WEIDER NUTRITION INTERNATIONAL INC - 10-Q Quarterly Report

	February 28, 2005			May 31, 2004
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	24,919		$	7,449
Receivables, net		32,111			35,620
Inventories		31,760			28,431
Prepaid expenses and other		5,226			5,021
Deferred taxes		1,982			2,419

Total current assets		95,998			78,940

Property and equipment, net		23,717			24,618

Other assets:
Goodwill		4,346			4,346
Intangible assets, net		4,661			5,146
Deposits and other assets		583			1,874

Total other assets		9,590			11,366

Total assets	$	129,305		$	114,924

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,786		$	16,116
Accrued expenses		13,155			15,277
Current portion of long-term debt		1,855			1,091
Income taxes payable		167			--

Total current liabilities		33,963			32,484

Long-term debt		--			133

Deferred taxes		10,705			6,494

Commitments and contingencies (Note 7)

Stockholders’ equity:
Preferred stock, par value $.01 per share; shares
authorized-10,000,000; no shares issued and outstanding		--			--
Class A common stock, par value $.01 per share; shares
authorized-50,000,000; shares issued and outstanding 11,124,912 and 11,127,166		111			111
Class B common stock, par value $.01 per share; shares
authorized-25,000,000; shares issued and outstanding-14,973,148		150			150
Additional paid-in capital		83,874			83,902
Deferred compensation costs		(487	)		(635	)
Other accumulated comprehensive loss		(3,727	)		(4,060	)
Retained earnings (accumulated deficit)		4,716			(3,655	)

Total stockholders’ equity		84,637			75,813

Total liabilities and stockholders’ equity	$	129,305		$	114,924

	Three Months Ended
	February 28,			February 29,
	2005			2004

Net sales	$	65,557		$	67,485

Cost of goods sold		42,871			41,895

Gross profit		22,686			25,590

Operating expenses:
Selling and marketing		14,321			12,232
General and administrative		5,079			8,073
Research and development		986			868
Amortization of intangible assets		272			146

Total operating expenses		20,658			21,319

Income from operations		2,028			4,271

Other income (expense):
Interest income		123			124
Interest expense		(82	)		(253	)
Other, net		(90	)		149

Total other income (expense), net		(49	)		20

Income from continuing operations before income taxes		1,979			4,291
Income tax expense		760			1,655

Net income from continuing operations		1,219			2,636
Loss from discontinued operations, net of income taxes		--			(71	)

Net income	$	1,219		$	2,565

Weighted average shares outstanding:
Basic		25,764,664			25,526,424
Diluted		26,583,336			26,542,768

Net income per share-basic and diluted:
Net income from continuing operations	$	0.05		$	0.10
Net loss from discontinued operations		--			--

Net income	$	0.05		$	0.10

Comprehensive income	$	1,255		$	2,716

	Nine Months Ended
	February 28,			February 29,
	2005			2004

Net sales	$	202,282		$	191,886

Cost of goods sold		126,645			118,915

Gross profit		75,637			72,971

Operating expenses:
Selling and marketing		40,161			40,391
General and administrative		17,407			17,705
Research and development		3,340			3,044
Amortization of intangible assets		805			429

Total operating expenses		61,713			61,569

Income from operations		13,924			11,402

Other income (expense):
Interest income		240			852
Interest expense		(353	)		(895	)
Other		(201	)		(222	)

Total other expense, net		(314	)		(265	)

Income from continuing operations before income taxes		13,610			11,137
Income tax expense		5,239			4,288

Net income from continuing operations		8,371			6,849
Income from discontinued operations, net of income taxes		--			578

Net income	$	8,371		$	7,427

Weighted average shares outstanding:
Basic		25,743,251			25,949,587
Diluted		26,544,561			26,821,183

Net income per share-basic:
Net income from continuing operations	$	0.33		$	0.26
Net income from discontinued operations		--			0.02

Net income	$	0.33		$	0.28

Net income per share-diluted:
Net income from continuing operations	$	0.32		$	0.26
Net income from discontinued operations		--			0.02

Net income	$	0.32		$	0.28

Comprehensive income	$	8,704		$	8,554

	Nine Months Ended
	February 28,			February 29,
	2005			2004
Cash flows from operating activities:
Net income	$	8,371		$	7,427
Adjustments to reconcile net income to net cash provided by
operating activities:
Recovery of bad debts		(69	)		(1,243	)
Deferred taxes		4,648			6,192
Depreciation and amortization		4,057			3,764
Interest income on settlement of notes receivable		--			(609	)
Gain on disposition of net assets held for sale and property and equipment		(39	)		(1,139	)
Amortization of financing fees		128			251
Amortization of deferred compensation costs		148			226
Tax benefit from stock options exercised		14			73
Changes in operating assets and liabilities:
Receivables		3,578			(5,605	)
Inventories		(3,329	)		(3,210	)
Prepaid expenses and other		(205	)		(106	)
Deposits and other assets		276			1,047
Accounts payable		2,670			(6,188	)
Other current liabilities		(2,702	)		786

Net cash provided by operating activities		17,546			1,666

Cash flows from investing activities:
Purchase of property and equipment		(1,677	)		(1,397	)
Purchase of intangibles		(7	)		--
Proceeds from disposition of assets held for sale and property and equipment		926			6,875
Collection of notes receivable		--			3

Net cash provided by (used in) investing activities		(758	)		5,481

Cash flows from financing activities:
Issuance of common stock		66			325
Acquisition and retirement of common stock		(108	)		--
Net change in revolving line-of-credit		(2	)		--
Proceeds from debt		2,561			2,704
Payments on debt		(2,098	)		(9,282	)

Net cash provided by (used in) financing activities		419			(6,253	)

Effect of exchange rate changes on cash		263			421

Increase in cash and cash equivalents		17,470			1,315
Cash and cash equivalents, beginning of period		7,449			3,463

Cash and cash equivalents, end of period	$	24,919		$	4,778

The accompanying unaudited interim condensed consolidated financial statements (“interim financial statements”) do not include all disclosures provided in our annual consolidated financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and the footnotes thereto contained in our Annual Report on Form 10-K for the year ended May 31, 2004 as filed with the Securities and Exchange Commission. The May 31, 2004 consolidated balance sheet was derived from audited financial statements, but all disclosures required by generally accepted accounting principles are not provided in the accompanying footnotes. We are a majority-owned subsidiary of Weider Health and Fitness (“WHF”).

In our opinion, the accompanying interim financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation of our financial position and results of operations. Certain prior period amounts have been reclassified to conform with the current interim period presentation. Results of operations and cash flows for any interim period are not necessarily indicative of the results of operations and cash flows that we may achieve for any other interim period or for the entire year.

On April 1, 2005, we announced the sale of certain assets of our Active Nutrition unit relating to our Weider branded business domestically and internationally to Weider Global Nutrition, LLC, a wholly-owned subsidiary of WHF. The terms of the transaction provide that we will receive approximately $14,000 in exchange for assets relating to our domestic Weider branded business, including inventory, receivables, and intangible and intellectual property, the capital stock of certain of our international subsidiaries related to the international Weider branded business (including the working capital of those subsidiaries), and the assumption of certain associated liabilities by Weider Global Nutrition. The transaction closed on April 1, 2005, with an effective date of March 1, 2005.

For the nine months ended February 28, 2005, the Weider branded business generated net sales of approximately $23,133 and pre-tax income of approximately $1,691(excluding certain indirect costs primarily consisting of general and administrative expenses). We anticipate that we will recognize a transaction related pre-tax gain of approximately $3,500 in our fiscal 2005 fourth quarter, subject to final determination of directly associated costs. At February 28, 2005, net book value of the assets and liabilities subsequently disposed of was approximately $9,476, including approximately $7,867 in working capital and approximately $1,609 in intangible and other assets.

In connection with the transaction, the parties also entered into separate agreements whereby we will provide certain general and administrative, research and development, and logistics services to Weider Global Nutrition for an annual fee. The terms of the service agreements are for a one year period, with options by either party for one additional year. We also received a license to use the Weider name for corporate purposes for a limited period of time (up to twelve months) prior to transitioning to a new name for our company.

Effective in our fiscal 2004 first quarter, we sold substantially all of the assets relating to Haleko’s Venice Beach^® sports apparel business to Hucke AG, a German apparel company, for initial cumulative net cash proceeds of approximately $6,898. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, the operating results for Venice Beach are reflected as discontinued operations for the three and nine months ended February 29, 2004. Accordingly, we recognized after-tax income from discontinued operations of approximately $578, including an after-tax gain on disposal of approximately $743, for the nine months ended February 29, 2004. Results from discontinued operations for the nine months ended February 29, 2004 were subsequently impacted by certain lease related and other costs, as well as by final settlement of net assets sold in the transaction. Ultimately, cumulative net cash proceeds amounted to approximately $7,134, and income from discontinued operations, net of income taxes, amounted to approximately $812, including an after-tax gain on disposal of approximately $977 for fiscal 2004.

Effective August 16, 2002, we issued 640,000 restricted shares of Class A common stock to certain officers and employees. The aggregate value of these restricted shares was approximately $1,038, which we are expensing on a straight-line basis over the accompanying five-year vesting period. During the fiscal 2005 second quarter, 124,600 of these restricted shares vested. Concurrent with vesting, we reacquired (and ultimately retired) 27,406 shares from certain employees in connection with the payment of individual income taxes. During the fiscal 2004 second quarter, 128,000 of these restricted shares vested and 13,600 were cancelled as a result of the voluntary termination of certain employees.

Proforma information regarding net income and net income per share is required by SFAS No. 123, as amended by SFAS No. 148, and has been determined as if we had accounted for our employee stock options and unvested restricted stock under the fair value method of SFAS No. 123. For the purposes of proforma disclosure, the estimated fair value of the stock options is amortized to expense over the options’ vesting period. Our proforma net income and net income per share are as follows:

	Three Months Ended				Nine Months Ended
	February 28,		February 29,		February 28,		February 29,
	2005		2004		2005		2004

Net income, as reported	$	1,219	$	2,565	$	8,371	$	7,427
Net income, proforma		1,133		2,482		8,072		7,183
Basic net income per share, as reported		0.05		0.10		0.33		0.28
Diluted net income per share, as reported		0.05		0.10		0.32		0.28
Basic net income per share, proforma		0.04		0.10		0.31		0.28
Diluted net income per share, proforma		0.04		0.09		0.30		0.27

We manufacture and market nutritional products, including a full line of specialty supplements, vitamins and minerals through our Schiff Specialty unit. Schiff Specialty products are marketed primarily in the United States through mass market distribution channels. We manufacture and market nutritional products, including a full line of sports nutrition supplements, together with certain other nutraceuticals within our Haleko unit. Haleko products are marketed primarily in Europe (approximately 78% in Germany) through mass market and health club and gym distribution channels. We also manufacture and market a variety of sports nutrition, nutritional bar and weight management products through our Active Nutrition unit. Active Nutrition products are marketed domestically and internationally primarily through mass market and health club and gym distribution channels.

The accounting policies of these business units are the same as those described in Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended May 31, 2004. We evaluate the performance of our business units based on actual and expected operating results of the respective business units. Certain domestic assets are not allocated to the Schiff Specialty and Active Nutrition units.

Effective in our fiscal 2005 first quarter, we retroactively reclassified Schiff export net sales and operating results from our Active Nutrition unit to our Schiff Specialty unit. Schiff export net sales and operating income previously included in Active Nutrition operating results were $555 and $201, respectively, for the fiscal 2004 third quarter, and $2,128 and $997, respectively, for the nine months ended February 29, 2004.

Effective March 1, 2005, we sold certain assets of our Active Nutrition unit (see Note 1 to the condensed consolidated financial statements). As a result of the sale, the remaining assets and related operations for the Active Nutrition unit will be consolidated into our Schiff Specialty unit. Beginning with our fiscal 2005 fourth quarter we will report segment information for the two remaining business units.

	Net Sales			Income (Loss) From Operations			Interest Expense			Depreciation & Amortization Expense
2005:
Schiff Specialty	$	43,601		$	2,938		$	41		$	697
Haleko		14,131			(2,082	)		10			541
Active Nutrition		8,991			1,203			31			176
Eliminations		(1,166	)		(31	)		--			(19	)

	$	65,557		$	2,028		$	82		$	1,395

2004:
Schiff Specialty	$	45,617		$	4,202		$	193		$	742
Haleko		14,929			897			73			364
Active Nutrition		8,168			(854	)		17			187
Eliminations		(1,229	)		26			(30	)		(27	)

	$	67,485		$	4,271		$	253		$	1,266

	Net Sales			Income (Loss) From Operations			Interest Expense			Depreciation & Amortization Expense
2005:
Schiff Specialty	$	127,673		$	12,900		$	206		$	2,080
Haleko		49,738			(941	)		88			1,498
Active Nutrition		28,682			2,054			59			532
Eliminations		(3,811	)		(89	)		--			(53	)

	$	202,282		$	13,924		$	353		$	4,057

2004:
Schiff Specialty	$	122,115		$	11,233		$	595		$	2,288
Haleko		47,958			1,966			329			1,001
Active Nutrition		25,773			(1,873	)		58			549
Eliminations		(3,960	)		76			(87	)		(74	)

	$	191,886		$	11,402		$	895		$	3,764

Total domestic and international net sales amounted to $134,292 and $67,990, respectively, for the nine months ended February 28, 2005, and $130,840 and $61,046, respectively, the nine months ended February 29, 2004. Capital expenditures for domestic and international operations were $1,195 and $482, respectively, for the nine months ended February 28, 2005, and $475 and $922, respectively, for the nine months ended February 29, 2004.

Net sales to our two largest customers combined, which are primarily included in our Schiff Specialty unit, are significant. Customer A accounted for approximately 27% and 29%, respectively, and Customer B accounted for approximately 22% and 23%, respectively, of net sales for the nine months ended February 28, 2005 and February 29, 2004. At February 28, 2005, and May 31, 2004, amounts due from Customer A represented approximately 18% and 23%, respectively, and amounts due from Customer B represented approximately 22% and 15%, respectively, of total trade accounts receivable. Net sales of our Schiff Move Free^® brand accounted for approximately 26% and 29%, respectively, of total net sales for the nine months ended February 28, 2005 and February 29, 2004.

We are currently named as a defendant in three lawsuits alleging that consumption of certain of our discontinued products containing ephedra caused or contributed to injuries and damages. We dispute the allegations and our insurance carriers have assumed defense of one of the matters. The other two matters are not covered by insurance. However, we are pursuing indemnification from a third party for one of the matters. We believe that, after taking into consideration our insurance coverage, these lawsuits, if successful, generally would not have a material adverse effect on our results of operations and financial condition. However, one or more large punitive damage awards, which are generally not covered by insurance (and are not covered by the indemnification provisions in the one matter), or a large adverse award in a lawsuit not covered by insurance or indemnification, could have a material adverse effect on our results of operations and financial condition. Given the preliminary stages of these proceedings, we are unable to determine the likelihood of an unfavorable outcome or estimate an amount or range of possible loss at this time. In connection with the sale of the American Body Building and Science Foods brands in July 2002, we discontinued the sale of products that contain ephedra. However, we cannot assure you that we will not be subject to further litigation with respect to ephedra products we previously sold.

From time to time, we are involved in other claims, legal actions, and governmental proceedings that arise from our business operations. Although ultimate liability cannot be determined at the present time, we believe that any liability resulting from these matters, if any, after taking into consideration our insurance coverage will not have a material adverse effect on our results of operations and financial condition.

In March 2004, the Financial Accounting Standards Board (“FASB”) reached a consensus on Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which provides guidance to determine the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity (including individual securities and investments in mutual funds), and investments accounted for under the cost method or the equity method. The guidance for evaluating whether an investment is other-than-temporarily impaired should be applied in other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004. The adoption of EITF Issue No. 03-1 did not have a material impact on our results of operations and financial condition.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for stock Issued to Employees”. SFAS No. 123 (revised 2004) requires that costs resulting from all share-based payment transactions, a transaction in which an entity exchanges its equity instruments for goods or services, be recognized in the financial statements. Costs resulting from all share-based payment transactions will be determined by applying a fair-value-based measurement method at the date of the grant, with limited exceptions. Costs will be recognized over the period in which the goods or services are received. The recognition and measurement provisions of SFAS No. 123 (revised 2004) are effective for all share-based payment transactions entered into after August 31, 2005. We have not determined the impact SFAS No. 123 (revised 2004) will have on our results of operations and financial condition.

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

Weider Nutrition International, Inc. develops, manufactures, markets, distributes and sells branded and private label vitamins, nutritional supplements and sports nutrition products in the United States and throughout the world. We offer a broad range of capsules and tablets, powdered drink mixes, ready-to-drink beverages and nutrition bars. Our portfolio of recognized brands, including Schiff, Multipower^®, Multaben and Tiger's Milk^®, are primarily marketed through mass market, health food store and health club and gym distribution channels. We market our branded nutritional supplement products, both domestically and internationally, in five principal categories: specialty supplements; vitamins and minerals; sports nutrition; weight management; and nutrition bars.

We are continuing our efforts to defend our Schiff Move Free business against competition, including private label, and ultimately to increase our market share in the branded joint care product category. Accordingly, we have introduced product enhancements to Schiff Move Free and launched Schiff Lubriflex^3™, a new premium, proprietary joint care product. However, in the fourth quarter of fiscal 2005 and continuing into fiscal 2006, we anticipate that escalating raw material costs (particularly in the joint care category), significant marketing support of the Lubriflex³ launch and continuing difficult economic conditions in Germany may negatively impact operating margins.

On April 1, 2005, we announced the sale of certain assets of our Active Nutrition unit relating to our Weider branded business domestically and internationally to Weider Global Nutrition, LLC, a wholly-owned subsidiary of WHF. The terms of the transaction provide that we will receive approximately $14.0 million in exchange for assets relating to our domestic Weider branded business, including inventory, receivables, and intangible and intellectual property, the capital stock of certain of our international subsidiaries related to our international Weider branded business (including the working capital of those subsidiaries), and the assumption of certain associated liabilities by Weider Global Nutrition. The transaction closed on April 1, 2005, with an effective date of March 1, 2005.

Due to the sale of the Weider branded business, we anticipate incorporating the remaining portion of the Active Nutrition unit into our Schiff Specialty unit. For the nine months ended February 28, 2005 and February 29, 2004, the Weider branded business generated net sales of approximately $23.1 million and $19.7 million, respectively, and recognized pre-tax income (loss) of approximately $1.7 million and $(1.9) million, respectively, excluding certain indirect costs primarily consisting of general and administrative expenses.

Effective in our fiscal 2004 first quarter, we sold substantially all of the assets relating to Haleko’s Venice Beach sports apparel business for initial cumulative net cash proceeds of approximately $6.9 million. In accordance with SFAS No. 144, the operating results for Venice Beach are reflected as discontinued operations for the three and nine months ended February 29, 2004. Results from discontinued operations for the nine months ended February 29, 2004 were subsequently impacted by certain lease related and other costs, as well as by final settlement of net assets sold in the transaction. Ultimately, cumulative net cash proceeds amounted to approximately $7.1 million, and income from discontinued operations, net of income taxes, amounted to approximately $0.8 million, including an after-tax gain on disposal of approximately $1.0 million for fiscal 2004.

During fiscal 2004, we entered into settlement agreements with five former employees relating to certain outstanding notes due to us, including interest accrued thereon. As a result of the respective settlement agreements, we received an aggregate of $99,000 in cash and acquired and retired a total of 966,609 shares of our Class A common stock valued at approximately $3.8 million as full payment of principal and interest accrued on the notes. Settlement agreements entered into during the nine months ended February 29, 2004, resulted in recoveries of previously recognized notes receivable valuation allowances of approximately $1.1 million, reflected as a reduction of general and administrative expense, and recognition of contractually due interest income of approximately $0.7 million.

(in thousands)	Schiff Specialty		Haleko			Active Nutrition			Other (1)			Total
2005:
Net sales	$	43,601	$	14,131		$	8,991		$	(1,166	)	$	65,557
Cost of goods sold		29,939		9,015			5,033			(1,116	)		42,871
Gross profit		13,662		5,116			3,958			(50	)		22,686
Operating expenses:
Selling and marketing		7,575		4,963			1,783			--			14,321
General and administrative		2,498		1,800			781			--			5,079
Research and development		650		206			130			--			986
Amortization of intangible assets		1		229			61			(19	)		272
Total operating expenses		10,724		7,198			2,755			(19	)		20,658

Income (loss) from operations	$	2,938	$	(2,082	)	$	1,203		$	(31	)	$	2,028

2004:
Net sales	$	45,617	$	14,929		$	8,168		$	(1,229	)	$	67,485
Cost of goods sold		28,660		9,042			5,422			(1,229	)		41,895
Gross profit		16,957		5,887			2,746			--			25,590
Operating expenses:
Selling and marketing		5,898		3,536			2,798			--			12,232
General and administrative		6,289		1,191			593			--			8,073
Research and development		546		182			140			--			868
Amortization of intangible assets		22		81			69			(26	)		146
Total operating expenses		12,755		4,990			3,600			(26	)		21,319

Income (loss) from operations	$	4,202	$	897		$	(854	)	$	26		$	4,271

Schiff Specialty net sales decreased approximately 4.4% to $43.6 million for the fiscal 2005 third quarter, from $45.6 million for the fiscal 2004 third quarter. Aggregate branded sales increased approximately 2.4% to $31.1 million for the fiscal 2005 third quarter, from $30.3 million for the fiscal 2004 third quarter. Branded joint product sales volume, including Lubriflex³ results, increased approximately $2.3 million, and export sales volume increased approximately $0.3 million. These increases were more than offset by a $1.9 million decrease in other Schiff branded sales volume and a $2.7 million reduction in private label sales volume. Move Free net sales were $16.9 million and $19.2 million, respectively, for the fiscal 2005 and 2004 third quarters. As a result of significant volatility in raw material costing and the inability to secure an acceptable price increase from the customer, we recently discontinued certain private label or contract manufacturing services. Net sales for the discontinued private label business amounted to approximately $5.1 million and $6.8 million, respectively, for the fiscal 2005 and 2004 third quarters.

Haleko net sales, including the positive impact of foreign currency exchange rates, decreased approximately 5.3% to $14.1 million for the fiscal 2005 third quarter, from $14.9 million for the fiscal 2004 third quarter. Excluding the favorable foreign currency exchange impact of approximately $1.1 million, net sales decreased approximately 12.8%, quarter over quarter. A $2.3 million reduction in branded sales volume resulting from continuing difficult economic conditions in Germany and heightened competitive pressures resulting in reduced pricing to mass market and health club customers, was partially offset by a $0.4 million increase in private label sales volume.

Active Nutrition net sales increased approximately 10.1% to $9.0 million for the fiscal 2005 third quarter, from $8.2 million for the fiscal 2004 third quarter. Excluding the favorable foreign currency impact of approximately $0.4 million, net sales increased approximately 5.6% primarily due to $0.4 million of incremental distribution in our Weider branded European business.

Gross Profit. Gross profit decreased approximately 11.3% to $22.7 million for the fiscal 2005 third quarter, from $25.6 million for the fiscal 2004 third quarter. Gross profit, as a percentage of net sales, was 34.6% for the fiscal 2005 third quarter, compared to 37.9% for the fiscal 2004 third quarter. Gross profit, and the gross profit percentage, decreased in our Schiff Specialty and Haleko units and increased in our Active Nutrition unit.

Schiff Specialty gross profit decreased approximately 19.4% to $13.7 million for the fiscal 2005 third quarter from $17.0 million for the fiscal 2004 third quarter. Gross profit, as a percentage of net sales, was 31.3% and 37.2%, respectively, for the fiscal 2005 and 2004 third quarters. The decrease was primarily due to a $2.2 million increase in joint product raw material costs and a $3.0 million increase in price discount-like promotions, which are accounted for as a direct reduction of sales, partially offset by an approximate $1.6 million increase resulting from a change in sales mix. The increase in price discount-like promotions was in response to competitive pricing conditions.

Haleko gross profit decreased approximately 13.1% to $5.1 million for the fiscal 2005 third quarter, from $5.9 million for the fiscal 2004 third quarter. Gross profit, as a percentage of net sales, was 36.2% and 39.4%, respectively, for the fiscal 2005 and 2004 third quarters. The decrease primarily resulted from a reduction in sales volume due to economic conditions and a reduction in pricing to mass market and health club customers due to heightened competitive conditions.

Active Nutrition gross profit increased approximately 44.1% to $4.0 million for the fiscal 2005 third quarter, from $2.7 million for the fiscal 2004 third quarter. Gross profit, as a percentage of net sales, was 44.0% and 33.6%, respectively, for the fiscal 2005 and 2004 third quarters. In addition to approximately $0.3 million in gross profit resulting from incremental sales volume, the increase in gross profit and the gross profit percentage was primarily due to a $0.3 million reduction in product returns and a $0.6 million decrease in inventory related charges.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, increased to approximately $14.3 million for the fiscal 2005 third quarter, from $12.2 million for the fiscal 2004 third quarter. Selling and marketing expenses increased approximately $1.7 million in our Schiff Specialty unit and approximately $1.4 million in our Haleko unit, and decreased approximately $1.0 million in our Active Nutrition unit. The Schiff Specialty increase resulted primarily from $3.0 million in marketing costs in support of our fiscal 2005 launch of Lubriflex³, partially offset by a $0.6 million decrease in personnel related costs. In addition, reclassification of approximately $0.7 million in promotional spending to price discount-like promotions, which are accounted for as a direct reduction of sales, also offset the incremental Lubriflex³ marketing expense. The increase in Haleko’s selling and marketing expenses primarily resulted from increased marketing activity in response to heightened competitive conditions and in support of the introduction of new products. In addition, Haleko’s selling and marketing expenses increased approximately $0.4 million due to the impact of foreign currency exchange rates. Active Nutrition's decrease in selling and marketing expenses resulted primarily from a $0.4 million decrease in promotional spending resulting from a reduction in new product activity and a $0.6 million decrease resulting from the favorable impact of previously implemented cost reduction initiatives.

General and administrative expenses decreased to approximately $5.1 million for the fiscal 2005 third quarter, from $8.1 million for the fiscal 2004 third quarter. The decrease in general and administrative expenses resulted primarily from a $2.5 million reduction in legal related costs and a $0.9 million decrease in personnel related costs primarily in our Schiff Specialty unit, partially offset by an approximate $0.6 million increase due to foreign currency impact and incremental personnel and consulting costs in our Haleko unit.

(in thousands)	Schiff Specialty		Haleko			Active Nutrition			Other (1)			Total
2005:
Net sales	$	127,673	$	49,738		$	28,682		$	(3,811	)	$	202,282
Cost of goods sold		82,916		30,773			16,625			(3,669	)		126,645
Gross profit		44,757		18,965			12,057			(142	)		75,637
Operating expenses:
Selling and marketing		19,966		13,703			6,492			--			40,161
General and administrative		9,498		5,002			2,907			--			17,407
Research and development		2,390		552			398			--			3,340
Amortization of intangible assets		3		649			206			(53	)		805
Total operating expenses		31,857		19,906			10,003			(53	)		61,713

Income (loss) from operations	$	12,900	$	(941	)	$	2,054		$	(89	)	$	13,924

2004:
Net sales	$	122,115	$	47,958		$	25,773		$	(3,960	)	$	191,886
Cost of goods sold		77,667		29,273			15,935			(3,960	)		118,915
Gross profit		44,448		18,685			9,838			--			72,971
Operating expenses:
Selling and marketing		19,469		12,198			8,724			--			40,391
General and administrative		11,653		3,730			2,322			--			17,705
Research and development		2,029		557			458			--			3,044
Amortization of intangible assets		64		234			207			(76	)		429
Total operating expenses		33,215		16,719			11,711			(76	)		61,569

Income (loss) from operations	$	11,233	$	1,966		$	(1,873	)	$	76		$	11,402

Net Sales. Net sales increased approximately 5.4% to $202.3 million for the nine months ended February 28, 2005, from $191.9 million for the nine months ended February 29, 2004. Overall, the increase in net sales was primarily attributable to an increase in Schiff Specialty branded joint product sales, improvement in our Weider branded European business and favorable foreign currency exchange rates.

Schiff Specialty net sales increased approximately 4.6% to $127.7 million for the nine months ended February 28, 2005, from $122.1 million for the nine months ended February 29, 2004. The increase was primarily due to a $9.0 million increase in branded joint product sales volume, including Lubriflex³, and a $1.4 million increase in export sales volume. Aggregate branded sales increased approximately 8.8% to $89.1 million for the nine months ended

February 28, 2005, from $81.9 million for the nine months ended February 29, 2004. Move Free net sales were approximately $51.1 million and $50.1 million, respectively, for the nine months ended February 28, 2005 and February 29, 2004. The increase in branded sales was partially offset by a $1.6 million reduction in private label sales volume. As a result of significant volatility in raw material costing and the inability to secure an acceptable price increase from the customer, we recently discontinued certain private label or contract manufacturing services. Net sales for the discontinued private label business amounted to approximately $15.8 million and $16.1 million, respectively, for the nine months ended February 28, 2005 and February 29, 2004.

Haleko net sales, including the positive impact of foreign currency exchange rates, increased approximately 3.7% to $49.7 million for the nine months ended February 28, 2005, from $48.0 million for the nine months ended February 29, 2004. Excluding the favorable foreign currency exchange impact of approximately $3.5 million, net sales decreased approximately 3.5% for the nine months ended February 28, 2005, compared to the nine months ended February 29, 2004. A $3.3 million decrease in branded sales volume resulting from continuing difficult economic conditions in Germany and reduced pricing to mass market and health club customers due to heightened competitive pressures, was partially offset by a $1.5 million increase in private label sales volume.

Active Nutrition net sales increased approximately 11.3% to $28.7 million for the nine months ended February 28, 2005, from $25.8 million for the nine months ended February 29, 2004. Excluding the favorable foreign currency exchange impact of approximately $1.1 million, net sales increased approximately 6.9% primarily due to $2.5 million of incremental distribution in our Weider branded European business, partially offset by a $0.7 million reduction in U.S. branded sales volume.

Gross Profit. Gross profit increased approximately 3.7% to $75.6 million for the nine months ended February 28, 2005, from $73.0 million for the nine months ended February 29, 2004. Gross profit, as a percentage of net sales, was 37.4% for the nine months ended February 28, 2005, compared to 38.0% for the nine months ended February 29, 2004. Gross profit percentage decreased in our Schiff Specialty and Haleko units and increased in our Active Nutrition unit.

Schiff Specialty gross profit remained relatively constant at $44.8 million for the nine months ended February 28, 2005, compared to $44.4 million for the nine months ended February 29, 2004. Gross profit, as a percentage of net sales, decreased to 35.1% for the nine months ended February 28, 2005, from 36.4% for the nine months ended February 29, 2004. The decrease was primarily due to a $2.6 million increase in joint product raw material costs and a $2.8 million increase in price discount-like promotions, which are accounted for as a direct reduction of sales, substantially offset by an incremental $5.1 million resulting from a change in sales mix, including an increase in branded sales volume. The increase in price discount-like promotions was primarily in response to competitive pricing conditions.

Haleko gross profit increased approximately 1.5% to $19.0 million for the nine months ended February 28, 2005, from $18.7 million for the nine months ended February 29, 2004, resulting primarily from favorable foreign currency exchange rates. Excluding the favorable foreign currency exchange impact of approximately $1.3 million, gross profit decreased 5.6% for the nine months ended February 28, 2005, compared to the nine months ended February 29, 2004. Gross profit, as a percentage of net sales, decreased to 38.1% for the nine months ended February 28, 2005, from 39.0% for the nine months ended February 29, 2004. The decrease primarily resulted from a reduction in sales volume due to economic conditions in Germany and competitive pressure resulting in reduced pricing to mass market and health club customers.

Active Nutrition gross profit increased approximately 22.6% to $12.1 million for the nine months ended February 28, 2005, from $9.8 million for the nine months ended February 29, 2004. Gross profit, as a percentage of net sales, increased to 42.0% for the nine months ended February 28, 2005, from 38.2% for the nine months ended February 29, 2004. In addition to an incremental $0.4 million in gross profit resulting from increases in sales volume and $0.4 million due to foreign currency exchange rates, the increase in gross profit and gross profit percentage was primarily attributable to a $1.1 million reduction in inventory related charges and a $0.5 million reduction in product returns.

Operating Expenses. Operating expenses remained relatively constant at $61.7 million for the nine months ended February 28, 2005, compared to $61.6 million for the nine months ended February 29, 2004. Modest decreases in selling and marketing and general and administrative expenses were more than offset by increases in research and development costs and amortization of intangible assets.

Selling and marketing expenses, including sales, marketing, advertising, freight and other costs, remained relatively constant for the nine months ended February 28, 2005, compared to the nine months ended February 29, 2004. The Schiff Specialty increase resulted primarily from $4.2 million in marketing costs in support of our fiscal 2005 launch of Lubriflex³, substantially offset by reclassification of approximately $3.7 million in promotional spending to price discount-like promotions, which are accounted for as a direct reduction of sales. The increase in Haleko’s selling and marketing expenses were primarily due to $1.0 million in foreign currency impact and $0.5 million in additional spending in response to competitive conditions and support of new product introductions. The decrease in Active Nutrition primarily resulted from a $0.7 million decrease in promotional expense due to a reduction of new product activity and a $1.4 million decrease resulting from the favorable impact of previously implemented cost reduction and other initiatives.

General and administrative expenses remained relatively constant for the nine months ended February 28, 2005, compared to the nine months ended February 29, 2004. Decreases in general and administrative expenses resulting primarily from a $2.5 million reduction in legal related costs and a $0.8 million decrease in personnel related costs were partially offset by $0.6 million in expenses associated with the sale of the Weider branded business and $0.5 million in incremental consulting fees, including corporate governance costs. In addition, the prior comparable period amount includes approximately $1.1 million in recoveries of previously recognized notes receivable valuation allowances, which are reflected as a reduction in general and administrative expenses.

Research and development costs increased to approximately $3.3 million for the nine months ended February 28, 2005, from $3.0 million for the nine months ended February 29, 2004 primarily resulting from an increase in contracted research relating to potential new product initiatives. Amortization of intangibles increased due to a reduction in the estimated remaining useful lives of certain Haleko unit trademarks.

Other Income/Expense. Other expense, net, was approximately $0.3 million expense for the nine months ended February 28, 2005 and February 29, 2004. Interest expense for the nine months ended February 28, 2005, decreased as a result of reduced aggregate indebtedness and a reduction of financing fees under our current credit facility. Interest income for the nine months ended February 29, 2004, includes approximately $0.7 million recognized in connection with the settlement of certain notes receivable.

Working capital increased approximately $15.5 million to $62.0 million at February 28, 2005, from $46.5 million at May 31, 2004, primarily represented by an increase in cash and cash equivalents partially offset by a modest increase in current liabilities. The increase in inventories is due primarily to joint product sales growth and our proactive decision to increase raw materials on-hand relating to this category, our Lubriflex³ product launch and foreign currency exchange impact.

Effective June 30, 2000, we were party to a senior credit facility (the “Credit Facility”) with Bankers Trust Company, on behalf of our domestic subsidiaries. The Credit Facility, as subsequently amended, was comprised of a $45.0 million revolving loan, under which we were able to borrow up to the lesser of $45.0 million or the sum of (i) 85% of eligible accounts receivable and (ii) the lesser of $22.5 million or 65% of the eligible inventory. The Credit Facility, which was being used to fund normal working capital and capital expenditure requirements, was terminated on June 30, 2004 in favor of a new credit facility discussed below.

On June 30, 2004, we entered into, through our wholly-owned direct operating subsidiary Weider Nutrition Group, Inc. (“WNG”), a new $25.0 million revolving credit facility (the “New Credit Facility”) with KeyBank National Association, as Agent. The New Credit Facility contains customary terms and conditions, including, among others, financial covenants and certain restrictions. Our obligations under the New Credit Facility are secured by a first priority security interest on all of the capital stock of WNG. 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 the lesser of $25.0 million or the sum of (i) 85% of eligible accounts receivable and (ii) 65% of eligible inventory. Borrowings under the New Credit Facility bear interest at floating rates based on the KeyBank National Association prime rate or the Federal Funds effective rate, and the New Credit Facility matures on June 30, 2007, with options for one-year extensions under certain circumstances. The New Credit Facility can be used to fund our normal working capital and capital expenditure requirements, with availability to fund certain permitted strategic transactions. At February 28, 2005, there were no amounts outstanding and $25.0 million was available under the New Credit Facility.

Our European working capital needs (primarily our Haleko unit) are supported by a Germany-based secured credit facility (the “Haleko Facility”) that is subject to annual renewal in or around July. Our obligations under the Haleko Facility are secured by a first priority lien on substantially all Haleko tangible and intangible assets. In July 2004, we renewed the Haleko Facility with Deutsche Bank AG in the approximate amount of $10.4 million (at recent exchange rates) on terms substantially similar to the previous facility. At February 28, 2005, there was approximately $0.1 million outstanding and $9.1 million was available under the Haleko Facility.

We believe that our cash, cash flows from operations and the financing sources discussed above will be sufficient to meet our normal cash operating requirements during the next twelve months. However, we continue to review opportunities to acquire or invest in companies, product rights and other investments that are compatible with our existing business. We may use cash and financing sources discussed herein, or financing sources that subsequently become available, to fund additional acquisitions or investments. In addition, we may consider issuing additional debt or equity securities in the future to fund potential acquisitions or growth, or to refinance existing debt. If a material acquisition 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 facilities contain certain customary financial covenants that may limit our ability to pay common stock dividends. We can give no assurance that we will pay dividends in the future.

Contractual Cash Obligations	Total Amounts Committed		Less than 1 year		1-3 Years		3-5 Years		After 5 Years

Long-term debt	$	1,855	$	1,855	$	--	$	--	$	--
Operating leases		21,561		3,254		5,718		5,464		7,125
Purchase obligations		24,839		24,839		--		--		--

Total obligations	$	48,255	$	29,948	$	5,718	$	5,464	$	7,125

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 inventories and intangible assets, allowances for doubtful accounts, notes receivable, sales returns and discounts, valuation of deferred tax assets and recoverability of long-lived assets. Note 1 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended May 31, 2004, filed with the Securities and Exchange Commission, 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 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 and market conditions. Inventory valuation adjustments resulted in an increase to gross profit of approximately $0.6 million for each of the fiscal 2005 and 2004 third quarters, and an increase (decrease) to gross profit of approximately $0.3 million and $(0.6) million, respectively, for the nine months ended February 28, 2005 and February 29, 2004. At February 28, 2005 and May 31, 2004, our inventory valuation allowance amounted to approximately $2.7 million and $3.7 million, respectively. If actual demand and/or market conditions are less favorable than those projected by management, additional inventory write-downs would be required.

● We maintain allowances for doubtful accounts, sales returns and discounts for estimated losses resulting from known customer exposures, including among others, product returns, inability to make payments and expected utilization of offered discounts. Changes in our allowances for doubtful accounts, notes receivable, sales returns and discounts did not materially impact our earnings for the fiscal 2005 and 2004 third quarters or for the nine months ended February 28, 2005 and February 29, 2004. Increases in Schiff Specialty allowances for sales returns primarily resulting from the risks associated with the launch of new products, were substantially offset by decreases in allowances for sales returns in our Active Nutrition unit. At February 28, 2005 and May 31, 2004, our allowance for doubtful accounts, sales returns and discounts amounted to approximately $6.2 million and $6.5 million, respectively. Actual results may differ resulting in adjustment of the respective allowance(s).

● We currently have deferred tax assets resulting from certain loss carry forwards and other temporary differences between financial and income tax reporting. These deferred tax assets are subject to periodic recoverability assessments. The realization of these deferred tax assets is primarily dependent on future operating results. To the extent that it is more likely than not that future operations will not generate sufficient profit to utilize the loss carry forwards, valuation allowances are established. At February 28, 2005 and May 31, 2004 our deferred tax asset valuation allowances amounted to approximately $4.6 million.

Historically, we generally have been able to pass inflationary increases for raw materials and other costs on to our customers through price increases. While we will continue efforts to do so in the future, we cannot assure you that we will be successful. See further discussion of raw material pricing matters in the “General” and “Results of Operations” sections above.

Our business can be seasonal, with fluctuations in sales resulting from timing of marketing and promotional activities, customer buying patterns and consumer spending patterns. In addition, as a result of changes in product sales mix, competitive conditions, raw material pricing pressures and other factors, as discussed above, we experience fluctuations in gross profit and operating margins on a quarter-to-quarter basis.

Investors are cautioned that, except for the historical information contained herein, the matters discussed in this Quarterly Report 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, that are based on management’s beliefs and assumptions, current expectations, estimates and projections. Statements that are not historical facts, including without limitation statements which are preceded by, followed by or include the words “believes,” “anticipates,” “plans,” “expects,” “estimates,” “may,” “should” or similar expressions are forward-looking statements. These statements are subject to risks and uncertainties, certain of which are beyond our control, and, therefore, actual results may differ materially.

Dependence on Significant Customers. Our largest customers are Costco and Wal-Mart. Combined, these two customers accounted for approximately 49% and 52%, respectively, of our total net sales for the nine months ended February 28, 2005 and February 28, 2004. The loss of either Costco or Wal-Mart as a customer, or a significant reduction in purchase volume by Costco or Wal-Mart, could have a material adverse effect on our results of operations and financial condition. We cannot assure you that Costco and/or Wal-Mart will continue to be significant customers.

Availability of Raw Materials. We obtain all of our raw materials for the manufacture of our products from third parties. We cannot assure you that suppliers will provide the raw materials we need in the quantities requested, at a price we are willing to pay, or that meet our quality standards and labeling requirements. Any significant delay in or disruption of the supply of raw materials could, among other things, substantially increase the cost of such materials, require reformulation or repackaging of products, require the qualification of new suppliers, or result in our inability to meet customer demands for certain products. In addition, we also acquire a significant amount of ingredients for a number of our products (particularly joint care products) from suppliers outside of the United States, particularly in China. Accordingly, the acquisition of these ingredients is subject to the risks generally associated with importing raw materials, including, among other factors, delays in shipments, changes in economic and political conditions, quality assurance, tariffs, trade disputes and foreign currency fluctuations. The discovery of Bovine Spongiform Encephalopathy, commonly referred to as “mad cow disease”, in a country from which we obtain a significant amount of our raw materials derived from bovine sources could prevent us from purchasing such raw materials in the required quantities at an acceptable price, or at all. The occurrence of any of the foregoing, particularly with respect to raw materials needed for our joint care products, could have a material adverse effect on our results of operations and financial condition.

Dependence on Individual Products. Certain products and product lines account for a significant amount of our total net sales. Net sales for our Schiff Move Free brand were approximately 26% and 29%, respectively, of our total net sales for the nine months ended February 28, 2005 and February 29, 2004. We cannot assure you that Schiff Move Free or other of our products currently experiencing strong popularity and growth will maintain sales levels over time. The inability to successfully implement marketing and spending programs behind our Schiff Move Free brand and other branded products could have a material adverse effect on our results of operations and financial condition.

Dependence on New Products. We believe our ability to grow in existing markets is partially dependent upon our ability to introduce new and innovative products. Although we seek to introduce additional products each year, the success of new products is subject to a number of variables, including developing products that will appeal to customers and comply with applicable regulations. For example, if we are unable to successfully launch and gain distribution for our Schiff Lubriflex³ product and Schiff Move Free product enhancements, our results of operations could suffer. In addition, the inability to successfully relaunch brands and new products in our Haleko unit would adversely affect our results of operations. We cannot assure you that our efforts to develop and introduce innovative new products will be successful or that customers will accept new products.

Acquisitions and Investments. An element of our strategy going forward includes expanding our product offerings, enhancing business development and gaining access to new skills and other resources through strategic acquisitions and investments when attractive opportunities arise. There can be no assurance that attractive acquisition opportunities will be available to us, that we will be able to obtain financing for or otherwise consummate any acquisitions or that any acquisitions which are consummated will prove to be successful.

Risks of Competition. The market for the sale of nutritional supplements is highly competitive. Certain of our principal competitors have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities. Private label products of our customers, which have been significantly increasing in certain nutrition categories, also represent significant competition to our products. Pricing pressure could adversely affect our ability to pass on raw material price increases to customers and negatively impact our financial performance. Increased competition from competitors and from private label pressures could have a material adverse effect on our results of operations and financial condition.

Effect of Unfavorable Publicity. We believe our sales depend on consumer perceptions of the safety, quality and efficacy of our products as well as products distributed and sold by other companies. Consumer perceptions are influenced by national media attention regarding our products and other nutritional supplements. We expect that there will be some unfavorable future publicity or scientific research. Future unfavorable reports or publicity could have a material adverse effect on our results of operations and financial condition.

Ephedra has been the subject of certain adverse publicity relating to alleged harmful or adverse effects. The Food and Drug Administration ("FDA") has recently prohibited the sale of dietary supplements containing ephedra. A number of state and local governments also have proposed or passed legislation regulating or prohibiting the sale of ephedra products. We are not able to predict whether ephedra products will be subject to further federal, state, local, or foreign laws or regulations or whether adverse publicity regarding ephedra will continue or increase. We are currently a party to certain lawsuits regarding the sale of ephedra products. In connection with the sale of the American Body Building and Science Foods brands in July 2002, we discontinued the sale of products that contain ephedra.

Product Liability and Availability of Related Insurance. As a manufacturer and distributor of products designed to be ingested, we face an inherent risk of exposure to product liability claims. Certain damages in litigation, such as punitive damages, are generally not covered by insurance. In the event that we do not have adequate insurance or other indemnification coverage, product liability claims could have a material adverse effect on our results of operations and financial condition.

We have been and are currently named as a defendant in product liability lawsuits regarding certain of our ephedra products. Prior to September 1, 2001, we maintained, on an occurrence basis, both primary and excess insurance coverage regarding our ephedra products. Subsequent to September 1, 2001, we maintained, on a claims made basis, primary but not excess coverage regarding our ephedra products, with very limited coverage on only certain ephedra products for the policy period which ended on September 1, 2003. Subsequent to September 1, 2003, we have not maintained any insurance coverage regarding ephedra products. Only one of our lawsuits regarding ephedra products is covered by insurance. In connection with the sale of the American Body Building and Science Foods brands in July 2002, we discontinued the sale of products that contain ephedra. However, we cannot assure you that we will not be subject to further litigation with respect to ephedra products we have already sold.

Impact of Government Regulation on Our Operations. Our operations, properties and products are subject to regulation by various foreign, federal, state and local government entities and agencies, particularly the FDA and the Federal Trade Commission. Among other matters, government regulation covers statements and claims made in connection with the packaging, labeling, marketing and advertising of our products. Governmental agencies have a variety of processes and remedies available to them, including initiating investigations, issuing warning letters and cease and desist orders, requiring corrective labeling or advertising, requiring consumer redress, seeking injunctive relief or product seizure, imposing civil penalties or commencing criminal prosecution. As a result of our efforts to comply with applicable statutes and regulations, from time to time we have reformulated, eliminated or relabeled certain of our products and revised certain aspects of our sales, marketing and advertising programs.

The FDA has proposed extensive good manufacturing practice regulations for dietary supplements. In addition, we may be subject to additional laws or regulations administered by federal, state, or foreign regulatory authorities, the repeal or amendment of laws or regulations which we consider favorable, such as the Dietary Supplement Health and Education Act of 1994, as amended, or more stringent interpretations of current laws or regulations. We are unable to predict the nature of such future laws, regulations, interpretations or applications, nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. Any or all of these requirements and the related costs to comply with such requirements could have a material adverse effect on our results of operations and financial condition.

Restrictions Imposed by Terms of Our Indebtedness. Our borrowing arrangements impose certain financial and operating covenants, including, among others, requirements that we maintain, under certain circumstances, certain financial ratios and satisfy certain financial tests, limitations on capital expenditures and restrictions, or limitations on our ability to incur debt, pay dividends, or take certain other corporate actions, all of which may restrict our ability to expand or pursue our business strategies. Changes in economic or business conditions, results of operations or other factors could cause a violation of one or more covenants in our debt instruments.

Risks Associated with International Markets. We have significant international operations, with approximately 33% and 32%, respectively, of our net sales for the nine months ended February 28, 2005 and February 29, 2004 generated outside the United States. Operating in international markets exposes us to certain risks, including, among others, changes in or interpretations of foreign regulations that may limit our ability to sell certain products or repatriate products to the United States, foreign currency fluctuations, the potential imposition of trade or foreign exchange restrictions or increased tariffs and political instability. The occurrence of any of the foregoing could have a material adverse effect on our results of operations and financial condition.

Control by Principal Stockholder. WHF owns all of our outstanding shares of Class B common stock, representing over 90% of the aggregate voting power of all outstanding shares of our common stock. WHF is in a position to exercise control over us and to determine the outcome of all matters required to be submitted to stockholders for approval (except as otherwise provided by law or by our amended and restated certificate of incorporation or amended and restated bylaws) and otherwise to direct and control our operations. Accordingly, we cannot engage in any strategic transactions without the approval of WHF.

Third-Party Intellectual Property Rights and Proprietary Techniques. Although the nutritional supplement industry has historically been characterized by products with naturally occurring ingredients in pill or tablet form, recently it is becoming more common for suppliers and competitors to apply for patents or develop proprietary technologies and processes. Although we seek to ensure that we do not infringe the intellectual property rights of others, there can be no assurance that third parties will not assert intellectual property infringement claims against us. To the extent that these developments prevent us from offering or supplying competitive products or ingredients in the marketplace, or result in litigation or threatened litigation against us related to alleged or actual infringement of third-party rights, these developments could have a material adverse effect on our results of operations and financial condition.

Our cash flows and net earnings are subject to fluctuations resulting from changes in interest rates and foreign exchange rates. We currently are party to one modest interest rate derivative relating to our Haleko business unit. Our current policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there is no underlying exposure. We do not use financial instruments for trading purposes.

Since we have subsidiaries whose net sales and expenses are denominated in foreign currencies (primarily the Euro), changes in the value of these foreign currencies relative to the value of the U.S. dollar may impact our reported net earnings. The U.S. dollar volume of these foreign currency denominated net sales was approximately $62.3 million, or 30.8% of total net sales, for the nine months ended February 28, 2005. The impact of fluctuations in foreign currency exchange rates resulted in an approximate $4.3 million increase in net sales for the nine months ended February 28, 2005. The impact of fluctuations in foreign currency exchange rates on operating income was negligible for the same time period.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2005

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ____ to ____.

Commission file number:
001-14608

Delaware		87-0563574
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2002 South 5070 West Salt Lake City, Utah		84104-4726
(Address of principal executive offices)		(Zip Code)

Receivables, net, consist of the following:
	February 28,			May 31,
	2005			2004

Trade accounts	$	37,763		$	40,982
Other, including income taxes		533			1,142

		38,296			42,124
Less allowance for doubtful accounts, sales returns and discounts		(6,185	)		(6,504	)

Total	$	32,111		$	35,620

Inventories consist of the following:
	February 28,		May 31,
	2005		2004

Raw materials	$	12,277	$	7,814
Work in process		1,541		1,385
Finished goods		17,942		19,232

Total	$	31,760	$	28,431

	February 28, 2005			May 31, 2004

Schiff Specialty - domestic	$	--		$	--
Active Nutrition - international		13,679			11,827
Haleko - international		33,888			37,173
Unallocated - domestic Schiff Specialty and Active Nutrition		143,036			127,376
Eliminations		(61,298	)		(61,452	)
Total	$	129,305		$	114,924

	February 28, 2005							May 31, 2004
	Gross Carrying Amount		Accumul. Amortiz.			Net Book Value		Gross Carrying Amount		Accumul. Amortiz.			Net Book Value

Goodwill	$	4,346	$	--		$	4,346	$	4,346	$	--		$	4,346


Intangible assets-patents and trademarks	$	10,946	$	(6,285	)	$	4,661	$	10,365	$	(5,219	)	$	5,146

Date: April 8, 2005	By: /s/ Bruce J. Wood
	Bruce J. Wood
	President, Chief Executive
	Officer and Director

Date: April 8, 2005	By: /s/ Joseph W. Baty
	Joseph W. Baty
	Executive Vice President and
	Chief Financial Officer