##### 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 September 30, 2007
 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
(State or other jurisdiction of 
Incorporation or organization)
    
    72-1575168
(I.R.S. Employer
Identification No.)300 Sixth Avenue 
Pittsburgh, Pennsylvania
(Address of principal executive offices)
    
    15222
(Zip Code)
 (412) 288-4600
 o þ
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I- FINANCIAL INFORMATIONExplanatory Note.
    
    
    1Item 1.
    
    Financial Statements.Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006
    
    
    3Unaudited
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended
September 30, 2007 and September 30, 2006, the period from March 16, 2007 to September 30,
2007, the period from January 1, 2007 to March 15, 2007, and the nine months ended September 30, 2006
    
    
    4Unaudited Consolidated Statement of Stockholders Equity for the period from March 16, 2007 to
September 30, 2007 and the period from January 1, 2007 to March 15, 2007
    
    
    5Unaudited Consolidated Statements of Cash Flows for the period from March 16, 2007 to
September 30, 2007, the period from January 1, 2007 to March 15, 2007, and the nine months ended September 30, 2006
    
    
    6Summarized Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    36Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    53Item 4T.
    
    Controls and Procedures
    
    
    53PART II - OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    54Item 1A.
    
    Risk Factors
    
    
    58Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    66Item 3.
    
    Defaults Upon Senior Securities
    
    
    66Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    66Item 5.
    
    Other Information
    
    
    66Item 6.
    
    Exhibits
    
    
    67Signatures
    
    
    68Exhibit 31.1Exhibit 31.2Exhibit 32.1
  2




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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)
 Successor
    
    
    
    PredecessorSeptember 30,
    
    
    
    December 31,2007
    
    
    
    2006 *(unaudited)Current assets:Cash and cash equivalents
    
    $
    21,279
    
    
    
    $
    24,080Receivables, net
    
    
    86,332
    
    
    
    
    74,827Inventories, net (Note 3)
    
    
    324,635
    
    
    
    
    319,382Deferred tax assets, net
    
    
    13,062
    
    
    
    
    16,738Other current assets
    
    
    34,496
    
    
    
    
    29,898Total current assets
    
    
    479,804
    
    
    
    
    464,925Long-term assets:Goodwill (Note 4)
    
    
    623,158
    
    
    
    
    81,022Brands (Note 4)
    
    
    720,000
    
    
    
    
    212,000Other intangible assets, net (Note 4)
    
    
    175,971
    
    
    
    
    23,062Property, plant and equipment, net
    
    
    187,814
    
    
    
    
    168,708Deferred financing fees, net
    
    
    27,212
    
    
    
    
    12,269Deferred tax assets, net
    
    
    
    
    
    
    
    675Other long-term assets
    
    
    17,753
    
    
    
    
    6,124Total long-term assets
    
    
    1,751,908
    
    
    
    
    503,860Total assets
    
    $
    2,231,712
    
    
    
    $
    968,785Current liabilities:Accounts payable, includes cash overdraft of $5,787 and $4,136, respectively
    
    $
    105,834
    
    
    
    $
    104,121Accrued payroll and related liabilities
    
    
    19,908
    
    
    
    
    30,988Accrued income taxes
    
    
    
    
    
    
    
    4,967Accrued interest (Note 5)
    
    
    15,055
    
    
    
    
    7,531Current portion, long-term debt (Note 5)
    
    
    9,633
    
    
    
    
    1,765Other current liabilities
    
    
    75,423
    
    
    
    
    65,977Total current liabilities
    
    
    225,853
    
    
    
    
    215,349Long-term liabilities:Long-term debt (Note 5)
    
    
    1,080,926
    
    
    
    
    429,591Deferred tax liabilities, net
    
    
    263,635
    
    
    
    
    Other long-term liabilities
    
    
    54,252
    
    
    
    
    11,514Total long-term liabilities
    
    
    1,398,813
    
    
    
    
    441,105Total liabilities
    
    
    1,624,666
    
    
    
    
    656,454Stockholders equity:Common stock, $0.01 par value,
1,000 shares authorized, 100 shares issued and outstanding
    
    
    
    
    
    
    
    Paid-in-capital
    
    
    592,046
    
    
    
    
    261,899Retained earnings
    
    
    11,736
    
    
    
    
    49,108Accumulated other comprehensive income
    
    
    3,264
    
    
    
    
    1,324Total stockholders equity
    
    
    607,046
    
    
    
    
    312,331Total liabilities and stockholders equity
    
    $
    2,231,712
    
    
    
    $
    968,785
 
 *
    
    Footnotes summarized from the Audited Financial Statements.  3




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##### Table of Contents



GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
 
 Consolidated
Statements of Operations and Comprehensive Income (Loss)
 (unaudited)
 (in thousands)
 Successor
    
    
    
    Predecessor
    
    
    Successor
    
    
    
    PredecessorNine monthsFor the three months ended
    
    
    March 16 -
    
    
    
    January 1 -
    
    
    endedSeptember 30,
    
    
    
    September 30,
    
    
    September 30,
    
    
    
    March 15,
    
    
    September 30,2007
    
    
    
    2006
    
    
    2007
    
    
    
    2007
    
    
    2006Revenue
    
    $
    395,295
    
    
    
    $
    367,735
    
    
    $
    846,854
    
    
    
    $
    329,829
    
    
    $
    1,137,399Cost of sales, including costs of warehousing,
distribution and occupancy
    
    
    264,560
    
    
    
    
    241,251
    
    
    
    567,791
    
    
    
    
    212,175
    
    
    
    751,451Gross profit
    
    
    130,735
    
    
    
    
    126,484
    
    
    
    279,063
    
    
    
    
    117,654
    
    
    
    385,948Compensation and related benefits
    
    
    61,802
    
    
    
    
    60,831
    
    
    
    132,283
    
    
    
    
    64,311
    
    
    
    187,300Advertising and promotion
    
    
    13,373
    
    
    
    
    10,982
    
    
    
    27,885
    
    
    
    
    20,473
    
    
    
    41,337Other selling, general and administrative
    
    
    21,339
    
    
    
    
    21,760
    
    
    
    47,691
    
    
    
    
    17,396
    
    
    
    66,126Foreign currency gain
    
    
    (202
    )
    
    
    
    (3
    )
    
    
    (332
    )
    
    
    
    (154
    )
    
    
    (705
    )Merger- related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,603
    
    
    
    Other expense
    
    
    
    
    
    
    
    1,078
    
    
    
    
    
    
    
    
    
    
    
    
    1,078Operating income (loss)
    
    
    34,423
    
    
    
    
    31,836
    
    
    
    71,536
    
    
    
    
    (18,975
    )
    
    
    90,812Interest expense, net (Note 5)
    
    
    23,749
    
    
    
    
    9,687
    
    
    
    51,621
    
    
    
    
    43,036
    
    
    
    29,484Income (loss) before income taxes
    
    
    10,674
    
    
    
    
    22,149
    
    
    
    19,915
    
    
    
    
    (62,011
    )
    
    
    61,328Income tax expense (benefit) (Note 10)
    
    
    4,541
    
    
    
    
    8,217
    
    
    
    8,179
    
    
    
    
    (10,697
    )
    
    
    22,753Net income (loss)
    
    
    6,133
    
    
    
    
    13,932
    
    
    
    11,736
    
    
    
    
    (51,314
    )
    
    
    38,575Other comprehensive income (loss)
    
    
    347
    
    
    
    
    (12
    )
    
    
    3,264
    
    
    
    
    (283
    )
    
    
    (56
    )Comprehensive income (loss)
    
    $
    6,480
    
    
    
    $
    13,920
    
    
    $
    15,000
    
    
    
    $
    (51,597
    )
    
    $
    38,519
  4




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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)
    
    
    EquityPredecessorBalance at December 31, 2006
    
    
    100
    
    
    $
    
    
    
    $
    261,899
    
    
    $
    49,108
    
    
    $
    1,324
    
    
    $
    312,331Adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (418
    )
    
    
    
    
    
    
    (418
    )Cancellation of stock options
    
    
    
    
    
    
    
    
    
    
    (47,018
    )
    
    
    
    
    
    
    
    
    
    
    (47,018
    )Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,124
    
    
    
    
    
    
    
    
    
    
    
    4,124Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51,314
    )
    
    
    
    
    
    
    (51,314
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )
    
    
    (283
    )Capital contribution from
selling shareholder
    
    
    
    
    
    
    
    
    
    
    463,393
    
    
    
    
    
    
    
    
    
    
    
    463,393Balance at March 15, 2007
(unaudited)
    
    
    100
    
    
    $
    
    
    
    $
    682,398
    
    
    $
    (2,624
    )
    
    $
    1,041
    
    
    $
    680,815SuccessorParent company investment in
General Nutrition Centers, Inc
    
    
    100
    
    
    
    
    
    
    
    590,689
    
    
    
    
    
    
    
    
    
    
    
    590,689Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,357
    
    
    
    
    
    
    
    
    
    
    
    1,357Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,736
    
    
    
    
    
    
    
    11,736Unrealized gain on derivatives
designated and qualified as cash
flow hedges, net of tax of $514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    748
    
    
    
    748Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,516
    
    
    
    2,516Balance at September 30, 2007
(unaudited)
    
    
    100
    
    
    $
    
    
    
    $
    592,046
    
    
    $
    11,736
    
    
    $
    3,264
    
    
    $
    607,046
  5




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GENERAL NUTRITION CENTERS INC AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (unaudited)
 (in thousands)
 Successor
    
    
    
    PredecessorPeriod
    
    
    
    PeriodMarch 16 -
    
    
    
    January 1 -
    
    
    Nine months endedSeptember 30,
    
    
    
    March 15,
    
    
    September 30,2007
    
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    11,736
    
    
    
    $
    (51,314
    )
    
    $
    38,575Depreciation expense
    
    
    13,985
    
    
    
    
    6,510
    
    
    
    25,730Loss on fixed asset disposal
    
    
    
    
    
    
    
    
    
    
    
    220Loss on sale of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    1,078Deferred fee writedown  early debt extinguishment
    
    
    
    
    
    
    
    11,680
    
    
    
    Amortization of intangible assets
    
    
    6,025
    
    
    
    
    865
    
    
    
    3,471Amortization of deferred financing fees
    
    
    1,988
    
    
    
    
    589
    
    
    
    2,235Amortization of original issue discount
    
    
    166
    
    
    
    
    
    
    
    
    Increase in provision for inventory losses
    
    
    6,965
    
    
    
    
    2,247
    
    
    
    6,176Non-cash stock based compensation
    
    
    1,357
    
    
    
    
    4,124
    
    
    
    1,887Decrease in provision for losses on accounts receivable
    
    
    (201
    )
    
    
    
    (39
    )
    
    
    (1,984
    )Decrease (increase) in net deferred taxes
    
    
    3,146
    
    
    
    
    (3,874
    )
    
    
    (4,848
    )Changes in assets and liabilities:(Increase) decrease in receivables
    
    
    (13,620
    )
    
    
    
    1,676
    
    
    
    (11,812
    )Decrease (increase) in inventory, net
    
    
    5,842
    
    
    
    
    (2,128
    )
    
    
    (20,890
    )Decrease in franchise note receivables, net
    
    
    1,792
    
    
    
    
    912
    
    
    
    3,598(Increase) decrease in other assets
    
    
    (765
    )
    
    
    
    3,394
    
    
    
    4,182(Decrease) increase in accounts payable
    
    
    (4,034
    )
    
    
    
    3,749
    
    
    
    7,214(Decrease) increase in accrued taxes
    
    
    
    
    
    
    
    (4,967
    )
    
    
    5,005Increase (decrease) in interest payable
    
    
    15,056
    
    
    
    
    (7,531
    )
    
    
    1,317(Decrease) increase in accrued liabilities
    
    
    (4,200
    )
    
    
    
    (12,681
    )
    
    
    7,701Net cash provided by (used in) operating activities
    
    
    45,238
    
    
    
    
    (46,788
    )
    
    
    68,855CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (19,162
    )
    
    
    
    (5,693
    )
    
    
    (16,050
    )Acquisition of the Company
    
    
    (1,624,732
    )
    
    
    
    
    
    
    
    Sales of corporate stores to franchisees
    
    
    30
    
    
    
    
    
    
    
    
    Store acquisition costs
    
    
    (294
    )
    
    
    
    (555
    )
    
    
    (591
    )Net cash used in investing activities
    
    
    (1,644,158
    )
    
    
    
    (6,248
    )
    
    
    (16,641
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of new equity
    
    
    552,291
    
    
    
    
    
    
    
    
    Capital contribution from (return of capital to) Parent
    
    
    1,690
    
    
    
    
    
    
    
    
    (23
    )Restricted payment made by General Nutrition Centers, Inc. to
GNC Corporation Common Stockholders
    
    
    
    
    
    
    
    
    
    
    
    (49,934
    )Tax benefit from exercise of Predecessor stock options
    
    
    
    
    
    
    
    
    
    
    
    105Contribution from selling shareholders
    
    
    
    
    
    
    
    463,393
    
    
    
    Increase (decrease) in cash overdrafts
    
    
    5,787
    
    
    
    
    (4,136
    )
    
    
    513Borrowings 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
    
    
    (2,339
    )
    
    
    
    (334
    )
    
    
    (1,550
    )Financing fees
    
    
    (28,944
    )
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    1,610,485
    
    
    
    
    38,633
    
    
    
    (50,889
    )Effect of exchange rate on cash
    
    
    202
    
    
    
    
    (165
    )
    
    
    22Net increase (decrease) in cash
    
    
    11,767
    
    
    
    
    (14,568
    )
    
    
    1,347Beginning balance, cash
    
    
    9,512
    
    
    
    
    24,080
    
    
    
    86,013Ending balance, cash
    
    $
    21,279
    
    
    
    $
    9,512
    
    
    $
    87,360
  6




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NOTE 1. NATURE OF BUSINESS
 General Nature of Business .
    Merger of the Company.
 March 16, 2007(in thousands)Merger consideration
    
    $
    1,650,000Acquisition costs
    
    
    13,644Debt assumed by buyer
    
    
    (10,773
    )Fair value of net assets acquired
    
    
    1,652,871Non-cash rollover of shares
    
    
    (36,709
    )Cash paid at acquisition
    
    $
    1,616,162
 7




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1 2
   8




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##### Table of Contents



Original
    
    
    AdjustedMarch 16, 2007
    
    
    March 16, 2007(in thousands)Assets:Current assets
    
    $
    457,900
    
    
    $
    455,371Goodwill
    
    
    574,623
    
    
    
    615,206Other intangible assets
    
    
    902,961
    
    
    
    913,553Property, plant and equipment
    
    
    178,136
    
    
    
    181,765Other assets
    
    
    20,946
    
    
    
    20,946Total assets
    
    $
    2,134,566
    
    
    $
    2,186,841Liabilities:Current liabilities
    
    
    204,857
    
    
    
    206,424Long-term debt
    
    
    10,773
    
    
    
    10,773Deferred tax liability
    
    
    243,355
    
    
    
    293,744Other liabilities
    
    
    23,029
    
    
    
    23,029Total liabilities
    
    $
    482,014
    
    
    $
    533,970Fair value of net assets acquired
    
    $
    1,652,552
    
    
    $
    1,652,871
 9




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##### Table of Contents



NOTE 2. BASIS OF PRESENTATION
     Principles of Consolidation.
  Use of Estimates .
 Cash and Cash Equivalents .
 Financial Instruments and Derivatives .
 10




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##### Table of Contents



Recently Issued Accounting Pronouncements
 .
    11




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##### Table of Contents



NOTE 3. INVENTORIES, NET
  SuccessorSeptember 30, 2007Net CarryingGross cost
    
    
    Reserves
    
    
    Value(unaudited)(in thousands)Finished product ready for sale
    
    $
    278,439
    
    
    $
    (9,236
    )
    
    $
    269,203Work-in-process, bulk product and raw materials
    
    
    52,155
    
    
    
    (1,387
    )
    
    
    50,768Packaging supplies
    
    
    4,664
    
    
    
    
    
    
    
    4,664Fair value adjustment
    
    
    
    
    
    
    
    
    
    
    $
    335,258
    
    
    $
    (10,623
    )
    
    $
    324,635
 PredecessorDecember 31, 2006Net CarryingGross cost
    
    
    Reserves
    
    
    Value(in thousands)Finished product ready for sale
    
    $
    280,722
    
    
    $
    (8,677
    )
    
    $
    272,045Work-in-process, bulk product and raw materials
    
    
    44,630
    
    
    
    (2,119
    )
    
    
    42,511Packaging supplies
    
    
    4,826
    
    
    
    
    
    
    
    4,826$
    330,178
    
    
    $
    (10,796
    )
    
    $
    319,382
 NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
    12




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##### Table of Contents



Manufacturing/Retail
    
    
    Franchising
    
    
    Wholesale
    
    
    Total(in thousands)PredecessorBalance at December 31, 2006
    
    $
    26,678
    
    
    $
    53,898
    
    
    $
    446
    
    
    $
    81,022Acquired franchise stores
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    161Balance at March 15, 2007 (unaudited)
    
    $
    26,839
    
    
    $
    53,898
    
    
    $
    446
    
    
    $
    81,183SuccessorBalance at March 16, 2007 (unaudited)
    
    $
    238,296
    
    
    $
    126,971
    
    
    $
    209,356
    
    
    $
    574,623Purchase accounting adjustments
    
    
    15,748
    
    
    
    (2,889
    )
    
    
    (10,741
    )
    
    
    2,118Other adjustments
    
    
    46,415
    
    
    
    
    
    
    
    
    
    
    
    46,415Acquired franchise stores
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Balance at September 30, 2007 (unaudited)
    
    $
    300,461
    
    
    $
    124,082
    
    
    $
    198,615
    
    
    $
    623,158
   Retail
    
    
    Franchise
    
    
    Operating
    
    
    FranchiseGold Card
    
    
    Brand
    
    
    Brand
    
    
    Agreements
    
    
    Rights
    
    
    Total(in thousands)PredecessorBalance at December 31, 2006
    
    $
    
    
    
    $
    67,476
    
    
    $
    144,524
    
    
    $
    21,352
    
    
    $
    1,710
    
    
    $
    235,062Acquired franchise stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    207Amortization expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (609
    )
    
    
    (256
    )
    
    
    (865
    )Balance at March 15, 2007 (unaudited)
    
    $
    
    
    
    $
    67,476
    
    
    $
    144,524
    
    
    $
    20,743
    
    
    $
    1,661
    
    
    $
    234,404SuccessorBalance at March 16, 2007 (unaudited)
    
    $
    3,300
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    178,000
    
    
    $
    1,661
    
    
    $
    902,961Purchase accounting adjustments
    
    
    5,700
    
    
    
    
    
    
    
    
    
    
    
    (7,000
    )
    
    
    
    
    
    
    (1,300
    )Acquired franchise stores
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    185Other additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    150Amortization expense
    
    
    (1,649
    )
    
    
    
    
    
    
    
    
    
    
    (3,778
    )
    
    
    (598
    )
    
    
    (6,025
    )Balance at September 30, 2007 (unaudited)
    
    $
    7,351
    
    
    $
    500,000
    
    
    $
    220,000
    
    
    $
    167,372
    
    
    $
    1,248
    
    
    $
    895,971
  Successor
    
    
    
    PredecessorEstimated
    
    
    September 30, 2007
    
    
    
    December 31, 2006Life
    
    
    
    
    
    
    Accumulated
    
    
    Carrying
    
    
    
    
    
    
    
    Accumulated
    
    
    Carryingin years
    
    
    Cost
    
    
    Amortization
    
    
    Amount
    
    
    
    Cost
    
    
    Amortization
    
    
    Amount(unaudited)
    
    
    (in thousands)Brands  retail
    
    
    
    
    
    $
    500,000
    
    
    $
    
    
    
    $
    500,000
    
    
    
    $
    67,476
    
    
    $
    
    
    
    $
    67,476Brands  franchise
    
    
    
    
    
    
    220,000
    
    
    
    
    
    
    
    220,000
    
    
    
    
    144,524
    
    
    
    
    
    
    
    144,524Gold card  retail
    
    
    3
    
    
    
    3,500
    
    
    
    (650
    )
    
    
    2,850
    
    
    
    
    2,230
    
    
    
    (2,230
    )
    
    
    Gold card  franchise
    
    
    3
    
    
    
    5,500
    
    
    
    (999
    )
    
    
    4,501
    
    
    
    
    340
    
    
    
    (340
    )
    
    
    Retail agreements
    
    
    25-35
    
    
    
    31,000
    
    
    
    (721
    )
    
    
    30,279
    
    
    
    
    8,500
    
    
    
    (3,627
    )
    
    
    4,873Franchise agreements
    
    
    25
    
    
    
    70,000
    
    
    
    (1,516
    )
    
    
    68,484
    
    
    
    
    21,900
    
    
    
    (5,421
    )
    
    
    16,479Manufacturing agreements
    
    
    25
    
    
    
    70,000
    
    
    
    (1,517
    )
    
    
    68,483
    
    
    
    
    
    
    
    
    
    
    
    
    Franchise rights
    
    
    1-5
    
    
    
    1,846
    
    
    
    (598
    )
    
    
    1,248
    
    
    
    
    2,995
    
    
    
    (1,285
    )
    
    
    1,710Other intangibles
    
    
    1-5
    
    
    
    150
    
    
    
    (24
    )
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    
    $
    901,996
    
    
    $
    (6,025
    )
    
    $
    895,971
    
    
    
    $
    247,965
    
    
    $
    (12,903
    )
    
    $
    235,062
 13




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##### Table of Contents



EstimatedamortizationYears ending December 31,
    
    expense(in thousands)2007
    
    
    3,1342008
    
    
    10,8832009
    
    
    9,2422010
    
    
    7,0582011
    
    
    6,683Thereafter
    
    
    138,971Total
    
    $
    175,971
 14




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##### Table of Contents



NOTE 5. LONG-TERM DEBT / INTEREST EXPENSE
 1 2
  Successor
    
    
    
    PredecessorSeptember 30,
    
    
    
    December 31,2007
    
    
    
    2006(unaudited)(in thousands)2007 Senior credit facility
    
    $
    673,313
    
    
    
    $
    Senior Toggle Notes
    
    
    297,167
    
    
    
    
    10.75% Senior Subordinated Notes
    
    
    110,000
    
    
    
    
    2003 Senior credit facility
    
    
    
    
    
    
    
    55,2908 5/8% Senior Notes
    
    
    
    
    
    
    
    150,0008 1/2% Senior Subordinated Notes
    
    
    
    
    
    
    
    215,000Mortgage
    
    
    10,079
    
    
    
    
    11,066Less: current maturities
    
    
    (9,633
    )
    
    
    
    (1,765
    )Total
    
    $
    1,080,926
    
    
    
    $
    429,591
  Senior
    
    
    10.75% SeniorYears Ending
    
    2007 Senior
    
    
    Toggle
    
    
    Subordinated
    
    
    MortgageDecember 31,
    
    Credit Facility
    
    
    Notes (a)
    
    
    Notes
    
    
    Loan
    
    
    Total(in thousands)2007
    
    $
    3,376
    
    
    $
    
    
    
    $
    
    
    
    $
    299
    
    
    $
    3,6752008
    
    
    6,750
    
    
    
    
    
    
    
    
    
    
    
    1,281
    
    
    
    8,0312009
    
    
    6,750
    
    
    
    
    
    
    
    
    
    
    
    1,373
    
    
    
    8,1232010
    
    
    6,750
    
    
    
    
    
    
    
    
    
    
    
    1,472
    
    
    
    8,2222011
    
    
    6,750
    
    
    
    
    
    
    
    
    
    
    
    1,577
    
    
    
    8,327Thereafter
    
    
    642,937
    
    
    
    300,000
    
    
    
    110,000
    
    
    
    4,077
    
    
    
    1,057,014$
    673,313
    
    
    $
    300,000
    
    
    $
    110,000
    
    
    $
    10,079
    
    
    $
    1,093,392
 
 (a)
    
    The Senior Toggle Notes include the balance of the initial original issue discount of
approximately $3.0 million. 15




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##### Table of Contents



Successor
    
    
    
    Predecessor
    
    
    Successor
    
    
    
    PredecessorThree months
    
    
    
    Three months
    
    
    
    
    
    
    
    
    
    
    
    Nine monthsended
    
    
    
    ended
    
    
    March 16-
    
    
    
    January 1-
    
    
    endedSeptember 30,
    
    
    
    September 30,
    
    
    September 30,
    
    
    
    March 15,
    
    
    September 30,2007
    
    
    
    2006
    
    
    2007
    
    
    
    2007
    
    
    2006(unaudited)(in thousands)2003 Senior credit facilityTerm Loan
    
    $
    
    
    
    
    $
    1,973
    
    
    $
    
    
    
    
    $
    918
    
    
    $
    5,693Revolver
    
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    
    132
    
    
    
    4778 5/8% Senior Notes
    
    
    
    
    
    
    
    3,235
    
    
    
    
    
    
    
    
    3,807
    
    
    
    9,7038 1/2 % Senior Subordinated Notes
    
    
    
    
    
    
    
    4,568
    
    
    
    
    
    
    
    
    2,695
    
    
    
    13,706Call premiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,159
    
    
    
    Deferred financing fees
    
    
    920
    
    
    
    
    
    
    
    
    1,988
    
    
    
    
    589
    
    
    
    2,235Deferred fee writedown- early
extinguishment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,680
    
    
    
    2007 Senior credit facilityTerm Loan
    
    
    13,094
    
    
    
    
    
    
    
    
    28,329
    
    
    
    
    
    
    
    
    Revolver
    
    
    106
    
    
    
    
    
    
    
    
    253
    
    
    
    
    
    
    
    
    Senior Toggle Notes
    
    
    7,376
    
    
    
    
    
    
    
    
    15,948
    
    
    
    
    
    
    
    
    10.75% Senior Subordinated Notes
    
    
    2,956
    
    
    
    
    
    
    
    
    6,405
    
    
    
    
    
    
    
    
    OID amortization
    
    
    76
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    Mortgage
    
    
    180
    
    
    
    
    199
    
    
    
    338
    
    
    
    
    392
    
    
    
    546Interest income
    
    
    (959
    )
    
    
    
    (446
    )
    
    
    (1,806
    )
    
    
    
    (336
    )
    
    
    (2,876
    )Interest expense, net
    
    $
    23,749
    
    
    
    $
    9,687
    
    
    $
    51,621
    
    
    
    $
    43,036
    
    
    $
    29,484
  Successor
    
    
    
    PredecessorSeptember 30,
    
    
    
    December 31,2007
    
    
    
    2006(unaudited)(in thousands)2003 Senior credit facility
    
    $
    
    
    
    
    $
    438 5/8% Senior Notes
    
    
    
    
    
    
    
    5,9658 1/2% Senior Subordinated Notes
    
    
    
    
    
    
    
    1,5232007 Senior credit facility
    
    
    13,195
    
    
    
    
    Senior Toggle Notes
    
    
    1,334
    
    
    
    
    10.75% Senior Subordinated Notes
    
    
    526
    
    
    
    
    Total
    
    $
    15,055
    
    
    
    $
    7,531
 16




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##### Table of Contents



Description of Debt:
 2007 Senior Credit Facility .
    Senior Toggle Notes .
 17




---



##### Table of Contents



10.75% Senior Subordinated Notes .
    18




---



##### Table of Contents



NOTE 6. COMMITMENTS AND CONTINGENCIES
 Litigation
   Ephedra (Ephedrine Alkaloids).
 19




---



##### Table of Contents



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 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. Still pending are
plaintiffs claims of false advertising and misleading and deceptive trade practices. 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 Luke 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
 20




---



##### Table of Contents



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 violations of the Unfair Trade Practices and Consumer
Protection Law and unjust enrichment remain pending.
    
    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). Plaintiffs filed
this putative class action on or about July 25, 2002. The Amended Complaint, filed
thereafter on or about April 4, 2004, alleged claims for violations of the Illinois Consumer
Fraud Act, and unjust enrichment. The motion for class certification was stricken, but the
court afforded leave to the plaintiffs to file another motion. In September 2007, plaintiffs
filed a motion to dismiss for want of prosecution, citing the unreasonable and unexplainable
inaction of plaintiffs in the lawsuit. On October 4, 2007, the Court granted GNCIs motion,
and this case was dismissed for want of prosecution. Under Illinois law, Plaintiffs may
move to reinstate the case in November 2007.
    
    Santiago Guzman, individually, on behalf of all others similarly situated, and on behalf
of the general public v. General Nutrition Companies, Inc.(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.
  Class Action Settlement.
 21




---



##### Table of Contents



Franklin Publications.
 Wage and Hour Claim.
 California Wage and Break Claim
 22




---



##### Table of Contents



Contingencies
  NOTE 7. STOCK-BASED COMPENSATION PLANS
 Stock Options
   WeightedAverage
    
    
    AggregateTotal Options
    
    
    Exercise Price
    
    
    Intrinsic Value(in thousands)PredecessorOutstanding at December 31, 2006
    
    
    4,812,836
    
    
    $
    3.65
    
    
    $
    41,123Cancellation at March 15, 2007
    
    
    (4,812,836
    )Outstanding at March 15, 2007
    
    
    SuccessorGranted
    
    
    7,347,934
    
    
    $
    6.25Forfeited
    
    
    (350,800
    )Outstanding at September 30, 2007
    
    
    6,997,134
    
    
    $
    6.25Exercisable at September 30, 2007
    
    
    
    
    
    $
    
    
    
    $
    
   23




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##### Table of Contents



September 30,2007(unaudited)Dividend yield
    
    
    0.00
    %Expected option life
    
    7 yearsVolatility factor percentage of market price
    
    
    23.00
    %Discount rate
    
    
    4.38
    %
  Predecessor
   NOTE 8. SEGMENTS
  24




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##### Table of Contents



Successor
    
    
    
    Predecessor
    
    
    Successor
    
    
    
    PredecessorNine MonthsMarch 16 -
    
    
    
    January 1 -
    
    
    ended SeptemberThree Months ended September 30,
    
    
    September 30,
    
    
    
    March 15,
    
    
    30,2007
    
    
    
    2006
    
    
    2007
    
    
    
    2007
    
    
    2006(unaudited)(in thousands)Revenue:Retail
    
    $
    289,479
    
    
    
    $
    274,156
    
    
    $
    630,719
    
    
    
    $
    259,313
    
    
    $
    853,806Franchise
    
    
    65,707
    
    
    
    
    60,727
    
    
    
    137,224
    
    
    
    
    47,237
    
    
    
    180,341Manufacturing/Wholesale:Intersegment (1)
    
    
    40,321
    
    
    
    
    44,770
    
    
    
    88,220
    
    
    
    
    35,477
    
    
    
    130,500Third Party
    
    
    40,109
    
    
    
    
    32,852
    
    
    
    78,911
    
    
    
    
    23,279
    
    
    
    103,252Sub total Manufacturing/Wholesale
    
    
    80,430
    
    
    
    
    77,622
    
    
    
    167,131
    
    
    
    
    58,756
    
    
    
    233,752Sub total segment revenues
    
    
    435,616
    
    
    
    
    412,505
    
    
    
    935,074
    
    
    
    
    365,306
    
    
    
    1,267,899Intersegment elimination (1)
    
    
    (40,321
    )
    
    
    
    (44,770
    )
    
    
    (88,220
    )
    
    
    
    (35,477
    )
    
    
    (130,500
    )Total revenue
    
    $
    395,295
    
    
    
    $
    367,735
    
    
    $
    846,854
    
    
    
    $
    329,829
    
    
    $
    1,137,399
 
 (1)
    
    Intersegment revenues are eliminated from consolidated revenue. Operating income (loss):Retail
    
    $
    32,145
    
    
    
    $
    31,012
    
    
    $
    70,974
    
    
    
    $
    28,249
    
    
    $
    99,921Franchise
    
    
    20,290
    
    
    
    
    17,213
    
    
    
    38,724
    
    
    
    
    14,518
    
    
    
    48,311Manufacturing/Wholesale
    
    
    10,561
    
    
    
    
    14,279
    
    
    
    23,677
    
    
    
    
    10,267
    
    
    
    38,789Unallocated corporate and other (costs) income:Warehousing and distribution costs
    
    
    (12,850
    )
    
    
    
    (12,644
    )
    
    
    (27,402
    )
    
    
    
    (10,667
    )
    
    
    (37,965
    )Corporate costs
    
    
    (15,723
    )
    
    
    
    (16,946
    )
    
    
    (34,437
    )
    
    
    
    (26,739
    )
    
    
    (57,166
    )Merger-related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,603
    )
    
    
    Other (expense) income
    
    
    
    
    
    
    
    (1,078
    )
    
    
    
    
    
    
    
    
    
    
    
    (1,078
    )Sub total unallocated corporate and
other (costs) income
    
    
    (28,573
    )
    
    
    
    (30,668
    )
    
    
    (61,839
    )
    
    
    
    (72,009
    )
    
    
    (96,209
    )Total operating income (loss)
    
    $
    34,423
    
    
    
    $
    31,836
    
    
    $
    71,536
    
    
    
    $
    (18,975
    )
    
    $
    90,812
 September 30,
    
    
    
    December 31,2007
    
    
    
    2006(in thousands)(unaudited)Total assets:Retail
    
    $
    1,217,270
    
    
    
    $
    485,153Franchise
    
    
    483,459
    
    
    
    
    275,530Manufacturing / Wholesale
    
    
    424,006
    
    
    
    
    133,899Corporate / Other
    
    
    106,977
    
    
    
    
    74,203Total assets
    
    $
    2,231,712
    
    
    
    $
    968,785
 25




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##### Table of Contents



NOTE 9. SUPPLEMENTAL GUARANTOR INFORMATION
   26




---



##### Table of Contents



Supplemental Condensed Consolidating Balance Sheets
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorSeptember 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    18,783
    
    
    $
    2,496
    
    
    $
    
    
    
    $
    21,279Receivables, net
    
    
    
    
    
    
    86,061
    
    
    
    271
    
    
    
    
    
    
    
    86,332Intercompany receivables
    
    
    
    
    
    
    114,306
    
    
    
    
    
    
    
    (114,306
    )
    
    
    Inventories, net
    
    
    
    
    
    
    304,195
    
    
    
    20,440
    
    
    
    
    
    
    
    324,635Other current assets
    
    
    20,207
    
    
    
    24,448
    
    
    
    2,903
    
    
    
    
    
    
    
    47,558Total current assets
    
    
    20,207
    
    
    
    547,793
    
    
    
    26,110
    
    
    
    (114,306
    )
    
    
    479,804Goodwill
    
    
    
    
    
    
    622,845
    
    
    
    313
    
    
    
    
    
    
    
    623,158Brands
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    720,000Property, plant and equipment, net
    
    
    
    
    
    
    163,703
    
    
    
    24,111
    
    
    
    
    
    
    
    187,814Investment in subsidiaries
    
    
    1,757,179
    
    
    
    9,925
    
    
    
    
    
    
    
    (1,767,104
    )
    
    
    Other assets
    
    
    28,472
    
    
    
    201,245
    
    
    
    
    
    
    
    (8,781
    )
    
    
    220,936Total assets
    
    $
    1,805,858
    
    
    $
    2,265,511
    
    
    $
    50,534
    
    
    $
    (1,890,191
    )
    
    $
    2,231,712Current liabilitiesCurrent liabilities
    
    $
    24,827
    
    
    $
    191,152
    
    
    $
    9,874
    
    
    $
    
    
    
    $
    225,853Intercompany payables
    
    
    101,430
    
    
    
    
    
    
    
    12,876
    
    
    
    (114,306
    )
    
    
    Total current liabilities
    
    
    126,257
    
    
    
    191,152
    
    
    
    22,750
    
    
    
    (114,306
    )
    
    
    225,853Long-term debt
    
    
    1,072,041
    
    
    
    
    
    
    
    17,666
    
    
    
    (8,781
    )
    
    
    1,080,926Deferred tax liabilities
    
    
    514
    
    
    
    263,121
    
    
    
    
    
    
    
    
    
    
    
    263,635Other long-term liabilities
    
    
    
    
    
    
    54,059
    
    
    
    193
    
    
    
    
    
    
    
    54,252Total liabilities
    
    
    1,198,812
    
    
    
    508,332
    
    
    
    40,609
    
    
    
    (123,087
    )
    
    
    1,624,666Total stockholders equity (deficit)
    
    
    607,046
    
    
    
    1,757,179
    
    
    
    9,925
    
    
    
    (1,767,104
    )
    
    
    607,046Total liabilities and stockholders
equity (deficit)
    
    $
    1,805,858
    
    
    $
    2,265,511
    
    
    $
    50,534
    
    
    $
    (1,890,191
    )
    
    $
    2,231,712
 27




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##### Table of Contents



Supplemental Condensed Consolidating Balance Sheets
 Predecessor
    
    
    
    
    
    Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorDecember 31, 2006
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    20,469
    
    
    $
    3,611
    
    
    $
    
    
    
    $
    24,080Receivables, net
    
    
    3,636
    
    
    
    71,053
    
    
    
    138
    
    
    
    
    
    
    
    74,827Intercompany receivables
    
    
    
    
    
    
    71,585
    
    
    
    
    
    
    
    (71,585
    )
    
    
    Inventories, net
    
    
    
    
    
    
    304,340
    
    
    
    15,042
    
    
    
    
    
    
    
    319,382Other current assets
    
    
    213
    
    
    
    42,231
    
    
    
    4,192
    
    
    
    
    
    
    
    46,636Total current assets
    
    
    3,849
    
    
    
    509,678
    
    
    
    22,983
    
    
    
    (71,585
    )
    
    
    464,925Goodwill
    
    
    
    
    
    
    80,592
    
    
    
    430
    
    
    
    
    
    
    
    81,022Brands
    
    
    
    
    
    
    209,000
    
    
    
    3,000
    
    
    
    
    
    
    
    212,000Property, plant and equipment, net
    
    
    
    
    
    
    148,948
    
    
    
    19,760
    
    
    
    
    
    
    
    168,708Investment in subsidiaries
    
    
    784,757
    
    
    
    7,525
    
    
    
    
    
    
    
    (792,282
    )
    
    
    Other assets
    
    
    12,475
    
    
    
    38,435
    
    
    
    
    
    
    
    (8,780
    )
    
    
    42,130Total assets
    
    $
    801,081
    
    
    $
    994,178
    
    
    $
    46,173
    
    
    $
    (872,647
    )
    
    $
    968,785Current
liabilitiesCurrent liabilities
    
    $
    4,421
    
    
    $
    198,044
    
    
    $
    12,884
    
    
    $
    
    
    
    $
    215,349Intercompany payables
    
    
    64,609
    
    
    
    
    
    
    
    6,976
    
    
    
    (71,585
    )
    
    
    Total current liabilities
    
    
    69,030
    
    
    
    198,044
    
    
    
    19,860
    
    
    
    (71,585
    )
    
    
    215,349Long-term debt
    
    
    419,720
    
    
    
    
    
    
    
    18,651
    
    
    
    (8,780
    )
    
    
    429,591Other long-term liabilities
    
    
    
    
    
    
    11,377
    
    
    
    137
    
    
    
    
    
    
    
    11,514Total liabilities
    
    
    488,750
    
    
    
    209,421
    
    
    
    38,648
    
    
    
    (80,365
    )
    
    
    656,454Total stockholders equity (deficit)
    
    
    312,331
    
    
    
    784,757
    
    
    
    7,525
    
    
    
    (792,282
    )
    
    
    312,331Total liabilities and stockholders
equity (deficit)
    
    $
    801,081
    
    
    $
    994,178
    
    
    $
    46,173
    
    
    $
    (872,647
    )
    
    $
    968,785
 28




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##### Table of Contents



Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended September 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    374,788
    
    
    $
    23,434
    
    
    $
    (2,927
    )
    
    $
    395,295Cost of sales, including costs
of warehousing,
distribution and occupancy
    
    
    
    
    
    
    250,564
    
    
    
    16,923
    
    
    
    (2,927
    )
    
    
    264,560Gross profit
    
    
    
    
    
    
    124,224
    
    
    
    6,511
    
    
    
    
    
    
    
    130,735Compensation and related benefits
    
    
    
    
    
    
    58,144
    
    
    
    3,658
    
    
    
    
    
    
    
    61,802Advertising and promotion
    
    
    
    
    
    
    13,242
    
    
    
    131
    
    
    
    
    
    
    
    13,373Other
selling, general and administrative
    
    
    467
    
    
    
    20,899
    
    
    
    (27
    )
    
    
    
    
    
    
    21,339Subsidiary (income) expense
    
    
    (6,799
    )
    
    
    (1,728
    )
    
    
    
    
    
    
    8,527
    
    
    
    Other (income) expense
    
    
    
    
    
    
    
    
    
    
    (202
    )
    
    
    
    
    
    
    (202
    )Operating income (loss)
    
    
    6,332
    
    
    
    33,667
    
    
    
    2,951
    
    
    
    (8,527
    )
    
    
    34,423Interest expense, net
    
    
    996
    
    
    
    22,459
    
    
    
    294
    
    
    
    
    
    
    
    23,749Income (loss) before income taxes
    
    
    5,336
    
    
    
    11,208
    
    
    
    2,657
    
    
    
    (8,527
    )
    
    
    10,674Income tax (benefit) expense
    
    
    (797
    )
    
    
    4,409
    
    
    
    929
    
    
    
    
    
    
    
    4,541Net income (loss)
    
    $
    6,133
    
    
    $
    6,799
    
    
    $
    1,728
    
    
    $
    (8,527
    )
    
    $
    6,133
 Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorPeriod from March 16, 2007 to September 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    803,725
    
    
    $
    49,938
    
    
    $
    (6,809
    )
    
    $
    846,854Cost of sales, including costs
of warehousing,
distribution and occupancy
    
    
    
    
    
    
    538,584
    
    
    
    36,016
    
    
    
    (6,809
    )
    
    
    567,791Gross profit
    
    
    
    
    
    
    265,141
    
    
    
    13,922
    
    
    
    
    
    
    
    279,063Compensation and related benefits
    
    
    
    
    
    
    124,577
    
    
    
    7,706
    
    
    
    
    
    
    
    132,283Advertising and promotion
    
    
    
    
    
    
    27,535
    
    
    
    350
    
    
    
    
    
    
    
    27,885Other
selling, general and administrative
    
    
    854
    
    
    
    46,072
    
    
    
    765
    
    
    
    
    
    
    
    47,691Subsidiary (income) expense
    
    
    (16,030
    )
    
    
    (3,069
    )
    
    
    
    
    
    
    19,099
    
    
    
    Other (income) expense
    
    
    
    
    
    
    
    
    
    
    (332
    )
    
    
    
    
    
    
    (332
    )Operating income (loss)
    
    
    15,176
    
    
    
    70,026
    
    
    
    5,433
    
    
    
    (19,099
    )
    
    
    71,536Interest expense, net
    
    
    6,160
    
    
    
    44,947
    
    
    
    514
    
    
    
    
    
    
    
    51,621Income (loss) before income taxes
    
    
    9,016
    
    
    
    25,079
    
    
    
    4,919
    
    
    
    (19,099
    )
    
    
    19,915Income tax (benefit) expense
    
    
    (2,720
    )
    
    
    9,049
    
    
    
    1,850
    
    
    
    
    
    
    
    8,179Net income (loss)
    
    $
    11,736
    
    
    $
    16,030
    
    
    $
    3,069
    
    
    $
    (19,099
    )
    
    $
    11,736
 29




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##### Table of Contents



Supplemental Condensed Consolidating Statements of Operations
 Combined
    
    
    CombinedPredecessor
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorPeriod ended March 15, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(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
    )
 30




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##### Table of Contents



Supplemental Condensed Consolidating Statements of Operations
 Predecessor
    
    
    
    
    
    Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorThree months ended September 30, 2006
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    348,570
    
    
    $
    21,102
    
    
    $
    (1,937
    )
    
    $
    367,735Cost of sales, including costs
of warehousing,
distribution and occupancy
    
    
    
    
    
    
    227,815
    
    
    
    15,373
    
    
    
    (1,937
    )
    
    
    241,251Gross profit
    
    
    
    
    
    
    120,755
    
    
    
    5,729
    
    
    
    
    
    
    
    126,484Compensation and related benefits
    
    
    
    
    
    
    57,436
    
    
    
    3,395
    
    
    
    
    
    
    
    60,831Advertising and promotion
    
    
    
    
    
    
    10,836
    
    
    
    146
    
    
    
    
    
    
    
    10,982Other
selling, general and administrative
    
    
    490
    
    
    
    20,886
    
    
    
    384
    
    
    
    
    
    
    
    21,760Subsidiary (income) expense
    
    
    (14,716
    )
    
    
    28
    
    
    
    
    
    
    
    14,688
    
    
    
    Other (income) expense
    
    
    
    
    
    
    (6
    )
    
    
    1,081
    
    
    
    
    
    
    
    1,075Operating income (loss)
    
    
    14,226
    
    
    
    31,575
    
    
    
    723
    
    
    
    (14,688
    )
    
    
    31,836Interest expense, net
    
    
    757
    
    
    
    8,598
    
    
    
    332
    
    
    
    
    
    
    
    9,687Income (loss) before income taxes
    
    
    13,469
    
    
    
    22,977
    
    
    
    391
    
    
    
    (14,688
    )
    
    
    22,149Income tax (benefit) expense
    
    
    (463
    )
    
    
    8,261
    
    
    
    419
    
    
    
    
    
    
    
    8,217Net income (loss)
    
    $
    13,932
    
    
    $
    14,716
    
    
    $
    (28
    )
    
    $
    (14,688
    )
    
    $
    13,932
 Supplemental Condensed Consolidating Statements of Operations
 Predecessor
    
    
    
    
    
    Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorNine months ended September 30, 2006
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(unaudited)(in thousands)Revenue
    
    $
    
    
    
    $
    1,081,953
    
    
    $
    63,309
    
    
    $
    (7,863
    )
    
    $
    1,137,399Cost of sales, including costs
of warehousing,
distribution and occupancy
    
    
    
    
    
    
    713,598
    
    
    
    45,716
    
    
    
    (7,863
    )
    
    
    751,451Gross profit
    
    
    
    
    
    
    368,355
    
    
    
    17,593
    
    
    
    
    
    
    
    385,948Compensation and related benefits
    
    
    
    
    
    
    177,269
    
    
    
    10,031
    
    
    
    
    
    
    
    187,300Advertising and promotion
    
    
    
    
    
    
    40,798
    
    
    
    539
    
    
    
    
    
    
    
    41,337Other
selling, general and administrative
    
    
    2,000
    
    
    
    62,894
    
    
    
    1,232
    
    
    
    
    
    
    
    66,126Subsidiary (income) expense
    
    
    (41,238
    )
    
    
    (2,767
    )
    
    
    
    
    
    
    44,005
    
    
    
    Other (income) expense
    
    
    
    
    
    
    (19
    )
    
    
    392
    
    
    
    
    
    
    
    373Operating income (loss)
    
    
    39,238
    
    
    
    90,180
    
    
    
    5,399
    
    
    
    (44,005
    )
    
    
    90,812Interest expense, net
    
    
    2,234
    
    
    
    26,203
    
    
    
    1,047
    
    
    
    
    
    
    
    29,484Income (loss) before income taxes
    
    
    37,004
    
    
    
    63,977
    
    
    
    4,352
    
    
    
    (44,005
    )
    
    
    61,328Income tax (benefit) expense
    
    
    (1,571
    )
    
    
    22,739
    
    
    
    1,585
    
    
    
    
    
    
    
    22,753Net income (loss)
    
    $
    38,575
    
    
    $
    41,238
    
    
    $
    2,767
    
    
    $
    (44,005
    )
    
    $
    38,575
 31




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##### Table of Contents



Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedSuccessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorPeriod from March 16, 2007 to September 30, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
    
    $
    (730
    )
    
    $
    42,665
    
    
    $
    3,303
    
    
    $
    45,238CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (16,851
    )
    
    
    (2,311
    )
    
    
    (19,162
    )Investment/distribution
    
    
    20,113
    
    
    
    (20,113
    )
    
    
    
    
    
    
    Acquisition of the Company
    
    
    (1,624,732
    )
    
    
    
    
    
    
    
    
    
    
    (1,624,732
    )Other investing
    
    
    
    
    
    
    (264
    )
    
    
    
    
    
    
    (264
    )Net cash provided by (used in) investing
activities
    
    
    (1,604,619
    )
    
    
    (37,228
    )
    
    
    (2,311
    )
    
    
    (1,644,158
    )CASH FLOWS FROM FINANCING ACTIVITIES:GNC Corporation investment in
General Nutrition Centers, Inc
    
    
    1,690
    
    
    
    
    
    
    
    
    
    
    
    1,690Issuance 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
    
    
    (28,944
    )
    
    
    
    
    
    
    
    
    
    
    (28,944
    )Other financing
    
    
    (1,688
    )
    
    
    5,787
    
    
    
    (651
    )
    
    
    3,448Net cash provided by (used in) financing
activities
    
    
    1,605,349
    
    
    
    5,787
    
    
    
    (651
    )
    
    
    1,610,485Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    202
    
    
    
    202Net increase in cash
    
    
    
    
    
    
    11,224
    
    
    
    543
    
    
    
    11,767Beginning balance, cash
    
    
    
    
    
    
    7,559
    
    
    
    1,953
    
    
    
    9,512Ending balance, cash
    
    $
    
    
    
    $
    18,783
    
    
    $
    2,496
    
    
    $
    21,279
 32




---



##### Table of Contents



Supplemental Condensed Consolidating Statements of Cash Flows
 Combined
    
    
    CombinedPredecessor
    
    Parent/
    
    
    Guarantor
    
    
    Non-GuarantorPeriod ended March 15, 2007
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(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
 33




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##### Table of Contents



Supplemental Condensed Consolidating Statements of Cash Flows
 Predecessor
    
    
    
    
    
    Combined
    
    
    CombinedParent/
    
    
    Guarantor
    
    
    Non-GuarantorNine months ended September 30, 2006
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated(unaudited)(in thousands)NET CASH PROVIDED BY OPERATING ACTIVITIES:
    
    $
    
    
    
    $
    65,270
    
    
    $
    3,585
    
    
    $
    68,855CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (14,828
    )
    
    
    (1,222
    )
    
    
    (16,050
    )Investment/distribution
    
    
    50,693
    
    
    
    (50,693
    )
    
    
    
    
    
    
    Other investing
    
    
    
    
    
    
    (591
    )
    
    
    
    
    
    
    (591
    )Net cash provided by (used in) investing activities
    
    
    50,693
    
    
    
    (66,112
    )
    
    
    (1,222
    )
    
    
    (16,641
    )CASH FLOWS FROM FINANCING ACTIVITIES:Decrease in GNC Corporation investment in
General Nutrition Centers, Inc
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    (23
    )Restricted payment made to GNC Corporation shareholders
    
    
    (49,934
    )
    
    
    
    
    
    
    
    
    
    
    (49,934
    )Payments on long-term debt
    
    
    (736
    )
    
    
    
    
    
    
    (814
    )
    
    
    (1,550
    )Other financing
    
    
    
    
    
    
    618
    
    
    
    
    
    
    
    618Net cash (used in) provided by financing activities
    
    
    (50,693
    )
    
    
    618
    
    
    
    (814
    )
    
    
    (50,889
    )Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    22Net (decrease) increase in cash
    
    
    
    
    
    
    (224
    )
    
    
    1,571
    
    
    
    1,347Beginning balance, cash
    
    
    
    
    
    
    83,143
    
    
    
    2,870
    
    
    
    86,013Ending balance, cash
    
    $
    
    
    
    $
    82,919
    
    
    $
    4,441
    
    
    $
    87,360
 NOTE 10. INCOME TAXES
     34




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##### Table of Contents



NOTE 11. RELATED PARTY TRANSACTIONS
  Management Services Agreement.
 Credit Facility.
  Management Service Fees.
 35




---



##### 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.
   36




---



##### 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 2006, 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.
 37




---



##### 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
  
    
    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.
  38




---



##### Table of Contents



Results of Operations
    39




---



##### Table of Contents



Results of Operations
 Successor
    
    
    Predecessor
    
    
    Combined
    
    
    PredecessorThree Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(unaudited)Revenues:Retail
    
    $
    289.4
    
    
    
    73.2
    %
    
    $
    274.1
    
    
    
    74.5
    %
    
    $
    890.0
    
    
    
    75.6
    %
    
    $
    853.8
    
    
    
    75.1
    %Franchise
    
    
    65.8
    
    
    
    16.7
    %
    
    
    60.7
    
    
    
    16.5
    %
    
    
    184.5
    
    
    
    15.7
    %
    
    
    180.3
    
    
    
    15.8
    %Manufacturing / Wholesale
    
    
    40.1
    
    
    
    10.1
    %
    
    
    32.9
    
    
    
    9.0
    %
    
    
    102.2
    
    
    
    8.7
    %
    
    
    103.3
    
    
    
    9.1
    %Total net revenues
    
    
    395.3
    
    
    
    100.0
    %
    
    
    367.7
    
    
    
    100.0
    %
    
    
    1,176.7
    
    
    
    100.0
    %
    
    
    1,137.4
    
    
    
    100.0
    %Operating expenses:Cost of sales, including warehousing,
distribution and occupancy costs
    
    
    264.6
    
    
    
    67.0
    %
    
    
    241.3
    
    
    
    65.6
    %
    
    
    780.0
    
    
    
    66.3
    %
    
    
    751.5
    
    
    
    66.1
    %Compensation and related benefits
    
    
    61.8
    
    
    
    15.6
    %
    
    
    60.8
    
    
    
    16.6
    %
    
    
    196.6
    
    
    
    16.7
    %
    
    
    187.3
    
    
    
    16.5
    %Advertising and promotion
    
    
    13.4
    
    
    
    3.4
    %
    
    
    11.0
    
    
    
    3.0
    %
    
    
    48.4
    
    
    
    4.1
    %
    
    
    41.3
    
    
    
    3.6
    %Other selling, general and administrative
expenses
    
    
    18.1
    
    
    
    4.6
    %
    
    
    20.2
    
    
    
    5.5
    %
    
    
    58.2
    
    
    
    4.9
    %
    
    
    62.6
    
    
    
    5.5
    %Amortization expense
    
    
    3.3
    
    
    
    0.8
    %
    
    
    1.5
    
    
    
    0.4
    %
    
    
    6.9
    
    
    
    0.6
    %
    
    
    3.5
    
    
    
    0.3
    %Foreign currency gain
    
    
    (0.2
    )
    
    
    -0.1
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (0.5
    )
    
    
    0.0
    %
    
    
    (0.7
    )
    
    
    -0.1
    %Other expense
    
    
    
    
    
    
    0.0
    %
    
    
    1.1
    
    
    
    0.3
    %
    
    
    34.6
    
    
    
    2.9
    %
    
    
    1.1
    
    
    
    0.1
    %Total operating expenses
    
    
    361.0
    
    
    
    91.3
    %
    
    
    335.9
    
    
    
    91.4
    %
    
    
    1,124.2
    
    
    
    95.5
    %
    
    
    1,046.6
    
    
    
    92.0
    %Operating income:Retail
    
    
    32.1
    
    
    
    8.1
    %
    
    
    31.0
    
    
    
    8.4
    %
    
    
    99.2
    
    
    
    8.5
    %
    
    
    99.9
    
    
    
    8.8
    %Franchise
    
    
    20.3
    
    
    
    5.1
    %
    
    
    17.2
    
    
    
    4.7
    %
    
    
    53.3
    
    
    
    4.5
    %
    
    
    48.3
    
    
    
    4.3
    %Manufacturing / Wholesale
    
    
    10.6
    
    
    
    2.7
    %
    
    
    14.2
    
    
    
    3.8
    %
    
    
    34.0
    
    
    
    2.9
    %
    
    
    38.8
    
    
    
    3.4
    %Unallocated corporate and other
(costs) income:Warehousing and distribution costs
    
    
    (12.9
    )
    
    
    -3.2
    %
    
    
    (12.6
    )
    
    
    -3.4
    %
    
    
    (38.1
    )
    
    
    -3.3
    %
    
    
    (37.9
    )
    
    
    -3.3
    %Corporate costs
    
    
    (15.7
    )
    
    
    -4.0
    %
    
    
    (16.9
    )
    
    
    -4.6
    %
    
    
    (61.2
    )
    
    
    -5.2
    %
    
    
    (57.2
    )
    
    
    -5.1
    %Merger-related costs
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (34.6
    )
    
    
    -2.9
    %
    
    
    
    
    
    
    0.0
    %Other expense (income)
    
    
    
    
    
    
    0.0
    %
    
    
    (1.1
    )
    
    
    -0.3
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (1.1
    )
    
    
    -0.1
    %Subtotal unallocated corporate and
other costs net
    
    
    (28.6
    )
    
    
    -7.2
    %
    
    
    (30.6
    )
    
    
    -8.3
    %
    
    
    (133.9
    )
    
    
    -11.4
    %
    
    
    (96.2
    )
    
    
    -8.5
    %Total operating income
    
    
    34.4
    
    
    
    8.7
    %
    
    
    31.8
    
    
    
    8.6
    %
    
    
    52.6
    
    
    
    4.5
    %
    
    
    90.8
    
    
    
    8.0
    %Interest expense, net
    
    
    23.8
    
    
    
    
    
    
    
    9.7
    
    
    
    
    
    
    
    94.7
    
    
    
    
    
    
    
    29.5Income (loss) before income taxes
    
    
    10.6
    
    
    
    
    
    
    
    22.1
    
    
    
    
    
    
    
    (42.1
    )
    
    
    
    
    
    
    61.3Income tax expense (benefit)
    
    
    4.5
    
    
    
    
    
    
    
    8.2
    
    
    
    
    
    
    
    (2.5
    )
    
    
    
    
    
    
    22.7Net income (loss)
    
    $
    6.1
    
    
    
    
    
    
    $
    13.9
    
    
    
    
    
    
    $
    (39.6
    )
    
    
    
    
    
    $
    38.6
 Note:
 40




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##### Table of Contents



Comparison of the Three Months Ended September 30, 2007 and 2006
 Revenues
  Retail. www.gnc.com
 Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
  Product costs.
 Warehousing and distribution costs.
 41




---



##### Table of Contents



Occupancy costs.
 Selling, General and Administrative (SG&A) Expenses
  Compensation and related benefits.
 Advertising and promotion.
 Other SG&A.
 Foreign Currency Gain
  Other Expense
  Operating Income
  Retail.
 42




---



##### Table of Contents



Franchise.
 Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 Other (Expense) Income.
 Interest Expense
  Income Tax Expense
  Net Income
  43




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##### Table of Contents



Comparison of the Nine months Ended September 30, 2007 and 2006
 Revenues
  Retail.
 Franchise.
 Manufacturing/Wholesale.
 Cost of Sales
  Product costs.
 44




---



##### Table of Contents



Warehousing and distribution costs.
 Occupancy costs.
 Selling, General and Administrative (SG&A) Expenses
  Compensation and related benefits.
 Advertising and promotion.
 Other SG&A.
 Other Expense
   45




---



##### Table of Contents



Foreign Currency Gain
  Operating Income
   Retail.
 Franchise.
 Manufacturing/Wholesale.
 Warehousing and Distribution Costs.
 Corporate Costs.
 Merger Related Costs.
  46




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##### Table of Contents



Interest Expense
  Income Tax Expense
  Net Income
  Liquidity and Capital Resources
    Predecessor
    
    Successor
    
    Combined
    
    PredecessorPeriod from
    
    Nine Months
    
    Nine MonthsPeriod ended
    
    March 16, 2007
    
    ended
    
    endedMarch 15,
    
    to September
    
    September 30,
    
    September 30,(Dollars in millions)
    
    2007
    
    30, 2007
    
    2007
    
    2006Cash (used in) provided by operating activities
    
    $
    (46.8
    )
    
    $
    45.2
    
    
    $
    (1.6
    )
    
    $
    68.9Cash used in investing activities
    
    $
    (6.2
    )
    
    $
    (1,644.2
    )
    
    $
    (1,650.4
    )
    
    $
    (16.6
    )Cash provided by (used in) financing activities
    
    $
    38.6
    
    
    $
    1,610.5
    
    
    $
    1,649.1
    
    
    $
    (50.9
    )
 47




---



##### Table of Contents



Cash Provided by Operating Activities
   Cash Used in Investing Activities
   Cash Used in Financing Activities
 Predecessor.
  Successor.
 $735.0 Million 2007 Senior Credit Facility
 48




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##### Table of Contents



Senior Toggle Notes
  49




---



##### Table of Contents



10.75% Senior Subordinated Notes
   Predecessor Debt
 Old Senior Credit Facility.
 50




---



##### Table of Contents



Senior Notes.
 Senior Subordinated Notes. 1 2
 Common and Preferred Stock.
 Contractual Obligations
  Off Balance Sheet Arrangements
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Effect of Inflation
  Critical Accounting Estimates
  Recently Issued Accounting Pronouncements
 .
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   Derivative
    
    Total Notional Amount
    
    Term
    
    Company Pays
    
    Counterparty 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
    %
  
 Item 4T. Controls and Procedures
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   Ephedra (Ephedrine Alkaloids).
 Pro-Hormone/Androstenedione Cases.
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
    
    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. Still pending are
plaintiffs claims of false advertising and misleading and deceptive trade practices. . 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 Luke 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 violations of the Unfair Trade Practices and Consumer
Protection Law and unjust enrichment remain pending.
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
    
    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). Plaintiffs filed
this putative class action on or about July 25, 2002. The Amended Complaint, filed
thereafter on or about April 4, 2004, alleged claims for violations of the Illinois Consumer
Fraud Act, and unjust enrichment. The motion for class certification was stricken, but the
court afforded leave to the plaintiffs to file another motion. In September 2007, plaintiffs
filed a motion to dismiss for want of prosecution, citing the unreasonable and unexplainable
inaction of plaintiffs in the lawsuit. On October 4, 2007, the Court granted GNCIs motion,
and this case was dismissed for want of prosecution. Under Illinois law, Plaintiffs may
move to reinstate the case in November 2007.
    
    Santiago Guzman, individually, on behalf of all others similarly situated, and on behalf
of the general public v. General Nutrition Companies, Inc.(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.
  Class Action Settlement.
 Franklin Publications.
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Wage and Hour Claim.
 California Wage and Break Claim
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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.
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
    
    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.
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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.
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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;
    
    increased costs in maintaining international franchise and marketing efforts;
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
    
    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.
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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.
   
    
    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.
  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 Senior 10.75%
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 Toggle Senior 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.
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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.
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Item 6. Exhibits.
 ExhibitNo.
    
    Description31.1
    
    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.
 
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SIGNATURES
  GENERAL NUTRITION CENTERS, INC.
(Registrant)November 9, 2007
    
    /s/ Joseph M. Fortunato

Joseph M. FortunatoPresident and Chief Executive Officer(principal executive officer)November 9, 2007
    
    /s/ Curtis J. Larrimer

Curtis J. LarrimerExecutive Vice President and
Chief Financial Officer(principal financial and accounting officer)
 68