##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington D.C. 20549
  Form 10-Q
  (Mark one)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 30, 2006o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to    Commission file number:
    333-116040
  GNC Corporation
 (Exact name of registrant as
    specified in its charter)
  Delaware

72-1575170(State or other jurisdiction
    of
    Incorporation or organization)

(I.R.S. Employer
    Identification No.)300 Sixth Avenue
    Pittsburgh, Pennsylvania(Address of principal
    executive offices)

15222(Zip Code)    Registrants telephone number, including area code:
 (412) 288-4600
  þ o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




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##### 



TABLE OF
    CONTENTS
  PageExplanatory Note


2PART I 
    FINANCIAL INFORMATIONItem 1.


Financial
    StatementsConsolidated
    Balance Sheets as of June 30, 2006 (unaudited) and
    December 31, 2005


3Unaudited
    Consolidated Statements of Operations and Comprehensive Income
    for the three months ended June 30, 2006 and 2005 and for
    the six months ended June 30, 2006 and 2005


4Unaudited
    Consolidated Statement of Stockholders Equity for the six
    months ended June 30, 2006


5Unaudited
    Consolidated Statements of Cash Flows for the six months ended
    June 30, 2006 and 2005


6Summarized Notes to
    Unaudited Consolidated Financial Statements


7Item 2.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


27Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


39Item 4.


Controls and
    Procedures


39PART II 
    OTHER INFORMATIONItem 1.


Legal
    Proceedings


41Item 1A.


Risk
    Factors


45Item 2.


Unregistered
    Sales of Equity Securities and Use of Proceeds


53Item 6.


Exhibits


53SignaturesEX-31.1EX-31.2EX-32.1    EXPLANATORY
    NOTE
   2




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements. GNC
    CORPORATION AND SUBSIDIARIES



Consolidated
    Balance Sheets  June 30,


December 31,2006


2005*(Unaudited)(In thousands,except share data)Current assets:Cash and cash equivalents

$
57,478


$
86,013Receivables, net of reserve of
    $6,249 and $8,898, respectively


84,973



70,630Inventories, net (Note 3)


300,047



298,166Deferred tax assets, net


13,862



13,861Other current assets


30,096



30,826Total current assets


486,456



499,496Long-term assets:Goodwill (Note 4)


80,977



80,109Brands (Note 4)


212,000



212,000Other intangible assets, net
    (Note 4)


25,260



26,460Property, plant and equipment, net


172,276



179,482Deferred financing fees, net


14,647



16,125Deferred tax assets, net


45



45Other long-term assets


7,395



10,114Total long-term assets


512,600



524,335Total assets

$
999,056


$
1,023,831Current liabilities:Accounts payable, includes cash
    overdraft of $2,962 and $5,063, respectively

$
90,068


$
104,595Accrued payroll and related
    liabilities


25,202



20,812Accrued income taxes


5,877



2,280Accrued interest


7,844



7,877Current portion, long-term debt


2,147



2,117Other current liabilities


71,333



64,826Total current liabilities


202,471



202,507Long-term liabilities:Long-term debt


470,192



471,244Other long-term liabilities


10,952



10,891Total long-term liabilities


481,144



482,135Total liabilities


683,615



684,642Cumulative redeemable exchangeable
    preferred stock, $0.01 par value, 110,000 shares
    authorized, 100,000 shares issued and outstanding
    (liquidation preference of $144,131 and $136,349, respectively)


134,963



127,115Stockholders equity:Common stock, $0.01 par value,
    100,000,000 shares authorized, 50,563,948 and
    50,422,054 shares issued and outstanding, respectively


506



504Paid-in-capital


129,180



177,407Retained earnings


49,612



32,939Accumulated other comprehensive
    income


1,180



1,224Total stockholders equity


180,478



212,074Total liabilities and
    stockholders equity

$
999,056


$
1,023,831     *
    
    Footnotes summarized from the Audited Financial Statements.   3




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  Consolidated
    Statements of Operations and Comprehensive Income
  For the Three Months


For the Six MonthsEnded June 30,


Ended June 30,2006


2005


2006


2005(Unaudited)(In thousands)Revenue

$
382,772


$
333,347


$
769,664


$
669,782Cost of sales, including costs of
    warehousing, distribution and occupancy


253,328



223,724



510,200



454,180Gross profit


129,444



109,623



259,464



215,602Compensation and related benefits


60,617



56,229



126,469



113,543Advertising and promotion


14,516



13,540



30,355



28,141Other selling, general and
    administrative


23,498



18,814



44,561



37,729Foreign currency (gain) loss


(114
)


48



(702
)


(57
)Other income














(2,500
)Operating income


30,927



20,992



58,781



38,746Interest expense, net (Note 5)


10,121



9,805



19,797



23,276Income before income taxes


20,806



11,187



38,984



15,470Income tax expense


7,720



4,076



14,463



5,623Net income


13,086



7,111



24,521



9,847Other comprehensive income (loss)


576



(270
)


(44
)


(534
)Comprehensive income

$
13,662


$
6,841


$
24,477


$
9,313Income per share 
    Basic and Diluted:Net income

$
13,086


$
7,111


$
24,521


$
9,847Cumulative redeemable exchangeable
    preferred stock dividends and accretion


(3,981
)


(3,541
)


(7,848
)


(6,980
)Net income available to common
    stockholders

$
9,105


$
3,570


$
16,673


$
2,867Earnings per share:Basic

$
0.18


$
0.07


$
0.33


$
0.06Diluted

$
0.17


$
0.07


$
0.32


$
0.06Weighted average shares
    outstanding:Basic


50,525,980



50,629,045



50,485,347



50,707,887Diluted


52,673,972



51,623,785



52,252,720



51,587,027    4




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  Consolidated
    Statement of Stockholders Equity
  AccumulatedOther


TotalCommon Stock





Retained


Comprehensive


StockholdersShares


Dollars


Paid-in-Capital


Earnings


Income/(Loss)


Equity(In thousands, except share data)Balance at December 31,
    2005


50,422,054


$
504


$
177,407


$
32,939


$
1,224


$
212,074Repurchase and retirement of common
    stock


(28,806
)






(68
)










(68
)Non-cash stock-based compensation


42,675







1,222











1,222Exercise of stock options


128,025



2



448











450Tax benefit from exercise of stock
    options










105











105Preferred stock dividends














(7,782
)






(7,782
)Amortization of preferred stock
    issuance costs














(66
)






(66
)Net income














24,521







24,521Restricted payment made by General
    Nutrition Centers, Inc. to GNC Corporation Common Stockholders










(49,934
)










(49,934
)Foreign currency translation
    adjustments


















(44
)


(44
)Balance at June 30, 2006
    (unaudited)


50,563,948


$
506


$
129,180


$
49,612


$
1,180


$
180,478    5




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  Consolidated
    Statements of Cash Flows
  Six Months


Six MonthsEnded


EndedJune 30,


June 30,2006


2005(Unaudited)(In thousands)CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income

$
24,521


$
9,847Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation expense


17,159



18,372Deferred fee writedown 
    early debt extinguishment






3,890Amortization of intangible assets


1,966



1,921Amortization of deferred financing
    fees


1,478



1,384Increase in provision for
    inventory losses


2,649



3,504Non-cash stock-based compensation


1,222



(Decrease) increase in provision
    for losses on accounts receivable


(1,577
)


2,190Decrease in net deferred taxes






2,404Changes in assets and liabilities:Increase in receivables


(14,612
)


(6,178
)Increase in inventory, net


(3,275
)


(34,038
)Decrease in franchise note
    receivables, net


2,354



5,370Decrease in other assets


116



6,875Decrease in accounts payable


(12,458
)


(1,329
)Increase in accrued taxes


3,598



(Decrease) increase in interest
    payable


(34
)


5,858Increase (decrease) in accrued
    liabilities


10,825



(1,500
)Net cash provided by operating
    activities


33,932



18,570CASH FLOWS FROM INVESTING
    ACTIVITIES:Capital expenditures


(9,434
)


(8,915
)Store acquisition costs


(359
)


(1,105
)Net cash used in investing
    activities


(9,793
)


(10,020
)CASH FLOWS FROM FINANCING
    ACTIVITIES:Restricted payment made by General
    Nutrition Centers, Inc. to GNC Corporation Common Stockholders


(49,934
)


Repurchase and retirement of
    common stock


(68
)


(416
)Proceeds from exercised stock
    options


450



Tax benefit from exercise of stock
    options


105



(Decrease) increase in cash
    overdrafts


(2,101
)


1,800Proceeds from senior notes issuance






150,000Payments on long-term debt


(1,021
)


(185,994
)Financing fees






(4,090
)Net cash used in financing
    activities


(52,569
)


(38,700
)Effect of exchange rate on cash


(105
)


(111
)Net decrease in cash


(28,535
)


(30,261
)Beginning balance, cash


86,013



85,161Ending balance, cash

$
57,478


$
54,900    6




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)
  NOTE 1.
    NATURE OF
    BUSINESS  General Nature of Business.
      Acquisition of the Company.
    NOTE 2.
    BASIS OF
    PRESENTATION  Form 10-Q Rule 10-01 Regulation S-X. Form 10-K Form 10-K).
   7




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
   Principles of Consolidation.
  Use of Estimates.
  Earnings Per Share.
  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Numerator:Numerator for basic and diluted
    earnings per share:Net income

$
13,086


$
7,111


$
24,521


$
9,847Cumulative redeemable exchangeable
    preferred stock dividends and accretion


(3,981
)


(3,541
)


(7,848
)


(6,980
)Net income available to common
    stockholders

$
9,105


$
3,570


$
16,673


$
2,867Denominator:Denominator for basic earnings per
    share:Weighted average shares


50,525,980



50,629,045



50,485,347



50,707,887Effect of dilutive securities:Employee stock options


2,147,992



994,740



1,767,373



879,140Denominator for diluted earnings
    per share  adjusted weighted average


52,673,972



51,623,785



52,252,720



51,587,027Basic earnings per share

$
0.18


$
0.07


$
0.33


$
0.06Diluted earnings per share

$
0.17


$
0.07


$
0.32


$
0.06  8




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
   Cash and Cash Equivalents.
  Recently
    Issued Accounting Pronouncements      NOTE 3.
    INVENTORIES,
    NET    June 30, 2006Net CarryingGross Cost


Reserves


Value(Unaudited)(In thousands)Finished product ready for sale

$
257,905


$
(7,955
)

$
249,950Work-in-process
    bulk product and raw materials


47,993



(2,308
)


45,685Packaging supplies


4,412







4,412$
310,310


$
(10,263
)

$
300,047   9




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
  December 31, 2005Net CarryingGross Cost


Reserves


Value(In thousands)Finished product ready for sale

$
257,525


$
(10,025
)

$
247,500Work-in-process
    bulk product and raw materials


48,513



(2,128
)


46,385Packaging supplies


4,281







4,281$
310,319


$
(12,153
)

$
298,166   NOTE 4.
    GOODWILL
    AND INTANGIBLE ASSETS, NET        Manufacturing/Retail


Franchising


Wholesale


Total(In thousands)Goodwill at December 31, 2005

$
22,970


$
56,693


$
446


$
80,109Additions: Acquired franchise
    stores


868











868Reclassification: Due to franchise
    store acquisitions


1,750



(1,750
)






Goodwill at June 30, 2006
    (unaudited)

$
25,588


$
54,943


$
446


$
80,977     Retail


Franchise


Operating


FranchiseGold Card


Brand


Brand


Agreements


Rights


Total(In thousands)Balance at December 31, 2005

$
514


$
59,659


$
152,341


$
24,296


$
1,650


$
238,460Additions: Acquired franchise
    stores


















766



766Reclassification: Due to franchise
    store acquisitions






4,895



(4,895
)










Amortization expense


(257
)










(1,472
)


(237
)


(1,966
)Balance at June 30, 2006
    (unaudited)

$
257


$
64,554


$
147,446


$
22,824


$
2,179


$
237,260  10




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
     Estimated


June 30, 2006


December 31, 2005Life





Accumulated


Carrying





Accumulated


Carryingin Years


Cost


Amortization


Amount


Cost


Amortization


Amount(Unaudited)(In thousands)Brands  retail





$
64,554


$



$
64,554


$
59,659


$



$
59,659Brands  franchise






147,446







147,446



152,341







152,341Gold card  retail


3



2,230



(2,007
)


223



2,230



(1,784
)


446Gold card  franchise


3



340



(306
)


34



340



(272
)


68Retail agreements


5-10



8,500



(3,037
)


5,463



8,500



(2,447
)


6,053Franchise agreements


10-15



21,900



(4,539
)


17,361



21,900



(3,657
)


18,243Franchise rights


5



2,564



(385
)


2,179



1,798



(148
)


1,650$
247,534


$
(10,274
)

$
237,260


$
246,768


$
(8,308
)

$
238,460     EstimatedAmortizationYears Ending December 31,

Expense(Unaudited)(In thousands)2006(1)

$
1,9852007


3,4562008


3,4072009


2,7962010


2,647Thereafter


10,969Total

$
25,260     (1)
    
    This period is a partial year and represents the period from
    July 1 to December 31, 2006. 11




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
   NOTE 5.
    INTEREST
    EXPENSE    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Unaudited)(In thousands)Senior credit facilityTerm Loan

$
1,907


$
1,488


$
3,719


$
3,322Revolver


161



150



320



29985/8% Senior
    Notes


3,234



3,234



6,469



5,85881/2% Senior
    Subordinated Notes


4,568



4,568



9,137



9,137Deferred financing fees


743



700



1,478



1,384Deferred fee writedown 
    early extinguishment














3,890Mortgage


194



223



346



455Interest income  other


(686
)


(558
)


(1,672
)


(1,069
)Interest expense, net

$
10,121


$
9,805


$
19,797


$
23,276   NOTE 6.
    COMMITMENTS
    AND CONTINGENCIES  Litigation
  and/or
   12




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
    Ephedra (Ephedrine Alkaloids).
  Pro-Hormone/Androstenedione Cases.
  Harry Rodriguez v. General Nutrition Companies, Inc.
    (previously pending in the Supreme Court of the State of New
    York, New York County, New York, Index
    No. 02/126277).
  Everett Abrams v. General Nutrition Companies, Inc.
    (previously pending in the Superior Court of New Jersey, Mercer
    County, New Jersey, Docket
    No. L-3789-02).
  Shawn Brown, Ozan Cirak, Thomas Hannon, and Luke
    Smith v. General Nutrition Companies, Inc. (previously
    pending in the 15th Judicial Circuit Court, Palm Beach
    County, Florida, Index.
    No. CA-02-14221AB).
  Abrams, et al. v. General Nutrition Companies,
    Inc., et al., previously pending in the Common Pleas Court
    of Philadelphia County, Philadelphia, Class Action
    No. 02-703886).
 13




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
    David Pio and Ty Stephens, individually and on behalf of all
    others similarly situated v. General Nutrition Companies,
    Inc., previously pending in the Circuit Court of Cook County,
    Illinois, County Department, Chancery Division, Case
    No. 02-CH-14122).
  Santiago Guzman, individually, on behalf of all others
    similarly situated, and on behalf of the general public v.
    General Nutrition Companies, Inc., previously pending on the
    California Judicial Counsel Coordination Proceeding
    No. 4363, Los Angeles County Superior
    Court).
  Companies Creditors Arrangement Act No. 06-CL-6241, In re MuscleTech Research
    and Development, Inc., et al.
    Class Action Settlement.
 14




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
  90-day 90-day
  Nutrition 21.
  Franklin Publications.
 15




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
    Visa/MasterCard Antitrust Litigation.
  Product Claim Settlement.
  Pennsylvania Claim.
  NOTE 7.
    STOCK-BASED
    COMPENSATION PLANS   16




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
     Weighted Average


Aggregate IntrinsicTotal Options


Exercise Price


Value(In thousands)Outstanding at December 31,
    2005


4,706,403


$
3.52Granted


485,641



5.65Exercised


(128,025
)


3.52Forfeited


(253,129
)


5.23Outstanding at June 30, 2006
    (unaudited)


4,810,890



3.64


$
60,755Exercisable at June 30, 2006
    (unaudited)


2,341,531


$
3.56


$
29,851         fair-value-based
 17




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
    June 30,


June 30,2006


2005(Unaudited)Dividend yield


0.00
%


0.00
%Expected option life


5 years



5 yearsVolatility factor percentage of
    market price


22.00
%


24.00
%Discount rate


5.10
%


3.84
%       Three Months


Six MonthsEnded


Ended2005


2005(Unaudited)(In thousands)Net income available to common
    stockholders, as reported

$
3,570


$
2,867Less: total stock-based employee
    compensation costs determined using fair value method, net of tax


(182
)


(360
)Adjusted net income

$
3,388


$
2,507Income Per Share 
    Basic and DilutedBasic income per share as reported

$
0.07


$
0.06 pro forma

$
0.07


$
0.05Diluted income per share as reported

$
0.07


$
0.06 pro forma

$
0.07


$
0.05Weighted average common shares
    outstanding: basic


50,629,045



50,707,887 diluted


51,623,785



51,587,027   NOTE 8.
    SEGMENTS   18




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
  Form 10-K.
  Three Months


Six MonthsEnded June 30,


Ended June 30,2006


2005


2006


2005(Unaudited)(In thousands)Revenue:Retail

$
284,760


$
250,277


$
579,650


$
505,529Franchise


59,277



57,754



119,614



110,381Manufacturing/Wholesale:Intersegment(1)


41,799



41,003



85,730



86,052Third Party


38,735



25,316



70,400



53,872Sub total Manufacturing/Wholesale


80,534



66,319



156,130



139,924Sub total segment revenues


424,571



374,350



855,394



755,834Intersegment elimination(1)


(41,799
)


(41,003
)


(85,730
)


(86,052
)Total revenue

$
382,772


$
333,347


$
769,664


$
669,782     (1)
    
    Intersegment revenues are eliminated from consolidated revenue.  Operating income:Retail

$
33,646


$
21,200


$
68,909


$
39,106Franchise


15,010



12,124



31,098



22,967Manufacturing/Wholesale


13,351



12,551



24,510



24,610Unallocated corporate and other
    (costs) income:Warehousing and distribution costs


(12,475
)


(12,211
)


(25,321
)


(24,870
)Corporate costs


(18,605
)


(12,672
)


(40,415
)


(25,567
)Other income














2,500Sub total unallocated corporate
    and other (costs) income


(31,080
)


(24,883
)


(65,736
)


(47,937
)Total operating
    income

$
30,927


$
20,992


$
58,781


$
38,746   19




---



##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
  June 30,


December 31,2006


2005(In thousands)(Unaudited)Total assets:Retail

$
458,595


$
441,364Franchise


284,265



290,092Manufacturing / Wholesale


152,092



148,445Corporate / Other


104,104



143,930Total assets

$
999,056


$
1,023,831   NOTE 9.
    SUPPLEMENTAL
    GUARANTOR INFORMATION      Supplemental
    Condensed Consolidating Balance Sheets
  Combined


CombinedGuarantor


Non-GuarantorJune 30, 2006

Parent


Issuer


Subsidiaries


Subsidiaries


Eliminations


Consolidated(Unaudited)(In thousands)Current assetsCash and cash equivalents

$



$



$
54,089


$
3,389


$



$
57,478Receivables, net










83,602



1,371







84,973Intercompany receivables






2,035



31,031







(33,066
)


Inventories, net










283,034



17,013







300,047Other current assets


165



293



37,976



5,524







43,958Total current assets


165



2,328



489,732



27,297



(33,066
)


486,456 20




---



##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
  Combined


CombinedGuarantor


Non-GuarantorJune 30, 2006

Parent


Issuer


Subsidiaries


Subsidiaries


Eliminations


Consolidated(Unaudited)(In thousands)Goodwill










80,035



942







80,977Brands










209,000



3,000







212,000Property, plant and equipment, net










151,953



20,323







172,276Investment in subsidiaries


317,254



787,358



9,834







(1,114,446
)


Other assets






14,853



41,200



74



(8,780
)


47,347Total assets

$
317,419


$
804,539


$
981,754


$
51,636


$
(1,156,292
)

$
999,056Current liabilitiesCurrent liabilities

$
(57
)

$
7,715


$
183,480


$
11,333


$



$
202,471Intercompany payables


2,035



19,873







11,158



(33,066
)


Total current liabilities


1,978



27,588



183,480



22,491



(33,066
)


202,471Long-term debt






459,697







19,275



(8,780
)


470,192Other long-term liabilities










10,916



36







10,952Total liabilities


1,978



487,285



194,396



41,802



(41,846
)


683,615Cumulative redeemable exchangeable
    preferred stock


134,963



















134,963Total stockholders equity
    (deficit)


180,478



317,254



787,358



9,834



(1,114,446
)


180,478Total liabilities and
    stockholders equity (deficit)

$
317,419


$
804,539


$
981,754


$
51,636


$
(1,156,292
)

$
999,056  21




---



##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
   Supplemental
    Condensed Consolidating Balance Sheets
  Combined


CombinedGuarantor


Non-GuarantorDecember 31, 2005

Parent


Issuer


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Current assetsCash and cash equivalents

$



$



$
83,143


$
2,870


$



$
86,013Receivables, net










69,518



1,112







70,630Intercompany receivables






1,809



33,079







(34,888
)


Inventories, net










283,511



14,655







298,166Other current assets






97



39,825



4,765







44,687Total current assets






1,906



509,076



23,402



(34,888
)


499,496Goodwill










79,167



942







80,109Brands










209,000



3,000







212,000Property, plant and equipment, net










158,877



20,605







179,482Investment in subsidiaries


340,880



809,105



7,081







(1,157,066
)


Other assets






16,331



45,120



73



(8,780
)


52,744Total assets

$
340,880


$
827,342


$
1,008,321


$
48,022


$
(1,200,734
)

$
1,023,831Current liabilities Current
    liabilities

$
(118
)

$
5,801


$
188,362


$
8,462


$



$
202,507Intercompany payables


1,809



20,474







12,605



(34,888
)


Total current liabilities


1,691



26,275



188,362



21,067



(34,888
)


202,507Long-term debt






460,187







19,837



(8,780
)


471,244Other long-term liabilities










10,854



37







10,891Total liabilities


1,691



486,462



199,216



40,941



(43,668
)


684,642Cumulative redeemable exchangeable
    preferred stock


127,115



















127,115Total stockholders equity
    (deficit)


212,074



340,880



809,105



7,081



(1,157,066
)


212,074Total liabilities and
    stockholders equity (deficit)

$
340,880


$
827,342


$
1,008,321


$
48,022


$
(1,200,734
)

$
1,023,831  22




---



##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
   Supplemental
    Condensed Consolidating Statements of Operations
  Combined


CombinedGuarantor


Non-GuarantorThree Months Ended June 30, 2006

Parent


Issuer


Subsidiaries


Subsidiaries


Eliminations


Consolidated(Unaudited)(In thousands)Revenue

$



$



$
364,219


$
21,311


$
(2,758
)

$
382,772Cost of sales, including costs of
    warehousing, distribution and occupancy










240,657



15,429



(2,758
)


253,328Gross profit










123,562



5,882







129,444Compensation and related benefits










57,233



3,384







60,617Advertising and promotion










14,217



299







14,516Other selling, general and
    administrative


103



481



22,594



320







23,498Subsidiary (income) loss


(13,150
)


(13,919
)


(1,199
)






28,268



Other income










(39
)


(75
)






(114
)Operating income (loss)


13,047



13,438



30,756



1,954



(28,268
)


30,927Interest expense, net






742



9,047



332







10,121Income (loss) before income taxes


13,047



12,696



21,709



1,622



(28,268
)


20,806Income tax (benefit) expense


(39
)


(454
)


7,790



423







7,720Net income (loss)

$
13,086


$
13,150


$
13,919


$
1,199


$
(28,268
)

$
13,086   Supplemental
    Condensed Consolidating Statements of Operations
  Combined


CombinedGuarantor


Non-GuarantorSix Months Ended June 30, 2006

Parent


Issuer


Subsidiaries


Subsidiaries


Eliminations


Consolidated(Unaudited)(In thousands)Revenue

$



$



$
733,383


$
42,207


$
(5,926
)

$
769,664Cost of sales, including costs of
    warehousing, distribution and occupancy










485,783



30,343



(5,926
)


510,200Gross profit










247,600



11,864







259,464Compensation and related benefits










119,833



6,636







126,469Advertising and promotion










29,962



393







30,355Other selling, general and
    administrative


195



1,510



42,008



848







44,561Subsidiary (income) loss


(24,643
)


(26,522
)


(2,795
)






53,960



Other income










(13
)


(689
)






(702
)Operating income (loss)


24,448



25,012



58,605



4,676



(53,960
)


58,781Interest expense, net






1,477



17,605



715







19,797Income (loss) before income taxes


24,448



23,535



41,000



3,961



(53,960
)


38,984Income tax (benefit) expense


(73
)


(1,108
)


14,478



1,166







14,463Net income (loss)

$
24,521


$
24,643


$
26,522


$
2,795


$
(53,960
)

$
24,521  23




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
   Supplemental
    Condensed Consolidating Statements of Operations
  Combined


CombinedGuarantor


Non-GuarantorThree Months Ended June 30, 2005

Parent


Issuer


Subsidiaries


Subsidiaries


Eliminations


Consolidated(Unaudited)(In thousands)Revenue

$



$



$
318,147


$
17,815


$
(2,615
)

$
333,347Cost of sales, including costs of
    warehousing, distribution and occupancy










213,461



12,878



(2,615
)


223,724Gross profit










104,686



4,937







109,623Compensation and related benefits










53,318



2,911







56,229Advertising and promotion










13,381



159







13,540Other selling, general and
    administrative


72



536



17,509



697







18,814Subsidiary (income) loss


(7,157
)


(7,955
)


(744
)






15,856



Other expense










40



8







48Operating income (loss)


7,085



7,419



21,182



1,162



(15,856
)


20,992Interest expense, net






700



8,730



375







9,805Income (loss) before income taxes


7,085



6,719



12,452



787



(15,856
)


11,187Income tax (benefit) expense


(26
)


(438
)


4,497



43







4,076Net income (loss)

$
7,111


$
7,157


$
7,955


$
744


$
(15,856
)

$
7,111   Supplemental
    Condensed Consolidating Statements of Operations
  Combined


CombinedGuarantor


Non-GuarantorSix Months Ended June 30, 2005

Parent


Issuer


Subsidiaries


Subsidiaries


Eliminations


Consolidated(Unaudited)(In thousands)Revenue

$



$



$
640,493


$
35,500


$
(6,211
)

$
669,782Cost of sales, including costs of
    warehousing, distribution and occupancy










434,388



26,003



(6,211
)


454,180Gross profit










206,105



9,497







215,602Compensation and related benefits










107,639



5,904







113,543Advertising and promotion










27,864



277







28,141Other selling, general and
    administrative


165



1,014



35,439



1,111







37,729Subsidiary (income) loss


(9,952
)


(13,977
)


(1,554
)






25,483



Other income










(2,470
)


(87
)






(2,557
)Operating income (loss)


9,787



12,963



39,187



2,292



(25,483
)


38,746Interest expense, net






5,274



17,301



701







23,276Income (loss) before income taxes


9,787



7,689



21,886



1,591



(25,483
)


15,470Income tax (benefit) expense


(60
)


(2,263
)


7,909



37







5,623Net income (loss)

$
9,847


$
9,952


$
13,977


$
1,554


$
(25,483
)

$
9,847  24




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##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
   Supplemental
    Condensed Consolidating Statements of Cash Flows
  Combined


CombinedGuarantor


Non-GuarantorSix Months Ended June 30, 2006

Parent


Issuer


Subsidiaries


Subsidiaries


Consolidated(Unaudited)(In thousands)NET CASH PROVIDED BY OPERATING
    ACTIVITIES:

$



$



$
32,263


$
1,669


$
33,932CASH FLOWS FROM INVESTING
    ACTIVITIES:Capital expenditures










(8,919
)


(515
)


(9,434
)Investment/distribution






50,043



(50,043
)






Other investing










(359
)






(359
)Net cash provided by (used in)
    investing activities






50,043



(59,321
)


(515
)


(9,793
)CASH FLOWS FROM FINANCING
    ACTIVITIES:GNC Corporation investment in
    General Nutrition Centers, Inc


(382
)


382











Restricted payment made by General
    Nutrition Centers, Inc. to GNC Corporation Common Stockholders






(49,934
)










(49,934
)Repurchase/retirement of common
    stock


(68
)














(68
)Proceeds from exercised stock
    options


450















450Payments on long-term debt






(491
)






(530
)


(1,021
)Other financing










(1,996
)






(1,996
)Net cash (used in) provided by
    financing activities






(50,043
)


(1,996
)


(530
)


(52,569
)Effect of exchange rate on cash














(105
)


(105
)Net (decrease) increase in
    cash










(29,054
)


519



(28,535
)Beginning balance, cash










83,143



2,870



86,013Ending balance, cash

$



$



$
54,089


$
3,389


$
57,478  25




---



##### Table of Contents



GNC
    CORPORATION AND SUBSIDIARIES
  SUMMARIZED
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited  Continued)
   Supplemental
    Condensed Consolidating Statements of Cash Flows
  CombinedGuarantor


Non-GuarantorSix Months Ended June 30, 2005

Parent


Issuer


Subsidiaries


Subsidiaries


Consolidated(Unaudited)(In thousands)Net cash provided by operating
    activities

$



$
4,506


$
12,960


$
1,104


$
18,570CASH FLOWS FROM INVESTING
    ACTIVITIES:Capital expenditures










(8,811
)


(104
)


(8,915
)Investment/distribution






35,490



(35,490
)






Other investing










(1,105
)






(1,105
)Net cash provided by (used in)
    investing activities






35,490



(45,406
)


(104
)


(10,020
)CASH FLOWS FROM FINANCING
    ACTIVITIES:GNC Corporation return of capital
    from General Nutrition Centers, Inc


416



(416
)










Repurchase/retirement of common
    stock


(416
)














(416
)Payments on long-term
    debt  third parties






(185,490
)






(504
)


(185,994
)Proceeds from senior notes issuance






150,000











150,000Other financing






(4,090
)


1,800







(2,290
)Net cash (used in) provided by
    financing activities






(39,996
)


1,800



(504
)


(38,700
)Effect of exchange rate on cash














(111
)


(111
)Net (decrease) increase in cash










(30,646
)


385



(30,261
)Beginning balance, cash










82,722



2,439



85,161Ending balance, cash

$



$



$
52,076


$
2,824


$
54,900   NOTE 10.
    SUBSEQUENT
    EVENTS   26




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-Q
  Forward-Looking
    Statements
      
    significant competition in our industry;
    unfavorable publicity or consumer perception of our products;
    the incurrence of material product liability and product recall
    costs;
    costs of compliance and our failure to comply with governmental
    regulations;
    the failure of our franchisees to conduct their operations
    profitably and limitations on our ability to terminate or
    replace under-performing franchisees;
    economic, political, and other risks associated with our
    international operations;
    our failure to keep pace with the demands of our customers for
    new products and services;
    disruptions in our manufacturing system or losses of
    manufacturing certifications;
    the lack of long-term experience with human consumption of
    ingredients in some of our products;
    increases in the frequency and severity of insurance claims,
    particularly claims for which we are self-insured;
    loss or retirement of key members of management;
    increases in the cost of borrowings and limitations on
    availability of additional debt or equity capital;
    the impact of our substantial debt on our operating income and
    our ability to grow; and
    the failure to adequately protect or enforce our intellectual
    property rights against competitors.     27




---



##### Table of Contents



Business
    Overview
    Executive
    Overview
    
    introduced a single national pricing structure in order to
    simplify our pricing approach and improve our customer value
    perception;
    developed and executed a national, more diversified marketing
    program focused on competitive pricing of key items and
    reinforcing GNCs well-recognized and dominant brand name
    among consumers;
    overhauled our field organization and store programs to improve
    our value-added customer shopping experience;
    focused our merchandising and marketing initiatives on driving
    increased traffic to our store locations, particularly with
    promotional events outside of Gold Card week;
    improved supply chain and inventory management, resulting in
    better in-stock levels of products generally and never
    out levels of top products;
    reinvigorated our proprietary new product development activities;
    revitalized vendor relationships, including their new product
    development activities and our exclusive or
    first-to-market
    access to new products;
    realigned our franchise system with our corporate strategies and
    re-acquired or closed unprofitable or non-compliant franchised
    stores in order to improve the financial performance of the
    franchise system;
    reduced our overhead cost structure; and
    launched internet sales of our products on www.gnc.com.    
    Our fourth consecutive quarter of positive same store sales in
    our Retail segment. Same store sales, including internet sales,
    increased 11.5% for the three months ended June 30, 2006
    compared to the same period in 2005. We believe that this
    increase was driven by our strategic initiatives that included
    simplifying our pricing and a national, more diversified
    marketing program and developing a better overall experience for
    our customers.
    A realigned domestic franchise program, operating in a more
    unified way with our company-owned stores, which contributed to
    positive same store sales for our domestic franchised locations
    for the third consecutive quarter.
    A more efficient and productive manufacturing environment, which
    allowed for the utilization of excess manufacturing capacity for
    the production of third-party contract products. Third-party
    sales in the manufacturing unit were approximately 66% higher
    than usual for the three months ended June 30, 2006, a
    direct result of utilizing available excess capacity. 28




---



##### Table of Contents



Results
    of Operations
        Results
    of Operations
 (Dollars in millions and
    percentages expressed as a percentage of total net
    revenues)
  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Unaudited)Revenues:Retail

$
284.8



74.4
%

$
250.3



75.1
%

$
579.7



75.3
%

$
505.5



75.5
%Franchise


59.3



15.5
%


57.7



17.3
%


119.6



15.5
%


110.4



16.5
%Manufacturing / Wholesale


38.7



10.1
%


25.3



7.6
%


70.4



9.2
%


53.9



8.0
%Total net revenues


382.8



100.0
%


333.3



100.0
%


769.7



100.0
%


669.8



100.0
%Operating expenses:Cost of sales, including
    warehousing, distribution and occupancy costs


253.3



66.2
%


223.7



67.0
%


510.2



66.3
%


454.2



67.9
%Compensation and related benefits


60.6



15.8
%


56.2



16.9
%


126.5



16.4
%


113.5



16.9
%Advertising and promotion


14.5



3.8
%


13.5



4.1
%


30.3



3.9
%


28.1



4.2
%Other selling, general and
    administrative expenses


22.6



5.9
%


18.0



5.4
%


42.6



5.6
%


35.8



5.3
%Amortization expense


1.0



0.2
%


0.9



0.3
%


2.0



0.3
%


1.9



0.3
%Foreign currency gain


(0.1
)


0.0
%






0.0
%


(0.7
)


−0.1
%


(0.1
)


0.0
%Other income






0.0
%






0.0
%






0.0
%


(2.5
)


−0.4
%Total operating
    expenses


351.9



91.9
%


312.3



93.7
%


710.9



92.4
%


630.9



94.2
% 29




---



##### Table of Contents



Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Unaudited)Operating income:Retail


33.6



8.8
%


21.2



6.4
%


68.9



8.9
%


39.1



5.9
%Franchise


15.0



3.9
%


12.1



3.6
%


31.1



4.0
%


23.0



3.4
%Manufacturing / Wholesale


13.4



3.5
%


12.6



3.8
%


24.5



3.2
%


24.6



3.7
%Unallocated corporate and other
    (costs) income:Warehousing and distribution costs


(12.5
)


−3.3
%


(12.2
)


−3.7
%


(25.3
)


−3.3
%


(24.9
)


−3.7
%Corporate costs


(18.6
)


−4.8
%


(12.7
)


−3.8
%


(40.4
)


−5.2
%


(25.6
)


−3.9
%Other income






0.0
%






0.0
%






0.0
%


2.5



0.4
%Subtotal unallocated corporate and
    other costs net


(31.1
)


−8.1
%


(24.9
)


−7.5
%


(65.7
)


−8.5
%


(48.0
)


−7.2
%Total operating
    income


30.9



8.1
%


21.0



6.3
%


58.8



7.6
%


38.7



5.8
%Interest expense, net


10.1







9.8







19.8







23.3Income before income
    taxes


20.8







11.2







39.0







15.4Income tax expense


7.7







4.1







14.5







5.6Net income

$
13.1






$
7.1






$
24.5






$
9.8   Note: year-over-year
  Comparison
    of the Three Months Ended June 30, 2006 and
    2005
  Revenues
    Retail.
  Franchise.
 30




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##### Table of Contents



Manufacturing/Wholesale.
  Cost of
    Sales
    Product costs.
  Warehousing and distribution
    costs.
  Occupancy costs.
  Selling,
    General and Administrative (SG&A)
    Expenses
    Compensation and related
    benefits.
 31




---



##### Table of Contents



Advertising and promotion.
  Other SG&A.
  Foreign
    Currency Gain
    Operating
    Income
    Retail.
  Franchise.
  Manufacturing/Wholesale.
  Warehousing & Distribution
    Costs.
  Corporate Costs.
  Interest
    Expense
   32




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##### Table of Contents



Income
    Tax Expense
    Net
    Income
    Comparison
    of the Six Months Ended June 30, 2006 and
    2005
  Revenues
    Retail.
  Franchise.
  Manufacturing/Wholesale.
  Cost of
    Sales
   33




---



##### Table of Contents



Product costs.
  Warehousing and distribution
    costs.
  Occupancy costs.
  Selling,
    General and Administrative (SG&A)
    Expenses
    Compensation and related
    benefits.
  Advertising and promotion.
  Other SG&A.
 34




---



##### Table of Contents



Foreign
    Currency Gain
    Other
    Income
    Operating
    Income
    Retail.
  Franchise.
  Manufacturing/Wholesale.
  Warehousing & Distribution
    Costs.
  Corporate Costs.
  Other.
  Interest
    Expense
   35




---



##### Table of Contents



Income
    Tax Expense
    Net
    Income
    Liquidity
    and Capital Resources
      Cash
    Provided by Operating Activities
       36




---



##### Table of Contents



Cash
    Used in Investing Activities
    point-of-sale
  Cash
    Used in Financing Activities
      Senior Credit Facility.
   37




---



##### Table of Contents



Form 10-K.
  Senior Notes. 5 8
  Senior Subordinated Notes. 1 2
  Common and Preferred Stock.
  Contractual
    Obligations
    Off
    Balance Sheet Arrangements
      Effect of
    Inflation
    Critical
    Accounting Estimates
   38




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##### Table of Contents



Recently
    Issued Accounting Pronouncements
      Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk.    Item 4.
    Controls
    and Procedures.  Rules 13a-15(e) 15d-15(e)
 39




---



##### Table of Contents



Rules 13a-15(f) 15d-15(f)
 40




---



##### Table of Contents

PART II 
    OTHER INFORMATION

|        |                       
|------- | ----------------------
|Item 1. | Legal
    Proceedings.



and/or








Ephedra (Ephedrine Alkaloids).




Pro-Hormone/Androstenedione Cases.


41



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##### Table of Contents







Harry Rodriguez v. General Nutrition Companies, Inc.
    (previously pending in the Supreme Court of the State of New
    York, New York County, New York, Index
    No. 02/126277).




Everett Abrams v. General Nutrition Companies, Inc.
    (previously pending in the Superior Court of New Jersey, Mercer
    County, New Jersey, Docket
    No. L-3789-02).




Shawn Brown, Ozan Cirak, Thomas Hannon, and Luke
    Smith v. General Nutrition Companies, Inc. (previously
    pending in the 15th Judicial Circuit Court, Palm Beach
    County, Florida, Index.
    No. CA-02-14221AB).




Abrams, et al. v. General Nutrition Companies,
    Inc., et al., previously pending in the Common Pleas Court
    of Philadelphia County, Philadelphia, Class Action
    No. 02-703886).




David Pio and Ty Stephens, individually and on behalf of all
    others similarly situated v. General Nutrition Companies,
    Inc. previously pending in the Circuit Court of Cook County,
    Illinois, County Department, Chancery Division, Case
    No. 02-CH-14122).




Santiago Guzman, individually, on behalf of all others
    similarly situated, and on behalf of the general public v.
    General Nutrition Companies, Inc., previously pending on the
    California Judicial Counsel Coordination Proceeding
    No. 4363, Los Angeles County Superior Court).






42



---



##### Table of Contents



Companies Creditors Arrangement Act No. 06-CL-6241, In re MuscleTech Research
    and Development, Inc., et al.








Class Action Settlement. 90-day 90-day




Nutrition 21.


43



---



##### Table of Contents







Franklin Publications.




Visa/MasterCard Antitrust Litigation.




Product Claim Settlement.




Pennsylvania
    Claim






44



---



##### Table of Contents



|         |                  
|-------- | -----------------
|Item 1A. | Risk
    Factors.







Risks
    Relating to Our Business and Industry




We
    operate in a highly competitive industry. Our failure to compete
    effectively could adversely affect our market share, revenues,
    and growth prospects.




U.S.-based




Unfavorable
    publicity or consumer perception of our products and any similar
    products distributed by other companies could cause fluctuations
    in our operating results and could have a material adverse
    effect on our reputation, the demand for our products, and our
    ability to generate revenues.




Period-to-period


45



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##### Table of Contents



Our
    failure to appropriately respond to changing consumer
    preferences and demand for new products could significantly harm
    our customer relationships and product sales.
      
    accurately anticipate customer needs;
    innovate and develop new products;
    successfully commercialize new products in a timely manner;
    price our products competitively;
    manufacture and deliver our products in sufficient volumes and
    in a timely manner; and
    differentiate our product offerings from those of our
    competitors.    Changes
    in our management team could affect our business strategy and
    adversely impact our performance and results of
    operations.
    Compliance
    with new and existing governmental regulations could increase
    our costs significantly and adversely affect our results of
    operations.
   46




---



##### Table of Contents



Form 10-K




Form 10-K




Our
    failure to comply with FTC regulations and existing consent
    decrees imposed on us by the FTC could result in substantial
    monetary penalties and could adversely affect our operating
    results.




Form 10-K


47



---



##### Table of Contents



Because
    we rely on our manufacturing operations to produce nearly all of
    the proprietary products we sell, disruptions in our
    manufacturing system or losses of manufacturing certifications
    could adversely affect our sales and customer
    relationships.








If we
    fail to protect our brand name, competitors may adopt trade
    names that dilute the value of our brand name.








Intellectual
    property litigation and infringement claims against us could
    cause us to incur significant expenses or prevent us from
    manufacturing, selling, or using some aspect of our products,
    which could adversely affect our revenues and market
    share.








A
    substantial amount of our revenues are generated from our
    franchisees, and our revenues could decrease significantly if
    our franchisees do not conduct their operations profitably or if
    we fail to attract new franchisees.






48



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##### Table of Contents











Economic,
    political, and other risks associated with our international
    operations could adversely affect our revenues and international
    growth prospects.








| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | political and economic instability of foreign markets;                                                       
|
| |  | foreign governments restrictive trade policies;                                                             
|
| |  | inconsistent product regulation or sudden policy changes by
    foreign agencies or governments;             
|
| |  | the imposition of, or increase in, duties, taxes, government
    royalties, or non-tariff trade barriers;    
|
| |  | difficulty in collecting international accounts receivable and
    potentially longer payment cycles;        
|
| |  | increased costs in maintaining international franchise and
    marketing efforts;                            
|
| |  | difficulty in operating our manufacturing facility abroad and
    procuring supplies from overseas suppliers;
|
| |  | exchange controls;                                                                                           
|
| |  | problems entering international markets with different cultural
    bases and consumer preferences; and      
|
| |  | fluctuations in foreign currency exchange rates.                                                             







Franchise
    regulations could limit our ability to terminate or replace
    under-performing franchises, which could adversely impact
    franchise revenues.






49



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##### Table of Contents



We may
    incur material product liability claims, which could increase
    our costs and adversely affect our reputation, revenues, and
    operating income.
    We are
    not insured for a significant portion of our claims exposure,
    which could materially and adversely affect our operating income
    and profitability.
    Risks
    Related to Our Substantial Debt
  Our
    substantial debt could adversely affect our results of
    operations and financial condition and otherwise adversely
    impact our operating income and growth prospects.
   50




---



##### Table of Contents




    require us to use all or a large portion of our cash to pay
    principal and interest on our debt, which could reduce the
    availability of our cash to fund working capital, capital
    expenditures, and other business activities;
    increase our vulnerability to general adverse economic and
    industry conditions;
    limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we operate;
    restrict us from making strategic acquisitions or exploiting
    business opportunities;
    make it more difficult for us to satisfy our obligations with
    respect to our debt;
    place us at a competitive disadvantage compared to our
    competitors that have less debt; and
    limit our ability to borrow additional funds, dispose of assets,
    or pay cash dividends.    We
    require a significant amount of cash to service our debt. Our
    ability to generate cash depends on many factors beyond our
    control and, as a result, we may not be able to make payments on
    our debt obligations.
      Changes
    in our results of operation or financial condition and other
    events may adversely affect our ability to comply with financial
    covenants in our senior credit facility or other debt
    covenants.
   51




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##### Table of Contents



Despite
    our and our subsidiaries current significant level of
    debt, we may still be able to incur more debt, which would
    increase the risks described above.
    Our
    principal stockholder may take actions that conflict with other
    stockholders and investors interests. This control may have the
    effect of delaying or preventing changes of control or changes
    in management, or limiting the ability of other stockholders to
    approve transactions they may deem to be in their best
    interest.
  attorney-in-fact
  Certain
    provisions of our corporate governing documents and Delaware law
    could discourage, delay, or prevent a merger or acquisition at a
    premium price.
    Our
    holding company structure makes us dependent on our subsidiaries
    for our cash flow and subordinates the rights of our
    stockholders to the rights of creditors of our subsidiaries in
    the event of an insolvency or liquidation of any of our
    subsidiaries.
   52




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##### Table of Contents



Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds.    Item 6.
    Exhibits.  Exhibit 31
.1



Certification of Principal
    Executive Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.Exhibit 31
.2



Certification of Principal
    Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.Exhibit 32
.1



Certification of Principal
    Executive Officer and Principal Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.  53




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##### Table of Contents



SIGNATURES    
                  54