##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 o
    
    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: 333-144396
 GENERAL NUTRITION CENTERS, INC.
  Delaware
    
    72-1575168(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)
 (412) 288-4600
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONExplanatory Note.Item 1.
    
    Financial Statements.Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007
    
    
    1Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the
three months ended March 31, 2008, the sixteen days ended March 31, 2007, and the
period ended March 15, 2007
    
    
    2Unaudited Consolidated Statement of Stockholders Equity for the three months ended March 31, 2008
    
    
    3Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2008,
the sixteen days ended March 31, 2007, and the period ended March 15, 2007
    
    
    4Summarized Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    28Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    39Item 4T.
    
    Controls and Procedures.
    
    
    40PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    
    41Item 1A.
    
    Risk Factors.
    
    
    45Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    53Item 3.
    
    Defaults Upon Senior Securities.
    
    
    53Item 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    53Item 5.
    
    Other Information.
    
    
    53Item 6.
    
    Exhibits.
    
    
    53Signatures
    
    
    54EX-10.1EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 (in thousands, except share data)
 March 31,
    
    
    December 31,2008
    
    
    2007 *(unaudited)Current assets:Cash and cash equivalents
    
    $
    27,962
    
    
    $
    28,854Receivables, net
    
    
    84,106
    
    
    
    84,666Inventories, net (Note 3)
    
    
    354,906
    
    
    
    334,149Deferred tax assets, net
    
    
    17,029
    
    
    
    17,029Other current assets
    
    
    32,976
    
    
    
    33,474Total current assets
    
    
    516,979
    
    
    
    498,172Long-term assets:Goodwill (Note 4)
    
    
    626,289
    
    
    
    626,270Brands (Note 4)
    
    
    720,000
    
    
    
    720,000Other intangible assets, net (Note 4)
    
    
    169,824
    
    
    
    172,872Property, plant and equipment, net
    
    
    189,511
    
    
    
    190,848Deferred financing fees, net
    
    
    25,436
    
    
    
    26,377Other long-term assets
    
    
    4,676
    
    
    
    5,093Total long-term assets
    
    
    1,735,736
    
    
    
    1,741,460Total assets
    
    $
    2,252,715
    
    
    $
    2,239,632Current liabilities:Accounts payable, includes cash overdraft of $4,801 and $4,124, respectively
    
    $
    128,003
    
    
    $
    101,953Accrued payroll and related liabilities
    
    
    18,765
    
    
    
    27,477Accrued income taxes
    
    
    8,026
    
    
    
    1,878Accrued interest (Note 5)
    
    
    6,959
    
    
    
    18,110Current portion, long-term debt (Note 5)
    
    
    8,059
    
    
    
    8,031Other current liabilities
    
    
    75,644
    
    
    
    82,635Total current liabilities
    
    
    245,456
    
    
    
    240,084Long-term liabilities:Long-term debt (Note 5)
    
    
    1,077,067
    
    
    
    1,078,950Deferred tax liabilities, net
    
    
    265,700
    
    
    
    267,788Other long-term liabilities
    
    
    46,756
    
    
    
    44,085Total long-term liabilities
    
    
    1,389,523
    
    
    
    1,390,823Total liabilities
    
    
    1,634,979
    
    
    
    1,630,907Stockholders equity:Common stock, $0.01 par value,
1,000 shares authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    Paid-in-capital
    
    
    590,828
    
    
    
    590,593Retained earnings
    
    
    32,324
    
    
    
    18,984Accumulated other comprehensive loss
    
    
    (5,416
    )
    
    
    (852
    )Total stockholders equity
    
    
    617,736
    
    
    
    608,725Total liabilities and stockholders equity
    
    $
    2,252,715
    
    
    $
    2,239,632
 
 *
    
    Footnotes summarized from the Audited Financial Statements  1




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations and Comprehensive Income
 (unaudited)
 (in thousands)
 Successor
    
    
    
    PredecessorThree monthsended
    
    
    March 16-
    
    
    
    January 1-March 31,
    
    
    March 31,
    
    
    
    March 15,2008
    
    
    2007
    
    
    
    2007Revenue
    
    $
    428,133
    
    
    $
    62,080
    
    
    
    $
    329,829Cost of sales, including costs
of warehousing, distribution and occupancy
    
    
    278,890
    
    
    
    42,776
    
    
    
    
    212,175Gross profit
    
    
    149,243
    
    
    
    19,304
    
    
    
    
    117,654Compensation and related benefits
    
    
    61,571
    
    
    
    10,059
    
    
    
    
    64,311Advertising and promotion
    
    
    18,147
    
    
    
    229
    
    
    
    
    20,473Other selling, general and administrative
    
    
    24,925
    
    
    
    3,373
    
    
    
    
    17,396Foreign currency loss (gain)
    
    
    92
    
    
    
    
    
    
    
    
    (154
    )Merger-related costs (Note 1)
    
    
    
    
    
    
    
    
    
    
    
    34,603Operating income (loss)
    
    
    44,508
    
    
    
    5,643
    
    
    
    
    (18,975
    )Interest expense, net (Note 5)
    
    
    23,071
    
    
    
    4,238
    
    
    
    
    43,036Income (loss) before income taxes
    
    
    21,437
    
    
    
    1,405
    
    
    
    
    (62,011
    )Income tax expense (benefit) (Note 10)
    
    
    8,097
    
    
    
    541
    
    
    
    
    (10,697
    )Net income (loss)
    
    
    13,340
    
    
    
    864
    
    
    
    
    (51,314
    )Other comprehensive (loss) income
    
    
    (4,564
    )
    
    
    291
    
    
    
    
    (283
    )Comprehensive income (loss)
    
    $
    8,776
    
    
    $
    1,155
    
    
    
    $
    (51,597
    )
  2




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statement of Stockholders Equity
 (in thousands, except share data)
 AccumulatedOther
    
    
    TotalCommon Stock
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Dollars
    
    
    Paid-in-Capital
    
    
    Earnings
    
    
    Income/(Loss)
    
    
    EquityBalance at December 31, 2007
    
    
    100
    
    
    $
    
    
    
    $
    590,593
    
    
    $
    18,984
    
    
    $
    (852
    )
    
    $
    608,725Return of capital to GNC Corporation
    
    
    
    
    
    
    
    
    
    
    (494
    )
    
    
    
    
    
    
    
    
    
    
    (494
    )Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    729
    
    
    
    
    
    
    
    
    
    
    
    729Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,340
    
    
    
    
    
    
    
    13,340Unrealized loss on derivatives designated and qualified
as cash flow hedges, net of tax of $2,088
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,648
    )
    
    
    (3,648
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (916
    )
    
    
    (916
    )Balance at March 31, 2008 (unaudited)
    
    
    100
    
    

    $
    
    
    
    $
    590,828
    
    
    $
    32,324
    
    
    $
    (5,416
    )
    
    $
    617,736
  3




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (unaudited)
 (in thousands)
 Successor
    
    
    
    PredecessorThree months
    
    
    Period
    
    
    
    Periodended
    
    
    March 16-
    
    
    
    January 1-March 31,
    
    
    March 31,
    
    
    
    March 15,2008
    
    
    2007
    
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    13,340
    
    
    $
    864
    
    
    
    $
    (51,314
    )Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation expense
    
    
    7,310
    
    
    
    1,419
    
    
    
    
    6,510Deferred fee writedown  early debt extinguishment
    
    
    
    
    
    
    
    
    
    
    
    11,680Amortization of intangible assets
    
    
    3,090
    
    
    
    382
    
    
    
    
    866Amortization of deferred financing fees
    
    
    941
    
    
    
    148
    
    
    
    
    589Amortization of original issue discount
    
    
    81
    
    
    
    13
    
    
    
    
    Increase in provision for inventory losses
    
    
    3,521
    
    
    
    186
    
    
    
    
    2,247Non-cash stock-based compensation
    
    
    729
    
    
    
    99
    
    
    
    
    4,124(Decrease) increase in provision for losses on accounts receivable
    
    
    921
    
    
    
    
    
    
    
    
    (39
    )Decrease in net deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    (3,874
    )Changes in assets and liabilities:(Increase) decrease in receivables
    
    
    (433
    )
    
    
    (3,514
    )
    
    
    
    1,676(Increase) decrease in inventory, net
    
    
    (24,966
    )
    
    
    4,270
    
    
    
    
    (2,128
    )Decrease in franchise note receivables, net
    
    
    471
    
    
    
    233
    
    
    
    
    912(Increase) decrease in other assets
    
    
    (78
    )
    
    
    (8,000
    )
    
    
    
    3,394Increase in accounts payable
    
    
    25,463
    
    
    
    727
    
    
    
    
    3,749Increase (decrease) in accrued taxes
    
    
    6,686
    
    
    
    
    
    
    
    
    (4,967
    )(Decrease) increase in interest payable
    
    
    (11,152
    )
    
    
    4,006
    
    
    
    
    (7,531
    )(Decrease) increase in accrued liabilities
    
    
    (18,804
    )
    
    
    1,368
    
    
    
    
    (12,682
    )Net cash provided by (used in) operating activities
    
    
    7,120
    
    
    
    2,201
    
    
    
    
    (46,788
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (6,248
    )
    
    
    (642
    )
    
    
    
    (5,693
    )Acquisition of the Company
    
    
    
    
    
    
    (1,615,843
    )
    
    
    
    Franchise store conversions
    
    
    34
    
    
    
    
    
    
    
    
    Store acquisition costs
    
    
    (125
    )
    
    
    (10
    )
    
    
    
    (555
    )Net cash used in investing activities
    
    
    (6,339
    )
    
    
    (1,616,495
    )
    
    
    
    (6,248
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of new equity
    
    
    
    
    
    
    552,291
    
    
    
    
    Contribution
from selling shareholders
    
    
    
    
    
    
    
    
    
    
    
    463,393Return of capital to Parent company
    
    
    (494
    )
    
    
    
    
    
    
    
    Increase (decrease) in cash overdrafts
    
    
    677
    
    
    
    5,381
    
    
    
    
    (4,136
    )Borrowings from new revolving credit facility
    
    
    
    
    
    
    10,500
    
    
    
    
    Payments on new revolving credit facility
    
    
    
    
    
    
    (10,500
    )
    
    
    
    Borrowings from new senior credit facility
    
    
    
    
    
    
    675,000
    
    
    
    
    Proceeds from issuance of new senior sub notes
    
    
    
    
    
    
    110,000
    
    
    
    
    Proceeds from issuance of new senior notes
    
    
    
    
    
    
    297,000
    
    
    
    
    Redemption of 8 5/8% senior notes
    
    
    
    
    
    
    
    
    
    
    
    (150,000
    )Redemption of 8 1/2% senior notes
    
    
    
    
    
    
    
    
    
    
    
    (215,000
    )Payment of 2003 senior credit facility
    
    
    
    
    
    
    
    
    
    
    
    (55,290
    )Payments on long-term debt
    
    
    (1,936
    )
    
    
    (47
    )
    
    
    
    (334
    )Financing fees
    
    
    
    
    
    
    (27,877
    )
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (1,753
    )
    
    
    1,611,748
    
    
    
    
    38,633Effect of exchange rate on cash
    
    
    80
    
    
    
    119
    
    
    
    
    (165
    )Net decrease in cash
    
    
    (892
    )
    
    
    (2,427
    )
    
    
    
    (14,568
    )Beginning balance, cash
    
    
    28,854
    
    
    
    9,512
    
    
    
    
    24,080Ending balance, cash
    
    $
    27,962
    
    
    $
    7,085
    
    
    
    $
    9,512
  4




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1. NATURE OF BUSINESS
 General Nature of Business .
   Merger of the Company.
   5




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 2. BASIS OF PRESENTATION
     Principles of Consolidation.
  Use of Estimates .
 Cash and Cash Equivalents .
 Financial Instruments and Derivatives .
 6




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Recently Issued Accounting Pronouncements
  .
   7




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   8




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 3. INVENTORIES, NET
  March 31, 2008Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)(unaudited)Finished product ready for sale
    
    $
    304,536
    
    
    $
    (8,739
    )
    
    $
    295,797Work-in-process, bulk product and raw materials
    
    
    56,037
    
    
    
    (1,305
    )
    
    
    54,732Packaging supplies
    
    
    4,377
    
    
    
    
    
    
    
    4,377$
    364,950
    
    
    $
    (10,044
    )
    
    $
    354,906
 December 31, 2007Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)Finished product ready for sale
    
    $
    287,430
    
    
    $
    (8,578
    )
    
    $
    278,852Work-in-process, bulk product and raw materials
    
    
    51,755
    
    
    
    (1,281
    )
    
    
    50,474Packaging supplies
    
    
    4,823
    
    
    
    
    
    
    
    4,823$
    344,008
    
    
    $
    (9,859
    )
    
    $
    334,149
 NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
    9




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Manufacturing/Retail
    
    
    Franchising
    
    
    Wholesale
    
    
    Total(in thousands)Balance at December 31, 2007
    
    $
    306,126
    
    
    $
    117,303
    
    
    $
    202,841
    
    
    $
    626,270Acquired franchise stores
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19Balance at March 31, 2008 (unaudited)
    
    $
    306,145
    
    
    $
    117,303
    
    
    $
    202,841
    
    
    $
    626,289
  Retail
    
    
    Franchise
    
    
    Operating
    
    
    FranchiseGold Card
    
    
    Brand
    
    
    Brand
    
    
    Agreements
    
    
    Rights
    
    
    Total(in thousands)Balance at December 31, 2007
    
    $
    6,041
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    165,702
    
    
    $
    1,129
    
    
    $
    892,872Acquired franchise stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    42Amortization expense
    
    
    (1,222
    )
    
    
    
    
    
    
    
    
    
    
    (1,671
    )
    
    
    (197
    )
    
    
    (3,090
    )Balance at March 31, 2008 (unaudited)
    
    $
    4,819
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    164,031
    
    
    $
    974
    
    
    $
    889,824
  Estimated
    
    
    March 31, 2008
    
    
    December 31, 2007Life
    
    
    
    
    
    
    Accumulated
    
    
    Carrying
    
    
    
    
    
    
    Accumulated
    
    
    Carryingin years
    
    
    Cost
    
    
    Amortization
    
    
    Amount
    
    
    Cost
    
    
    Amortization
    
    
    Amount(unaudited)
    
    
    (in thousands)Brands  retail
    
    
    
    
    
    $
    500,000
    
    
    $
    
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    
    
    
    $
    500,000Brands  franchise
    
    
    
    
    
    
    220,000
    
    
    
    
    
    
    
    220,000
    
    
    
    220,000
    
    
    
    
    
    
    
    220,000Gold card  retail
    
    
    3
    
    
    
    3,500
    
    
    
    (1,626
    )
    
    
    1,874
    
    
    
    3,500
    
    
    
    (1,155
    )
    
    
    2,345Gold card  franchise
    
    
    3
    
    
    
    5,500
    
    
    
    (2,555
    )
    
    
    2,945
    
    
    
    5,500
    
    
    
    (1,804
    )
    
    
    3,696Retail agreements
    
    
    25-35
    
    
    
    31,000
    
    
    
    (1,248
    )
    
    
    29,752
    
    
    
    31,000
    
    
    
    (985
    )
    
    
    30,015Franchise agreements
    
    
    25
    
    
    
    70,000
    
    
    
    (2,917
    )
    
    
    67,083
    
    
    
    70,000
    
    
    
    (2,217
    )
    
    
    67,783Manufacturing agreements
    
    
    25
    
    
    
    70,000
    
    
    
    (2,916
    )
    
    
    67,084
    
    
    
    70,000
    
    
    
    (2,216
    )
    
    
    67,784Other intangibles
    
    
    1-5
    
    
    
    150
    
    
    
    (38
    )
    
    
    112
    
    
    
    150
    
    
    
    (30
    )
    
    
    120Franchise rights
    
    
    1-5
    
    
    
    1,955
    
    
    
    (981
    )
    
    
    974
    
    
    
    1,913
    
    
    
    (784
    )
    
    
    1,129$
    902,105
    
    
    $
    (12,281
    )
    
    $
    889,824
    
    
    $
    902,063
    
    
    $
    (9,191
    )
    
    $
    892,872
  EstimatedamortizationYears ending December 31,
    
    expense(in thousands)2008
    
    
    7,8222009
    
    
    9,0682010
    
    
    7,1972011
    
    
    6,7432012
    
    
    6,669Thereafter
    
    
    132,325Total
    
    $
    169,824
 10




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 5. LONG-TERM DEBT / INTEREST EXPENSE
  March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)(in thousands)2007 Senior Credit Facility
    
    $
    668,250
    
    
    $
    669,937Senior Toggle Notes
    
    
    297,328
    
    
    
    297,24710.75% Senior Subordinated Notes
    
    
    110,000
    
    
    
    110,000Mortgage
    
    
    9,526
    
    
    
    9,774Capital leases
    
    
    22
    
    
    
    23Less: current maturities
    
    
    (8,059
    )
    
    
    (8,031
    )Total
    
    $
    1,077,067
    
    
    $
    1,078,950
  Successor
    
    
    
    PredecessorThree monthsended
    
    
    March 16-
    
    
    
    January 1-March 31,
    
    
    March 31,
    
    
    
    March 15,2008
    
    
    2007
    
    
    
    2007(unaudited)(in thousands)2003 Senior Credit FacilityTerm Loan
    
    $
    
    
    
    $
    
    
    
    
    $
    918Revolver
    
    
    
    
    
    
    
    
    
    
    
    1328 5/8% Senior Notes
    
    
    
    
    
    
    
    
    
    
    
    3,8078 1/2 % Senior Subordinated Notes
    
    
    
    
    
    
    
    
    
    
    
    2,695Call premiums
    
    
    
    
    
    
    
    
    
    
    
    23,159Deferred financing fees
    
    
    941
    
    
    
    148
    
    
    
    
    589Deferred fee writedown- early
extinguishment
    
    
    
    
    
    
    
    
    
    
    
    11,6802007 Senior Credit FacilityTerm Loan
    
    
    11,896
    
    
    
    2,268
    
    
    
    
    Revolver
    
    
    111
    
    
    
    21
    
    
    
    
    Senior Toggle Notes
    
    
    7,132
    
    
    
    1,225
    
    
    
    
    10.75% Senior Subordinated Notes
    
    
    2,956
    
    
    
    493
    
    
    
    
    OID amortization
    
    
    81
    
    
    
    13
    
    
    
    
    Mortgage
    
    
    162
    
    
    
    33
    
    
    
    
    392Interest income-other
    
    
    (208
    )
    
    
    37
    
    
    
    
    (336
    )Interest expense, net
    
    $
    23,071
    
    
    $
    4,238
    
    
    
    $
    43,036
 11




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)(in thousands)2007 Senior Credit Facility
    
    $
    5,473
    
    
    $
    5,787Senior Toggle Notes
    
    
    960
    
    
    
    8,84110.75% Senior Subordinated Notes
    
    
    526
    
    
    
    3,482Total
    
    $
    6,959
    
    
    $
    18,110
  12




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 6. COMMITMENTS AND CONTINGENCIES
 Litigation
   Ephedra (Ephedrine Alkaloids).
 Pro-Hormone/Androstenedione Cases.
   13




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   
    
    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 and currently
styled Harry Rodriguez, individually and on behalf of all others similarly situated, v.
General Nutrition Companies, Inc.Case No. 1:06-cv-02987-JSR, In the United States District
Court for the Southern District of New York). Plaintiffs filed this putative class action on
or about July 25, 2002. The Second Amended Complaint, filed thereafter on or about December
6, 2002, alleged claims for unjust enrichment, violation of General Business Law Section 349
(misleading and deceptive trade practices), and violation of General Business Law Section
350 (false advertising). On July 2, 2003, the court granted part of the GNC motion to
dismiss and dismissed the unjust enrichment cause of action. On January 4, 2006, the court
conducted a hearing on the GNC motion for summary judgment and plaintiffs motion for class
certification, both of which remain pending.
    
    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 and currently styled
Everett Abrams, individually and on behalf of all others similarly situated, v. General
Nutrition Companies, Inc., Case No. 1:06-cv-07881-JSR, In the United States District Court
for the Southern District of New York). Plaintiffs filed this putative class action on or
about July 25, 2002. The Second Amended Complaint, filed thereafter on or about December 20,
2002, alleged claims for false and deceptive marketing and omissions and violations of the
New Jersey Consumer Fraud Act. On November 18, 2003, the court signed an order dismissing
plaintiffs claims for affirmative misrepresentation and sponsorship with prejudice. The
claim for knowing omissions remains pending.
    
    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 and currently styled Shawn Brown, Ozan Cirak, Thomas
Hannon and Like Smith, each individually and on behalf of all others similarly situated v.
General Nutrition Companies, Inc.,Case No. 1:07-cv-06356-UA, In the United States District
Court for the Southern District of New York). Plaintiffs filed this putative class action on
or about July 25, 2002. The Second Amended Complaint, filed thereafter on or about November
27, 2002, alleged claims for violations of the Florida Deceptive and Unfair Trade Practices
Act, unjust enrichment, and violation of Florida Civil Remedies for Criminal Practices Act.
These claims remain pending.
    
    Andrew Toth v. General Nutrition Companies, Inc., et al.(previously pending in the
Common Pleas Court of Philadelphia County, Philadelphia, Class Action No. 02-703886 and
currently styled Andrew Toth and Richard Zatta, each individually and on behalf of all
others similarly situated v. Bodyonics, LTD, d/b/a Pinnacle and General Nutrition Companies,
Inc.,Case No. 1:06-cv-02721-JSR, In the United States District Court for the Southern
District of New York). Plaintiffs filed this putative class action on or about July 25,
2002. The Amended Complaint, filed thereafter on or about April 8, 2003, alleged claims for
violations of the Unfair Trade Practices and Consumer Protection Law, and unjust enrichment.
The court denied the plaintiffs motion for class certification, and that order has been
affirmed on appeal. Plaintiffs thereafter filed a petition in the Pennsylvania Supreme Court
asking that the court consider an appeal of the order denying class certification. The
Pennsylvania Supreme Court denied the petition after the case
 14




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 against GNC was removed as described above. The Claims for the violations of the Unfair Trade
Practices and Consumer Protection Law and unjust enrichment remain pending.
    
    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). Plaintiffs filed this putative class action on or about February 17, 2004. The
Second Amended Complaint, filed on or about November 27, 2006, alleged claims for violations
of the Consumers Legal Remedies Act, violation of the Unfair Competition Act, and unjust
enrichment. These claims remain pending.On January 25, 2008, a mediation was held for the Andro Actions and no resolution was reached.
  Class Action Settlement.
 Wage and Hour Claim.
 California Wage and Break Claim
 15




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Franchise Class Action.
 Contingencies
  NOTE 7. STOCK-BASED COMPENSATION PLANS
 Stock Options
   16




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 WeightedAverage
    
    AggregateTotal Options
    
    Exercise Price
    
    Intrinsic Value(in thousands)Outstanding at December 31, 2007
    
    
    6,714,492
    
    
    $
    6.25
    
    
    $
    4,566Granted
    
    
    1,750,000
    
    
    
    8.66Forfeited
    
    
    (172,907
    )
    
    
    6.25Outstanding at March 31, 2008
    
    
    8,291,585
    
    
    $
    6.76
    
    
    $
    1,421Exercisable at March 31, 2008
    
    
    1,342,972
    
    
    $
    6.25
    
    
    $
    913
    March 31,2008(unaudited)Dividend yield
    
    
    0.00
    %Expected option life
    
    7.5 yearsVolatility factor percentage of market price
    
    
    26.00
    %Discount rate
    
    
    3.54
    %
  Predecessor
  17




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  NOTE 8. SEGMENTS
  Successor
    
    
    
    PredecessorThree months
    
    
    March 16 -
    
    
    
    January 1 -ended March 31,
    
    
    March 31,
    
    
    
    March 15,2008
    
    
    2007
    
    
    
    2007(in thousands)(unaudited)Revenue:Retail
    
    $
    321,295
    
    
    $
    45,350
    
    
    
    $
    259,313Franchise
    
    
    64,904
    
    
    
    11,558
    
    
    
    
    47,237Manufacturing/Wholesale:Intersegment (1)
    
    
    44,110
    
    
    
    8,739
    
    
    
    
    35,477Third Party
    
    
    41,934
    
    
    
    5,172
    
    
    
    
    23,279Sub total Manufacturing/Wholesale
    
    
    86,044
    
    
    
    13,911
    
    
    
    
    58,756Sub total segment revenues
    
    
    472,243
    
    
    
    70,819
    
    
    
    
    365,306Intersegment elimination (1)
    
    
    (44,110
    )
    
    
    (8,739
    )
    
    
    
    (35,477
    )Total revenue
    
    $
    428,133
    
    
    $
    62,080
    
    
    
    $
    329,829(1)Intersegment revenues are eliminated from consolidated revenue.Operating income (loss):Retail
    
    $
    36,818
    
    
    $
    5,289
    
    
    
    $
    28,249Franchise
    
    
    19,783
    
    
    
    2,949
    
    
    
    
    14,518Manufacturing/Wholesale
    
    
    15,738
    
    
    
    1,990
    
    
    
    
    10,267Unallocated corporate and other (costs) income:Warehousing and distribution costs
    
    
    (13,769
    )
    
    
    (2,036
    )
    
    
    
    (10,667
    )Corporate costs
    
    
    (14,062
    )
    
    
    (2,549
    )
    
    
    
    (26,739
    )Merger-related costs
    
    
    
    
    
    
    
    
    
    
    
    (34,603
    )Sub total unallocated corporate and
other (costs) income
    
    
    (27,831
    )
    
    
    (4,585
    )
    
    
    
    (72,009
    )Total operating income (loss)
    
    $
    44,508
    
    
    $
    5,643
    
    
    
    $
    (18,975
    )
 18




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 9. SUPPLEMENTAL GUARANTOR INFORMATION
   19




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)March 31, 2008
    
    
    
    
    
    
    
    
    
    (unaudited)Current assetsCash and cash
equivalents
    
    $
    
    
    
    $
    26,077
    
    
    $
    1,885
    
    
    $
    
    
    
    $
    27,962Receivables, net
    
    
    261
    
    
    
    83,430
    
    
    
    415
    
    
    
    
    
    
    
    84,106Intercompany
receivables
    
    
    
    
    
    
    94,814
    
    
    
    
    
    
    
    (94,814
    )
    
    
    Inventories, net
    
    
    
    
    
    
    332,350
    
    
    
    22,556
    
    
    
    
    
    
    
    354,906Other current
assets
    
    
    128
    
    
    
    43,867
    
    
    
    6,010
    
    
    
    
    
    
    
    50,005Total
current
assets
    
    
    389
    
    
    
    580,538
    
    
    
    30,866
    
    
    
    (94,814
    )
    
    
    516,979Goodwill
    
    
    
    
    
    
    625,888
    
    
    
    401
    
    
    
    
    
    
    
    626,289Brands
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    720,000Property, plant and
equipment, net
    
    
    
    
    
    
    164,997
    
    
    
    24,514
    
    
    
    
    
    
    
    189,511Investment in
subsidiaries
    
    
    1,755,746
    
    
    
    9,693
    
    
    
    
    
    
    
    (1,765,439
    )
    
    
    Other assets
    
    
    25,436
    
    
    
    183,281
    
    
    
    
    
    
    
    (8,781
    )
    
    
    199,936Total assets
    
    $
    1,781,571
    
    
    $
    2,284,397
    
    
    $
    55,781
    
    
    $
    (1,869,034
    )
    
    $
    2,252,715Current liabilitiesCurrent
liabilities
    
    $
    8,011
    
    
    $
    223,643
    
    
    $
    13,802
    
    
    $
    
    
    
    $
    245,456Intercompany
payables
    
    
    79,763
    
    
    
    
    
    
    
    15,051
    
    
    
    (94,814
    )
    
    
    Total
current
liabilities
    
    
    87,774
    
    
    
    223,643
    
    
    
    28,853
    
    
    
    (94,814
    )
    
    
    245,456Long-term debt
    
    
    1,068,828
    
    
    
    17
    
    
    
    17,003
    
    
    
    (8,781
    )
    
    
    1,077,067Deferred tax
liabilities
    
    
    (4,139
    )
    
    
    269,839
    
    
    
    
    
    
    
    
    
    
    
    265,700Other long-term
liabilities
    
    
    11,372
    
    
    
    35,152
    
    
    
    232
    
    
    
    
    
    
    
    46,756Total
liabilities
    
    
    1,163,835
    
    
    
    528,651
    
    
    
    46,088
    
    
    
    (103,595
    )
    
    
    1,634,979Total
stockholders
equity
(deficit)
    
    
    617,736
    
    
    
    1,755,746
    
    
    
    9,693
    
    
    
    (1,765,439
    )
    
    
    617,736Total
liabilities
and
stockholders
equity(deficit)
    
    $
    1,781,571
    
    
    $
    2,284,397
    
    
    $
    55,781
    
    
    $
    (1,869,034
    )
    
    $
    2,252,715
 20




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedDecember 31, 2007
    
    
    
    
    
    
    
    
    
    (in thousands)Current assetsCash and cash
equivalents
    
    $
    
    
    
    $
    26,090
    
    
    $
    2,764
    
    
    $
    
    
    
    $
    28,854Receivables, net
    
    
    128
    
    
    
    84,253
    
    
    
    285
    
    
    
    
    
    
    
    84,666Intercompany
receivables
    
    
    
    
    
    
    79,441
    
    
    
    
    
    
    
    (79,441
    )
    
    
    Inventories, net
    
    
    
    
    
    
    311,655
    
    
    
    22,494
    
    
    
    
    
    
    
    334,149Other current
assets
    
    
    251
    
    
    
    45,694
    
    
    
    4,558
    
    
    
    
    
    
    
    50,503Total
current
assets
    
    
    379
    
    
    
    547,133
    
    
    
    30,101
    
    
    
    (79,441
    )
    
    
    498,172Goodwill
    
    
    
    
    
    
    625,869
    
    
    
    401
    
    
    
    
    
    
    
    626,270Brands
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    720,000Property, plant and
equipment, net
    
    
    
    
    
    
    166,440
    
    
    
    24,408
    
    
    
    
    
    
    
    190,848Investment in
subsidiaries
    
    
    1,742,216
    
    
    
    9,684
    
    
    
    
    
    
    
    (1,751,900
    )
    
    
    Other assets
    
    
    26,378
    
    
    
    186,745
    
    
    
    
    
    
    
    (8,781
    )
    
    
    204,342Total assets
    
    $
    1,768,973
    
    
    $
    2,255,871
    
    
    $
    54,910
    
    
    $
    (1,840,122
    )
    
    $
    2,239,632Current liabilitiesCurrent
liabilities
    
    $
    20,015
    
    
    $
    205,433
    
    
    $
    14,636
    
    
    $
    
    
    
    $
    240,084Intercompany
payables
    
    
    66,359
    
    
    
    
    
    
    
    13,082
    
    
    
    (79,441
    )
    
    
    Total
current
liabilities
    
    
    86,374
    
    
    
    205,433
    
    
    
    27,718
    
    
    
    (79,441
    )
    
    
    240,084Long-term debt
    
    
    1,070,434
    
    
    
    23
    
    
    
    17,274
    
    
    
    (8,781
    )
    
    
    1,078,950Deferred tax
liabilities
    
    
    (2,051
    )
    
    
    269,839
    
    
    
    
    
    
    
    
    
    
    
    267,788Other long-term
liabilities
    
    
    5,491
    
    
    
    38,360
    
    
    
    234
    
    
    
    
    
    
    
    44,085Total
liabilities
    
    
    1,160,248
    
    
    
    513,655
    
    
    
    45,226
    
    
    
    (88,222
    )
    
    
    1,630,907Total
stockholders
equity
(deficit)
    
    
    608,725
    
    
    
    1,742,216
    
    
    
    9,684
    
    
    
    (1,751,900
    )
    
    
    608,725Total
liabilities
and
stockholders
equity
(deficit)
    
    $
    1,768,973
    
    
    $
    2,255,871
    
    
    $
    54,910
    
    
    $
    (1,840,122
    )
    
    $
    2,239,632
 21




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedSuccessor
    
    
    
    
    
    
    
    
    
    (unaudited)Three months ended March 31, 2008
    
    
    
    
    
    
    
    
    
    (in thousands)Revenue
    
    $
    
    
    
    $
    404,521
    
    
    $
    26,558
    
    
    $
    (2,946
    )
    
    $
    428,133Cost of sales, including
costs of warehousing,
distribution and
occupancy
    
    
    
    
    
    
    262,705
    
    
    
    19,131
    
    
    
    (2,946
    )
    
    
    278,890Gross profit
    
    
    
    
    
    
    141,816
    
    
    
    7,427
    
    
    
    
    
    
    
    149,243Compensation and related
benefits
    
    
    
    
    
    
    57,730
    
    
    
    3,841
    
    
    
    
    
    
    
    61,571Advertising and promotion
    
    
    
    
    
    
    18,034
    
    
    
    113
    
    
    
    
    
    
    
    18,147Other selling, general
and administrative
    
    
    521
    
    
    
    23,535
    
    
    
    869
    
    
    
    
    
    
    
    24,925Subsidiary (income)
expense
    
    
    (14,298
    )
    
    
    (923
    )
    
    
    
    
    
    
    15,221
    
    
    
    Other (income) expense
    
    
    
    
    
    
    (15
    )
    
    
    107
    
    
    
    
    
    
    
    92Operating income (loss)
    
    
    13,777
    
    
    
    43,455
    
    
    
    2,497
    
    
    
    (15,221
    )
    
    
    44,508Interest expense, net
    
    
    1,019
    
    
    
    21,780
    
    
    
    272
    
    
    
    
    
    
    
    23,071Income (loss) before
income taxes
    
    
    12,758
    
    
    
    21,675
    
    
    
    2,225
    
    
    
    (15,221
    )
    
    
    21,437Income tax (benefit)
expense
    
    
    (582
    )
    
    
    7,377
    
    
    
    1,302
    
    
    
    
    
    
    
    8,097Net income (loss)
    
    $
    13,340
    
    
    $
    14,298
    
    
    $
    923
    
    
    $
    (15,221
    )
    
    $
    13,340
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedSuccessor
    
    
    
    
    
    
    
    
    
    (unaudited)Period from March 16 to March 31, 2007
    
    
    
    
    
    
    
    
    
    (in thousands)Revenue
    
    $
    
    
    
    $
    58,807
    
    
    $
    3,856
    
    
    $
    (583
    )
    
    $
    62,080Cost of sales, including
costs of warehousing,
distribution and
occupancy
    
    
    
    
    
    
    40,762
    
    
    
    2,597
    
    
    
    (583
    )
    
    
    42,776Gross profit
    
    
    
    
    
    
    18,045
    
    
    
    1,259
    
    
    
    
    
    
    
    19,304Compensation and related
benefits
    
    
    
    
    
    
    9,524
    
    
    
    535
    
    
    
    
    
    
    
    10,059Advertising and promotion
    
    
    
    
    
    
    177
    
    
    
    52
    
    
    
    
    
    
    
    229Other selling, general
and administrative
    
    
    
    
    
    
    3,207
    
    
    
    166
    
    
    
    
    
    
    
    3,373Subsidiary (income)
expense
    
    
    (3,511
    )
    
    
    (192
    )
    
    
    
    
    
    
    3,703
    
    
    
    Other (income) expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    3,511
    
    
    
    5,329
    
    
    
    506
    
    
    
    (3,703
    )
    
    
    5,643Interest expense, net
    
    
    4,167
    
    
    
    (46
    )
    
    
    117
    
    
    
    
    
    
    
    4,238Income (loss) before
income taxes
    
    
    (656
    )
    
    
    5,375
    
    
    
    389
    
    
    
    (3,703
    )
    
    
    1,405Income tax (benefit)
expense
    
    
    (1,520
    )
    
    
    1,864
    
    
    
    197
    
    
    
    
    
    
    
    541Net income (loss)
    
    $
    864
    
    
    $
    3,511
    
    
    $
    192
    
    
    $
    (3,703
    )
    
    $
    864
 22




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedPredecessor
    
    
    
    
    
    
    
    
    
    (unaudited)Period ended March 15, 2007
    
    
    
    
    
    
    
    
    
    (in thousands)Revenue
    
    $
    
    
    
    $
    314,632
    
    
    $
    17,489
    
    
    $
    (2,292
    )
    
    $
    329,829Cost of sales,
including costs of
warehousing,
distribution and
occupancy
    
    
    
    
    
    
    201,973
    
    
    
    12,494
    
    
    
    (2,292
    )
    
    
    212,175Gross profit
    
    
    
    
    
    
    112,659
    
    
    
    4,995
    
    
    
    
    
    
    
    117,654Compensation and
related benefits
    
    
    
    
    
    
    61,615
    
    
    
    2,696
    
    
    
    
    
    
    
    64,311Advertising and
promotion
    
    
    
    
    
    
    20,435
    
    
    
    38
    
    
    
    
    
    
    
    20,473Other selling, general
and administrative
    
    
    86
    
    
    
    17,514
    
    
    
    (204
    )
    
    
    
    
    
    
    17,396Subsidiary (income)
expense
    
    
    (12,958
    )
    
    
    (1,581
    )
    
    
    
    
    
    
    14,539
    
    
    
    Other (income) expense
    
    
    34,603
    
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    34,449Operating income (loss)
    
    
    (21,731
    )
    
    
    14,676
    
    
    
    2,619
    
    
    
    (14,539
    )
    
    
    (18,975
    )Interest expense, net
    
    
    42,981
    
    
    
    (539
    )
    
    
    594
    
    
    
    
    
    
    
    43,036Income (loss) before
income taxes
    
    
    (64,712
    )
    
    
    15,215
    
    
    
    2,025
    
    
    
    (14,539
    )
    
    
    (62,011
    )Income tax (benefit)
expense
    
    
    (13,398
    )
    
    
    2,257
    
    
    
    444
    
    
    
    
    
    
    
    (10,697
    )Net income (loss)
    
    $
    (51,314
    )
    
    $
    12,958
    
    
    $
    1,581
    
    
    $
    (14,539
    )
    
    $
    (51,314
    )
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedSuccessor
    
    (unaudited)Three months ended March 31, 2008
    
    (in thousands)NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    6,949
    
    
    $
    171
    
    
    $
    7,120CASH FLOWS FROM INVESTING
ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (5,366
    )
    
    
    (882
    )
    
    
    (6,248
    )Investment/distribution
    
    
    2,182
    
    
    
    (2,182
    )
    
    
    
    
    
    
    Other investing
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (91
    )Net cash provided by (used in)
investing activities
    
    
    2,182
    
    
    
    (7,639
    )
    
    
    (882
    )
    
    
    (6,339
    )CASH FLOWS FROM FINANCING
ACTIVITIES:GNC Corporation investment inGeneral Nutrition Centers, Inc.
    
    
    (494
    )
    
    
    
    
    
    
    
    
    
    
    (494
    )Other financing
    
    
    (1,688
    )
    
    
    677
    
    
    
    (248
    )
    
    
    (1,259
    )Net cash provided by (used in)
financing activities
    
    
    (2,182
    )
    
    
    677
    
    
    
    (248
    )
    
    
    (1,753
    )Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    80Net decrease in cash
    
    
    
    
    
    
    (13
    )
    
    
    (879
    )
    
    
    (892
    )Beginning balance, cash
    
    
    
    
    
    
    26,090
    
    
    
    2,764
    
    
    
    28,854Ending balance, cash
    
    $
    
    
    
    $
    26,077
    
    
    $
    1,885
    
    
    $
    27,962
 23




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedSuccessor
    
    (unaudited)Period from March 16 to March 31, 2007
    
    (in thousands)NET CASH PROVIDED BY OPERATING
ACTIVITIES:
    
    $
    
    
    
    $
    3,364
    
    
    $
    (1,163
    )
    
    $
    2,201CASH FLOWS FROM INVESTING
ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (641
    )
    
    
    (1
    )
    
    
    (642
    )Investment/distribution
    
    
    9,429
    
    
    
    (9,429
    )
    
    
    
    
    
    
    Acquisition of the Company
    
    
    (1,615,843
    )
    
    
    
    
    
    
    
    
    
    
    (1,615,843
    )Other investing
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Net cash provided by (used in)
investing activities
    
    
    (1,606,414
    )
    
    
    (10,080
    )
    
    
    (1
    )
    
    
    (1,616,495
    )CASH FLOWS FROM FINANCING
ACTIVITIES:Issuance of new equity
    
    
    552,291
    
    
    
    
    
    
    
    
    
    
    
    552,291Borrowings from new senior
credit facility
    
    
    675,000
    
    
    
    
    
    
    
    
    
    
    
    675,000Proceeds from issuance of new
senior sub notes
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    110,000Proceeds from issuance of new
senior notes
    
    
    297,000
    
    
    
    
    
    
    
    
    
    
    
    297,000Financing fees
    
    
    (27,877
    )
    
    
    
    
    
    
    
    
    
    
    (27,877
    )Other financing
    
    
    
    
    
    
    5,381
    
    
    
    (47
    )
    
    
    5,334Net cash provided by (used in)
financing activities
    
    
    1,606,414
    
    
    
    5,381
    
    
    
    (47
    )
    
    
    1,611,748Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    119
    
    
    
    119Net decrease in cash
    
    
    
    
    
    
    (1,335
    )
    
    
    (1,092
    )
    
    
    (2,427
    )Beginning balance, cash
    
    
    
    
    
    
    7,559
    
    
    
    1,953
    
    
    
    9,512Ending balance, cash
    
    $
    
    
    
    $
    6,224
    
    
    $
    861
    
    
    $
    7,085
 24




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Supplemental Condensed Consolidating Statement of Cash Flows
 Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedPredecessor
    
    (unaudited)Period ended March 15, 2007
    
    (in thousands)NET CASH USED IN OPERATING
ACTIVITIES:
    
    $
    (43,103
    )
    
    $
    (3,102
    )
    
    $
    (583
    )
    
    $
    (46,788
    )CASH FLOWS FROM INVESTING
ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (5,117
    )
    
    
    (576
    )
    
    
    (5,693
    )Investment/distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other investing
    
    
    
    
    
    
    (555
    )
    
    
    
    
    
    
    (555
    )Net cash provided by (used in)
investing activities
    
    
    
    
    
    
    (5,672
    )
    
    
    (576
    )
    
    
    (6,248
    )CASH FLOWS FROM FINANCING
ACTIVITIES:Contribution from selling
shareholders
    
    
    463,393
    
    
    
    
    
    
    
    
    
    
    
    463,393Redemption of 8 5/8% senior notes
    
    
    (150,000
    )
    
    
    
    
    
    
    
    
    
    
    (150,000
    )Redemption of 8 1/2% senior notes
    
    
    (215,000
    )
    
    
    
    
    
    
    
    
    
    
    (215,000
    )Payment of 2003 senior credit
facility
    
    
    (55,290
    )
    
    
    
    
    
    
    
    
    
    
    (55,290
    )Other financing
    
    
    
    
    
    
    (4,136
    )
    
    
    (334
    )
    
    
    (4,470
    )Net cash provided by (used in)
financing activities
    
    
    43,103
    
    
    
    (4,136
    )
    
    
    (334
    )
    
    
    38,633Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    (165
    )
    
    
    (165
    )Net increase (decrease) in cash
    
    
    
    
    
    
    (12,910
    )
    
    
    (1,658
    )
    
    
    (14,568
    )Beginning balance, cash
    
    
    
    
    
    
    20,469
    
    
    
    3,611
    
    
    
    24,080Ending balance, cash
    
    $
    
    
    
    $
    7,559
    
    
    $
    1,953
    
    
    $
    9,512
 25




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 10. INCOME TAXES
   NOTE 11. FAIR VALUE MEASUREMENT
  Level 1 -
    
    observable inputs such as quoted prices in active markets for identical assets
and liabilities;Level 2 -
    
    observable inputs such as quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, other inputs that are observable, or can be corroborated by
observable market data; andLevel 3 -
    
    unobservable inputs for which there are little or no
market data, which require the reporting entity to develop its own assumptions.
  Fair Value Measurements UsingLevel 1
    
    Level 2
    
    Level 3(in thousands)Other long-term liabilities
    
    $
    2,241
    
    
    $
    11,372
    
    
    $
    
 26




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GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
  Other long-term liabilities
  NOTE 12. RELATED PARTY TRANSACTIONS
 Successor:
 Management Services Agreement.
 Credit Facility.
 Predecessor:
 Management Service Fees.
 27




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
   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.
    
    changes in
applicable laws relating for our franchise operations; and
    
    our inability to expand our franchise
operations or attract new franchisees.
   28




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##### Table of Contents



Business Overview
  Revenues and Operating Performance from our Business Segments
  
    
    Retail revenues are generated by sales to consumers at our company-owned stores
and through www.gnc.com. Although we believe that our retail and franchise businesses
are not seasonal in nature, historically we have experienced, and expect to continue to
experience, a substantial variation in our net sales and operating results from quarter
to quarter, with the first half of the year being stronger than the second half of the
year. According to Nutrition Business Journals Supplement Business Report 2007, our
industry is projected to grow at an average annual rate of 4% for the next five years
due in part to favorable demographics, including an aging U.S. population, rising
healthcare costs, and the desire by many to live longer, healthier lives. As a leader in
our industry, we expect our retail revenues to grow at or above the projected industry
growth rate as a result of our disproportionate market share, scale economies in
purchasing and advertising, strong brand awareness, and vertical integration.
    
    Franchise revenues are generated
primarily from:
 (1)
    
    product sales to our
franchisees;(2)
    
    royalties on franchise retail
sales; and(3)
    
    franchise fees, which are charged for initial franchise awards, renewals, and
transfers of franchises.
  
    
    Manufacturing/wholesale revenues are generated through sales of manufactured
products to third parties, generally for third-party private label brands, and the sale
of our proprietary and third-party products to and through Rite Aid and drugstore.com.
While revenues generated through our strategic alliance with Rite Aid do not represent a
substantial component of our business, we believe that sales of our products to and
through Rite Aid will continue to grow in accordance with our projected retail revenue
growth. Our revenues generated by our manufacturing and wholesale operations are subject
to our available manufacturing capacity, and we anticipate that these revenues will
remain stable over the next five years.
 
    
    A significant portion of our business infrastructure is comprised of fixed
operating costs. Our vertically integrated distribution network and manufacturing
capacity can support higher sales volume without adding significant incremental costs.
We therefore expect our operating expenses to grow at a lesser rate than our revenues,
resulting in significant operating leverage in our business.
 29




---



##### Table of Contents




    
    volatility in the diet category;
    
    broader consumer awareness of health and wellness issues and rising healthcare costs;
    
    interest in, and demand for, condition-specific products based on scientific research;
    
    significant effects of favorable and unfavorable publicity on consumer demand;
    
    lack of a single product or group of products dominating any one product category;
    
    rapidly evolving consumer preferences and demand for new products; and
    
    costs associated with complying with new and existing governmental regulation.
 Executive Overview
           30




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##### Table of Contents



Related Parties
  Results of Operations
     31




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##### Table of Contents



Results of Operations
 Successor
    
    
    Predecessor
    
    
    Successor
    
    
    CombinedThree Months Ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Three Months EndedMarch 31,
    
    
    January 1 - March 15,
    
    
    March 16 - March 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2007
    
    
    2007(unaudited)Revenues:Retail
    
    $
    321.3
    
    
    
    75.0
    %
    
    $
    259.3
    
    
    
    78.6
    %
    
    
    45.4
    
    
    
    73.1
    %
    
    $
    304.7
    
    
    
    77.8
    %Franchise
    
    
    64.9
    
    
    
    15.2
    %
    
    
    47.2
    
    
    
    14.3
    %
    
    
    11.6
    
    
    
    18.7
    %
    
    
    58.8
    
    
    
    15.0
    %Manufacturing / Wholesale
    
    
    41.9
    
    
    
    9.8
    %
    
    
    23.3
    
    
    
    7.1
    %
    
    
    5.1
    
    
    
    8.2
    %
    
    
    28.4
    
    
    
    7.2
    %Total net revenues
    
    
    428.1
    
    
    
    100.0
    %
    
    
    329.8
    
    
    
    100.0
    %
    
    
    62.1
    
    
    
    100.0
    %
    
    
    391.9
    
    
    
    100.0
    %Operating expenses:Cost of sales, including warehousing,
distribution and occupancy costs
    
    
    278.9
    
    
    
    65.1
    %
    
    
    212.2
    
    
    
    64.4
    %
    
    
    42.8
    
    
    
    68.9
    %
    
    
    255.0
    
    
    
    65.1
    %Compensation and related benefits
    
    
    61.6
    
    
    
    14.5
    %
    
    
    64.3
    
    
    
    19.5
    %
    
    
    10.1
    
    
    
    16.4
    %
    
    
    74.4
    
    
    
    19.0
    %Advertising and promotion
    
    
    18.1
    
    
    
    4.2
    %
    
    
    20.5
    
    
    
    6.2
    %
    
    
    0.2
    
    
    
    0.3
    %
    
    
    20.7
    
    
    
    5.3
    %Other selling, general and administrative
expenses
    
    
    21.8
    
    
    
    5.1
    %
    
    
    16.5
    
    
    
    5.0
    %
    
    
    3.0
    
    
    
    4.8
    %
    
    
    19.5
    
    
    
    4.9
    %Amortization expense
    
    
    3.1
    
    
    
    0.7
    %
    
    
    0.8
    
    
    
    0.2
    %
    
    
    0.4
    
    
    
    0.6
    %
    
    
    1.2
    
    
    
    0.3
    %Foreign currency loss (gain)
    
    
    0.1
    
    
    
    0.0
    %
    
    
    (0.1
    )
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (0.1
    )
    
    
    0.0
    %Transaction related costs
    
    
    
    
    
    
    0.0
    %
    
    
    34.6
    
    
    
    10.5
    %
    
    
    
    
    
    
    0.0
    %
    
    
    34.6
    
    
    
    8.8
    %Total operating expenses
    
    
    383.6
    
    
    
    89.6
    %
    
    
    348.8
    
    
    
    105.8
    %
    
    
    56.5
    
    
    
    91.0
    %
    
    
    405.3
    
    
    
    103.4
    %Operating income:Retail
    
    
    36.8
    
    
    
    8.6
    %
    
    
    28.2
    
    
    
    8.6
    %
    
    
    5.3
    
    
    
    8.5
    %
    
    
    33.5
    
    
    
    8.6
    %Franchise
    
    
    19.8
    
    
    
    4.6
    %
    
    
    14.5
    
    
    
    4.4
    %
    
    
    2.9
    
    
    
    4.7
    %
    
    
    17.4
    
    
    
    4.4
    %Manufacturing / Wholesale
    
    
    15.8
    
    
    
    3.7
    %
    
    
    10.3
    
    
    
    3.1
    %
    
    
    2.0
    
    
    
    3.2
    %
    
    
    12.3
    
    
    
    3.1
    %Unallocated corporate and other
costs:Warehousing and distribution costs
    
    
    (13.8
    )
    
    
    -3.2
        %
    
    
    (10.7
    )
    
    
    -3.2
    %
    
    
    (2.0
    )
    
    
    -3.2
    %
    
    
    (12.7
    )
    
    
    -3.2
    %Corporate costs
    
    
    (14.1
    )
    
    
    -3.3
        %
    
    
    (26.7
    )
    
    
    -8.2
    %
    
    
    (2.6
    )
    
    
    -4.2
    %
    
    
    (29.3
    )
    
    
    -7.5
    %Merger related costs
    
    
    
    
    
    
    0.0
    %
    
    
    (34.6
    )
    
    
    -10.5
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (34.6
    )
    
    
    -8.8
    %Subtotal unallocated corporate and
other costs, net
    
    
    (27.9
    )
    
    
    -6.5
        %
    
    
    (72.0
    )
    
    
    -21.9
    %
    
    
    (4.6
    )
    
    
    -7.4
    %
    
    
    (76.6
    )
    
    
    -19.5
    %Total operating income (loss)
    
    
    44.5
    
    
    
    10.4
    %
    
    
    (19.0
    )
    
    
    -5.8
    %
    
    
    5.6
    
    
    
    9.0
    %
    
    
    (13.4
    )
    
    
    -3.4
    %Interest expense, net
    
    
    23.1
    
    
    
    
    
    
    
    43.0
    
    
    
    
    
    
    
    4.3
    
    
    
    
    
    
    
    47.3Income (loss) before income taxes
    
    
    21.4
    
    
    
    
    
    
    
    (62.0
    )
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    (60.7
    )Income tax expense (benefit)
    
    
    8.1
    
    
    
    
    
    
    
    (10.7
    )
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    (10.2
    )Net income (loss)
    
    $
    13.3
    
    
    
    
    
    
    $
    (51.3
    )
    
    
    
    
    
    $
    0.8
    
    
    
    
    
    
    $
    (50.5
    )
 Note:
 32




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##### Table of Contents



Comparison of the Three Months Ended March 31, 2008 and 2007
 Revenues
  Retail.
 Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
  Product costs.
 Warehousing and distribution costs.
 Occupancy costs.
 33




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##### Table of Contents



Selling, General and Administrative (SG&A) Expenses
  Compensation and related benefits.
 Advertising and promotion.
 Other SG&A.
 Merger-related Costs
  Foreign Currency (Loss) Gain
  Operating Income
   Retail.
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##### Table of Contents



Franchise.
 Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 Interest Expense
  Income Tax Expense
  Net Income
  35




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##### Table of Contents



Liquidity and Capital Resources
    Successor
    
    Predecessor
    
    Successor
    
    CombinedThree months
    
    Period
    
    Sixteen days
    
    Three monthsended March 31,
    
    ended March 15,
    
    ended March 31,
    
    ended March 31,(Dollars in millions)
    
    2008
    
    2007
    
    2007
    
    2007Cash provided (used in) by operating activities
    
    $
    7.1
    
    
    $
    (46.8
    )
    
    $
    2.2
    
    
    $
    (44.6
    )Cash used in investing activities
    
    
    (6.3
    )
    
    
    (6.2
    )
    
    
    (1,616.5
    )
    
    
    (1,622.7
    )Cash (used in) provided by financing activities
    
    
    (1.8
    )
    
    
    38.6
    
    
    
    1,611.7
    
    
    
    1,650.3
 Cash Provided by Operating Activities
   36




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##### Table of Contents



Cash Used in Investing Activities
   Cash Used in Financing Activities
   $735.0 Million 2007 Senior Credit Facility
 Senior Toggle Notes
 10.75% Senior Subordinated Notes
 Contractual Obligations
  Off Balance Sheet Arrangements
   37




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##### Table of Contents



Effect of Inflation
  Critical Accounting Estimates
  Recently Issued Accounting Pronouncements
  .
  38




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
    Derivative
    
    Total Notional Amount
    
    Term
    
    Counterparty Pays
    
    Company PaysInterest Rate Swap
    
    $150.0 million
    
    April 2007-April 2010
    
    LIBOR + 225 basis points
    
    
    4.8965
    %Interest Rate Swap
    
    $150.0 million
    
    April 2007-April 2009
    
    LIBOR + 225 basis points
    
    
    4.9430
    %
  39




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Item 4T. Controls and Procedures.
   40




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   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 and currently
styled Harry Rodriguez, individually and on behalf of all others similarly situated, v.
General Nutrition Companies, Inc.Case No. 1:06-cv-02987-JSR, In the United States District
Court for the Southern District of New York). Plaintiffs filed this putative class action on
or about July 25, 2002. The Second Amended Complaint, filed thereafter on or about December
6, 2002, alleged claims for unjust enrichment, violation of General Business Law Section 349
(misleading and deceptive trade practices), and violation of General Business Law Section
350 (false advertising). On July 2, 2003, the court granted part of the GNC motion to
dismiss and dismissed the unjust enrichment cause of action. On January 4, 2006, the court
conducted a hearing on the GNC motion for summary judgment and plaintiffs motion for class
certification, both of which remain pending.
    
    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 and currently styled
Everett Abrams, individually and on behalf of all others similarly situated, v. General
Nutrition Companies, Inc., Case No. 1:06-cv-07881-JSR, In the United States District Court
for the Southern District of New York). Plaintiffs filed this putative class action on or
about July 25, 2002. The Second Amended Complaint, filed thereafter on or about December 20,
2002, alleged claims for false and deceptive marketing and omissions and violations of the
New Jersey Consumer Fraud Act. On November 18, 2003, the court signed an order dismissing
plaintiffs claims for affirmative misrepresentation and sponsorship with prejudice. The
claim for knowing omissions remains pending.
    
    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 and currently styled Shawn Brown, Ozan Cirak, Thomas
Hannon and Like Smith, each individually and on behalf of all others similarly situated v.
General Nutrition Companies, Inc.,Case No. 1:07-cv-06356-UA, In the United States District
Court for the Southern District of New York). Plaintiffs filed this putative class action on
or about July 25, 2002. The Second Amended Complaint, filed thereafter on or about November
27, 2002, alleged claims for violations of the Florida Deceptive and Unfair Trade Practices
Act, unjust enrichment, and violation of Florida Civil Remedies for Criminal Practices Act.
These claims remain pending.
    
    Andrew Toth v. General Nutrition Companies, Inc., et al.(previously pending in the
Common Pleas Court of Philadelphia County, Philadelphia, Class Action No. 02-703886 and
currently styled Andrew Toth and Richard Zatta, each individually and on behalf of all
others similarly situated v. Bodyonics, LTD, d/b/a Pinnacle and General Nutrition Companies,
Inc.,Case No. 1:06-cv-02721-JSR, In the United States District Court for the Southern
District of New York). Plaintiffs filed this putative class action on or about July 25,
2002. The Amended Complaint, filed thereafter on or about April 8, 2003, alleged claims for
violations of the Unfair Trade Practices and Consumer Protection Law, and unjust enrichment.
The court denied the plaintiffs motion for class certification, and that order has been
affirmed on appeal. Plaintiffs thereafter filed a petition in the Pennsylvania Supreme Court
asking that the court consider an appeal of the order denying class certification. The
Pennsylvania Supreme Court denied the petition after the case against GNC was removed as
described above. The Claims for the violations of the Unfair Trade Practices and Consumer
Protection Law and unjust enrichment remain pending.
    
    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). Plaintiffs filed this putative class action on or about February 17, 2004. The
Second Amended Complaint, filed on or about November 27,
 42




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##### Table of Contents



2006, alleged claims for violations
of the Consumers Legal Remedies Act, violation of the Unfair Competition Act, and unjust
enrichment. These claims remain pending.
   Class Action Settlement.
 Wage and Hour Claim.
 California Wage and Break Claim
 Franchise Class Action.
 43




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44




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##### 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.
  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.
  Our failure to appropriately respond to changing consumer preferences and demand for new products
could significantly harm our customer relationships and product sales.
  45




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##### Table of Contents




    
    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.
  We depend on the services of key executives and changes in our management team could affect our
business strategy and adversely impact our performance and results of operations.
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Compliance with new and existing governmental regulations could increase our costs significantly
and adversely affect our results of operations.
   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.
  47




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We may incur material product liability claims, which could increase our costs and adversely
affect our reputation, revenues, and operating income.
   Our operations are subject to environmental and health and safety laws and regulations that may
increase our cost of operations or expose us to environmental liabilities.
  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.
  48




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##### Table of Contents



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.
   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;
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##### Table of Contents




    
    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.
  We are not insured for a significant portion of our claims exposure, which could materially and
adversely affect our operating income and profitability.
  The controlling stockholders of our parent may take actions that conflict with the interests of
other stockholders and investors. This control may have the effect of delaying or preventing
changes of control or changes in management.
  50




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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.
    
    
    make it more difficult for us to satisfy our obligations with respect to the Senior
Toggle Notes and the 10.75% Senior Subordinated Notes;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to use all or a large portion of our cash flow from operations to pay
principal and interest on our debt, thereby reducing the availability of our cash flow to
fund working capital, research and development efforts, 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;
    
    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.
  Despite our current significant level of debt, we may still be able to incur additional debt,
which could increase the risks described above, adversely affect our financial health, or prevent
us from fulfilling our obligations under the Senior Toggle Notes and the 10.75% Senior
Subordinated Notes.
  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.
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We may not have the ability to raise the funds necessary to finance the change of control offer
required by the indentures, which could cause us to default on our debt obligations, including
the Senior Toggle Notes and the 10.75% Senior Subordinated Notes.
  Restrictions in the agreements governing our existing indebtedness may prevent us from taking
actions that we believe would be in the best interest of our business.
  
    
    incurring additional indebtedness and issuing preferred stock;
    
    granting liens on our assets;
    
    making investments;
    
    consolidating or merging with, or acquiring, another business;
    
    selling or otherwise disposing our assets;
    
    paying dividends and making other distributions to GNC Parent LLC or GNC
Corporation; and
    
    entering into transactions with our affiliates.
   52




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 ExhibitNo.
    
    Description10.1
    
    Employment Agreement, dated as of April 21, 2008,
by and between General Nutrition Centers, Inc. and Thomas Dowd.31.1
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 53




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SIGNATURES
  GENERAL NUTRITION CENTERS, INC.
(Registrant)May 9, 2008
    /s/ Joseph M. FortunatoJoseph M. FortunatoChief Executive Officer
(Principal Executive Officer)May 9, 2008
    /s/ J. Kenneth FoxJ. Kenneth FoxInterim Chief Financial Officer
(Principal Financial Officer) 54