second quarter increase due to decreases in sales return allowances and sales promotional incentives, an approximate 9.1% increase in Move Free sales volume was offset by a sales volume decrease in other joint care category products. Move Free net sales were $20.1 million and $17.2 million, respectively, for the fiscal 2010 and 2009 second quarters.

Private label sales increased 9.2% to $14.4 million for the fiscal 2010 second quarter, from $13.2 million for the fiscal 2009 second quarter, primarily due to certain sales price increases instituted in the fiscal 2009 fourth quarter. In spite of the second quarter over second quarter increase, we believe fiscal 2010 private label sales will reflect a decrease compared to fiscal 2009 sales due to the discontinuation of certain unprofitable private label products in the second half of fiscal 2009.

Gross Profit. Gross profit increased 37.7% to $24.2 million for the fiscal 2010 second quarter, from $17.6 million for the fiscal 2009 second quarter. Gross profit, as a percentage of net sales, increased to 45.1% for the fiscal 2010 second quarter, from 37.2% for the fiscal 2009 second quarter, primarily resulting from the higher mix of branded sales, sales price increases and lower raw material costs. Subject to raw material pricing stability, competitive pressures and the overall branded to private label sales mix, among other factors, we believe fiscal 2010 gross profit percentage will be 39.0% to 42.0%, compared to fiscal 2009 gross profit percentage of 35.2%.

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Operating Expenses. Operating expenses increased 12.4% to $14.8 million for the fiscal 2010 second quarter, from $13.1 million for the fiscal 2009 second quarter, primarily resulting from a significant increase in general and administrative expenses. In spite of the overall increase, operating expenses, as a percentage of net sales, remained relatively constant at 27.5% and 27.8%, respectively, for the fiscal 2010 and 2009 second quarters due to the increase in net sales.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, increased to $8.8 million for the fiscal 2010 second quarter, from $8.4 million for the fiscal 2009 second quarter, primarily due to an increase in advertising, partially offset by a reduction in other promotional expenses. As a result of certain raw material supply issues for our MegaRed product, which have since been resolved, we elected to shift to subsequent fiscal 2010 quarters certain television advertising originally scheduled for the fiscal 2010 first quarter. In addition, a decrease in other personnel related costs, including severance, was partially offset by increases in accrued long-term and annual management incentive plan costs totaling $0.4 million.

General and administrative expenses increased to $4.9 million for the fiscal 2010 second quarter, from $3.6 million for the fiscal 2009 second quarter, primarily resulting from increases in accrued long-term and annual management incentive plan costs totaling $1.5 million, partially offset by a decrease in consulting costs.

Research and development costs remained constant at $1.1 million for the fiscal 2010 and 2009 second quarters.

Other Income/Expense. Other income (expense), net, was $0.1 million expense for the fiscal 2010 second quarter, compared to $0.3 million income for the fiscal 2009 second quarter. The decrease was primarily due to an overall lower yield on investments.

Income Tax Expense. Income tax expense was $3.5 million for the fiscal 2010 second quarter, compared to $1.8 million for the fiscal 2009 second quarter. The increase resulted from an increase in pre-tax income, partially offset by a modest decrease in our effective tax rate primarily due to an estimated increase in certain tax credits. The fiscal 2010 second quarter tax rate was 37.3%, compared to the fiscal 2009 second quarter tax rate of 38.3%.

Results of Operations (unaudited)
Six Months Ended November 30, 2009 Compared to Six Months
Ended November 30, 2008

The following tables show comparative results for selected items as reported and
as a percentage of net sales for the six months ended November 30, (dollars in
thousands):

                                               2009                      2008

         Net sales                     $ 102,319       100.0 %   $ 95,083       100.0 %
         Cost of goods sold               58,922        57.6       59,602        62.7

         Gross profit                     43,397        42.4       35,481        37.3
         Operating expenses:
         Selling and marketing            15,459        15.1       16,545        17.4
         General and administrative        9,110         8.9        7,348         7.7
         Research and development          2,332         2.3        2,107         2.2

         Total operating expenses         26,901        26.3       26,000        27.3

         Income from operations           16,496        16.1        9,481        10.0
         Other income (expense), net         (45 )         -          539         0.6
         Income tax expense               (6,177 )      (6.1 )     (3,859 )      (4.1 )

         Net income                    $  10,274        10.0 %   $  6,161         6.5 %

Net Sales. Net sales increased 7.6% to $102.3 million for the six months ended November 30, 2009, from $95.1 million for the six months ended November 30, 2008, primarily due to increase in branded net sales, partially offset by a decrease in private label sales.

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Aggregate branded net sales increased 12.9% to $75.2 million for the six months ended November 30, 2009, from $66.6 million for the six months ended November 30, 2008, primarily due to an increase in sales volume of approximately $7.4 million, or 7.9%, together with an approximate $1.3 million in aggregate sales price increases and a $1.3 million decrease in sales return allowances, partially offset by a $1.3 million increase in sales promotional incentives classified as sales price reductions. 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 an increase in MegaRed sales, together with an overall increase in joint care category sales. The increase in MegaRed sales was primarily due to incremental sales resulting from new distribution into various accounts in the latter part of fiscal 2009 and the first half of fiscal 2010, as well as replenishing certain customer inventories impacted by the first quarter raw material supply issues that have since been resolved. The overall joint care category net sales increase includes a modest 2.0% sales volume increase and a $0.7 million decrease in sales return allowances. Move Free net sales were $37.6 million and $36.7 million, respectively, for the six months ended November 30, 2009 and 2008.

Private label sales decreased 4.9% to $27.1 million for the six months ended November 30, 2009, from $28.5 million for the six months ended November 30, 2008, primarily due to an approximate $5.7 million decrease in sales volume resulting from the discontinuation of certain unprofitable private label products in the second half of fiscal 2009. This decrease was partially offset by an approximate $2.1 million price increase and an approximate $1.9 million sales volume increase for the ongoing private label business. We believe fiscal 2010 private label sales will reflect a decrease compared to fiscal 2009 sales due to the discontinuation of certain unprofitable private label products in the second half of fiscal 2009.

Gross Profit. Gross profit increased 22.3% to $43.4 million for the six months ended November 30, 2009, from $35.5 million for the six months ended November 30, 2008. Gross profit, as a percentage of net sales, increased to 42.4% for the six months ended November 30, 2009, from 37.3% for the six months ended November 30, 2008, primarily resulting from the higher mix of branded sales, sales price increases and lower raw material costs. Subject to raw material pricing stability, competitive pressures and the overall branded to private label sales mix, among other factors, we believe fiscal 2010 gross profit percentage will be 39.0% to 42.0%, compared to fiscal 2009 gross profit percentage of 35.2%.

Operating Expenses. Operating expenses increased 3.5% to $26.9 million for the six months ended November 30, 2009, from $26.0 million for the six months ended November 30, 2008, primarily resulting from an increase in general and administrative expenses, partially offset by a decrease in selling and marketing expenses. Operating expenses, as a percentage of net sales, decreased to 26.3% for the six months ended November 30, 2009, from 27.3% for the six months ended November 30, 2008, primarily due to the increase in net sales.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, decreased to $15.5 million for the six months ended November 30, 2009, from $16.5 million for the six months ended November 30, 2008. A modest increase in advertising expense was more than offset by a reduction in other promotional expenses. In addition, a $0.9 million decrease in other personnel related costs, including severance, was partially offset by increases in accrued long-term and annual management incentive plan costs totaling $0.7 million.

General and administrative expenses increased to $9.1 million for the six months ended November 30, 2009, from $7.3 million for the six months ended November 30, 2008, primarily resulting from increases in accrued long-term and annual management incentive plan costs totaling $2.3 million, partially offset by a decrease in consulting fees.

Research and development costs increased to $2.3 million for the six months ended November 30, 2009, from $2.1 million for the six months ended November 30, 2008, primarily resulting from an increase in product clinical research costs.

Other Income/Expense. Other income (expense), net, was nil for the six months ended November 30, 2009, compared to $0.5 million income for the six months ended November 30, 2008. The decrease was primarily due to an overall lower yield on investments.

Income Tax Expense. Income tax expense was $6.2 million for the six months ended November 30, 2009, compared to $3.9 million for the six months ended November 30, 2008. The increase resulted from an increase in pre-tax income, partially offset by a modest decrease in our effective tax rate primarily due to an estimated increase in certain tax credits. The tax rate was approximately 37.5% and 38.5%, respectively, for the six months ended November 30, 2009 and 2008.

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Liquidity and Capital Resources

Working capital decreased $3.3 million to $88.9 million at November 30, 2009, from $92.2 million at May 31, 2009, reflecting a $2.4 million reduction in cash and cash equivalents and available-for-sale securities, a $3.3 million increase in net receivables, a $2.5 million increase in inventories and a $7.1 million increase in current liabilities. The decrease in cash and cash equivalents and available-for-sale securities reflects the special dividend payment of $14.4 million and capital expenditures of $1.3 million, which more than offset the $13.7 million in cash flows provided by operating activities. The increase in net receivables reflects a $4.7 million increase in trade accounts receivable primarily due to an increase in net sales for October and November of fiscal 2010, as compared to April and May of fiscal 2009, partially offset by a $1.6 million reduction in refundable income taxes. The increase in inventories, as well as the corresponding increase in accounts payable, primarily reflects promotional timing considerations, which were reasonably consistent with prior year implications. The $1.8 million increase in accrued expenses primarily results from an increase in accrued annual management incentive plan costs.

At November 30, 2009, we held $9.2 million in available-for-sale securities, consisting of $6.0 million in certificates of deposit and commercial paper and $3.2 million in debt securities; including $0.5 million in illiquid ARS which are fully insured, state agency issued securities. Although we have experienced failed auction(s) with 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. However, we believe the unsuccessful liquidation of some, or all, of these securities over the next twelve months will not significantly impact our 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 ("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 contained customary terms and conditions, including, among others, financial covenants that limited our ability to pay dividends on our common stock and certain other restrictions. SNG's obligations under the Credit Facility were guaranteed by us and secured by a first priority security interest on all of the capital stock of SNG. The Credit Facility, which expired on June 30, 2009, was available to fund our normal working capital and capital expenditure requirements, with additional availability to fund certain permitted strategic transactions.

On August 18, 2009, we entered into, through SNG, a new $80.0 million revolving credit facility ("New Credit Facility") with U.S. Bank National Association, as Agent. The New Credit Facility, which replaces our previous $25.0 million credit facility which expired on June 30, 2009, 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. SNG's obligations under the New Credit Facility are guaranteed by us and SNG's domestic subsidiaries and secured by a first priority security interest in all of the capital stock of SNG and its current and future subsidiaries, as well as a first priority security interest in substantially all of our domestic assets. Borrowings under the New Credit Facility bear interest at floating rates based on U.S. Bank's prime rate, the Federal Funds rate, or the LIBOR rate. The New Credit Facility, which matures on August 18, 2012, can be used to fund our normal working capital and capital expenditure requirements, with availability to fund certain permitted strategic transactions. We incurred approximately $0.5 million in debt issue costs related to the New Credit Facility, which will be amortized over its three-year term. In addition, we are obligated to pay certain commitment fees on any unused amounts based on rates ranging from 0.25% to 0.50%. At November 30, 2009, there were no amounts outstanding and $80.0 million, subject to limitations based on certain financial covenant requirements, was available for borrowing under the New 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.

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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 New 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 November 30, 2009 is as follows (in thousands):

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

Operating leases                  $       7,763     $     2,362     $   4,631     $      770     $           -
Purchase obligations(2)                  14,251          14,251             -              -                 -

Total obligations                 $      22,014     $    16,613     $   4,631     $      770     $           -

(1) Unrecognized income tax benefits totaling $255 are excluded since we are unable to estimate the period of settlement, if any.

(2) 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, cost of goods sold and operating 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 liability classified performance awards and recoverability of long-lived assets. Note 1 of Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended May 31, 2009, 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 interim 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 the six months ended November 30, 2009 and 2008, inventory valuation adjustments resulted in a decrease in our gross profit and operating income of approximately $0.1 million and $0.2 . . .